**Securities and Exchange Commission**

** **

**Washington, D.C. 20549**

** **

**Form 20-F**

 

**(Mark One)**

**o****Registration Statement pursuant to Section 12(b)or (g) of the Securities Exchange Act of 1934**

 

**or**

 
| **ý****Annual Report pursuant to  Sections 13 or 15(d) of the Securities Exchange Act of 1934**                                                                                                                                     |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **o****Transition report pursuant  to Section 13 or 15(d) of the Securities Exchange Act of 1934**                                                                                                                                       |
| **for the transition period from                    to                ** |
|                                                                                                                                                                                                                                     |
| **For the fiscal year ended September 30, 2003**                                                                                                                                                                                         |
|                                                                                                                                                                                                                                     |
| **Commission file number 0-18262**                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                     |
| **Australia and New Zealand Banking Group Limited**                                                                                                                                                                                      |
| (Exact  name of registrant as specified in its charter)                                                                                                                                                                                  |
|                                                                                                                                                                                                                                     |
| **Victoria, Australia**                                                                                                                                                                                                                  |
| (Jurisdiction  of incorporation or organization)                                                                                                                                                                                         |
|                                                                                                                                                                                                                                     |
| **100 Queen Street, Melbourne, VICTORIA, 3000, AUSTRALIA**                                                                                                                                                                               |
| (Address  of principal executive offices)                                                                                                                                                                                                |
|                                                                                                                                                                                                                                     |
| Securities  registered or to be registered pursuant to Section 12(b) of the Act.                                                                                                                                                         |
|                                                                                                                                                                                                                                     |

 
| **Title of  each class**                                                                    |   | **Name of each exchange on which registered** |   |   |
|---------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|--------|
|                                                                                        |   |                                          |   |   |
| American Depositary Shares  each representing five ordinary shares                          |   | The New York Stock  Exchange, Inc.            |   |   |
|                                                                                        |   |                                          |   |   |
| American Depositary  Receipts  each representing four Preference shares                     |   | The New York Stock  Exchange, Inc.            |   |   |
|                                                                                        |   |                                          |   |   |
| Securities registered or to  be registered pursuant to Section 12 (g) of the Act.           |   | **None**                                      |
|                                                                                        |   |                                          |
| Securities for which there  is a reporting obligation pursuant to Section 15(d) of the Act. |   | **None**                                      |

 

Indicatethe number of outstanding shares of each of the issuer’s classes of capital orcommon stock as of the close of the period covered by the Annual Report.

 
| US$1,000 Preference Shares |   | 1,100,000     |   | fully paid |
|----------------------------|--------|---------------|--------|------------|
|                       |   |          |   |       |
| Ordinary Shares            |   | 1,521,686,560 |   | fully paid |
|                       |   |          |   |       |
| $100 Preference Shares     |   | 10,000,000    |   | fully paid |

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 
| Yes |   | ý |   | No |   | o |
|-----|--------|--------|--------|----|--------|---|

 

Indicate by check whichfinancial statement item the registrant has elected to follow.

 
| Item 17 |   | o |   | Item 18 |   | ý |
|---------|--------|---|--------|---------|--------|--------|

 

 

----

 

*Form 20-FCross Reference Index*

 
| **Part I**   |                                                                          |   |
|--------------|-------------------------------------------------------------------------------|--------|
| Item 1       | Identity of Directors,  Senior Management and Advisors                        |   |
| Item 2       | Offer Statistics and Expected  Timetable                                      |   |
| Item 3       | Key Information                                                               |   |
| Item 4       | Information on the Company                                                    |   |
| Item 5       | Operating and Financial Review and Prospects                                  |   |
| Item 6       | Directors, Senior Management and Employees                                    |   |
| Item 7       | Major Shareholders and Related Party Transactions                             |   |
| Item 8       | Financial Information                                                         |   |
| Item 9       | The Offer and Listing                                                         |   |
| Item 10      | Additional Information                                                        |   |
| Item 11      | Quantitative and Qualitative Disclosures about  Market Risk                   |   |
| Item 12      | Description of Securities  other than Equity Securities                       |   |
|         |                                                                          |   |
| **Part II**  |                                                                          |   |
| Item 13      | Defaults, Dividend Arrearages and Delinquencies                               |   |
| Item 14      | Material Modifications to the Rights of  Security Holders and use of Proceeds |   |
| Item 15      | Controls and Procedures                                                       |   |
| Item 16      | Reserved                                                                      |   |
|         |                                                                          |   |
| **Part III** |                                                                          |   |
| Item 17      | Financial Statements                                                          |   |
| Item 18      | Financial Statements                                                          |   |
| Item 19      | Exhibits                                                                      |   |
|         | Australia  and New Zealand Banking Group Limited Constitution                 |   |
|         | Director and Executive  Employment Contracts                                  |   |
|         | Subsidiaries                                                                  |   |
|         | 302 Certifications                                                            |   |
|         | 906 Certifications                                                            |   |
|         |                                                                          |   |
| Signatures   |                                                                          |   |

 

2

----

 

*Forward-LookingStatements*

** **

This Annual Report containscertain forward-looking statements, including statements regarding (i) economicand financial forecasts, (ii) anticipated implementation of certain controlsystems and programs, (iii) the expected outcomes of legal proceedings, and(iv) strategic priorities.  Suchforward-looking statements are not guarantees of future performance and involveknown and unknown risks, uncertainties and other factors, many of which arebeyond the control of Australia and New Zealand Banking Group Limited (the“Company”) (ABN 11 005 357 522), together with its subsidiaries (“ANZ”, “us”,“we”, “our”, or the “Group”), which may cause actual results to differmaterially from those expressed in the forward-looking statements contained inthis Annual Report.

 

For example, the economic andfinancial forecasts contained in this Annual Report will be affected bymovements in exchange rates and interest rates, which may vary significantlyfrom current levels, as well as by general economic conditions in each of ANZ’smajor markets.  Such variations maymaterially impact ANZ’s financial condition and results of operations.  The implementation of control systems andprograms will be dependent on such factors as ANZ’s ability to acquire ordevelop necessary technology and its ability to attract and retain qualifiedpersonnel.  The plans, strategies andobjectives of management will be subject to, among other things, governmentregulation, which may change at any time and over which ANZ has nocontrol.  In addition, ANZ will continueto be affected by general economic conditions in capital markets, thecompetitive environment in each of its markets and political and regulatorypolicies.  There can be no assurancethat actual outcomes will not differ materially from the forward-lookingstatements contained in this Annual Report. See “Summary of Material Risk Factors” on page 8.

 

3

----

 

*Currencyof Presentation, Exchange Rates and Certain Definitions*

 

**Currency ofPresentation**

 

The Company, together withits subsidiaries, publishes consolidated financial statements in Australiandollars.  In this Annual Report, unlessotherwise stated or the context otherwise requires, references to “US$”, “USD”and “US dollars” are to United States dollars and references to “$”, “AUD” and“A$” are to Australian dollars.  For theconvenience of the reader, this Annual Report contains translations of certainAustralian dollar amounts into US dollars at specified rates.  These translations should not be construedas representations that the Australian dollar amounts actually represent suchUS dollar amounts or could be converted into US dollars at the rateindicated.  Unless otherwise stated, thetranslations of Australian dollars into US dollars have been made at the rateof US$0.6797 = A$1.00, the Noon Buying Rate in New York City for cabletransfers in Australian dollars as certified for customs purposes by theFederal Reserve Bank of New York (the “Noon Buying Rate”) on September 30,2003.

 

**ExchangeRates**

 

For each of the periodsindicated, the high, low, average and period-end Noon Buying Rates forAustralian dollars were:

 
|            |   |      |   | **US$ per A$1.00** |   |        |   |      |   |
|-----------------|--------|-----------|--------|--------------------|--------|-------------|--------|-----------|--------|
| **Year ended**  |   | **High**  |   | **Low**            |   | **Average** |   | **Close** |   |
| 1999            |   | September |   | 0.6712             |   | 0.5887      |   | 0.6390    |   | 0.6528 |   |
| 2000            |   | September |   | 0.6687             |   | 0.5372      |   | 0.6032    |   | 0.5415 |   |
| 2001            |   | September |   | 0.5712             |   | 0.4828      |   | 0.5182    |   | 0.4946 |   |
| 2002            |   | September |   | 0.5748             |   | 0.4923      |   | 0.5329    |   | 0.5429 |   |
| 2003            |   | September |   | 0.6823             |   | 0.5422      |   | 0.6131    |   | 0.6797 |   |
| **Month ended** |   | June      |   | 0.6729             |   | 0.6564      |   | 0.6652    |   | 0.6713 |   |
|            |   | July      |   | 0.6823             |   | 0.6454      |   | 0.6607    |   | 0.6474 |   |
|            |   | August    |   | 0.6593             |   | 0.6390      |   | 0.6518    |   | 0.6490 |   |
|            |   | September |   | 0.6810             |   | 0.6395      |   | 0.6635    |   | 0.6797 |   |
|            |   | October   |   | 0.7077             |   | 0.6814      |   | 0.6948    |   | 0.7077 |   |
|            |   | November  |   | 0.7238             |   | 0.6986      |   | 0.7158    |   | 0.7236 |   |

 

The average is calculatedfrom the Noon Buying Rate on the last day of each month during the period.

 

On December 1, 2003, the NoonBuying Rate was US$0.7265 per A$1.00.

 

In 2003, 27% (2002: 28%) ofour gross revenue was derived from overseas operations and was denominatedprincipally in New Zealand dollars (“NZ$” or “NZD”), US dollars (“US$” or“USD”) and British pounds sterling (“£” or “GBP”).  Movements in foreign currencies against the Australian dollar cantherefore affect ANZ’s earnings through the restatement of overseas profits toAustralian dollars.  Based on exchangerates applied to convert overseas profits and losses from September 1999 toSeptember 2003, the Australian dollar moved against these currencies as follows(refer also Note 55 to the Financial Report):

 
| **Years ended September 30** |   | **2003** |   | **2002** |   | **2001** |   | **2000** |   | **1999** |   |
|------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
| NZ$                          |   | -7       | %      | -4       | %      | -1       | %      | +5       | %      | +4       | %      |
| US$                          |   | +15      | %      | +2       | %      | -14      | %      | -5       | %      | -1       | %      |
| £                       |   | +6       | %      | 0        | %      | -7       | %      | 0        | %      | 0        | %      |

 

We monitor our exposure torevenues, expenses and invested capital denominated in currencies other thanAustralian dollars.  These currencyexposures are hedged as considered necessary.

 

**CertainDefinitions**

 

Our fiscal year ends onSeptember 30.  As used throughout thisAnnual Report, unless otherwise stated or the context otherwise requires, thefiscal year ended September 30, 2003 is referred to as 2003, and other fiscalyears are referred to in a corresponding manner.  References to calendar years are identified as such.

 

4

----

 

*FINANCIAL REVIEW*

 

*Item 3**: Key Information*

 

The summary consolidatedbalance sheet date as of September 30, 2003 and 2002 and income statement datafor the fiscal years ended September 30, 2003, 2002 and 2001 have been derivedfrom the Group’s 2003 audited financial statements (the “FinancialReport”).  The Financial Report (asincluded in Item 18) has been audited by our independent auditors.  The balance sheet data as of September 30,2001, 2000 and 1999 and income statement data for the fiscal years endedSeptember 30, 2000 and 1999 have been derived from our audited consolidatedfinancial statements for the fiscal years ended September 30, 2001, 2000 and1999, which are not included in this document.

 

The financial statements referredto above have been prepared in accordance with Australian GAAP, which varies incertain respects from US GAAP.  See Note54 to the Financial Report.

 

Prior to 2001, abnormal itemswere reported separately. “Abnormal items” were defined as items of revenue orexpense which, although attributable to the ordinary operations of the businessentity, were considered to be abnormal by reason of their size and/or effect onthe results of the business entity for the period.  Since 2000, however, under Australian GAAP, abnormal items arenot allowed to be disclosed separately and we have presented prior periodsaccordingly.  In 2000, the followingabnormals were presented separately: abnormal income of $1,207 million, abnormalexpenses of ($986 million) and abnormal tax expense of ($177 million).  We have re-presented prior periods in thetable below accordingly.

 

Amounts reported in USdollars have been translated at the September 30, 2003 Noon Buying Rate (referto page 4).

 

5

----

 
| **Years ended September 30 (1)**                                     |   | **2003** |   | **2003** |   | **2002** |   | **2001** |   | **2000** |   | **1999** |   |
|----------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
|                                                                 |   | **US$M** |   | **$M**   |   | **$M**   |   | **$M**   |   | **$M**   |   | **$M**   |   |
| **Summary of Consolidated Statement of Income**                      |   |     |   |     |   |     |   |     |   |     |   |     |   |
| **Australian GAAP**                                                  |   |     |   |     |   |     |   |     |   |     |   |     |   |
|                                                                 |   |     |   |     |   |     |   |     |   |     |   |     |   |
| Interest  income                                                     |   | 6,943    |   | 10,215   |   | 9,037    |   | 10,251   |   | 10,241   |   | 8,684    |   |
| Interest  expense                                                    |   | (4,013   | )      | (5,904   | )      | (5,019   | )      | (6,418   | )      | (6,440   | )      | (5,029   | )      |
| Net  interest income                                                 |   | 2,930    |   | 4,311    |   | 4,018    |   | 3,833    |   | 3,801    |   | 3,655    |   |
| Allowance  for loan losses (2)                                       |   | (417     | )      | (614     | )      | (860     | )      | (531     | )      | (502     | )      | (510     | )      |
| Net  interest income after allowance for loan losses                 |   | 2,513    |   | 3,697    |   | 3,158    |   | 3,302    |   | 3,299    |   | 3,145    |   |
| Non-interest  income                                                 |   | 1,909    |   | 2,808    |   | 2,970    |   | 2,573    |   | 3,790    |   | 2,377    |   |
| Other  operating expenses                                            |   | (2,194   | )      | (3,228   | )      | (2,905   | )      | (3,092   | )      | (4,300   | )      | (3,300   | )      |
| Operating  profit before income tax                                  |   | 2,228    |   | 3,277    |   | 3,223    |   | 2,783    |   | 2,789    |   | 2,222    |   |
| Income  tax expense attributable to operating profit                 |   | (629     | )      | (926     | )      | (898     | )      | (911     | )      | (1,040   | )      | (736     | )      |
| Operating  profit after income tax                                   |   | 1,599    |   | 2,351    |   | 2,325    |   | 1,872    |   | 1,749    |   | 1,486    |   |
| Outside  equity interests                                            |   | (2       | )      | (3       | )      | (3       | )      | (2       | )      | (2       | )      | (6       | )      |
| Operating  profit after income tax                                   |   | 1,597    |   | 2,348    |   | 2,322    |   | 1,870    |   | 1,747    |   | 1,480    |   |
| Non-interest  income as a % of operating income(3)                   |   | 39.4     | %      | 39.4     | %      | 42.5     | %      | 40.5     | %      | 49.9     | %      | 39.4     | %      |
| Dividends  paid / provided (4)                                       |   | 436      |   | 641      |   | 1,252    |   | 1,062    |   | 941      |   | 814      |   |
| Per  fully paid ordinary share:                                      |   |     |   |     |   |     |   |     |   |     |   |     |   |
| Operating  profit after income tax (5)                               |   | $        | 1.01   |     | $      | 1.48     |   | $        | 1.47   |     | $      | 1.17     |   | $ | 1.07 |   | $ | 0.91 |   |
| Dividends                                                            |   | $        | 0.65   |     | $      | 0.95     |   | $        | 0.85   |     | $      | 0.73     |   | $ | 0.64 |   | $ | 0.56 |   |
| Dividends  - US$                                                     |   |     |   | US$      | 0.65   |     | US$    | 0.46     |   | US$      | 0.36   |     | US$    | 0.35 |   | US$ | 0.37 |   |
| Dividends  per ADR - US$                                             |   |     |   | US$      | 3.23   |     | US$    | 2.31     |   | US$      | 1.80   |     | US$    | 1.75 |   | US$ | 1.85 |   |
| **Adjusted in accordance with US GAAP:**                             |   |     |   |     |   |     |   |     |   |     |   |     |   |
| Operating  profit after income tax                                   |   | 1,618    |   | 2,380    |   | 2,097    |   | 1,796    |   | 1,940    |   | 1,410    |   |
| Operating  profit after income tax per share (5)                     |   | $        | 1.02   |     | $      | 1.50     |   | $        | 1.32   |     | $      | 1.12     |   | $ | 1.19 |   | $ | 0.86 |   |
| **Continuing Operations:**(6)                                        |   |     |   |     |   |     |   |     |   |     |   |     |   |
| Total  income                                                        |   | 8,852    |   | 13,023   |   | 12,007   |   | 12,855   |   | 11,883   |   | 10,017   |   |
| Operating  profit after income tax                                   |   | 1,597    |   | 2,348    |   | 2,322    |   | 1,882    |   | 1,594    |   | 1,365    |   |
| Operating  profit after income tax per fully paid ordinary share (5) |   | $        | 1.01   |     | $      | 1.48     |   | $        | 1.47   |     | $      | 1.18     |   | $ | 0.97 |   | $ | 0.83 |   |

 

----

(1)   In millions, except per share amount and ratios

(2)   The allowance for loan loss charge represents the economic lossprovision charge (refer page 41)

(3)   Operating income is the sum of net interest income andnon-interest income

(4)          Excludes preference share dividends and dividendstaken under the bonus option plan.  Thefinal dividend for 2003 of $777 million has not been provided for at September30, 2003 due to a change in Australian Accounting Standards on recognition ofdividends.

(5)          Amounts are based on weighted average numberof ordinary shares outstanding, 2003: 1,514.2 million, 2002: 1,496.9 million,2001: 1,492.1 million, 2000: 1,540.3 million operating profit after income taxexcludes preference share dividends of 2003: $102 million, 2002: $117 million,2001: $119 million, 2000: $102 million, 1999: $72 million

(6)   Operations that will continue to contribute to the results of theANZ group in future periods

 

6

----

 
| **Years ended September 30**                                                                     |   | **2003** |   | **2003** |   | **2002** |   | **2001** |   | **2000** |   | **1999** |   |
|--------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
|                                                                                             |   | **US$M** |   | **$M**   |   | **$M**   |   | **$M**   |   | **$M**   |   | **$M**   |   |
|                                                                                             |   |     |   |     |   |     |   |     |   |     |   |     |   |
| **Summary of Consolidated Balance Sheets**                                                       |   |     |   |     |   |     |   |     |   |     |   |     |   |
| **Australian GAAP**                                                                              |   |     |   |     |   |     |   |     |   |     |   |     |   |
|                                                                                             |   |     |   |     |   |     |   |     |   |     |   |     |   |
| Shareholders’  equity (1)                                                                   |   | 9,359    |   | 13,770   |   | 11,448   |   | 10,538   |   | 9,795    |   | 9,403    |   |
| Subordinated  debt                                                                               |   | 3,827    |   | 5,630    |   | 3,445    |   | 3,831    |   | 3,687    |   | 3,221    |   |
| Bonds  and notes                                                                                 |   | 11,264   |   | 16,572   |   | 14,708   |   | 15,340   |   | 9,519    |   | 4,456    |   |
| Deposits  and other borrowings                                                                   |   | 84,619   |   | 124,494  |   | 113,297  |   | 104,874  |   | 100,602  |   | 96,559   |   |
| Gross  loans, advances and acceptances (net of unearned income) (2)                              |   | 111,920  |   | 164,661  |   | 147,937  |   | 139,867  |   | 133,879  |   | 121,223  |   |
| Specific  allowance for loan losses                                                              |   | (329     | )      | (484     | )      | (585     | )      | (500     | )      | (709     | )      | (907     | )      |
| General  allowance for loan losses                                                               |   | (1,043   | )      | (1,534   | )      | (1,496   | )      | (1,386   | )      | (1,373   | )      | (1,395   | )      |
| Net  loans, advances and acceptances                                                             |   | 110,548  |   | 162,643  |   | 145,856  |   | 137,981  |   | 131,797  |   | 118,921  |   |
| Total  assets                                                                                    |   | 132,943  |   | 195,591  |   | 183,105  |   | 185,493  |   | 172,467  |   | 152,801  |   |
| Net  assets                                                                                      |   | 9,371    |   | 13,787   |   | 11,465   |   | 10,551   |   | 9,807    |   | 9,429    |   |
| Risk  weighted assets                                                                            |   | 103,426  |   | 152,164  |   | 141,390  |   | 139,129  |   | 129,688  |   | 118,037  |   |
|                                                                                             |   |     |   |     |   |     |   |     |   |     |   |     |   |
| **Adjusted in accordance with US GAAP**                                                          |   |     |   |     |   |     |   |     |   |     |   |     |   |
| Shareholders’  equity (1)                                                                   |   | 8,714    |   | 12,820   |   | 12,139   |   | 11,207   |   | 10,517   |   | 9,889    |   |
| Total  assets                                                                                    |   | 132,698  |   | 195,230  |   | 183,035  |   | 185,573  |   | 171,858  |   | 152,415  |   |
|                                                                                             |   |     |   |     |   |     |   |     |   |     |   |     |   |
| **Summary of Consolidated Ratios**                                                               |   |     |   |     |   |     |   |     |   |     |   |     |   |
| **Australian GAAP**                                                                              |   |     |   |     |   |     |   |     |   |     |   |     |   |
| Operating  profit after income tax (1) as a percentage of:                                       |   |     |   |     |   |     |   |     |   |     |   |     |   |
| Average  total assets                                                                            |   |     |   | 1.2      | %      | 1.3      | %      | 1.1      | %      | 1.1      | %      | 1.0      | %      |
| Average  shareholders’ equity(1)                                                            |   |     |   | 20.6     | %      | 23.2     | %      | 20.2     | %      | 19.3     | %      | 17.6     | %      |
| Dividends  (3) to ordinary shareholders as a percentage of operating profit after income  tax    |   |     |   | 64.2     | %      | 57.8     | %      | 62.0     | %      | 59.1     | %      | 62.1     | %      |
| Average  shareholders’ equity as a percentage of average total assets(4)                    |   |     |   | 5.7      | %      | 5.3      | %      | 5.0      | %      | 5.3      | %      | 5.4      | %      |
| Capital  Adequacy ratios:                                                                        |   |     |   |     |   |     |   |     |   |     |   |     |   |
| Tier  1                                                                                          |   |     |   | 7.7      | %      | 7.9      | %      | 7.5      | %      | 7.4      | %      | 7.9      | %      |
| Tier  2                                                                                          |   |     |   | 4.0      | %      | 2.8      | %      | 3.2      | %      | 3.4      | %      | 3.3      | %      |
| Deductions  (5)                                                                                  |   |     |   | (0.6     | )%     | (1.2     | )%     | (0.4     | )%     | (0.6     | )%     | (0.5     | )%     |
| Total                                                                                            |   |     |   | 11.1     | %      | 9.5      | %      | 10.3     | %      | 10.2     | %      | 10.7     | %      |
| **Adjusted in accordance with US GAAP**                                                          |   |     |   |     |   |     |   |     |   |     |   |     |   |
| Operating  profit after income tax (1) as a percentage of:                                       |   |     |   |     |   |     |   |     |   |     |   |     |   |
| Average  total assets                                                                            |   |     |   | 1.2      | %      | 1.2      | %      | 1.0      | %      | 1.2      | %      | 0.9      | %      |
| Operating  profit (1) after income tax as a percentage of:                                       |   |     |   |     |   |     |   |     |   |     |   |     |   |
| Average  shareholders’ equity (1)                                                           |   |     |   | 20.8     | %      | 20.9     | %      | 18.2     | %      | 20.6     | %      | 15.8     | %      |
| Dividends  (6) to ordinary shareholders as a percentage of operating profit after income  tax(5) |   |     |   | 62.2     | %      | 63.2     | %      | 63.3     | %      | 51.2     | %      | 60.8     | %      |
| Average  shareholders’ equity (1) (5) as a percentage of average total assets               |   |     |   | 5.6      | %      | 5.3      | %      | 6.0      | %      | 5.4      | %      | 5.6      | %      |

 

----

(1)   Excludes outside equity interest

(2)          Our balance sheet shows loans and advances netof the specific and general allowances. For ease of presentation the gross amount is shown here

(3)          Includes proposed final dividend of $777million in 2003 not provided at September 30, 2003 following a change inAccounting Standards on recognition of dividends

(4)          Excludes preference shares

(5)          Deductions represent our investment in lifeinsurance, funds management, securitization activities and other banks of $920million (2002: $1,703 million, 2001: $604 million, 2000: $787 million, 1999:$584 million).  In 2003 the intangiblecomponents of investments is deducted from Tier 1 capital rather than fromtotal capital

(6)          Excludes dividends taken under the bonusoption plan.  Includes proposed finaldividend of $777 million in 2003 not provided at September 30, 2003 following achange in Accounting Standards on recognition of dividend.

 

7

----

 
| **Years ended September 30**                                                        |   | **2003**    |       | **2003**    |       | **2002**    |       | **2001**    |       | **2000**    |       | **1999**    |       |
|-------------------------------------------------------------------------------------|--------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
|                                                                                |   | **US$M**    |       | **$M**      |       | **$M**      |       | **$M**      |       | **$M**      |       | **$M**      |       |
|                                                                                |   |        |       |        |       |        |       |        |       |        |       |        |       |
| **Summary of credit quality data**                                                  |   |        |       |        |       |        |       |        |       |        |       |        |       |
| Gross  non-accrual loans (1)                                                        |   |        |       |        |       |        |       |        |       |        |       |        |       |
| Subject  to specific allowance for loan losses                                      |   | 621         |       | 913         |       | 1,072       |       | 940         |       | 1,046       |       | 1,288       |       |
| Without  specific allowance for loan losses                                         |   | 64          |       | 94          |       | 131         |       | 320         |       | 345         |       | 255         |       |
| **Total non-accrual loans**                                                         |   | **685**     | ** ** | **1,007**   | ** ** | **1,203**   | ** ** | **1,260**   | ** ** | **1,391**   | ** ** | **1,543**   | ** ** |
| Allowance  for loan losses                                                          |   |        |       |        |       |        |       |        |       |        |       |        |       |
| Specific  allowance (loans)                                                         |   | 328         |       | 482         |       | 575         |       | 490         |       | 692         |       | 886         |       |
| Specific  allowance (off-balance sheet commitments)                                 |   | 1           |       | 2           |       | 10          |       | 10          |       | 17          |       | 21          |       |
| General  allowance                                                                  |   | 1,043       |       | 1,534       |       | 1,496       |       | 1,386       |       | 1,373       |       | 1,395       |       |
| **Total allowance**                                                                 |   | **1,372**   | ** ** | **2,018**   | ** ** | **2,081**   | ** ** | **1,886**   | ** ** | **2,082**   | ** ** | **2,302**   | ** ** |
| Gross  loans, advances and acceptances (2)                                          |   |        |       |        |       |        |       |        |       |        |       |        |       |
| Gross  loans and advances (2) (3)                                                   |   | 102,963     |       | 151,483     |       | 134,141     |       | 125,543     |       | 118,397     |       | 106,365     |       |
| Acceptances                                                                         |   | 8,957       |       | 13,178      |       | 13,796      |       | 14,324      |       | 15,482      |       | 14,858      |       |
| **Total gross loans, advances and acceptances**                                     |   | **111,920** | ** ** | **164,661** | ** ** | **147,937** | ** ** | **139,867** | ** ** | **133,879** | ** ** | **121,223** | ** ** |
| Gross  non-accrual loans as a percentage of gross loans and advances                |   |        |       | 0.7         | %          | 0.9         | %          | 1.0         | %          | 1.2         | %          | 1.4         | %          |
| Gross  non-accrual loans as a percentage of gross loans, advances and acceptances   |   |        |       | 0.6         | %          | 0.8         | %          | 0.9         | %          | 1.0         | %          | 1.3         | %          |
| Specific  allowance for loan losses as a percentage of gross non-accrual loans (1): |   |        |       |        |       |        |       |        |       |        |       |        |       |
| Subject  to allowance                                                               |   |        |       | 52.8        | %          | 53.6        | %          | 52.1        | %          | 66.2        | %          | 68.8        | %          |
| Total  non-accrual loans                                                            |   |        |       | 47.9        | %          | 47.8        | %          | 38.9        | %          | 49.7        | %          | 57.4        | %          |
| Total  allowance for loan losses as a percentage of:                                |   |        |       |        |       |        |       |        |       |        |       |        |       |
| Gross  loans and advances (2)                                                       |   |        |       | 1.3         | %          | 1.6         | %          | 1.5         | %          | 1.8         | %          | 2.2         | %          |
| Gross  loans, advances and acceptances (2)                                          |   |        |       | 1.2         | %          | 1.4         | %          | 1.3         | %          | 1.6         | %          | 1.9         | %          |
| Risk  weighted assets                                                               |   |        |       | 1.3         | %          | 1.5         | %          | 1.4         | %          | 1.6         | %          | 2.0         | %          |

 

----

(1)          Excludes off-balance sheet commitments thathave been classified as unproductive of A$37 million (2002: A$44 million, 2001:A$31 million, 2000: A$56 million, 1999: A$70 million) net of an allowance ofA$2 million (2002: A$10 million, 2001: A$10 million, 2000: A$17 million, 1999:A$21 million) and restructured loans A$ nil (2002: A$1 million, 2001: A$1million, 2000: A$1 million, 1999: A$7 million).

(2)          Net of unearned income

(3)          The consolidated balance sheet shows loans andadvances net of the specific and general allowances.  For ease of presentation the gross amount is shown here.

 

*Summary ofMaterial Risk Factors*

 

The following describes someof the significant risks that could affect us. Additionally, some risks may be unknown to us and other risks, currentlybelieved to be immaterial, could turn out to be material.  All of these could materially adverselyaffect our business, profits, assets, liquidity and capital resources.  They should be considered in connection withany forward-looking statements in this annual report and the warning regardingforward-looking statements on page 3 of this annual report.

 

**RisksRelated to Our Business**

** **

**Changes ingeneral business and economic conditions may adversely impact our results**

 

As we conduct the majority ofour business in Australia and New Zealand, our performance is influencedby the level and cyclical nature of business activity in Australia and NewZealand, which, in turn is affected by both domestic and international economicand political events.

 

8

----

 

These eventsand conditions include short-term and long-term interest rates, inflation,monetary supply, fluctuations in both debt and equity capital markets, relative changesin foreign exchange rates and the strength of the Australian and New Zealandeconomies.  For example, a generaleconomic downturn, a downturn in the housing market, a decrease in immigration,an increase in unemployment, or other events that negatively impact householdand/or corporate incomes could decrease the demand for our loan and non-loanproducts and services and increase the number of customers who fail to payinterest or repay principal on their loans. Australian and New Zealand economic conditions may also be affected bygeo-political instability, including, among other factors, actual or potentialconflict and terrorism.  Our futureperformance may also be affected by the economic conditions of other regionswhere we conduct operations.

 

As a consequence of the NBNZacquisition described under “Recent Developments-Acquisition of The NationalBank of New Zealand”, we will have a considerably larger exposure to NewZealand economic conditions than we currently have.  In particular, the NBNZ acquisition will significantly increaseour exposure to the New Zealand housing market (particularly in Auckland) andthe New Zealand rural sector (particularly to the dairy industry).

 

**Changes infiscal and monetary policies may adversely impact our results**

 

The Reserve Bank of Australiaand the Reserve Bank of New Zealand regulate the supply of money and credit inAustralia and New Zealand (respectively). Their policies determine in large part the cost of funds to us forlending and investing and the return we will earn on those loans andinvestments.  Both of these impact ournet interest margin, and can materially affect the value of financialinstruments we hold, such as debt securities. The policies of the Reserve Bank of Australia and the Reserve Bank ofNew Zealand also can affect our borrowers, potentially increasing the risk thatthey may fail to repay their loans. Changes in Reserve Bank of Australia and Reserve Bank of New Zealandpolicies are hard to predict or anticipate.

 

**Regulatorychanges may adversely impact our results**

 

As we consist of regulatedentities which are deposit-taking institutions, we are regulated in Australia,New Zealand and in the other countries in which we have operations.  This regulation varies from country tocountry but generally is designed to protect depositors and the banking systemas a whole, not holders of our securities.

 

The Australian Government andits agencies, including APRA and the Reserve Bank of Australia, havesupervisory oversight of us and our failure to comply with laws, regulations orpolicies could result in sanctions by these regulatory agencies and causedamage to our reputation.

 

The New Zealand Governmentand its agencies, including the Reserve Bank of New Zealand, have supervisoryoversight of our New Zealand business. Our failure to comply with laws, regulations or policies could result insanctions by these regulatory agencies and cause damage to our reputation.  The Reserve Bank of New Zealand has approvedthe NBNZ acquisition subject to various ongoing regulatory and consentrequirements.  To the extent that theseregulatory and consent requirements limit our operations or flexibility theycould adversely affect our profitability and prospects.

 

In addition, these regulatoryagencies frequently review banking laws, regulations and policies for possiblechanges.  Changes to laws, regulationsor policies, including changes in interpretation or implementation of laws,regulations or policies, could affect us in substantial and unpredictableways.  These may include changingrequired levels of bank liquidity and capital adequacy, limiting the types offinancial services and products we may offer and/or increasing the ability ofnon-banks to offer competing financial services and products, as well aschanges to accounting standards, taxation laws and prudential regulatoryrequirements.

 

For example, in August 2002the Reserve Bank of Australia announced reforms to the Australian credit cardmarket, which include a new interchange standard (effective from the end ofOctober 2003) which will reduce the amount of interchange revenue received byus.  Although we estimate, based oncurrent projections, that the negative impact of these particular reforms willnot be material, in general it is difficult for us to predict the effect on ourfinancial condition or results of operations or that of our controlled entitiesof any potential legislation or impending regulations.

 

There is a risk that NewZealand may introduce similar credit card market reforms, with a New ZealandCommerce Commission inquiry into the market currently under way.  Given the uncertainty attached to theoutcome of this process, it is not possible to quantify the potential impact oncredit card profitability in New Zealand.

 

Further, the InternationalMonetary Fund is also about to commence an assessment of the New Zealandbanking industry, specifically focusing on the supervisory framework and therole of the Reserve Bank of New Zealand.  Any regulatory response to the review could impose additionalcosts on us.

 

9

----

 

We may also be required toundertake work to meet the principles laid out by the Basel Committee onBanking Supervision in respect of the proposed new Capital Accord (widely knownas Basel II).  However, at this stage itis not possible to quantify the required implications.

** **

**Competitionmay adversely impact our results**

 

The financial services sectorin which we operate is highly competitive and could become even morecompetitive, particularly in those segments that are considered to providehigher growth prospects.  Factorscontributing to this include industry deregulation, mergers, changes incustomers’ needs and preferences, entry of new participants, development of newdistribution and service methods and increased diversification of products bycompetitors.

 

For example, mergers betweenbanks and other types of financial services companies create entities which canoffer virtually any type of banking or financial service.  Also, technology has lowered barriers toentry and made it possible for non-banks to offer products and servicestraditionally provided by banks, such as automatic payment systems, mortgagesand credit cards.  In addition, banks indifferent jurisdictions are subject to different levels of regulation and somemay have lower cost structures.

 

The effect of the competitivemarket conditions in which we operate may have a material adverse effect on ourfinancial performance and position.

** **

**Applicationof and changes to accounting policies may adversely impact our results**

 

Our accounting policies andmethods are fundamental to how we record and report our financial position andresults of operations.  Our managementmust exercise judgment in selecting and applying many of these accountingpolicies and methods so that not only do they comply with generally acceptedaccounting principles but that they also reflect the most appropriate manner inwhich to record and report our financial position and results of operations.

 

In some cases, managementmust select an accounting policy or method from two or more alternatives, anyof which might be reasonable under the circumstances yet might result in usreporting materially different outcomes than would have been reported under adifferent alternative.

 

In July 2002, the FinancialReporting Council of Australia announced its formal support for Australia toadopt standards based on International Financial Reporting Standards (IFRS) forfinancial years beginning on or after January 1, 2005.  As a result, from January 1, 2005, theaccounting standards that apply to Australian reporting companies under theCorporations Act, such as us, will be based upon IFRS issued by the InternationalAccounting Standards Board.  It ispossible that the Australian Accounting Standards Board may allow adoption ofaccounting standards based on IFRS before that date.

 

We expect to adopt IFRS fromOctober 1, 2005.  It is currentlyexpected that comparatives will be required to be restated on initial adoptionof IFRS.

 

The final version of IFRSthat will be applicable to us are not yet available.  In particular, the International Accounting Standards Board hasyet to finalize the standard on recognition and measurement of financialinstruments.  Based on exposure draftsof this standard, adoption of IFRS may result in changes to accounting forhedges, changes in the calculation of the allowance for loan losses and thestatus of the general allowance for loan losses, securitization, recognition offee income and classification of hybrid equity instruments.

 

The final version of IFRS isalso expected to require impairment testing for goodwill, and to requireentities to cease amortization of goodwill.

 

All our financial informationdisclosed in this offering memorandum has been prepared in accordance withAustralian GAAP.  The differencesbetween Australian GAAP and IFRS, identified above, will potentially have asignificant effect on our financial position and performance.  The differences identified above should notbe taken as an exhaustive list of all the differences between Australian GAAPand IFRS.  No attempt has been made toidentify all disclosure, presentation or classification differences that wouldaffect the manner in which transactions or events are presented.

 

We have not quantified theeffects of the differences expected under IFRS.  Accordingly, there can be no assurance that our consolidatedfinancial performance or financial position (or both) would not besignificantly different if determined in accordance with IFRS.

 

The potential impacts on ourfinancial performance and financial position of the adoption of IFRS, includingsystem upgrades and other implementation costs which may be incurred, have notbeen quantified, as the actual impact will depend on the final standards andthe particular circumstances prevailing at the time of adoption.

 

10

----

 

**We aresubject to credit risk, which may adversely impact our results**

 

As a financial institution,we are exposed to the risks associated with extending credit to otherparties.  Less favorable business oreconomic conditions, whether generally or in a specific industry, could causecustomers or counterparties to experience adverse financial consequences,thereby exposing us to the increased risk that those customers orcounterparties will fail to honor the terms of their loans or agreements.

 

Credit risk arises from ourlending activities and the potential for loss arising from the failure ofcustomers or counterparties to meet their contractual obligations.  As a result, we will hold provisions tocover bad and doubtful debts.  Theamount of these provisions is determined by assessing, based on current information,the extent of credit risk within the current lending portfolio.  However, if the information upon which theassessment of risk proves to be inaccurate, the provisions made for loan lossmay be insufficient, which could have a material adverse effect on our resultsand operations.

 

In addition, in assessingwhether to extend credit or enter into other transactions with customers andcounterparties, we will rely on information furnished to us by or on behalf ofcustomers and counterparties, including financial statements and otherfinancial information.  We also may relyon representations of customers and counterparties as to the accuracy andcompleteness of that information and, with respect to financial statements, onreports of independent auditors.  Ourfinancial condition and results of operations could be negatively impacted tothe extent we rely on information or financial statements that are inaccurateor materially misleading.

 

Two areas that recentlyemerged as credit quality problems for us were the US power industry and theglobal telecommunications industry.  Wehave been adversely affected by exposure to a small number of single nameexposures in the US power industry and in the telecommunications industry.  Continued exposure to these and otherindustries could affect our results and operations.

 

As a consequence of the NBNZacquisition, we will have increased exposure to the New Zealand housing market(particularly in Auckland) and to the New Zealand rural sector (particularlythe dairy sector).

** **

**We aresubject to operating risk, which may adversely impact our results**

 

Operating risk relates to therisk of direct or indirect loss resulting from inadequate or failed internalprocesses, people and systems, or from external events which impact ouroperating business.  Operating riskincludes the risks arising from process error, fraud, systems failure, failureof security and physical protection systems, customer services, staff skillsand performance and product development and maintenance.  We are highly dependent on informationsystems and technology and there is a risk that these might fail.  From time to time, we will undertake majorprojects and there are operating risks in the design and implementation ofthese projects.  Further, our exposureto potential systemic events or failings in the international financialservices sector may also be a source of operating risk.

** **

**We aresubject to market risk (including foreign exchange risk) and liquidity risk,which may adversely impact our results**

 

Market risk relates to therisk of loss arising from changes in interest rates, foreign exchange rates,prices of commodities, debt securities and other financial contracts includingderivatives.  Losses arising from theserisks may have a material adverse effect on us.

 

We are also exposed toliquidity risk, which is the risk that we have insufficient funds and areunable to meet our payment obligations as they fall due, including obligationsto repay deposits and maturing wholesale debt.

** **

**Litigationand contingent liabilities may adversely impact our results**

 

There are outstanding courtproceedings, claims and possible claims against us, the aggregate amount ofwhich cannot readily be quantified. Legal advice has been obtained and, in the light of such advice,provisions as deemed necessary have been made and are disclosed in ourconsolidated financial statements.  Ifthese provisions prove inadequate, this may have a material adverse effect onour financial condition.  Known materialrisks relate to our exposures arising from the sale of ANZ Grindlays BankLimited and our private banking business in the United Kingdom and Jersey,together with ANZ Grindlays (Jersey) Holdings Limited and its controlledentities, or the Grindlays’ businesses, and contingent tax liabilities.

 

As part of the sale in July2000 of the Grindlays’ businesses to Standard Chartered Bank, we provided anumber of warranties and indemnities. Claims have been made by Standard Chartered Bank under certain of these warrantiesand indemnities.  A number of theseclaims have been resolved.  While weexpect that resolution of the residual outstanding matters will occur withinexisting provisions, we can give no assurance that there will not be an adverseoutcome.

 

11

----

 

In Australia, we are beingaudited by the Australian Taxation Office. The Australian Taxation Office is considering several issues includingthe tax treatment of certain lease assignments in 1991 and 1992 and, at ourrequest, the sale of the Grindlays’ businesses in 2000.  Based on external advice, we have assessedthe likely outcome of these issues. While we believe that we hold appropriate provisions, we can give noassurance that there will not be an adverse outcome.

 

Our due diligence inquiriesin respect of NBNZ have found that there are also a number of outstanding courtproceedings, claims and possible claims against NBNZ, the aggregate amount ofwhich cannot be readily quantified and which may not be covered by warrantiesand indemnities from Lloyds TSB.

 

The New Zealand InlandRevenue Department is currently undertaking an audit of all major banks in NewZealand in relation to structured finance arrangements.  No assessments against us or NBNZ have beenissued or suggested at this stage.  Thetiming and outcome of this audit is uncertain and there is a risk that this mayhave adverse influences for us.

** **

**Acquisitionrisk may adversely impact our results**

 

We regularly examine a rangeof corporate opportunities with a view to determining whether thoseopportunities will enhance our financial performance and position.

 

Any corporate opportunitythat we pursue could, for a variety of reasons, turn out to have a materialadverse effect on us.  The successfulimplementation of our corporate strategy will depend on a range of factorsincluding potential funding strategies and challenges associated withintegrating and adding value to a business which is acquired.

 

Our operating performance orcapital structure may also be affected by these corporate opportunities andthere is a risk that our credit rating may be placed on credit watch ordowngraded if these opportunities are pursued.

** **

**Integrationrisks resulting from our acquisition of NBNZ, including loss of revenue andcustomers, loss of key personnel and systems and technology risks, mayadversely impact our results**

 

We have undertaken detailedfinancial analysis of NBNZ and a detailed business analysis in order todetermine the attractiveness to us of NBNZ, and the NBNZ acquisition.  To the extent that the actual resultsachieved by NBNZ are lower than those indicated by our analysis, there is arisk that our future results and profitability could be adversely impacted.  This may occur for a number of reasons,including for example, if the anticipated combined revenue resulting from themerger of NBNZ with our New Zealand business is lower than expected or growthoccurs less quickly than expected.

 

It may not be possible tosuccessfully integrate our New Zealand business in a timely manner with that ofNBNZ or to realize the full cost savings and other economies of scaleanticipated.  The proposed NBNZacquisition involves the integration of businesses that have previouslyoperated independently, which will involve, among other things, integratingtechnology platforms, integrating personnel with diverse business backgroundsand combining different corporate and workplace policies, procedures andcultures.

 

The process of integratingoperations could, among other things, divert management’s attention from theactivities of one or more of the businesses, as well as interrupting businessmomentum, and could result in the loss of key personnel, any of which couldhave an adverse effect on our business, results of operations or financialcondition.

 

Key risks associated with theintegration include loss of revenue and customers, loss of key personnel andsystems/technology risks.

 

A key risk of the integrationof our New Zealand business with that of NBNZ is revenue and customer loss andour resulting loss of market shares. Some of the factors which may cause customer attrition are productchange, including alignment of product features; changes to credit riskassessments; brand changes and customer perceptions; corporate and institutionalcustomer limits on the amount of borrowing from any single financialinstitution; our ability to meet expected service levels; changes in ourbusiness culture, including perceived impact of change of ownership; andincreased competition activities.  Revenueand customer attrition may have a material adverse effect on our financialperformance and operations.

 

The business and financialperformance of NBNZ is dependent upon certain key senior managers.  The loss of key senior management could havean adverse effect on our business, results of operations or financialcondition.  After the completion of theNBNZ acquisition, we can provide no assurance regarding the potential loss ofNBNZ senior management.

 

As part of the NBNZacquisition, we propose to integrate different information technology platformsand back office functions.  Failure toadequately manage this integration could materially and adversely affect ourfinancial condition and results of operations.

 

12

----

 

It is also possible that wemay be unable to successfully communicate the rationale for the acquisition toour customers, investors, employees or suppliers.  If any of these groups fail to support the NBNZ acquisition, itcould adversely affect our financial condition and results of operations.  In particular, management of the customersof NBNZ and our New Zealand business will be extremely important in preservingand enhancing the financial performance of our New Zealand business.

 

We will incur substantialadditional expenses integrating NBNZ with our existing operations.  The total amount of the indirect integrationcosts of the acquisition are difficult to estimate and may be materiallydifferent from ANZ’s estimates.

 

See the section entitled“Recent Developments-Acquisition of The National Bank of New Zealand” forfurther information on the

integration of our operationswith those of NBNZ.

 

13

----

 

*COMPANY PROFILE*

* *

*Item 4**: Information on theCompany*

 

**Overview**

 

ANZ is one of the four majorbanking groups headquartered in Australia. Our Australian operations began in 1835 and our New Zealand operationsbegan in 1840.  We were incorporated inthe State of Victoria, Australia, and have our principal executive officelocated at 100 Queen Street, Melbourne, Victoria, 3000, Australia.  Our telephone number is (61) (3) 9273 5555.

 

Based on publicly availableinformation as at September 30, 2003, we ranked fourth among Australian bankinggroups in terms of total assets ($195.6 billion) and fourth in terms ofshareholders’ equity ($13.8 billion) and ranked fourth in terms of marketcapitalization.  At December 1, 2003,following the acquisition of National Bank of New Zealand (“NBNZ”) we wereranked third among Australian banking groups in each of the above comparativesand, with a market capitalization of $30 billion, ranked as the sixth largestcompany listed on the Australian Stock Exchange Limited.

 

We provide a broad range ofbanking and financial products and services to retail, small business,corporate and institutional clients.  Weconduct our operations primarily in Australia (approximately 77% of our totalassets at September 30, 2003) with significant operations in New Zealand(approximately 13% of total assets at September 30, 2003).  The remainder of our operations areconducted in the United Kingdom, the United States and a number of othercountries, most of which are located in the Asia Pacific region.  At September 30, 2003, we had 1,044 branchesand other points of representation worldwide. After the acquisition of NBNZ, we estimate New Zealand will account forapproximately 26.5% of our total assets.

 

ANZ’s specialization strategyis executed through a management structure of 11 segments.  As at September 30, 2003 we executed ourspecialization strategy through a management structure of the following 11segments:

 
| **Business  segment**             |   | **Principal  activities**                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|-----------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Personal Banking Australia        |   | Personal Banking Australia  provides a range of banking services to personal customers, high net worth  individuals and SME rural customers in Australia.                                                                                                                                                                                                                                                                                                                                 |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Institutional Financial  Services |   | Institutional Financial  Services brings together the institutional customer segment with specialized  wholesale product segments to provide a broad range of financial solutions  for institutional customers.                                                                                                                                                                                                                                                                           |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Corporate                         |   | Corporate provides the  principal relationship between ANZ’s corporate and SME metropolitan customers  and all areas of ANZ, including working capital management, liquidity  management and transaction processing.                                                                                                                                                                                                                                                                 |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| New Zealand Banking               |   | New Zealand Banking  provides a broad range of personal banking services, including wealth  management, for personal, small business, rural and corporate clients in New  Zealand and is only one part of ANZ’s New Zealand business on a geographical  basis.  The New Zealand Banking  segment does not include NBNZ, the operations of the Mortgages, Consumer  Finance, Asset Finance, Institutional Financial Services, ING New Zealand  Treasury segments in New Zealand. |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Mortgages                         |   | Mortgages provides mortgage  finance secured by residential real estate in Australia and New Zealand.                                                                                                                                                                                                                                                                                                                                                                                     |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Consumer Finance                  |   | Consumer Finance provides  consumer and commercial credit cards, ePayment products, personal loans and  merchant payment facilities.                                                                                                                                                                                                                                                                                                                                                      |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Asset Finance                     |   | Asset Finance provides  finance and operating leases for vehicles and business equipment.  Segment identified as Esanda and UDC in  Attachment 1.                                                                                                                                                                                                                                                                                                                                    |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| ING Australia                     |   | ING Australia is a joint  venture between ANZ and ING that provides integrated manufacture and  distribution of wealth creation, management and protection products and  services.  This business operates in  New Zealand as ING New Zealand.                                                                                                                                                                                                                                       |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Asia Pacific                      |   | Asia Pacific provides  primarily retail banking services in the Asia and Pacific region and includes  ANZ’s share of PT Panin Bank in Indonesia.                                                                                                                                                                                                                                                                                                                                     |

 

14

----

 
| Treasury     |   | Treasury is the banker to  all ANZ businesses charged with providing cash flow support, ensuring  liquidity, managing interest rate risk and providing capital to the  businesses. |
|--------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |   |                                                                                                                                                                               |
| Group Center |   | Group Center provides  support to the ANZ Group and includes technology, payments, finance, legal,  risk, tax and audit functions.                                                 |

 

**ANZ’s agendafor the next five years is to be:**

 

•      theleading bank in Australia

•     thesustainable leader in New Zealand and the Pacific

•      theleading Australian bank in Asia

•      themost respected major Australasian company

 

**Coreelements to achieving this agenda:**

 

•      boldand different

•     easy to dobusiness with

•     the best managed, most efficient, and most successful Australian bank

•     growing, investing, partnering, making bold moves

•       aunique climate of inspiration, leadership, values and opportunities

•     trusted by the community, with a sustainable contribution to society

 

*OurStrategic Direction*

 

*GainingMomentum with the ANZ Agenda*

 

At ANZ, we are currently on ajourney to create an organization that is both different and sustainable.  This is not something that can be achievedovernight or with a simple statement of intent.  It requires sustained commitment, persistence and investment overa number of years.

 

We took the first major stepon this through our innovative strategy that created a portfolio of specialistbusinesses, and embarked on a journey to transform the culture of the wholeorganization.  Specialization has notonly brought a sharper financial focus through greater accountability, it hasalso contributed to a greater sense of ownership and commitment from ourpeople.  This has already contributed toimproved customer satisfaction across many business units, and in turn,improved results.

 

13,000 staff have beenthrough our Breakout cultural change programme.  We see this as fundamental to the creation of a differentorganization, with motivated people, satisfied customers and superior returns.

 

The next step on this journeyis to determine how we build an institution that is capable of sustainedperformance over the long term.  Itmeans serving our customers well, with innovative and good value services, anddelivering sound profitable growth for shareholders.  It means our being committed to creating more jobs, and buildinga challenging, exciting and caring environment for our people.  It means earning and retaining the trust ofthe communities in which we operate and extends to making an overallcontribution to society.  It means beingbold and different, investing for growth and partnering with world-classorganizations where joint capability creates a competitive advantage that wecould not achieve on our own.  This isthe ANZ Agenda, with the overall aim of making ANZ the most respected majorcompany in Australia and New Zealand in the eyes of our stakeholders:

 

•      Customers:A bank that is easy to do business with, a human face, and one that values andbuilds enduring relationships.

•      People:A great company, with great people, great values and great opportunities.

•     Shareholders:One of the most efficient, best managed. and most successful banks in theworld.

•     Community:A company that is trusted by the community, and makes a sustainablecontribution to society.

 

15

----

 

*Progresson the ANZ Agenda in 2003*

 

People make greatcompanies.  At ANZ, we are committed tohelping our people continuously to improve their skills and capabilities, andsupport them in obtaining tertiary and post-graduate qualifications.  This year saw the first of our MBA graduatesfrom our online MBA with Charles Sturt University.  We now have 100 people on the programme.  We continue to be one of the largest privatesector recruiters of graduates with a new intake of 240 in Australia and NewZealand alone.

 

In July, we conducted ourannual staff satisfaction survey which reported that satisfaction levels haveagain risen and are now at 82%.  Withcapable, satisfied and motivated people, we have a strong foundation for thefuture.

 

In our retail bankingbusinesses, trained and committed staff acting as advocates for ANZ, areessential to the health of our relationships with customers and the broadercommunity.  Over the last two years,staff satisfaction in our network has risen from under 50% to over 80%.  We have also maintained high levels ofinvestment to improve customer service, quality and efficiency.  In Australia we have invested over $100million in a new industry-leading technology for our branch network, and thenew telling project, “MyTell”, is now in a number of pilot branches, with fullroll out to occur during this financial year.

 

We are particularly excitedabout the growth in our rural Australia franchise, through the commitment ofour people in the more remote communities.

 

In our Small and MediumEnterprises business, special focus and investment in specialist relationshipmanagers is yielding above average levels of growth.

 

Many people in Australia finddifficulty in understanding financial information, and this is putting the mostvulnerable at considerable potential risk. This year we were proud to launch Australia’s first financial literacysurvey, and are continuing to take a lead in alleviating this problem.  We see this study as a first step towardsempowering people with the appropriate financial skills to make informed basicfinancial decisions.

 

*Our specializedbusiness portfolio provides a strong platform for growth*

 

At ANZ we have an attractiveportfolio of businesses.  Ourspecialization strategy is based on the premise that specialists willoutperform generalists, and that a portfolio of specialized businesses providessynergistic benefits and also a diversified risk profile.

 

ANZ’s traditional strength isin Institutional Financial Services and Corporate Banking.  These businesses, by function of their sizeand market position should be key drivers of ANZ’s future success, as shouldour developing franchise in Small to Medium Business.  We believe the economic outlook now favors an overweight positionin these areas as activity shifts from the consumercentric growth of recentyears.

 

We have a strong portfolio ofspecialized product businesses.  Ourcredit card franchise remains a major strength of ANZ notwithstanding issues inthe first half together with the reduced interchange levels from the ReserveBank of Australia’s reforms.  TheMortgage business has become a major force in the third-party market and isemploying innovative new distribution channels.  Esanda in Australia, and UDC in New Zealand, are also leadingbrands in auto and equipment finance.

 

We currently are the largestbank in all segments in New Zealand, the leading Australian bank in Asia, andthe market leader in key domestic niche markets such as auto-and equipmentfinancing (source: Australian Bureau of Statistics).

 

Personal Banking and WealthManagement are less traditional areas for ANZ, making it difficult to transformquickly our market position against larger entrenched competitors.  Nevertheless we are finding new ways tobuild these businesses so that we can transform our position over the medium tolong term.

 

*Building afuture*

 

Specialization creates ademonstrably more agile operation, able to respond rapidly to the opportunitiespresented within each business segment. Our efficiency levels enable us to provide highly competitive customervalue, such as in personal transaction accounts.  We are targeting further productivity gains throughtechnology-based process improvements.

 

We will consider enhancingour capabilities, growth opportunities, scale benefits and other synergiesthrough selective acquisitions.  Inorder to proceed, any proposed acquisitions must demonstrate a capacity to addvalue for shareholders and pass a rigorous investment review.

 

16

----

 

We will also enter commercialarrangements and partnerships where these provide a strategic fit with ourexisting businesses.  Our recentlyannounced agreement with Diners Club Australia is an example of thisapproach.  In response to the regulatoryregime for credit cards, we have provided a different solution that enhances ourprospective performance whilst continuing to service our customers’ needs.

 

Our regional internationalstrategy is focused on consumer banking. Our preference is to work with local partners with domestic customerfranchises where we can add our own distinct capabilities to theirs.  A good example is our credit card jointventure with Metrobank in the Philippines. Over time we would like to pursue further initiatives, while continuingto reflect the need to maintain a lower risk profile.

 

Our institutional businessacross Australasia, Asia, Europe and North America, are focused on Trade andProject finance, and financial markets.

 

Finally, our regionalinternational strategy is disciplined and long-term.  We have no pressing sense of urgency and if a proposed investmentdoes not meet our requirements, we will not proceed.

 

**Subsidiaries,Associates and Joint Venture**

 

We have many subsidiaries andassociates.  More detailed informationregarding material subsidiaries and associates is contained in Exhibit 8 andNotes 43, 44 and 45 of the Financial Report.

 

**OrganizationStructure Changes**

 

The Group from time to timemodifies the organization of its businesses to enhance the focus on delivery ofspecialized products or services to customers. Prior period numbers are adjusted for such organizational changes toallow comparability.  The significantchanges for the current period were:

 

•      The re-organization within PersonalBanking Australia, effective from April 1, 2003.  This segment consists of:

 

•                  Personal Distribution which provides a fullrange of banking services, including the distribution of Wealth Managementproducts, to personal customers and small to medium rural customers inAustralia through branches, call centers, ATMs and on-line banking.

 

•                  Banking Products manufactures deposit,transaction accounts and Margin Lending products.  In addition, the businesses manage ANZ’s direct channels coveringPhone Banking, ATMs and Internet Banking.

 

•      In addition, there have been a number offunction transfers including the transfer of the Contact Center to PersonalBanking Australia, further customer segmentation between Institutional Banking,Structured Finance International and Corporate, and a number of relativelyminor methodology changes to revenue and cost allocations.

 

•      ANZ has increased the allocation ofeconomic capital to business units carrying goodwill on investments.  Business units carrying goodwill will showincreased earnings on capital in the equity standardized statement of financialperformance.

 

**Property**

 

We have a sizeable holding offreehold and leasehold land and buildings (largely within Australia) for ourbusiness purposes.  These premises,which include branches, administration centers and residential accommodationfor employees, had a carrying value at September 30, 2003 of $426 million(market value of $464 million as at June 30, 2002). (2002 carrying value: $455million).

 

The Group last valued thisclass of assets, based on independent valuations, as at June 30, 2002.  There were no material movements in propertyvalues in the period to September 30, 2003.

 

Whilst the overall number ofproperties has decreased as a result of the Group’s continued divestmentstrategy through sales and sale and leasebacks of non core property assets, theincrease in individual property carrying values from September 30, 2002 toSeptember 30, 2003 is a reflection of the substantial upgrade works undertakenon the primary and secondary data centers (to improve their redundancycapacity), together with numerous branch refurbishments works completed as partof the “Restoring Customer Faith Program”.

 

17

----

 

*RecentDevelopments*

 

**Acquisitionof National Bank of New Zealand**

 

On October 24, 2003, ANZannounced it had reached agreement with Lloyds TSB to acquire The National Bankof New Zealand for £2,043.8 million, approximately $4.915 billion at exchangerates on October 23, 2003.

 

This transaction, whichclosed on December 1, 2003, was funded by the process of a Rights offer(A$3,570 million net of the proceeds of transaction costs) and the proceeds ofa Hybrid tier 1 offering (A$1,618 million equivalent as at September 30, 2003noon buying rate) with the balance raised via a subordinated debt offering.

 

The National Bank of NewZealand is one of New Zealand’s leading banks with net loans and advances ofNZ$35 billion (as at June 30, 2003) representing around 23% of industrylending.  It has strong market share inpersonal, rural, and small business banking including a national network of 160retail branches and 260 ATMs.

 

The National Bank of NewZealand also enjoys consistently high customer and staff satisfactionlevels.  In the year to September 2003,The National Bank of New Zealand maintained its top position in the AC NielsenConsumer Finance Monitor with 71% of personal customers rating its service asexcellent or very good.  This is coupledwith leading levels of staff satisfaction (85%).

 

The National Bank of NewZealand’s track record of value creation is based on an efficient operatingmodel, strong revenue growth with sound credit quality and high levels of staffand customer satisfaction driven by a strong and experienced management team.

 

ANZ had a strong existingbusiness in New Zealand that dates back to 1840.  Prior to the NBNZ acquisition, ANZ was among the top five banksin New Zealand with over one million personal customers and a leading positionin corporate banking.

 

We have taken a number ofsteps to invigorate this existing business in New Zealand including moreautonomy for New Zealand management and a series of initiatives to improvecustomer satisfaction, including introducing new products, opening branches andre-organizing our approach to personal banking.

 

The NBNZ acquisition is asignificant strategic milestone for ANZ. It is part of ANZ’s strategy to develop leading positions in growthbusinesses in its home markets and clearly establishes ANZ as New Zealand’slargest bank.  It also reflects ourlong-term confidence in New Zealand’s economic prospects.

 

Following completion of theacquisition of NBNZ in December 2003, our combined business in New Zealand willcontribute as much as 30% of earnings in future years.  Naturally, the significance of our businessand of our presence in New Zealand will necessitate a very different approachto thinking about our business in New Zealand, our customers, staff and ourrole in New Zealand as the largest provider of banking services.

 

ANZ intends that both the ANZand The National Bank of New Zealand brands, names and branch networks will beretained for the foreseeable future.  Byworking together with The National Bank of New Zealand and focusing on theinterests of our customers, staff and the community we can create a betterorganization in the future for New Zealand and for shareholders.

 

**ANZ StapledExchange Preference Securities**

 

On August 14, 2003 ANZannounced an offer of up to $750 million of ANZ Stapled Exchangeable PreferredSecurities (ANZ StEPS), with the ability to accept over subscriptions of up to$250 million.

 

The $1 billion raised throughthe offer strengthened our balance sheet and increased our financialflexibility.

 

Key features of the offerincluded:

 

•      aquarterly floating distribution rate, calculated as the 90 day bank bill rate plusa margin;

 

•      distributionsare payable in preference to any dividends on ANZ’s ordinary shares;

 

•      theability for ANZ to change certain terms on reset dates, the first reset date isSeptember 15, 2008;

 

•     the abilityfor ANZ or investors to exchange ANZ StEPS for cash or ordinary shares incertain circumstances; and

 

•      quotationon the Australian Stock Exchange.

 

18

----

 

**ANZ’s US$1.1billion hybrid capital raising**

 

On November 26, 2003, thecompany issued 1.1 million fully paid preference shares with a liquidationpreference of US$1,000.  The preferenceshares were issued as part of a two tranche, structured hybrid raising undertwo offering memorandums dated November 19, 2003.  The two tranches involve US$350 million with an initial call dateof January 15, 2010 at US Treasuries plus 100 basis points (equivalent to4.484%) and US$750 million with an initial call date of December 15, 2013 at USTreasuries plus 118 basis points (equivalent to 5.36%).

 

*Assets andGross Revenue by Line of Business*

 
| **Years ended September 30 (1)**  |   | **2003** |   |   |   | **2002** |   |   |   | **2001** |   |   |   |
|-----------------------------------|--------|----------|--------|--------|--------|----------|--------|--------|--------|----------|--------|--------|--------|
|                              |   | **$M**   |   |   |   | **$M**   |   |   |   | **$M**   |   |   |   |
| **Line Of Business (2)**          |   |     |   |   |   |     |   |   |   |     |   |   |   |
| **External Assets**               |   |     |   |   |   |     |   |   |   |     |   |   |   |
|                              |   |     |   |   |   |     |   |   |   |     |   |   |   |
| Personal  Banking Australia       |   | 6,696    |   | 3      | %      | 5,832    |   | 3      | %      | n/a      |   | n/a    |   |
| Institutional  Financial Services |   | 56,529   |   | 29     | %      | 59,155   |   | 32     | %      | n/a      |   | n/a    |   |
| Corporate                         |   | 16,085   |   | 8      | %      | 13,538   |   | 7      | %      | n/a      |   | n/a    |   |
| New  Zealand Banking              |   | 4,225    |   | 2      | %      | 3,797    |   | 2      | %      | n/a      |   | n/a    |   |
| Mortgages                         |   | 77,586   |   | 40     | %      | 64,826   |   | 35     | %      | n/a      |   | n/a    |   |
| Consumer  Finance                 |   | 6,135    |   | 3      | %      | 5,551    |   | 3      | %      | n/a      |   | n/a    |   |
| Asset  Finance                    |   | 13,460   |   | 7      | %      | 12,410   |   | 7      | %      | n/a      |   | n/a    |   |
| ING  Australia                    |   | 1,736    |   | 1      | %      | 1,638    |   | 1      | %      | n/a      |   | n/a    |   |
| Asia  Pacific                     |   | 1,949    |   | 1      | %      | 1,932    |   | 1      | %      | n/a      |   | n/a    |   |
| Treasury                          |   | 9,085    |   | 5      | %      | 11,692   |   | 6      | %      | n/a      |   | n/a    |   |
| Group  Center                     |   | 2,105    |   | 1      | %      | 2,734    |   | 1      | %      | n/a      |   | n/a    |   |
| Total  Assets                     |   | 195,591  |   | 100    | %      | 183,105  |   | 100    | %      | n/a      |   | n/a    |   |

 

**Line OfBusiness (2)**

 

As published in the September2002 Company Profile

 
|                         |   | **2002** |   |   |   | **2001** |   |   |   |
|------------------------------|--------|----------|--------|--------|--------|----------|--------|--------|--------|
|                         |   | **$M**   |   |   |   | **$M**   |   |   |   |
| **External Assets**          |   |     |   |   |   |     |   |   |   |
|                         |   |     |   |   |   |     |   |   |   |
| Personal  Banking and Wealth |   |     |   |   |   |     |   |   |   |
| Management                   |   | 10,635   |   | 6      | %      | 13,597   |   | 7      | %      |
| Corporate  Businesses        |   | 42,822   |   | 23     | %      | 44,245   |   | 24     | %      |
| Investment  Banking          |   | 25,669   |   | 14     | %      | 29,851   |   | 16     | %      |
| Consumer  Finance            |   | 5,551    |   | 3      | %      | 4,881    |   | 3      | %      |
| Mortgages                    |   | 64,826   |   | 35     | %      | 55,901   |   | 30     | %      |
| Asset  Finance               |   | 12,410   |   | 7      | %      | 12,013   |   | 7      | %      |
| Small  to Medium Business    |   | 6,764    |   | 4      | %      | 6,013    |   | 3      | %      |
| Other                        |   | 14,428   |   | 8      | %      | 18,992   |   | 10     | %      |
|                         |   | 183,105  |   | 100    | %      | 185,493  |   | 100    | %      |

 

----

(1)   Comparative Line of Businessinformation for 2001 cannot be provided without unreasonable effort or expense,refer table below for line of business in 2002 and 2001 under previous businessstructure.  Refer 2002 20-F fordiscussion of these businesses

(2)   For discussion of operatingresults by Line of Business see “Operating and Financial Review and Prospects -Results by Line of Business”

 

19

----

 
| **Years ended September 30 (1)**               |   | **2003** |   |   |   | **2002** |   |   |   | **2001** |   |   |   |
|------------------------------------------------|--------|----------|--------|--------|--------|----------|--------|--------|--------|----------|--------|--------|--------|
|                                           |   | **$M**   |   |   |   | **$M**   |   |   |   | **$M**   |   |   |   |
| **Gross Revenue (2) (equity standardized)(3)** |   |     |   |   |   |     |   |   |   |     |   |   |   |
| Personal  Banking Australia                    |   | 737      |   | 6      | %      | 728      |   | 6      | %      | n/a      |   | n/a    |   |
| Institutional  Financial Services              |   | 3,342    |   | 26     | %      | 3,147    |   | 26     | %      | n/a      |   | n/a    |   |
| Corporate                                      |   | 932      |   | 7      | %      | 827      |   | 7      | %      | n/a      |   | n/a    |   |
| New  Zealand Banking                           |   | 480      |   | 4      | %      | 417      |   | 3      | %      | n/a      |   | n/a    |   |
| Mortgages                                      |   | 4,487    |   | 34     | %      | 3,760    |   | 31     | %      | n/a      |   | n/a    |   |
| Consumer  Finance                              |   | 1,052    |   | 8      | %      | 992      |   | 8      | %      | n/a      |   | n/a    |   |
| Asset  Finance                                 |   | 1,091    |   | 8      | %      | 1,036    |   | 9      | %      | n/a      |   | n/a    |   |
| ING  Australia                                 |   | 46       |   | 0      | %      | 142      |   | 1      | %      | n/a      |   | n/a    |   |
| Asia  Pacific                                  |   | 326      |   | 3      | %      | 281      |   | 2      | %      | n/a      |   | n/a    |   |
| Treasury                                       |   | 455      |   | 3      | %      | 473      |   | 4      | %      | n/a      |   | n/a    |   |
| Group  Center                                  |   | 75       |   | 1      | %      | 204      |   | 2      | %      | n/a      |   | n/a    |   |
| Total  Income                                  |   | 13,023   |   | 100    | %      | 12,007   |   | 100    | %      | n/a      |   | n/a    |   |

 

As published in the September2002 Company Profile.

 
| **Gross Revenue (2) (equity standardized) (3)** |   |   |   |   |   |   |   |   |   |
|-------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Personal  Banking and Wealth                    |   |   |   |   |   |   |   |   |   |
| Management                                      |   | 1,376  |   | 11     | %      | 1,440  |   | 11     | %      |
| Corporate  Businesses                           |   | 2,141  |   | 18     | %      | 2,467  |   | 19     | %      |
| Investment  Banking                             |   | 1,527  |   | 13     | %      | 2,309  |   | 18     | %      |
| Consumer  Finance                               |   | 986    |   | 8      | %      | 896    |   | 7      | %      |
| Mortgages                                       |   | 3,760  |   | 31     | %      | 3,846  |   | 30     | %      |
| Asset  Finance                                  |   | 1,036  |   | 9      | %      | 1,071  |   | 8      | %      |
| Small  to Medium Business                       |   | 503    |   | 4      | %      | 473    |   | 4      | %      |
| Other                                           |   | 678    |   | 6      | %      | 322    |   | 3      | %      |
| Total  Income                                   |   | 12,007 |   | 100    | %      | 12,824 |   | 100    | %      |

 

----

(1)   Comparative Line of Businessinformation for 2001 cannot be provided without unreasonable effort or expense,refer table below for line of business for 2002 and 2001 under previousbusiness structure

(2)   Gross revenue comprisesinterest income, non-interest income and share of equity accounted investments(refer Note 41 of the Financial Report)

(3)   Economic Value Added EVA(TM)principles are in use throughout the Group, whereby risk adjusted capital isallocated and charged against business units. Equity standardized profit is determined by eliminating the impact ofearnings on each business unit’s book capital and attributing earnings on thebusiness units risk adjusted capital. This enhances comparability of business unit performance.  Geographic results are not equitystandardized

 

20

----

 

*Assets andGross Revenue by Region*

 
| **Years ended September 30** |   | **2003** |   |   |   | **2002** |   |   |   | **2001** |   |   |   |
|------------------------------|--------|----------|--------|--------|--------|----------|--------|--------|--------|----------|--------|--------|--------|
|                         |   | **$M**   |   |   |   | **$M**   |   |   |   | **$M**   |   |   |   |
| **Region (1)**               |   |     |   |   |   |     |   |   |   |     |   |   |   |
| **Assets**                   |   |     |   |   |   |     |   |   |   |     |   |   |   |
| Australia                    |   | 151,538  |   | 77     | %      | 135,050  |   | 74     | %      | 133,057  |   | 72     | %      |
| New  Zealand                 |   | 25,696   |   | 14     | %      | 23,799   |   | 13     | %      | 22,337   |   | 12     | %      |
| Overseas  Markets            |   | 18,357   |   | 9      | %      | 24,256   |   | 13     | %      | 30,099   |   | 16     | %      |
|                         |   | 195,591  |   | 100    | %      | 183,105  |   | 100    | %      | 185,493  |   | 100    | %      |
| **Gross Revenue (2)**        |   |     |   |   |   |     |   |   |   |     |   |   |   |
| Australia                    |   | 9,508    |   | 73     | %      | 8,697    |   | 72     | %      | 9,012    |   | 70     | %      |
| New  Zealand                 |   | 2,149    |   | 17     | %      | 1,917    |   | 16     | %      | 2,011    |   | 16     | %      |
| Overseas  Markets            |   | 1,366    |   | 10     | %      | 1,393    |   | 12     | %      | 1,801    |   | 14     | %      |
|                         |   | 13,023   |   | 100    | %      | 12,007   |   | 100    | %      | 12,824   |   | 100    | %      |
| **Net profit before tax**    |   |     |   |   |   |     |   |   |   |     |   |   |   |
| Australia                    |   | 2,371    |   | 72     | %      | 2,391    |   | 74     | %      | 2,160    |   | 78     | %      |
| New  Zealand                 |   | 495      |   | 15     | %      | 456      |   | 14     | %      | 395      |   | 14     | %      |
| Overseas  Markets            |   | 411      |   | 13     | %      | 376      |   | 12     | %      | 228      |   | 8      | %      |
|                         |   | 3,277    |   | 100    | %      | 3,223    |   | 100    | %      | 2,783    |   | 100    | %      |

 

----

(1)   For discussion of operatingresults by region see “Operating and Financial Review and Prospects - Resultsby Region”

(2)   Gross revenue comprisesinterest income and non-interest income

 

*Supervisionand Regulation*

 

**Australia**

 

Our operations are regulatedin each country in which we operate. The supervisory framework in Australia covering Australian banks islargely compliant with the Basel core principles for effective bankingsupervision.  The Australian PrudentialRegulation Authority (“APRA”) has responsibility for the prudential andregulatory supervision of Australian banks, Credit Unions, Building Societies,other Authorized Deposit-Taking Institutions (“ADI’s”), Insurance Companies andSuperannuation Funds.  The Reserve Bankof Australia (“RBA”) has the responsibility for the supervision of the paymentssystem in Australia.  The RBA has thepower to inject liquidity into the financial system, in the event of financialdisruption, whatever the cause.  Onadvice from APRA, the RBA can provide a lender of last resort facility to asolvent bank that has encountered liquidity constraints.

 

APRA discharges itsresponsibilities by requiring banks subject to its supervision to conform to aset of prudential standards and to regularly provide it with reports which setforth a broad range of information, including financial and statistical datarelating to their financial position and information in respect of prudentialand other matters.

 

In its supervision of banks,APRA gives special attention to capital adequacy, liquidity, earnings, loanloss experience, concentration of risks, the maturity structure of assets andliabilities, large exposures, potential exposures through equity investments, fundsmanagement and securitization activities and international bankingoperations.  APRA may also exercisecertain investigative powers if a bank fails to provide information about itsfinancial condition or becomes unable to meet its obligations or suspendspayment.

 

In carrying out itssupervisory role, APRA supplements its analysis of statistical data collectedfrom banks with selective “on site” visits and formal meetings with banks’senior management and external auditors. APRA has also formalized a consultative relationship with each bank’sexternal auditors.  The externalauditors provide additional assurance that prudential standards set by APRA arebeing observed, and that statutory and other banking requirements are beingmet.  External auditors also undertaketargeted reviews of specific risk management areas as selected at the annualmeeting between the bank, its external auditors and APRA.  In addition, each bank’s Chief ExecutiveOfficer attests to the adequacy and operating effectiveness of the bank’smanagement systems to control exposures and limit risks to prudent levels.

 

21

----

 

A bank may not enter into anyagreement or arrangement for the sale or disposal of its business or carry onbusiness in partnership with another bank without the consent of the Treasurerof the Commonwealth of Australia (“the Treasurer”).

 

Although the Reserve Bank ofAustralia (RBA) has the authority, with the approval of the Treasurer, to setinterest rates paid or charged by banks, this authority is not currently beingexercised.

 

**BankLiquidity**

 

Liquidity is regulated byAPRA through individual agreements with each bank which take into considerationthe specific operations of each organization. APRA requires that banks have a comprehensive liquidity policy statementwhich defines the guidelines and systems for managing domestic and foreigncurrency liquidity.  This statement mustbe approved by the Board of Directors. A bank’s liquidity management policy should cater for a range ofpotential conditions and APRA requires each bank’s liquidity risk to beassessed under two specific scenarios. The first scenario is known as the “going-concern” and refers to thenormal behavior of cash flows in the ordinary course of business and forms theday-to-day focus of a bank’s liquidity management.  The second scenario, known as the “short term crisis”, covers thebehavior of cash flows where there is a problem (real or perceived) which may includeoperational problems, doubts about the solvency of a bank or adverse ratingchanges.  APRA expects a bank to havesufficient liquidity to keep operating for at least 5 business days.

 

Banks must supply APRA with amonthly return which details the projected future cash flows under both the “goingconcern” and “short term crisis” scenarios. The latter must include maturity profiles out to 5 business days basedon assumptions agreed with APRA.  Banksare required to consult with APRA before making any significant changes to theassumptions underlying these reports.

 

Where APRA is not satisfiedwith the adequacy of an ADI’s liquidity management strategy, or where it hasparticular concerns about an ADI’s liquidity, it can direct the ADI to holdspecified amounts of liquid assets such as cash and certificates of deposit.

 

Banks operate ExchangeSettlement Accounts with the RBA.  Theseaccounts are used primarily for liquidity management purposes by banks.  Prior to October 1, 1997 the RBA paid aninterest rate on balances in Exchange Settlement Accounts of 10 basis pointsunder the cash rate.  Effective fromthat date, the RBA reduced the interest payable on these balances to 25 basispoints below the cash rate.

 

**Associationswith Related Entities**

 

APRA requires that ADI’s areto take account of risks associated with the related parties in the group ofwhich they are a member and are not exposed to excessive risk as a result oftheir associations with related entities.

 

Associations and dealings byan ADI with their related entities may give rise to contagion risk, or thepossibility that problems arising in other group members may compromise thefinancial and operational position of the ADI. To this end, an ADI is required to manage and monitor the level ofcontagion risk so that this is kept at a modest level.  Various rules are imposed by APRA to ensurecontagion risk is controlled including:

 

•                  comprehensive policies and procedures formanaging and monitoring risk are in place (this must also be advised to APRA,with the ADI’s Chief Executive attesting to the identification, adequacy andoperating effectiveness of risk management policies, systems and procedures);

 

•                  dealings with related entities are transparentand controlled with prudent exposure limits in place (APRA has set specificprudential limits on intra-group exposures). Unlimited exposures and cross default clauses triggering a possibledefault of the ADI in its obligations are not to be held.  Effectively the ADI’s dealings with therelated entities should not be for the prime purpose of supporting the relatedentities business;

 

•                  separation and disclosure rules coveringbadging and product distribution arrangements to ensure the ADI is not linkedto the fortunes of other entities in the group; and

 

•                  participation by the ADI and related entitiesin common group operations.

 

22

----

 

The APRA prescribed specific prudential limits on intra-group exposuresare set on the exposures of an ADI to related parties or, where applicable, ofan Extended Licensed Entity (ELE) to related parties which do not form part ofthe ELE. An ELE is defined as consisting of the ADI and all APRA approved ADIsubsidiaries which are effectively operated as a division of the ADI, thoughthe subsidiaries are separate legal entities. The limits are as follows:

 

•                  Exposures of an ADI or ELE to related ADI’s(including overseas based equivalents) being limited to:

 

•                  50% of the ADI’s Level 1 capital base on anindividual related ADI exposures basis; and

 

•                  150% of the ADI’s Level 1 capital base on anaggregate exposure basis to all related ADI’s.

 

•                  Exposures of an ADI or ELE to other relatedparties (ie non-related ADI’s captured above) being limited to:

 

•                  25% of the ADI’s Level 1 capital base wherethe exposure is to any other regulated related entity (ie any related entityother than an ADI or overseas based equivalent directly regulated by APRA or bya foreign equivalent) not captured above;

 

•                  15% of the ADI’s Level 1 capital base wherethe exposure is to an unregulated related entity; and

 

•                  35% of the ADI’s Level 1 capital base on anaggregate exposure basis to all other related parties.

 

Anyproposed exposures in excess of the APRA prescribed prudential limits onintra-group exposures, are subject to APRA approval. ADI’s are subject toreporting requirements covering intra-group exposures.

 

ANZ reports on an ELE basisand manages and complies with all requirements above.

 

**CapitalAdequacy**

 

APRAimposes guidelines for the capital adequacy of banks as an essential part ofits prudential supervision of ADI’s.

 

APRAassesses an ADI’s financial strength by measuring its capital adequacy on botha stand-alone and a group basis. The stand-alone, or Level 1, basis onlyincludes the ADI. The group, or Level 2, basis includes the ADI and all itsconsolidated subsidiaries. Level 1 and 2 assessments are applicable to allADI’s and the capital adequacy measurement is based on the Basel CapitalAccord. APRA also requires a capital adequacy measurement at a third level ifan ADI is part of a “conglomerate group.” APRA has defined a conglomerate groupas a group of companies containing one or more locally incorporated ADI’s andmay include non-financial as well as financial entities. Level 3 assessmentsapply only to ADI’s prescribed by APRA and the capital adequacy measurement isbased on a methodology agreed with APRA.

 

APRAhas prescribed that ANZ is not required to measure its capital adequacy atLevel 3.

 

Underthe existing APRA guidelines, balance sheet assets and off-balance sheetexposures are assessed according to broad categories of relative credit risk,based largely on the nature of the asset or counterparty.

 

Thereare four categories of risk weights (0%, 20%, 50%, 100%) applied to thedifferent types of assets or counterparties. Mortgage lending over residentialproperty to individual borrowers is risk weighted at 50%, including mortgagelending with a loan to valuation ratio over 80% which is insured through anacceptable lenders mortgage insurer.

 

Off-balancesheet exposures are taken into account by applying different categories ofcredit conversion factors to arrive at credit equivalent amounts, which arethen weighted in the same manner as balance sheet assets according to thecounterparty.

 

EffectiveJanuary 1, 1998, APRA required banks to measure and apply capital charges inrespect of their market risks arising from their trading and commoditypositions, in a manner which is broadly consistent with the January 1996 BaselCommittee amendment to its Capital Accord. In measuring their market risks,banks have a choice of two methods. The first alternative is to measure risksin a standardized manner defined by APRA. The second alternative allows banksto utilize their internal risk measurement systems subject to APRA approval.ANZ applies the second approach.

 

Capital,for APRA supervisory purposes, is classified into two tiers, referred to asTier 1 and Tier 2. APRA requires all ADI’s to maintain a minimum ratio ofcapital to risk-weighted assets of 8 per cent, at least half of which must bemaintained in the form of Tier 1 capital. APRA has not indicated that it hasany plans to allow Australian ADI’s to employ a third tier of capital, whichwould consist of short term subordinated notes, to meet a proportion of themarket risk capital requirements. APRA will consider other risk factors thathave not been incorporated or accounted for quantitatively in the frameworkwhen assessing the overall capital adequacy of an ADI. Where it is judgedappropriate, APRA may require individual ADI’s to maintain a minimum capitalratio above 8 per cent.

 

23

----

 

Tier1 or “core” capital, consists of paid up ordinary share capital, generalreserves, retained earnings, current year’s earnings net of expected dividendsand tax expenses, non-cumulative preference shares not redeemable at theholders’ option (as approved by APRA) together with minority interests butexcludes retained earnings and reserves of subsidiaries and associates that arenot consolidated for capital adequacy purposes. Tier 1 must constitute at least50% of the capital base requirements. In June 1999, APRA expanded thedefinition of Tier 1 capital to include innovative equity instruments (asapproved by APRA). Innovative equity instruments include capital instrumentswhich are a permanent and unrestricted commitment of funds, are available toabsorb losses, have no fixed servicing obligations and are subordinated to theinterests of depositors and other creditors. The maximum innovative equityinstruments allowed to be included in Tier 1 capital is 25% of the sum of paidup capital, general reserves, retained earnings, current year’s earnings net ofexpected dividends and tax expenses and minority interests. Any excess amountis eligible as Upper Tier 2 capital. Provision has also been made so thatcapital instruments issued via special purpose vehicles may be eligible forinclusion in Tier 1 capital.

 

ANZalso reports Adjusted Common Equity as a percentage of risk weighted assets. AdjustedCommon Equity is defined as Tier 1 capital less preference shares translated atcurrent rates and deductions from total capital (see below).

 

Tier2 capital consists of general allowance for loan losses, asset revaluationreserves, certain cumulative irredeemable preference shares, mandatoryconvertible notes and similar capital instruments, and subordinated andperpetual debt. The contribution made to the overall capital adequacy ratio byTier 2 capital cannot exceed that made by Tier 1 capital. Certain categories ofTier 2 capital, including term (as distinct from perpetual) subordinated debt,are not counted towards qualifying capital to the extent that they exceed 50%of Tier 1 capital.

 

Inorder for subordinated debt securities issued by ANZ to qualify as Tier 2 forcapital adequacy purposes, further approvals from APRA may be required, andAPRA may require other terms and conditions to the issue of such subordinateddebt securities to be satisfied.

 

**Deductionsfrom Capital (as required by APRA)**

 

Deductions(as required by APRA) from Tier 1 Capital comprise:

 

•                  Future income tax benefits (other than thoseassociated with general allowance for loan losses), net of any provision fordeferred income tax;

 

•                  Unamortized goodwill and any other intangibleassets, including the intangible component of investments;

 

•                  Investments in and any other forms of creditsupport provided to associated lenders mortgage insurers;

 

•                  Retained earnings and reserves of subsidiariesand associates that are not consolidated for capital adequacy purposes (iefunds management and insurance entities).

 

Deductionsfrom total capital comprise:

 

•                  ADI’s tangible investments in non-consolidatedfinancial entities, and tangible investments in entities involved in fundsmanagement, insurance and securitization activities;

 

•                  Strategic cross-ADI shareholdings (includingthose strategic shareholdings in equivalent deposit taking institutions inoverseas countries);

 

•                  Any non repayable loans advanced by an ADIunder APRA’s certified industry support arrangements; and

 

•                  Any undertakings by an ADI to absorbdesignated first level of losses on claims supported by it (eg; first lossfacilities associated with funds management and the securitization of assets).

 

ANZ’s capital adequacy ratiowas 11.1% (including 7.7% of Tier 1 Capital) at September 30, 2003, comparedwith 9.5% at September 30, 2002, and 10.3% at September 30, 2001.

 

APRAmay from time to time vary the capital adequacy ratios, which it sets forindividual banks subject to its supervision. For further information on ourcapital adequacy, see “Operating and Financial Review and Prospects-Capital”.

 

24

----

 

**EquityHoldings**

 

Individual equity investmentsby ADI’s are subject to the following requirements:

 

(i) ADI’s must consult withAPRA prior to:

 

•                  Committing toany proposal to acquire more than 10% equity interest in an entity thatoperates in the field of finance:

 

•                  Establishing or acquiring a subsidiary (otherthan an entity which is purely used as a special purpose financing vehicle forthe ADI):

 

•                  Taking up an equity interest in an entityarising from the work-out of a problem exposure which:

 

•                  Exceeds 0.25% of the consolidated ADI’s Tier 1capital; or

 

•                  Results in the ADI acquiring more than 10%equity interest in the entity; or

 

•                  Results in the ADI’s aggregate investment innon-subsidiary entities which are not operating in the field of finance toexceed more than 5% of the consolidated ADI’s Tier 1 capital.

 

(ii) ADI’s must report allother equity investments to APRA not subject to (i) retrospectively.

 

(iii) For equity investmentsby an ADI in non-subsidiary entities that are not operating in the field offinance exceeding

 

•                  0.25% the consolidated ADI’s Tier 1 capitalfor an individual investment or

 

•                  5% of the consolidated ADI’s Tier 1 capital inaggregate the excess above these limits must be deducted from the ADI andconsolidated ADI’s Tier 1 capital for capital adequacy calculation purposes.

 

These restrictions do not applyto equity holdings held within a trading portfolio.

 

**Large Credit Exposures**

 

APRArequires banks to report large credit exposures in terms of the consolidatedgroup (ie the bank and its subsidiaries). Banks must consult with APRA beforecommitting to any exposure (includes claims and commitments recorded on and offbalance sheet) to any individual counterparty or group of relatedcounterparties which will exceed 10% (subject to exceptions) of the capitalbase of the consolidated group. Banks are required to report quarterly to APRAthe largest 10 exposures and all those exceeding or equal to 10% of theconsolidated capital base. ANZ reported largest 10 exposures to 3 Governmentbodies, 5 Corporates, and 2 Bank counterparties as at September 30, 2003. Theirrespective ratings are as follows:

 

•                  One Bank - S&P rating A+, Moody’s ratingA1

 

•                  One Bank - S&P rating AA-, Moody’s ratingAa3

 

•                  Three Government bodies - S&P rating Aaa,Moody’s rating AAA

 

•                  One Corporate - S&P rating AAA, Moody’srating Aaa

 

•                  One Corporate - S&P rating AA-, Moody’srating Aa3

 

•                  One Corporate - S&P rating AAA, Moody’srating Aa1

 

•                  One Corporate - S&P rating A+, Moody’srating A2

 

•                  One Corporate - Not externally rated

 

25

----

 

**PossibleFuture Developments**

 

APRAissued a policy discussion paper in June 2003 on the deduction of intangibleassets, specifically capitalized expenses, from Tier 1 Capital. APRA hasproposed that the following capitalized expenses will be deducted from Tier 1capital from July 1 2004:

 

1. Loan / lease originationfees and commissions paid to originators and brokers;

 

2. Securitizationestablishment costs;

 

3. Costs associated with debt/ capital raisings; and

 

4. Other generic capitalizedexpenses, such as those in the nature of:

 

a. transformation costs; and

 

b. business developmentinitiatives.

 

Theimpact on ANZ’s capital adequacy ratios as at September 30, 2003 would haveresulted in a minor reduction to the Tier 1 and Total Capital ratios toapproximately 7.5% and 10.9% respectively.

 

**Basel**

 

InJanuary 2001, the Basel Committee on Banking Supervision issued a set ofconsultative papers detailing a new capital adequacy framework. The papers setout proposals to update the 1988 Accord, and establish the risk management andregulatory capital calculation framework for bank regulators around the world.When adopted, the proposals will amplify the influence of credit opinions fromagencies such as Standard & Poor’s and Moody’s Investors Services and, forbanks with more advanced internal risk grading and risk management practicesand processes, provide the opportunity to use internal credit ratings. Onceadopted, these developments will mean regulatory capital holdings are a moreaccurate reflection of the risk profile of a bank’s loan portfolio, marketrelated and operational activities.

 

SinceJanuary 2001, the Basel Committee have progressively released a number ofworking papers, refining the content of the original documents. A final versionof the consultative papers is now expected by June 2004, with implementation ofthe new proposals expected by the end of 2006.

 

**Payment System Reforms In Australia**

 

Thefirst two stages of a package of credit card reforms introduced by the ReserveBank of Australia (RBA) are in place. From January 1, 2003, merchants have beenable to charge an additional fee for credit card transactions. From October 31,2003 a cost-based approach to calculating interchange fees has applied.Interchange fees are wholesale fees that banks pay one another. This hassignificantly reduced interchange fees. Changes to credit card productofferings already in place will to some extent mitigate the impact on theGroup. ANZ estimates that the impact of interchange reductions on earningsafter tax will be no greater than $40 million in 2004.

 

Thefinal stage of credit card reforms will allow non-banks to issue credit cardsand acquire credit card transactions. APRA released its standards for publiccomment in July 2003 and a date for commencement of the regime has yet to beannounced.

 

Australian Deposit TakingInstitutions have applied to the Australian Competition and Consumer Commission(ACCC) to authorize EFTPOS interchange fees to be set to zero. In its draftdecision, the ACCC denied the application; a final decision is expected beforethe end of 2003.

 

**CLERP 9**

 

TheCLERP 9 Bill will be introduced into the Australian parliament by the end of2003.

 

Thegovernment aims to improve the operation of the market by promotingtransparency, accountability and shareholder activism and the Bill proposes arange of measures designed to enhance audit regulation and the generalcorporate disclosure framework.

 

Thereforms particularly target the areas of auditing standards, fundraising,directors’ duties, takeovers and financial services by including measures thattarget auditor independence, enforcement arrangements, disclosures toshareholders and enforcement arrangements to support continuous disclosure,including the introduction of civil penalties.

 

TheParliament is likely to debate the Bill in the first half of 2004 and thegovernment hopes for passage in time for a July 1, 2004 implementation date.

 

26

----

 

ANZ does not expect the CLERP9 reforms to have a material affect on our business.

 

**New Zealand**

 

Thesupervision of registered banks in New Zealand is carried out by the ReserveBank of New Zealand pursuant to the Reserve Bank of New Zealand Act 1989. TheReserve Bank of New Zealand’s principal statutory purpose in exercising itssupervisory powers is to promote the maintenance of a sound and efficientfinancial system and to avoid significant damage to the financial system thatcould result from the failure of a registered bank.

 

TheReserve Bank of New Zealand generally imposes uniform conditions ofregistration to ensure a level playing field among registered banks. A keyelement of this uniformity is the ongoing minimum capital adequacy ratiorequirements imposed on registered banks by the Reserve Bank of New Zealand.The Reserve Bank of New Zealand requires each registered bank to have a capitalratio of at least 8% of the group’s credit exposures, on a risk-weighted basis.Within this 8% requirement, a banking group’s Tier 1 capital (which is equityor its equivalent) must be at least 4% of the group’s risk-weighted exposures.

 

TheReserve Bank of New Zealand, its system of supervision places emphasis on afinancial disclosure regime. Every quarter, each registered bank must publishwhat is known as a general disclosure statement, which outlines its financialposition and performance so that customers and depositors can make an informeddecision about the level of risk attaching to an individual bank.

 

Neitherthe New Zealand Government nor the Reserve Bank of New Zealand guarantees banksor bank deposits and there is no deposit insurance in New Zealand.

 

Asa result of changes made in August 2003 to the Reserve Bank of New Zealand Act1989, a person must obtain the written consent of the Reserve Bank of New Zealandbefore giving effect to a transaction resulting in that person acquiring a“significant influence” over a registered bank.

 

“Significantinfluence” means the ability to appoint 25% or more of the board of directorsof a registered bank or a qualifying interest (e.g. legal ownership) in 10% ormore of its voting securities.

 

Inassessing applications for consent to acquire a significant influence over aregistered bank, the Reserve Bank of New Zealand will have regard to the samematters as are relevant in assessing an application for registration as aregistered bank. In giving its consent, the Reserve Bank of New Zealand mayimpose such terms and conditions as it thinks fit.

 

TheReserve Bank of New Zealand has stated that a systematically important bank inNew Zealand (which includes both ANZ Banking Group (New Zealand) Limited andNBNZ) must be able to operate as a going concern if one of its serviceproviders, including its parent company, fails. The Reserve Bank of NewZealand’s approach is directed at ensuring that each bank operating in NewZealand has effective control of its core procedures, systems and senior staff,so that each bank may continue operating as a going concern.

 

TheReserve Bank of New Zealand has indicated that this going concern requirementwill not necessarily preclude the adoption and use by NBNZ of ANZ’s policies,procedures and systems. However, the amalgamation of NBNZ with ANZ BankingGroup (New Zealand) Limited is likely only to be able to proceed if the ReserveBank of New Zealand is satisfied that the amalgamated entity can continue tooperate on a stand alone basis. It is likely that over time the Reserve Bank ofNew Zealand’s requirement for local banks to be self sufficient in this regardwill apply to all registered banks in New Zealand and, accordingly, would applyto both ANZ Banking Group (New Zealand) Limited and NBNZ were they not toamalgamate or otherwise combine operations.

 

**United States**

 

OnOctober 26, 2001, the President signed into law H.R. 3162, the USA PATRIOT Act(the “Act”), which contains strong measures to prevent, detect, and prosecuteterrorism and international money laundering. Title III of the Act is theInternational Money Laundering Abatement and Anti-Terrorist Financing Act of2001. It includes numerous provisions for fighting international moneylaundering and blocking terrorist access to the U.S. financial system. The Actis far-reaching in scope, covering a broad range of financial activities andinstitutions.

 

Theprovisions affecting banking organizations are generally set forth asamendments to the Bank Secrecy Act (“BSA”). These provisions relate principallyto U.S. banking organizations’ relationships with foreign banks and withpersons who are resident outside the United States. The BSA, which generallyapplies to insured depository institutions as well as to the U.S. branches andagencies of foreign banks, does not immediately impose any new filing orreporting obligations for banking organizations, but requires certainadditional due diligence and recordkeeping practices. Some requirements takeeffect without the issuance of regulations. Other provisions have beenimplemented through regulations promulgated by the U.S. Department of theTreasury, in consultation with the Federal Reserve Board and the other federalfinancial institutions’ regulators.

 

27

----

 

Followingthe passage in March 2000 of the Gramm-Leach-Bliley Act of 1999 (“GLB”, alsoknown as the Financial Modernization Act), ANZ successfully applied to theFederal Reserve Bank and became a Financial Holding Company (“FHC”). As a FHC,ANZ is allowed to engage in financial activities that are financial in natureor incidental, or complementary to financial activities, as determined by theFederal Reserve Bank and the Secretary of the Treasury Department. Thislegislation provides a clearer method for future integration of banks withother financial businesses and allows the Bank to enter into other new businesslines for the first time.

 

Underthis legislation, the FHC is subject to restrictions if it were determined thatthe FHC is not “well managed” or “well capitalized”. In addition, under theGLB, the Federal Reserve Bank is the “umbrella” supervisor with jurisdictionover the FHCs.

 

Underthe GLB’s new requirements, the Office of the Comptroller of the Currency(“Comptroller”) will continue to oversee, as “primary regulator,” foreign bankshaving a federal branch in the United States. Therefore, the ANZ New YorkBranch will continue to be subject to supervision, examination and extensiveregulation by the Comptroller and the International Banking Act of 1978 (the“IBA”), along with the regulations adopted pursuant to the IBA. The IBAprovides, among other things, that a federal branch of a foreign bank canexercise the same rights and privileges that are available to national banks.In addition, the exercise of any such right or privilege must be subject to thesame duties, restrictions, penalties, liabilities, conditions and limitationsthat apply to national banks at the same location. The Comptroller also imposesa required “capital equivalency” deposit to a federal branch, which must bemaintained on deposit with a Federal Reserve member bank (or invest inqualifying securities as authorized by the Comptroller). The amount of thisdeposit should be not less than 5% of the total liabilities (excluding, amongother things, liabilities to affiliates) of the federal branch. In addition, afederal branch is subject to the record-keeping and reporting requirements thatapply to national banks. The branch must maintain its accounts and recordsseparate from those of the foreign bank and must comply with such additionalrequirements as may be prescribed by the Comptroller. In addition to the abovedeposit requirement, Regulation D of the Federal Reserve Bank imposes uniformreserve requirements to all institutions (including a federal branch) withtransaction accounts or non-personal time deposits. The Regulation defines suchdeposits and requires reports of deposits to the Federal Reserve.

 

Underthe IBA, a federal branch of a foreign bank is subject to the receivershipprovisions to the same extent as a national bank. The Comptroller may takepossession of the business and property of a federal branch. Accordingly, theComptroller has at its disposal a wide range of supervisory and enforcementtools addressing violations of laws and regulations and breaches of safety andsoundness, which can be used against federal branches. The Comptroller mayremove federal branch management and assess civil money penalties. In certaincircumstances, the Comptroller may also terminate a federal branch license atits own initiative or at the recommendation of the Federal Reserve Board.

 

Alsounder the IBA, the branch is subject to certain restrictions with respect toopening new domestic deposit-taking branches and establishing or acquiringsubsidiary banks in states outside of our “home-state” of New York.

 

**OtherCountries**

 

Local banking operations inall of ANZ’s offshore branches and banking subsidiaries are subject to hostcountry supervision by their respective regulators.

 

*Competition*

 

TheAustralian banking system is highly competitive. In September 2003, the fourmajor banking groups in Australia (being ANZ, Commonwealth Bank of Australia,National Australia Bank Limited and Westpac Banking Corporation, together withtheir respective banking subsidiaries), held approximately 70% of the totalAustralian assets of banks that carry on business in Australia. Each of thesefour banking groups operates a nationwide branch network and, at September 302003, they collectively operated approximately 70% of the total number of bankbranches in Australia. The operations of the smaller regional banks aretypically limited to servicing customers in a particular State or region withparticular emphasis on residential mortgage lending.

 

Thederegulation of the Australian financial system during the early 1980s led to aproliferation of financial institutions that compete in selected markets withthe four major banks. Non-bank financial intermediaries such as buildingsocieties and credit unions compete principally in the areas of acceptingdeposits and residential mortgage lending, mainly for owner-occupied housing.Some large building societies were granted banking authorizations under theBanking Act 1959. Specialist non-bank residential mortgage lenders and direct(non-branch) banking operations have become more prominent in recent years.

 

28

----

 

Competitionis particularly intense in the housing lending market, which has been largelydriven in recent times by the rise of mortgage originators, and more recently,growth of the mortgage broker industry. Broker originated loans now account forbetween 30%-40% of all transactions in the Australian marketplace. Most bankshave embraced broker-originated business whilst continuing efforts to growmarket share in the traditional network channel.

 

OurConsumer Finance business offers credit card products and personal loans inAustralia. In a highly competitive market ANZ holds a strong position,accounting for around 26%-28% of all credit card spending in Australia. Reformsrecently introduced by the RBA, which allow merchants to recover the costs ofaccepting credit cards, determine objective cost-based benchmarks for settinginterchange fees and liberalize access to the schemes, are designed to increasecompetition further in this market.

 

ANZ’sEsanda and UDC businesses offer a range of personal finance products inAustralia and New Zealand. The businesses hold leading market positions inmotor vehicle and equipment finance. The highly competitive nature of thisbusiness in both countries has seen a period of rationalization in recent yearsthat has resulted in a number of our peers divesting their personal financeoperations to non-banking institutions.

 

InstitutionalFinancial Services (“IFS”) offers a wide range of financial market services toour large corporate and institutional customer base including: foreignexchange, derivative and fixed interest activities, project and structuredfinance, corporate finance (mergers and acquisitions, and other advisory),primary markets origination and syndication and leasing finance. Competitorsgain recognition through the quality of their client base, perceived skillsets, reputation and brands. In domestic markets, IFS’s competitors aregenerally either international investment banks operating in niche markets, theboutique operations of large multi-national banking conglomerates or domesticinvestment banks with a focus on niche areas. IFS’ key competitive strength isits focused geographic and sector experience, league table rankings and itsestablished client base.

 

ANZ’sCorporate segment offers traditional relationship management to both itsCorporate (A$10m to A$100m turnover) and Small to Medium Enterprise (A$50kFunds Under Management to A$5m turnover) businesses as well as sophisticatedfinancial solutions to it larger clients. ANZ has a strong market share in theCorporate market that is dominated by the major Australian banks. Recent growthin the SME market has seen competition intensify amongst the major and regionalbanks in an attempt to increase market share. ANZ’s share of this market hasincreased in recent periods.

 

Thefunds management industry is an area of strong competition among the four majorbanks and Australia’s insurance companies. Competition has increased as theAustralian Government has encouraged long-term saving through superannuation bymeans of taxation concessions and the imposition of a mandatory superannuationguarantee levy on employers. In May 2002, ANZ commenced operations of the jointventure with the ING Australia Group to create a larger and more competitiveorganization in wealth management.

 

OnOctober 24, 2003, ANZ announced that it had purchased The National Bank of NewZealand from Lloyds TSB Group plc. Combined with ANZ’s existing New Zealandoperations the amalgamated entity will hold an approximate 40% market share,and will be the leading player in all market segments of the New Zealandbanking market. We compete in New Zealand with the Bank of New Zealand (awholly-owned subsidiary of National Australia Bank Limited), Westpac TrustCorporation (a wholly owned subsidiary of Westpac Banking Corporation), ASBBank Limited (a subsidiary of Commonwealth Bank of Australia) and others.

 

29

----

 

*Item 5**: Operating and FinancialReview and Prospects*

 

**Results for 2003, 2002 and 2001**

 

Thefollowing discussion is based on the Financial Statements and accompanyingnotes as prepared under Australian GAAP and set out in the Financial Report.Note 54 to the Financial Report discusses the differences between Australian GAAPand US GAAP, and their impact on our net profit, shareholders’ equity and totalassets.

 

The analysis that followsdiscusses results after income tax unless otherwise stated. In prior periods,abnormal items were reported separately, and the analysis discusses resultsafter income tax and abnormal items. Since 2000, under Australian GAAP,abnormal items are not allowed to be disclosed separately. In past yearsabnormal items were defined as items of revenue or expense which, althoughattributable to the ordinary operations of the business entity, were consideredto be abnormal by reason of their size and/or effect on the results of thebusiness entity for the period.

 

**Overview**

 

Weconsider that many factors may affect our financial condition and results ofoperations. The following factors are of particular importance.

 

Thestate of the economies in the countries in which we operate, in particularAustralia and New Zealand, influences our profitability. Such factors as thelevel of economic growth, unemployment levels and the state of consumerconfidence all have a bearing upon our profitability.

 

Ourprofitability is influenced by the level of interest rates and by fluctuationsin rates. Net interest income is a function of the earning rate on lending andinvesting and the cost of borrowed funds. The extent to which lending andfunding are not matched, particularly with regard to repricing profiles, canalso impact our interest earnings.

 

In2003, 27% (2002: 28%) of our gross revenue was derived from countries outsideAustralia. Movements in foreign currencies against the Australian dollar willtherefore affect our earnings through the translation of overseas profits toAustralian dollars.

 

Weface substantial competition in all our markets, particularly Australia and NewZealand. Competition affects our profitability in terms of reduced interestrate spreads and the volume of new lending. See “Information on the Company -Competition”.

 

Ouroperations are impacted by government actions such as exchange controls, andchanges to taxation and government regulations in the countries in which weoperate. Our operations in most countries depend on the continuing availabilityof banking licenses issued by applicable governments. In Australia, in additionto the competition rules overseen by the Australian Competition and ConsumerCommission (“ACCC”), there is a prohibition of merger between any of the fourmajor banks in Australia by the Commonwealth Government of Australia. There isno change anticipated to this prohibition in the near term.

 

Finally,our operations are also constrained by community pressures, most notably inAustralia, in keeping fee income, interest rate increases and branchrationalization to acceptable levels.

 

**Changes in Accounting Policy**

 

AASB1044, Provisions, Contingent Liabilities and Contingent Assets became effectivefor the Group from October 1, 2002. Under the new Standard, provision fordividends cannot be booked unless dividends are declared, determined orpublicly recommended on or before balance date. Accordingly the dividendapplicable to the current reporting period has not been booked in this report.However, dividends declared after balance date still need to be disclosed inthe notes. The adoption of AASB 1044 results in an increase in Shareholders’Equity of $777 million at September 30, 2003. The Group will continue itscurrent practice of making a public announcement of the dividend after balancedate. Dividend information for the current period is provided in Note 7, Dividends.

 

AASB1012, Foreign Currency Translation became effective for the Group from October1, 2002. Under this revised Standard foreign denominated equity must bereported using the spot rate applicable at the date of issue and not beretranslated using the spot rate at the end of each reporting period. The Grouphas retranslated its USD preference share capital to the historical spot rates.As the translation adjustment is reported in the foreign currency translationreserve the impact of these changes are neutral on equity.

 

30

----

 

*Operating Results*

 

Ourresults for the past three years are summarized below and are discussed underthe headings of “Analysis of Major Income and Expense Items”, “Results by Lineof Business”, and “Results by Region”, which follow.

 
| **Years ended September 30**                                |   | **2003** |   | **2002** |   | **2001** |   |
|-------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                                        |   | **$M**   |   | **$M**   |   | **$M**   |   |
|                                                        |   |     |   |     |   |     |   |
| **Australian GAAP**                                         |   |     |   |     |   |     |   |
| Net  interest income                                        |   | 4,311    |   | 4,018    |   | 3,833    |   |
| Allowance  for loan losses charge                           |   | (614     | )      | (860     | )      | (531     | )      |
| Net  interest income after allowance for loan losses charge |   | 3,697    |   | 3,158    |   | 3,302    |   |
| Non-interest  income                                        |   | 2,808    |   | 2,970    |   | 2,573    |   |
| Net  operating income tax                                   |   | 6,505    |   | 6,128    |   | 5,875    |   |
| Other  operating expenses                                   |   | (3,228   | )      | (2,905   | )      | (3,092   | )      |
| Operating  profit before income tax                         |   | 3,277    |   | 3,223    |   | 2,783    |   |
| Income  tax expense                                         |   | (926     | )      | (898     | )      | (911     | )      |
| Operating  profit after income tax                          |   | 2,351    |   | 2,325    |   | 1,872    |   |
| Outside  equity interest                                    |   | (3       | )      | (3       | )      | (2       | )      |
| Net  profit attributable to shareholders of the company     |   | 2,348    |   | 2,322    |   | 1,870    |   |
| **US GAAP**                                                 |   |     |   |     |   |     |   |
| Operating  profit attributable to ANZ shareholders          |   | 2,380    |   | 2,097    |   | 1,796    |   |

 

*Analysisof Significant Items*

 

ANZbelieves that the exclusion of significant transactions provides investors witha measure of the performance of the operating business without the distortionof one-off gains and losses. The table below shows the impact of thesignificant items on our Operating Results for the past three years.Significant items are shown individually and also shown geographically forAustralia and New Zealand.

 
|                                                                                                                                       |   | **2003** |   | **2002** |   | **2001** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                                                                                                                       |   | **$M**   |   | **$M**   |   | **$M**   |   |
| Profit  excluding profit after tax from sale of businesses to joint venture, NHB  recovery and additional allowance for loan losses charge |   | —   |   | 2,168    |   | —   |   |
| Additional  allowance for loan losses charge after tax                                                                                     |   | —   |   | (175     | )      | —   |   |
|                                                                                                                                       |   |     |   |     |   |     |   |
| Recovery  from NHB litigation after tax                                                                                                    |   | —   |   | 159      |   | —   |   |
|                                                                                                                                       |   |     |   |     |   |     |   |
| Profit  from sale of Australian businesses to ING Australia joint venture after tax                                                        |   | —   |   | 138      |   | —   |   |
| Australian  significant transactions                                                                                                       |   | —   |   | 122      |   | —   |   |
| Profit  from sale of New Zealand businesses to ING Australia joint venture after tax                                                       |   | —   |   | 32       |   | —   |   |
| Net  profit attributable to shareholders of the company                                                                                    |   | —   |   | 2,322    |   | —   |   |

 

31

----

 

Australiaand New Zealand Banking Group Limited recorded a profit after tax of $2,348million for the year ended September 30, 2003, an increase of 1% over theSeptember 2002 year. Earnings per ordinary share were 1% higher at 148.3 cents,and return on ordinary shareholders’ equity was down from 23.2% to 20.6%.

 

*Net profit and loss*

 

Profitafter tax for the 2003 year was $2,348 million, an increase of 1% over theSeptember 2002 year. Excluding one-off significant transactions in 2002, therewas an 8% increase over the September 2002 year. Key influences on theoperating result for the year were:

 

•                  Growth of 7% in net interest income. Averagenet lending assets grew by $13.6 billion (10%) overall, with growth of $10.8billion (18%) in Mortgages, $1.6 billion in Corporate and $0.8 billion in AssetFinance. Net lending asset volumes reduced 15% in overseas markets as a resultof the strategy to reduce higher risk exposures in the UK and US and theexchange rate impact of a strengthening Australian dollar. Average deposits andother borrowings grew $13.5 billion, in Treasury ($3.2 billion), PersonalBanking Australia ($4.2 billion), Institutional Financial Services ($2.7billion), New Zealand Banking (NZ $0.8 billion), Asset Finance ($0.8 billion)and Corporate ($1.6 billion). The deposit growth was encouraged by uncertaintyin global equity markets.

 

Netinterest margin contracted by 10 basis points:

 

**•****                 **The funding cost associated with unrealized trading gains increased as aresult of the appreciation of the AUD. Whilst resulting in a 3 basis pointdecline in net interest margin, it is offset by an equivalent gain in tradingincome.

 

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

 

•                  The interest benefit from low interest savingsaccounts and non-interest bearing balances reduced as the rate at which theywere invested reduced (3 basis points).

 

•                  The proportion of the balance sheet funded bylow interest savings accounts and non-interest balances reduced during theyear, offset by an increase in term deposits and wholesale funding. This changein funding mix reduced the net interest margin by 5 basis points.

 

•                  Partially offsetting these declines was an increasein foreign currency hedge revenue as a result of the strengthening AUD (3 basispoints) and a reduction in the funding cost on impaired assets (1 basis point).

 

•                  Non interest income reduced 5%. Afteradjusting to remove the impact of selling the ANZ Funds Management business toING Australia non interest income increased 5% :

 

•                  Lending fees increased $57 million on strongvolume growth in Corporate, Asset Finance and Institutional Banking inAustralasia.

 

•                  Non-lending fees reduced by 3% ($35 million)principally from a $38 million under-accrual of loyalty points on co-brandedcredit cards in prior years, higher cost of loyalty points and reduced feerevenue from the US and UK structured finance operations.

 

•                  Non-fee other income increased by 17% ($102million), including increased equity accounted income in PT Panin, developmentproperty sales in Institutional and higher profit on trading instruments. Thelatter is principally due to a change in the split of Capital Markets earningsbetween trading and net interest income.

 

•                  Operating expenses increased $323m, 11%compared to 2002. Excluding the 2002 NHB recovery ($248 million) operatingexpenses increased by $75 million, 2% higher than the full year 2002. Afteralso adjusting for the impact of selling the Funds Management businesses to INGAustralia operating expenses increased 4%.

 

•                  The Allowance for Loan Loss charge increasedby 1%. A 12% growth in net advances was offset by an improvement in overallaverage credit quality, with an increased proportion of mortgage loans.

 

32

----

 

*Credit Risk*

 

Thetotal group allowance for loan loss charge totalled $614 million as compared toa charge of $860 million in 2002. The 2002 charge included an additional allowancefor loan losses of $250 million to restore the general allowance for loanlosses to an appropriate level.

 

Theallowance for loan loss charge to operating segments was lower at $514 millionin the year to September 2003 (2002: $538 million). An additional charge of$100 million (7 basis points) was taken to recognize continued uncertainty andexpected levels of default in the offshore lending portfolios. Excluding the$250 million additional provision in 2002, the average allowance for loan lossrate decreased over the year to 39 basis points compared to 43 basis points forthe September 2002 year.

 

Netspecific allowance for loan losses were $527 million, down from $728 million inthe September 2002 year. The reduction was mainly due to the absence of largesingle name losses in the September 2003 year, compared to the September 2002year where 43% of losses were due to two large amounts in the offshoreportfolios. While the Australian and New Zealand portfolio losses remainedrelatively stable over the year, the international portfolio losses reduced by52%. Settlement of the Grindlays credit warranties ($27 million) was includedin the net specific allowance for loan losses for the 2003 year.

 

Netnon-accrual loans were $525 million at September 2003 compared with $628million at September 2002. New non-accruals of $988 million in the September2003 year represent a reduction of $297 million compared to the September 2002year where large single names boosted the level of non-accruals. The Allowancefor Loan Loss balance at 30 September 2003 was $1,534 million (1.01% of riskweighted assets), compared with $1,496 million (1.06% of risk weighted assets)at September 30, 2002.

 

33

----

 

*Analysisof Major Income and Expense Items*

 

*Netinterest income*

 

Thefollowing table analyzes net interest income, interest spread and net interestaverage margin for Australia, New Zealand and overseas markets. Interest incomefigures included as part of spread and margin calculations are presented on atax-equivalent basis.

 
| **Years ended September 30**                                |   | **2003** |   | **2002** |   | **2001** |   |
|-------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                                        |   | **$M**   |   | **$M**   |   | **$M**   |   |
| Interest  income                                            |   | 10,215   |   | 9,037    |   | 10,251   |   |
| Interest  expense                                           |   | (5,904   | )      | (5,019   | )      | (6,418   | )      |
| Net  interest income                                        |   | 4,311    |   | 4,018    |   | 3,833    |   |
| Average  interest earning assets                            |   | 162,154  |   | 145,920  |   | 139,301  |   |
|                                                        |   |     |   |     |   |     |   |
| **Australia**                                               |   |     |   |     |   |     |   |
| Gross  interest spread adjusted to include interest forgone |   | 2.31     |   | 2.44     |   | 2.35     |   |
| Interest  forgone on impaired assets (1)                    |   | (0.02    | )      | (0.04    | )      | (0.03    | )      |
| Net  interest spread (2)                                    |   | 2.29     |   | 2.40     |   | 2.32     |   |
| Interest  attributable to net non-interest bearing items    |   | 0.41     |   | 0.51     |   | 0.64     |   |
| Net  interest average margin (3)- Australia                 |   | 2.70     |   | 2.91     |   | 2.96     |   |
|                                                        |   |     |   |     |   |     |   |
| **New Zealand**                                             |   |     |   |     |   |     |   |
| Gross  interest spread adjusted to include interest forgone |   | 2.30     |   | 2.34     |   | 2.13     |   |
| Interest  forgone on impaired assets (1)                    |   | —   |   | —   |   | (0.03    | )      |
| Net  interest spread (2)                                    |   | 2.30     |   | 2.34     |   | 2.10     |   |
| Interest  attributable to net non-interest bearing items    |   | 0.62     |   | 0.48     |   | 0.54     |   |
| Net  interest average margin (3)- New Zealand               |   | 2.92     |   | 2.82     |   | 2.64     |   |
|                                                        |   |     |   |     |   |     |   |
| **Overseas markets**                                        |   |     |   |     |   |     |   |
| Gross  interest spread adjusted to include interest forgone |   | 1.37     |   | 1.20     |   | 0.92     |   |
| Interest  forgone on impaired assets (1)                    |   | (0.07    | )      | (0.05    | )      | (0.16    | )      |
| Net  interest spread (2)                                    |   | 1.30     |   | 1.15     |   | 0.76     |   |
| Interest  attributable to net non-interest bearing items    |   | 0.15     |   | 0.25     |   | 0.55     |   |
| Net  interest average margin (3)- Overseas markets          |   | 1.45     |   | 1.40     |   | 1.31     |   |
|                                                        |   |     |   |     |   |     |   |
| **Group**                                                   |   |     |   |     |   |     |   |
| Gross  interest spread adjusted to include interest forgone |   | 2.28     |   | 2.31     |   | 2.15     |   |
| Interest  forgone on impaired assets (1)                    |   | (0.03    | )      | (0.04    | )      | (0.06    | )      |
| Net  interest spread (2)                                    |   | 2.25     |   | 2.27     |   | 2.09     |   |
| Interest  attributable to net non-interest bearing items    |   | 0.42     |   | 0.50     |   | 0.68     |   |
| Net  interest average margin (3)- Group                     |   | 2.67     |   | 2.77     |   | 2.77     |   |

 

----

(1)          Refer Note 14 to the Financial Report

(2)          Average interest rate received on interest earning assets less theaverage interest rate paid on interest bearing liabilities

(3)          Net interest income as a percentage of average interest earning assets

 

34

----

 
| **Years ended September 30**                                  |   | **2003** |   | **2002** |   | **2001** |   |
|---------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| **Average rates**                                             |   |     |   |     |   |     |   |
| Average  Australian reference lending rate charged by ANZ     |   | 8.6      | %      | 8.3      | %      | 9.3      | %      |
| Average  Australian variable housing loan rate charged by ANZ |   | 6.6      | %      | 6.3      | %      | 7.4      | %      |
| Average  Australian 90 day fixed term deposit rate (1)        |   | 3.2      | %      | 3.1      | %      | 3.6      | %      |
| US  average prime rate (2)                                    |   | 4.2      | %      | 4.9      | %      | 8.1      | %      |

 

----

(1)          Source: Reserve Bankof Australia

(2)          Source: “Economic Indicators” prepared by the Council of EconomicAdvisors 2003

 

**2003**

 

Netinterest income at $4,311 million was 7% ($293 million) higher than last year.

 

**Volume**

 

Averagenet lending assets grew by $13.6 billion (10%) overall, with growth of $10.8billion (18%) in Mortgages, $1.6 billion in Corporate and $0.8 billion in AssetFinance. Net lending asset volumes reduced 15% in overseas markets as a resultof the strategy to reduce higher risk exposures in the UK and US and theexchange rate impact of a strengthening Australian dollar.

 

Averagedeposits and other borrowings grew $13.5 billion, in Treasury ($3.2 billion),Personal Banking Australia ($4.2 billion), Institutional Financial Services($2.7 billion), New Zealand Banking (NZ$0.8 billion), Asset Finance ($0.8billion) and Corporate ($1.6 billion). The deposit growth was encouraged byuncertainty in global equity markets.

 

**Margin**

 

Net interest margincontracted by 10 basis points for the reasons discussed above under “Net profitand loss”.

 

**2002**

 

Net interest income increased5% (or $185 million) over the year to $4,018 million.

 

Gross spread increased in allgeographic regions due largely to:

 

•                  improved margins in most asset basedbusinesses;

 

•                  consumer-driven business such as PersonalBanking and Small to Medium Business experienced strong deposit volume andmargin growth on the back of the impact of marketing initiatives, andcompetitive pricing of products; and

 

•                  strong asset and liability managementearnings.

 

Interest forgone on impairedassets reduced with cash interest receipts continuing from the majority of thelarge overseas corporate non-accrual loans, and the overall reduction in theAsian non-accrual loan portfolio.

 

The interest benefit fromnon-interest bearing items reduced. This was driven by the combined affects ofa decline in interest rates across this year, and a reduction in the volume ofnet non-interest bearing items.

 

35

----

 

*Non Interest Income*

* *
| **Years ended September 30**   |   | **2003** |   | **2002** |   | **2001** |   |
|--------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                           |   | **$M**   |   | **$M**   |   | **$M**   |   |
| **Fee income**                 |   |     |   |     |   |     |   |
| Lending                        |   | 933      |   | 876      |   | 787      |   |
| Other                          |   | 1,115    |   | 1,196    |   | 1,105    |   |
| Total  fee income              |   | 2,048    |   | 2,072    |   | 1,892    |   |
| Foreign  exchange earnings     |   | 348      |   | 365      |   | 348      |   |
| Profit  on trading instruments |   | 110      |   | 59       |   | 63       |   |
| Other  income                  |   | 302      |   | 474      |   | 270      |   |
| Non  interest income           |   | 2,808    |   | 2,970    |   | 2,573    |   |

 

NonInterest Income, at $2,808 million, was 5% lower than the 2002 year. Excludingprofit on sale of business to ING Australia, other operating income was flat.Total fee income was $24 million lower than 2002 largely due to a one-off chargeof $38 million as a result of an under-accrual of loyalty points on co-brandedcards covering the period back to 1999 together with the ongoing impact ofhigher loyalty program costs. Profit on trading instruments increased $51million largely due to Capital Markets activities where a lower proportion oftrading revenue was booked as interest.

 

**Fee Income**

 

**2003**

 

Total fee income of $2,048million decreased $24 million, 1% lower than September 2002.

 

Lending fee income increased7% with increased business volumes in Institutional Banking, Corporate andAsset Finance.

 

Non-lending fee incomereduced 7% as a result of three main factors:

 

•                  A one-off charge of $38 million as a result ofan under-accrual of loyalty points on co-branded cards covering the period backto 1999 together with the ongoing impact of higher loyalty program costs

 

•                  Lower structured finance fee income reflectingdifficult market conditions and a decision to reduce credit exposures to thepower and telecommunications sectors

 

•                  The sale of ANZ’s funds management businessesto ING Australia

 

**2002**

 

Total fee income of $2,072increased $180 million, 10% higher than September 2001.

 

Key drivers included :

 

•                  increased fee income from lending transactionsin Global Institutional Banking and an increase in Personal Banking Australiamainly driven by growth in honor fees.

 

•                  increased non-lending fees largely as a resultof higher cards transaction volumes. There was also an increase in non-lendingfees in Global Structured Finance.

 

**Foreign ExchangeEarnings**

 

**2003**

 

Foreign exchange earningsreduced by $17 million, 5% lower than September 2002. Increasing competitionand credit constraints offset the positive impact of increased volatility inAsian and Pacific currencies.

 

36

----

 

**2002**

 

ForeignExchange income increased by $17 million, 5% higher than September 2001.Foreign exchange earnings are derived from customer trades, and increases inperiods of volatility. This volatility has lead to an increase in foreignexchange earnings in Asia/Pacific Personal Banking.

 

**Profit andLoss on Trading Instruments**

 

**2003**

 

Profit on trading instrumentsincreased $51 million (86% higher than September 2002) largely due to CapitalMarkets activities where a lower proportion of trading revenue was booked asnet interest. Total income in Capital Markets increased by $17 million.

 

**2002**

 

Profiton trading instruments decreased by $4 million to $59 million, (6% lower thanSeptember 2001). Increases in profitability in Global Capital Markets ($23million increase) have been offset by reductions in Global Foreign Exchange($33 million decrease). Movements have been due to changes in mix between thetrading portfolio and net interest earning assets.

 

**Other Income**

 

**2003**

 

Other income reduced by $172million to $302 million, 36% lower than September 2002.

 

Excluding the $174 millionnet profit before tax from the sale of business to the ING Australia jointventure other income increased 1%. A reduction in life insurance margin on servicesincome following the sale of the funds management business into ING Australiawas offset by increased equity accounted profit from ING Australia, higherequity accounted profit from other associated entities principally relating toprofit on bond sales by PT Panin and the sale of development properties inInstitutional Banking in the 2003 year.

 

**2002**

 

Otherincome increased by $204 million to $474 million, 76% higher than September2001.

 

The2002 result includes a $174 million net profit before tax from sale of businessto the ING Australia joint venture. This was offset by a $91 million reductionin life insurance margin on services operating income due to the sale of thelife insurance business to the ING Australia joint venture. The 2002 result alsoreflects an improved result from equity accounted associated entities ($54million) and increased income from the hedge of TrUEPrS preference sharedividend payments ($45 million).

 

*Non-Interest Expenses*

* *
| **Years ended September 30**      |   | **2003**  |       | **2002**  |       | **2001**  |       |
|-----------------------------------|--------|-----------|------------|-----------|------------|-----------|------------|
|                              |   | **$M**    |       | **$M**    |       | **$M**    |       |
| Personnel  expenses               |   | 1,750     |       | 1,714     |       | 1,675     |       |
| Premises  expenses                |   | 295       |       | 299       |       | 285       |       |
| Computer  expenses                |   | 465       |       | 424       |       | 364       |       |
| Other  expenses                   |   | 658       |       | 653       |       | 682       |       |
| Restructuring                     |   | 60        |       | 63        |       | 86        |       |
| Recovery  from NHB litigation (1) |   | —    |       | (248      | )          | —    |       |
| **Non-interest expenses**         |   | **3,228** | ** ** | **2,905** | ** ** | **3,092** | ** ** |

 

----

(1)          Part of the Provisions raised on sale of Grindlays and associatedbusinesses

 

Operatingexpenses increased $323m, 11% compared to 2002. Excluding the 2002 NHB recovery($248 million) operating expenses increased by $75 million, 2% higher than thefull year 2002. After also adjusting for the impact of selling the FundsManagement businesses to ING Australia operating expenses increased 4%.

 

37

----

 

*PersonnelExpenses*

 

**2003**

 

Personnelexpenses increased $36 million, 2% over the year ended September 2002.Excluding the impact for the sale of the funds management business to INGAustralia, personnel expenses increased $72m (4%).

 

Salariesand wages increased as a result of the 4% Enterprise Bargaining Agreement andperformance related salary increases with increased staff numbers in five mainareas: Continuing investment in sales staff in Personal Banking Australia,Corporate and New Zealand Banking, as well as higher back office staffingrequired in Mortgages to service the higher volumes. Consumer Finance staffnumbers increased (mainly temporary staff) to implement the Reserve Bank creditcard reforms. These credit card reform changes were introduced in January 2003.

 

**2002**

 

Personnelcosts increased $39 million, 2% over the year ended September 2001. Thisincrease reflects performance related bonuses and salary increases with staffnumbers remaining steady.

 

Therehas been increased use of temporary staff in 2002 (up $9 million) due to theneed to service higher volumes (particularly in consumer finance). There was a$9 million increase in profit share/incentives due to the strong performance ofthe Group.

 

*PremisesExpenses*

 

**2003**

 

Premises cost decreased $4m,1% compared to 2002.

 

**2002**

 

Premisescosts increased $14 million, 5% over September 2001 reflecting higher rentcharges. There was also a net increase in utilities and other outgoings. Thiswas attributable to increases in: Fuel, light and power up $2 million, Securityup $1 million and land tax increasing by $1 million. This has been offset by a$2 million decrease in rates.

 

*ComputerExpenses*

 

**2003**

 

Computercosts increased $41m, 10% compared to 2002 due to higher software amortizationcharges ($43m) as new systems (e.g. Sales and service platform, Vision Plus andNexus) become operational and increased rentals and repairs ($11m) partiallyoffset by a decrease in use of computer contractors in 2003 ($16m).

 

**2002**

 

Computer expenses increased$60 million, 16% compared to 2001 due to increased software purchases andsoftware

amortization. Increased datacommunications costs were offset by lower expenditure on computer contractors.

 

*OtherExpenses*

 

**2003**

 

Otherexpenses increased $5 million, 1% compared to 2002. After adjusting for theimpact of selling the Funds Management business to ING Australia, otherexpenses increased 3%. This is due to higher consultant costs ($5m) and anincreased loss on disposal of premises and equipment ($5m).

 

38

----

 

**2002**

 

Other expenses decreased $29million, 4% when compared to September 2001 mainly reflecting reductions frompurchasing initiatives particularly regarding telephone expenditure andadvertising and public relations, lower use of consultants as well as lowerdepreciation of furniture and equipment. These reductions were offset byincreases in non-lending losses, postage, freight and amortization of goodwill.

 

*RestructuringExpenses*

 

**2003**

 

Restructuringexpenses decreased $3 million, 5% compared to 2002, reflecting an increasedfocus on generating profit growth through increased revenue rather than costreductions.

 

**2002**

 

Restructuringis an ongoing part of our banking business. We incurred a $63 millionrestructuring charge during the 2002 year compared with an $86 million chargein 2001. The major areas of restructuring were: streamlining back officeprocesses and developing of a common administrative systems platformencompassing human resources, procurement, accounts payable, fixed assets andgeneral ledger.

 

*Pension Payments*

 

Pensionpayments are our principal post-retirement benefit. Other post-retirementbenefits (which chiefly comprise reduced fees on bank accounts) are notmaterial. Health care is provided to Australian citizens by the government.Accordingly, we do not provide post-retirement health insurance in Australia.Some post-retirement health care is provided in Japan and the United Kingdom,however this amount is not material.

 

*ING Australia Limited*

* *
| **Years ended September 30** |   | **2003** |   | **2002(1)** |   | **2001** |   |
|------------------------------|--------|----------|--------|-------------|--------|----------|--------|
|                         |   | **$M**   |   | **$M**      |   | **$M**   |   |
| Net  interest income         |   | (16      | )      | (6          | )      | n/a      |   |
| Other  operating income      |   | 46       |   | 9           |   | n/a      |   |
| Operating  income            |   | 30       |   | 3           |   | n/a      |   |
| Operating  expenses          |   | —   |   | —      |   | n/a      |   |
| Profit  before income tax    |   | 30       |   | 3           |   | n/a      |   |
| Income  tax benefit          |   | 8        |   | —      |   | n/a      |   |
| Net  profit after income tax |   | 38       |   | 3           |   | n/a      |   |

 

----

(1)          Impact of 5 months of the Joint Venture operation upon ANZ. Thebusinesses sold to the joint venture contributed a $40 million profit prior totheir sale.

 

**2003**

 

The 2003 result for theequity accounted joint venture ING Australia improved over the five months toSeptember 30, 2002 as a result of strong revenue growth from the life riskbusiness and cost reductions. After a difficult start to the year due to majorglobal uncertainties, funds under management increased in the second half of2003 and ING Australia consolidated its number 4 position in Retail Funds UnderManagement as measured by ASSIRT. Risk business income continued to improvewith positive claims experience the major contributor. Costs fell in the secondhalf of 2003 as a result of the delivery of integration savings and strong costmanagement.

 

**2002**

 

InApril 2002, certain life and general insurance and funds management businesseswere sold to a joint venture with the ING Australia Group, and a 49% interestin the joint venture was acquired. A profit after tax of $170 million arose onsale of the businesses.

 

39

----

 

Thejoint venture is equity accounted, ANZ’s share of the equity accounted incomefor the 5 months ended September 30, 2002, was $20 million, which is thendecreased by a $18 million notional goodwill amortization charge. The 2002results above include the funding cost ($6 million charge before tax), and theinvestments earnings on a hedge ($5 million net of tax). Part of ING Australiacapital is invested in equities and fixed interest, and we have hedged ourexposure to these earnings.

 

*Non Accrual Loans*

* *
| **September 30**                               |   | **2003** |   | **2002** |   | **2001** |   |
|------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                           |   | **$M**   |   | **$M**   |   | **$M**   |   |
| Gross  non-accrual loans                       |   | 1,007    |   | 1,203    |   | 1,260    |   |
| Subject  to specific allowance for loan losses |   | 913      |   | 1,072    |   | 940      |   |
| Without  specific allowance for loan losses    |   | 94       |   | 131      |   | 320      |   |

 
| **Gross Non Accrual Loans by Region  September 30,** |   | **2003** |   | **2002** |   | **2001** |   |
|------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                                 |   | **$M**   |   | **$M**   |   | **$M**   |   |
| Australia/New  Zealand                               |   | 544      |   | 561      |   | 872      |   |
| US/UK  Europe                                        |   | 376      |   | 541      |   | 145      |   |
| Asia                                                 |   | 50       |   | 62       |   | 147      |   |
| Other  international                                 |   | 37       |   | 39       |   | 96       |   |
| Total                                                |   | 1,007    |   | 1,203    |   | 1,260    |   |

 

A reduction in new nonaccrual loans and a stable level of write-offs has seen the non accrual loan balancedrop by $196 million.

In the US/UK and Europe newnon accrual loans fell by $267 million due to fewer large individual customerdown grades.

 
| **New Non Accrual Loans by Region  September 30,** |   | **2003** |   | **2002** |   | **2001** |   |
|----------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                               |   | **$M**   |   | **$M**   |   | **$M**   |   |
| Australia/New  Zealand                             |   | 636      |   | 674      |   | 1,127    |   |
| US/UK  Europe                                      |   | 320      |   | 587      |   | 124      |   |
| Asia                                               |   | 11       |   | 10       |   | 48       |   |
| Other  international                               |   | 21       |   | 14       |   | 58       |   |
| Total                                              |   | 988      |   | 1,285    |   | 1,357    |   |

 

TheGroup is well provided with a specific allowance for loan losses coverage ratioof 48%. Net non-accruals are $525 million (September 2001: $628 million) andrepresents 3.8% of shareholders’ equity at September 2003 (September 2002:5.5%).

 

*Corporate Businesses Risk Profil**e(1)*

 

TheGroup applies a risk rating scale of 0 to 10 to its lending portfolios (riskgrades 1 to 8 have + and - modifiers making a total of 27 separate riskgrades), based on the probability of default, with risk grades 9 and 10representing non-accrual loans. Outstandings (as opposed to limits) aredocumented below as they more closely relate to information disclosed on thebalance sheet. Over the year, the quality of the Corporate portfolio hasremained relatively stable with a slight deterioration in International beinglargely offset by improvements in the domestic portfolio. The portfolio remainswell diversified and of good quality. The general allowance for loan losses isconsidered sufficient to insulate against losses inherent in the portfolio.

 

40

----

 

*Corporate Businesses Risk Profil**e(1)*

* *
| **Years ended  September 30** |   | **2003**      |   | **2002**     |   | **2001** |   |
|-------------------------------|--------|---------------|--------|--------------|--------|----------|--------|
| ANZ                           |   | S&P       |   | Moody’s |   |     |   |   |   |   |   |
| CCR  0-3                      |   | AAA to BBB+   |   | Aaa to Baa2  |   | 39.0     | %      | 40.8 | % | 37.8 | % |
| CCR  4                        |   | BBB-          |   | Baa3         |   | 22.4     | %      | 25.5 | % | 27.6 | % |
| CCR  5                        |   | BB+ to BB     |   | Ba1 to Ba2   |   | 23.5     | %      | 19.8 | % | 20.1 | % |
| CCR  6                        |   | BB-           |   | Ba3          |   | 10.3     | %      | 9.3 | % | 9.4 | % |
| CCR  7-8                      |   | B+ to CCC     |   | B1 to Caa    |   | 3.3      | %      | 2.9 | % | 3.6 | % |
| CCR  9-10                     |   | D/Non Accrual |   | Non Accrual  |   | 1.5      | %      | 1.7 | % | 1.5 | % |

 

----

(1)          CorporateBusinesses comprises the following specialist business units: InstitutionalBanking, Transaction Services, Structured Finance International, CapitalMarkets, Foreign Exchange, Corporate Finance and Advisory and CorporateBanking.

 

*Allowancefor Loan Losses*

 

ANZ’s methodology fordetermining the total allowance for loan losses establishes both a specific(allocated) and general (unallocated) component. The allocated allowancerepresents the results of analysis of individual loans within ANZ’s portfolio-specific allowance. The unallocated allowance (general allowance for loanlosses) is established for losses inherent in the portfolio, but yet to bespecifically identified. The unallocated allowance is determined through theapplication of the Allowance for Loan Loss methodology. The unallocatedallowance is regularly reviewed to ensure it is adequate, having regard to the lossrate and term of the portfolio. The Allowance for Loan Loss charge representsthe expected annual loss on principal inherent in the lending portfolio.Expected loss is determined from analysis of both individual loan and portfoliorisk gradings and associated default and loss expectancy rates. Financial andstatistical tools are used to assist in the risk rating of much of the Bank’sbusiness and consumer borrowers. The Bank’s risk rating framework separatelyidentifies probability of default from the loss given default. For individuallyrated borrowers, the Bank employs a risk rating scale of 0 to 10 (risk grades 1to 8 have “+” and “-” modifiers making a total of 27 separate risk grades), todetermine the probability of default, with ratings 0 through 8 being theproductive ratings and, 9 and 10 the non accrual grades. Underlying theseratings are associated default probabilities. To measure security coverage, aseven grade scale is applied, ranging from A through G. Security Indicator Arepresents more than 130% security coverage, while G is applied to unsecuredcustomer borrowings. Customer’s risk ratings and loan facilities are reviewedperiodically (typically at least annually) to ensure the risk ratings reflectthe credit risk of the customer and the prevailing economic conditions.Similarly, the performance of the risk rating tools used in the credit ratingprocess are reviewed periodically to ensure they remain statistically valid andreflect current loss experiences.

 

SeeNote 1, (vi) and (vii), of the Financial Report for more details.

 

41

----

 
| **Years ended September 30**                     |   | **2003**  |       | **2002**  |       | **2001**  |       |
|--------------------------------------------------|--------|-----------|------------|-----------|------------|-----------|------------|
|                                             |   | **$M**    |       | **$M**    |       | **$M**    |       |
| **Specific allowance for loan losses**           |   |      |       |      |       |      |       |
| Australia                                        |   | 267       |       | 211       |       | 303       |       |
| New  Zealand                                     |   | 9         |       | 20        |       | 33        |       |
| Principal  domestic markets                      |   | 276       |       | 231       |       | 336       |       |
| Overseas  markets                                |   | 208       |       | 354       |       | 164       |       |
| **Total specific allowance for loan losses**     |   | **484**   | ** ** | **585**   | ** ** | **500**   | ** ** |
| **General allowance for loan losses**            |   | **1,534** | ** ** | **1,496** | ** ** | **1,386** | ** ** |
| **Total allowance for loan losses**              |   | **2,018** | ** ** | **2,081** | ** ** | **1,886** | ** ** |
| **General allowance for loan losses**            |   |      |       |      |       |      |       |
| Balance  at start of period                      |   | 1,496     |       | 1,386     |       | 1,373     |       |
| Adjustment  for exchange rate fluctuations       |   | (49       | )          | (22       | )          | 2         |       |
| Charge  to profit and loss                       |   | 614       |       | 610       |       | 531       |       |
| Significant  transaction:                        |   |      |       |      |       |      |       |
| Additional  charge to profit and loss            |   | —    |       | 250       |       | —    |       |
| Transfer  to specific allowance for loan losses  |   | (588      | )          | (788      | )          | (595      | )          |
| Recoveries                                       |   | 61        |       | 60        |       | 75        |       |
|                                             |   | 1,534     |       | 1,496     |       | 1,386     |       |
| **Specific allowance for loan losses**           |   |      |       |      |       |      |       |
| Balance  at start of period                      |   | 585       |       | 500       |       | 709       |       |
| Adjustment  for exchange rate fluctuations       |   | (49       | )          | (6        | )          | 30        |       |
| Bad  debts written off                           |   | (640      | )          | (697      | )          | (834      | )          |
| Transfer  from general allowance for loan losses |   | 588       |       | 788       |       | 595       |       |
|                                             |   | 484       |       | 585       |       | 500       |       |
| **Total allowance for loan losses**              |   | **2,018** | ** ** | **2,081** | ** ** | **1,886** | ** ** |
| **Allowance movement analysis**                  |   |      |       |      |       |      |       |
| New  and increased allowance for loan losses     |   |      |       |      |       |      |       |
| Australia                                        |   | 418       |       | 423       |       | 562       |       |
| New  Zealand                                     |   | 45        |       | 54        |       | 67        |       |
| United  Kingdom                                  |   | 78        |       | 214       |       | 9         |       |
| United  States                                   |   | 64        |       | 185       |       | 12        |       |
| Other  overseas markets                          |   | 70        |       | 22        |       | 26        |       |
|                                             |   | 675       |       | 898       |       | 676       |       |
| Allowance  for loan loss releases                |   | (87       | )          | (110      | )          | (81       | )          |
|                                             |   | 588       |       | 788       |       | 595       |       |
| Recoveries  of amounts previously written off    |   | (61       | )          | (60       | )          | (75       | )          |
| Net  specific allowance for loan losses          |   | 527       |       | 728       |       | 520       |       |
| Net  credit to general allowance for loan losses |   | 87        |       | 132       |       | 11        |       |
| **Charge to profit and loss**                    |   | **614**   | ** ** | **860**   | ** ** | **531**   | ** ** |

 

**2003**

 

TheGroup remains well provided with total allowance for loan losses of $2,018million, down $63 million from 2002. A continued shift in the asset portfoliofrom offshore institutional assets, to domestic market based assets,predominately mortgages, has seen the overall risk of the portfolio reduce. Thecharge to profit and loss of $614 million represents a loss provisioning rateof 39 basis points, down from 43 basis points in 2002 excluding the additionalcharge. The general allowance for loan losses has increased by $38 million, to$1,534 million with the moderate increase explained by the Group’s larger yetless risky portfolio.

 

42

----

 

Thespecific allowance for loan losses fell from $585 million to $484 million in2003. In Australia the specific allowance for loan losses increased by $56million in 2003 year, with the majority of this being increased provisioning bythe Group’s corporate businesses. Offshore, the specific allowance for loanlosses fell by $157 million, with $117 million being in the Group’s UKoperations, predominately relating to our restructure and partial write-off ofthe exposure to telecommunications company, Marconi. In the absence of thelarge single name exposures in the power and telecommunications industries seenin the UK and American markets in 2002, both new and increased specificallowances for loan losses and net specific allowance for loans losses wheresignificantly lower than the amounts reported in 2002. New and increasedspecific allowance for loan losses were $675 million, down $223 million, whilenet specific allowance for loan losses was $527 million down $201 million from2002.

 

**2002**

 

The$610 million (2001:$531 million) Allowance for Loan Loss charge was determinedunder allowance for loan losses principles and represents the expected averageannual loss on principal inherent in the current risk profile of the lendingportfolio. In addition to the standard modeled Allowance for Loan Loss charge,a further $72 million has been provided. The charge was based on moving thecredit profile of our structured finance portfolio down one grade on ourinternal rating scale (equivalent to increasing the expected default percentagein the Allowance for Loan Loss calculation by approximately 150%), to reflectthe high incidence of downgrade and default evident in the portfolio.

 

TheSeptember 2002 year charge as a percentage of average net lending assets was 43basis points, representing a 5 basis point increase on the level reported forthe September 2001 year.

 

Actualloss experience or net specific allowance for the year to September 30, 2002totalled $728 million, an increase of $208 million over the year to September30, 2001. Of the 2002 increase in Specific Allowance, 43% was due to losses ontwo large accounts in the United Kingdom and Americas portfolios. TheAustralian and New Zealand portfolios actually reduced over the year by $153million due to lower large single name and consumer losses.

 

During2002, an additional Allowance for Loan Loss of $250 million has been charged.We have seen some very unusual large losses (Enron and Marconi) where the speedof collapse prevented appropriate recognition of an Allowance for Loan Losscharge. Neither internal nor external ratings downgraded the companies insufficient time to allow the Allowance for Loan Loss provisioning process torecognize the increased risk inherent in the portfolio.

 

Thishas resulted in some erosion of our allowance for loan losses balance. Ourapproach has always recognized the risk of erosion of the Allowance for LoanLoss balance when unusual events happen.

 

Ourreview of the Allowance for Loan Loss balances in 2002 demonstrated that theunexpected events of the last year have eroded that balance to the point wherewe believe an additional amount is required to be taken to restore the balanceto appropriate levels to reflect losses inherent in the portfolio.

 

AtSeptember 30, 2002 the Allowance for Loan Loss was strong and stood at $1,496million, a surplus of $446 million over the tax effected 0.5% of risk weightedassets guidelines indicated by the Australian Prudential Regulation Authority.

 

*Income Tax Expense*

* *
| **Years ended September 30**                          |   | **2003** |   | **2002** |   | **2001** |   |
|-------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                                  |   | **$M**   |   | **$M**   |   | **$M**   |   |
| Total  income tax expense including significant items |   | 926      |   | 898      |   | 911      |   |
| Effective  tax rate                                   |   | 28.3     | %      | 27.9     | %      | 32.7     | %      |
| Australian  corporate tax rate                        |   | 30       | %      | 30       | %      | 34       | %      |

 

**2003**

 

TheGroup’s effective tax rate for the year ended September 30, 2003 increased 0.4%from September 30, 2002, largely due to the 2002 year benefiting from roll-overrelief which shields from tax the capital gain arising on the sale ofbusinesses to the joint venture with ING Australia. This was partly offset bythe NHB settlement tax rate differential and the life insurance accounting inthe 2002 year together with higher equity accounted earnings in 2003.

 

43

----

 

**2002**

 

The Group’s effective taxrate decreased by 4.8% largely due to the 4% reduction in the Australiancorporate tax rate and the roll-over relief which shields from tax the capitalgain arising on the sale of businesses to the joint venture with ING AustraliaLtd.

 

*Results by Line of Busines**s(1)*

* *
| **Years ended September 30 (3)**                  |   | **2003**  |       | **2002 (2)** |   | **2001** |   |
|---------------------------------------------------|--------|-----------|------------|--------------|--------|----------|--------|
|                                              |   | **$M**    |       | **$M**       |   | **$M**   |   |
| Personal  Banking Australia                       |   | 384       |       | 360          |   | n/a      |   |
| Institutional  Financial Services                 |   | 772       |       | 715          |   | n/a      |   |
| Corporate                                         |   | 270       |       | 242          |   | n/a      |   |
| New  Zealand Banking                              |   | 141       |       | 131          |   | n/a      |   |
| Mortgages                                         |   | 270       |       | 247          |   | n/a      |   |
| Consumer  Finance                                 |   | 144       |       | 150          |   | n/a      |   |
| Asset  Finance                                    |   | 127       |       | 103          |   | n/a      |   |
| ING  Australia                                    |   | 38        |       | 43           |   | n/a      |   |
| Asia  Pacific                                     |   | 131       |       | 98           |   | n/a      |   |
| Treasury                                          |   | 95        |       | 125          |   | n/a      |   |
| **Operating Segments Total**                      |   | **2,372** | ** ** | **2,214**    |   | n/a      |   |
| Group  Center                                     |   | (24       | )          | (46          | )      | n/a      |   |
| **Profit excluding significant transactions (4)** |   | **2,348** | ** ** | **2,168**    |   | n/a      |   |

 

As published in the September 2002 FinancialReport

 
|                                              |   | **2002**  |       | **2001 (5)** |       |
|---------------------------------------------------|--------|-----------|------------|--------------|------------|
|                                              |   | **$M**    |       | **$M**       |       |
| Personal  Banking and Wealth Management           |   | 573       |       | 526          |       |
| Corporate  Businesses                             |   | 527       |       | 466          |       |
| Investment  Banking                               |   | 311       |       | 288          |       |
| Consumer  Finance                                 |   | 149       |       | 99           |       |
| Mortgages                                         |   | 246       |       | 236          |       |
| Asset  Finance                                    |   | 102       |       | 92           |       |
| Small  to Medium Business                         |   | 157       |       | 130          |       |
| Group  Treasury                                   |   | 124       |       | 75           |       |
| Operating  segments total                         |   | 2,189     |       | 1,912        |       |
| Corporate  Center                                 |   | (21       | )          | (42          | )          |
| **Profit excluding significant transactions (4)** |   | **2,168** | ** ** | **1,870**    | ** ** |

 

----

(1)          Resultsare equity standardized. Refer definition on page 207

(2)          Resultsfor 2002 have been restated to reflect changes to line of business in 2003

(3)          ComparativeLine of Business information cannot be provided without unreasonable effort orexpense, refer table below for line of business under previous businessstructure

(4)          Significanttransactions for 2002 include: Sale of business to ING Australia joint venture,NHB recovery and additional provision for loan loss (refer page 31)

(5)          Resultsfor 2001 have been restated to reflect changes to line of business in 2002

 

During the year endedSeptember 30, 2003, ANZ managed is business activities along the followinglines of business: Personal Banking Australia, Institutional FinancialServices, Corporate, New Zealand Banking, Mortgages, Consumer Finance, AssetFinance, ING Australia (joint venture), Asia Pacific, Treasury and GroupCenter.

 

Thefollowing commentary compares the 2003 result with the restated results for2002.

 

44

----

 

**Personal Banking Australia**comprises Personal Distribution and BankingProducts.

 

Profit after tax increased by7% to $384 million with profit growth in Banking Products of 27% offsetting a4% reduction in Personal Distribution. Within Personal Distribution, RuralBanking delivered a 10% profit improvement offsetting investments in PersonalBanking and revenue pressure in ANZ Financial Planning. Significant factorsaffecting the result were:

 

•                  Net interest income increased 8% driven byvolume growth in Rural Banking (business lending 22%, business deposits 44%),and in Banking Products with growth in consumer deposits (11%) and marginlending, (19%). Net interest margin, however, was lower by 25 basis points dueto the lower interest rate environment and higher growth in lower margin cashand term deposits.

 

•                  Other external operating income increased 3%.Revenue from the distribution of investment management products is recorded asexternal income, whereas prior to the sale of businesses to ING Australia, thisrevenue was internal. After adjusting for this:

 

•                  Sales and retention commissions received fromthe sale of ANZ products through the branch network increased 5% reflectingstrong demand for mortgages and the effects of our investment in training ofsales staff in the second half.

 

•                  Fees from core transaction products weremarginally up.

 

•                  Other external operating income reduced 6%driven by an 18% reduction in sales and retention payments from ING Australia,reflecting the negative impact of the downturn in the equity markets. This wasparticularly evident in the first half of the year.

 

•                  Operating costs increased 3% due to an $8million investment in training our sales force, and increased depreciationassociated with investments in technology and the branch network. BankingProducts benefited from cost savings arising from the creation of INGAustralia.

 

•                  Allowance for loan losses remained lowreflecting credit quality, and the deposit driven nature of the business.

 

Personal Distribution profitafter tax fell 4% to $224 million. In 2003, significant investments were madeto improve the sales and service performance of the business. On the serviceside, 155 branches were refurbished, with new merchandising rolled out acrossthe network. On the sales side, emphasis is on the skills of our sales forceand in the second half of 2003, more than 4,200 staff received sales training.The second half showed stronger sales performance in Personal Banking on theback of continued demand for mortgages and higher sales productivity. Growth inthe rural sector has continued, with ANZ improving its’ market share. Thedownturn in the equity markets continued to have a negative impact on thedistribution of investment management products, however this improved duringthe second half as equity markets stabilized.

 

Demand for deposits in BankingProducts led to deposit balances increasing by 9% over the year. In August, ANZwas named “Savings Institution of the Year” and ANZ’s transaction accounts wereagain voted best in the market. Transaction volumes via direct channels haveincreased 14% reflecting the expansion of our ATM fleet and continued growth ininternet banking. Margin lending volumes increased 19%.

 

**InstitutionalFinancial Services**comprisesInstitutional Banking, Transaction Services, Foreign Exchange, Capital Markets,Structured Finance International, and Corporate Financing and Advisory.

 

Profit after tax increased 8%driven by revenue growth in Institutional Banking and Capital Markets of 10%and 9%, respectively, and a 7% increase in profit after tax in TransactionServices. This was offset by a 19% reduction in profit after tax in StructuredFinance International reflecting the continuing rebalancing of the portfoliotowards lower risk sectors. Significant influences on the result were:

 

•                  Net interest income reduced 2%. A 6% increasein Institutional Banking due to growth in domestic lending volumes and highermargins, and a 17% increase in Structured Finance International driven byseveral high margin structured deals was offset by increased funding costs onderivative trading in Capital Markets and Foreign Exchange that was basicallyexchange rate driven.

 

Lending volumes were 3% loweras a result of a reduction in offshore exposures and the impact of theappreciation in the AUD.

 

•                  Non interest income increased 7% due to volumerelated fee growth of 9% in Australia/New Zealand Institutional Banking, higherprofit on trading instruments in Capital Markets and Foreign Exchange (thesplit of net interest income and non interest income can vary considerably inmarkets trading depending on economic conditions), and a $19 million profitafter tax on the final sale of development property businesses.

 

45

----

 

Fee revenue in TransactionServices increased 4% despite being suppressed by the impact of theappreciation of AUD and NZD, SARS, terrorism alerts, and the drought inAustralia.

 

Non-interest income reduced29% in Structured Finance International reflecting difficult conditions in thePower and Telecommunications sectors, combined with reduced Leasing and Taxbased activity, and by 6% in Corporate Financing and Advisory, reflecting theprofit on sale of a legacy asset in 2002.

 

•                  Operating expenses reduced by 2%, due to theappreciation of the AUD against the USD and GBP reducing the 2003 cost base inoffshore sites, and continuing cost discipline across all businesses. Increasedpersonnel costs and the cost consequence of consolidating the TradeCentrix(previously known as Proponix) processing hub were absorbed by back officeefficiency initiatives, and control on discretionary expenditure.

 

•                  Allowance for loan losses charge reduced 5%with a continuing reduction in offshore institutional exposures, includingreduced exposure to the US and UK Power and Telecommunication sectors.Offsetting these improvements was a further deterioration in credit quality ofthe remaining power and telecommunication exposures. Net non-accrual loansdecreased by 21%, largely reflecting the continuing rebalancing of theportfolio towards lower risk sectors.

 

Net specific allowance forloan losses reduced significantly from the 2002 year which included provisioningon Enron and Marconi. New specific allowance for loan losses relate mainly tofurther provisioning against the offshore Power sector.

 

InstitutionalBanking profit after tax grew 20% over the year. The strategy to reduceexposures in the UK and US markets and place an increased emphasis on thedomestic operations resulted in ANZ maintaining its leading market position inAustralia and improved overall credit quality. The improvement in creditquality is reflected in the decline in new non-accrual loans and net specificallowance for loan losses as offshore exposures are managed down. Allowance forloan losses charge increased in the September half due to growth in lendingassets in Australia, a number of domestic downgrades, and further deteriorationin the remaining offshore power exposures. The September 2003 results alsobenefited from a $19 million profit after tax sale of development properties.

 

TransactionServices profit after tax grew by 7% to $164 million. Cash managementbusinesses experienced deposit growth with customers increasing their cashholdings. This was coupled with improved income from Custodian Services withincreased assets under custody and transaction volumes. Trade Finance andInternational payments suffered from the effects of SARS and terrorism alertsand the related downturn in tourism, the appreciation of AUD and NZD againstthe USD, and reduced trade flows resulting from the drought in Australia.Operating efficiency improved while completing the acquisition of the TradeCentrixprocessing hub, which added 105 staff in September half, and commencing theamortization charge for the new global trade platform software. Cost savings incash, trade and payments processing more than offset these costs and theinvestment in a replacement custody system.

 

ForeignExchange experienced a 1% growth in after tax profit, recording $85 million for2003. Sales and trading activity was maintained at prior year levels despiteslow market conditions prevailing for much of the year, particularly in theAustralasian time zone. Consumer activity was constrained by currencies beingrange bound for long periods reflecting the general uncertainty associated withevents such as the Iraq war, the SARS outbreak and the revision of treasuryhedging policies by corporates. The development of collateralizationcapabilities and commissioning of CLS (continuous linked settlements) duringthe year reduced credit and settlement risk, respectively. Net specificallowance for loan losses and non accrual loans related to one large AustralianCorporate that defaulted in 2002.

 

CapitalMarkets profit grew over 2003 - up 17% to $75 million. The 2003 year wascharacterized by a lack of volatility in interest markets, and reduced clienthedging activity with expectations that historically low levels of interestrates would continue in the medium term. Increased revenues reflect increasedpenetration into existing markets by the derivative desk, a continued push intonew fixed interest products and improved conversion of opportunities intomandates in the Primary Market Group.

 

StructuredFinance International suffered a downturn in profit after tax of 19% in 2003,to $68 million. The 2003 result reflects the Group’s strategy to rebalance theportfolio towards lower risk sectors, and reduce exposure to the UK and USpower and telecommunications sectors. The leasing and transportation sector hasperformed strongly, however, most other industry segments have been impacted bysubdued market conditions resulting in an increased time to bring mandateddeals to financial close. Credit remains a critical issue with some furtherdeterioration in credit quality, notably in the UK and US power sectors.

 

CorporateFinancing and Advisory saw a slight decline in profit in 2003 - down 1% to $80million. The portfolio strategy of developing and exploiting niche products forthe core customer base showed promising results in 2003 as a result of theincreased emphasis on growing the private equity, infrastructure fundmanagement and leveraged finance businesses. Revenue from core activities grewnotwithstanding a challenging environment. The profit on sale of a legacy assetinflated income in 2002.

 

46

----

 

Other niche products directedat the Small Business segment will be launched in 2004 to further advance theportfolio strategy.

 

**Corporate**comprises Small to Medium EnterprisesAustralia and Corporate Banking Australia.

 

Profitafter tax increased by 12%. Significant influences on the result were:

 

•                  Operating income increased 8% with growth inboth lending and deposit volumes. SME achieved 15% revenue growth resultingfrom an increased geographic footprint, a focus on industry specialization andan increasing volume of new business being generated through third party brokerchannels. Corporate Banking revenue increased by 1% over the year, but rose 5%in the second half of the year reflecting stronger business momentum.

 

•                  The growth in non interest income was drivenby the increase in volume of lending in both Corporate and SME.

 

•                  Operating expenses increased 3%. Higher costsin SME are due to ongoing investment in frontline and support staff to enablethe continued expansion of the overall business. Overheads in Corporate Bankinghave reduced due to on-going cost management and synergies in combining thebusiness.

 

•                  Allowance for loan losses have increased 4%,slower than the 19% growth in lending volumes. Credit quality in the SME sectorremains sound with the portfolio quality reviewed every quarter to detect anyearly adverse trends. One internally used indicator of portfolio quality is thepercentage of quarterly Business Activity Statement (BAS) payments met bydrawing down existing deposits versus increasing debt (overdrafts). This has remainedat around 80% of the tax payments being met from deposits suggesting steadycash performance in the SME sector.

 

Netspecific allowance for loan losses were up largely due to provisioning againsttwo large corporate customer exposures: problems with one emerged in the secondhalf of the financial year while the other reflected an increase in allowancefor loan losses in an account that has been closely monitored for two years.

 

Smallto Medium Enterprises Australia experienced 16% growth in profit for 2003 - upto $159 million for the year. The strategy has been to develop a strongcustomer proposition and achieve rapid growth in the business. New investmenthas centered on expanding the geographic footprint and industry specialization.Growth has been achieved through an increased investment in relationship andbusiness support staff and leveraging third party broker distribution channels.Monitoring the credit portfolio has received increased focus during this periodof expansion and is reflected in the reduction in specific allowance for loanloss charge.

 

CorporateBanking Australia’s after tax profit grew 6% in 2003 - up to $111 million. Thebusiness has continued its focus on acquiring new business customers andcross-selling the products of other ANZ business units. Total customerprofitability increased by 26% in the year with 46% of total profitabilitybeing reported in the profits of other product businesses. Growth was achieveddespite subdued market conditions with overall credit quality of the portfolioimproving slightly. Allowance for loan losses raised for two large customersimpacted net specific allowance for loan losses. Operating efficiency hasimproved following the centralization of the Relationship Banking supportfunctions early in the year.

 

**New Zealand Banking**profit after tax for the year increased 8%, driven by the appreciationof the New Zealand dollar. The flat result was due to the lack of fee growth aswe improved the competitiveness of our product ranges, and higher costs as weincreased our front line branch staff numbers to improve customer service. Netinterest income increased 12%, driven by strong growth in Business and Rurallending and, to a lesser extent, Corporate lending. Overall margins contracted5 basis points, with reduced deposit margins from competitive pressures, andreduced Corporate lending margins consistent with a focus on lower risklending. Operating expenses increased 12%, reflecting increased frontline staffas part of the roll out of the Restoring Customer Faith program in Personal,and increasing capacity in Business and Rural. Technology costs were alsohigher with increased project related expenditure.

 

OnOctober 24, 2003 ANZ announced the purchase of National Bank of New Zealand(refer page 18).

 

**Mortgages**profit after tax grew 9% over 2003. Significant impacts on this resultincluded an increase of 13% in net interest income, driven by a 22% growth inthe Australian mortgage portfolio - a record sales volume being written throughall key channels. The New Zealand mortgage business has had a turn around in2003, experiencing strong growth in the September 2003 quarter following aperiod of flat or reducing volumes in 2002. Expenses increased 12% due toincreased staffing required to maintain service levels due to higher volumes.

 

47

----

 

**Consumer Finance**saw a decline in profit by 4% over 2003 - to $144 million. Impactingthis result included growth in net interest income (up 15% on 2002) driven byvolume increases in the average credit card outstandings (15%) and personalloans (4%) and a higher proportion of credit card balances paying interest.Other operating income was impacted by a $38 million charge taken in the firsthalf as a result of an under accrual of loyalty points on co-branded cardsgoing back to 1999, $20 million of which related to 2002. After adjusting forthe impact of this under-accrual, other operating income increased by $21million, reflecting strong growth in merchant turnover (15%) and cardholderspend (10%). Operating expenses increased by 12%, resulting from volume growthand increased amortization costs of new technology and the MultiPOS network.

 

**Asset Finance**experienced strong profit after tax growth in 2003 - up 23% to $127 million.This result was driven by a 25% increase in other income - the result of feeson higher new business volumes, profits on end-of-lease vehicle sales, andcommissions on increased insurance writings. Strong growth rates in newbusiness writings saw motor vehicle finance increase 18%, equipment finance26%, fleet management services up 26% and equipment operating leases up 24%.

 

**ING Australia**profit after tax declined 12% in 2003 to $38 million. The 2003 resultfor ING Australia improved over the five months to September 30, 2002 as aresult of strong revenue growth from the life risk business and costreductions. After a difficult start to the year due to major globaluncertainties, funds under management increased in the second half and INGAustralia consolidated its number 4 position in Retail Funds Under Managementas measured by ASSIRT. Risk business income continued to improve with positiveclaims experience the major contributor. Costs fell in the second half as aresult of the delivery of integration savings and strong cost management.

 

**Asia Pacific**profit after tax increased 34% despite an appreciation in the AUD.Significant influences include a 30% increase in Other operating income, drivenby the sale of bonds by PT Panin has increased equity accounting incomebringing the total equity accounted PT Panin contribution to $55 million.Volatility in the Pacific and Asian currencies, particularly in the March 2003half year, combined with ANZ strong market position in the region has resultedin a significant increase in foreign exchange earnings. Expenses are up 6%following the integration of the Bank of Hawaii operations and increasedtechnology support to the Pacific region.

 

**Treasury**net profit for the year was $30 million (or 24%) lower than 2002, adirect consequence of the low and flat interest rate environment globally. TheUSD market was characterized by a rapid and significant decline in interestrates, between August 2001 and December 2001 when short-term interest ratesfell by 2%. This led to an extended period where the interest rate yield curveflattened thus resulting in a contraction in mismatch interest margin.Likewise, the AUD market took a lead from US markets with the yield curve alsoflattening, without the added benefit of falling short term rates (as in theUS). This exacerbated the large contraction in earnings’ margins.

 

**Group Center**includes Operations, Technology and Shared Services, Group PeopleCapital, Group Strategic Development, CFO Units, Group Risk Management, CapitalFunding & Group Items and Call Center.

 

Theresult for the Group Center was a loss of $24 million compared with a loss of$46 million in 2002. The level of the Group’s surplus capital increased overthe year with retained earnings growth and a reduction in the higher riskoffshore credit portfolios. The strengthening of the Australian dollar over theyear resulted in gains on contracts put in place to hedge United States dollardenominated offshore earnings. The weakening New Zealand dollar in the latter partof the year increased interest revenue from New Zealand dollar hedge contractsentered during the course of the year.

 

InFebruary 2003, ANZ’s dispute with the Australian Tax Office relating to equityproducts was settled for $262 million from existing provisions. ANZ wrote downthe value of its investments in E*Trade ($6 million) and Identrus ($8 million)during the year. External operating expenses increased with a higher technologyspend, and the transfer of certain functions to the Corporate Center. Totalcosts were flat with increased external costs charged back to business units.

 

Allowancefor loan losses charge relates to a $100 million provision equivalent to theallowance for loan losses on a downgrade of one level across the entireoffshore Structured Finance and Institutional Banking portfolio. This provisionhas remained relatively constant because of uncertainty in the offshoreportfolios. However, as these portfolios are stabilizing, the level of thisprovision is expected to decrease.

 

Duringthe year, the new payroll and HR information systems were implemented inAustralia. Group payroll systems were replaced. Corporate Banking technologyinitiatives were completed. Improvements leading to better customer responseand processing efficiency for Consumer Finance and Mortgages have also beencompleted.

 

Advancedweb-based systems were implemented across all Australian and New Zealandoperations. On-line procurement was further progressed this year with theon-line purchasing of information technology services and office hardware,stationery and travel now in place.

 

48

----

*Results by Region*

 
| **Years ended September 30**                                                    |   | **2003**  |       | **2002**  |       | **2001**  |       |
|---------------------------------------------------------------------------------|--------|-----------|------------|-----------|------------|-----------|------------|
|                                                                            |   | **$M**    |       | **$M**    |       | **$M**    |       |
| Operating  profit before income tax and including significant transactions      |   |      |       |      |       |      |       |
| Domestic  Markets                                                               |   |      |       |      |       |      |       |
| Australia                                                                       |   | 2,371     |       | 2,391     |       | 2,160     |       |
| New  Zealand                                                                    |   | 495       |       | 456       |       | 395       |       |
|                                                                            |   | 2,866     |       | 2,847     |       | 2,555     |       |
| Overseas                                                                        |   | 411       |       | 376       |       | 228       |       |
|                                                                            |   | 3,277     |       | 3,223     |       | 2,783     |       |
| Income  tax expense                                                             |   |      |       |      |       |      |       |
| Domestic  Markets                                                               |   |      |       |      |       |      |       |
| Australia                                                                       |   | (672      | )          | (683      | )          | (716      | )          |
| New  Zealand                                                                    |   | (147      | )          | (126      | )          | (117      | )          |
|                                                                            |   | (819      | )          | (809      | )          | (833      | )          |
| Overseas                                                                        |   | (107      | )          | (89       | )          | (78       | )          |
| Income  tax expense                                                             |   | (926      | )          | (898      | )          | (911      | )          |
| Outside  equity interest                                                        |   |      |       |      |       |      |       |
| Overseas                                                                        |   | (3        | )          | (3        | )          | (2        | )          |
| Operating  profit after income tax including significant transactions by region |   | 2,348     |       | 2,322     |       | 1,870     |       |
| Domestic  Markets                                                               |   |      |       |      |       |      |       |
| Australia                                                                       |   | 1,699     |       | 1,708     |       | 1,444     |       |
| New  Zealand                                                                    |   | 348       |       | 330       |       | 278       |       |
|                                                                            |   | 2,047     |       | 2,038     |       | 1,722     |       |
| Overseas                                                                        |   | 301       |       | 284       |       | 148       |       |
| **Operating profit after income tax including significant  transactions (1)**   |   | **2,348** | ** ** | **2,322** | ** ** | **1,870** | ** ** |

 

----

(1)   Includessignificant transactions in the year ended September 30, 2002: the sale ofbusinesses to ING Australia joint venture (profit after tax of $170 million),National Housing Bank recovery ($159 million profit after tax) and additionalgeneral allowance for loan losses ($175 million charge after tax) refer page 31

 

*Australia*

 

SelectedAustralian economic indicators are shown below:

 
| **Years ended June 30**                                |   | **2003** |   | **2002** |   | **2001** |   | **2000** |   |
|--------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
| Nominal  rates of growth (1) in Gross Domestic Product |   | 5.6      | %      | 6.2      | %      | 6.6      | %      | 6.1      | %      |
| Inflation  rates                                       |   | 3.1      | %      | 2.9      | %      | 6.0      | %      | 2.4      | %      |
| Real  rates of growth in Gross Domestic Product (2)    |   | 2.7      | %      | 3.8      | %      | 1.8      |   | 4.0      | %      |

 

Source: Australian NationalAccounts: National Income and Expenditure, ABS Cat. no. 52060.0 and 6401.0,June 2002

 

----

(1)   Notrestated for the effects of changes to price levels

(2)   Nominalrates of Gross Domestic Product restated for the effect of changes to pricelevels

 

The Commonwealth Governmentof Australia has forecast the real rate of growth in Gross Domestic Product forthe year ending

June 30, 2004 to be 3.4%.

 

49

----

 

**2003**

 

Net profit decreased 1%.Excluding the Australian component of significant transactions (refer page 31)that increased profit by $122 million in 2002, profit grew 7% reflecting:

 

•      Net interest income increasing 7% withhigher lending volumes in Mortgages, Consumer Finance, Institutional Bankingand Corporate partly offset by a 20 basis point reduction in margin resultingfrom reduced earnings on the investment of capital, non-interest bearing andlow interest savings accounts, and lower mismatch earnings in Treasury.

 

•      Fee income declined by 2% due to the $38million cost of the under accrual of loyalty points on credit cards in prioryears that was booked in the March 2003 half. Excluding this impact, fee incomeincreased by 2% largely in Institutional Banking, Corporate and ConsumerFinance.

 

**•****     **Non interest income was flat with higherprofit on trading instruments (offset in net interest), increased equityaccounted income from ING Australia and profit on the sale of developmentproperties, offset by reduced foreign exchange earnings and the impact of thesale of the Funds Management businesses to ING Australia.

 

•      Operating expense growth was contained to2% with an increased number of sales staff in Personal Banking and Corporateand volume driven staffing increases in Mortgages. Higher software amortizationcharges occurred as new systems became operational.

 

•      Allowance for loan losses charge increased2% with the majority of asset growth occurring in the relatively low riskmortgage portfolio.

 

**2002**

 

Australian operationsrepresented 74% of our external assets and 74% of our after tax profit in 2002.Net profit increased by 18% to $1,708 million (10% increase excluding theAustralian component of the significant transactions). The benefit of the taxrate reduction to 30% was offset by an additional Allowance for Loan LossesCharge ($72 million) in the uncertain global economic environment. 2001 alsoincluded a small net gain on the sale of investments and various investmentwritedowns. Excluding these impacts, net profit increased by 8%, reflectinggrowth across most businesses.

 

*NewZealand*

 

**2003**

 

Profit after tax increased5%. Excluding the gain of $32 million (refer page 31) from the sale of thefunds management businesses

to ING Australia in 2002 andthe impact (a $25 million increase) of exchange rate movements (principally theappreciation in the

NZD against the AUD), whichare not indicative of core business performance, profit increased by 8%. Themain features of the

result excluding these itemswere:

 

**•     **Net interest income increased 8% with lendinggrowth achieved in Corporate, Asset Finance, and Business and Rural, andmortgage lending recovering in the second half. Margins improved with theOfficial Cash Rate, on average, remaining higher during 2003. This was partlyoffset by reduced mismatch earnings in Treasury.

 

**•**      Fee income increased 1%, mainly reflectinggrowth in corporate and institutional financing activities. Transactional feeincome in Personal reduced following the launch of a simplified product rangein July 2002.

 

**•**      Non interest income declined, with a numberof large capital markets transactions recorded in 2002 not being repeated inthe current year.

 

**•**      Operating expenses were flat due to higheremployee numbers from an increased investment in front line staff, being offsetby savings in the support areas.

 

•      Loanquality remains sound with the allowance for loan loss charge declining 6% dueto a reduction in the risk profile of the Corporate loan portfolio. Allowancefor loan losses remain well in excess of net specific allowance for loanlosses.

 

**2002**

 

NewZealand contributed $330 million to the Group result in 2002, an increase of19% on 2001. Excluding the exceptional gain from the sale of the fundsmanagement business to the ING Australia joint venture ($32 million), andadjusting for translation gains arising from a strengthening New Zealanddollar, growth in the 2002 year was 3%.

 

50

----

 

*OverseasMarkets*

 

**2003**

** **

Overseas markets contributed$301 million to the Group result in 2003, comprising $117 million fromoperations in the UK, Europe and United States (39%), $116 million from Asia,and $68 million from the Pacific. Overall this represents an increase of 6%from last year. Excluding the impact of exchange rates (a $20 milliondecrease), significant regional factors in the result were:

 

•      Netinterest income increased 10% in UK/USA reflecting the impact of high marginassets written during the second half. An increase of 3% was recorded in Asiadue mainly to increased lending volumes in China and ANZ’s successfulapplication for the renminbi trading license, the expansion of the Cardsbusiness in Indonesia. In the Pacific, strong lending growth particularly inFiji and Vanuatu drove net interest income up 13%, despite tighteningregulatory pressure and increased competition following a rationalization ofthe number of banks in Papua New Guinea forced a reduction in interest margins.Overall, net interest income was relatively stable, showing a marginal decreaseof 1% for the year.

 

•      Feeincome decreased overall by 2% in 2003. Difficult market conditions droveUK/USA down 11%, offset by volume-driven increases in Asia and the Pacific,increasing 11% and 17% respectively.

 

•      Higherequity accounted earnings from PT Panin (up $25 million) drove other non interestincome up 41% in overseas markets. The PT Panin earnings, benefited from a $16million profit on the sale of bonds in the first half of 2003.

 

•      Regionally,Asia experienced an increase of 11% to operating expenses, driven by a 4%increase in staff numbers, and additional marketing costs associated with thetrade finance operations in China and Cards operations in Indonesia. Expensesgrew 16% in the Pacific following increased technology support required for theregion, and the integration of the Bank of Hawaii operations during 2002.

 

•      UKand USA saw a reduction to the allowance for loan losses charge of 15%reflecting the reduction the exposures to UK and US Power andTelecommunications sectors. This was offset by a 24% increase in Asia,reflecting lending growth in the higher risk Cards business in Indonesia.Allowance for loan losses charge was unchanged in the Pacific.

 

**2002**

 

Netprofit increased by 92% to $284 million in 2002. The prior year results wereadversely impacted by losses from discontinued businesses and the writedown ofthe investment in Panin Bank (Indonesia). Excluding the net loss of $68 millionfrom these items, profit grew by 31%, due mainly to a $26 million increase inequity accounted income from Panin, acquisitions and growth in fee income fromPacific, Americas and Asia particularly in structured finance. Net specificallowance for loan losses were above expectations, due to large single namelosses on formerly investment grade loans, mainly Enron and Marconi.

 

51

----

 

*BalanceSheet*

 
| **Years ended September 30**                               |   | **2003** |   | **2002** |   | **2001** |       |
|------------------------------------------------------------|--------|----------|--------|----------|--------|----------|------------|
|                                                       |   | **$M**   |   | **$M**   |   | **$M**   | ** ** |
| **Assets**                                                 |   |     |   |     |   |     |       |
| Liquid  assets & due from other financial institutions |   | 9,019    |   | 11,225   |   | 12,623   |       |
| Trading  securities and investment securities              |   | 8,980    |   | 9,482    |   | 8,314    |       |
| Net  loans and advances                                    |   | 149,465  |   | 132,060  |   | 123,657  |       |
| Customers’  liability for acceptances                 |   | 13,178   |   | 13,796   |   | 14,324   |       |
| All  other assets                                          |   | 14,949   |   | 16,542   |   | 26,575   |       |
| **Total Assets**                                           |   | 195,591  |   | 183,105  |   | 185,493  |       |
| **Liabilities**                                            |   |     |   |     |   |     |       |
| Due  to other financial institutions                       |   | 6,467    |   | 10,860   |   | 12,690   |       |
| Deposits  and other borrowings                             |   | 124,494  |   | 113,259  |   | 104,874  |       |
| Liability  for acceptances                                 |   | 13,178   |   | 13,796   |   | 14,324   |       |
| Creditors  and other liabilities                           |   | 13,611   |   | 12,630   |   | 15,948   |       |
| Bonds,  notes and loan capital                             |   | 22,202   |   | 18,153   |   | 19,171   |       |
| All  other liabilities                                     |   | 1,852    |   | 2,942    |   | 7,935    |       |
| **Total Liabilities**                                      |   | 181,804  |   | 171,640  |   | 174,942  |       |
| **Net Assets**                                             |   | 13,787   |   | 11,465   |   | 10,551   |       |
| **Total Shareholders’ Equity**                        |   | 13,787   |   | 11,465   |   | 10,551   |       |

 

Our total assets at September30, 2003 were $195.5 billion, a $12.5 billion increase from September 30, 2002.

 

*LiquidAssets & Due From Other Financial Institutions*

 

Liquid assets decreased by$0.8 billion in 2003, largely arising from a decrease in bills receivable andremittances in Institutional Financial Services in Australia, whilst a $1.4billion reduction due from other financial institutions occurred largely inoverseas markets, as Treasury increased its holding over long dated paper.

 

*Tradingand Investment Securities*

 

Trading and InvestmentSecurities decreased by $0.5 billion in 2003. A $1.7 billion reduction intrading securities was driven by a decrease in government securities ($1.0billion) and ANZ accepted bills ($0.6 billion) This was partly offset by a $1.2billion increase in Investment Securities, due largely to an increase ingovernment securities ($0.6 billion) and other securities ($0.5 billion), asTreasury increased its holding of longer dated securities.

 

*Net loans,advances and acceptances*

 

Net loans and advancesincreased by $17.4 billion in 2003. Exchange rate movements accounted for a netreduction of $1.9 billion, consisting of a $2.2 billion net reduction inoverseas markets and an increase of $0.3 billion in New Zealand.

 

**Australia**- Growth of $18.8 billion was achieved.

 

•      HousingLoans ($10.1 billion) driven by customer demand and sustained low interestrates.

 

•      Non-housingterm loans ($6.9 billion). Increases in Institutional Financial Services ($2.2billion partly offset by decline in commercial bills) and Corporate ($1.8billion) from growth in the small to medium business sector. Non-housing loansin Mortgages increased $1.9 billion reflecting customer demand for Equityloans.

 

•      Leasefinance ($0.8 billion) driven by growth in most channels particularly Dealerand Broker channels.

 

52

----

 

•      Overdrafts($0.8 billion) driven by growth in invoice financing.

 

•      CreditCards ($0.4 billion) reflecting growth as expected in Consumer Finance.

 

•     Other (-$0.2 billion)

 

**New Zealand**- Growth of $1.8 billion was achieved.Excluding the impact of exchange rates, growth of $1.5 billion was achieved.

 

•     Increased non-housing terms loans ($0.9 billion) due to growth inInstitutional Financial Services ($0.3 billion) and New Zealand Banking ($0.4billion)

 

•     Growth in Mortgage portfolio ($0.6 billion)

 

**OverseasMarkets**- Net loansand advances reduced $3.2 billion. Excluding exchange rate impact, Overseas Markets reduced by$0.9 billion reflecting the deliberate reduction in exposures in the USand UK markets.

* *

*Otherassets*

 

Other Assets reduced by $1.6billion since September 30, 2002 due to a decrease in the revaluation of offbalance sheet derivative instruments. This was partly offset by increases in accruedinterest on higher asset volumes.

* *

*Creditorsand Other Liabilities*

 

Creditors and OtherLiabilities increased by $1.0 billion since September 30, 2002 principally as aresult of an increase in securities lending activity within Trade andTransaction Services Australia and increased accrued interest on higher depositvolumes.

 

A reduction in therevaluation of off balance sheet derivative instruments in InstitutionalFinancial Services was offset by increases on hedges of USD bonds and notes inTreasury.

 

*Depositsand Other Borrowings*

 

Deposits and borrowingsincreased $11.2 billion. Excluding the impact of exchange rates, the increasewas $14 billion, reflecting:

 

•     A $5.5 billion increase in Treasury (principally commercial paper)driven by balance sheet growth

 

•     Higher deposit volumes in Personal Banking ($2.8 billion), Corporate($1.7 billion) and Institutional Financial Services ($1.2 billion)

 

*Bonds,Notes and Loan Capital*

 

Bonds and notes and loancapital increased by $4 billion in 2003, to meet additional fundingrequirements.

 

*Due toOther Financial Institutions*

 

Amountsdue to other financial institutions were $4.4 billion lower than September2002. Excluding the impact of exchange rates the decrease was $2.9 billionresulting from lower demand for short term funds following an increase in termfunding.

 

53

----

 

*Capital*

 
| **Years ended September 30**                                    |   | **2003** |   | **2002** |   | **2001** |   |
|-----------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                                            |   | **$M**   |   | **$M**   |   | **$M**   |   |
| Shareholders’  equity (including outside equity interests) |   | 13,787   |   | 11,465   |   | 10,551   |   |
| Loan  capital (subordinated debt)                               |   | 5,630    |   | 3,445    |   | 3,831    |   |
| Total                                                           |   | 19,417   |   | 14,910   |   | 14,382   |   |
| Liabilities  excluding loan capital                             |   | 176,174  |   | 168,195  |   | 171,111  |   |
| Total  assets                                                   |   | 195,591  |   | 183,105  |   | 185,493  |   |
| Risk  weighted assets                                           |   | 152,164  |   | 141,390  |   | 139,129  |   |
| Tier  1 capital                                                 |   | 11,740   |   | 11,201   |   | 10,387   |   |
| Tier  2 capital                                                 |   | 6,065    |   | 3,937    |   | 4,557    |   |

 
|                          |   | **%** |   | **%** |   | **%** |   |
|-------------------------------|--------|-------|--------|-------|--------|-------|--------|
| Tier  1 capital ratio         |   | 7.7   |   | 7.9   |   | 7.5   |   |
| Tier  2 capital ratio         |   | 4.0   |   | 2.8   |   | 3.2   |   |
| Deductions  (1)               |   | (0.6  | )      | (1.2  | )      | (0.4  | )      |
| Total  capital adequacy ratio |   | 11.1  |   | 9.5   |   | 10.3  |   |

 

----

(1)   Total deductions of $920 million (2002:$1,703 million; 2001: $604 million)

 

**2003.**

 

The Group’s total capitaladequacy ratio increased from 9.5% to 11.1% over the year, driven by theissuance of $1 billion of Hybrid Tier 1 capital and a net increase of $2.1billion of Tier 2 capital.

 

Tier 1 ratio at 7.7% declinedfrom 7.9% as at September 30, 2002 with the Hybrid Tier 1 issue being offset bya new APRA requirement to deduct purchased goodwill directly from Tier 1 capital.

 

Details of the capitaladequacy position are shown in Note 32 of the Financial Report.

 

Deductions from total capitaldecreased from $1,703 million to $920 million over the year primarily due tothe newly introduced APRA requirement to deduct purchased goodwill directlyfrom Tier 1 capital.

 

**2002**

 

The Group’s capital positioncontinued to be above the minimum requirement of APRA. The total capitaladequacy ratio reduced to 9.5% as a result of investment in the ING AustraliaLtd joint venture, however it was still well above the minimum requirements ofthe Australian Prudential Regulation Authority (APRA) guidelines ratio ofqualifying capital to risk weighted assets of 8%. Details of the capitaladequacy position are shown in Note 32 of the Financial Report.

 

Tier 1 ratio (7.9%) increasedthrough growth in retained earnings.

 

The reduction in Tier 2 ratiowas due to maturity of subordinated debts.

 

During the year deductionsfrom total capital increased to 1.2% due to our investment in the ING Australiajoint venture.

 

*Qualifyingcapital, on balance sheet assets and off-balance sheet exposures*

 

TheGroup’s total capital adequacy ratio increased from 9.5% to 11.1% over the yearto 30 September 2003 due largely to:

 

•     The $1 billion issuance of 10 million stapled securities (StEPs) onSeptember 23, 2003 increased Tier 1 capital. The stapled securities comprise ofan interest paying note issued by ANZ Holdings (New Zealand) Limited, a whollyowned subsidiary of ANZ, and a preference share on which dividend will not bepaid while it is stapled to a note.

 

•     A net increase of $1.2 billion of Tier 2 capital in the March 2003 halfyear, and a further $1.1 billion in the second half.

 

Tier1 ration at 7.7% was unchanged from March 2003 but down from 7.9% at September30, 2002. The stapled security issue was offset by a new APRA requirement todeduct purchased goodwill directly from Tier 1 capital.

 

TheGroup plans, subject to APRA approval, to call its TrUEPrs preference shares.This will release a $76 million net profit after tax that arose from the closeout of the TrUEPrs interest rate swap.

 

Asummary of qualifying capital, on-balance sheet assets and off-balance sheetexposures can be seen at Note 32 of the Financial Report.

 

54

----

 

*Commitments*

 

TheGroup leases land and buildings under operating leases expiring from one tofive years. Leases generally provide the Group with a right of renewal at whichtime all terms are renegotiated. Lease payments comprise a base amount plus anincremental contingent rental. Contingent rentals are based on either movementsin the Customer Price Index or operating criteria.

 
| **Years ended September 30**                   |   | **2003** |   | **2002** |   | **2001** |       |
|------------------------------------------------|--------|----------|--------|----------|--------|----------|------------|
|                                           |   | **$M**   |   | **$M**   |   | **$M**   | ** ** |
| **Capital expenditure**                        |   |     |   |     |   |     |       |
| Contracts  for outstanding capital expenditure |   |     |   |     |   |     |       |
| Not  later than 1 year                         |   | 55       |   | 75       |   | 32       |       |
| Later  than 1 year but not later than 5 years  |   | 1        |   | —   |   | 1        |       |
| Total  capital expenditure commitments         |   | 56       |   | 75       |   | 33       |       |
| **Lease rentals**                              |   |     |   |     |   |     |       |
| Future  rentals in respect of leases           |   |     |   |     |   |     |       |
|                                           |   |     |   |     |   |     |       |
| Land  and buildings                            |   |     |   |     |   |     |       |
| Not  later than 1 year                         |   | 164      |   | 163      |   | 133      |       |
| Later  than 1 year but not later than 5 years  |   | 391      |   | 426      |   | 359      |       |
| Later  than 5 years                            |   | 441      |   | 450      |   | 471      |       |
| Total  lease rental commitments                |   | 996      |   | 1,039    |   | 963      |       |
| Furniture  and equipment                       |   |     |   |     |   |     |       |
| Not  later than 1 year                         |   | 17       |   | 16       |   | 9        |       |
| Later  than 1 year but not later than 5 years  |   | 23       |   | 7        |   | 17       |       |
|                                           |   | 40       |   | 23       |   | 26       |       |
| Total  lease rental commitments                |   | 1,036    |   | 1,062    |   | 989      |       |
| Total  commitments                             |   | 1,092    |   | 1,137    |   | 1,022    |       |

 

*Creditrelated commitments*

 

Thecredit risk of the following facilities may be less than the contract amount,but as it cannot be accurately determined, the credit risk has been taken to bethe contract amount.

 
|                    |   | **2003** |   | **2002** |   | **2001** |   |
|-------------------------|--------|----------|--------|----------|--------|----------|--------|
|                    |   | **$M**   |   | **$M**   |   | **$M**   |   |
| Undrawn facilities      |   | 65,381   |   | 60,373   |   | 56,766   |   |
| Underwriting facilities |   | 15       |   | 36       |   | 210      |   |
|                    |   | 65,396   |   | 60,409   |   | 56,976   |   |

 

*Contingentliabilities*

 

TheGroup guarantees the performance of customers by issuing standby letters ofcredit and guarantees to third parties. The risk involved is essentially thesame as the credit risk involved in extending loan facilities to customers,therefore these transactions are subjected to the same credit origination,portfolio management and collateral requirements for customers applying forloans. As the facilities may expire without being drawn upon, the notionalamounts do not necessarily reflect future cash requirements.

 

Thecredit risk of these facilities may be less than the contract amount, but as itcannot be accurately determined, the credit risk has been taken to be thecontract amount.

 

55

----

 

**Table of Contingent Liabilities**

 
|                             |   | **2003** |   | **2002** |   | **2001** |       |
|----------------------------------|--------|----------|--------|----------|--------|----------|------------|
|                             |   | **$M**   |   | **$M**   |   | **$M**   | ** ** |
| Guarantees                       |   | 4,954    |   | 3,580    |   | 4,496    |       |
| Credit  derivatives - sold       |   | 2,409    |   | 3,088    |   | —   |       |
| Standby  letters of credit       |   | 1,406    |   | 1,952    |   | 1,412    |       |
| Bill  endorsements               |   | 148      |   | 298      |   | 430      |       |
| Documentary  letter of credit    |   | 1,755    |   | 1,620    |   | 1,396    |       |
| Performance  related contingents |   | 9,027    |   | 11,161   |   | 9,174    |       |
| Other                            |   | 854      |   | 935      |   | 1,930    |       |
| Total  contingent liabilities    |   | 20,553   |   | 22,634   |   | 18,838   |       |

 
| **Contractual Obligations**         |   | **Total** |   | **Less than  1 year** |   | **1-3  years** |   | **4-5  years** |   | **After  5 years** |   |
|-------------------------------------|--------|-----------|--------|-----------------------|--------|----------------|--------|----------------|--------|--------------------|--------|
|                                |   | **$M**    |   | **$M**                |   | **$M**         |   | **$M**         |   | **$M**             |   |
| Long  Term Debt                     |   | 24,603    |   | 4,704                 |   | 9,220          |   | 6,202          |   | 4,477              |   |
| Capital  Lease Obligations          |   | 0         |   | 0                     |   | 0              |   | 0              |   | 0                  |   |
| Operating  Leases                   |   | 1,036     |   | 182                   |   | 175            |   | 238            |   | 441                |   |
| Unconditional  Purchase Obligations |   | 0         |   | 0                     |   | 0              |   | 0              |   | 0                  |   |
| Other  Long-term Obligations        |   | 0         |   | 0                     |   | 0              |   | 0              |   | 0                  |   |
| Total  Contractual Cash Obligations |   | 25,639    |   | 4,886                 |   | 9,395          |   | 6,440          |   | 4,918              |   |

 

*Liquidityand Capital Resources*

 

Liquidity and capitalresources information is contained in the cashflow, Notes 7, 9, 10, 11, 24, 28,29, 30, 36 and 47 and the Financial Information section of the FinancialReport, and throughout the Financial Review section of this document.

 

The Supervision andRegulation section on page 21 describes the prudential requirements that mustbe met in respect of liquidity. ANZ has policies consistent with those requiredby APRA.

 

Liquidity risk is describedon page 11 and indicates the risk management processes ANZ has in place toensure funds are available to meet obligations when they fall due. ANZ believesthat its working capital is sufficient for its present requirements.

 

*WholesaleFunding*

 

ANZis funded from both the retail and wholesale markets. ANZ’s A$25 billion ofterm wholesale funding as at September 30, 2003 increased from $19 billion asat September 30, 2002. In 2003, A$12 billion of debt was issued via 99transactions. The portfolio is diversified by both type and currency with a weightedaverage term to maturity of 3.9 years. In 2003/04 new term debt issuance isplanned at A$14 billion with an average term of 3.5 years - including NBNZfunding and excluding acquisition funding. 

 

56

----

 

*MaturityProfile of Funding*

 
| **AUD**       |   | **Senior** |   | **Subordinated** |   | **Total** |   |
|---------------|--------|------------|--------|------------------|--------|-----------|--------|
|          |   | **$M**     |   | **$M**           |   | **$M**    |   |
| 1  year       |   | 4,337      |   | 367              |   | 4,704     |   |
| 2  years      |   | 3,740      |   | —           |   | 3,740     |   |
| 3  years      |   | 4,745      |   | 735              |   | 5,480     |   |
| 4  years      |   | 2,039      |   | —           |   | 2,039     |   |
| 5  years      |   | 4,112      |   | 51               |   | 4,163     |   |
| >  5 years |   | —     |   | 4,477            |   | 4,471     |   |
|          |   | 18,973     |   | 5,630            |   | 24,603    |   |

 

*LiquidityPortfolio*

 

ANZmaintains an $7.6 billion portfolio of high quality (A rated and higher),diversified, highly liquid securities to support payment obligations andcontingent funding in the event of a market disruption. The portfolio ismanaged on a global basis through the Group’s major funding centers ie:Melbourne, New York, London, Wellington and Singapore. 

 
| **AUD** |   | **Total** |   |
|---------|--------|-----------|--------|
|    |   | **$M**    |   |
| AUD     |   | 2,802     |   |
| NZD     |   | 1,652     |   |
| USD     |   | 2,546     |   |
| EUR     |   | 171       |   |
| GBP     |   | 430       |   |
| SGD     |   | 22        |   |
|    |   | 7,623     |   |

 

*CapitalManagement*

 

TheGroup’s central capital management target is formulated around Adjusted CommonEquity (ACE) with a benchmark of ACE/RWA in the range of 5.25% to 5.75%.Capital management at ANZ seeks to maintain our AA- rating, optimize return toshareholders, support growth in the business and maintain low cost of capitalthrough prudent risk management. 

 
|            |   | **Tier 1** |   | **Total Capital** |   | **ACE** |   |
|-----------------|--------|------------|--------|-------------------|--------|---------|--------|
| September  2002 |   | 7.92       | %      | 9.5               | %      | 5.74    | %      |
| September  2003 |   | 7.72       | %      | 11.10             | %      | 5.70    | %      |

 

57

----

 

*SupplementaryFinancial Information*

 

**Loan Quality**

 

All loans are subject toregular review and are graded according to the degree of credit risk. We use atwo dimensional risk grading system which measures both the customer’s ability torepay (probability of default) and the loss in the event of default (a factorof the security taken to support the facilities). 

 

Our policy relating to therecognition and measurement of impaired assets conforms with APRA guidelines. 

 

Loans are classified aseither accrual or non-accrual. Accrual loans are credit risk assets whereinterest is accrued to income. Non-accrual loans are credit risk assets where,generally, there is reasonable doubt about the ultimate collectability of anyof the interest and/or principal under contractual terms; accordingly, thecrediting to profit of interest and fees on such loans ceases unless theamounts are actually received. 

 

Our policy requires aspecific allowance to be recorded as soon as it is recognized that a loss ofprincipal is likely to occur. Where a loan is considered to be unrecoverable,the debt is written off against the Allowance for Loan Loss in the year it isidentified. Our Allowance for Loan Loss charge represents the expected annualloss on principal for the current risk profile inherent in the lendingportfolio. The Allowance for Loan Loss charge is credited to the GeneralAllowance for Loan Losses. 

 

Thespecific allowance requirement is transferred from the allowance for GeneralLoan Loss to the Allowance for Specific Loan Loss. Recoveries, representingexcess transfers to the Specific Allowance for Loan Loss, are credited to theGeneral Allowance for Loan Loss.

 

SeeNote 1, (vi) and (vii), of the Financial Report, for more details. 

 

58

----

 

*Non-AccrualLoans*

 

Setout below are our non-accrual loans classified as loans carrying specificallowances and loans not carrying specific allowances. Non-accrual loansinclude assets acquired in foreclosure or similar proceedings.

 

 
| **Years ended September 30**                                             |   | **2003** |   | **2002** |   | **2001** |   | **2000** |   | **1999** |   |
|--------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
|                                                                     |   | **$M**   |   | **$M**   |   | **$M**   |   | **$M**   |   | **$M**   |   |
| **Gross non-accrual loans subject to specific allowance**                |   |     |   |     |   |     |   |     |   |     |   |
| Australia                                                                |   | 502      |   | 445      |   | 597      |   | 370      |   | 530      |   |
| New  Zealand                                                             |   | 17       |   | 30       |   | 74       |   | 46       |   | 33       |   |
| Overseas  markets                                                        |   | 394      |   | 597      |   | 269      |   | 630      |   | 725      |   |
| Total                                                                    |   | 913      |   | 1,072    |   | 940      |   | 1,046    |   | 1,288    |   |
| Specific  allowance for loan losses                                      |   | (482     | )      | (575     | )      | (490     | )      | (692     | )      | (886     | )      |
| Net  exposure                                                            |   | 431      |   | 497      |   | 450      |   | 354      |   | 402      |   |
| **Gross non-accrual loans not subject to specific allowance**            |   |     |   |     |   |     |   |     |   |     |   |
| Australia                                                                |   | 20       |   | 78       |   | 195      |   | 281      |   | 93       |   |
| New  Zealand                                                             |   | 5        |   | 7        |   | 6        |   | 13       |   | 17       |   |
| Overseas  markets                                                        |   | 69       |   | 46       |   | 119      |   | 51       |   | 145      |   |
|                                                                     |   | 94       |   | 131      |   | 320      |   | 345      |   | 255      |   |
| Net  non-accrual loans (1)                                               |   | 525      |   | 628      |   | 770      |   | 699      |   | 657      |   |
| **Gross non-accrual loans**                                              |   |     |   |     |   |     |   |     |   |     |   |
| Australia                                                                |   | 522      |   | 523      |   | 792      |   | 651      |   | 623      |   |
| New  Zealand                                                             |   | 22       |   | 37       |   | 80       |   | 59       |   | 50       |   |
| Overseas  markets                                                        |   | 463      |   | 643      |   | 388      |   | 681      |   | 870      |   |
| Total                                                                    |   | 1,007    |   | 1,203    |   | 1,260    |   | 1,391    |   | 1,543    |   |
| Specific  allowances for loan losses                                     |   | (482     | )      | (575     | )      | (490     | )      | (692     | )      | (886     | )      |
| Net  non-accrual loans (1)                                               |   | 525      |   | 628      |   | 770      |   | 699      |   | 657      |   |
| Ratio  of specific allowances for loan losses to gross non-accrual loans |   | 47.9     | %      | 47.8     | %      | 38.9     | %      | 49.7     | %      | 57.4     | %      |

 

----

(1)   Excluding off-balance sheet commitments thathave been classified as unproductive of $37 million (2002: $44 million, 2001:$31 million, 2000: $56 million and 1999: $70 million) net of an allowance of $2million (2002: $10 million, 2001: $10 million, 2000: $17 million and 1999: $21million) 

 

*AccruingLoans – Past Due 90 Days or More*

 

Setout below are aggregate amounts of loans which are over 90 days in arrears interms of interest servicing or principal repayments, but remain on an interestaccrual basis. Full recovery of principal and interest is expected. Thiscategory comprises accrual loans in arrears 90 days and over which we believeare well secured, and accrual facilities below $100,000 past due from 90 to 180days. 

 
| **Years ended September 30** |   | **2003** |   | **2002** |   | **2001** |   | **2000** |   | **1999** |   |
|------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
|                         |   | **$M**   |   | **$M**   |   | **$M**   |   | **$M**   |   | **$M**   |   |
| Australia                    |   | 175      |   | 176      |   | 277      |   | 335      |   | 292      |   |
| New  Zealand                 |   | 18       |   | 25       |   | 63       |   | 51       |   | 47       |   |
| Overseas  markets            |   | 20       |   | 15       |   | 11       |   | 20       |   | 15       |   |
| Total  past due loans        |   | 213      |   | 216      |   | 351      |   | 406      |   | 354      |   |

 

59

----

 

*RestructuredLoans*

 

Setout below are aggregate amounts of loans where the original contract terms havebeen modified to provide concessions of interest and/or principal due to thefinancial difficulties of the customer. For these loans, interest and feesearned are recognized as income on an accrual basis. Under APRA guidelines,restructured loans include loans with an effective yield above our cost offunds and below our prevailing reference rate for that form of lending.Restructured loans with an effective yield below our average cost of funds atthe date of restructuring are classified as non-accrual loans. 

 
| **Years ended September 30**   |   | **2003** |   | **2002** |   | **2001** |   | **2000** |   | **1999** |   |
|--------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
|                           |   | **$M**   |   | **$M**   |   | **$M**   |   | **$M**   |   | **$M**   |   |
| Australia                      |   | —   |   | 1        |   | 1        |   | 1        |   | 7        |   |
| New  Zealand                   |   | —   |   | —   |   | —   |   | —   |   | —   |   |
| Overseas  markets              |   | —   |   | —   |   | —   |   | —   |   | —   |   |
| Total  restructured loans      |   | —   |   | 1        |   | 1        |   | 1        |   | 7        |   |
| Other  potential problem loans |   |     |   |     |   |     |   |     |   |     |   |

 

*OtherPotential Problem Loans*

 

We do not use the category“potential problem loans” for loans that continue to accrue interest. If a loanis identified as a potential problem, it is classified as non-accrual and ifnecessary an allowance is raised.

 

*InterestForgone*

 

Thefollowing table shows the estimated amount of interest income that would havebeen recorded during the years ended September 30, 2003, 2002 and 2001 hadinterest on the above non-accrual loans and restructured loans been accrued toincome for those years (or, in the case of restructured loans, had interestbeen accrued at the original contract rate), and the amount of interest incomereceived with respect to such loans.

 
| **Years ended September 30**                                               |   | **2003** |   | **2002** |   | **2001** |   |
|----------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                                                       |   | **$M**   |   | **$M**   |   | **$M**   |   |
| **Gross interest receivable on non-accrual loans and  restructured loans** |   |     |   |     |   |     |   |
| Australia                                                                  |   | 36       |   | 50       |   | 47       |   |
| New  Zealand                                                               |   | 2        |   | 3        |   | 12       |   |
| Overseas  markets                                                          |   | 31       |   | 30       |   | 67       |   |
| Total  gross interest receivable on non-accruals and restructured loans    |   | 69       |   | 83       |   | 126      |   |
| **Interest income received**                                               |   |     |   |     |   |     |   |
| Australia                                                                  |   | (10      | )      | (10      | )      | (20      | )      |
| New  Zealand                                                               |   | (1       | )      | (3       | )      | (4       | )      |
| Overseas  markets                                                          |   | (12      | )      | (16      | )      | (14      | )      |
| Total  interest received                                                   |   | (23      | )      | (29      | )      | (38      | )      |
| **Net interest forgone**                                                   |   |     |   |     |   |     |   |
| Australia                                                                  |   | 26       |   | 40       |   | 27       |   |
| New  Zealand                                                               |   | 1        |   | —   |   | 8        |   |
| Overseas  markets                                                          |   | 19       |   | 14       |   | 53       |   |
| Total  net interest forgone                                                |   | 46       |   | 54       |   | 88       |   |

 

60

----

 

*Allowancefor Loan Losses*

 

Thefollowing table shows our specific allowance for loan losses against loans bygeographic region in addition to specific allowances against off balance sheetcommitments and our general allowance for loan losses for each of the past fiveyears ended September 30. 

 
| **Years ended September 30**                      |   | **2003** |   | **2002** |   | **2001** |   | **2000** |   | **1999** |   |
|---------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
|                                              |   | **$M**   |   | **$M**   |   | **$M**   |   | **$M**   |   | **$M**   |   |
| Specific  allowance for loan losses               |   |     |   |     |   |     |   |     |   |     |   |
| Australia                                         |   | 266      |   | 208      |   | 300      |   | 258      |   | 278      |   |
| New  Zealand                                      |   | 9        |   | 20       |   | 32       |   | 26       |   | 20       |   |
| Overseas  markets                                 |   | 207      |   | 347      |   | 158      |   | 408      |   | 588      |   |
| Allowances  against loans                         |   | 482      |   | 575      |   | 490      |   | 692      |   | 886      |   |
| Allowances  against off-balance sheet commitments |   | 2        |   | 10       |   | 10       |   | 17       |   | 21       |   |
| Total  specific allowances                        |   | 484      |   | 585      |   | 500      |   | 709      |   | 907      |   |
| General  allowance for loan losses                |   | 1,534    |   | 1,496    |   | 1,386    |   | 1,373    |   | 1,395    |   |
| Total  allowance for loan losses                  |   | 2,018    |   | 2,081    |   | 1,886    |   | 2,082    |   | 2,302    |   |

 

*Allowancefor Loan Losses – Industry Analysis*

 

See Notes 4 and 5 of theFinancial Information section of the Financial Report for details.

 

*PowerIndustry Exposure*

 

Approximately72% of ANZ’s exposure to the global power industry remains investment grade.The US power sector remains under stress following market deregulation andensuing expansions. ANZ continues to be affected by a small number of singlename exposures. 

 
| **ANZ’s Energy Portfolio Limits(1)  Years ended September 30** |     |    |     |   |   | **ANZ’s Exposure by Geography** |     |
|---------------------------------------------------------------------|----------|---------|----------|--------|--------|--------------------------------------|----------|
|                                                                | **2003** |    | **2003** |   |   |                                 | **2003** | ** ** |
|                                                                |     | **A$B** |     | **%**  |   |                                 |     | **%** | ** ** |
| AAA  to BBB+                                                        |     | 4.9     |     | 61     | %      | Australia  & New Zealand         |     | 54 | % |
| BBB-                                                                |     | 0.9     |     | 11     | %      | Americas                             |     | 20 | % |
| BB+  to BB                                                          |     | 0.5     |     | 6      | %      | Europe                               |     | 12 | % |
| BB-                                                                 |     | 0.3     |     | 4      | %      | Asia                                 |     | 9 | % |
| B+  to CCC                                                          |     | 1.1     |     | 14     | %      | Middle  East                         |     | 5 | % |
| Non  Accrual                                                        |     | 0.3     |     | 4      | %      |                                 |     |   |   |
|                                                                |     | 8.00    |     | 100    | %      |                                 |     | 100 | % |
|                                                                     |          |         |          |        |        |                                      |          |  |  |  |

 

----

(1) Based on ANZ’s internalrating system

 

61

----

 

*TelecommunicationIndustry Exposure*

 

Deteriorationin the industry has predominantly been driven by weak offshore markets as aresult of overcapacity in international band with markets, following lower thanexpected growth and increased competition. ANZ has continued to reduce non-corehigher risk offshore telco exposures. Approximately 58% of total limits are nowin Australia and New Zealand (48% as at March 2003). Over 79% of total globaltelco limits are considered investment grade. 

 
| **ANZ’s Telecommunication Portfolio Limits (1)  Years ended September 30** |     |    |     |   |   | **ANZ’s Exposure by Geography** |     |
|---------------------------------------------------------------------------------|----------|---------|----------|--------|--------|--------------------------------------|----------|
|                                                                            | **2003** |    | **2003** |   |   |                                 | **2003** |   |
|                                                                            |     | **A$B** |     | **%**  |   |                                 |     | **%** |   |
| AAA  to BBB                                                                     |     | 2.6     |     | 69     | %      | Australia  & New Zealand         |     | 58 | % |
| BBB-                                                                            |     | 0.5     |     | 14     | %      | Americas                             |     | 12 | % |
| BB+  to BB                                                                      |     | 0.2     |     | 5      | %      | Europe                               |     | 17 | % |
| BB-                                                                             |     | 0.1     |     | <1  | %      | Asia                                 |     | 13 | % |
| B+  to CCC                                                                      |     | 0.4     |     | 9      | %      |                                 |     |   |   |
| Non  Accrual                                                                    |     | 0.1     |     | 2      | %      |                                 |     |   |   |
|                                                                            |     | 3.8     |     | 100    | %      |                                 |     | 100 | % |

 

----

(1)   Based on ANZ’s internal rating system

 

*Concentrationsof Credit Risk / Loans and Advances by Industry Category*

 

See Note 4 of the FinancialInformation section of the Financial Report for details.

 

Although our loan portfoliois spread across many countries, 79% of loans and advances are booked inAustralia. The inherent risk characteristics of our loan portfolio aretherefore very much linked to general economic conditions in Australia wherethe portfolio is diversified across different regions, industries, customertypes and products. 

 

As at September 30, 2003, ourlargest credit exposure in Australia was in the category “Real estate -mortgage” (57%) which principally comprises owner occupied residential propertyloans with the remainder comprising loans made for residential investment(non-owner occupied) and commercial property purchases. 

 

As at September 30, 2003, 13%of our Australian loans and advances were in the category “Personal”, whichcovers non-business loans to individuals through overdrafts, personal loans,credit cards and fully drawn advances. 

 

Our largest overseas creditexposure is to “Real estate - mortgage”, where most of the exposure andassociated growth is in New Zealand. This category’s percentage share of ouroverseas loan portfolio was 41% in 2003.

 

*Cross-BorderForeign Outstandings*

 

See Note 1 of the FinancialInformation section of the Financial Report for further detail.

 

Ourlimits in respect of cross-border foreign outstandings are approved on acountry by country basis. A centralized unit is responsible for monitoring andcontrolling all cross-border exposure. This unit has overall responsibility forcountry limit approval and product/concentration allocations which is managedby a computerized global risk exposure management system operated through ourbranch network on a 24 hour basis. 

 

62

----

 

*Investment Securities*

 
|                                                                                                    |   | **2003** |   | **2002** |   | **2001** |   |
|---------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                                                                                    |   | **$m**   |   | **$m**   |   | **$m**   |   |
|                                                                                                    |   |     |   |     |   |     |   |
| Investment securities are allocated between Australia and Overseas  based on the domicile of the issuer |   |     |   |     |   |     |   |
|                                                                                                    |   |     |   |     |   |     |   |
| **Listed – Australia**                                                                             |   |     |   |     |   |     |   |
| Other  securities and equity investments                                                                |   | 4        |   | 23       |   | 15       |   |
|                                                                                                    |   | 4        |   | 23       |   | 15       |   |
| **Listed – Overseas**                                                                              |   |     |   |     |   |     |   |
| Other  government securities                                                                            |   | 546      |   | 63       |   | 167      |   |
| Other  securities and equity investments                                                                |   | 633      |   | —   |   | 96       |   |
|                                                                                                    |   | 1,179    |   | 63       |   | 263      |   |
| Total  listed                                                                                           |   | 1,183    |   | 86       |   | 278      |   |
| **Unlisted – Australia**                                                                           |   |     |   |     |   |     |   |
| Local  and semi-government securities                                                                   |   | 1,362    |   | 756      |   | 917      |   |
| Other  securities and equity investments                                                                |   | 250      |   | 252      |   | 60       |   |
|                                                                                                    |   | 1,612    |   | 1,008    |   | 977      |   |
| **Unlisted – Overseas**                                                                            |   |     |   |     |   |     |   |
| New  Zealand government securities                                                                      |   | 399      |   | 488      |   | 425      |   |
| US  government securities                                                                               |   | 907      |   | 1,322    |   | 1,025    |   |
| Other  government securities                                                                            |   | 237      |   | 169      |   | 334      |   |
| Other  securities and equity investments                                                                |   | 429      |   | 536      |   | 448      |   |
|                                                                                                    |   | 1,972    |   | 2,515    |   | 2,232    |   |
| Total  unlisted                                                                                         |   | 3,584    |   | 3,523    |   | 3,209    |   |
| Total  investment securities                                                                            |   | 4,767    |   | 3,609    |   | 3,487    |   |

 

For further information seeNote 12 of the Financial Report for details.

 

*AverageDeposits*

 

Details of our averagedeposits and balances due from other banks for each of the past three fiscalyears is provided in the Average Balance Sheet analysis in Note 33 of theFinancial Report.

 

*Certificatesof Deposit and Other Time Deposit Maturities*

 

See Note 2 of the FinancialInformation section of the Financial Report for details.

 

*Short TermBorrowings*

 

See Note 6 of the FinancialInformation section of the Financial Report for details.

 

*Volume andRate Analysis*

 

SeeNote 3 of the Financial Information section of the Financial Report fordetails.

 

63

----

 

*AccountingDevelopments*

 

*AustralianGAAP*

 

**Provisions,Contingent Liabilities and Contingent Assets**

 

Accounting Standard AASB 1044“Provisions, Contingent Liabilities and Contingent Assets” became effective forthe Group from October 1, 2002. Under this new Standard, provisions fordividends cannot be booked unless dividends are declared, determined orpublicly recommended on or before balance date. Accordingly, the dividendapplicable to the current reporting period has not been booked in the Group’sfinancial report. The adoption of AASB 1044 results in a one-off reduction inthe Group’s return on equity of 1%

 

**ForeignCurrency Translation**

 

Accounting Standard AASB 1012“Foreign Currency Translation” became effective for the Group from October 1,2002. Under this revised Standard, foreign denominated equity must be reportedusing the spot rate at the date of issue and must not be retranslated using thespot rate at the end of each reporting period. The Group has retranslated itsUS preference share capital at historical spot rates. As the translationadjustment is reported in the foreign currency translation reserve, the impact ofthese changes is neutral on the Group.

 

**InternationalFinancial Reporting Standards**

 

For reporting periodsbeginning on or after January 1, 2005, all entities reporting under theCorporations Act 2001 will be required to prepare their financial statements inaccordance with the Australian Standards which will be equivalent toInternational Financial Reporting Standards (IFRS). The InternationalAccounting Standards Board (IASB) determines IFRS. The Australian AccountingStandards Board (AASB) has announced that it plans to formally issue equivalentAustralian Standards for adoption in 2005 by April or May 2004.

 

The Group will report for thefirst time under IFRS when the results for the half-year ended March 31, 2006are announced. It is currently expected that some comparatives will be requiredto be restated on initial adoption of IFRS.

 

The IASB has yet to finalizethe standard on recognition and measurement of financial instruments. Based onan exposure draft of this standard, adoption of IFRS may result in changes tothe Group’s accounting for hedges, changes in the calculation of the allowancefor loan losses and the status of the general allowance for loan losses, andsecuritization. Other areas of change are likely to include amortization ofgoodwill, the recognition of fee income and classification of hybridinstruments. The full impact of these changes on the Group’s financialperformance and financial position will be able to be assessed when therelevant IFRS are finalized.

 

The Group has established aSteering Committee to monitor developments in IFRS and to assess the likelyimpact on the Group’s financial statements, accounting policies and systems. Inaddition, the Steering committee is considering how IFRS will impact thefinancial statements of our customers, our credit assessments of customers andthe changes required to credit policies and debt covenants.

 

*UnitedStates GAAP*

 

**Acquisitionof Certain Financial Instruments**

 

In October 2002 the FASBissued Statement of Financial Accounting Standards SFAS No. 147 “Acquisitionsof Certain Financial Institutions. This statement amends FASB Statement No. 72and 144 and ensures acquisitions of financial institutions are accounted for inaccordance with FASB Statements 141 - Business Combinations and 142 Goodwilland Intangible Assets. As a result the longterm customer relationshipintangible assets of financial institutions are subject to the undiscountedcash flow recoverability test and impairment loss recognition.

 

TheGroup adopted SFAS No. 147 on October 1, 2002 but did not make any purchasesthat fall within its scope in the year ended September 30, 2003.

 

64

----

 

**Accountingfor Stock Based Compensation**

 

SFAS No. 148 amends SFASStatement No. 123 - Accounting for Stock Based Compensation to providealternative methods of transition for voluntary change to the fair value basedmethod of accounting for stock based employee compensation and also amendsdisclosure requirements.

 

The Group continues to applyAPB No. 25 and its related interpretations; which allow the use of theintrinsic value measurement method as detailed in Note 54 xix in the FinancialReport. Additional disclosure has been made to include the adjusted Pro Formaearnings per share results if fair value methodology was applied.

 

**Accountingfor Financial Instruments with characteristics of both Liabilities and Equity**

 

SFAS No. 150 - Accounting forCertain Financial Instruments with Characteristics of both Liabilities &Equity was issued in May 2003 and applied immediately to any issues post May31, 2003 and applies to existing issues of the Group for the interim March 31,2004 report.

 

This statement requires theissuer to classify certain instruments as liabilities. The recent $1 billionissue of ANZ StEPs has been classified as a liability and the associated costclassified as interest expense in Note 54 of the Financial Report. Theapplication of this statement will have an ongoing impact to the Groupsstatements of financial position and financial performance as such instrumentsare treated differently under current Australian GAAP.

 

**Guarantees**

 

The Group has adopted FASBInterpretation No. 45 - Guarantors Accounting and Disclosure Requirements forGuarantors, including Guarantees of indebtedness of Others, which requires aguarantor to recognize at inception a liability equal to the fair value of theobligations undertaken in issuing that guarantee. FIN 45 also requires detaileddisclosure relating to the nature, term, circumstances of performance, maximumpotential payments, current carrying amount of the liability for each group ofguarantees.

 

ANZ provides a variety ofguarantees and indemnifications to our customers to enhance their creditstanding or allow them to complete various business transactions that fallunder the scope of the interpretation which is effective for all guaranteesissued or modified after December 31, 2002. Notes 54 and 48 of the FinancialReport provide the required disclosures.

 

**VariableInterest Entities (VIE)**

 

FASB Interpretation No. 46 -Consolidation of Variable Interest Entities (applicable for us from October 1,2003), significantly changes whether entities included in its scope areconsolidated by their sponsors, transferor or investors. This Interpretationdetermines control based on whether the variable interests in an entity exposestheir holders to the risks and rewards of the VIE, specifically consolidationis required where the company absorbs the majority of the expected losses, willreceive the majority of the expected residual returns, or both. TheInterpretation applies to VIE’s created after January 31, 2003, and iseffective for existing VIE’s at the beginning of the annual first reportingperiod post June 15, 2003.

 

The Group believes thefollowing type of entity is likely to be consolidated when this interpretationbecomes effective.

 

Commercial paper andcorporate debt issuing entities: The purpose and stipulated activities of theseentities is to raise funds for the clients issuance of commercial paper and/orcorporate debt. The Group may manage these entities, service the assets,provide liquidity support, and act as a derivative counterparty. The grossassets are estimated to be $2.7 billion as at September 30, 2003.

 

The Group is currently assessingits maximum exposure to loss as a result of its involvement with these VIE’sunder Fin 46.

 

On application of FIN 46 forpre-existing VIE’s it is estimated the Group’s gross assets may increase by$2.6 billion in the US GAAP reconciliation.

 

*CriticalAccounting Policies*

 

TheGroup prepares its consolidated financial statements in accordance withAustralian Accounting Standards and other authoritative accountingpronouncements. However, notwithstanding the existence of relevant accountingstandards, there are a number of critical accounting treatments, which includecomplex or subjective decisions or assessments. The Group requires all suchapplications of judgement to be reviewed and agreed by Group Finance, and wherethe impact is material, the accounting treatment be reviewed during the auditprocess by the Group’s external auditors. All material changes to accountingpolicy are approved by the Audit Committee of the Board.

 

65

----

 

**Historicalchanges**

 

No change has been made toany of the critical accounting policies or their related methodologies over thelast 3 years. A brief discussion of critical accounting policies, and theirimpact on the Group, follows:

 

**Allowancefor Loan Loss Provisioning**

 

**Descriptionand Significance**

 

Each month the Grouprecognizes an expense for credit losses based on the expected long term lossratio for each part of the loan portfolio. The monthly charge is booked to thegeneral allowance for loan losses which is maintained to cover losses inherentwithin the Group’s existing loan portfolio. The method used by the Group fordetermining this monthly expense charge is referred to as allowance for loanlosses charge (Proft and Loss). The Group uses Loan Loss Charge models to calculatethe expected loss by considering:

 

•     the history of credit loss for each type and risk grade of lending; and

•     the size, composition and risk profile of the current loan portfolio.

 

**Ongoingreviews**

 

The Group regularly reviewsthe assumptions used in the Loan Loss Charge models. These reviews areconducted in recognition of the subjective nature of the Loan Loss Chargemethodology. Methodologies are updated as improved analysis becomes available.In addition, the robustness of outcomes is reviewed considering the Group’sactual loss experience, and losses sustained by other banks operating insimilar markets.

 

To the extent that creditlosses are not consistent with previous loss patterns used to develop theassumptions within the Loan Loss Charge methodology, the existing generalallowance for loan losses may be determined to be either in excess of orinsufficient to cover credit losses not yet specifically identified.

 

As a result of thereassessments, Loan Loss Charge levels may be periodically increased ordecreased with a direct impact on profitability.

 

As part of its review of theLoan Loss Charge model outputs, the Group also regularly evaluates the overalllevel of the general allowance for loan losses. The Group is required, by APRAprudential standards, to have policies which cover the level of generalallowance for loan losses that are needed to absorb estimated losses inherentin the credit portfolio. In some limited circumstances, the assessment of theinherent losses in the portfolio may require an additional charge to profits toensure the adequacy of the general allowance for loan losses. The Groupconsiders it appropriate to maintain its general allowance for loan losses inexcess of the APRA guidelines.

 

**Quantificationof Sensitivity**

 

The average charge to profitfor Loan Loss Charge was 0.39% of average net lending assets or $614 million(Sep 2002: 0.43% or $610 million excluding the additional allowance for loanlosses of $250 million). During the same period, specifically identified creditlosses net of recoveries during the year were $527 million (Sep 2002: $728million).

 

Asat September 2003, the balance of the General allowance for loan losses of$1,534 million (Sep 2002: $1,496 million) represents 1.01% (Sep 2002: 1.06%) ofrisk weighted assets.

 
| **Years ended September 30**                 |   | **2003** |   | **2002** |   | **2001** |   | **2000** |   | **1999** |   |
|----------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
|                                         |   | **$M**   |   | **$M**   |   | **$M**   |   | **$M**   |   | **$M**   |   |
| Allowance  of Loan Loss charge               |   | 614      |   | 860      |   | 531      |   | 502      |   | 510      |   |
| Allowance  for Specific Loan Loss            |   | 527      |   | 728      |   | 520      |   | 384      |   | 482      |   |
| Surplus  / (Deficit) Allowance for Loan Loss |   | 87       |   | 132      |   | 11       |   | 118      |   | 28       |   |

 

**SpecificAllowance for Loan Losses**

 

**Descriptionand Significance**

 

TheGroup maintains a specific allowance for loan losses arising from its exposureto organizations and credit counterparties.

 

66

----

 

The Group’s allowance forloan losses charge methodology is used to estimate the extent of lossesinherent within the loan book. Once a specific allowance for loan loss isidentified as being probable, its value is transferred from the generalallowance for loan losses to the specific allowance for loan losses. Specificallowance for loan losses methodology applies when the full recovery of one ofthe Group’s exposures is identified as being doubtful resulting in the creationof a specific allowance for loan losses equal to the full amount of theexpected loss plus any enforcement/recovery expenses.

 

Recoveries resulting fromexcess specific allowance for loan losses arising when actual losses aredetermined to be less than the amount provided for within the specificallowance for loan losses are transferred back to the general allowance forloan losses.

 

**Quantificationof Sensitivity**

 

The recognition of losses hasan impact on the size of the general allowance for loan losses rather thandirectly impacting profit. However, to the extent that the general allowancefor loan losses is drawn down beyond a prudent amount it will be restoredthrough a transfer from the current year’s earnings. Recoveries of amountspreviously specifically provided against are applied to the restoration of thegeneral allowance for loan losses balance. The amount of net transfer from thegeneral allowance for loan losses to the specific allowance for loan losses,net of recoveries, during the year was $527 million (Sept 2002: $728 million).

 

**Deferredacquisition costs, software assets and deferred income**

 

**Descriptionand Significance**

 

The Group recognizes assetsand liabilities that represent:

 

•     Deferred acquisition costs – direct costs from the acquisition ofinterest earning assets;

 

•     Software assets – direct costs incurred in developing software systems;and

 

•     Deferred income – liabilities representing income received in advance ofservices performed.

 

Deferred acquisition costs –Initially, expenses related to the acquisition of interest earning assets arerecognized as part of the cost of acquiring the asset and written-off as anadjustment to its yield over its expected life. For assets subject toprepayment, expected life is determined on the basis of the historical behaviorof the asset portfolio, taking into account prepayments. Commissions paid tothird party mortgage brokers are an example of expenditure that is deferred andamortized over the expected average life of a mortgage of 4 years.

 

Software assets – Costsincurred in acquiring and building software and computer systems arecapitalized as fixed assets and expensed as depreciation over periods ofbetween 3 and 5 years except for the branch front end applications where 7years is used. The carrying value of these assets is subject to a ‘recoverableamount test’ to determine their value to the Group. If it is determined thatthe value of the asset is less than its ‘book’ value, the asset is written downto the recoverable amount. Costs incurred in planning or evaluating softwareproposals, or in maintaining systems after implementation, are not capitalized.

 

Deferred income – Incomereceived in advance of the Group’s performance of services or in advance ofhaving been earned, is initially recorded as a liability. Once the recognitioncriteria are met, it is then recognized as income.

 

**Quantificationof Sensitivity**

 

Deferred acquisition costs –At September 30, the Group’s assets included $336 million (Sep 2002: $289million) in relation to costs incurred in acquiring interest earning assets.During the year, amortization of $169 million (Sep 2002: $132 million) wasrecognized as an adjustment to the yield earned on interest earning assets.

 

Software assets – AtSeptember 30, the Group’s fixed assets included $465 million (Sep 2002: $419million) in relation to costs incurred in acquiring and developing software.During the year, depreciation expense of $83 million (Sep 2002: $50 million)was recognized and adjustments were made to recognize the right to use softwarein Tradecentrix. Following prior periods of above average project activitywhich replaced significant parts of the Group’s core infrastructure, thesoftware depreciation expense will increase before stabilizing going forward.Consistent with US accounting rules on software capitalization only costsincurred during configuration, coding and installation stages are capitalized.Administrative, preliminary project and post implementation costs includingdetermining performance requirements, vendor selection and training costs areexpensed as incurred.

 

67

----

 

Deferred income – AtSeptember 30, the Group’s liabilities included $272 million (Sep 2002: $170million) in relation to income received in advance. This income is largelycomprised of 2 components: (1) fees received for services not yet completed;and (2) profit made on an interest rate swap that was hedging future payments(years 2004 and forward) on the Group’s preference shares. Under AustralianAccounting Standards, this profit is deferred and recognized when the hedgedtransaction occurs, or immediately if the hedged transaction is no longerexpected to occur.

 

The balances of deferredassets at September 30 were:

 
|                        |   | **Deferred Acquisition Costs** |   | **Software Assets** |   | **Deferred Income** |   |
|-----------------------------|--------|--------------------------------|--------|---------------------|--------|---------------------|--------|
|                        |   | **2003**                       |   | **2002**            |   | **2003**            |   | **2002** |   | **2003** |   | **2002** |   |
|                        |   | **$m**                         |   | **$m**              |   | **$m**              |   | **$m** |   | **$m** |   | **$m** |   |
| Personal  Banking Australia |   | —                         |   | —              |   | 242                 |   | 176 |   | — |   | — |   |
| Corporate                   |   | —                         |   | —              |   | 14                  |   | 9 |   | 7 |   | 11 |   |
| Institutional               |   | 7                              |   | 27                  |   | 50                  |   | 14 |   | 7 |   | 30 |   |
| Consumer  Finance           |   | —                         |   | —              |   | 47                  |   | 45 |   | 9 |   | — |   |
| Mortgages                   |   | 102                            |   | 73                  |   | 33                  |   | 27 |   | — |   | — |   |
| Asset  Finance              |   | 227                            |   | 189                 |   | 21                  |   | 29 |   | — |   | — |   |
| Asia  Pacific               |   | —                         |   | —              |   | 2                   |   | 1 |   | — |   | 2 |   |
| Other                       |   | —                         |   | —              |   | 56                  |   | 118 |   | 249 |   | 127 |   |
| Total                       |   | 336                            |   | 289                 |   | 465                 |   | 419 |   | 272 |   | 170 |   |

 

**Derivativesand Hedging**

 

**Descriptionand Significance**

 

The Group buys and sellsderivatives as part of its trading operations and to hedge its interest raterisk, foreign exchange risk and equity risks (in the ING Australia jointventure). The derivative instruments used to hedge the Group’s exposuresinclude: 

 

•     swaps;

 

•     forward rate agreements;

 

•     futures;

 

•     options; and

 

•     combination of the above instruments

 

Accountingtreatment – In accordance with the requirements of Australian AccountingStandards, derivative instruments entered into for the purpose of hedging areaccounted for on the same basis as the underlying exposures or risks.

 

Derivative instrumentsentered into to hedge exposures that are not recorded at fair value, do nothave their fair values recorded in the Group’s Statement of Financial Position(in accordance with Australian Accounting Standards). 

 

Exposures hedged byderivatives not recorded at their fair value include risks related to:

 

•     revenues from foreign operations;

 

•     structured lending transactions;

 

•     lending assets; and

 

•     funding liabilities.

 

Hedge accounting is onlyapplied when the hedging relationship is identified at the time the Groupenters into the hedging derivative transaction. If a hedge ceases to beeffective, the hedging derivative transaction will be recognized at fair value.Gains and losses on derivative instruments not carried at their fair valueamounts are recognized at the same time as the gain or loss on the hedgedexposure is booked. 

 

Movementsin the value of foreign exchange contracts that are hedging overseas operationsare not recognized as income or expenses. Instead these movements arerecognized in the Foreign Currency Translation Reserve together with the netdifference arising from the translation of the overseas operation. 

 

68

----

 

Fair value determination –Derivatives entered into as part of the Group’s trading operations are carriedat their fair values with any change in fair value being immediately recognizedas part of trading income. Where liquid markets exist, fair value is based onquoted market prices. For certain complex or illiquid derivative instruments,it may be necessary to use projections, estimates and models to determine fairvalue. In addition, judgmental factors such as the need for credit adjustments,liquidity and other valuation adjustments affect the reported fair valueamounts of derivatives.

 

**Specialpurpose and off balance sheet vehicles**

 

The Group may invest in orestablish special purpose companies, or vehicles (SPVs), to enable it toundertake specific types of transactions.

 

Where the Group controls suchvehicles, they are consolidated into the Group financial results.

 

Certain SPVs may be set up bythe Group to facilitate Group strategic aims, or to assist with structuredtransactions for clients. The accounting treatment of each SPV is assessedusing existing Australian guidance, with reference also to International and USaccounting standards where specific issues are yet to be addressed inAustralia. The table below summarizes the main types of SPVs that are notconsolidated into the Group, the reason for their establishment, and the keyrisks associated with them.

 
| **Type  of Special  Purpose Vehicle (SPV)** |   | **Reason  for establishment**                                                  |   | **Key  Risks**                                                                                                                                                                                                                                 |   | **SPV  Assets  2003** |   | **2002** |   |
|---------------------------------------------|--------|--------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------|--------|
|                                        |   |                                                                           |   |                                                                                                                                                                                                                                           |   | **$m**                |   | **$m**   |   |
| Securitization  vehicles                    |   | Assets are sold to an  SPV which funds the  purchase by issuing  securities.   |   | ANZ may manage  securitization vehicles,  service assets in a vehicle or provide  liquidity support or other support and  retains the risks associated with  the provision of these services.                                                  |   | 9,954                 | (1)    | 6,992    | (1)    |
|                                        |   | Enables ANZ or  customers to increase  diversity of funding  sources.          |   | Credit and market risks  associated with the  underlying assets are not retained or  assumed by ANZ. ANZ may also provide  other services (eg. swaps, credit  guarantees). ANZ earns fees at a  commercial rate for providing these  services. |   |                  |   |     |   |
|                                        |   |                                                                           |   |                                                                                                                                                                                                                                           |   |                  |   |     |   |
| Structured  finance entities                |   | These entities are set up  to assist with the structuring of client financing. |   | ANZ may retain liquidity  risk, if it provides liquidity support to the vehicle. ANZ may also manage  these vehicles.                                                                                                                          |   | 2,124                 |   | 1,968    |   |
|                                        |   |                                                                           |   |                                                                                                                                                                                                                                           |   |                  |   |     |   |
| Managed  funds                              |   | These funds invest in  specified investments on behalf of clients.             |   | The ANZ/ING Australia joint  venture, as manager of the funds, exposes ANZ to operational risk and  reputational risk.                                                                                                                         |   | 28,655                |   | 26,642   |   |

 

----

(1) The amounts disclosed arethe total assets managed or arranged by ANZ. They include SPV’s that purchaseassets from sellers other than ANZ

 

**Valuation ofinvestment in ING Australia Limited**

 

**Descriptionand significance**

 

The Group adopts the equitymethod of accounting for its 49% interest in the ING Australia joint venture.As of September 30, 2003, the Group’s carrying value is $1,648 million (2002:$1,593 million).

 

The carrying value is subjectto a recoverable amount test, to ensure that this does not exceed itsrecoverable amount at the reporting date. This involves the Group obtaining anindication of whether the carrying value may be less than the recoverableamount. If so, an independent valuation is sourced to determine currentrecoverable amount.

 

Any excess of carrying valueabove recoverable amount is written off to the Statement of FinancialPerformance.

 

**Quantificationof sensitivity**

 

Duringthe year the Group engaged Ernst and Young ABC Ltd (EY ABC) to provide anindependent valuation of ING Australia as at March 31, 2003. The valuation wasa stand alone market based assessment of economic value, and excluded theGroup’s specific synergies and hedging arrangements. The independent valuationwas based on a discounted cashflow approach, with allowance for the cost ofcapital. EY ABC presented an independent valuation range of total ING Australia$3,304 million to $3,690 million, reflecting a range of sales and cost baseassumptions.

 

69

----

 

The key assumptions used inthat valuation were reviewed by EY ABC against recent business experience as atSeptember 30, 2003 to assess any potential valuation impacts. Based on thisreview, ANZ believes no change is required to the carrying value of theinvestment at September 30, 2003.

 

**Keyvaluation assumptions**

 

The March 31, 2003 valuationwas based on a December 31, 2002 benchmark date with a roll-forward assessmentto March 31, 2003. The valuation was based on a discounted cash flow approachcomprising the present value of estimated future distributable profits aftercorporate tax, together with (in Australia only) the present value of 70% ofthe attaching imputation credits.

 

The assumptions underlyingthe cash flow projections were generally based on a long term view, togetherwith an assessment of the current market environment.

 

The following gross of taxrisk discount rates were used:

 
| •     Australian life insurance business     |   | 10.75 | % pa |
|-----------------------------------------------------------------------|--------|-------|------|
| •     Australian funds management businesses |   | 11.75 | % pa |
| •     New Zealand businesses                 |   | 13.00 | % pa |

 

All economic assumptions,including future investment earnings and discount rates, were derived using theCapital Asset Pricing Model.

 

The value of future newbusiness was based on a projection of 20 years of future new business allowingfor:

 

•    anticipatednew business growth and volumes; and

•   future margin squeeze

 

Otherbusiness assumptions were set relative to the experience of the business andthe industry as well as management business plans.

 

*RiskManagement*

 

**Vision andStrategy**

 

ANZ is underpinned by anongoing focus on risk issues and strategy and a comprehensive risk managementframework comprising:

 

•     The Board, providing leadership, overseeing risk appetite and strategyand monitoring progress.

 

•     A framework for development and maintenance of Group-wide riskmanagement policies, procedures and systems, overseen by an independent centralteam of risk professionals reporting directly to the Chief Executive Officer. 

 

•     The use of risk tools, applications and processes to execute our globalrisk management strategy across the Group.

 

•     Primary Business Unit-level accountability for management of risks inalignment with the Group’s strategy.

 

The various risks inherent inthe operations of the Group may be broadly grouped together under the followingfour categories:

 

**Credit Risk(43% of Economic Capital)**

 

Group Risk Management’sresponsibilities for credit risk policy and management are principally executedthrough dedicated departments which support the Group’s wholesale and consumerbusiness units.

 

Allmajor credit decisions (and automated decision processes) for the Group’swholesale and consumer businesses require dual approval by both Group RiskManagement and Business Unit-based personnel.

 

70

----

 

**Market Risk(11% of Economic Capital)**

 

Market Risk is the risk thatthe Group will incur losses from changes in interest rates, foreign exchangerates or the prices of equity shares and indices, commodities, debt securitiesand other financial contracts, including derivatives. It also includes the riskthat the Group will incur increased interest expense arising from fundingrequirements during periods of poor market liquidity. These risks are managedby a variety of different techniques, with Group Risk Management setting limitsto control trading positions, interest rate risk, and the liquidity profile upto Board-authorized totals.

 

**OperationalRisk (19% of Economic Capital)**

 

Operational risk is the riskof direct or indirect loss resulting from inadequate or failed internalprocesses, people and systems, or from external events.

 

Group Risk Management isresponsible for establishing Group policy; for the measurement, monitoring andreporting of operational risk across the Group; for providing leadership in theoverall development of ANZ’s operational risk capability and specialists in keyrisk areas.

 

Each business unit has itsown operational risk function responsible for the management of operationalrisk in the business.

 

**Other (27%of Economic Capital)**

 

There are a number of otherrisks, which are not classified as either Market, Credit or Operational Riskwhich ANZ holds economic capital for. These include, but are not limited to,items such as investment risk and fixed asset risk.

 

Key risk issues for the Groupare:

 

**OffshoreExposures**

 

Whilst the first half of theSeptember 2003 year was marked by significant uncertainty in the globaleconomic environment, concerns relating to Iraq and the US economy have abatedand a more positive global outlook now prevails. As a result of continuedvigilance and close management of areas of concern we have seen reduced levelsof specific provisions over the year compared to the 2002 year. As at September2003, Australian and New Zealand exposures comprise 94% of our portfolio.

 

The main sectors of concernover the year have been Power (US power particularly) and Telecommunications.

 

•     Offshore Telecommunications - as a result of active portfolio managementof this sector, credit limits for offshore telco operators fell by 46%. Thisfall in offshore exposure and increased Australia and New Zealand investmentgrade business combined to reduce offshore limits from 57% to 42% of the globalportfolio. 

 

•       US Power - The US power industrycontinues to experience sectorial stress in the aftermath of marketderegulation, which triggered excessive construction and acquisition ofgenerating assets. As expected we have experienced further deterioration in theUS power portfolio over the last year. Oversupply in many sectors of the USpower market will take some years to stabilize. In the meantime we arecontinuing to manage our higher risk power exposures closely. Since September2002 our US power exposures have been reduced by 35%. 

 

**Residentialdomestic and investment property**

 

Our risk fundamentals remainfirmly entrenched, based on sound loan to value ratios and debt servingcapacity requirements that specifically allow for the likelihood of interestrate increases. Risk policies implemented up to twelve months ago in theSydney, Melbourne and Brisbane inner city apartment markets, meant that ANZ tooka prudent approach which has resulted in very low exposure levels to thesemarkets. Regular stress testing of our portfolios indicates that we are wellplaced to withstand a quite severe potential market downturn in the Australianhousing market. APRA has recently conducted stress tests of the mortgageportfolios of all Australian industry participants and the results of thesetests for ANZ confirm this conclusion.

 

**Large singlename exposure risk**

 

Significant credit lossesresulted from a small number of large individual exposures in 2002. Over theyear to September 2003 ANZ has maintained its focus on managing down its largeexposure risks and has further significantly reduced portfolio concentrations.

 

71

----

 

One measure of theconcentration of large exposures in the Group’s portfolio is the aggregate ofthe 10 largest committed corporate exposures as a percentage of adjusted commonequity (ACE). This ratio has declined significantly over the past year, from 103%a year ago to 75% as at September 30, 2003. Additionally, over the past 2 yearswe have made a number of substantial changes, including material reductions, toour structure of limits applicable to exposures to individual (particularlyoffshore) customers.

 

**Key RiskEnhancements**

 

**CreditDerivatives**

 

Credit derivatives are usedfor Portfolio Management and for trading purposes. Credit derivative activityover the year has been modest, with close ongoing monitoring by the Market Riskteam.

 

Creditderivatives for Portfolio Management purposes are used as an efficientmechanism for reducing large exposures and diversifying the risk in lendingportfolios. A comprehensive policy framework of strong controls exists aroundthis activity, including restricting the sale of credit derivatives (undertakento reshape the portfolio “mix”) to Australian and New Zealand names that meetinvestment grade and other specific criteria.

 

**Credit Default Swap (CDS) positions**

 
| **AUD millions**      |   | **Bought** |   | **Sold** |   | **Net** |   |
|-----------------------|--------|------------|--------|----------|--------|---------|--------|
| Portfolio  Management |   | 813        |   | (202     | )      | 611     |   |
| Matched  Trades       |   | 1,775      |   | (1,775   | )      | 0       |   |
| Outright  Positions   |   | 1,198      |   | (549     | )      | 649     |   |
| Trading  Book         |   | 2,973      |   | (2,324   | )      | 649     |   |
| Total  CDS            |   | 3,786      |   | (2,526   | )      | 1,260   |   |

 

Credit derivatives in thetrading book are used to support customer activity with trades typicallymatched off into the market place within a period of 90 days. This tradingcontinues to be bound by the usual market risk controls such as VaR limits,term limitations, asset quality requirements, and daily revaluation of allpositions independently overseen by Market Risk.

 

In addition to direct use ofcredit derivatives for Portfolio Management and Trading Book purposes, asreflected in the above table, ANZ holds investments in three structuredtransactions. Each of these investments is in the amount of USD250 million,where ANZ has indirect exposure to a sold “First-to-Default” basket of creditderivatives in the amount of USD500 million, with a first-loss limit of USD250million. The underlying exposures are to a highly diversified group of 68names, with no individual aggregate exposure in excess of USD60 million. Aswith credit derivative activity associated with Portfolio Management and theTrading Book, these exposures are independently monitored by Group RiskManagement, with key trigger points established to proactively manage the risk.To date, credit protection totalling USD93 million has been purchased as ahedge against five of the underlying names. 

 

**OperationalRisk Management Framework**

 

ANZ’s operational riskframework continues to be strengthened in line with new and emerging risks,including ongoing development of the Group’s methodology for operational riskmeasurement and capital allocation which seeks to increase risk awareness andthereby reduce risk.

 

**BusinessContinuity and Crisis Management**

 

Our business continuity andcrisis management capabilities have been strengthened in line with changingbusiness environment and to withstand the emergence of new threats.Capabilities are subject to regular review and testing. Enhanced riskguidelines, controls, monitoring and vigilance were implemented in response tothe increased threat of global terrorism, the war in Iraq and the Severe AcuteRespiratory Syndrome (SARS) virus to ensure the ongoing safety and security ofstaff and operations.

 

**Technologyand Projects**

 

Therisk management of technology and projects has been strengthened to enhance thequality of risk assessment and effectiveness of controls. This continues toreceive extensive Executive Management focus. A number of tools have beencreated to assist in this process, in particular to provide a deeperunderstanding of the inherent level of operational risk associated withindividual technology projects and with the project portfolio in aggregate.

 

72

----

 

 

**Basel II**

 

The common framework fordetermining the appropriate quantum of bank regulatory capital is set by the“Basel Committee”, a sub-committee of the Bank for International Settlements,and a new framework has been developed over the past four years that iscommonly known as “Basel II”. A key objective of Basel II is to improvestability of the global financial system by encouraging improved riskmanagement practices and requiring banks to hold levels of regulatory capitalcommensurate with their risk profile. In particular, Basel II will introduce amore risk-sensitive and detailed regulatory capital regime for credit risk andwill introduce for the first time an explicit regulatory capital charge foroperational risk.

 

Preparation for theimplementation of the new Accord has been and continues to be an area ofsignificant focus and activity across the ANZ Group.

 

A major innovation of the newAccord is that Basel II allows banks of varying sophistication in their riskmanagement practices to enter the new regulatory capital framework at one ofthree levels, with incentives embedded (by way of reduced regulatory capitalrequirements) to attract banks with more sophisticated risk measurement andmanagement approaches to reach the more advanced levels. Banks will need tochoose their approach and be accredited at a level of compliance in each ofcredit and operational risk. Market risk will remain largely unchanged from thecurrent Accord, following its revision in 1996.

 

ANZ is currently in thedesign and implementation phase of its Basel II Programme. At this time ANZintends pursuing accreditation under the most advanced approaches for bothcredit and operational risk, in line with the Group’s vision of risk managementas a strategic asset and source of competitive advantage. It has projectsunderway to address all of the necessary requirements for accreditation at themost advanced levels for both areas under Basel II. Certain requirements, suchas a credit risk rating system that measures default probabilities and likelylosses in the event of default, and a framework for operational riskmeasurement and capital allocation, are already in place.

 

Basel II is still beingfinalized, with the final version due to be released in the second quarter of2004. ANZ took part in an international exercise in late 2002 to help refinethe calibration of the capital functions within the new Accord. The resultsindicate that under the more advanced approaches which are planned to be incorporatedwithin Basel II, ANZ would need less regulatory capital than must be held undercurrent rules. Although the precise details are yet to be finalized, APRA hasstated that it is likely there will be some differences in the way Basel II isimplemented in Australia which will lessen this reduction.

 

73

----

 

*SHAREHOLDER INFORMATION*

 

*Item 6**: Directors, SeniorManagement and Employees*

 

*Directors*

 

Our business is managed bythe directors, who may exercise all powers not required to be exercised at ageneral meeting of shareholders. On the date hereof the directors of ANZ are:

 
| **Director’s Name** |   | **Position held**                   |   | **Year appointed** |   | **Age** |   |
|--------------------------|--------|-------------------------------------|--------|--------------------|--------|---------|--------|
| C  B Goode, AC           |   | Director/Chairman of  Directors (1) |   | 1991               |   | 65      |   |
| J  McFarlane, OBE        |   | Chief Executive Officer             |   | 1997               |   | 56      |   |
| J  C Dahlsen             |   | Director                            |   | 1985               |   | 68      |   |
| R  S Deane               |   | Director                            |   | 1994               |   | 62      |   |
| J  K Ellis               |   | Director                            |   | 1995               |   | 66      |   |
| D  M Gonski, AO          |   | Director                            |   | 2002               |   | 50      |   |
| M  A Jackson             |   | Director                            |   | 1994               |   | 50      |   |
| B  WScott, AO            |   | Director                            |   | 1985               |   | 68      |   |

 

----

(1)   The Chairman is an ex officio member of allBoard committees

 

*Directors’profiles*

 

**Mr C BGoode, AC**

 

B Com (Hons) (Melb), MBA(Columbia University, New York), Hon LLD (Melb); Hon LLD (Monash)

Chairman

Independent Non-ExecutiveDirector

Company Director

 

After 28 years in the financeindustry, Mr Goode became a professional non-executive director in 1989. Hebecame a director of Australia and New Zealand Banking Group Ltd in July 1991and was appointed Chairman in August 1995. Mr Goode is ex-officio member of allBoard Committees. Mr Goode is Chairman of Woodside Petroleum Ltd, AustralianUnited Investment Company Ltd, Diversified United Investment Ltd and a Directorof Singapore Airlines Ltd.

 

Mr Goode brings relevantskills and significant experience in the finance industry and as a professionalnon-executive director to his role as Chairman of the Board.

 

**Mr J CDahlsen**

 

LLB, MBA (Melb)

Independent Non-ExecutiveDirector

Company Director

 

Director since May 1985. MrDahlsen is Chairman of the Audit Committee and a member of the Risk ManagementCommittee and Compensation Committee. Mr Dahlsen is a former Consultant to andPartner of the legal firm Corrs Chambers Westgarth. He is Chairman of SouthernCross Broadcasting (Australia) Ltd, Director of The Smith Family, J C DahlsenPty Ltd Group and the Warehouse Group Ltd of New Zealand. He is a formerChairman of Woolworths Ltd, Melbourne Business School Ltd, The Herald andWeekly Times Ltd and a former Deputy Chairman of Myer Emporium Ltd.

 

The skills and expertise thatMr Dahlsen has developed in his legal career together with his experience inthe media, not-for-profit, banking, retail and small business sectors ensurethat he brings an understanding of the law and business to his role as a non-executivedirector.

 

74

----

 

**Dr R S Deane**

 

PhD, B Com (Hons), FCA, FCIS,FNZIM

 

Independent Non-ExecutiveDirector

 

Company Director

 

Director since September1994. Dr Deane is a member of the Risk Management and Compensation Committees,and Chairman of ANZ Banking Group (New Zealand) Ltd. He is Chairman of TelecomNew Zealand Ltd, Fletcher Building Ltd and Te Papa Tongarewa (Museum of NewZealand). He is a Director of Woolworths Ltd.

 

Dr Deane has skills andexperience in a variety of activities including the government sector, bankingand finance, economics, telecommunications, and with charitable and culturalorganizations.

 

**Mr J K Ellis**

 

MA (Oxon) FAICD, Hon FIEAust, FAusIMM, FTSE

 

Independent Non-ExecutiveDirector

 

Company Director

 

Director since October 1995.Mr Ellis is Chairman of the Risk Management Committee and a member of theCompensation Committee. He is Chairman of Pacifica Group Ltd, Black RangeMinerals Ltd and Director of GroPep Ltd. He is Chairman of Australia- JapanFoundation and the National Occupational Health and Safety Commission. He isalso Chancellor of Monash University and a former Chairman of BHP.

 

A trained engineer, Mr Ellisbrings to the Board his analytical skills together with his practicalunderstanding of operational issues, investments and acquisitions across arange of sectors including natural resources, manufacturing, biotechnology andeducation.

 

**Ms M AJackson, AC**

 

B Econ, MBA, FCA

 

Independent Non-ExecutiveDirector

 

Company Director

 

Director since March 1994. MsJackson is a member of the Audit Committee, Risk Management Committee,Compensation Committee and Nominations & Corporate Governance Committee.She is Chairman of Qantas Airways Ltd and Chairperson of Methodist LadiesCollege. Director of The Brain Research Institute, Billabong International Ltdand John Fairfax Holdings. Board Member of Howard Florey Institute ofExperimental Physiology and Medicine and member of the Foreign Affairs Council.

 

A Chartered Accountant, MsJackson has broad industrial experience including her involvement intransportation, mining, the media, manufacturing and insurance. This expertisecoupled with her work in health and education contribute to her role on the

Board.

 

**Mr JMcFarlane, OBE**

 

MA, MBA

 

Chief Executive Officer

 

Appointed October 1997.Directorships include The Business Council of Australia and the AustralianGraduate School of Management.

 

Mr McFarlane is a formerGroup Executive Director, Standard Chartered Plc (1993 - 1997), Head ofCitibank, United Kingdom (1990 - 1993), Managing Director, Citicorp InvestmentBank Ltd (1987 - 1990), Director of the London Stock Exchange (1989 - 1991).

 

Mr McFarlane brings skillsand experiences in banking and finance which are relevant for his role as ChiefExecutive Officer.

 

75

----

 

**Dr B WScott, AO**

 

B Ec, MBA, DBA

 

Independent Non-ExecutiveDirector

 

Company Director

 

Director since August 1985.Dr Scott is Chairman of the Nominations & Corporate Governance Committeeand Compensation Committee, and Member of the Audit Committee and RiskManagement Committee. Chairman of Management Frontiers Pty Ltd, and TheFoundation for Development Co-operation Ltd. Director of Air Liquide AustraliaLtd and the James N. Kirby Foundation Ltd. Australian member of the Board ofGovernors of the Asian Institute of Management. Former Chairman of theAustralian Government’s Trade Development Council (1984 - 1990). Former FederalPresident, Institute of Directors in Australia (1982-1986).

 

A management consultant andcompany director, Dr Scott’s extensive skills and experience in a range ofbusiness sectors and community organizations contribute to his role as anon-executive director.

 

**Mr D MGonski, AO**

 

B.Com, LL.B (University ofNSW)

 

Independent Non-ExecutiveDirector

 

Company Director

 

Director since February 2002.Mr Gonski is a member of the Risk Management Committee, Compensation Committeeand Nominations and Corporate Governance Committee, and represents the Group asDirector of ING Australia Ltd. He is Chairman of Coca Cola Amatil Ltd andInvestec Wentworth Pty Ltd, and Director of Westfield Holdings Ltd and JohnFairfax Holdings Ltd. Mr Gonski is Chairman of the National Institute ofDramatic Art (NIDA), the Art Gallery of NSW, the Australia Council and theSydney Grammar School Trust.

 

Mr Gonski, a lawyer, has awide experience in business, the law and investment banking.

 

He also brings to his role onthe Board an appreciation for the community through his work in the arts andthe not-for-profit sector.

 

76

----

 

*BoardResponsibility*

 

**Boardresponsibility**

 

The Board is responsible toshareholders for the governance of the Group, its operations and financialperformance. To this end, it sets the strategic direction and financialobjectives for the Group. It delegates responsibility for the management of ANZto the Chief Executive Officer and senior management. The Board is alsoresponsible for ensuring that ANZ has appropriate governance arrangements inplace for the benefit of all stakeholders.

 

The Board aims to carry outits responsibilities so as to create and to build sustainable value for thebenefit of shareholders, employees, customers, and the community. The Board hasadopted a Charter (available on our website) which sets out, among otherthings, the roles and responsibilities of the Board. The Board’sresponsibilities include:

 

•              Appointing the Chief Executive Officer, andreviewing his/her performance and remuneration

 

•              Approving objectives, strategies and budgets,and monitoring and assessing management’s performance in achieving these

 

•              Monitoring compliance with regulatoryrequirements, and ensuring that the Group and its employees are meeting thehighest standards of ethics and integrity

 

•              Approving policies and overseeing governanceand compliance practices relating to management of risk, conduct of audit,health and safety, people management, corporate sustainability, and customerservice.

 

It is also the responsibilityof the Board to review the operations of all business units together with themajor functional areas of ANZ at least once each year to satisfy itself thatthe unit’s strategy, policy and direction are consistent with the Group.

 

The Board recognizes itsoverriding responsibility to act honestly, fairly, diligently and in accordancewith the law in serving the interests of ANZ’s shareholders, as well as itsemployees, customers, and the community. The Board works to promote andmaintain an environment within ANZ that establishes these principles as basicguidelines for all of its employees and representatives at all times.

 

The Board met 11 times thisyear with separate committees meetings.

 

With the increasing focus oncorporate governance in recent times, there has been a large increase in theworkload of nonexecutive directors.

 

**Directorsqualifications and appointments**

 

The Board aims to bring abalance of skills, experience and views to its deliberations. Directors, as aBoard and through the Nominations and Corporate Governance Committee, engageexternal consultants to assist them in identifying appropriate candidates forconsideration as Board members. Candidates are assessed in terms of the depthand breadth of experience and skills considered relevant for ANZ, as well astheir personal qualities and communication capabilities. The complementarynature of their distinctive contributions with the other directors is alsoassessed. Assurances are sought to ensure that a candidate has the capacity todevote appropriate time to this important role.

 

ANZ’s constitution providesthat each director is required to hold, within 3 months of appointment, atleast 2,000 fully paid shares in the director’s own right and must continue tohold at least 2,000 shares until the director ceases to hold office. Details ofdirectors’ shareholdings with ANZ can be found on page 85 and are set out inNote 50 of the Financial Statements.

 

On appointment, directors areprovided with information setting out their duties and responsibilitiesincluding various Board policies and their entitlements. During 2002-2003, theDirectors’ Handbook has been reviewed and updated to meet directors’requirements in a comprehensive manner.

 

*Performanceof Chairman and directors*

 

The full Board is responsiblefor reviewing the performance of the Chairman.

 

It is the responsibility ofthe Chairman, with input from the Nominations and Corporate GovernanceCommittee, to assess the performance of each director.

 

77

----

 

**Boardcomposition**

 

The Board is chaired by anindependent director so there is a division of responsibilities between theChairman and the CEO. This is supported by the Board’s Charter that states thatthe Chairman must be an independent non-executive director and that themajority of Board must be comprised of independent non-executive directors.

 

Directors, as a Board andthrough the Nominations & Corporates Governance Committee of the Board,regularly review the size and composition of the Board. The ANZ’s constitutionprovides that at a minimum, the Board must be comprised of five directors.Throughout this year, the Board has comprised eight directors - a non-executiveChairman, six other non-executive directors and Chief Executive Officer.

 

*Term andretirement of directors*

 

The directors have the powerto appoint any person to be a director either to fill a casual vacancy or as anadditional director. Any director so appointed may hold office only until thenext Annual General Meeting when he/she shall be eligible for re-election. Ateach Annual General Meeting one-third (or the number nearest to but not greaterthan one-third) of the directors (excluding the Managing Director) retire fromoffice and are eligible for re-election. No director, other than the ManagingDirector, may hold office for more than three years or after the third AnnualGeneral Meeting following his/her appointment, whichever is the longer, withoutsubmitting himself/herself for re-election. Directors must retire uponattaining the age of 70 years, with the exception of the Chairman who mayremain in office as a director until the conclusion of the Annual GeneralMeeting next following his/her attaining of the age of 70 years, or ifappointed as a director after 1992, after a term of 15 years service.Directors’ independence is reviewed at least annually.

 

*Independenceand directors’ dealings*

 

In 2002-2003, the Boardinstituted a process by which the independence of each non-executive directoris reviewed in detail at least annually, and more frequently where a change inposition or relationship warrants it.

 

Following the most recentreview, the Board concluded that each of its non-executive directors should beconsidered independent at this time.

 

The Board applies thefollowing definition of “independence”

 

A director is only to beregarded as independent if:

 

(a)                               the Board resolves that the director has nomaterial relationship with ANZ (either directly, or as a partner, shareholder,or executive officer of an organization that has a material relationship withANZ);

 

(b)                              the director is not, and has not been withinthe previous five years, employed by ANZ, or a company in the ANZ Group;

 

(c)                               the director is not, and has not been withinthe previous five years:

 

(i)                                  employed by , or a partner in, any firm thatin the past five years has been ANZ’s external auditor; or

 

(ii)                               employed by a company that has a compensationcommittee, on which an ANZ executive officer serves,

 

and no immediate family memberof the director is, or has been within the previous five years, employed ineither of such capacities; and

 

(d)                              no immediate family member of the director isan executive officer of ANZ or, except where the immediate family member hasdied or become incapacitated, has been an executive officer of ANZ within theprevious five years.

 

For the purpose of thisSection 6, “executive officer” means a chief executive officer or a chieffinancial officer (or persons carrying out any equivalent functions), a head ofa business unit, division or function, and any person who performs asignificant policymaking function, but does not include a non-executivedirector.

 

78

----

 

*Conflictsof interest and materiality*

 

Over and above the issue ofindependence, each Director has a continuing responsibility to determinewhether he or she has a potential or actual conflict of interest in relation toany material matter, which comes before the Board. Such a situation may arisefrom outside financial, organizational, representational, professional, orother interest or relationship which might affect, or be seen potentially toaffect, the Director’s position to act in the best interests of the Company.

 

It is also expected thatother Board Directors will raise any concerns about possible conflicts ofinterest on the part of any Director in a material matter at any time.

 

Materiality may relate tofinancial significance, strategic significance, competitive significance, orany other matters of commercial or timing significance.

 

If a conflict or potentialconflict arises, the Director may not receive relevant Board papers, may absenthimself /herself from Board deliberations on the subject, and may not vote onany related Board resolutions. These matters are duly recorded in Board minuteswhen they occur.

 

Other than in their capacityas directors of ANZ, all non-executive directors are deemed not to have amaterial relationship with ANZ or its associated companies.

 

*Independentadvice*

 

In order to assist directorsto fulfill their responsibilities, each director has the right, with the priorapproval of the Chairman, to seek independent professional advice regardingtheir responsibilities at the expense of the Group.

 

In addition, the Board andeach Committee may obtain whatever professional advice it requires to assist itin its work at the expense of the Group.

 

*BoardCommittees*

 

There are four main BoardCommittees:

 

•              Audit Committee

 

•              Risk Management Committee

 

•              Nominations & Corporate GovernanceCommittee

 

•              Compensation Committee

 

Each of the four mainCommittees is comprised solely of independent directors, has its own Charterand has the power to direct any special investigations it deems necessary.

 

Committee membership is reviewedannually. Membership criteria are based on the relevance of a director’s skillsand experience, and their ability to add value to the Committee and complementthe membership.

 

Committee performanceevaluations are conducted annually to review each Committee’s performanceagainst its Charter, gather comments on the suitability of its Charter and anyareas for improvement, and to set goals and objectives for the upcoming year. Acopy of each Committee Charter can be found on our website.

 

The Chairman is an ex-officiomember of all Committees. The Chief Executive Officer, John McFarlane, isinvited to attend all Committee meetings. He is not present, however, if thiscould compromise proceedings. He also does not attend any meeting where hisremuneration is considered or discussed. Directors may attend any meeting of aCommittee on a subject where they have a special interest.

 

79

----

 

**AuditCommittee**

 

•              J C Dahlsen (Chairman)

 

•              C B Goode

 

•              M A Jackson ( Financial expert)

 

•              J Ellis

 

The Audit Committee isresponsible for the oversight and monitoring of the Company’s financialreporting policies and controls, the work of Group (Internal) Audit, the AuditCommittees of subsidiary companies, the integrity of the Company’s financialstatements, prudential returns and compliance with regulatory requirements.

 

The Audit Committee is alsoresponsible for the appointment, evaluation and oversight of the externalauditor.

 

It is Board policy that allmembers of the Audit Committee be financially literate and that at least onemember of the Committee be a “financial expert” as defined in the USSarbanes-Oxley legislation. Ms M A Jackson is designated as our financialexpert.

 

The Audit Committee meetswith the external auditor in the absence of management at each of its regularlyscheduled meetings. The Chairman of the Audit Committee meets separately andregularly with the head of internal audit and the external auditor.

 

During the year, the AuditCommittee focused on a range of relevant issues including:

 

•              Integrity of financial reporting controls andprocedures - The Committee received independent advice on the effectiveness ofinternal controls and procedures, and closely monitored progress onopportunities identified for improvement. To further strengthen controls andprocedures, the Committee agreed to implement the Sarbanes-Oxley internalcontrol requirements across the Group in advance of the applicable date. TheCommittee monitored the progress made on the transition to InternationalFinancial Reporting Standards.

 

•              Monitoring the work of Group (Internal) Audit- An evaluation of the Group (Internal) Audit function was undertaken. TheCommittee ensured that management responded in an appropriate and timely mannerto issues raised in Group Audit reports. The Head of Group (Internal) Audit nowreports directly to the Chairman of the Audit Committee and attends everymeeting of the Audit Committee by invitation.

 

•              Relationship with revenue authorities - TheCommittee supported initiatives to promote a collaborative approach to workingwith the Revenue Authorities to achieve appropriate taxation outcomes. Somelong-standing issues with the Australian Taxation Office were resolved.

 

•              Maintaining the independence of the externalaudit function - All non-audit services undertaken by the external auditor mustbe pre-approved in accordance with the policy on the provision of audit andnon-audit services put in place by the Committee last year. The Committee furtherstrengthened the independence of the external audit function through a formalannual evaluation of the external audit and a policy requiring partnerrotation.

 

**RiskManagement Committee**

 

•              J K Ellis (Chairman)

 

•              R S Deane

 

•              D M Gonski

 

•              C B Goode

 

The Risk ManagementCommittee’s function is to review risk in the business. It is responsible foroverseeing, monitoring and reviewing the Group’s risk management principles andpolicies, strategies, processes and controls including credit, market, balancesheet and operating risk. It may approve credit transactions and other mattersbeyond the approval discretion of executive management.

 

80

----

 

 

This year, the RiskManagement Committee reviewed a number of issues including:

 

•              Credit risk and customer concentration limits- Stronger policies related to single customer credit limits saw a decrease inrisk exposures.

 

•              Operational risk and systems - The Committeerecommended a more disciplined approach to new software releases. 2003upgrades/releases have been implemented without interruption to ANZ’soperations.

 

•              Compliance awareness - The Committee hassupported a Group-wide awareness program to foster a better understanding ofnew as well as existing compliance requirements and responsibilities.

 

**Nominationsand Corporate Governance Committee**

 

•              B W Scott (Chairman)

 

•              D M Gonski

 

•              C B Goode

 

•              J C Dahlsen

 

The Nominations and CorporateGovernance Committee’s responsibility is to identify individuals qualified tobecome Board members and recommend them to the Board for nomination as membersof the Board and its committees, to recommend processes for Board performancereview and recommend corporate governance principles, practices and proceduresfor ANZ.

 

During the year, theCommittee focused on a range of issues including:

 

•              Independence - A thorough review was conductedof legislation and best practices regarding director independence. TheCommittee concluded the ANZ policy and related definitions of independence metbest practice standards.

 

•              Corporate governance - The Committee advisedthe Board on relevant governance developments.

 

•              Board performance - The Committee initiated abroad-ranging survey of Board performance and Director effectiveness issues.The results were reviewed and discussed by the Board, and a number ofprocedures and streamlining initiatives were adopted. The Committee alsoadvised the Chairman regarding appropriate processes for direct individualperformance evaluation.

 

•              Director’s Manual - The Committee authorizeddevelopment of a new and comprehensive manual for Directors.

 

**CompensationCommittee**

 

•              M A Jackson (Chairperson)

 

•              R S Deane

 

•              C B Goode

 

•              B W Scott

 

The Compensation Committeemakes recommendations to the Board in respect of the Group’s compensationprogram including any equity-based programs. It also evaluates the performanceof and approves the compensation for the senior executive officers and Boardappointees (including the Chief Executive Officer) and approves compensationlevels and policy guidelines.

 

Some areas of focus for theCompensation Committee this year were:

 

•              Compensation Policy - The Committee reviewedand recommended changes to the policy during the year (see page 88).

 

•              Executive Performance Reviews - The Committeeconducts executive performance evaluations on a six-monthly basis with a reviewof performance as well as potential. Recommendations are made to the Boardregarding incentives.

 

•              Succession - On an annual basis, the CEO andCommittee review the performance and potential of the top 100 executives. Otherissues discussed include capabilities and skill development, diversity andsuccession, opportunities and training initiatives.

 

•              $1,000 Employee Share Acquisition Plan - TheCommittee recommended to the Board the granting of shares to the value of$1,000 to each eligible ANZ employee through the Employee Share AcquisitionPlan.

 

Additional Board Committees -In addition to the four main Board Committees, the Board has constituted aShares Committee and an Executive Committee to assist in carrying out itsfunctions.

 

81

----

 

The Shares Committee has thepower to administer ANZ’s Employee Share Plan and Employee Share Option Plan.

 

The Executive Committee hasthe full power of the Board and is convened as necessary between regularlyscheduled Board meetings. The Board also forms and delegates authority to adhoc Committees of the Board as and when needed to carry out its functions.

 

*Remunerationof Non–Executive Directors*

 

Non–executive directors’ feesare determined by the Board of Directors based on advice from external advisorsincluding reference to fees paid to non–executive directors of comparablecompanies.

 

Non–executive directors’ feesare within the limit approved by shareholders at the December 13, 2002 AnnualGeneral Meeting. Directors’ fees are set at levels that fairly represent theresponsibilities of and time spent by the non–executive directors on ANZrelated matters.

 

Directors may elect to takeall or part of their fees in shares under the Directors’ Share Plan which wasapproved by shareholders at the 1999 Annual General Meeting. Under this plan,shares are bought on market to an equivalent value to the fee that wouldotherwise have been paid to the director and are held in trust for the directorfor at least one year.

 

Non–executive directors alsoparticipate in the directors retirement plan, which provides that, after eightyears of service, a director may receive a retirement benefit equivalent to thelast thirty six months of fees (pro-rated for a lesser period of service), lessany superannuation benefit paid or payable to the director attributable tocontributions made by ANZ.

 

On page 89 is a table detailingthe remuneration of each non-executive director for the last financial year.

 

*EquityParticipation by Non-Executive Directors*

 

It is Board policy that alldirectors have a share qualification of at least 2000 ANZ shares. In addition,as set out above, directors may participate in the Directors’ Share Plan.Details of directors’ shareholdings are set out on page 85.

 

Executive Remunerationincluding Employee Share and Option Plans

 

The objective of ANZ’sremuneration policy is to ensure that remuneration packages properly reflectthe duties and responsibilities of the senior executives and are sufficient toattract, retain and motivate personnel of the requisite quality. The policyfocuses on creating value for shareholders by rewarding senior employees basedon enhancement of shareholder value through improvements in Economic ValueAdded(TM) (EVA(TM))(1).

 

There are three components toexecutive remuneration packages, a fixed component and two variable or ‘atrisk’ components; short–term incentive (STI) and long–term incentive (LTI). Thefixed reward is generally targeted to the market median levels being paid inthe finance industry in the relevant markets in which ANZ operates. The STI andLTI components are based on performance and reflect achievements against agreedkey result areas and competencies.

 

A detailed discussion onexecutive remuneration and a table setting out the remuneration of seniorofficers of the Company can be found on page 93.

 

----

(1)       EVA (TM) is a measure of risk adjustedaccounting profit. It is based on operating profit after tax, adjusted forsignificant transactions, the cost of capital, and imputation credits (measuredat 70% of Australian tax). Of these, the major component is the cost ofcapital, which is calculated on the risk adjusted or economic capital at a rateof 11%. At the Group level, total capital is used so the cost of capitalreflects the full resources provided by shareholders.

 

*CompanyPolicies*

 

The Board has approved andadopted policies to apply to employees within the Group. Summaries of thepolicies can be found on our website.

 

82

----

 

**Code ofConduct for Directors and Code of Conduct for Employees**

 

These policies set out theethical standards expected of directors and employees. The codes require thatdirectors and employees adhere to the law, that they disclose their ownrelevant interests, that they act in the best interest of the Group and thatthey act honestly and ethically in all their dealings. The policies also coversuch matters as the confidentiality of information, acceptance of gifts orentertainment and use of ANZ goods, services and facilities.

 

**Market(Information) Disclosure Policy**

 

ANZ is committed to achievingbest practice in the area of market disclosure. The policy is designed toensure that there is full and timely disclosure of ANZ’s activities toshareholders and the market. It is important that all shareholders have anequal opportunity to receive or obtain information issued by ANZ. This policycovers announcements that must be lodged with stock exchanges as well asannouncements and presentations made to analysts, investors and the media. Itrequires that once material information is disclosed to the relevant stockexchanges, it will be placed on our website.

 

**ShareTrading Policy**

 

This policy covers trading inANZ securities by all employees as well as contractors and consultants engagedby ANZ.

 

The Share Trading Policyprohibits trading for all persons aware of unpublished ANZ price sensitiveinformation. In addition, it specifically prohibits trading by certainemployees, contractors and consultants working in specific areas of ANZ duringblackout periods. A blackout period is the six-week period leading up to theday after the announcement of the half yearly and full year results. The Boardhas also resolved to apply the principles of this policy to directors’ owntrading in ANZ shares.

 

**EmployeeIndemnity Policy**

 

This policy provides that theCompany will indemnify employees against any liability incurred in carrying outtheir roles subject to certain requirements being met.

 

**SeriousComplaints Process**

 

ANZ has a history ofimplementing policies and procedures consistent with responsible andwell–managed business practices. The Serious Complaints Process is anadditional mechanism by which ANZ staff, contractors and consultants may voiceconcerns they have regarding any potential malpractice or impropriety that theyfind within ANZ. It is intended to operate as a last resort and requires thatprotection be given to employees against dismissal or penalty as a result ofdisclosing concerns in good faith.

 

**Relationshipwith the External Auditor**

 

As highlighted on page 80,the Audit Committee policy on non–audit services states the audit–related andsome non–audit services that may be conducted by ANZ’s external auditor. Itsets in place a formal approval process regarding the provision of non–auditservices, which are only considered where they are not perceived to be inconflict with the role of auditor. This approval process is the responsibilityof the Audit Committee.

 

**SignificantAccounting Policies**

 

Details of the significantaccounting policies and any changes in accounting policies made since the dateof the last Annual Report are set out in the Financial Report and on ourwebsite.

 

**Group(Internal) Audit**

 

Group Audit providesindependent assurance that the design and operation of the risk and controlframework across the Group is effective. The internal audit function operatesunder a Charter from the Audit Committee that gives it unrestricted access toreview all activities of the Group. The Group General Manager of Group Auditreports to the Chairman of the Audit Committee.

 

As risk-based audit approachis used to ensure that the higher risk activities in each business are auditedeach year. All audits are conducted in a manner that conforms to internationalauditing standards. Audit results also influence incentive compensation ofbusiness heads.

 

Group Audit plays an activerole in ensuring compliance with the requirements of supervisory regulatoryauthorities, including APRA. Group Audit also works collaboratively with theexternal auditor to ensure a comprehensive audit scope.

 

The Audit Committee plays anactive role in reviewing significant issues arising from internal auditsconducted by Group Audit.

 

83

----

 

There is a robust process forensuring prompt resolution of audit issues, which includes monthly reviews ofprogress by the CEO and the Chairman of the Audit Committee. The AuditCommittee receives formal reports on significant issues until satisfactoryaction has been taken.

 

**PoliticalDonations**

 

In the year to September2003, ANZ donated $75,000 to the Australian Liberal Party and $50,000 to theAustralian Labor Party.

 

84

----

 

 

*Directors’Meetings*

 

The number of Board meetingsand Committee meetings held during the year ended September 30, 2003 andattended by each director are set out in the following table:

 
|          |   | **Board** |   | **Risk  Management   Committee** |   | **Audit  Committee** |   | **Compensation  Committee** |   | **Nominations  & Corporate  Governance  Committee** |   | **Executive  Committee** |   | **Shares  Committee** |   | **Committee  of the  Board** |   |
|---------------|--------|-----------|--------|----------------------------------|--------|----------------------|--------|-----------------------------|--------|---------------------------------------------------------|--------|--------------------------|--------|-----------------------|--------|------------------------------|--------|
|          |   | **A**     |   | **B**                            |   | **A**                |   | **B**                       |   | **A**                                                   |   | **B**                    |   | **A**                 |   | **B**                        |   | **A** |   | **B** |   | **A** |   | **B** |   | **A** |   | **B** |   | **A** |   | **B** |   |
| J  C Dahlsen  |   | 11        |   | 11                               |   | 10                   |   | 8                           |   | 7                                                       |   | 7                        |   | 3                     |   | 3                            |   | — |   | — |   | 1 |   | 1 |   | 1 |   | 1 |   | 2 |   | 2 |   |
| R  S Deane(1) |   | 11        |   | 11                               |   | 10                   |   | 7                           |   | —                                                  |   | —                   |   | 3                     |   | 3                            |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| J  K Ellis    |   | 11        |   | 11                               |   | 10                   |   | 9                           |   | —                                                  |   | —                   |   | 3                     |   | 3                            |   | — |   | — |   | — |   | — |   | 1 |   | 1 |   | — |   | — |   |
| D  M Gonski   |   | 11        |   | 11                               |   | 10                   |   | 7                           |   | —                                                  |   | —                   |   | 3                     |   | 2                            |   | 3 |   | 3 |   | — |   | — |   | — |   | — |   | — |   | — |   |
| C  B Goode    |   | 11        |   | 11                               |   | 10                   |   | 8                           |   | 7                                                       |   | 7                        |   | 3                     |   | 3                            |   | 3 |   | 3 |   | 2 |   | 2 |   | 5 |   | 5 |   | 4 |   | 4 |   |
| M  A Jackson  |   | 11        |   | 11                               |   | 10                   |   | 8                           |   | 7                                                       |   | 7                        |   | 3                     |   | 2                            |   | 3 |   | 3 |   | 1 |   | 1 |   | — |   | — |   | — |   | — |   |
| J  Mc Farlane |   | 11        |   | 11                               |   | —               |   | —                      |   | —                                                  |   | —                   |   | —                |   | —                       |   | — |   | — |   | 2 |   | 2 |   | — |   | — |   | 3 |   | 3 |   |
| B  W Scott    |   | 11        |   | 11                               |   | 10                   |   | 9                           |   | 7                                                       |   | 7                        |   | 3                     |   | 3                            |   | 3 |   | 3 |   | — |   | — |   | 5 |   | 5 |   | 2 |   | 2 |   |

 

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

Column B – The number ofmeetings attended. The Chairman is an ex-officio member of all Board Committees

 

----

(1)       New Zealand resident

 

*Directors’Shareholdings*

 
| **November 7, 2003** |   | **Beneficially held  Shares (1)** |   | **Beneficially held  Options (2)** |   | **Non-beneficially held  Shares** |   |
|----------------------|--------|-----------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
| J  C Dahlsen         |   | 83,400                            |   | —                             |   | 8,500                             |   |
| R  S Deane           |   | 75,000                            |   | —                             |   | —                            |   |
| J  K Ellis           |   | 69,198                            |   | —                             |   | —                            |   |
| D  M Gonski          |   | 2,099                             |   | —                             |   | —                            |   |
| C  B Goode           |   | 268,963                           |   | —                             |   | 146,186                           |   |
| M  A Jackson         |   | 77,436                            |   | —                             |   | —                            |   |
| J  Mc Farlane        |   | 1,292,458                         |   | 2,750,000                          |   | —                            |   |
| B  W Scott           |   | 71,117                            |   | —                             |   | —                            |   |

 

----

(1)       Shares include deferred shares

(2)       750,000 options are exercisable at $14.78 fromDecember 31, 2003 to December 31, 2004 inclusive; may be exercised only if theANZ Accumulation Index over the period from the date on which the options aregranted to the last trading day of any month occurring during the relevantexercise period equals or exceeds the ASX 100 Accumulation Index calculatedover the same period. 500,000 options are exercisable at $17.20 from December31, 2004 to December 31, 2005 inclusive; may be exercised only if the ANZAccumulation Index over the period from the date on which the options aregranted to the last trading day of any month occurring during the relevantexercise period equals or exceeds the ASX 100 Accumulation Index calculatedover the same period. 500,000 options are exercisable at $17.52 from December31, 2003 to December 31, 2007 inclusive; one half of the options may beexercised only if the ANZ Total Shareholder Return (“ANZ TSR”) calculated overthe period commencing on December 31, 2001 and ending on the last day of anymonth after the second anniversary of their date of grant (“the relevantperiod”) exceeds the percentage change in the S&P/ASX 200 Banks (IndustryGroup) Accumulation Index over the same period; the other half of the optionsmay be exercised only if the ANZ TSR calculated over the relevant periodexceeds the percentage change in the S&P/ASX 100 Accumulation Index overthat same period.

1,000,000 options areexercisable at $17.41 from December 31, 2004 to December 31, 2007 inclusive;one half of the options may be exercised only if the ANZ Total ShareholderReturn (“ANZ TSR”) calculated over the period commencing on December 31, 2002and ending on the last day of any month after the second anniversary of theirdate of grant (“the relevant period”) exceeds the percentage change in theS&P/ASX 200 Banks (Industry Group) Accumulation Index over the same period;the other half of the options may be exercised only if the ANZ TSR calculatedover the relevant period exceeds the percentage change in the S&P/ASX 100Accumulation Index over that same period.

 

85

----

 

*Directors’Benefits*

 

No director has, during orsince the end of the year ended September 30, 2002, received or become entitledto receive a benefit from ANZ other than:

 

(a)   a benefit included in the aggregate amount ofemoluments received, or due and receivable, by directors as shown in Note 52 tothe Financial Report; or

 

(b)   the fixed salary of a full-time employee ofthe Company, or an entity controlled by the Company, or a body corporate thatwas related to the Company at a relevant time; or

 

(c)   loans or financial instrument transactionswhich are made lawfully and occur either at arm’s length or with the approvalof a general meeting.

 

Our Board has reviewed theindependence criteria in the Sarbanes-Oxley Act of 2002 (“SOX Act”), anddetermined that each non-executive director is independent. The Audit Committeeis composed solely of non-executive directors.

 

*UnitedStates Sarbanes - Oxley Act of 2002*

 

The Sarbanes - Oxley Act of2002 (“the SOX Act”) was signed into law on July 30, 2002. As we havesecurities registered under the Securities Exchange Act of 1934 and filedisclosure documents with the United States Securities and Exchange Commission(the “SEC”), we are subject to the provisions of this Act.

 

The SEC has been delegatedthe authority to adopt rules to implement many of the SOX Act provisions. Atpresent, some of these rules have not been finalized or issued. However we donot expect the SOX Act to have a material impact on our business.

 

**Servicesoutside the scope of practice of auditors**

 

The SOX Act prohibits theexternal auditor of our Group from providing certain non-audit services to thecompany. The Audit Committee of our Board announced, in April 2002, a policy onthe provision of audit-related and non-audit services. The policy listsservices which may be perceived to be in conflict with the role of the auditor,and precludes the external auditor from providing such services. Our policy,which is consistent with the SOX Act, requires the Audit Committee to approveall services provided by the external auditor.

 

**AuditCommittee Independence**

 

The SOX Act requires thateach member of our Audit Committee is a member of our Board of Directors, andmeets certain criteria for independence.

 

Our Board has reviewed theindependence criteria in the SOX Act, and determined that each non-executivedirector is independent. The Audit Committee is composed solely of non-executivedirectors.

 

**Complaints**

 

As required by the SOX Act,the Audit Committee has established a policy and procedures which provides amechanism by which ANZ staff, consultants and contractors may voice concernsregarding questionable accounting or auditing matters.

 

**Work ofExternal Auditor**

 

Our Audit Committee isdirectly responsible for the appointment, remuneration and oversight of theexternal auditor. The KPMG lead auditor concludes his term at the conclusion ofthe 2003 audit activities and a new lead auditor will take responsibility forthe Group’s audit in the 2004 financial year.

 

**Responsibilityfor Financial Reports**

 

As required by the SOX Act,our CEO and CFO have certified the 20-F filing. This certification follows anaudit of the disclosure controls and procedures, and of the financial controls.The audit was conducted by the Group’s internal audit function during Septemberand October 2003. A report on the findings of this audit was presented to theAudit Committee and to the external auditor.

 

**ShareTrading Policy**

 

The share trading policyadopted by the Group specifically prohibits trading by directors, certainemployees, contractors and consultants working in specific areas of the Groupduring black out periods. The Group’s policy is consistent with the SOX Act.

 

86

----

 

*SeniorManagement*

 

At the date hereof theexecutive officers of ANZ were:

 
| **Executive  Officers** |   | **Position held**                                                                                                                                                                      |   | **Year appointed  to position** |   | **Year joined  Group** |
|-------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|------------------------|
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| J. McFarlane            |   | Chief Executive Officer  30 years in the Banking and FinancialServices industry                                                                                                        |   | 1997                            |   | 1997                   |
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| D.L. Boyles             |   | Chief Operations Officer  21 years of senior management experience in technology and operations                                                                                        |   | 1998                            |   | 1998                   |
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| G.J. Camm               |   | Managing Director, New  Zealand  31 years experience in Retail FinancialServices, Securitization and Insurance                                                                         |   | 2002                            |   | 1989                   |
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| C.J. Cooper             |   | Managing Director,  Mortgages  25 years experience in the Financial Markets world-wide                                                                                                 |   | 2002                            |   | 1994                   |
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| R.J. Edgar              |   | Chief Operating Officer  26 years experience in FinancialServices and Banking                                                                                                          |   | 2003                            |   | 1984                   |
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| S.A. Freeman            |   | Group General Manager,  People Capital  25 years experience in Human Resources, including Industrial Relations                                                                         |   | 2001                            |   | 2001                   |
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| E. Funke Kupper         |   | Managing Director, Personal  Banking Wealth Management Australia  8 years experience in FinancialServices, covering RiskManagement,  International and Retail Banking                  |   | 2001                            |   | 1995                   |
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| A. Gore                 |   | Group General Manager Audit  (Acting)  15 years experience in Finance and Auditing                                                                                                     |   | 2003                            |   | 1995                   |
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| M. Grime                |   | Managing Director,  Operations, Technology and Shared Services  21 years of senior management experience in technology and operations                                                  |   | 2003                            |   | 2003                   |
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| B.C. Hartzer            |   | Managing Director, Consumer  Finance  10 years experience in Strategic Consulting to the FinancialServices industry  and 4 years managing a global credit card business                |   | 1999                            |   | 1999                   |
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| P.J.O. Hawkins          |   | Group Managing Director,  Group Strategic Development  Over 30 years experience in International and Commercial Banking                                                                |   | 2002                            |   | 1971                   |
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| G.K. Hodges             |   | Managing Director,  Corporate and Small to Medium Enterprise Banking  26 years experience across Corporate Banking and Government                                                      |   | 2002                            |   | 1991                   |
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| K.M. Lawrence           |   | Chief RiskOfficer  16 years Senior Management experience in RiskManagement in the  FinancialServices and Banking Industry                                                              |   | 1999                            |   | 1999                   |
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| T. L’Estrange      |   | Group General Counsel  Over 20 years legal and management experience spanning a range of Industry  sectors                                                                             |   | 2003                            |   | 2003                   |
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| P.R. Marriott           |   | Chief Financial Officer  24 years experience in International Banking, Finance and Auditing                                                                                            |   | 1997                            |   | 1993                   |
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| G.D. Miller             |   | Managing Director, Major  Investment Programs  Over 35 years in various roles including International, Corporate and  Investment Banking, plus management of major investment projects |   | 2002                            |   | 1968                   |
|                    |   |                                                                                                                                                                                   |   |                            |   |                   |
| E.M. Proust             |   | Managing Director, Asset  Finance  Over 15 years senior management experience in major public and private sector  organizations, and FinancialServices and Banking                     |   | 2002                            |   | 1998                   |

 

There are no family relationships between oramong any of the directors or executive officers.

 

87

----

 

**EmploymentContracts**

 

Arrangements or undertakingsbetween executive officers and ANZ are covered by an employment agreement underwhich remuneration is at such rates and terms as ANZ shall determine from timeto time.

 

*Compensationof Directors and Senior Management*

 

ANZ’s compensation philosophyfocuses on creating value for shareholders. The following underpins ANZ’scompensation philosophy:

 

•              Creation of an environment where people canexcel with energy and passion;

 

•              Focus on creating and enhancing value forANZ’s shareholders;

 

•              Differentiation of individual compensationcommensurate with contribution to overall results and according to individualaccountability, performance and potential;

 

•              Significant emphasis on “at risk” componentsof total compensation linked to the enhancement of shareholder value throughimprovements in Economic Value Added(TM) (EVA(TM)); and

 

•              The provision of a competitive compensationproposition to successfully attract, motivate and retain the high quality workforce required to deliver on ANZ’s business and growth strategies.

 

**The Role ofthe Compensation Committee**

 

The Compensation Committee(see page 81) is responsible for (amongst other things):

 

•              ANZ’s general compensation program - inconsultation with senior management, to review and recommend to the Board forapproval, ANZ’s general approach to compensation, and to oversee thedevelopment and implementation of compensation programs;

 

•              Executive compensation program - to review andrecommend to the Board for approval, compensation programs applicable to ANZ’sexecutives;

 

•              CEO compensation - to review and recommend tothe Board for approval, corporate goals and objectives relevant to thecompensation of the Chief Executive Officer (CEO), to evaluate the performanceof the CEO in light of those goals and objectives, and to recommend to theBoard the CEO’s compensation level based on this evaluation and other relevantfactors (the CEO does not participate in discussion or decisions relating tohis own compensation);

 

•              Compensation governance - to review andapprove any statement on ANZ’s compensation policy and any executivecompensation disclosures that may be required by any listing rule, legislation,regulatory body, or other regulatory or legislative requirement, or anystatement proposed for inclusion in ANZ’s annual report; and

 

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

 

**ExternalAdvisors (Compensation)**

 

Group People Capital andIndependent non-executive directors have, from time to time, received advicefrom a range of external advisors, including executive search firms.

 

**Non-executivedirectors Compensation**

 

Non-executive directors’ feesare determined by the Board of Directors based on advice from external advisorsand with reference to fees paid to other non-executive directors of comparablecompanies.

 

Non-executive directors’ feesare within the limit agreed to by shareholders at the Annual General Meetingheld on December 13, 2002, and are set at levels that fairly represent theresponsibilities of, and the time spent by, the non-executive directors onGroup matters.

 

Directors may elect to takeall or part of their fees in shares under the Directors’ Share Plan. Under thisplan, shares are bought on market for an amount equivalent to the fee thatwould have been paid to the Director and are held in trust for the Director forat least one year.

 

88

----

 

**Retirementand Termination Benefits**

 

All non-executive directorsparticipate in the ANZ Directors’ Retirement Scheme. Under the ANZ Directors’Retirement Scheme, a lump-sum retirement benefit is payable to non-executivedirectors upon their ceasing to be a director. The lump-sum retirement benefitpayable where the non-executive director has held office for 8 years or more isequal to the total emoluments paid or payable to the non-executive director inrespect of the 3 years immediately preceding the non-executive director ceasingto be a non-executive director. For periods of less than 8 years, aproportionate part of such emoluments is payable. The non-executive directorsare not entitled to the statutory entitlements of long service leave and annualleave.

 

*Non-ExecutiveDirector Emoluments*

 
| **September 30, 2003**      |   | **Fees Paid** |   |                               |   |
|-----------------------------|--------|---------------|--------|------------------------------------|--------|
| **Amounts in $**            |   | **Cash**      |   | **Value of  deferred  shares (1)** |   | **Associated entity board** |   | **Chairman’s  fee** |   | **Retirement  benefit’s paid** |   | **Benefits accrued  for the year but not paid (3)** |   | **Superannuation  contributions** |   | **Total** |   |
|                        |   |          |   |                               |   |   |   |   |
|                        |   |          |   |                               |   |   |   |   |
| **Non-executive directors** |   |          |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| C  B Goode (Chairman)       |   | 76,000        |   | 274,000                            |   | — |   | — |   | — |   | 35,000 |   | 10,520 |   | 395,520 |   |
| J  C-Dahlsen                |   | 110,000       |   | —                             |   | — |   | 25,000 |   | — |   | 35,000 |   | 10,520 |   | 180,520 |   |
| Dr  R S Deane          |   | 110,000       |   | —                             |   | 100,996 | (2) | — |   | — |   | 32,042 |   | 9,900 |   | 252,938 |   |
| J  K Ellis                  |   | 110,000       |   | —                             |   | — |   | 25,000 |   | — |   | 76,563 |   | 10,520 |   | 222,083 |   |
| D  M Gonski                 |   | 110,000       |   | —                             |   | 42,500 |   | — |   | — |   | 91,854 |   | 10,520 |   | 254,874 |   |
| M  A Jackson                |   | 88,000        |   | 22,000                             |   | — |   | — |   | — |   | 7,500 |   | 9,900 |   | 127,400 |   |
| Dr  B W Scott               |   | 110,000       |   | —                             |   | — |   | 25,000 |   | — |   | 32,500 |   | 10,520 |   | 178,020 |   |
| Total                       |   | 714,000       |   | 296,000                            |   | 143,496 |   | 75,000 |   | — |   | 310,459 |   | 72,400 |   | 1,611,355 |   |

 

----

(1)       Participation in Directors’ Share Plan. Valueof shares at the date they were purchased on market

(2)       Fees paid in NZ$ converted at average exchangerate of 1.1139

(3)       If each non-executive director has ceased tobe director as at September 30, 2003, the following amounts would have beenpayable: Mr C B Goode $1,015,000, Mr J C Dahlsen $367,500, Mr R S Deane$599,936, Mr J K Ellis $367,500, Mr D M Gonski $91,854, Ms M A Jackson$332,500, Mr B W Scott $363,750

 

**CompensationStructure**

 

ANZ’s compensation structuresare designed to meet the needs of the specialized business units and themarkets in which they operate. As a result, the mix of compensation componentscan vary across the organization although, where practicable, ANZ appliesstructures and opportunities on a consistent basis for similar roles andlevels. There is a strong emphasis on variable pay opportunities with totalemployee compensation differentiated significantly on the basis of individualand/or business unit performance.

 

**ExecutiveCompensation**

 

ANZ’s executive compensationpolicy limits increases in fixed compensation and emphasizes “at risk”compensation.

 

The executive compensationprogram is designed to support the delivery of specific performance targets andthe execution of agreed business and growth strategies. This program aims todifferentiate compensation on the basis of achievement against both individualand business unit performance targets which are aligned to sustained growth inshareholder value.

 

The executive compensationprogram comprises the following components:

 

•              Fixed compensation component: salary, benefitsand superannuation contributions. The fixed component is generally targeted tothe market median levels being paid in the finance industry in the relevantglobal markets in which ANZ operates.

 

•              Variable or “at risk” component:

 

•              Short-Term Incentive (STI) consisting of cashand deferred shares, and

 

•              Long-Term Incentive (LTI) consisting ofperformance-hurdled options and deferred shares.

 

89

----

 

**Fixedcompensation**

 

The fixed component ofexecutive compensation is reviewed annually based on performance and marketdata. Increases in fixed compensation are limited, in favor of a strongemphasis on variable compensation.

 

**Variablecompensation**

 

The following summarizes howthe variable components of compensation are determined:

 

•              Key Result Areas (performance targets) are setat the beginning of each half-year;

 

•              At the end of each half, performance isassessed against targets;

 

•              Executives are ranked against peers accordingto performance;

 

•              An executive’s total bonus (STI) is basedprincipally on Business Unit and/or ANZ Group performance, individual rankingand total target reward;

 

•              Half of the bonus is paid in cash and half thebonus is allocated as shares deferred for 3 years;

 

•              Executives are also assessed and ranked ontheir future potential:

 

•              An executive’s potential, together with theirranking, influences the size of their LTI grant;

 

•              LTIs are allocated half as shares deferred for3 years and half as performance-hurdled options. Shares are allocated at marketprice and options are allocated on the basis of independent valuations at thetime of allocation.

 

**Variablecompensation - Short-Term Incentive**

 

Short-Term Incentivesencourage executives to support ANZ’s strategic objectives by providing rewardsthat are significantly differentiated on the basis of achievement againstperformance targets.

 

The size of STI payments isbased, firstly, on overall group and business unit performance results and,secondly, on individual performance against financial and non-financialmeasures. Executives are ranked against their peers with better relative performanceattracting a greater proportion of the incentive “pool”.

 

Short-Term Incentives arepaid half in cash and half in shares deferred for 3 years. The STI deferredshares are administered under the ANZ Employee Share Acquisition Plan.

 

**Variable compensation- Long-Term Incentive**

 

Long-Term Incentives are usedas a mechanism to link a significant portion of executives’ compensation to theattainment of sustained growth in shareholder value. The size of LTI grants isinfluenced significantly by individual performance and the assessed potentialfor executives to deliver on ANZ’s long-term growth and business strategies.

 

The deferred shares componentof the LTI is administered under the ANZ Employee Share Acquisition Plan. Theshares are deferred for three years.

 

The options component of theLTI is administered under the ANZ Share Option Plan. The options can only beexercised between 3 years from grant and when they lapse after 7 years.

 

The following types of LTIoptions may be granted to executives:

 

•              Index-linked options - These options have adynamic exercise price, i.e. the exercise price will be adjusted in line withthe movement in the S&P/ASX 200 Banks (Industry Group) Accumulation Index(excluding ANZ). As an additional constraint, the option can only be exercisedif the adjusted exercise price is equal to or above the original issue price.Index linked options ensure that executives are only rewarded for the trueout-performance of ANZ’s share price over and above the movement in the above Index.

 

•              Hurdled options - These options have anexercise price set to the market value at the time of allocation. There are twohurdles:

 

1.             Half the options may only be exercised oncethe ANZ total shareholder return (ANZ TSR) exceeds the percentage change in theS&P/ASX 200 Banks (Industry Group) Accumulation Index, measured over thesame period (since issue) and calculated as at the last trading day of anymonth (once the exercise period has commenced).

 

90

----

 

2.The other half of hurdled options may only be exercised once ANZ TSR exceedsthe percentage change in the S&P/ASX 100 Accumulation Index, measured overthe same period (since issue) and calculated as at the last trading day of anymonth (once the exercise period has commenced).

 

**ChiefExecutive Officer Compensation**

 

Mr McFarlane has anemployment agreement with ANZ which terminates on October 1, 2006 and may beextended or renewed by mutual agreement. The termination arrangementsassociated with this agreement are described in the section on Retirement and

Termination Benefits below.

 

The structure of MrMcFarlane’s compensation, which is in accordance with his agreement, is asfollows:

 

•      Fixed Compensation: Consists of salary,benefits and superannuation contributions. Mr McFarlane may elect to receive aproportion of his Fixed Compensation in the form of shares purchased under theDirectors’ Share Plan.

 

•      Short-Term Incentive: MrMcFarlane’s Short-Term Incentive is determined under the ANZ ExecutiveRemuneration Scheme. It is based on the Group’s EPS Growth and EVA performanceagainst target and an annual assessment of Mr McFarlane’s achievement ofspecific objectives agreed with the Board. Mr McFarlane’s Short-Term Incentivemay be paid in cash or in shares purchased under the Directors’ Share Plan. MrMcFarlane has always elected to receive shares.

 

•      Long-Term Incentive: Mr McFarlane’s Long-TermIncentive was approved by shareholders at the Annual General Meeting inDecember 2001. Four tranches of options were approved for issue: 500,000 in2001; 1,000,000 in 2002; 1,000,000 in 2003 and 500,000 in 2004.

 

The exercise of these optionsis subject to performance hurdles being satisfied.

 

Mr McFarlane’s specificperformance hurdles are indicated in Note 50 of the Financial Report.

 

The compensation of MrMcFarlane for the year ended September 30, 2003 is set out in the section onEmoluments below.

 

**Retirementand Termination Benefits**

 

Mr McFarlane can terminatehis employment agreement by providing 12 months’ notice. ANZ may terminate theemployment agreement by providing notice or payment in lieu of notice equal tothe unexpired term of the employment agreement (which ends on October 1, 2006).Payment in lieu of notice is based on TEC (Total Employment Cost packagecomprising salary or fees, benefits and superannuation contributions). Incircumstances of serious misconduct, Mr McFarlane is only entitled to paymentof TEC up to date of termination. Payment of accumulated superannuationbenefits plus statutory entitlements of long service leave and annual leave(calculated on the basis of salary or fees) applies in all events ofseparation.

 

In the event of resignationnot approved by the Board or dismissal for serious misconduct, all unexercisedoptions will be forfeited. In the event of termination on notice, all optiongrants may be exercised. Upon separation, option entitlements must be exercisedwithin 6 months of termination. In the event of serious misconduct, shares heldin the Directors’ Share Plan will be forfeited, but will be released onresignation or termination on notice.

 

91

----

 

*ChiefExecutive Emoluments*

 

**AnnualCompensation**

 
| **Name**          |   | **Year Ended**   |   | **Salary or fees** |       | **Superannuation  contributions** |       | **Performance Related Bonus  Deferred shares (1)** |       | **Total**   |     |
|-------------------|--------|------------------|--------|--------------------|------------|-----------------------------------|------------|----------------------------------------------------|------------|-------------|----------|
|              |   |             |   | **$**              | ** ** | **$**                             | ** ** | **$**                                              | ** ** | **$**       |     |
| J McFarlane (CEO) |   | September 2003   |   | 1,412,250          |       | 87,750                            |       | 982,121                                            |       | 2,482,121   |     |
|              |   | *September 2002* |   | *1,419,462*        |       | 80,538                            | * *   | *1,398,236*                                        | * *   | *2,898,236* | * * |

 

----

(1)   J. McFarlane’s performance related bonus andpart of his salary have been used to purchase on market deferred shares underthe Directors’ Share Plan. Shares obtained have not been amortized.

 

**Long termincentive (LTI) amortization**

 
| **Name**          |   | **Year ended** |   | **Amortized cost of LTI  options granted $(2)** |   |
|-------------------|--------|----------------|--------|-------------------------------------------------|--------|
| J McFarlane (CEO) |   | September 2003 |   | 2,538,759                                       |   |
|              |   | September 2002 |   | 1,747,071                                       |   |

 

----

(2)   Details of options and deferred shares grantedunder long-term incentive arrangements appear in the Company Annual Report ofthe year in which they are granted.

 

Inaccordance with Australian Securities and Investments Commission guidelines,remuneration includes a proportion of the fair value of options and deferredshares granted pursuant to the Company’s equity-based incentive plans (bothshort-term and long-term) and which had not yet fully ‘vested’ as at thecommencement of the financial year. These values represent the amortized costof options and deferred shares as determined at grant date and areprogressively allocated on a straight-line basis over the ‘vesting period’ foroptions and deferred shares. It is assumed that 100% of all options anddeferred shares granted will vest and no adjustments will be made to reverseamounts in relation to options that never vest (eg through forfeiture). Theamount included as remuneration is not related to nor indicative of the benefit(if any) that individual executives may ultimately realize should the optionsbecome exercisable or the deferred shares vest. The fair value of options as attheir effective date of grant has been determined in accordance with the fairvalue measurement provisions of Accounting Exposure Draft ED108 (inputassumptions are detailed in Note 50 of the Financial Report). The fair value ofdeferred shares is the weighted average price of the Company’s shares duringthe first week up to and including the allocation date.

 

**Longterm incentive**

 

Options granted during year(3)

 
| **Name**          |   | **Number Issued** |   | **Date**   |   | **Hurdled Options  Exercise Price $(4)** |   |
|-------------------|--------|-------------------|--------|------------|--------|------------------------------------------|--------|
| J McFarlane (CEO) |   | 1,000,000         |   | 31.12.2002 |   | 17.41                                    |   |

 

----

(3)   J McFarlane’s options expire five years fromthe date of grant. These options are exercisable between two and five years ofthe date of grant if certain performance conditions are met. Each optionentitles J McFarlane to purchase one ordinary fully paid share in the Company.Estimated value per option has been calculated as at the date of issue inaccordance with the fair value measurement provisions of Accounting ExposureDraft ED108 and was $2.09 (December 31, 2002).

(4)   The exercise price is set at the weightedaverage price of the Company’s shares during the five trading days immediatelyafter the Annual General Meeting of the Company held in respect of thefinancial year of the Company that ended before the date of grant.

 

**Retirementand Termination Benefits for executives (excluding the Chief Executive Officer)**

 

The following separationarrangements vary in accordance with the level of an executive:

 

•      ANZ may terminate the executive’s employmentagreement by providing 6 or 12 months’ notice.

 

•      The executive may terminate their employmentagreement by providing 3 or 12 months’ notice.

 

•      In the event that no suitable position exists,the executive is entitled to a severance payment of 6 or 12 months’ TotalEmployment Cost (TEC).

 

In circumstances of seriousmisconduct, the executive is only entitled to payment of TEC up to date oftermination. Entitlement to accumulated superannuation benefits and thestatutory entitlements of long service leave and annual leave (calculated onthe basis of Salary or Fees) applies in all events of separation.

 

In the event of resignationor dismissal for serious misconduct, all unexercised options and unvesteddeferred shares will be forfeited. In the event of termination on notice, allSTI deferred shares will vest, and all unexercised options and unvested LTIshares will be forfeited.

 

92

----

 

In the event of retrenchment,all STI deferred shares will vest. A pro-rated entitlement to options grantedsince April 24, 2002 applies. All prior grants may be exercised. LTI deferredshares will be pro-rated on grants made since October 23, 2002. All prior LTIshares will vest.

 

The aggregate compensationpaid by ANZ during the year September 30, 2003 to all directors and executiveofficers (24 persons) was $19.4 million. The aggregate amount set aside by ANZfor the year ended September 30, 2003 to provide persons and other retirementor superannuation benefits for such directors and executive officers was $0.6million.

 

*Executives*

 

**AnnualCompensation including Short-Term Incentives (STI) amortization**

 
|                        |   |             |   |               |     |             |     |                |     | **Performance Related Bonus**                          |     |                              |     |
|-----------------------------|--------|------------------|--------|--------------------|----------|------------------|----------|---------------------|----------|--------------------------------------------------------|----------|-----------------------------------|----------|
| **Name**                    |   | **Year Ended**   |   | **Salary or fees** |     | **Benefits (1)** |     | **Cash  component** |     | **Amortized cost of  STI deferred  shares granted(2)** |     | **Superannuation  contributions** |     | **Total** |   |
|                        |   |             |   | **$**              |     | **$**            |     | **$**               |     | **$**                                                  |     | **$**                             |     | **$** |   |
| **Non-executive directors** |   |             |   |               |     |             |     |                |     |                                                   |     |                              |     |   |   |
| D L Boyles                  |   | September 2003   |   | 654,850            |     | 4,200            |     | 192,508             |     | 280,920                                                |     | 40,950                            |     | 1,173,428 |   |
|                        |   | *September 2002* |   | *654,189*          | * * | *8,227*          | * * | *220,355*           | * * | *430,147*                                              | * * | *37,584*                          | * * | *1,350,502* | * * |
| G Branston                  |   | September 2003   | *(3)*  | 445,055            |     | 24,105           |     | 484,053             |     | 461,176                                                |     | —                            |     | 1,414,389 |   |
|                        |   | *September2002*  | *(4)*  | *469,760*          | * * | *25,973*         | * * | *458,891*           | * * | *630,016*                                              | * * | *—*                          | * * | *1,584,640* | * * |
| R Edgar                     |   | September 2003   |   | 583,500            |     | 28,475           |     | 222,004             |     | 235,632                                                |     | 38,025                            |     | 1,107,636 |   |
|                        |   | *September2002*  |   | *467,951*          | * * | *28,245*         | * * | *196,676*           | * * | *333,240*                                              | * * | *28,188*                          | * * | *1,054,300* | * * |
| E Funke Kupper              |   | September 2003   |   | 654,850            |     | 4,200            |     | 210,008             |     | 313,830                                                |     | 40,950                            |     | 1,223,838 |   |
|                        |   | *September2002*  |   | *658,446*          | * * | *3,970*          | * * | *261,865*           | * * | *436,223*                                              | * * | *37,584*                          | * * | *1,398,088* | * * |
| P J O Hawkins               |   | September 2003   |   | 593,432            |     | 4,200            |     | 200,016             |     | 278,936                                                |     | 43,875                            |     | 1,120,459 |   |
|                        |   | *September2002*  |   | *705,761*          | * * | *3,970*          | * * | *213,198*           | * * | *460,451*                                              | * * | *40,269*                          | * * | *1,423,649* | * * |
| P R Marriott                |   | September 2003   |   | 654,850            |     | 4,200            |     | 239,017             |     | 294,492                                                |     | 40,950                            |     | 1,233,509 |   |
|                        |   | *September 2002* |   | *658,446*          | * * | *3,970*          | * * | *256,671*           | * * | *421,861*                                              | * * | *37,584*                          | * * | *1,378,532* | * * |

 

----

(1)   Benefits include the provision of housing,cars and parking, private health insurance, subsidized loans and certain otherexpenses

(2)   Refer to footnote 2 under Chief ExecutiveOfficer Emoluments

(3)   Conversion rate of GBP @ 0.3822

(4)   Conversion rate of GBP @ 0.3621

 

**Long termincentive (LTI) amortization**

 
| **Name**       |   | **Year Ended**  |   | **Amortized cost of LTI  options and deferred  shares granted $(5)** |     |
|----------------|--------|-----------------|--------|----------------------------------------------------------------------|----------|
|           |   |            |   |                                                                 |     |
| D L Boyles     |   | September 2003  |   | 626,437                                                              |     |
|           |   | *September2002* |   | *556,638*                                                            | * * |
| G Branston     |   | September 2003  | *(6)*  | 257,813                                                              |     |
|           |   | *September2002* | *(7)*  | *173,597*                                                            | * * |
| R Edgar        |   | September 2003  |   | 341,535                                                              |     |
|           |   | *September2002* |   | *193,620*                                                            | * * |
| E Funke Kupper |   | September 2003  |   | 682,536                                                              |     |
|           |   | *September2002* |   | *576,174*                                                            | * * |
| P J O Hawkins  |   | September 2003  |   | 562,848                                                              |     |
|           |   | *September2002* |   | *564,715*                                                            | * * |
| P R Marriott   |   | September 2003  |   | 645,841                                                              |     |
|           |   | *September2002* |   | *561,122*                                                            | * * |

 

----

(5)   Refer to footnote 2 under Chief ExecutiveOfficer Emoluments

(6)   Conversion rate of GBP @ 0.3822

(7)   Conversion rate of GBP @ 0.3621

 

93

----

 

**Short termincentive**

 

**DeferredShares granted during the year(8)**

 
| **Name**       |   | **Number (9)** |   | **Value $(10)** |   |
|----------------|--------|----------------|--------|-----------------|--------|
| D L Boyles     |   | 10,248         |   | 186,301         |   |
| G Branston     |   | 27,472         |   | 500,406         |   |
| R Edgar        |   | 12,045         |   | 219,500         |   |
| E Funke Kupper |   | 12,702         |   | 230,850         |   |
| P J O Hawkins  |   | 11,318         |   | 205,836         |   |
| P R Marriott   |   | 13,930         |   | 253,467         |   |

 

----

(8)   Deferred shares issued as short termincentives may be held in trust for up to ten years and are restricted for upto three years.

(9)   Represents number granted in relation to theyear ended September 30, 2003 (ie. granted in October 2002 and May 2003)

(10)Based on the Company share price at grant datedetermined as the weighted average price of the Company’s shares during the oneweek up to and including the allocation date. Deferred shares are granted in oraround April and October of each year

 

**Long termincentive**

 

**DeferredShares granted during the year(11)**

 
| **Name**       |   | **Number (12)** |   | **Value $(13)** |   |
|----------------|--------|-----------------|--------|-----------------|--------|
| D L Boyles     |   | 16,100          |   | 293,426         |   |
| G Branston     |   | 3,100           |   | 56,476          |   |
| R Edgar        |   | 16,100          |   | 293,741         |   |
| E Funke Kupper |   | 14,800          |   | 269,668         |   |
| P J O Hawkins  |   | 10,800          |   | 196,973         |   |
| P R Marriott   |   | 18,400          |   | 335,489         |   |

 

----

(11)Deferred shares issued as long term incentivesmay be held in trust for up to 10 years and are restricted for three years

(12)Refer to footnote 9 under Short term incentive

(13)Refer to footnote 10 under Short termincentive

 

**Optionsgranted during the year(14)**

 
| **Value**      |   | **Number Issued** |   | **Date**   |   | **Index linked  options base  exercise price $(15)** |   | **Number issued** |   | **Date**   |   | **Index linked  options base  exercise price** |   |
|----------------|--------|-------------------|--------|------------|--------|------------------------------------------------------|--------|-------------------|--------|------------|--------|------------------------------------------------|--------|
| D L Boyles     |   | 132,000           |   | 20.05.2003 |   | 18.32                                                |   | 140,000           |   | 23.10.2002 |   | 18.06                                          |   |
| G Branston     |   | 24,800            |   | 20.05.2003 |   | 18.32                                                |   | 28,600            |   | 23.10.2002 |   | 18.06                                          |   |
| R Edgar        |   | 147,000           |   | 20.05.2003 |   | 18.32                                                |   | 125,000           |   | 23.10.2002 |   | 18.06                                          |   |
| E Funke Kupper |   | 119,000           |   | 20.05.2003 |   | 18.32                                                |   | 131,000           |   | 23.10.2002 |   | 18.06                                          |   |
| P J O Hawkins  |   | 96,000            |   | 20.05.2003 |   | 18.32                                                |   | 87,000            |   | 23.10.2002 |   | 18.06                                          |   |
| P R Marriott   |   | 158,000           |   | 20.05.2003 |   | 18.32                                                |   | 153,000           |   | 23.10.2002 |   | 18.06                                          |   |

 

----

(14)All options expire seven years from the dateof grant. These options are exercisable between three and seven years of thedate of grant. Each options entitles the holder to purchase on ordinary fullypaid share in the Company. Estimated values per options have been calculated asat the dates of issue in accordance with the fair value measurement provisionsof Accounting Exposure Draft ED108 and were: $1.10 (October 23, 2002), $1.04(May 20, 2003)

(15)The prevailing exercise price will be the baseexercise price indexed by the change in the S&P/ASX 200 Banks (IndustryGroup) Accumulation Index excluding ANZ. The prevailing exercise price can be no lower than the base exerciseprice, which is set at the weighted average price of the Company’s sharesduring the week up to and including the allocation date

 

 

94

----

 

*Employees*

 

At September 30, 2003 ANZemployed 23,137 (2002: 22,482) people worldwide on a full-time equivalent basis(“FTEs”), of which 21,586 were permanent employees and 1,551 were temporary.There were 16,400 FTEs in Australia at September 30, 2003 compared with 15,882FTEs at September 30, 2002 (refer to table below).

 

Approximately 36% ofemployees in Australia are members of the Finance Sector Union of Australia.ANZ has a specific industrial award that contains terms and conditions ofemployment that apply in differing degrees to all ANZ staff. The award issupplemented by a collective enterprise bargaining agreement and in additionthe majority of senior management and executive staff are covered by individualcommon law contracts of employment.

 

Under enterprise bargainingin Australia, terms and conditions of employment, including salaries, aredependent on agreements negotiated between unions and management. The AustralianIndustrial Relations Commission has the power to ratify these agreements andensure legally enforceable minimum conditions of employment are retained.

 

ANZ’s current Australiancollective enterprise bargaining agreement was entered into in August 1998 andcontinues to legally operate despite passing its nominal expiry date ofFebruary 2001. ANZ paid a 4% salary increase to most non-management staff inJuly 2003.

 

ANZ has 9superannuation/pension plans worldwide. Notes 49 and 54 to the FinancialStatements give further detail on ANZ’s superannuation commitments.

 

ANZ also provides loans atconcessional rates to eligible employees and senior management but excludingexecutives and directors.

 
| **Staff Numbers**          |   | **Sep 03** |   | **Sep 02** |   | **Movement  September 30** |   |
|----------------------------|--------|------------|--------|------------|--------|----------------------------|--------|
| Personal Banking Australia |   | 6,822      |   | 6,577      |   | +3.7                       | %      |
| Institutional              |   | 2,733      |   | 2,612      |   | +4.6                       | %      |
| Corporate & SME        |   | 1,597      |   | 1,487      |   | +7.4                       | %      |
| New Zealand Banking        |   | 2,535      |   | 2,371      |   | +6.9                       | %      |
| Mortgages                  |   | 1,264      |   | 1,047      |   | +20.7                      | %      |
| Consumer Finance           |   | 1,203      |   | 1,156      |   | +4.1                       | %      |
| Asset Finance              |   | 1,311      |   | 1,303      |   | +0.6                       | %      |
| ING Australia              |   | 0          |   | 102        |   | -100                       | %      |
| Asia Pacific               |   | 1,580      |   | 1,558      |   | +1.4                       | %      |
| Treasury and Group Center  |   | 4,092      |   | 4,269      |   | -4.1                       | %      |
|                       |   | 23,137     |   | 22,482     |   | +2.9                       | %      |
|                       |   |       |   |       |   |                       |   |
| Australia                  |   | 16,400     |   | 15,882     |   | +3.3                       | %      |
| New Zealand                |   | 3,822      |   | 3,698      |   | +3.4                       | %      |
| Overseas Markets           |   | 2,915      |   | 2,902      |   | +0.4                       | %      |
|                       |   | 23,137     |   | 22,482     |   | +2.9                       | %      |

 

The ANZ Employee ShareAcquisition Plan was approved by shareholders at ANZ’s Annual General Meetingon January 21, 1998. At the invitation of ANZ, the Plan allows for permanent employeeswho have had continuous service for one year with ANZ and its subsidiaries, toeach be issued with up to A$1,000 worth of ANZ shares each year at no cost tothe employee. The first offer to employees under the Plan was made on November30, 1998. Subsequent offers have been made in 1999, 2000, 2001, 2002 and asixth issue will be made in 2003/04. The Plan also includes a section thatallows for the issue of deferred shares to selected employees in lieu of cashbonuses.

 

The ANZ Share Option Plan providesbenefits, in the form of share options, to selected employees. More detailedinformation regarding ANZ’s employee share and option plans, remuneration ofdirectors and remuneration of executives is contained in Notes 52 and 53respectively to the 2003 Financial Report.

 

95

----

 

*Item 7**: Major Shareholders andRelated Party Transactions*

 

*MajorShareholders*

 

We are not directly orindirectly owned or controlled by another corporation or any foreigngovernment. At December 1, 2003 we know of no person who is the beneficialowner of more than 5% of our ordinary shares.

 

The following tableidentifies the shareholders which, at December 2003, 2002 and 2001 wereregistered as holding 3% or more of our issued ordinary shares:

 
| **Shareholder (1)**               |   | **Number of Shares Held** |   | **% of Total** |   |
|-----------------------------------|--------|---------------------------|--------|----------------|--------|
| **December 1, 2003**              |   |                      |   |           |   |
| J P Morgan Nominees Australia Ltd |   | 250,872,670               |   | 14.05          |   |
| National Nominees Ltd             |   | 220,520,868               |   | 12.35          |   |
| Westpac Custodian Nominees Ltd    |   | 211,004,977               |   | 11.82          |   |
| **December 2, 2002**              |   |                      |   |           |   |
| Chase Manhattan Nominees Ltd      |   | 211,127,137               |   | 14.01          |   |
| National Nominees Ltd             |   | 193,410,333               |   | 12.83          |   |
| Westpac Custodian Nominees Ltd    |   | 141,693,653               |   | 9.40           |   |
| **December 3, 2001**              |   |                      |   |           |   |
| Chase Manhattan Nominees Ltd      |   | 250,022,135               |   | 16.77          |   |
| National Nominees Ltd             |   | 162,024,599               |   | 10.87          |   |
| Westpac Custodian Nominees Ltd    |   | 138,320,467               |   | 9.28           |   |

 

----

(1)   The nominee companies indicated hold shares onbehalf of other beneficial owners none of which are to our knowledgebeneficially entitled to more than 5% of our ordinary shares

 

At December 1, 2003, therewere no entries in the Register of Substantial Shareholdings (5% or more of thevotes attached to voting shares).

 

At December 1, 2003,1,720,608,851 ordinary shares representing 96.38% of our total ordinary sharecapital were held by 226,879 record holders with registered addresses inAustralia.

 

The following table outlinesthe total number of ordinary shares and share options in ANZ owned by ourdirectors and executive

officers as at December 1,2003:

 
| **Title of Class**                 |   | **Identity of Group**                          |   | **Amount of  Shares/Options Owned** |   | **% of Class** |   |
|------------------------------------|--------|------------------------------------------------|--------|-------------------------------------|--------|----------------|--------|
| Ordinary shares – fully paid  |   | Directors and Executive  Officers (24 persons) |   | 5,319,893                           |   | 0.30           |   |
| Share options over ordinary shares |   | Directors and Executive  Officers (17 persons) |   | 9,044,730                           |   | 22.97          |   |

 

As at December 1, 2003, noindividual director or executive officer beneficially owned more than 1% of theoutstanding share capital of the Company.

 

The acquisition of shares inAustralian companies by foreign interests is regulated by the ForeignAcquisitions and Takeovers Act 1975 (the “Foreign Takeovers Act”). The ForeignTakeovers Act applies to any acquisition or issue of shares which results ineither:

 

(a) a foreign person and itsassociates being in a position to control 15% or more of the voting power orhold any legal or equitable interest in 15% or more of the issued shares; or

 

(b) two or more foreignpersons and their associates being in a position to control 40% or more of thevoting power or hold any legal or equitable interest in 40% or more of theissued shares.

 

In either of these cases, theFederal Treasurer may prohibit the acquisition if it would be contrary to theAustralian national interest.

 

96

----

 

The Financial Sector(Shareholdings) Act 1998 prohibits a person, or two or more persons under anarrangement, from acquiring shares in a financial sector company if theacquisition would result in a person holding a stake in the company of morethan 15%. However, the Federal Treasurer may grant approval to a person to holda stake of greater than 15% but only if satisfied that it is in the Australiannational interest. No such approvals have been granted in respect of ourshares.

 

Any person acquiring votingshares in a company is subject to the control of the acquisition of sharesprovisions contained in Chapter 6 of the Australian Corporations Act 2001(“Corporations Act”). Subject to certain limited exceptions, Section 606 of theCorporations Act prohibits a person from acquiring a relevant interest invoting shares in a company if, because of a transaction, the person’s orsomeone elses voting power in the company increases:

 

(a) from 20% or below to morethan 20%; or

 

(b) from a starting pointabove 20% and below 90%

 

One of the exceptions toSection 606 is that the law will allow a person who has been entitled to votingpower in the company of at least 19% for at least six months to acquire anadditional 3% of the company’s voting power in any six month period.

 

For the purposes of theCorporations Act, a person’s voting power in a company is the total number ofvotes attached to voting shares in respect of which the person and itsassociates (which are broadly defined) have a relevant interest (which is alsobroadly defined) as a proportion of the total number of votes attached to allvoting shares in the company.

 

*RelatedParty Transactions*

 

All related party loans weremade in the ordinary course of business, were made on substantially the sameterms, including interest rates and collateral, as those prevailing at the timefor comparable transactions with other persons and entities, and did notinvolve more than the normal risk of collectability or present otherunfavorable features.

 

More detailed informationregarding related party disclosures is contained in Note 51 to the FinancialReport.

 

97

----

 

*Item 8**: Financial Information*

 

For financial informationrefer to Item 18.

 

*LegalProceedings*

 

Companies within the Groupare defendants from time to time in legal proceedings arising from the conductof their businesses. For further information see Note 48 of the FinancialReport “Contingent Liabilities and Credit Related Commitments”. The ANZ doesnot believe the outcome of any current proceedings, either individually or inaggregate, are likely to have a significant effect on the Group’s financialposition.

 

*DividendDistribution Policy*

 

The Board of Directors of theCompany will determine and declare the amount and timing of dividenddistributions to shareholders based on the financial performance and financialposition of the Company.

 

98

----

 

*Item 9**: The Offer and Listing*

 

Our principal ordinary sharelisting and quotation is on the Australian Stock Exchange Limited (the“Australian Stock Exchange”).  Ourordinary shares are also quoted on the New Zealand Stock Exchange.

 

*AmericanDepositary Receipts*

 

Our ordinary shares aretraded in the United States by means of American Depositary Receipts (“ADRs”).We entered into a Deposit Agreement dated December 9, 1988 with The Bank of NewYork. The Bank of New York, acting as depositary, issues ADRs. Each ADRrepresents an American Depositary Share (“ADS”), which in turn represents fiveANZ ordinary shares. This agreement was amended to permit listing of the ADRson the New York Stock Exchange, Inc. (“NYSE”), and on December 6, 1994 tradingof the ADRs commenced on the NYSE. At December 1, 2003, 1,567,122 ADRsrepresenting 7,835,610 or 0.44% of our ordinary shares were outstanding andthere were 344 record holders of ADRs.

 

The following table sets out,for the calendar periods indicated, the high and low market quotations for bothour ordinary shares as reported by the Australian Stock Exchange and our ADRsas quoted on the NYSE.

 
|              |   |      |   | **Per Ordinary Share (A$)** |   | **Per ADR (US$)** |   |
|-------------------|--------|-----------|--------|-----------------------------|--------|-------------------|--------|
|              |   |      |   | **High**                    |   | **Low**           |   | **High** |   | **Low** |   |
| **Year ended**    |   |      |   |                        |   |              |   |   |   |   |   |
| 1999              |   | September |   | 12.45                       |   | 8.58              |   | 40.38 |   | 25.25 |   |
| 2000              |   | September |   | 13.46                       |   | 9.71              |   | 38.56 |   | 30.06 |   |
| 2001              |   | September |   | 17.47                       |   | 13.20             |   | 45.40 |   | 33.25 |   |
| **Quarter ended** |   |      |   |                        |   |              |   |   |   |   |   |
| 2001              |   | December  |   | 18.72                       |   | 15.92             |   | 48.60 |   | 39.80 |   |
| 2002              |   | March     |   | 18.61                       |   | 17.02             |   | 47.83 |   | 44.10 |   |
|              |   | June      |   | 20.60                       |   | 17.49             |   | 57.90 |   | 46.70 |   |
|              |   | September |   | 19.63                       |   | 16.92             |   | 54.25 |   | 45.55 |   |
|              |   | December  |   | 19.02                       |   | 16.84             |   | 53.15 |   | 46.83 |   |
| 2003              |   | March     |   | 18.03                       |   | 15.69             |   | 54.00 |   | 47.10 |   |
|              |   | June      |   | 20.60                       |   | 19.09             |   | 64.29 |   | 61.05 |   |
|              |   | September |   | 18.37                       |   | 17.42             |   | 61.90 |   | 56.55 |   |
| **Month ended**   |   | June      |   | 19.29                       |   | 18.27             |   | 64.29 |   | 61.05 |   |
|              |   | July      |   | 18.72                       |   | 17.65             |   | 63.72 |   | 57.50 |   |
|              |   | August    |   | 18.52                       |   | 17.50             |   | 60.60 |   | 56.88 |   |
|              |   | September |   | 18.37                       |   | 17.42             |   | 61.90 |   | 56.55 |   |
|              |   | October   |   | 18.03                       |   | 16.98             |   | 65.90 |   | 60.90 |   |
|              |   | November  |   | 17.82                       |   | 15.94             |   | 65.25 |   | 60.75 |   |

 

*CapitalSecurities*

 

On March 4, 1993, wecompleted an underwritten public offering in the United States of US$258.8million (aggregate principal amount) of 9 1/8% Capital Securities (“CapitalSecurities”). These Capital Securities were listed on the NYSE, which is theprincipal market in the United States for the trading of the CapitalSecurities.

 

The securities were redeemedat par on March 4, 2003 in accordance with an option held by us as part of theissue terms.

 

99

----

 

The following table sets outthe high and low market quotations per US$25 principal amount of CapitalSecurities as quoted on the NYSE.

 
|              |   |      |   | **High** |   | **Low** |   |
|-------------------|--------|-----------|--------|----------|--------|---------|--------|
| **Year ended**    |   |      |   |     |   |    |   |
| 1999              |   | September |   | 28.030   |   | 26.130  |   |
| 2000              |   | September |   | 26.440   |   | 22.000  |   |
| 2001              |   | September |   | 27.29    |   | 24.800  |   |
| **Quarter ended** |   |      |   |     |   |    |   |
| 2001              |   | December  |   | 27.150   |   | 25.930  |   |
| 2002              |   | March     |   | 27.150   |   | 25.650  |   |
|              |   | June      |   | 27.220   |   | 25.750  |   |
|              |   | September |   | 27.290   |   | 25.930  |   |
|              |   | December  |   | 26.100   |   | 25.250  |   |
| 2003              |   | March     |   | 25.810   |   | 25.350  |   |

 

*PreferenceShares*

 

We have issued 124,032,000fully paid non-converting non-cumulative preference shares for US$6.25 pershare raising capital of

US$775 million via two (1)Trust Securities Issues.

 
| **Date of issue**     |   | **Number of shares** |   | **Price (US$)** |   | **Capital (US$)** |   | **Trust distribution  per annum** |   | **Maturity** |   |
|-----------------------|--------|----------------------|--------|-----------------|--------|-------------------|--------|-----------------------------------|--------|--------------|--------|
| September 23, 1998    |   | 64,016,000           |   | 6.25            |   | 400 million       |   | 8.00                              | %      | 2047         |   |
| November 19, 1998     |   | 56,016,000           |   | 6.25            |   | 350 million       |   | 8.08                              | %      | 2048         |   |
| November 24, 1998 (1) |   | 4,000,000            |   | 6.25            |   | 25 million        |   | 8.08                              | %      | 2048         |   |

 

----

(1)   On November 24, 1998 the underwritersexercised an option on the November 19, 1998 issue resulting in a further4,000,000 shares being issued, giving a total of 60,016,000 shares issued forUS$375 million.

 

The Trust Securities aremandatorily exchangeable for the preference shares issued by us and carry anentitlement to a non-cumulative trust distribution per annum payable quarterlyin arrears. The Trust Securities were issued by a non diversified closed endmanagement investment company registered under the US Investment Company Act of1940. The preference shares themselves carry no present entitlement todividends. Distributions to investors in the Trust Securities are funded byincome distributions made by the Group.

 

Upon maturity of the TrustSecurities, investors will mandatorily exchange the Trust Securities for thepreference shares and thereupon the preference shares will carry an entitlementto non-cumulative dividends at the Trust distribution rate payable quarterly inarrears. The mandatory exchange of Trust Securities for preference shares mayoccur earlier at our option or in certain specified circumstances includingdefault, breach of APRA capital adequacy limits and appointment of aliquidator.

 

With the prior consent ofAPRA, the preference shares are redeemable at our option after 5 years, or within5 years in limited circumstances. The entitlement of investors to distributionson the Trust Securities will cease on redemption of the preference shares.

 

The transaction costs arisingon the issue of these instruments were recognized directly in equity as areduction of the proceeds of the equity instruments to which the costs relate.

 

On December 12, 2003 weexercised our option to redeem for cash both tranches of preference shares.

 

100

----

 

*Item 10**: Additional Information*

 

*ExchangeControls and Limitations Affecting Security Holders*

 

There are currently noAustralian Exchange Control regulations in force which restrict the payment ofdividends, interest or other remittances to holders of our securities, otherthan in relation to holders who are among or are connected with the followingcountries or groups, which categories are referred to below as “ProscribedEntities”:

 

(a)           the previousGovernment of Iraq (as defined in the Iraq (Reconstruction and Repeal ofSanctions) Regulations 2003 of the Commonwealth of Australia), the formerPresident of Iraq, Saddam Hussien, and senior officials of the previousGovernment of Iraq;

 

(b)           (in relation totransactions exceeding AUD100,000 in value), the Embassy of the FederalRepublic of Yugoslavia, the Consulate-General of the Federal Republic ofYugoslavia and the National Bank of Yugoslavia;

 

(c)           certain personslisted by the Reserve Bank of Australia as known supporters of the formerMilosevic regime of the Federal Republic of Yugoslavia

 

(d)           certain members ofthe Government of Zimbabwe listed by the Reserve Bank of Australia

 

(e)           the Taliban (whichalso calls itself the Islamic Emirate of Afghanistan), Osama bin Laden and anymember of the Al-Qaida organization and any person or entity mentioned in thelist maintained under paragraph 2 of Resolution 1390 (2002) of the SecurityCouncil of the United Nations;

 

(f)            any person or entitymentioned in paragraph 1(c) of Resolution 1373 (2001) of the Security Councilof the United Nations; and

 

(g)           certain other personsand entities listed by the Australian Government under the Charter of theUnited Nations (Terrorism and Dealings with Assets) Regulations 2002 of theCommonwealth of Australia

 

Payments in or from Australiato, by the order of, on behalf of, for credit of, or relating to the property,security of funds belonging to or controlled by or payments to ProscribedEntities cannot be made without the specific approval of:

 

(i)            In cases (b), (c) or(d), the Governor of the Reserve Bank of Australia; or

 

(ii)           In cases (a), (e),(f) or (g), the relevant Government Minister.

 

Australian law and ourConstitution do not limit the right of a holder of an ANZ issued debt securitywho is not an Australian resident to hold such securities nor do they limit theexercise of any voting rights save in the case of Proscribed Entities.

 

*AustralianTaxation*

 

The following discussion is asummary of the Australian taxes generally applicable to United States (US)holders of ADRs or Capital Securities. The summary does not purport to becomplete technical analysis, and does not address the Australian taxesapplicable to special classes of US holders. Except as otherwise noted, thestatements of Australian tax laws are as of the date of this Annual Report,including the Australia, United States income tax convention in force, and aresubject to any changes in law occurring after that date.

 

**ADSs -Australian taxation**

 

**Distributions**

 

In accordance with Article10(2) of the Australia/United States income tax convention, dividends derivedby a non-resident of Australia who is a resident of the US may be taxed inAustralia. The tax is limited to 15% of the gross amount of the dividends(unless the dividend is attributable to a permanent establishment or fixed basein Australia, in which case, a 30% rate may apply). However in some instanceswithholding tax may not apply (refer to the following paragraphs).

 

Australia and the UnitedStates have recently agreed to generally reduce the withholding rate limit fordividends to 5% for holders of more than 10% of shares in a company and 0% for80% holders. In all other cases, the 15% rate limit will continue to apply.These withholding rate changes take effect from July 1, 2003.

 

101

----

 

The Australian Governmentintroduced a dividend imputation system, effective from July 1, 1987. The basisof the system is that Australian tax paid by an Australian resident company onits income is allocated to stockholders by means of imputation credits attachedto the dividends they receive. Such dividends are known as franked dividends.For Australian resident individual and institutional stockholders, the imputedtax credits are available to apply against the tax liability which arises ontheir assessable income (or in the case of a resident corporate shareholder, tobe allocated to its own shareholders).

 

To the extent that a dividendpaid by an Australian resident company and derived by US residents is franked,the dividend will not be subject to Australian dividend withholding tax. Inthis case, no separate credit or refund for the attached imputation credit isavailable.

 

The Australian dividendimputation system has been amended effective from July 1, 2002. The amendinglegislation does not materially change the tax outcomes described above.However, subject to certain constraints, it provides some flexibility for anAustralian resident company to choose the level to which a dividend is franked.

 

The Australian tax rules requiretaxpayers to hold shares ‘at risk’ for certain periods before obtaining thebenefit of the dividend imputation system. The minimum period for holdingordinary shares ‘at risk’ is currently 45 days, but the Government isconsidering a proposal to reduce the minimum period. Failure to satisfy theserequirements may result in the deduction of Australian withholding tax fromdividends paid to non-residents of Australia. There is an exemption from theserules for defined ‘small’ transactions.

 

There is a similar system bywhich unfranked dividends paid to non-resident shareholders may be exempt fromdividend withholding tax if it is specified that the dividends are paid byAustralian resident companies out of its Foreign Dividend Account (“FDA”). TheFDA is used to capture certain types of foreign source dividend income derivedon or after July 1, 1994 from offshore subsidiaries. Dividends paid out of theFDA qualify for the dividend withholding tax exemption. It is not mandatory forAustralian resident companies receiving eligible foreign source dividends tomaintain a FDA. The Australian Government has previously announced an intentionto consider replacing the FDA by a Foreign Income Account (“FIA”) which willallow all types of foreign source income to be FDA eligible (not just foreignsource dividend income). The proposal has been confirmed by the AustralianGovernment as part of the Review of International Taxation Arrangements.

 

ANZ dividends have recentlybeen fully franked or paid from the FDA and, therefore, there has not been anywithholding tax withheld on dividends paid to non-resident shareholders.However, ANZ does not guarantee the level to which future dividend paymentswill be franked or whether they will be sourced from its FDA.

 

Consequently, the portion ofthe dividend paid to US residents which is not franked nor sourced from an FDAby an Australian resident company will be subject to Australian dividendwithholding tax as above. The payment of unfranked dividends (other than thosepaid out of an FDA) to a US resident is made net of the withholding tax. TheAustralian income tax legislation does not allow shareholders to elect to bepaid dividends on a franked or an unfranked basis.

 

With effect from July 1,2001, new legislation classifies interest as either equity or debt. An interestthat is classified as equity will be frankable, whereas an interest that isclassified as debt will not be frankable. ADR’s would be classified as equityon the basis that the return is contingent on ANZ’s performance or is at thediscretion of ANZ.

 

**Dispositions**

 

A US resident enterprisewhich is a non-resident of Australia would not generally be liable to incometax on sale of shares by virtue of Article 7 of the Australia/United Statesincome tax convention, as long as the sale was not attributable to a permanentestablishment in Australia.

 

US resident holders who arenon-residents of Australia would not generally be subject to Australian capitalgains tax except in the circumstances described below.

 

Generally speaking, shares orrights to acquire shares in Australian resident public companies sold by USresidents are exempt from capital gains tax in Australia. However, inaccordance with Section 136-25 of the Australian Income Tax Assessment Act1997, the disposal of such shares or rights shall be held to have the necessaryconnection with Australia and subject to capital gains tax if they have at anytime been used by the taxpayer in carrying on a trade or business wholly orpartly at or through a permanent establishment in Australia. Capital gains taxwill also apply where the sale of shares or rights in an Australian residentpublic company has occurred where the vendor and the vendors’ associates held10% or more of the issued capital of the Company any time within 5 years priorto the time of sale. The Australian Taxation Office takes the view that profitstaxed under the capital gains tax regime are not entitled to the protection ofArticle 7 of the Australia, United States income tax convention.

 

102

----

 

In those applicablecircumstances as referred to in the preceding paragraph, Australian capitalgains realized on the disposal of assets acquired after September 19, 1985 aretaxed at ordinary tax rates. The basis of calculating any taxable capital gainshas been amended effective September 21, 1999. The taxable capital gain isstill based on the excess of the disposal proceeds (or value, in certain nonarms-length transactions) over “cost” of the asset, however the basis ofestablishing “cost” has been amended. Capital losses continue to be availablefor offset only against capital gains.

 

Prior to September 21, 1999if the asset was held for a period in excess of 12 months the original cost(plus certain costs of acquisition) was indexed by the Australian inflationrate. Effective September 21, 1999, indexation of the cost base has been frozenat September 30, 1999. The calculation of the “cost” of the asset depends onwhether the assets are acquired before or after September 21, 1999 and whetherthe taxpayer is an individual or a company.

 

For assets acquired on orbefore September 21, 1999 and held for at least one year, companies are taxedon the whole difference between the disposal price and the frozen indexed costbase. Individual tax payers, trusts and certain superannuation funds have thechoice of calculating the taxable capital gain on either:

 

•      half the realized nominal gain (or two-thirdsfor certain superannuation funds); or

•      the whole difference between the disposalprice and the frozen indexed cost base.

 

For assets acquired afterSeptember 21, 1999, companies are taxed on nominal gains but individuals,trusts and certain superannuation funds will be taxed on half (two-thirds forsome superannuation funds) the difference between the disposal price and theoriginal cost if the assets are held for at least one year.

 

If the individual is taxed orchooses to be taxed on half the nominal gain, any available capital losses willbe applied against the full nominal capital gains. If the individual choosesthe indexation option, capital losses will be applied against the real gainswith indexation frozen up to September 30, 1999. Individuals who have bothtypes of capital gains can chose the order in which available capital lossesare offset against the different capital gains.

 

Some holders, such as sharetraders or certain institutions carrying on a business of investment, may besubject to tax on the profit on disposal of shares, on an historical cost basis,as ordinary income. Any capital gains tax liability otherwise arising on such aprofit would be reduced to the extent that it was taxed as ordinary income.

 

**CapitalSecurities**

 

**Distributions**

 

A US holder of CapitalSecurities will not incur or become liable for any Australian income tax(including Australian withholding tax on income produced by holding suchCapital Securities). No Australian taxes or duties will be liable to bededucted in respect of payments (including additional amounts, if any) to thatUS holder provided that the conditions of Section 128F of the Australian IncomeTax Assessment Act 1936 are, and continue to be, satisfied. If we were at anytime compelled by law to withhold or deduct an amount in respect of any presentor future tax or duty imposed, or levied by any Australian taxing authority ona payment (including on any premium payable on redemption of any CapitalSecurities, we would be required to pay to a US holder additional amounts inrespect of the tax or duty (subject, in certain circumstances, to our right toredeem for tax reasons).

 

If however, a US holder werean Australian resident or that US holder derived payments on the CapitalSecurities through a permanent establishment or fixed base in Australia, theholder could be subject to Australian income tax on interest or premiumcomprised by such payments, at normally applicable Australian tax rates.

 

**Dispositions**

 

A US holder would not beliable to Australian capital gains tax on a profit on any sale or otherdisposition (including redemption) of Capital Securities unless the CapitalSecurities were held through an Australian permanent establishment or fixedbase. Australian income tax would not apply to such a profit unless the profitwas “income” under Australian law (e.g. the profit was derived in the course ofa securities trading business), and had an Australian “source” (determined as aquestion of fact by reference to factors such as location of the Securities,the business or transaction of which the disposition was part, and of payment)and the US holder could not claim exemption under the Australia, United Statesincome tax convention.

 

**InheritanceTax**

 

No Australian federal orstate inheritance or similar taxes are payable in respect of Capital Securitiestransmitted by death held by a person who is a US holder at the date of death.

 

103

----

 

**Stamp Taxes**

 

No Australian stamp tax orduty is payable by a US holder on the issue or transfer by delivery of CapitalSecurities. No such stamp duty or tax is payable by a US holder on the transferoutside Australia by instrument of any Capital Securities so long as theCapital Securities are registered on a register maintained outside Australia,as is required under the Indenture relating to the Capital Securities.

 

**Goods andServices Tax**

 

Australia introduced a Goodsand Services Tax (GST) with effect from July 1, 2000.

 

Our primary financialproducts qualify as “input taxed” and therefore GST is not generally addeddirectly to the consumer’s price for financial services and products.Consequently, ANZ is not able to claim the input credit for GST paid. Leasing,general insurance and a range of other products are subject to GST like mostgoods and services. We operate in a number of other countries which have asimilar tax to the GST.

 

**TaxConsolidation**

 

Legislation has been enactedto allow Australian resident entities to elect to consolidate and be treated asa single entity for Australian tax purposes. It is not anticipated that enteringinto the tax consolidation regime would materially change the tax outcomes forthe ANZ Group.

 

At the date of this report,the Directors of ANZ have not made a decision whether or not to elect to betaxed as a single entity. Should ANZ enter the tax consolidation regime, taxbalances will no longer be recorded by subsidiaries if they form part of aconsolidated tax group. Tax balances for the consolidated tax group will berecorded in the financial statements of the Company.

 

*UnitedStates Federal Income Taxation*

 

This section describes thematerial United States federal income tax consequences to a U.S. holder (asdefined below) of owning ordinary shares or ADSs. It applies only to personswho hold ordinary shares or ADSs as capital assets for tax purposes.

 

This section does not applyto any member of a special class of holders subject to special rules, includinga dealer in securities, a trader in securities that elects to use amark-to-market method of accounting for securities holdings, a tax-exemptorganization, a life insurance company, a person liable for alternative minimumtax, a person that actually or constructively owns 10% or more of our votingstock, a person that holds ordinary shares or ADSs as part of a straddle or ahedging or conversion transaction, or a person whose functional currency is notthe U.S. dollar.

 

This section is based on theInternal Revenue Code of 1986, as amended, its legislative history, existingand proposed regulations, published rulings and court decisions all ascurrently in effect, as well as on the Australia, United States income taxconvention in force (the “Treaty”). These laws are subject to change, possiblyon a retroactive basis. In addition, this section is based in part upon therepresentations of the Depositary and the assumption that each obligation inthe Deposit Agreement and any related agreement will be performed in accordancewith its terms.

 

A U.S. holder is a beneficialowner of ordinary shares or ADSs that is a citizen or resident of the UnitedStates, a domestic corporation, an estate whose income is subject to UnitedStates federal income tax regardless of its source, or a trust if a UnitedStates court can exercise primary supervision over the trust’s administrationand one or more United States persons are authorized to control all substantialdecisions of the trust.

 

Holders of ordinary shares orADSs should consult their own tax advisors regarding the United States federal,state and local and other tax consequences of owning and disposing of ordinaryshares and ADSs in their particular circumstances.

 

This discussion addressesonly United States federal income taxation.

 

In general, and taking intoaccount the earlier assumptions, for United States federal income tax purposes,a holder of ADRs evidencing ADSs will be treated as the owner of the sharesrepresented by those ADRs. Exchanges of shares for ADRs, and ADRs for shares,generally will not be subject to United States federal income tax.

 

104

----

 

**Distributions**

 

Under the United Statesfederal income tax laws, a U.S. holder of ordinary shares or ADSs is subject toUnited States federal income tax on the gross amount of any dividend we pay outof our current or accumulated earnings and profits (as determined for UnitedStates federal income tax purposes). Dividends paid to a noncorporate U.S.holder in taxable years beginning before January 1, 2009 that constitutequalified dividend income will be subject to a maximum tax rate of 15% providedthat such holder holds the ordinary shares or ADSs for more than 60 days duringthe 120-day period beginning 60 days before the ex-dividend date and meetsother holding period requirements. Dividends we pay with respect to theordinary shares or ADSs generally will be qualified dividend income.

 

U.S. holders must include anyAustralian tax withheld from the dividend payment in this gross amount eventhough they do not in fact receive it. The dividend is taxable when the holder,in the case of ordinary shares, or the Depositary, in the case of ADSs,receives the dividend, actually or constructively. The dividend will not beeligible for the dividends-received deduction generally allowed to UnitedStates corporations in respect of dividends received from other United Statescorporations. The amount of the dividend distribution that a U.S. holder mustinclude in its income will be the U.S. dollar value of the Australian dollarpayments made, determined at the spot Australian dollar/U.S. dollar rate on thedate the dividend distribution is includible in the holder’s income, regardlessof whether the payment is in fact converted into U.S. dollars. Generally, anygain or loss resulting from currency exchange fluctuations during the periodfrom the date the U.S. holder includes the dividend payment in income to thedate the U.S. holder converts the payment into U.S. dollars will be treated asordinary income or loss and will not be eligible for the special tax rateapplicable to qualified dividend income. The gain or loss generally will beincome or loss from sources within the United States for foreign tax creditlimitation purposes. Distributions in excess of current and accumulatedearnings and profits, as determined for United States federal income taxpurposes, will be treated as a non-taxable return of capital to the extent ofthe U.S. holder’s basis in the ordinary shares or ADSs and thereafter ascapital gain.

 

Subject to certainlimitations, the Australian tax withheld in accordance with the Treaty and paidover to Australia will be creditable against a U.S. holder’s United Statesfederal income tax liability. Special rules apply in determining the foreigntax credit limitation with respect to dividends that are subject to the maximum15% tax rate. To the extent a refund of the tax withheld is available underAustralian law or under the Treaty, the amount of tax withheld that isrefundable will not be eligible for credit against a U.S. holder’s UnitedStates federal income tax liability.

 

Dividends will be income fromsources outside the United States, but generally will be “passive income” or“financial services income” which is treated separately from other types ofincome for purposes of computing the foreign tax credit allowable to U.S.holders.

 

**Dispositions**

 

A U.S. holder who sells orotherwise disposes of ordinary shares or ADSs will recognize capital gain orloss for United States federal income tax purposes equal to the differencebetween the U.S. dollar value of the amount realized and its tax basis, determinedin U.S. dollars, in those ordinary shares or ADSs. Capital gain of anoncorporate U.S. holder that is recognized on or after May 6, 2003 and beforeJanuary 1, 2009 is generally taxed at a maximum rate of 15% where the holderhas a holding period greater than one year. The gain or loss will generally beincome or loss from sources within the United States for foreign tax creditlimitation purposes.

 

*Constitution*

 

The following is a summary ofthe key aspects of the Constitution.

 

**Objects andpurposes**

 

The Company was registered inthe state of Victoria, Australia on July 14, 1977 as a public company limitedby shares. The Company is registered with the Australian and Securities andInvestments Commission (“ASIC”) and its Australian Business Number is 11 005357 522. The objects and purposes of the company are not set out in itsConstitution. Under the Corporations Act 2001, the Company has the legalcapacity and powers of an individual.

 

105

----

 

**Directors**

 

Our Constitution and theCorporations Act 2001 regulate various matters concerning the directors of theCompany:

 

(a) Matters in which thedirector has a material personal interest

 

A director who has a materialpersonal interest in a matter that is being considered at a directors’ meetingcannot be present while the matter is being considered at the meeting and maynot vote on the matter, except in the following four circumstances permitted bythe Constitution and the Corporations Act 2001:

 

•      directors who do not have a material personalinterest in the matter have passed a resolution identifying the relevantdirector, the nature and event of the director’s personal interest and itsrelation to the affairs of the Company and stating that the remaining directorsare satisfied that the relevant director’s material personal interest shouldnot disqualify the director from being present or voting;

 

•      ASIC has made a declaration or order under theCorporations Act 2001 which permits the director to be present and votenotwithstanding the director’s material personal interest;

 

•      there are not enough directors to form aquorum for a directors’ meeting because of the disqualification of theinterested directors, in which event the directors (including directors with amaterial personal interest in the matter) may call a general meeting to dealwith the matter; and

 

•      the matter is of a type which the CorporationsAct 2001 specifically permits the director to vote upon and to be present at adirector’s meeting during consideration of the matter notwithstanding thedirector’s material personal interest.

 

(b) Compensation of directors

 

The aggregate remuneration ofdirectors is determined by the Company in general meeting. That aggregateremuneration is to be divided among the directors as they agree on or, in theabsence of agreement, equally. The division of aggregate remuneration amongdirectors does not require an independent quorum.

 

(c) Borrowing powerexercisable by directors

 

Under the Constitution, thedirectors have exclusive power to manage the business of the Company to theexclusion of the members in general meetings, and may exercise all of thepowers of the Company that are not required by the Corporations Act 2001, orthe Constitution, to be exercised by the Company in general meeting. Thegeneral power granted to the directors will include the power to borrow. Thesepowers can only be altered by an amendment to the Company’s Constitution, whichwould need to be approved by a special resolution of the Company’s members at ageneral meeting.

 

(d)           Retirement ofdirectors under an age limit requirement

 

A director who attains theage of 70 is deemed to have retired from the Company on that day, unless theremaining directors have previously resolved that the director’s retirementwill occur at a later date. Directors appointed since 1993 have agreed not toseek re-appointment after 15 years service.

 

(e) Share qualification

 

Within 2 months after adirector is appointed, the director must hold at least 2,000 fully paidordinary shares in the Company in the director’s own right.

 

*Sharerights – ordinary shares*

 

**(a) Dividendrights**

 

Holders of ordinary sharesare entitled to receive such dividends as may be declared by the directors fromtime to time. Dividends that are not claimed are required to be dealt with inaccordance with laws relating to unclaimed monies.

 

Dividends are only payableout of profits of the Company, and a declaration by the directors as to theamount of profits available for payment of a dividend is final and binding onall members. Before paying any dividend, directors may set aside, out ofprofits of the Company, such reserves as they think proper to be applied attheir discretion for any proper purposes, and may carry forward so much of the profitsremaining as they consider ought not to be distributed as dividends withouttransferring those profits to a reserve.

 

106

----

 

**(b) Votingrights**

 

Each ordinary shareholderpresent at a general meeting (whether in person or by proxy or representative)is entitled to one vote on a show of hands or, on a poll, one vote for eachfully paid ordinary share held.

 

**(c) Right toshare in profit**

 

In the event of a winding-upof the Company, ordinary shareholders rank after creditors and preferenceshareholders and are fully entitled to any surplus proceeds on liquidation.

 

**(d) Rightsto redemption**

 

Ordinary shareholders have noright to redeem their shares.

 

**(e) Furthercalls**

 

Holders of fully paidordinary shares have no liability for further capital calls by the Company.There are no partly paid ordinary shares.

 

There is no provision of theConstitution that discriminates against any existing or prospective holder ofordinary shares as a result

of such shareholder owning asubstantial number of shares.

 

*Sharerights – American depositary shares (“ADSs”)*

 

Each ADS confers an interestin 5 fully paid ordinary shares in the Company which have been deposited with adepositary or custodian. The rights attaching to each fully paid ordinary sharerepresented by an ADS are the same as the rights attaching to fully paidordinary shares as described above. These rights are vested in the custodian ordepositary as the holder of the fully paid ordinary shares, although holders ofAmerican depositary receipts (“ADRs”), which evidence ADSs, have certain rightsagainst the depositary or custodian under the terms governing the issue of theADRs.

 

*Sharerights – TrUEPrS**(SM)**preference shares*

 

On 23/9/1998 a total of64,016,000 non-converting non-cumulative preference shares of the Company witha liquidation preference of US$6.25 per share (“TrUEPrS No 1”) were issued to adepositary in connection with an issue of 16,004,000 Trust Units Exchangeablefor Preferred Shares(SM) (“TrUEPrS”) by the ANZ Exchangeable Preferred Trust 1,a Delaware business trust that was not controlled by the Company.

 

On 19/11/1998 a total of56,016,000 and on 24/11/1998 an additional 4,000,000 non-convertingnon-cumulative preference shares of the Company with a liquidation preferenceof US$6.25 per share (“TrUEPrS No 2”) were issued to a depositary in connectionwith an issue of 15,004,000 “TrUEPrS” by the ANZ Exchangeable Preferred TrustII, a Delaware business trust that was not controlled by the Company.

 

On December 12, 2003, weexercised our option to buy back each tranche of TrUEPrS preference shares forcash.

 

The holders of TrUEPrS No 1received distributions quarterly in arrears at the rate of 8% per annum on anon-cumulative basis. The holders of TrUEPrS No 2 receive distributionsquarterly in arrears at the rate of 8.08% per annum on a non-cumulative basis.In 2048, or the earlier occurrence of certain other ‘exchange events’, theholders of TrUEPrS were exchange their TrUEPrS for American depositary sharesrepresenting TrUEPrS preference shares, or for cash in some limitedcircumstances. Until that time, the TrUEPrS preference shares would not havepaid dividends.

 

After such an ‘exchangeevent’ occurs the TrUEPrS preference shares would have automatically convertedinto non-cumulative preference shares with the TrUEPrS No 1 preference sharespaying a dividend of 8% per annum, if a dividend was declared, and the TrUEPrSNo 2 preference shares paying a dividend of 8.08%, if a dividend was declared.

 

If a dividend was not paid onTrUEPrS preference shares, the Company could not, in certain circumstances,have paid distributions, redeem, buyback or reduce capital on any other sharesof the Company that rank equally with, or junior to, the TrUEPrS preference shares.Holders of the TrUEPrS preference shares were entitled to vote together withthe holders of ordinary shares in the Company (to the extent that theseshareholders are entitled to vote) on the basis of one vote per TrUEPrSpreference share on a limited number of matters, including any proposal to windup the Company or any proposal to affect the rights attaching to the TrUEPrSpreference shares.

 

107

----

 

The TrUEPrS preference sharesare redeemable or may be bought back by the Company, in certain limitedcircumstances prior to the fifth anniversary of their issue date, and after thefifth anniversary of the issue date, at the Company’s election at par plusaccrued dividends, if any.

 

In a winding-up of the Company,holders of TrUEPrS preference shares generally ranked equally with the holdersof other preference shares and ranked for return of capital on the TrUEPrSpreference shares in priority to ordinary shares and equally with otherpreference shares as to dividends.

 

TrUEPrS(SM) is a service markof Merrill Lynch & Co., Inc.

* *

*ANZstapled exchangeable preferred securities (“ANZ StEPS”)*

 

On September 23, 2003, theCompany issued 10 million stapled securities, raising $1 billion dollars lessissue costs of $13 million. ANZ StEPS comprise two fully paid securities - aninterest paying unsecured note (issued by ANZ Holdings (New Zealand) Limited, awholly owned subsidiary of ANZ) stapled to a preference share issued by ANZ.Distributions on ANZ StEPS are noncumulative and are payable quarterly inarrears based upon a floating distribution rate equal to the 90 day bank billrate plus a margin. At each payment date the 90 day bank bill rate is reset forthe next quarter. Distributions are subject to certain payment tests and arepayable on 15 March, June, September and December of each year. Dividends arenot payable on the preference share while it is stapled to the note. The firstreset date is September 15, 2008. At each reset date ANZ may change certainterms of the ANZ StEPS (subject to certain restrictions). Holders of StEPS canrequire exchange of the stapled securities on any reset date, or earlier ifcertain specified events occur. On exchange, a holder will receive (at ANZ’sdiscretion) either $100 cash for each ANZ StEPS or a number of ordinary sharesin ANZ. In certain circumstances, ANZ may also require exchange outside thereset date. On a winding up, the ANZ StEPS preference share component ranksahead of ordinary shareholders. Holders of ANZ StEPS cannot vote at generalmeetings, except in limited circumstances.

 

*ANZ HybridCapital*

 

On November 26, 2003, weissued 1.1 million fully paid preference shares each with a liquidationpreference of US$1,000. The preference shares were issued as part of a twotranche structured hybrid capital raising consisting of:

 

•      Tranche I: US$350 million 4.484% trustsecurities with an initial call date of January 15, 2010; and

 

•      Tranche II: US$750 million 5.36% trustsecurities with an initial call date of December 15, 2013.

 

We used the proceeds of thecapital raising for capital management purposes, including to fund a buy-backof all of the preference shares that are components of the TrUEPrS and as partof the acquisition financing with respect to the acquisition of NBNZ.

 

Each trust securityrepresents a “unit”, which consists of:

 

•      One of our preference shares, which we referto as the November 2003 Series I preference shares in the case of Tranche I andthe November 2003 Series II preference shares in the case of Tranche II; and

 

•      US$1,000 principal amount of notes issued by aNew Zealand subsidiary wholly owned by the group, which we have fully andunconditionally guaranteed on a subordinated basis.

 

The trust securities paysemi-annual distributions on June 15 and December 15 of each year, beginningJune 15, 2004. Initially, the notes will make interest payments that fund thedistributions payable on the corresponding trust securities, while thepreference shares will not pay dividends. At any time in our discretion or uponthe occurrence of certain other “conversion events”, such as the failure of thetrusts to pay distributions within seven business days of the relevantdistribution payment date or a holder gives us an exchange notice, as describedbelow, the preference shares that are represented by the relevant trustsecurities will be distributed to holders in redemption of such trustsecurities and the notes that are represented by the relevant trust securitieswill be automatically assigned to another wholly owned subsidiary of the group.The distributed preference shares will become dividend paying and holders willreceive non-cumulative dividends equivalent to the scheduled payments inrespect of the trust securities for which the preference shares were distributed.

 

108

----

 

Dividend payments on thepreference shares and interest payments on the notes, including payments underour guarantee of the notes, are subject to our having sufficient distributableprofits and our complying with APRA requirements. If we do not make a paymentwhen due, subject to certain exceptions, we will not be allowed to makepayments on or repurchase any of our securities that rank below the preferenceshares until we have made two semi-annual dividend payments on the preferenceshares or have paid an optional dividend, with the approval of APRA. Ourobligations in respect of the preference shares and the guarantee of the notesrank senior to our obligations in respect of our ordinary shares, equal to ourobligations in respect of ANZ StEPS and any other equally ranking preferenceshares and junior to all of our other obligations, including our obligations toour creditors and depositors.

 

Any redemption of the trustsecurities will require the approval of APRA. With such approval, the trustsecurities will be redeemed upon the redemption by us of the preference shares,which may occur in whole only prior to the initial call date upon theoccurrence of certain tax or regulatory events and in whole or in part at anytime on and after the initial call date.

 

If we do not give a notice ofredemption, holders of trust securities may exchange their trust securities foran equivalent amount of our ordinary shares on January 15, 2010, in the case ofTranche I, and December 15, 2013, in the case of Tranche II, and on anysubsequent dividend payment date, or earlier in the event that we are acquiredby another entity, subject to certain exceptions, or we are subject to certainrestrictions because we failed to make a payment when due. To the extent theyremain outstanding, both classes of trust securities will automatically beexchanged for our ordinary shares on December 15, 2053. The number of ordinaryshares we will issue in exchange for each trust security will be equal to theliquidation preference of the trust security divided by 95% of the simpleaverage of the US equivalent of the volume weighted average sale price of ourordinary shares on each of the 20 trading days immediately prior to the date ofexchange.

 

Holders of the preferenceshares are typically not entitled to vote at our general meetings. However,holders of the preference shares are entitled to vote together with the holdersof our ordinary shares, to the extent that the ordinary shareholders areentitled to vote, on the basis of one vote per preference share on a limitednumber of matters, including any proposal to wind us up or any proposal toaffect the rights attaching to the preference shares. Holders of the trustsecurities will be required to instruct the trustee how to vote them.

 

Since the preference shareswill be automatically exchanged into our ordinary shares on December 15, 2053,unless they have been exchanged or redeemed prior to that date, underAustralian GAAP they are considered to be debt and have therefore been reportedunder Loan Capital, and not Shareholders’ Equity, in our statement of financialposition.

 

The transaction costs arisingfrom the issue of the trust securities have been capitalized and will be amortizedas an expense over the period ending on the initial call date of the respectivetranche.

 

*Conveningof and admission to general meetings*

 

The Board may call a meetingof the Company’s shareholders. The directors must call and arrange to hold ageneral meeting of the Company if requested to do so by shareholders who holdat least 5% of the votes that may be cast at the general meeting or 100shareholders entitled to vote at a general meting. Shareholders who hold atleast 5% of the votes that may be cast at the general meeting may also call andarrange to hold a general meeting of the Company at their own expense.

 

At least 28 days notice mustbe given of a meeting of the Company’s shareholders. Written notice must begiven to all shareholders entitled to attend and vote at a meeting. Allordinary shareholders are entitled to attend to vote at general meetings of theCompany. Voting rights attaching to other classes of shares in the Company areset out above.

 

The directors may, inaccordance with the constitution and the Corporations Act 2001, determine atime before a meeting at which membership in the Company (for the purposes ofthe meeting) is to be ascertained in respect of holding of shares that arequoted on the stock market of the Australian Stock Exchange.

 

*Limitationson ownership and changes in control*

 

The Constitution does notcontain any limitations on the rights to own securities in the Company.However, there are detailed Australian laws and regulations which govern theacquisition of interests in the Company, and a summary of those is set out initem 7 above, Major Shareholders and Related Party Transactions.

 

109

----

 

The Constitution requires anysale or disposal of the Company’s main undertaking to be subject toratification by the Company in general meeting. Except for that provision,there are no provisions in the constitution which would have the effect ofdelaying, deferring or preventing a change in control of the Company whichwould operate only with respect to a merger, acquisition or corporaterestructuring involving the Company or its controlled entities.

 

*Constitutionprovisions governing disclosure of shareholdings*

 

There are noprovisions of the Constitution which provide an ownership threshold above whichshare ownership must be disclosed. However, the Corporations Act 2001 requires a person todisclose certain prescribed information to the Company and the ASX if theperson has or ceases to have a ‘substantial holding’ in the Company. The term‘substantial holding’ is defined in the Corporations Act 2001 as 5% or more ofthe total number of voting shares and is not limited to direct shareholdings.

 

The Corporations Act 2001also permits the Company or ASIC to direct any member of the Company to makecertain disclosures in respect of their interest in the Company’s shares andthe interest held by any other person in those shares.

 

**Changes incapital**

 

The Constitution does notmake any provision governing changes in the capital of the Company, which ismore stringent than is required by Australian law.

 

The full constitution ofAustralia and New Zealand Banking Group Limited is provided as Exhibit 1 of theForm 20-F registration statement.

 

**MaterialContracts**

 

For the Material Contractssection, the following terms have been used:

 

**ANZ Group**- ANZ and its controlled entities beforetaking into account NBNZ Group

 

**ANZ NZ**- Australian and New Zealand Banking Group(New Zealand) Limited

 

**NBNZ**- National Bank of New Zealand Limited

 

**NBNZ Acquisition**- involves ANZ Grouppurchasing all the issued shares in NBNZH

 

**NBNZH**- National Bank of New Zealand HoldingsLimited

 

**NBNZ Group**- NBNZH and its controlled entities

 

**Lloyds Sub**- Lloyds Bank Subsidiaries Limited

 

**Summary ofAcquisition Agreement**

 

Under a Share Sale Agreement(Acquisition Agreement) dated October 24, 2003 ANZ NZ agreed to acquire fromLloyds Bank Subsidiaries Limited (Lloyds Sub) all of the shares in NBNZHoldings for a total purchase price of £2,043.8 million, subject to any adjustments.

 

Completion of the acquisitionoccurred on December 1, 2003.

 

On November 21, 2003 (priorto completion of ANZ’s acquisition) NBNZ Holdings paid Lloyds Sub a dividend ofNZ$575 million out of its retained earnings.

 

ANZ NZ’s obligation tocomplete the NBNZ Acquisition was conditional on ANZ raising A$3,597 millionunder the Rights Issue, pursuant to the Underwriting Agreement. This conditionwas satisfied on November 29, 2003.

 

The purchase price referredto above was paid in full at completion. Adjustments will be made to thepurchase price for any movements in net tangible assets of the NBNZ Group priorto completion, as disclosed in the closing accounts which are currently beingprepared.

 

Lloyds Sub has provided anumber of specific representations and warranties to ANZ NZ regarding thebusiness and structure of the NBNZ Group, including in relation to the accuracyof disclosure information and financial statements, the ownership of shares,compliance with laws and material contracts, absence of material litigation,intellectual property and taxation.

 

110

----

 

Warranty claims are subjectto monetary limitations, as well as to qualifications and exclusions. Allclaims must be notified to Lloyds Sub by January 31, 2006.

 

In addition to thesewarranties, Lloyds Sub has provided ANZ NZ with an indemnity in respect of alltaxation liabilities attributable to any period prior to the completion date,and has also provided a series of warranties and indemnities in relation to anumber of transactions carried out as part of NBNZ’s structured finance book.

 

Lloyds TSB has given anon-compete covenant under which it agrees that it will not carry on anybusiness in competition with that carried on by the NBNZ Group for a period ofseven years from the completion

 

ANZ and Lloyds TSB areparties to the Acquisition Agreement as guarantors of the performance of theobligations of ANZ NZ and Lloyds Sub, respectively.

 

The Acquisition Agreement isgoverned by New Zealand law.

 

**Summary ofLicence Agreement - Trade Mark Licence**

 

Lloyds TSB has entered into aa trade mark licence (Licence) with NBNZ in respect of all of the trade marksowned by Lloyds TSB which were used by the NBNZ Group as at the date ofcompletion of the acquisition of NBNZ Holdings by ANZ referred above. TheLicence permits NBNZ Group and ANZ NZ group companies to use the trade marksfor seven years. This Licence was entered into on November 25, 2003, prior tocompletion of the NBNZ Acquisition, in accordance with the AcquisitionAgreement.

 

The Licence may be terminatedprior to the expiry of the Licence period under certain conditions including,the event of NBNZ’s insolvency or failure to remedy a material breach.

 

A number of restrictionsapply to the use of the trade marks, including:

 

•      The trade marks may only be used in connectionwith products and services of the generic type currently being provided by theNBNZ Group and the ANZ NZ group;

 

•      Use is limited in connection with other brandsand trade marks;

 

•      Use is limited to within New Zealand, apartfrom for certain incidental uses;

 

•      Use in connection with sponsorships is limitedto existing sponsorships and to new sponsorships which have no exposure outsideNew Zealand;

 

•      The trade marks may only be used in accordancewith prescribed brand and quality control standards.

 

Lloyds TSB will retain theright to use the trade marks in New Zealand for limited and restricted purposesunder the Licence.

 

It will be restrained fromusing the trade marks for any other purpose for the duration of the Licenceterm plus a further period of two years.

 

Once the Licence expires,NBNZ Group and ANZ NZ group companies must cease using the trade marks. Inaddition, each company is restrained from using any representation of a horseas a dominant theme in its future branding.

 

NBNZ indemnifies Lloyds TSBfor reasonably foreseeable losses and liabilities (including New Zealand taxliabilities) suffered as a consequence of the entry into, performance or breachof the Licence.

 

The Licence is governed byNew Zealand law.

 

**Summary ofUnderwriting Agreement**

 

ANZ and the Joint LeadManagers entered into an agreement on October 24, 2003 (Underwriting Agreement)for the underwriting (in equal shares) of the 2 for 11 renouncable right issueof ordinary shares issued pursuant to the prospectus dated October 24, 2003(the Prospectus)(the Rights Issue). The obligations of the Joint Lead Managersto underwrite the Rights Issue were several and not joint.

 

The obligations of the JointLead Managers to underwrite the Rights Issue were conditional on, among otherconditions, ANZ entering into the Acquisition Agreement and the Joint LeadManagers receiving certain tax, accounting and legal opinions.

 

All of these conditions weresatisfied. If any of the conditions had not been satisfied, then each JointLead Manager could have terminated its underwriting obligations under theUnderwriting Agreement.

 

ANZ paid each Joint LeadManager an underwriting fee of 0.30% of the proceeds of the Rights Issue and amanagement fee of

 

111

----

 

0.075% of the proceeds of theRights Issue.

 

The Joint Lead Managers werealso entitled to recover their reasonable out-of-pocket costs and expenses fromANZ (up to a maximum amount of $250,000).

 

Under the UnderwritingAgreement, ANZ also indemnifies each Joint Lead Manager and its related parties(an Indemnified Party) against all losses suffered by the Indemnified Party asa result of, among other things, the issue of the offer documents, the conductof the Rights Issue, a breach of the Underwriting Agreement by ANZ or amisrepresentation by ANZ. The indemnity does not apply where the loss resultsprimarily from the negligence or wilful misconduct or breach of any statutoryprovision or, fiduciary duty of that Indemnified Party or a material breach bya Joint Lead Manager of the Underwriting Agreement (except where that breach isnot wilful and occurs solely by reason of reliance on advice or informationprovided by or on behalf of ANZ).

 

Under the UnderwritingAgreement, customary representations, warranties and undertakings were given byANZ to the Joint Lead Managers in relation to the Rights Issue including thatthe Prospectus complied with the Corporations Act.

 

From the date of theUnderwriting Agreement until the date falling three months after the expiry ofthe offer period, ANZ must not, without the consent of the Joint Lead Managers,agree to make or announce any issues of equity securities (as defined in the ListingRules) or any securities convertible into or exchangeable for any such equitysecurities, other than a hybrid issue or any other issue of securities whichare convertible or exchangeable into shares in ANZ, the issue of the Rights andthe New Ordinary Shares, the issue of any security for regulatory or prudentialreasons, an issue of securities pursuant to a dividend or distribution plan oremployee incentive scheme or as a result of the conversion or exercise of anysecurities issued pursuant to such a plan or scheme or the conversion of anyconvertible securities on issue as at the date of the Underwriting Agreement.

 

A Joint Lead Manager couldhave terminated its obligations by notice in writing to ANZ if any of thefollowing events had occurred and, in the reasonable opinion of that Joint LeadManager that event had a material adverse effect on the success or settlementof the Rights Issue, or that event led, to a contravention by the Joint LeadManager (or the Joint Lead Manager being involved in a contravention) of theCorporations Act or any other applicable law or to a liability for the JointLead Manager under the Corporations Act or any other applicable law:

 

(a)   (offer documents) the Prospectus, theinternational institutional offering memorandum for the Rights Issue, or anysupplementary offer document omitted any material required by the CorporationsAct or any applicable law or contained a statement which was misleading ordeceptive or otherwise failed to comply with the Corporations Act or any otherapplicable law;

 

(b)   (unauthorized alterations) ANZ altered itsshare capital or its constitution in any material respect;

 

(c)   (trading in Shares) trading in ordinary sharesin ANZ on ASX was suspended (which for the avoidance of doubt does not includea trading halt) for more than 3 consecutive business days;

 

(d)   (material contracts) the Acquisition Agreementwas terminated (whether by breach or otherwise), rescinded, altered or amendedin a material respect or any such contract was found to be void or voidable;

 

(e)   (compliance) a contravention by ANZ of anyprovision of its constitution, the Corporations Act or any requirement of theASX or any other applicable law (except to the extent that compliance with anyapplicable law has been waived, or an exemption granted, by a Government Agencyhaving authority to do so);

 

(f)    (change in law) there was introduced into theParliament of the Commonwealth of Australia or any State or Territory ofAustralia or the Federal or any State Congress in the United States or any newregulation is made under any law, or a government agency adopts a policy, orthere is any official announcement on behalf of the government of theCommonwealth of Australia or any State or Territory of Australia or the Federalor any State Congress in the United States or a government agency that such alaw or regulation will be introduced or policy adopted (as the case may be)(other than a law or regulation or policy which has been announced before thedate of this agreement) ;

 

(g)   (consent) if any person whose consent to theissue of the Prospectus is required by the Corporations Act refused to givetheir consent prior to lodgment of the Prospectus with ASIC or withdrew theirconsent after lodgment of the Prospectus with ASIC;

 

(h)   (breach) ANZ failed to perform or observe anyof its obligations under the Underwriting Agreement;

 

(i)    (misrepresentation) an ANZ warranty was orbecame untrue or incorrect;

 

(j)    (late lodgment) ANZ failed to lodge theProspectus with ASIC on or before October 24, 2003 (or such later date agreedin writing by the Joint Lead Managers);

 

112

----

 

(k)   (ASIC)

 

(i)    ASIC gave notice of an intention to hold ahearing or issues an order under section 739(1) of the Corporations Act or aninterim order under section 739(3) of the Corporations Act;

 

(ii)   an application was made by ASIC for an orderunder Part 9.5 in relation to the Prospectus or ASIC commences anyinvestigation or hearing under Part 3 of the Australian Securities andInvestments Commission Act 1989 (Commonwealth) in relation to the Prospectus;

 

(l)    (certificate) any certificate which wasrequired to be given by ANZ under the Underwriting Agreement was not given whenrequired or a statement in that certificate was untrue or incorrect in respectof events and circumstances applicable as at the date the certificate wasgiven;

 

(m)  (market or trading disruption) there was:

 

(i)    a suspension or material limitation in tradingin securities generally on ASX; or

 

(ii)   a general moratorium on commercial bankingactivities in Australia, the United States or the United Kingdom declared bythe relevant authorities, or a material disruption in commercial banking orsecurities settlement or clearance services in those places (and if one ofthese events had affected the performance of certain of ANZ’s and the JointLead Managers obligations under the Underwriting Agreement, the obligations ofthe parties would have been suspended to the extent that they were affected bythat event for as long as the event continues and the Joint Lead Managers mayonly have terminated if the event continued for more than 5 Business Days);

 

(n)   (material adverse change) there was a materialadverse change in the financial position, results of operations or prospects ofANZ or of NBNZ from that reflected in the Prospectus and the internationalinstitutional offering memorandum.

 

**NBNZrevolving loan facility with Lloyds TSB**

 

Lloyds TSB agreed to makeavailable to NBNZ a revolving loan facility (Facility) of up to £2 billion (orequivalent alternative currencies) on and subject to the terms of a facilityletter to be entered into by the parties on completion of ANZ NZ’s purchase ofNBNZ Holdings. The Facility is available for a term of two years followingcompletion, with Lloyds TSB’s commitment under the Facility reducing by £500million at six monthly intervals during the term of the Facility. The Facilitybeing offered by Lloyds TSB is on standard inter-bank funding terms andconditions.

 

**Standby HybridUnderwriting Agreement**

 

On October 23, 2003 ANZentered the Standby Hybrid Underwriting Agreement with Morgan Stanley & CoInternational Limited and Deutsche Bank AG, Sydney Branch, which provided forthe underwriting of up to A$1.2 billion of Tier 1 hybrid securities (the HybridTier 1 Issue).

 

The obligations of theunderwriters to underwrite the Hybrid Tier 1 Issue were conditional on, amongother conditions, ANZ entering into the Acquisition Agreement, APRA approval ofANZ’s proposed buy back of all its outstanding TrUEPrS, ANZ issuing a notice toredeem all its outstanding TrUEPrS and the underwriters receiving certain tax,accounting and legal opinions.

 

ANZ and the underwritersundertook to use reasonable endeavors to complete the Hybrid Tier 1 Issue onterms reasonable to them and ANZ within 45 days of the date of the agreement orif it could not be completed by that time, within three months of the date ofthe agreement.

 

ANZ agreed to pay to theunderwriters an aggregate underwriting fee of 0.125% of the underwritten amountand a fee of 1.00% of the ultimate proceeds of the Hybrid Tier 1 Issue.

 

ANZ also agreed to indemnifythe underwriters and their related parties (the Indemnified Parties) againstall losses suffered by them in connection with the Hybrid Tier 1 Issue. Thisindemnity does not apply where the loss results primarily from the negligenceor wilful misconduct or breach of any statutory provision or fiduciary duty ofthat indemnified party, a material breach by an underwriter of the agreement ora failure to mitigate the loss by reason of the claim.

 

*Documentson Display*

 

It is possible to read andcopy documents referred to in this Annual Report on Form 20-F that have beenfiled with the Securities and Exchange Commission (SEC) at the SEC’s publicreference room located at 450 Fifth Street, N.W., Washington DC 20549 or fordocuments filed after November 4, 2002 on their website at www.sec.gov. Pleasecall the SEC at 1-800-SEC-0330 for further information.

 

113

----

 

*Item 11**: Quantitative andQualitative Disclosures about Market Risk*

 

*TradingRisk Management*

 

Trading risk is controlled bya specialist function within Group Risk Management. This function providesspecific oversight of each of the main trading areas and is responsible for theestablishment of Value at Risk information (see Note 36 to the FinancialReport) and supplementary limits. In all trading areas, ANZ has implementedmodels that provide Value at Risk information, comparison against risk limitson a daily basis, and ‘stress test’ analysis. These models comply with theAustralian Prudential Regulation Authority Prudential Supervision StatementAPS113 (Capital for Market Risk). Market risks are monitored daily against acomprehensive limit framework that includes Value at Risk, aggregate marketposition, sensitivity, product and geographic thresholds. The Value at Risklimit framework is applied at three levels, an aggregate global market risklimit, global product limits and individual trading book limits. These arefurther supported by daily mark-to-market profit/loss accounting and cumulativeloss limits.

 

The Value at Risk is astatistical estimate of the maximum daily decrease in market value with a 97.5%confidence. Conversely there is a 2.5% probability of the decrease in marketvalue exceeding the value at risk estimate on any given day. The methodologyemployed by ANZ to measure Value at Risk is the historic simulation method.This method is based upon assessing the change in value of portfolios each dayagainst historical prices. The calculation of Value at Risk is conducted usingclose-toclose (overnight) risk levels.

 

Additionally risk is managedthrough cumulative loss limits and stress testing. Cumulative loss limits areused to contain cumulative losses on consecutive days, month-to-date andyear-to-date bases.

 

Our aggregate Value at Riskfigures covers both physical and derivatives trading positions for ourprincipal trading centers.

 

*BalanceSheet Risk Management*

 

The balance sheet riskmanagement process embraces the management of non-traded interest rate risk,liquidity and risk to capital and earnings as a result of exchange ratemovements. Group Treasury, a specialist balance sheet management unit managesthese risks and is overseen by the Group Asset and Liability Committee(“GALCO”) and the specialist Market Risk unit within Group Risk Management.

 

The objective of balancesheet management is to produce strong and stable net interest income over time.ANZ uses simulation models to quantify the potential impact of interest ratechanges on earnings.

 

ANZ uses derivativeinstruments, inter alia, to manage the risk associated with its balance sheetand future revenue streams. The principal objectives of asset and liabilitymanagement are to manage and control the sensitivity of our income whilemaintaining acceptable levels of interest rate and liquidity risk; and to hedgethe market value of our capital.

 

Structural foreign exchangepositions are managed with the objective of ensuring that our capital ratio isnot adversely impacted by movements in exchange rates.

 

For hedging purposes ANZprincipally uses forward rate agreements, futures contracts, interest rateswaps, currency swaps and cross currency interest rate swaps. ANZ uses avariety of foreign exchange derivatives to hedge against adverse movements inthe value of foreign denominated assets and liabilities and future revenuestreams.

 

A derivative instrumentqualifies as a hedge where it has been entered into for the purpose ofmitigating the impact of a change in interest rates on net interest income, orthe effect of a change in rates of exchange for foreign currency amounts whentranslated to A$. The derivative instrument must reduce an identified exposureand must continue to be effective in reducing that exposure until the hedginginstrument is closed out, terminated, exercised or expires. To be designated asa hedge, the fair value of the hedge must move inversely with changes in thefair value of the underlying exposure.

 

All derivative instrumentsused for hedging purposes must be designated as a hedge in our accountingrecords at the time of entering the transaction.

 

114

----

 

*LiquidityRisk*

 

The liquidity managementprocess ensures that funds are available at all times to meet maturingobligations as they fall due. Our policy establishes daily liquidity managementpractices as well as scenario-based guidelines to monitor future liquidityflows under both normal operating conditions and in the event of anANZ-specific liquidity crisis.

 

Further liquidity informationis contained throughout the Financial Report, and the Financial Review sectionof this document.

 

*ForeignCurrency Exposures*

 

ANZ manages its structuralforeign exchange exposures within the context of an overall capital andearnings strategy. Foreign currency capital and earnings are not automaticallyhedged as they form part of a diversified portfolio of assets. However, certainexposures may be hedged to protect the capital ratio or where we have a strongmedium term view that the foreign currency is overvalued.

 

The table below shows theaggregate amounts of our balance sheet financial instruments denominated incurrencies other than Australian dollars. (These have been translated at theSeptember 30, 2003 exchange rates used by us for our financial reporting).

 
| **Year ended September 30, 2003**         |   | **NZ$**   |   | **US$**   |   | **GBP**   |   | **Other** |   | **Total  non-AUD  exposure** |   |
|-------------------------------------------|--------|-----------|--------|-----------|--------|-----------|--------|-----------|--------|------------------------------|--------|
|                                      |   | **AUD$M** |   | **AUD$M** |   | **AUD$M** |   | **AUD$M** |   | **AUD$M**                    |   |
| **Assets**                                |   |      |   |      |   |      |   |      |   |                         |   |
| Liquid assets                             |   | 2,363     |   | 1,819     |   | 210       |   | 341       |   | 4,733                        |   |
| Due from other financial institutions     |   | 268       |   | 1,065     |   | 106       |   | 312       |   | 1,751                        |   |
| Trading securities                        |   | 544       |   | —    |   | —    |   | 2         |   | 546                          |   |
| Investment securities                     |   | 399       |   | 1,938     |   | 381       |   | 452       |   | 3,170                        |   |
| Net loans and advances                    |   | 20,093    |   | 10,045    |   | 949       |   | 2,992     |   | 34,079                       |   |
| Customers’ liability for acceptances |   | —    |   | 34        |   | —    |   | 1         |   | 35                           |   |
| Other financial assets                    |   | 491       |   | 406       |   | 284       |   | 604       |   | 1,785                        |   |
| Total                                     |   | 24,158    |   | 15,307    |   | 1,930     |   | 4,704     |   | 46,099                       |   |
| **Liabilities**                           |   |      |   |      |   |      |   |      |   |                         |   |
| Due to other financial institutions       |   | 980       |   | 2,142     |   | 100       |   | 1,284     |   | 4,506                        |   |
| Deposits and other borrowings             |   | 17,899    |   | 19,720    |   | 1,687     |   | 3,415     |   | 42,721                       |   |
| Liability for acceptances                 |   | —    |   | 34        |   | —    |   | 1         |   | 35                           |   |
| Bonds and notes                           |   | 31        |   | 5,772     |   | 1,758     |   | 8,322     |   | 15,883                       |   |
| Loan capital                              |   | 262       |   | 2,503     |   | 983       |   | 1,382     |   | 5,130                        |   |
| Other financial liabilities               |   | —    |   | 1,159     |   | 45        |   | 68        |   | 1,272                        |   |
| Total                                     |   | 19,172    |   | 31,330    |   | 4,573     |   | 14,472    |   | 69,547                       |   |

 

Information on fair values iscontained in Note 37 to the Financial Report and information on contract terms iscontained in Notes 9, 12, 22, 23, 24, 28, 29 to the Financial Report.

 

Further details on ourforeign exchange derivative financial instruments are contained in Note 38 tothe Financial Report.

 

*InterestRate Exposures*

 

Interest rate risk in thebalance sheet relates to the potential for changes in market interest rates tohave an adverse impact on the Group’s future net interest income. This riskarises from two principal sources: mismatching the repricing dates of interestbearing assets and liabilities; and the investment of capital and othernon-interest bearing liabilities in interest bearing assets.

 

Management of exposure tointerest rates is coordinated centrally by Group Treasury and executed on aindividual country basis. Group ALCO via the specialist Market Risk function,monitors individual interest rate risk exposures to ensure that the Bank’saggregate exposure is contained within policy guidelines and approved limitsset by the Risk Management Committee.

 

For more detail on interestrate sensitivity refer to Note 36 of the Financial Report.

 

115

----

 

*ForeignCurrency Investments in Subsidiaries and Associates*

 

If required, the foreigncurrency exposures arising from non-A$ investments in overseas branches andsubsidiaries are managed by Group Treasury using foreign exchange forwardcontracts and cross currency back to back lending. Foreign currency exposuresmay be matched on a currency by currency basis to hedge the impact of foreignexchange rate changes, provided the hedging can be implemented in a costeffective manner.

 

Movements arising on theseforeign exchange exposures impact reserves (see foreign currency translationreserves on page 121). Exposures are reviewed on a regular basis by Group ALCO.

 

Further key sources of marketrisk information is also contained in Notes 13, 28, 29, 35, 37, 38 to theFinancial Report and in “Operating and Financial Review and Prospects”.

 

*Item 13**: Defaults, DividendArrearages and Delinquencies*

 

None

 

*Item 14**: Material Modifications tothe Rights of Security Holders and use of Proceeds*

 

None

 

*Item 15**: Controls and Procedures*

 

At September 30, 2003 anevaluation was performed under the supervision and with the participation ofthe Group’s management, including the Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures. Based on that evaluation, theGroup’s management, including the Chief Executive Officer and Chief FinancialOfficer, concluded that the Group disclosure controls and procedures wereeffective at September 30, 2003. There have been no significant changes in theGroup’s internal controls or (in the Group’s knowledge) in other factors thatcould significantly affect internal controls, subsequent to September 30, 2003

 

*Item 17**: Financial Statements*

 

Not applicable as Item 18complied with.

 

*Item 18**: Financial Statements*

 

See attached for Australiaand New Zealand Banking Group Limited Financial Report and Consent of KPMG.

 

116

----

 

**2003 ANZFinancial Report**

 

Strong

Different

Successful

Sustainable

 

 

 

117

----

 
|   |   | **Table of Contents**                                                     |   |
|--------|--------|---------------------------------------------------------------------------|--------|
|   |   |                                                                      |   |
|   |   | **Statements  of Financial Performance**                                  |   |
|   |   | **Statements  of Financial Position**                                     |   |
|   |   | **Statements  of Changes in Shareholders’ Equity**                   |   |
|   |   | **Statements  of Cash Flows**                                             |   |
|   |   |                                                                      |   |
|   |   | **Notes to the  Financial Statements**                                    |   |
| 1      |   | Accounting  Policies                                                      |   |
| 2      |   | Income                                                                    |   |
| 3      |   | Expenses                                                                  |   |
| 4      |   | Equity Instruments Issued to  Employees                                   |   |
| 5      |   | Remuneration of Auditors                                                  |   |
| 6      |   | Income Tax Expense                                                        |   |
| 7      |   | Dividends                                                                 |   |
| 8      |   | Earnings  per Ordinary Share                                              |   |
| 9      |   | Liquid Assets                                                             |   |
| 10     |   | Due  from Other Financial Institutions                                    |   |
| 11     |   | Trading Securities                                                        |   |
| 12     |   | Investment Securities                                                     |   |
| 13     |   | Net Loans and Advances                                                    |   |
| 14     |   | Impaired Assets                                                           |   |
| 15     |   | Provisions for Doubtful Debts                                             |   |
| 16     |   | Customers’ Liabilities for Acceptances                               |   |
| 17     |   | Regulatory Deposits                                                       |   |
| 18     |   | Shares in Controlled Entities,  Associates and Joint Venture Entities     |   |
| 19     |   | Deferred Tax Assets                                                       |   |
| 20     |   | Goodwill                                                                  |   |
| 21     |   | Other Assets                                                              |   |
| 22     |   | Premises and Equipment                                                    |   |
| 23     |   | Due to Other Financial  Institutions                                      |   |
| 24     |   | Deposits and Other Borrowings                                             |   |
| 25     |   | Income  Tax Liabilities                                                   |   |
| 26     |   | Payables and Other Liabilities                                            |   |
| 27     |   | Provisions                                                                |   |
| 28     |   | Bonds and Notes                                                           |   |
| 29     |   | Loan Capital                                                              |   |
| 30     |   | Share Capital                                                             |   |
| 31     |   | Outside Equity Interests                                                  |   |
| 32     |   | Capital Adequacy                                                          |   |
| 33     |   | Average  Balance Sheet and Related Interest                               |   |
| 34     |   | Interest Spreads and Net Interest  Average Margins                        |   |
| 35     |   | Market Risk                                                               |   |
| 36     |   | Interest  Sensitivity Gap                                                 |   |
| 37     |   | Net Fair Value of Financial Instruments                                   |   |
| 38     |   | Derivative  Financial Instruments                                         |   |
| 39     |   | Securitisation                                                            |   |
| 40     |   | Life Insurance                                                            |   |
| 41     |   | Segment Analysis                                                          |   |
| 42     |   | Notes  to the Statements of Cash Flows                                    |   |
| 43     |   | Controlled Entities                                                       |   |
| 44     |   | Associates                                                                |   |
| 45     |   | Interests in Joint Venture  Entities                                      |   |
| 46     |   | Fiduciary  Activities                                                     |   |
| 47     |   | Commitments                                                               |   |
| 48     |   | Contingent Liabilities, Contingent Assets  and Credit Related Commitments |   |
| 49     |   | Superannuation Commitments                                                |   |
| 50     |   | Employee Share and Option Plans                                           |   |
| 51     |   | Related Party Disclosures                                                 |   |
| 52     |   | Remuneration of Directors                                                 |   |
| 53     |   | Remuneration of Executives                                                |   |
| 54     |   | US  GAAP Reconciliation                                                   |   |
| 55     |   | Exchange Rates                                                            |   |
| 56     |   | Events Since  the End of the Financial Year                               |   |
|   |   |                                                                      |   |
|   |   | **Directors’  Declaration**                                          |   |
|   |   | **Auditors’  Report**                                                |   |
|   |   | **Critical Accounting  Policies**                                         |   |
|   |   |                                                                      |   |
|   |   | **Financial  Information**                                                |   |
| 1      |   | Cross Border Outstandings                                                 |   |
| 2      |   | Certificates  of Deposit and Term Deposit Maturities                      |   |
| 3      |   | Volume  and Rate Analysis                                                 |   |
| 4      |   | Concentrations of Credit  Risk                                            |   |
| 5      |   | Doubtful Debts –  Industry Analysis                                  |   |
| 6      |   | Short  Term Borrowings                                                    |   |
|   |   |                                                                      |   |
|   |   | **Glossary**                                                              |   |
|   |   | **Alphabetical  Index**                                                   |   |

 

118

----

 

**Statementsof Financial Performance for the year ended 30 September 2003**

 
|                                                                                              |   |     |   | **Consolidated** |       | **The Company** |       |
|---------------------------------------------------------------------------------------------------|--------|----------|--------|------------------|------------|-----------------|------------|
|                                                                                              |   | **Note** |   | **2003**         |       | **2002**        |       | **2001** |   | **2003** |   | **2002** |   |
|                                                                                              |   |     |   | **$****m**       | ** ** | **$****m**      | ** ** | **$****m** | ** ** | **$****m** | ** ** | **$****m** | ** ** |
| **Total Income**                                                                                  |   | 2        |   | 13,023           |       | 12,007          |       | 12,824 |   | 11,368 |   | 9,061 |   |
| Interest income                                                                                   |   | 2        |   | 10,215           |       | 9,037           |       | 10,251 |   | 7,378 |   | 6,426 |   |
| Interest expense                                                                                  |   | 3        |   | (5,904           | )          | (5,019          | )          | (6,418 | ) | (4,556 | ) | (3,813 | ) |
| Net interest income                                                                               |   |     |   | 4,311            |       | 4,018           |       | 3,833 |   | 2,822 |   | 2,613 |   |
| Proceeds, net of costs, on disposal of investments                                                |   |     |   | —           |       | 566             |       | — |   | — |   | 780 |   |
| Carrying amount of assets given up                                                                |   |     |   | —           |       | (392            | )          | — |   | — |   | (588 | ) |
| Profit from disposal of investments                                                               |   | 2        |   | —           |       | 174             |       | — |   | — |   | 192 |   |
| Other operating income                                                                            |   | 2        |   | 2,702            |       | 2,765           |       | 2,598 |   | 3,990 |   | 2,443 |   |
| Share of joint venture: profit from INGA joint venture                                            |   | 2        |   | 55               |       | 2               |       | — |   | — |   | — |   |
| Share of associates profit (net of writeoffs)                                                     |   | 2        |   | 51               |       | 29              |       | (25 | ) | — |   | — |   |
| Operating income                                                                                  |   |     |   | 7,119            |       | 6,988           |       | 6,406 |   | 6,812 |   | 5,248 |   |
| Operating expenses                                                                                |   | 3        |   | (3,228           | )          | (2,905          | )          | (3,092 | ) | (2,663 | ) | (2,388 | ) |
| Profit before doubtful debt provision                                                             |   |     |   | 3,891            |       | 4,083           |       | 3,314 |   | 4,149 |   | 2,860 |   |
| Provision for doubtful debts                                                                      |   | 15       |   | (614             | )          | (860            | )          | (531 | ) | (465 | ) | (710 | ) |
| **Profit before income tax**                                                                      |   |     |   | 3,277            |       | 3,223           |       | 2,783 |   | 3,684 |   | 2,150 |   |
| Income tax expense                                                                                |   | 6        |   | (926             | )          | (898            | )          | (911 | ) | (616 | ) | (643 | ) |
| Profit after income tax                                                                           |   |     |   | 2,351            |       | 2,325           |       | 1,872 |   | 3,068 |   | 1,507 |   |
| Net profit attributable to  outside equity interests                                              |   |     |   | (3               | )          | (3              | )          | (2 | ) | — |   | — |   |
| **Net profit attributable to shareholders of the  Company(1)**                                    |   |     |   | 2,348            |       | 2,322           |       | 1,870 |   | 3,068 |   | 1,507 |   |
| Currency translation adjustments, net of hedges after tax                                         |   |     |   | (356             | )          | (98             | )          | 197 |   | (191 | ) | (214 | ) |
| Total adjustments attributable to shareholders of the company  recognised directly into equity    |   |     |   | (356             | )          | (98             | )          | 197 |   | (191 | ) | (214 | ) |
| Total changes in equity other than those resulting from transactions  with shareholders as owners |   |     |   | 1,992            |       | 2,224           |       | 2,067 |   | 2,877 |   | 1,293 |   |
|                                                                                              |   |     |   |             |       |            |       |   |   |   |   |   |   |
| **Earnings per ordinary share (cents)**                                                           |   | 8        |   |             |       |            |       |   |   |   |   |   |   |
| Basic                                                                                             |   |     |   | 148.3            |       | 147.3           |       | 117.4 |   | n/a |   | n/a |   |
| Diluted                                                                                           |   |     |   | 147.9            |       | 146.6           |       | 117.0 |   | n/a |   | n/a |   |

 

Thenotes appearing on pages 123 to 194 form an integral part of these financial statements

 

----

(1)   The results of 2002 include the impact ofthese significant transactions:

•      The sale of businesses to INGA joint venture(profit after tax of $170 million);

•      National Housing Bank recovery ($159 million profit after tax); and

•      Special general provision for doubtful debts($175 million charge after tax)

 

Furtherdetails on these transactions are shown in notes 2, 3 and 15

 

119

----

 

**Statementsof****Financial Position asat 30 September 2003**

 
|                                                                      |   |     |   | **Consolidated** |       | **The Company** |       |
|---------------------------------------------------------------------------|--------|----------|--------|------------------|------------|-----------------|------------|
|                                                                      |   | **Note** |   | **2003**         |       | **2002**        |       | **2003** |   | **2002** |   |
|                                                                      |   |     |   | **$m**           | ** ** | **$m**          | ** ** | **$m** | ** ** | **$m** | ** ** |
| **Assets**                                                                |   |     |   |             |       |            |       |   |   |   |   |
| Liquid assets                                                             |   | 9        |   | 6,592            |       | 7,410           |       | 3,916 |   | 5,994 |   |
| Due from other financial institutions                                     |   | 10       |   | 2,427            |       | 3,815           |       | 2,143 |   | 2,649 |   |
| Trading securities                                                        |   | 11       |   | 4,213            |       | 5,873           |       | 3,636 |   | 5,219 |   |
| Investment securities                                                     |   | 12       |   | 4,767            |       | 3,609           |       | 3,838 |   | 2,593 |   |
| Net loans and advances                                                    |   | 13       |   | 149,465          |       | 132,060         |       | 115,530 |   | 99,900 |   |
| Customers’ liabilities for acceptances                               |   | 16       |   | 13,178           |       | 13,796          |       | 13,178 |   | 13,796 |   |
| Due from controlled entities                                              |   |     |   | —           |       | —          |       | 5,738 |   | 6,495 |   |
| Regulatory deposits                                                       |   | 17       |   | 101              |       | 178             |       | 68 |   | 138 |   |
| Shares in controlled entities, associates and joint venture entities      |   | 18       |   | 1,814            |       | 1,692           |       | 8,095 |   | 6,256 |   |
| Deferred tax assets                                                       |   | 19       |   | 1,165            |       | 1,218           |       | 746 |   | 835 |   |
| Goodwill(1)                                                               |   | 20       |   | 160              |       | 180             |       | 87 |   | 94 |   |
| Other assets                                                              |   | 21       |   | 10,224           |       | 11,810          |       | 8,042 |   | 9,603 |   |
| Premises and equipment                                                    |   | 22       |   | 1,485            |       | 1,464           |       | 897 |   | 866 |   |
| **Total assets**                                                          |   |     |   | 195,591          |       | 183,105         |       | 165,914 |   | 154,438 |   |
|                                                                      |   |     |   |             |       |            |       |   |   |   |   |
| **Liabilities**                                                           |   |     |   |             |       |            |       |   |   |   |   |
| Due to other financial institutions                                       |   | 23       |   | 6,467            |       | 10,860          |       | 5,490 |   | 10,372 |   |
| Deposits and other borrowings                                             |   | 24       |   | 124,494          |       | 113,259         |       | 90,186 |   | 85,258 |   |
| Liability for acceptances                                                 |   |     |   | 13,178           |       | 13,796          |       | 13,178 |   | 13,796 |   |
| Due to controlled entities                                                |   |     |   | —           |       | —          |       | 9,262 |   | 3,895 |   |
| Income tax liabilities                                                    |   | 25       |   | 1,083            |       | 1,340           |       | 546 |   | 921 |   |
| Payables and other liabilities                                            |   | 26       |   | 13,611           |       | 12,630          |       | 11,671 |   | 10,845 |   |
| Provisions                                                                |   | 27       |   | 769              |       | 1,602           |       | 614 |   | 1,469 |   |
| Bonds and notes                                                           |   | 28       |   | 16,572           |       | 14,708          |       | 16,131 |   | 14,536 |   |
| Loan capital                                                              |   | 29       |   | 5,630            |       | 3,445           |       | 5,367 |   | 3,186 |   |
| **Total liabilities**                                                     |   |     |   | 181,804          |       | 171,640         |       | 152,445 |   | 144,278 |   |
| **Net assets**                                                            |   |     |   | 13,787           |       | 11,465          |       | 13,469 |   | 10,160 |   |
|                                                                      |   |     |   |             |       |            |       |   |   |   |   |
| **Shareholders’ equity**                                             |   |     |   |             |       |            |       |   |   |   |   |
| Ordinary share capital                                                    |   | 30       |   | 4,175            |       | 3,939           |       | 4,175 |   | 3,939 |   |
| Preference share capital                                                  |   | 30       |   | 2,212            |       | 1,375           |       | 2,212 |   | 1,375 |   |
| Reserves                                                                  |   |     |   | 180              |       | 534             |       | 684 |   | 875 |   |
| Retained profits                                                          |   |     |   | 7,203            |       | 5,600           |       | 6,398 |   | 3,971 |   |
| Share capital and reserves attributable to shareholders of the Company    |   |     |   | 13,770           |       | 11,448          |       | 13,469 |   | 10,160 |   |
| Outside equity interests                                                  |   | 31       |   | 17               |       | 17              |       | — |   | — |   |
| **Total shareholders’ equity**                                       |   |     |   | 13,787           |       | 11,465          |       | 13,469 |   | 10,160 |   |
| Derivative financial instruments                                          |   | 38       |   |             |       |            |       |   |   |   |   |
| Commitments                                                               |   | 47       |   |             |       |            |       |   |   |   |   |
| Contingent liabilities, contingent assets and credit related  commitments |   | 48       |   |             |       |            |       |   |   |   |   |

 

Thenotes appearing on pages 123 to 194 form an integral part of these financialstatements

 

----

(1)   Excludes notional goodwill of $821 million(September 2002: $865 million) included in the net carrying value of INGAustralia Limited

 

120

----

 

**Statementsof Changes in Shareholders’ Equity for the year ended 30 September 2003**

 
|                                                                             |   |     |   | **Consolidated** |       | **The Company** |       |
|----------------------------------------------------------------------------------|--------|----------|--------|------------------|------------|-----------------|------------|
|                                                                             |   | **Note** |   | **2003**         |       | **2002**        |       | **2001** |   | **2003** |   | **2002** |   |
|                                                                             |   |     |   | **$m**           | ** ** | **$m**          | ** ** | **$m** | ** ** | **$m** | ** ** | **$m** | ** ** |
|                                                                             |   |     |   |             |       |            |       |   |   |   |   |   |   |
| **Share capital**                                                                |   |     |   |             |       |            |       |   |   |   |   |   |   |
| **Ordinary shares**                                                              |   |     |   |             |       |            |       |   |   |   |   |   |   |
| Balance at start of year                                                         |   |     |   | 3,939            |       | 3,733           |       | 4,028 |   | 3,939 |   | 3,733 |   |
| Dividend reinvestment plan                                                       |   |     |   | 115              |       | 94              |       | 86 |   | 115 |   | 94 |   |
| Group employee share acquisition scheme                                          |   |     |   | 48               |       | 55              |       | 65 |   | 48 |   | 55 |   |
| Group share option scheme                                                        |   |     |   | 73               |       | 57              |       | 21 |   | 73 |   | 57 |   |
| Small shareholder voluntary top up scheme                                        |   |     |   | —           |       | —          |       | 12 |   | — |   | — |   |
| New issues                                                                       |   |     |   | —           |       | —          |       | 16 |   | — |   | — |   |
| Share buyback                                                                    |   | 30       |   | —           |       | —          |       | (495 | ) | — |   | — |   |
| Balance at end of year                                                           |   |     |   | 4,175            |       | 3,939           |       | 3,733 |   | 4,175 |   | 3,939 |   |
| **Preference shares**                                                            |   | 30       |   |             |       |            |       |   |   |   |   |   |   |
| Balance at start of year                                                         |   |     |   | 1,375            |       | 1,526           |       | 1,374 |   | 1,375 |   | 1,526 |   |
| New issues(1)                                                                    |   |     |   | 987              |       | —          |       | — |   | 987 |   | — |   |
| Retranslation of preference share issues                                         |   |     |   | (150             | )          | (151            | )          | 152 |   | (150 | ) | (151 | ) |
| Balance at end of year                                                           |   |     |   | 2,212            |       | 1,375           |       | 1,526 |   | 2,212 |   | 1,375 |   |
| **Total share capital**                                                          |   |     |   | 6,387            |       | 5,314           |       | 5,259 |   | 6,387 |   | 5,314 |   |
|                                                                             |   |     |   |             |       |            |       |   |   |   |   |   |   |
| **Asset revaluation reserve(2)**                                                 |   |     |   |             |       |            |       |   |   |   |   |   |   |
| Balance at start and end of year                                                 |   |     |   | 31               |       | 31              |       | 31 |   | 401 |   | 401 |   |
| Total asset revaluation reserve                                                  |   |     |   | 31               |       | 31              |       | 31 |   | 401 |   | 401 |   |
| **Foreign currency translation reserve(3)**                                      |   |     |   |             |       |            |       |   |   |   |   |   |   |
| Balance at start of year                                                         |   |     |   | 117              |       | 215             |       | 18 |   | 419 |   | 633 |   |
| Currency translation adjustments, net of hedges after tax                        |   |     |   | (356             | )          | (98             | )          | 197 |   | (191 | ) | (214 | ) |
| Total foreign currency translation reserve                                       |   |     |   | (239             | )          | 117             |       | 215 |   | 228 |   | 419 |   |
|                                                                             |   |     |   |             |       |            |       |   |   |   |   |   |   |
| **General reserve(4)**                                                           |   |     |   |             |       |            |       |   |   |   |   |   |   |
| Balance at start of year                                                         |   |     |   | 237              |       | 322             |       | 588 |   | 55 |   | 55 |   |
| Transfers (to) from retained profits                                             |   |     |   | 2                |       | (85             | )          | (266 | ) | — |   | — |   |
| Total general reserve                                                            |   |     |   | 239              |       | 237             |       | 322 |   | 55 |   | 55 |   |
| **Capital reserve(4)**                                                           |   |     |   | 149              |       | 149             |       | 149 |   | — |   | — |   |
| **Total reserves**                                                               |   |     |   | 180              |       | 534             |       | 717 |   | 684 |   | 875 |   |
|                                                                             |   |     |   |             |       |            |       |   |   |   |   |   |   |
| **Retained profits**                                                             |   |     |   |             |       |            |       |   |   |   |   |   |   |
| Balance at start of year                                                         |   |     |   | 5,600            |       | 4,562           |       | 3,607 |   | 3,971 |   | 3,716 |   |
| Net profit attributable to shareholders of the Company                           |   |     |   | 2,348            |       | 2,322           |       | 1,870 |   | 3,068 |   | 1,507 |   |
| Total available for appropriation                                                |   |     |   | 7,948            |       | 6,884           |       | 5,477 |   | 7,039 |   | 5,223 |   |
| Transfers from (to) reserves                                                     |   |     |   | (2               | )          | 85              |       | 266 |   | — |   | — |   |
| Ordinary share dividends provided for or paid                                    |   | 7        |   | (641             | )          | (1,252          | )          | (1,062 | ) | (641 | ) | (1,252 | ) |
| Preference share dividends paid                                                  |   | 7        |   | (102             | )          | (117            | )          | (119 | ) | — |   | — |   |
| Retained profits at end of year                                                  |   |     |   | 7,203            |       | 5,600           |       | 4,562 |   | 6,398 |   | 3,971 |   |
| **Total shareholders’ equity attributable to  shareholders of the Company** |   |     |   | 13,770           |       | 11,448          |       | 10,538 |   | 13,469 |   | 10,160 |   |

 

Thenotes appearing on pages 123 to 194 form an integral part of these financialstatements

 

----

(1)   Relates to the issue of 10 million ANZ StapledExchangeable Preferred Securities, raising $1 billion net of issue costs of $13million.  Refer Note 30

 

Natureand purpose of reserves

(2)   Asset revaluation reserve

Priorto 1 October 2000, the asset revaluation reserve was used to recordcertain increments and decrements on the revaluation of non-current assets. Asthe Group has elected to adopt deemed cost in accordance with AASB 1041, thebalance of the reserve is not available for future non-current asset writedowns while the Group remains on the deemed cost basis

(3)   Foreign currency translation reserve

Exchangedifferences arising on translation of foreign self-sustaining operations aretaken to the foreign currency translation reserve, as described in accountingpolicy note 1

(4)   General reserve and Capital reserve

Thebalance of these reserves have resulted from prior period allocations ofretained profits and may be released to retained profits.  Within the General reserve, amounts held inclaims equalisation reserve under the Insurance Act 1973, cannot be released toprofit for a period of ten years

 

121

----

 

**Statementsof Cash Flows for the year ended 30 September 2003**

 
|                                                 |   |     |   | **Consolidated** |       | **The Company** |       |
|------------------------------------------------------|--------|----------|--------|------------------|------------|-----------------|------------|
|                                                 |   | **Note** |   | **2003**         |       | **2002**        |       | **2001** |   | **2003** |   | **2002** |   |
|                                                 |   |     |   | **$m**           | ** ** | **$m**          | ** ** | **$m** | ** ** | **$m** | ** ** | **$m** | ** ** |
| **Cash flows from operating activities**             |   |     |   |             |       |            |       |   |   |   |   |   |   |
| Interest received                                    |   |     |   | 10,887           |       | 10,148          |       | 11,054 |   | 7,243 |   | 6,723 |   |
| Dividends received                                   |   |     |   | 7                |       | 3               |       | 75 |   | 1,803 |   | 67 |   |
| Fees and other income received                       |   |     |   | 2,908            |       | 2,919           |       | 2,783 |   | 2,397 |   | 2,689 |   |
| Interest paid                                        |   |     |   | (5,724           | )          | (5,367          | )          | (6,703 | ) | (4,372 | ) | (4,158 | ) |
| Personnel expenses paid                              |   |     |   | (1,848           | )          | (1,900          | )          | (1,827 | ) | (1,463 | ) | (1,576 | ) |
| Premises expenses paid                               |   |     |   | (279             | )          | (268            | )          | (253 | ) | (257 | ) | (249 | ) |
| Other operating expenses paid                        |   |     |   | (1,952           | )          | (1,893          | )          | (1,775 | ) | (855 | ) | (913 | ) |
| Income taxes paid                                    |   |     |   | (1,312           | )          | (853            | )          | (823 | ) | (1,063 | ) | (574 | ) |
| Goods and services tax (paid) received               |   |     |   | 1                |       | (28             | )          | (53 | ) | 17 |   | (8 | ) |
| Net decrease (increase) in trading securities        |   |     |   | 1,669            |       | (1,030          | )          | (629 | ) | 1,583 |   | (782 | ) |
| **Net cash provided by operating activities**        |   | 42       | (a)    | 4,357            |       | 1,731           |       | 1,849 |   | 5,033 |   | 1,219 |   |
| **Cash flows from investing activities**             |   |     |   |             |       |            |       |   |   |   |   |   |   |
| Net decrease (increase)                              |   |     |   |             |       |            |       |   |   |   |   |   |   |
| Liquid assets - greater than three months            |   |     |   | 1,113            |       | (442            | )          | 983 |   | 1,091 |   | (416 | ) |
| Due from other financial institutions                |   |     |   | (44              | )          | 554             |       | 909 |   | (59 | ) | 557 |   |
| Regulatory deposits                                  |   |     |   | 52               |       | 37              |       | (27 | ) | 48 |   | (47 | ) |
| Loans and advances                                   |   |     |   | (19,944          | )          | (9,441          | )          | (4,829 | ) | (17,928 | ) | (9,216 | ) |
| Shares in controlled entities and associates         |   |     |   | (2               | )          | (1              | )          | (36 | ) | (701 | ) | 1,023 |   |
| Investment securities                                |   |     |   |             |       |            |       |   |   |   |   |   |   |
| Purchases                                            |   |     |   | (3,871           | )          | (2,851          | )          | (4,005 | ) | (2,838 | ) | (1,480 | ) |
| Proceeds from sale or maturity                       |   |     |   | 2,445            |       | 2,436           |       | 3,630 |   | 1,294 |   | 977 |   |
| Controlled entities and associates                   |   |     |   |             |       |            |       |   |   |   |   |   |   |
| Purchased (net of cash acquired)                     |   | 42       | (c)    | —           |       | (1,050          | )          | (36 | ) | — |   | (893 | ) |
| Proceeds from sale (net of cash disposed)            |   |     |   | —           |       | —          |       | — |   | — |   | — |   |
| Premises and equipment                               |   |     |   |             |       |            |       |   |   |   |   |   |   |
| Purchases                                            |   |     |   | (368             | )          | (385            | )          | (452 | ) | (292 | ) | (309 | ) |
| Proceeds from sale                                   |   |     |   | 51               |       | 101             |       | 127 |   | 38 |   | 51 |   |
| Recovery from NHB litigation                         |   |     |   | —           |       | 248             |       | — |   | — |   | 248 |   |
| Other                                                |   |     |   | 1,663            |       | 201             |       | (454 | ) | 1,501 |   | 50 |   |
| **Net cash (used in) investing activities**          |   |     |   | (18,905          | )          | (10,593         | )          | (4,190 | ) | (17,846 | ) | (9,455 | ) |
| **Cash flows from financing activities**             |   |     |   |             |       |            |       |   |   |   |   |   |   |
| Net (decrease) increase                              |   |     |   |             |       |            |       |   |   |   |   |   |   |
| Due to other financial institutions                  |   |     |   | (2,946           | )          | (1,211          | )          | (826 | ) | (3,434 | ) | (917 | ) |
| Deposits and other borrowings                        |   |     |   | 13,995           |       | 9,152           |       | 890 |   | 7,500 |   | 9,888 |   |
| Due from/to controlled entities                      |   |     |   | —           |       | —          |       | — |   | 4,993 |   | (2,907 | ) |
| Payables and other liabilities                       |   |     |   | 1,000            |       | 362             |       | 581 |   | 1,140 |   | 875 |   |
| Bonds and notes                                      |   |     |   |             |       |            |       |   |   |   |   |   |   |
| Issue proceeds                                       |   |     |   | 8,255            |       | 4,537           |       | 7,542 |   | 7,788 |   | 4,538 |   |
| Redemptions                                          |   |     |   | (4,095           | )          | (3,519          | )          | (2,878 | ) | (4,095 | ) | (3,519 | ) |
| Loan capital                                         |   |     |   |             |       |            |       |   |   |   |   |   |   |
| Issue proceeds                                       |   |     |   | 3,380            |       | 759             |       | — |   | 3,380 |   | 500 |   |
| Redemptions                                          |   |     |   | (437             | )          | (589            | )          | (244 | ) | (437 | ) | (398 | ) |
| Decrease (increase) in outside equity interests      |   |     |   | (1               | )          | 1               |       | (1 | ) | — |   | — |   |
| Dividends paid                                       |   |     |   | (1,322           | )          | (1,178          | )          | (1,028 | ) | (1,220 | ) | (1,061 | ) |
| Share capital issues (ordinary capital)              |   |     |   | 120              |       | 112             |       | 114 |   | 120 |   | 112 |   |
| StEPS preference share issue                         |   |     |   | 1,000            |       | —          |       | — |   | 1,000 |   | — |   |
| StEPS issues costs                                   |   |     |   | (13              | )          | —          |       | — |   | (13 | ) | — |   |
| Share buyback                                        |   |     |   | —           |       | —          |       | (495 | ) | — |   | — |   |
| **Net cash provided by financing activities**        |   |     |   | 18,936           |       | 8,426           |       | 3,655 |   | 16,722 |   | 7,111 |   |
| Net cash provided by operating activities            |   |     |   | 4,357            |       | 1,731           |       | 1,849 |   | 5,033 |   | 1,219 |   |
| Net cash (used in) investing activities              |   |     |   | (18,905          | )          | (10,593         | )          | (4,190 | ) | (17,846 | ) | (9,455 | ) |
| Net cash provided by financing activities            |   |     |   | 18,936           |       | 8,426           |       | 3,655 |   | 16,722 |   | 7,111 |   |
| Net (decrease) increase in cash and cash equivalents |   |     |   | 4,388            |       | (436            | )          | 1,314 |   | 3,909 |   | (1,125 | ) |
| Cash and cash equivalents at beginning of year       |   |     |   | 7,925            |       | 9,071           |       | 6,462 |   | 5,453 |   | 6,747 |   |
| Foreign currency translation on opening balances     |   |     |   | (4,998           | )          | (710            | )          | 1,295 |   | (4,951 | ) | (169 | ) |
| **Cash and cash equivalents at end of year**         |   | 42       | (b)    | 7,315            |       | 7,925           |       | 9,071 |   | 4,411 |   | 5,453 |   |

 

Thenotes appearing on pages 123 to 194 form an integral part of these financialstatements

 

122

----

 

**Notesto the Financial Statements**

 

Our critical accounting policies are described onpages 197 to 199.

 

**1:  Accounting Policies**

 

i)      Basis of preparation

 

This general purpose financial report complieswith the accounts provisions of the Banking Act 1959, applicable AustralianAccounting Standards, the accounts provisions of the Corporations Act 2001,Urgent Issues Group Consensus Views and other authoritative pronouncements ofthe Australian Accounting Standards Board. Except as disclosed below, theseaccounting policies are consistent with those of the previous year.

 

Certaindisclosures required by the United States Securities and Exchange Commission inrespect of foreign registrants have also been included in thisreport.

 

Thefinancial report has been prepared in accordance with the historical costconvention as modified by the revaluation of trading instruments, and thedeemed cost of properties. The preparation of the financial report requires theuse of management estimates. Such estimates may require review in futureperiods.

 

TheCompany is a company of the kind referred to in Australian Securities and InvestmentsCommission class order 98/100, dated 10 July 1998. Consequently, amountsin the financial report have been rounded to the nearest million dollars exceptwhere otherwise indicated.

 

Allamounts are expressed in Australian dollars, unless otherwise stated. Wherenecessary, amounts shown for the previous year have been reclassified to facilitate comparison.

 

ii)     Changes in Accounting Policies

 

AASB1044, Provisions, Contingent Liabilities and Contingent Assets became effectivefor the Group from 1 October 2002. Under the new Standard,provision for dividends cannot be booked unless dividends are declared,determined or publicly recommended on or before balance date. Accordingly thedividend applicable to the current reporting period has not been booked in thisreport. However, dividends declared after balance date still need to bedisclosed in the notes. The adoption of AASB 1044 results in an increase inShareholders’ Equity of $777 million. The Group will continue its current practice of making a publicannouncement of the dividend after balance date. Dividend information for thecurrent period is provided in note 7, Dividends.

 

AASB1012, Foreign Currency Translation became effective for the Group from 1October 2002. Under this revised Standard foreign denominated equity mustbe reported using the spot rate applicable at the date of issue and not beretranslated using the spot rate at the end of each reporting period. The Grouphas retranslated its USD preference share capital to the historical spot rates.As the translation adjustment is reported in the foreign currency translationreserve the impact of these changes are neutral on equity.

 

iii)    Consolidation

 

Thefinancial statements consolidate the financialstatements of Australia and New Zealand Banking Group Limited (the Company) andits controlled entities.

 

Sharesin controlled entities are stated at deemed cost in the statement of financialposition.

 

Wherecontrolled entities and associates have been sold or acquired during the year,their operating results have been included to the date of disposal or from thedate of acquisition.

 

TheGroup adopts the equity method of accounting forassociates and the Group’s interest in joint venture entities. Shares inassociates and joint venture entities are stated in the consolidated statementof financial position at cost plus the Group’s share of post acquisition netassets. The Group’s share of results of associates and joint venture entitiesis included in the consolidated statement of financial performance.

 

TheGroup may invest in or establish special purposecompanies, or vehicles, to enable it to undertake specific types oftransactions. Where the Group controls such vehicles, they are consolidatedinto the Group financial results.

 

iv)   Goodwill

 

Goodwill,representing the excess of the purchase consideration over the fair value ofthe identifiable net assets of a controlled entity at the date of gainingcontrol, is recognised as an asset and amortised on a straight line basis overthe period during which the benefits are expected to arise, not exceeding 20years.

 

Theunamortised balance of goodwill and notional goodwill andthe period of amortisation are reviewed annually. Where the balance exceeds thevalue of expected future benefits, the difference is charged to the statementof financial performance.

 

v)    Foreign currency

 

Financial assets and liabilities denominated in foreign currencies are translated intoAustralian dollars at the rates of exchange ruling at balance date.

 

Revenues and expenses of overseas branches and controlled entities are translated ataverage exchange rates for the year.

 

Net translation differences arising from the translation of overseas branches andcontrolled entities considered to be self-sustaining operations are included inthe foreign currency translation reserve, after allowing for those positionshedged by foreign exchange contracts and related currency borrowings (net oftax).

 

vi)   Fee income

 

Fee and commission income arebrought to account on an accruals basis. Yield-related front-end applicationfees received are deferred and accrued to income as an adjustment of yield overthe period of the loan. Non yield-related application and activation lendingfees received are recognised as income no later than when the loan is disbursedor the commitment to lend expires. Fees received on an ongoing basis thatrepresent the recoupment of the costs of providing service (for example,maintaining and administering existing facilities) are taken to income when thefees are receivable.

 

123

----

 

vii)  Net loans and advances

 

Net loans and advancesinclude direct finance provided to customers such as bank overdrafts, creditcards, term loans, lease finance, hire purchase finance and commercial bills.

 

Overdrafts, credit cards andterm loans are carried at principal balances outstanding. Interest on amountsoutstanding is accounted for on an accruals basis.

 

Finance leases and hirepurchase contracts are accounted for using the finance method whereby income istaken to account progressively over the life of the lease or the contract inproportion to the outstanding investment balance.

 

Customer financing throughredeemable preference shares is included within net loans and advances. Dividendsreceived on redeemable preference shares are taken to the statement offinancial performance as part of interest income.

 

All loans are subject toregular scrutiny and graded according to the level of credit risk. Loans areclassified as either productive or non-accrual. The Group has adopted theAustralian Prudential Regulation Authority Impaired Assets Guidelines inassessing non-accrual loans. Non-accrual loans include loans where the accrualof interest and fees has ceased due to doubt as to full recovery, and loansthat have been restructured with an effective yield below the Group’s averagecost of funds at the date of restructuring. A specific provision is raised tocover the expected loss, where full recovery of principal is doubtful.

 

Restructured loans are loanswith an effective yield above the Group’s cost of funds and below the yieldapplicable to a customer of equal credit standing.

 

Cash receipts on non-accrualloans are, in the absence of a contrary agreement with the customer, applied asincome or fees in priority to being applied as a reduction in principal, exceptwhere the cash receipt relates to proceeds from the sale of security.

 

viii)Bad and doubtful debts

 

Each month the Grouprecognises an expense for credit losses based on the expected long term lossratio for each part of the loan portfolio. The monthly charge is booked to theGeneral Provision which is maintained to cover losses inherent within theGroup’s existing loan portfolio.

 

The method used by the Groupfor determining this monthly expense charge is referred to as ‘economic lossprovisioning’ (ELP). The Group uses ELP models to calculate the expected lossby considering:

 

•              the history of credit loss for each type andrisk grade of lending; and

 

•              the size, composition and risk profile of thecurrent loan portfolio.

 

The Group regularly reviews the assumptions used in the ELP models. These reviews areconducted in recognition of the subjective nature of ELP methodology.Methodologies are updated as improved analysis becomes available. In addition,the robustness of outcomes is reviewed considering the Group’s actual lossexperience, and losses sustained by other banks operating in similar markets.

 

To the extent that creditlosses are not consistent with previous loss patterns used to develop theassumptions within the ELP methodology, the existing General Provision may be determined to be either in excess of orinsufficient to cover credit losses not yet specifically identified. As aresult of the reassessments, ELP charge levels may be periodically increased ordecreased.

 

Specific provisions aremaintained to cover identified doubtful debts. All known bad debts are writtenoff in the year in which they are identified. The specific provisionrequirement (representing new and increased specific provisions less specificprovision releases) is transferred from the general provision to the specificprovision. Recoveries, representing excess transfers to the specific provision,are credited to the general provision.

 

Provisions for doubtful debts are deducted from loans and advances in the statement offinancial position.

 

ix)    Acceptances

 

Commercial bills accepted but not held in portfolio are accounted for and disclosed as aliability with a corresponding contra asset.

 

The Group’s own acceptancesdiscounted are held as part of either the trading securities portfolio or theloan portfolio, depending on whether, at the time of such discount, theintention was to hold the acceptances for resale or until maturity.

 

x)     Trading securities

 

Securities held for trading purposes are recorded at market value. Unrealised gains andlosses on revaluation are taken to the statement of financial performance.

 

xi)    Investment securities

 

Investment securities arethose which the Group intends and has the ability to hold until maturity. Suchsecurities are recorded at cost or at cost adjusted for amortisation of premiums or discounts.

 

Premiums and discounts are capitalised and amortised from the date of purchase to maturity.Interest and dividend income is accrued. Changes in market values of securitiesare not taken into account unless there is considered to be a permanentdiminution in value.

 

xii)   Repurchase agreements

 

Securities sold under repurchase agreements are retained in the financial statements and acounterparty liability is disclosed under the classifications of Due to otherfinancial institutions or Deposits and other borrowings. The difference betweenthe sale price and the repurchase price is amortised over the life of the repurchaseagreement and charged to interest expense in the statement of financialperformance.

 

Securities purchased underagreements to resell are recorded as Liquid assets, Net loans and advances, orDue from other financial institutions, depending on the term of the agreement andthe counterparty.

 

124

----

 

xiii)  Derivative financial instruments

 

Derivative financial instruments (derivatives) are contracts whose value is derived from one or moreunderlying financial instruments or indices. They include swaps, forward rateagreements, futures, options and combinations of these instruments.

 

Trading derivatives,comprising derivatives entered into for customer-related or proprietary reasonsor for hedging the trading portfolio, are measured at fair value andall gains and losses are taken to other operating income in the statement offinancial performance. Fair value losses arising from trading derivatives arenot offset against fair value gains unless a legal right of set-off exists.

 

Derivatives designated as hedges of underlying non-trading exposures are accounted for on thesame basis as the underlying exposures. To be designated as a hedge, the fairvalue of the hedge must move inversely with changes in the fair value of theunderlying exposure.

 

Gains and losses resultingfrom the termination of a derivative that was designated as a hedge ofnon-trading exposures are deferred and amortised over the remaining period ofthe original term covered by the terminated instrument where the underlyingexposure still exists. The gains or losses are recorded in the income orexpense line in which the underlying exposure movements are recorded. Where the underlying exposure no longer exists, the gains and losses arerecognised in the statement of financial performance in the other operatingincome line.

 

Gains and losses on derivatives related to hedging exposures arising from anticipated transactions aredeferred and recognised in the financial statements when the anticipated transactionoccurs.

 

These gains and losses aredeferred only to the extent that there is an offsetting unrecognised(unrealised) gain or loss on the exposures being hedged. Deferred gains andlosses are amortised over the expected term of the hedged exposure and arerecorded in the results of operations in the same line as the underlying exposure.The deferred gain or loss is recorded in other liability or other assets in thestatement of financial position.

 

Gains and losses that ariseprior to and upon the maturity of transactions entered into under hedgerollover strategies are deferred and included in the measurement of the hedgedanticipated transaction if the transaction is still expected to occur. If theforecasted transaction is no longer expected to occur, the gains and losses arerecognised immediately in the statement of financial performance in the otherincome disclosure.

 

Movements in the derivativefinancial position are recorded in the cashflow statement when they are settledon the other financing and investing lines.

 

xiv)  Premises and equipment

 

Premises and equipment arecarried at cost less depreciation or amortisation.

 

Profit or loss on thedisposal of premises and equipment is determined as the difference between thecarrying amount of the assets at the time of disposal and the proceeds ofdisposal, and is included in the results of the Group in the year of disposal.

 

Assets other than freeholdland are depreciated at rates based upon their expected useful lives to theGroup, using the straight line method. The depreciation rates used for eachclass of asset are:

 
| Buildings                       |   | 1%           |   |
|---------------------------------|--------|--------------|--------|
| Building integrals              |   | 10%          |   |
| Furniture & equipment       |   | 10%          |   |
| Computer & office equipment |   | 12.5% to 33% |   |
| Software                        |   | 14% to 33%   |   |

 

Leasehold improvements areamortised on a straight line basis over the remaining period of each lease.

 

Costs incurred in acquiringand building software and computer systems are capitalised as fixed assets andexpensed as amortisation over periods of between 3 and 5 years except for thebranch front end applications where 7 years is used. Costs incurred in planningor evaluating software proposals, or in maintaining systems afterimplementation, are not capitalised.

 

The carrying values of allnon-current assets have been assessed and are not in excess of theirrecoverable amounts.

 

xv)   Income tax

 

The Group adopts theliability method of tax effect accounting whereby income tax expense iscalculated based on accounting profit adjusted for permanent differences.Permanent differences are items of revenue and expense which are recognised inthe statement of financial performance but are not part of taxable income orvice versa.

 

Future tax benefits anddeferred tax liabilities relating to timing differences and tax losses arecarried forward at tax rates applicable to future periods. These future taxbenefits are not brought to account unless realisation of the asset is assuredbeyond reasonable doubt. Future tax benefits relating to tax losses are onlycarried forward where realisation of the benefit is considered virtuallycertain.

 

Provision for Australianincome tax is made where the earnings of overseas controlled entities aresubjected to Australian tax under the attribution rules for the taxation offoreign sourced income.

 

Otherwise, no provision ismade for overseas withholding tax or Australian income tax which may arise onrepatriation of earnings from overseas controlled entities, where it isexpected these earnings will be retained by those entities to finance theirongoing business.

 

xvi)  Employee entitlements

 

The amounts expected to bepaid in respect of employees’ entitlements to annual leave are accrued atexpected salary rates including on-costs. Liability for long service leave isaccrued in respect of all applicable employees at the present value of futureamounts expected to be paid.

 

xvii) Provisions

 

Refer to note 27 for theaccounting policies covering various provisions excluding ELP which is detailedin note 1 viii) above.

 

125

----

 

xviii)  Superannuationcommitments

 

Contributions, which aredetermined on an actuarial basis, to superannuation schemes are charged topersonnel expenses in the statement of financial performance.

 

Any aggregate deficienciesarising from the actuarial valuations of the Group’s defined benefit schemeshave been provided for in the financial statements, where a legal orconstructive obligation exists.

 

The assets and liabilities ofthe schemes have not been consolidated as the Company does not have direct orindirect control of the schemes.

 

xix)  Leasing

 

Leases entered into by theGroup as lessee are predominantly operating leases, and the operating leasepayments are included in the statement of financial performance in equalinstallments over the lease term.

 

xx)   Goods and services tax

 

Revenues, expenses and assetsare recognised net of the amount of goods and services tax (GST), except wherethe amount of GST incurred is not recoverable from the Australian Tax Office(ATO). In these circumstances the GST is recognised as part of the cost ofacquisition of the asset or as part of the expense.

 

Receivables and payables arestated with the amount of GST included. The net amount of GST recoverable from,or payable to, the ATO is included as an other asset or liability in thestatement of financial position.

 

Cash flows are included inthe statement of cash flows on a gross basis. The GST components of cash flowsarising from investing and financing activities which are recoverable from, orpayable to, the ATO are classified as operating cash flows.

 

xxi)  Life insurance

 

The Group’s life insurancebusiness was conducted through ANZ Life Assurance Company Limited until 30April 2002 and its results consolidated until that date.  On 1 May 2002 the Group’s life insurancebusiness was transferred to a joint venture entity, (see note 45) which isaccounted for in accordance with the equity method of accounting. The jointventure adopts similar accounting policies to those described here.

 

Components of life insurancemargin on services operating income disclosed are premium revenue and relatedrevenue, investment revenue, claims expense and insurance policy liabilitiesexpense (refer note 40).

 

Premiums with no due date arerecognised as revenue on a cash received basis. Premiums with a regular duedate are recognised as revenue on an accruals basis. Unpaid premiums are onlyrecognised as revenue during the days of grace or where secured by thesurrender value of the policy and are included as ‘Other Assets’ in the balancesheet.

 

Claims underinvestment-linked business are recognised when the policy ceases to participatein the earnings of the fund. Claims on non investment-linked business arerecognised when the liability to the policy owner under the policy contract hasbeen established or upon notification of the insured event depending on thetype of claim.

 

Policy liabilities and otherliabilities are measured at net present value of estimated future cash flows.Changes in net present values are recognised in the statement of financialperformance as revenue or expenses in the financial year in which they occur.

 

All assets are measured atnet market values as at the reporting date. Changes in the net market valuesare recognised in the statement of financial performance as revenue or expensesin the financial year in which they occur.

 

xxii)  Capitalised expenses

 

Expenses related to theacquisition of interest earning assets are initially recognised as part of thecost of acquiring the asset and written-off as an adjustment to its yield overits expected life. For assets subject to prepayment, expected life isdetermined on the basis of the historical behaviour of the asset portfolio,taking into account prepayments.

 

126

----

 

**2:  Income**

 
|    |                                                                                        |   | **Consolidated** |   | **The Company** |       |
|---------|---------------------------------------------------------------------------------------------|--------|------------------|--------|-----------------|------------|
|    |                                                                                        |   | **2003**         |   | **2002**        |       | **2001** |   | **2003** |   | **2002** |   |
|    |                                                                                        |   | **$m**           |   | **$m**          | ** ** | **$m** | ** ** | **$m** | ** ** | **$m** | ** ** |
|    | **Interest income**                                                                         |   |             |   |            |       |   |   |   |   |   |   |
|    | From other financial institutions                                                           |   | 92               |   | 121             |       | 214 |   | 65 |   | 83 |   |
|    | On regulatory deposits                                                                      |   | —           |   | 1               |       | 1 |   | — |   | 1 |   |
|    | On trading and investment securities                                                        |   | 452              |   | 397             |       | 471 |   | 355 |   | 324 |   |
|    | On loans and advances                                                                       |   | 9,320            |   | 8,245           |       | 9,122 |   | 6,667 |   | 5,733 |   |
|    | Other                                                                                       |   | 351              |   | 273             |       | 443 |   | 213 |   | 192 |   |
|    |                                                                                        |   | 10,215           |   | 9,037           |       | 10,251 |   | 7,300 |   | 6,333 |   |
|    | From controlled entities                                                                    |   | —           |   | —          |       | — |   | 78 |   | 93 |   |
|    | **Total interest income**                                                                   |   | 10,215           |   | 9,037           |       | 10,251 |   | 7,378 |   | 6,426 |   |
|    |                                                                                        |   |             |   |            |       |   |   |   |   |   |   |
|    | **Other operating income**                                                                  |   |             |   |            |       |   |   |   |   |   |   |
| **i)**  | **Fee income**                                                                              |   |             |   |            |       |   |   |   |   |   |   |
|    | Lending                                                                                     |   | 933              |   | 876             |       | 787 |   | 813 |   | 771 |   |
|    | Other, commissions(1)                                                                       |   | 1,115            |   | 1,196           |       | 1,105 |   | 795 |   | 861 |   |
|    |                                                                                        |   | 2,048            |   | 2,072           |       | 1,892 |   | 1,608 |   | 1,632 |   |
|    | From controlled entities                                                                    |   | —           |   | —          |       | — |   | 219 |   | 284 |   |
|    | **Total fee income**                                                                        |   | 2,048            |   | 2,072           |       | 1,892 |   | 1,827 |   | 1,916 |   |
| **ii)** | **Other income**                                                                            |   |             |   |            |       |   |   |   |   |   |   |
|    | Significant transaction: Net profit before tax from sale of business  to INGA joint venture |   | —           |   | 174             |       | — |   | — |   | 192 |   |
|    | Foreign exchange earnings                                                                   |   | 348              |   | 365             |       | 348 |   | 238 |   | 264 |   |
|    | Profit on sale of strategic investments                                                     |   | —           |   | —          |       | 99 |   | — |   | — |   |
|    | Hedge of TrUEPrs cash flows(2)                                                              |   | 71               |   | 72              |       | 27 |   | 71 |   | 72 |   |
|    | Life insurance margin on services operating income (refer note 40)                          |   | —           |   | 99              |       | 190 |   | — |   | — |   |
|    | Profit on trading instruments                                                               |   | 110              |   | 59              |       | 63 |   | 122 |   | 44 |   |
|    | Profit on sale of premises(3)                                                               |   | 6                |   | 5               |       | 3 |   | — |   | 2 |   |
|    | Rental income                                                                               |   | 3                |   | 4               |       | 5 |   | 3 |   | 3 |   |
|    | Dividend income from strategic investments                                                  |   | —           |   | —          |       | 21 |   | — |   | — |   |
|    | Writedown of equity investments                                                             |   | —           |   | —          |       | (84 | ) | — |   | — |   |
|    | Other                                                                                       |   | 116              |   | 89              |       | 34 |   | 1,729 |   | 142 |   |
|    | **Total other income(4)**                                                                   |   | 654              |   | 867             |       | 706 |   | 2,163 |   | 719 |   |
|    | **Total other operating income**                                                            |   | 2,702            |   | 2,939           |       | 2,598 |   | 3,990 |   | 2,635 |   |
|    | Share of joint venture: profit from INGA joint venture (refer note 45)                      |   | 55               |   | 2               |       | — |   | — |   | — |   |
|    | Share of associates profit (net of writeoffs)                                               |   | 51               |   | 29              |       | (25 | ) | — |   | — |   |
|    | **Total share of joint venture and associates profit**                                      |   | 106              |   | 31              |       | (25 | ) | — |   | — |   |
|    | **Total income(5)**                                                                         |   | 13,023           |   | 12,007          |       | 12,824 |   | 11,368 |   | 9,061 |   |

 

----

(1)   Includes commissions from funds management business (up to 30 April 2002)

(2)   Preference shares are issued via the TrUEPrs structure. This income is earned on afixed receive/floating pay swap of the fixed dividend commitments

(3)   Gross proceeds on sale of premises is $33 million (2002: $42 million, 2001:$98 million)

(4)   The Company’s ‘other income’ include dividends received from controlledentities of $1,803 million (2002: $65 million)

(5)   Includes external dividend income of $10million (2002: $3 million, 2001: $75 million) for the Group and $1 million(2002: $2 million) for the Company

 

127

----

 

**3:  Expenses**

 
|     |                                                            |   | **Consolidated** |   | **The Company** |   |
|----------|-----------------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|     |                                                            |   | **2003**         |   | **2002**        |   | **2001** |   | **2003** |   | **2002** |   |
|     |                                                            |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   | **$m** |   |
|     | **Interest expense**                                            |   |             |   |            |   |   |   |   |   |   |   |
|     | To other financial institutions                                 |   | 183              |   | 246             |   | 590 |   | 164 |   | 225 |   |
|     | On deposits                                                     |   | 3,502            |   | 3,019           |   | 3,597 |   | 2,722 |   | 2,371 |   |
|     | On borrowing corporations’ debt                            |   | 461              |   | 404             |   | 454 |   | — |   | — |   |
|     | On commercial paper                                             |   | 310              |   | 251             |   | 584 |   | 184 |   | 46 |   |
|     | On loan capital, bonds and notes                                |   | 1,052            |   | 801             |   | 797 |   | 1,014 |   | 793 |   |
|     | Other                                                           |   | 396              |   | 298             |   | 396 |   | 295 |   | 210 |   |
|     |                                                            |   | 5,904            |   | 5,019           |   | 6,418 |   | 4,379 |   | 3,645 |   |
|     | To controlled entities                                          |   | —           |   | —          |   | — |   | 177 |   | 168 |   |
|     | Total interest expense                                          |   | 5,904            |   | 5,019           |   | 6,418 |   | 4,556 |   | 3,813 |   |
|     |                                                            |   |             |   |            |   |   |   |   |   |   |   |
|     | **Operating expenses**                                          |   |             |   |            |   |   |   |   |   |   |   |
| **i)**   | **Personnel**                                                   |   |             |   |            |   |   |   |   |   |   |   |
|     | Employee entitlements and taxes                                 |   | 122              |   | 129             |   | 131 |   | 106 |   | 117 |   |
|     | Pension fund                                                    |   | 109              |   | 103             |   | 93 |   | 94 |   | 88 |   |
|     | Salaries and wages                                              |   | 1,177            |   | 1,134           |   | 1,124 |   | 912 |   | 892 |   |
|     | Other                                                           |   | 342              |   | 348             |   | 327 |   | 283 |   | 293 |   |
|     | Total personnel expenses                                        |   | 1,750            |   | 1,714           |   | 1,675 |   | 1,395 |   | 1,390 |   |
| **ii)**  | **Premises**                                                    |   |             |   |            |   |   |   |   |   |   |   |
|     | Amortisation of leasehold improvements                          |   | 15               |   | 14              |   | 15 |   | 9 |   | 8 |   |
|     | Depreciation of buildings and integrals                         |   | 16               |   | 17              |   | 18 |   | 1 |   | 2 |   |
|     | Rent                                                            |   | 154              |   | 161             |   | 152 |   | 120 |   | 131 |   |
|     | Utilities and other outgoings                                   |   | 88               |   | 92              |   | 89 |   | 74 |   | 70 |   |
|     | Other                                                           |   | 22               |   | 15              |   | 11 |   | 18 |   | 11 |   |
|     |                                                            |   | 295              |   | 299             |   | 285 |   | 222 |   | 222 |   |
|     | To controlled entities                                          |   | —           |   | —          |   | — |   | 43 |   | 37 |   |
|     | Total premises expenses                                         |   | 295              |   | 299             |   | 285 |   | 265 |   | 259 |   |
| **iii)** | **Computer**                                                    |   |             |   |            |   |   |   |   |   |   |   |
|     | Computer contractors                                            |   | 18               |   | 34              |   | 44 |   | 16 |   | 29 |   |
|     | Data communication                                              |   | 61               |   | 62              |   | 49 |   | 41 |   | 44 |   |
|     | Depreciation and amortisation                                   |   | 183              |   | 140             |   | 108 |   | 148 |   | 112 |   |
|     | Rentals and repairs                                             |   | 70               |   | 59              |   | 61 |   | 63 |   | 49 |   |
|     | Software purchased                                              |   | 103              |   | 105             |   | 82 |   | 90 |   | 92 |   |
|     | Other                                                           |   | 30               |   | 24              |   | 20 |   | 12 |   | 7 |   |
|     | Total computer expenses                                         |   | 465              |   | 424             |   | 364 |   | 370 |   | 333 |   |
| **iv)**  | **Other**                                                       |   |             |   |            |   |   |   |   |   |   |   |
|     | Advertising and public relations                                |   | 91               |   | 98              |   | 106 |   | 66 |   | 71 |   |
|     | Amortisation of goodwill(1)                                     |   | 18               |   | 20              |   | 17 |   | 9 |   | 8 |   |
|     | Audit fees (refer note 5)                                       |   | 3                |   | 3               |   | 3 |   | 2 |   | 2 |   |
|     | Depreciation of furniture and equipment                         |   | 33               |   | 35              |   | 42 |   | 26 |   | 28 |   |
|     | Freight and cartage                                             |   | 35               |   | 36              |   | 32 |   | 29 |   | 30 |   |
|     | Loss on sale of equipment                                       |   | 7                |   | 2               |   | 5 |   | 2 |   | 1 |   |
|     | Non-lending losses, frauds and forgeries                        |   | 48               |   | 51              |   | 45 |   | 36 |   | 36 |   |
|     | Postage and stationery                                          |   | 92               |   | 97              |   | 94 |   | 67 |   | 71 |   |
|     | Professional fees                                               |   | 102              |   | 97              |   | 114 |   | 86 |   | 79 |   |
|     | Telephone                                                       |   | 49               |   | 53              |   | 70 |   | 35 |   | 38 |   |
|     | Travel                                                          |   | 78               |   | 77              |   | 79 |   | 55 |   | 57 |   |
|     | Other                                                           |   | 102              |   | 84              |   | 75 |   | 165 |   | 171 |   |
|     | Total other expenses                                            |   | 658              |   | 653             |   | 682 |   | 578 |   | 592 |   |
| **v)**   | **Restructuring**                                               |   | 60               |   | 63              |   | 86 |   | 55 |   | 62 |   |
|     | **Total operating expenses**                                    |   | 3,228            |   | 3,153           |   | 3,092 |   | 2,663 |   | 2,636 |   |
|     | Significant  transaction: recovery from NHB litigation          |   | —           |   | (248            | )      | — |   | — |   | (248 | ) |
|     | Total operating expenses including recovery from NHB litigation |   | 3,228            |   | 2,905           |   | 3,092 |   | 2,663 |   | 2,388 |   |
|     | **Total expenses**                                              |   | 9,132            |   | 7,924           |   | 9,510 |   | 7,219 |   | 6,201 |   |

 

----

(1)   Inaddition, there is a notional goodwill amortisation charge of $44 million(2002: $18 million) included in the calculation of the share of income from theING Australia joint venture

 

128

----

 

**4:  Equity InstrumentsIssued to Employees**

 

Under existing AustralianAccounting Standards, certain equity instruments issued to employees are notrequired to be expensed. The impact of expensing options(1), and shares issuedunder the $1,000 employee share plan, has been calculated and is disclosedbelow.

 
|                                                   |   | **Consolidated** |   |
|--------------------------------------------------------|--------|------------------|--------|
|                                                   |   | **2003**         |   | **2002** |   |
|                                                   |   | **$m**           |   | **$m** |   |
| Net profit attributable to shareholders of the Company |   | 2,348            |   | 2,322 |   |
| Expenses attributable to:                              |   |             |   |   |   |
| Options issued to Management Board(1)                  |   | (8               | )      | (7 | ) |
| Options issued to general management(1)                |   | (24              | )      | (19 | ) |
| Shares issued under $1,000 employee share plan         |   | (18              | )      | (18 | ) |
| Total                                                  |   | 2,298            |   | 2,278 |   |

 

----

(1)   Based on fair values estimated at grant datedetermined in accordance with the fair value measurement provisions of Accounting Exposure Draft ED 108.  Value ofoptions are amortised on a straight line basis over the vesting period

 

**5:  Remuneration ofAuditors**

 
|                                                                            |   | **Consolidated** |   | **The Company** |   |
|---------------------------------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                                            |   | **2003**         |   | **2002**        |   | **2001** |   | **2003** |   | **2002** |   |
|                                                                            |   | **$’000**   |   | **$’000**  |   | **$’000** |   | **$’000** |   | **$’000** |   |
| **KPMG Australia**                                                              |   |             |   |            |   |   |   |   |   |   |   |
| Audit or review of financial reports of the Company or any entity in  the Group |   | 2,640            |   | 2,065           |   | 2,296 |   | 2,115 |   | 1,586 |   |
| Other audit-related services(1),(2)                                             |   | 2,083            |   | 2,793           |   | 1,753 |   | 1,690 |   | 2,685 |   |
| Other assurance services(3)                                                     |   | 3,891            |   | 8,188           |   | 2,811 |   | 3,864 |   | 7,453 |   |
|                                                                            |   | 8,614            |   | 13,046          |   | 6,860 |   | 7,669 |   | 11,724 |   |
| Consulting(4)                                                                   |   | —           |   | —          |   | 10,867 |   | — |   | — |   |
| Taxation                                                                        |   | 775              |   | 1,278           |   | 1,681 |   | 775 |   | 1,256 |   |
|                                                                            |   | 775              |   | 1,278           |   | 12,548 |   | 775 |   | 1,256 |   |
| Total                                                                           |   | 9,389            |   | 14,324          |   | 19,408 |   | 8,444 |   | 12,980 |   |
| **Overseas Related practices of KPMG Australia**                                |   |             |   |            |   |   |   |   |   |   |   |
| Audit or review of financial reports of Group entities                          |   | 1,293            |   | 1,305           |   | 1,024 |   | 315 |   | 271 |   |
| Other audit-related services(1),(2)                                             |   | 1,503            |   | 1,611           |   | 1,755 |   | 639 |   | 861 |   |
| Other assurance services(3)                                                     |   | 1,473            |   | 316             |   | 937 |   | 1,194 |   | 101 |   |
|                                                                            |   | 4,269            |   | 3,232           |   | 3,716 |   | 2,148 |   | 1,233 |   |
| Taxation                                                                        |   | 83               |   | 200             |   | 452 |   | 10 |   | 111 |   |
|                                                                            |   | 83               |   | 200             |   | 452 |   | 10 |   | 111 |   |
| Total                                                                           |   | 4,352            |   | 3,432           |   | 4,168 |   | 2,158 |   | 1,344 |   |
| **Total remuneration of auditors**                                              |   | 13,741           |   | 17,756          |   | 23,576 |   | 10,602 |   | 14,324 |   |

 

Byvirtue of an Australian Securities and Investments Commission class order dated30 September 1998, the auditors of Australia and New Zealand Banking GroupLimited and its related bodies corporate, KPMG, have been exempted fromcompliance with the requirements of Section 324 of the Corporations Act2001. The class order exemption applies in that partners and associates of KPMGnot engaged on the audit of Australia and New Zealand Banking Group Limited andits related bodies corporate may be indebted to the Company, provided that suchindebtedness arose upon ordinary commercial terms and conditions.

 

Itis Group policy that KPMG Australia or any of its related practices may provideassurance and other audit-related services that, while outside the scope of thestatutory audit, are consistent with the role of auditor. These includeregulatory and prudential reviews requested by the Company’s regulators such asthe Australian Prudential Regulation Authority. KPMG Australia or any of itsrelated practices may not provide services that are perceived to be materiallyin conflict with the role of auditor. These include consulting advice andsubcontracting of operational activities normally undertaken by management, andengagements where the auditor may ultimately be required to express an opinionon its own work. However, non-audit services that are not perceived to bematerially in conflict with the role of auditor may be provided by KPMGAustralia or any of its related practices subject to the approval of the ANZAudit Committee.

 

----

(1)   Includes completion accounts review

(2)   Includes services for the audit or review of financial information other thanfinancial reports including prudential supervision reviews for central banks,prospectus reviews, trust audits and other audits required for local statutorypurposes

(3)   2003 includes assessing the Group’s compliancewith the requirements of the US Patriot Act. 2002 includes due diligenceservices principally related to ING joint venture. Under the policy adopted byANZ in April 2002, due diligence services are no longer provided by theexternal auditor, unless specifically approved by the Board

(4)   KPMG sold its consulting business effective 1September 2001

 

129

----

 

**6:  Income Tax Expense**

 
|                                                                                                                                               |   | **Consolidated** |   | **The Company** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                                                                                                               |   | **2003**         |   | **2002**        |   | **2001** |   | **2003** |   | **2002** |   |
|                                                                                                                                               |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   | **$m** |   |
| **Reconciliation of the prima facie income tax payable  on profit with the income tax expense charged in the statement of financial  performance** |   |             |   |            |   |   |   |   |   |   |   |
| Profit before income tax                                                                                                                           |   | 3,277            |   | 3,223           |   | 2,783 |   | 3,684 |   | 2,150 |   |
| Prima facie income tax at 30% (2002: 30%: 2001: 34%)                                                                                               |   | 983              |   | 967             |   | 946 |   | 1,105 |   | 645 |   |
| Tax effect of permanent differences                                                                                                                |   |             |   |            |   |   |   |   |   |   |   |
| Overseas tax rate differential                                                                                                                     |   | 15               |   | 14              |   | (9 | ) | 2 |   | 5 |   |
| Other non-assessable income                                                                                                                        |   | (31              | )      | (39             | )      | (36 | ) | — |   | (1 | ) |
| Rebateable and non-assessable dividends                                                                                                            |   | (16              | )      | (11             | )      | (32 | ) | (541 | ) | (20 | ) |
| Life insurance accounting                                                                                                                          |   | —           |   | 7               |   | 18 |   | — |   | — |   |
| Writedown of investments                                                                                                                           |   | —           |   | —          |   | 27 |   | — |   | — |   |
| Profit from associated and joint venture entities                                                                                                  |   | (32              | )      | (9              | )      | 9 |   | — |   | — |   |
| NHB settlement tax rate differential                                                                                                               |   | —           |   | 15              |   | — |   | — |   | 15 |   |
| Sale of business to ING Australia joint venture                                                                                                    |   | —           |   | (48             | )      | — |   | — |   | (55 | ) |
| Other                                                                                                                                              |   | 10               |   | —          |   | (16 | ) | 53 |   | 51 |   |
|                                                                                                                                               |   | 929              |   | 896             |   | 907 |   | 619 |   | 640 |   |
| Income tax under/(over) provided in prior years                                                                                                    |   | (3               | )      | 2               |   | 4 |   | (3 | ) | 3 |   |
| **Total income tax expense**                                                                                                                       |   | 926              |   | 898             |   | 911 |   | 616 |   | 643 |   |
| Australia                                                                                                                                          |   | 672              |   | 683             |   | 716 |   | 543 |   | 578 |   |
| Overseas                                                                                                                                           |   | 254              |   | 215             |   | 195 |   | 73 |   | 65 |   |
|                                                                                                                                               |   | 926              |   | 898             |   | 911 |   | 616 |   | 643 |   |

 

**TaxConsolidation**

 

Legislation has been enactedto allow Australian resident entities to elect to consolidate and be treated asa single entity for Australian tax purposes. At the date of this report, the Directors of the Company have not made adecision whether or not to elect to be taxed as a single entity.  Should the Company enter the taxconsolidation regime, tax balances will no longer be recorded by subsidiariesif they form part of a consolidated tax group.

Tax balances for theconsolidated tax group will be recorded in the financial statements of theCompany.

 

130

----

**7:  Dividends**

 
|                             |   | **Consolidated** |   | **The Company** |   |
|----------------------------------|--------|------------------|--------|-----------------|--------|
|                             |   | **2003**         |   | **2002**        |   | **2001** |   | **2003** |   | **2002** |   |
|                             |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   | **$m** |   |
| **Ordinary dividends**           |   |             |   |            |   |   |   |   |   |   |   |
| Interim dividend                 |   | 666              |   | 583             |   | 491 |   | 666 |   | 583 |   |
| Proposed final dividend          |   | 777              | (1)    | 692             |   | 595 |   | 777 | (1) | 692 |   |
| Bonus option plan adjustment     |   | (25              | )      | (23             | )      | (24 | ) | (25 | ) | (23 | ) |
| **Dividends on ordinary shares** |   | 1,418            |   | 1,252           |   | 1,062 |   | 1,418 |   | 1,252 |   |

 

----

(1)   Not provided for. Refer Note 1 (ii) Changes inaccounting policies

 

A final dividend of 51 cents,fully franked, is proposed to be paid on each fully paid ordinary share on 19December 2003 (2002: final dividend of 46 cents, paid 13December 2002, fully franked; 2001: final dividend of 40 cents, paid 14December 2001, fully franked). The 2003 interim dividend of 44 cents, paid1 July 2003, was fully franked (2002: interim dividend of 39 cents, paid 1July 2002, fully franked; 2001: interim dividend of 33 cents, paid 2July 2001, fully franked).

 

The tax rate applicable tothe franking credits attached to the interim dividend and to be attached to theproposed final dividend is 30% (2002: 30%, 2001: 30%).

 
|                                                      |   | **Consolidated** |   | **The Company** |   |
|-----------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                      |   | **2003**         |   | **2002**        |   | **2001** |   | **2003** |   | **2002** |   |
|                                                      |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   | **$m** |   |
| **Preference dividends**                                  |   |             |   |            |   |   |   |   |   |   |   |
| Trust Securities Issues                                   |   | 102              |   | 117             |   | 119 |   | — |   | — |   |
| ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS) |   | —           |   | n/a             |   | n/a |   | — |   | n/a |   |
| **Dividends on preference shares**                        |   | 102              |   | 117             |   | 119 |   | — |   | — |   |

 

**TrustSecurities Issues**

 

The Company has issued124,032,000 preference shares, raising USD 775 million via Trust Securitiesissues. The Trust Securities carry an entitlement to a distribution of 8% (USD400 million) or 8.08% (USD 375 million). The amounts are payable quarterly inarrears. Distributions are expected to be payable on 15 January, April,July and October of each year.

 

**ANZ StapledExchangeable Preferred Securities (ANZ StEPS)**

 

On 23 September 2003,the Company issued ten million ANZ StEPS raising $987 million (net of issuecosts).  ANZ StEPS comprise two fullypaid securities - an interest paying unsecured note (issued by ANZ Holdings(New Zealand) Limited a wholly owned subsidiary of the Company) stapled to afully paid preference share issued by the Company.  Distributions on ANZ StEPS are non-cumulative and are payablequarterly in arrears based upon a floating distribution rate equal to the 90day bank bill rate plus a margin.  Ateach payment date the 90 day bank bill rate is reset for the next quarter.  Distributions are expected to be payable on15 March, 15 June, 15 September and 15 December of each year.  Dividends are not payable on the preferenceshare while it is stapled to the note.

 

**DividendFranking Account**

The amount of frankingcredits available to the Company for the subsequent financial year is nil (2002and 2001: nil), after adjusting for franking credits that will arise from thepayment of tax on Australian profits for the 2003 financial year, less frankingcredits which will be utilised in franking the proposed final dividend andfranking credits that may not be accessible by the Company at present.

 

From 1 July 2002 thefranking credits available have been measured in accordance with the NewBusiness Tax System (Imputation) Act 2002 as the amount of income tax paidrather than being based on after-tax profits as in previous periods.

 

This change in the basis ofmeasurement does not change the value of franking credits to shareholders whomay be entitled to franking credit balances.

 

**Restrictionswhich Limit the Payment of Dividends**

There are presently nosignificant restrictions on the payment of dividends from controlled entitiesto the Company. Various capital adequacy, liquidity, statutory reserve andother prudential requirements must be observed by certain controlled entitiesand the impact on these requirements caused by the payment of cash dividends ismonitored. In practice however, there are significant tax considerationsassociated with the receipt of dividends from controlled entities by a company.Payment of dividends from domestic controlled entities constitutes assessableincome to a recipient Australian company. Where the dividend is received from acompany within the wholly-owned group or, if the payer company is notwholly-owned (up to 30 June 2002) to the extent that the dividend isfranked, the recipient company is generally entitled to a rebate of taxotherwise payable on the assessable dividend. With effect from 1July 2002, for franked dividends received from non wholly-owned companiesa gross up and offset mechanism applies. Should the recipient company’s totalassessable income be less than the rebateable/grossed up dividend income, or itbe in a tax loss position, the rebate/offset will reduce or be eliminated. TheGroup therefore acts to preserve the availability of rebates/offsets byavoiding the payment of rebateable/grossed up dividends by domestic controlledentities in this situation.

 

Payments of dividends fromoverseas controlled entities may attract withholding taxes which have not beenprovided for in these financial statements.

 

There are presently norestrictions on payment of dividends by the Company. Reductions ofshareholders’ equity through payment of cash dividends is monitored having regardto the regulatory requirements to maintain a specified capital adequacy ratio.In particular, the Australian Prudential Regulation Authority has advisedAustralian banks that a bank under its supervision must consult with it beforedeclaring a dividend if the bank has incurred a loss, or proposes to paydividends which exceed the level of profits earned.

 

**DividendReinvestment Plan**

During the year, 3,142,629ordinary shares were issued at $18.32 per share, and 3,081,237 ordinary sharesat $18.48 per share, under the Dividend Reinvestment Plan (2002: 2,533,819ordinary shares at $18.33 per share and 2,484,694 ordinary shares at $19.24 pershare).

131

----

 

**Bonus OptionPlan**

Dividends paid during theyear have been reduced by way of certain shareholders participating in theBonus Option Plan and forgoing all or part of their right to dividends inreturn for the receipt of bonus shares.

 

During the year, 787,335ordinary shares were issued at $18.32 per share, and 747,652 ordinary shares at$18.48 per share, under the Bonus Option Plan (2002: 679,408 ordinary shares at$18.33 per share and 672,437 ordinary shares at $19.24 per share).

 
|                  |   | **Declared  dividend** |   | **Bonus options  exercised** |   | **Amount  paid** |   |
|-----------------------|--------|------------------------|--------|------------------------------|--------|------------------|--------|
|                  |   | **$m**                 |   | **$m**                       |   | **$m**           |   |
| Final dividend 2002   |   | 692                    |   | (13                          | )      | 679              |   |
| Interim dividend 2003 |   | 666                    |   | (12                          | )      | 654              |   |
|                  |   | 1,358                  |   | (25                          | )      | 1,333            |   |

 

**8:  Earnings perOrdinary Share**

 
|                                                      |   | **Consolidated** |       |
|-----------------------------------------------------------|--------|------------------|------------|
|                                                      |   | **2003**         |       | **2002** |   | **2001** |   |
|                                                      |   | **$m**           |       | **$m** |   | **$m** |   |
| **Basic earnings per share (cents)**                      |   | 148.3            |       | 147.3 |   | 117.4 |   |
|                                                      |   |             |       |   |   |   |   |
| **Earnings reconciliation**                               |   |             |       |   |   |   |   |
| Net profit                                                |   | 2,351            |       | 2,325 |   | 1,872 |   |
| Less: net profit attributable to outside equity interests |   | 3                |       | 3 |   | 2 |   |
| Less: preference share dividend paid                      |   | 102              |       | 117 |   | 119 |   |
| Earnings used in calculating basic earnings per share     |   | 2,246            |       | 2,205 |   | 1,751 |   |
|                                                      |   |             |       |   |   |   |   |
| **Weighted average number of ordinary shares (millions)** |   |             |       |   |   |   |   |
| Used in calculating basic earnings per share              |   | 1,514.2          |       | 1,496.9 |   | 1,492.1 |   |
|                                                      |   |             |       |   |   |   |   |
| **Diluted earnings per share (cents)**                    |   | **147.9**        | ** ** | **146.6** | ** ** | **117.0** | ** ** |
|                                                      |   |             |       |   |   |   |   |
| **Earnings reconciliation**                               |   |             |       |   |   |   |   |
| Net profit                                                |   | 2,351            |       | 2,325 |   | 1,872 |   |
| Less: net profit attributable to outside equity interests |   | 3                |       | 3 |   | 2 |   |
| Less: preference share dividend paid                      |   | 102              |       | 117 |   | 119 |   |
| Earnings used in calculating diluted earnings per share   |   | 2,246            |       | 2,205 |   | 1,751 |   |
|                                                      |   |             |       |   |   |   |   |
| **Weighted average number of ordinary shares (millions)** |   |             |       |   |   |   |   |
| Used in calculating basic earnings per share              |   | 1,514.2          |       | 1,496.9 |   | 1,492.1 |   |
| Add: potential conversion of options to ordinary shares   |   | 4.8              |       | 7.6 |   | 4.2 |   |
| Used in calculating diluted earnings per share            |   | 1,519.0          |       | 1,504.5 |   | 1,496.3 |   |

 

The weighted average numberof converted and lapsed options, weighted with reference to the date ofconversion or lapse, and included in the calculation of diluted earnings pershare is 1.1 million.

 

**9:  Liquid Assets**

 
|                                                                      |   | **Consolidated** |   | **The Company** |   |
|---------------------------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                                      |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                                                                      |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   |
| **Australia**                                                             |   |             |   |            |   |   |   |   |   |
| Coins, notes and cash at bankers                                          |   | 601              |   | 924             |   | 522 |   | 894 |   |
| Money at call                                                             |   | 317              |   | 112             |   | 311 |   | 101 |   |
| Securities purchased under agreement to resell less than 90 days          |   | 496              |   | 524             |   | 496 |   | 522 |   |
| Bills receivable and remittances in transit                               |   | 436              |   | 1,179           |   | 436 |   | 1,179 |   |
|                                                                      |   | 1,850            |   | 2,739           |   | 1,765 |   | 2,696 |   |
| **Overseas**                                                              |   |             |   |            |   |   |   |   |   |
| Coins, notes and cash at bankers                                          |   | 284              |   | 293             |   | 96 |   | 109 |   |
| Money at call                                                             |   | 511              |   | 548             |   | 10 |   | 1 |   |
| Other banks’ certificates of deposit                                 |   | 2,437            |   | 2,725           |   | 1,173 |   | 2,418 |   |
| Securities purchased under agreement to resell less than 90 days          |   | 374              |   | 12              |   | — |   | — |   |
| Bills receivable and remittances in transit                               |   | 1,136            |   | 1,093           |   | 872 |   | 770 |   |
|                                                                      |   | 4,742            |   | 4,671           |   | 2,151 |   | 3,298 |   |
| **Total liquid assets**                                                   |   | 6,592            |   | 7,410           |   | 3,916 |   | 5,994 |   |
| **Maturity analysis based on original term to maturity  at 30 September** |   |             |   |            |   |   |   |   |   |
| Less than 90 days                                                         |   | 5,509            |   | 4,821           |   | 2,834 |   | 3,432 |   |
| More than 90 days                                                         |   | 1,083            |   | 2,589           |   | 1,082 |   | 2,562 |   |
| **Total liquid assets**                                                   |   | 6,592            |   | 7,410           |   | 3,916 |   | 5,994 |   |

 

132

----

 

**10:  Due from OtherFinancial Institutions**

 
|                                                                       |   | **Consolidated** |   | **The Company** |   |
|----------------------------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                                       |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                                                                       |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   |
| Australia                                                                  |   | 646              |   | 706             |   | 638 |   | 695 |   |
| Overseas                                                                   |   | 1,781            |   | 3,109           |   | 1,505 |   | 1,954 |   |
| **Total due from other financial institutions**                            |   | 2,427            |   | 3,815           |   | 2,143 |   | 2,649 |   |
| **Maturity analysis based on remaining term to maturity  at 30 September** |   |             |   |            |   |   |   |   |   |
| Overdraft                                                                  |   | 638              |   | 275             |   | 636 |   | 272 |   |
| Less than 3 months                                                         |   | 1,283            |   | 2,805           |   | 1,051 |   | 1,657 |   |
| Between 3 months and 12 months                                             |   | 351              |   | 597             |   | 309 |   | 586 |   |
| Between 1 year and 5 years                                                 |   | 84               |   | 118             |   | 83 |   | 116 |   |
| After 5 years                                                              |   | 71               |   | 20              |   | 64 |   | 18 |   |
|                                                                       |   | 2,427            |   | 3,815           |   | 2,143 |   | 2,649 |   |

 

**11:  Trading Securities**

 

**Tradingsecurities are allocated between Australia and Overseas based on the domicileof the issuer**

 
|                                   |   | **Consolidated** |   | **The Company** |   |
|----------------------------------------|--------|------------------|--------|-----------------|--------|
|                                   |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                                   |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   |
| **Listed – Overseas**             |   |             |   |            |   |   |   |   |   |
| Equity securities                      |   | —           |   | 289             |   | — |   | — |   |
| Total listed                           |   | —           |   | 289             |   | — |   | — |   |
|                                   |   |             |   |            |   |   |   |   |   |
| **Unlisted – Australia**          |   |             |   |            |   |   |   |   |   |
| Commonwealth securities                |   | 475              |   | 977             |   | 475 |   | 977 |   |
| Local and semi-government securities   |   | 1,230            |   | 1,692           |   | 1,230 |   | 1,692 |   |
| ANZ accepted bills                     |   | 820              |   | 1,453           |   | 820 |   | 1,453 |   |
| Other securities and equity securities |   | 1,142            |   | 1,096           |   | 1,109 |   | 1,096 |   |
|                                   |   | 3,667            |   | 5,218           |   | 3,634 |   | 5,218 |   |
| **Unlisted – Overseas**           |   |             |   |            |   |   |   |   |   |
| Other government securities            |   | 395              |   | 300             |   | 2 |   | 1 |   |
| Other securities and equity securities |   | 151              |   | 66              |   | — |   | — |   |
|                                   |   | 546              |   | 366             |   | 2 |   | 1 |   |
| Total unlisted                         |   | 4,213            |   | 5,584           |   | 3,636 |   | 5,219 |   |
| **Total trading securities**           |   | 4,213            |   | 5,873           |   | 3,636 |   | 5,219 |   |

 

133

----

 

**12:  Investment Securities**

 
|                                                                                                        |   | **Consolidated** |   | **The Company** |   |
|-------------------------------------------------------------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                                                                        |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                                                                                                        |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   |
| **Investment securities are allocated between Australia  and Overseas based on the domicile of the issuer** |   |             |   |            |   |   |   |   |   |
|                                                                                                        |   |             |   |            |   |   |   |   |   |
| **Listed – Australia**                                                                                 |   |             |   |            |   |   |   |   |   |
| Other securities and equity investments                                                                     |   | 4                |   | 23              |   | — |   | 18 |   |
|                                                                                                        |   | 4                |   | 23              |   | — |   | 18 |   |
| **Listed – Overseas**                                                                                  |   |             |   |            |   |   |   |   |   |
| Other government securities                                                                                 |   | 546              |   | 63              |   | 546 |   | 63 |   |
| Other securities and equity investments                                                                     |   | 633              |   | —          |   | 633 |   | — |   |
|                                                                                                        |   | 1,179            |   | 63              |   | 1,179 |   | 63 |   |
| Total listed                                                                                                |   | 1,183            |   | 86              |   | 1,179 |   | 81 |   |
| **Unlisted – Australia**                                                                               |   |             |   |            |   |   |   |   |   |
| Local and semi-government securities                                                                        |   | 1,362            |   | 756             |   | 1,362 |   | 756 |   |
| Other securities and equity investments                                                                     |   | 250              |   | 252             |   | 157 |   | 252 |   |
|                                                                                                        |   | 1,612            |   | 1,008           |   | 1,519 |   | 1,008 |   |
| **Unlisted – Overseas**                                                                                |   |             |   |            |   |   |   |   |   |
| New Zealand government securities                                                                           |   | 399              |   | 488             |   | — |   | — |   |
| US government securities                                                                                    |   | 907              |   | 1,322           |   | 907 |   | 1,322 |   |
| Other government securities                                                                                 |   | 237              |   | 169             |   | 131 |   | 149 |   |
| Other securities and equity investments                                                                     |   | 429              |   | 536             |   | 102 |   | 33 |   |
|                                                                                                        |   | 1,972            |   | 2,515           |   | 1,140 |   | 1,504 |   |
| Total unlisted                                                                                              |   | 3,584            |   | 3,523           |   | 2,659 |   | 2,512 |   |
| **Total investment securities**                                                                             |   | 4,767            |   | 3,609           |   | 3,838 |   | 2,593 |   |
|                                                                                                        |   |             |   |            |   |   |   |   |   |
| **Market value information**                                                                                |   |             |   |            |   |   |   |   |   |
|                                                                                                        |   |             |   |            |   |   |   |   |   |
| **Listed – Australia**                                                                                 |   |             |   |            |   |   |   |   |   |
| Other securities and equity investments                                                                     |   | 2                |   | 20              |   | — |   | 15 |   |
|                                                                                                        |   | 2                |   | 20              |   | — |   | 15 |   |
| **Listed – Overseas**                                                                                  |   |             |   |            |   |   |   |   |   |
| Other government securities                                                                                 |   | 548              |   | 63              |   | 548 |   | 63 |   |
| Other securities and equity investments                                                                     |   | 632              |   | —          |   | 632 |   | — |   |
|                                                                                                        |   | 1,180            |   | 63              |   | 1,180 |   | 63 |   |
| Total market value of listed investment securities                                                          |   | 1,182            |   | 83              |   | 1,180 |   | 78 |   |
| **Unlisted – Australia**                                                                               |   |             |   |            |   |   |   |   |   |
| Local and semi-government securities                                                                        |   | 1,362            |   | 756             |   | 1,362 |   | 756 |   |
| Other securities and equity investments                                                                     |   | 251              |   | 252             |   | 157 |   | 252 |   |
|                                                                                                        |   | 1,613            |   | 1,008           |   | 1,519 |   | 1,008 |   |
| **Unlisted – Overseas**                                                                                |   |             |   |            |   |   |   |   |   |
| New Zealand government securities                                                                           |   | 399              |   | 488             |   | — |   | — |   |
| US government securities                                                                                    |   | 905              |   | 1,322           |   | 905 |   | 1,322 |   |
| Other government securities                                                                                 |   | 238              |   | 169             |   | 132 |   | 149 |   |
| Other securities and equity investments                                                                     |   | 429              |   | 541             |   | 102 |   | 28 |   |
|                                                                                                        |   | 1,971            |   | 2,520           |   | 1,139 |   | 1,499 |   |
| Total market value of unlisted investment securities                                                        |   | 3,584            |   | 3,528           |   | 2,658 |   | 2,507 |   |
| **Total market value of investment securities**                                                             |   | 4,766            |   | 3,611           |   | 3,838 |   | 2,585 |   |

 

134

----

 

**InvestmentSecurities by Maturities and Yields**

Based on remaining term tomaturity at 30 September 2003

 
| **At book  value**                      |   | **Less than  3 months** |   | **Between 3  months and  12 months** |   | **Between  1 year and  5 years** |   | **Between  5 years and  10 years** |   | **After  10 years** |   | **No  maturity  specified** |   | **Total** |   | **Market  Value** |   |
|-----------------------------------------|--------|-------------------------|--------|--------------------------------------|--------|----------------------------------|--------|------------------------------------|--------|---------------------|--------|-----------------------------|--------|-----------|--------|-------------------|--------|
|                                    |   | **$m**                  |   | **$m**                               |   | **$m**                           |   | **$m**                             |   | **$m**              |   | **$m**                      |   | **$m**    |   | **$m**            |   |
| **Australia**                           |   |                    |   |                                 |   |                             |   |                               |   |                |   |                        |   |      |   |              |   |
| Local and semi-government securities    |   | 1,002                   |   | 360                                  |   | —                           |   | —                             |   | —              |   | —                      |   | 1,362     |   | 1,362             |   |
| Other securities and equity investments |   | 95                      |   | 60                                   |   | 68                               |   | —                             |   | —              |   | 31                          |   | 254       |   | 253               |   |
|                                    |   | 1,097                   |   | 420                                  |   | 68                               |   | —                             |   | —              |   | 31                          |   | 1,616     |   | 1,615             |   |
| **Overseas**                            |   |                    |   |                                 |   |                             |   |                               |   |                |   |                        |   |      |   |              |   |
| New Zealand government securities       |   | 291                     |   | 108                                  |   | —                           |   | —                             |   | —              |   | —                      |   | 399       |   | 399               |   |
| US government securities                |   | 258                     |   | 330                                  |   | 319                              |   | —                             |   | —              |   | —                      |   | 907       |   | 905               |   |
| Other government securities             |   | 220                     |   | 363                                  |   | 200                              |   | —                             |   | —              |   | —                      |   | 783       |   | 786               |   |
| Other securities and equity investments |   | 573                     |   | 173                                  |   | 316                              |   | —                             |   | —              |   | —                      |   | 1,062     |   | 1,061             |   |
|                                    |   | 1,342                   |   | 974                                  |   | 835                              |   | —                             |   | —              |   | —                      |   | 3,151     |   | 3,151             |   |
| Total book value                        |   | 2,439                   |   | 1,394                                |   | 903                              |   | —                             |   | —              |   | 31                          |   | 4,767     |   | n/a               |   |
| **Total market value**                  |   | 2,439                   |   | 1,393                                |   | 903                              |   | —                             |   | —              |   | 31                          |   | n/a       |   | 4,766             |   |

 

**Weightedaverage yields(1)**

 
|                                    |   | **Less than  1 year** |   | **Between  1 year and  5 years** |   | **Between  5 years and  10 years** |   | **After  10 years** |   |
|-----------------------------------------|--------|-----------------------|--------|----------------------------------|--------|------------------------------------|--------|---------------------|--------|
|                                    |   | **%**                 |   | **%**                            |   | **%**                              |   | **%**               |   |
| **Australia**                           |   |                  |   |                             |   |                               |   |                |   |
| Local and semi-government securities    |   | 4.70                  |   | —                           |   | —                             |   | —              |   |
| Other securities and equity investments |   | 4.94                  |   | 4.95                             |   | —                             |   | —              |   |
| **Overseas**                            |   |                  |   |                             |   |                               |   |                |   |
| New Zealand government securities       |   | 4.99                  |   | —                           |   | —                             |   | —              |   |
| US government securities                |   | 3.25                  |   | 2.23                             |   | —                             |   | —              |   |
| Other government securities             |   | 7.74                  |   | 6.25                             |   | —                             |   | —              |   |
| Other securities and equity investments |   | 2.59                  |   | 1.61                             |   | —                             |   | —              |   |

 

----

(1)   Based on effective yields for fixed interestand discounted securities and dividend yield for equity investments at 30 September 2003

 

135

----

 

**InvestmentSecurities by Maturities and Yields**

Based on remaining term tomaturity at 30 September 2002

 
| **At book  value**                      |   | **Less than  3 months** |   | **Between 3  months and  12 months** |   | **Between  1 year and  5 years** |   | **Between  5 years and  10 years** |   | **After  10 years** |   | **No  maturity  specified** |   | **Total** |   | **Market  Value** |   |
|-----------------------------------------|--------|-------------------------|--------|--------------------------------------|--------|----------------------------------|--------|------------------------------------|--------|---------------------|--------|-----------------------------|--------|-----------|--------|-------------------|--------|
|                                    |   | **$m**                  |   | **$m**                               |   | **$m**                           |   | **$m**                             |   | **$m**              |   | **$m**                      |   | **$m**    |   | **$m**            |   |
| **Australia**                           |   |                    |   |                                 |   |                             |   |                               |   |                |   |                        |   |      |   |              |   |
| Local and semi-government securities    |   | 644                     |   | 50                                   |   | 62                               |   | —                             |   | —              |   | —                      |   | 756       |   | 756               |   |
| Other securities and equity investments |   | 85                      |   | —                               |   | 135                              |   | —                             |   | —              |   | 55                          |   | 275       |   | 275               |   |
|                                    |   | 729                     |   | 50                                   |   | 197                              |   | —                             |   | —              |   | 55                          |   | 1,031     |   | 1,031             |   |
| **Overseas**                            |   |                    |   |                                 |   |                             |   |                               |   |                |   |                        |   |      |   |              |   |
| New Zealand government securities       |   | 164                     |   | 324                                  |   | —                           |   | —                             |   | —              |   | —                      |   | 488       |   | 488               |   |
| US government securities                |   | 100                     |   | —                               |   | 1,222                            |   | —                             |   | —              |   | —                      |   | 1,322     |   | 1,322             |   |
| Other government securities             |   | 126                     |   | 68                                   |   | 38                               |   | —                             |   | —              |   | —                      |   | 232       |   | 232               |   |
| Other securities and equity investments |   | 93                      |   | 21                                   |   | 414                              |   | 1                                  |   | —              |   | 7                           |   | 536       |   | 538               |   |
|                                    |   | 483                     |   | 413                                  |   | 1,674                            |   | 1                                  |   | —              |   | 7                           |   | 2,578     |   | 2,580             |   |
| Total book value                        |   | 1,212                   |   | 463                                  |   | 1,871                            |   | 1                                  |   | —              |   | 62                          |   | 3,609     |   | n/a               |   |
| Total market value                      |   | 1,212                   |   | 464                                  |   | 1,872                            |   | 1                                  |   | —              |   | 62                          |   | n/a       |   | 3,611             |   |

 

**Weighted average yields(1)**

 
|                                    |   | **Less than  1 year** |   | **Between  1 year and  5 years** |   | **Between  5 years and  10 years** |   | **After  10 years** |   |
|-----------------------------------------|--------|-----------------------|--------|----------------------------------|--------|------------------------------------|--------|---------------------|--------|
|                                    |   | **%**                 |   | **%**                            |   | **%**                              |   | **%**               |   |
| **Australia**                           |   |                  |   |                             |   |                               |   |                |   |
| Local and semi-government securities    |   | 5.03                  |   | 6.34                             |   | —                             |   | —              |   |
| Other securities and equity investments |   | 5.22                  |   | 5.05                             |   | —                             |   | —              |   |
| **Overseas**                            |   |                  |   |                             |   |                               |   |                |   |
| New Zealand government securities       |   | 5.89                  |   | —                           |   | —                             |   | —              |   |
| US government securities                |   | 2.19                  |   | 3.88                             |   | —                             |   | —              |   |
| Other government securities             |   | 7.79                  |   | 5.01                             |   | —                             |   | —              |   |
| Other securities and equity investments |   | 3.96                  |   | 2.11                             |   | 8.00                               |   | —              |   |

 

----

(1)   Based on effective yields for fixed interestand discounted securities and dividend yield for equity investments at 30 September 2002

 

136

----

 

**13:  Net Loans and Advances**

 

Loans and advances areclassified between Australia, New Zealand and Overseas markets based on thedomicile of the lending point.

 
|                                                  |   | **Consolidated** |   | **The Company** |   |
|-------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                  |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                                                  |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   |
| **Australia**                                         |   |             |   |            |   |   |   |   |   |
| Overdrafts                                            |   | 3,915            |   | 3,151           |   | 3,915 |   | 3,151 |   |
| Credit card outstandings                              |   | 4,265            |   | 3,888           |   | 4,265 |   | 3,888 |   |
| Term loans – housing                             |   | 62,482           |   | 52,381          |   | 62,482 |   | 52,381 |   |
| Term loans – non-housing                         |   | 41,133           |   | 34,212          |   | 35,804 |   | 28,688 |   |
| Lease finance (refer below)                           |   | 2,613            |   | 2,503           |   | 1,020 |   | 878 |   |
| Hire purchase                                         |   | 6,127            |   | 5,411           |   | 398 |   | 331 |   |
| Other                                                 |   | 785              |   | 992             |   | 760 |   | 974 |   |
|                                                  |   | 121,320          |   | 102,538         |   | 108,644 |   | 90,291 |   |
| **New Zealand**                                       |   |             |   |            |   |   |   |   |   |
| Overdrafts                                            |   | 611              |   | 619             |   | — |   | — |   |
| Credit card outstandings                              |   | 491              |   | 462             |   | — |   | — |   |
| Term loans – housing                             |   | 10,551           |   | 9,796           |   | — |   | — |   |
| Term loans – non-housing                         |   | 7,425            |   | 6,460           |   | — |   | — |   |
| Lease finance (refer below)                           |   | 370              |   | 375             |   | — |   | — |   |
| Hire purchase                                         |   | 496              |   | 477             |   | — |   | — |   |
| Other                                                 |   | 985              |   | 908             |   | — |   | — |   |
|                                                  |   | 20,929           |   | 19,097          |   | — |   | — |   |
| **Overseas markets**                                  |   |             |   |            |   |   |   |   |   |
| Overdrafts                                            |   | 740              |   | 860             |   | 579 |   | 722 |   |
| Credit card outstandings                              |   | 134              |   | 108             |   | 21 |   | 26 |   |
| Term loans – housing                             |   | 361              |   | 323             |   | 266 |   | 239 |   |
| Term loans – non-housing                         |   | 8,984            |   | 11,938          |   | 7,437 |   | 9,983 |   |
| Lease finance (refer below)                           |   | 239              |   | 469             |   | 216 |   | 449 |   |
| Commercial bills                                      |   | 78               |   | 7               |   | 78 |   | 7 |   |
| Other                                                 |   | 2                |   | 9               |   | 2 |   | 3 |   |
|                                                  |   | 10,538           |   | 13,714          |   | 8,599 |   | 11,429 |   |
| Total gross loans and advances                        |   | 152,787          |   | 135,349         |   | 117,243 |   | 101,720 |   |
| Provisions for doubtful debts (refer note 15)         |   | (2,018           | )      | (2,081          | )      | (1,712 | ) | (1,819 | ) |
| Income yet to mature                                  |   | (1,304           | )      | (1,208          | )      | (1 | ) | (1 | ) |
|                                                  |   | (3,322           | )      | (3,289          | )      | (1,713 | ) | (1,820 | ) |
| **Total net loans and advances**                      |   | 149,465          |   | 132,060         |   | 115,530 |   | 99,900 |   |
| **Lease finance consists of gross lease receivables** |   |             |   |            |   |   |   |   |   |
| Current                                               |   | 615              |   | 741             |   | 124 |   | 103 |   |
| Non-current                                           |   | 2,607            |   | 2,606           |   | 1,112 |   | 1,224 |   |
|                                                  |   | 3,222            |   | 3,347           |   | 1,236 |   | 1,327 |   |

 

137

----

 

**MaturityDistribution and Concentrations of Credit Risk**

Based on remaining term tomaturity at 30 September 2003

 
|                                                                  |   | **Overdraft(1)** |   | **Less than  3 months** |   | **Between  3 months and  12 months** |   | **Between  1 year and  5 years** |   | **After  5 years** |   | **Total** |   |
|-----------------------------------------------------------------------|--------|------------------|--------|-------------------------|--------|--------------------------------------|--------|----------------------------------|--------|--------------------|--------|-----------|--------|
|                                                                  |   | **$m**           |   | **$m**                  |   | **$m**                               |   | **$m**                           |   | **$m**             |   | **$m**    |   |
| **Australia**                                                         |   |             |   |                    |   |                                 |   |                             |   |               |   |      |   |
| Agriculture, forestry, fishing and mining                             |   | 505              |   | 417                     |   | 655                                  |   | 1,001                            |   | 1,251              |   | 3,829     |   |
| Business service                                                      |   | 243              |   | 261                     |   | 313                                  |   | 869                              |   | 946                |   | 2,632     |   |
| Entertainment, leisure and tourism                                    |   | 100              |   | 588                     |   | 199                                  |   | 805                              |   | 940                |   | 2,632     |   |
| Financial, investment and insurance                                   |   | 1,355            |   | 705                     |   | 897                                  |   | 1,733                            |   | 276                |   | 4,966     |   |
| Government and official institutions                                  |   | 2                |   | —                  |   | 2                                    |   | 20                               |   | 27                 |   | 51        |   |
| Lease finance                                                         |   | —           |   | 113                     |   | 289                                  |   | 1,701                            |   | 510                |   | 2,613     |   |
| Manufacturing                                                         |   | 345              |   | 2,068                   |   | 479                                  |   | 1,125                            |   | 1,349              |   | 5,366     |   |
| Personal(2)                                                           |   | 4,491            |   | 5,322                   |   | 210                                  |   | 5,046                            |   | 579                |   | 15,648    |   |
| Real estate – construction                                       |   | 223              |   | 66                      |   | 114                                  |   | 821                              |   | 543                |   | 1,767     |   |
| Real estate – mortgage(3)                                        |   | 125              |   | 1,990                   |   | 1,811                                |   | 9,871                            |   | 55,863             |   | 69,660    |   |
| Retail and wholesale trade                                            |   | 621              |   | 2,086                   |   | 620                                  |   | 1,241                            |   | 2,253              |   | 6,821     |   |
| Other                                                                 |   | 170              |   | 2,284                   |   | 647                                  |   | 1,065                            |   | 1,169              |   | 5,335     |   |
| **New Zealand**                                                       |   |             |   |                    |   |                                 |   |                             |   |               |   |      |   |
| Agriculture, forestry, fishing and mining                             |   | 85               |   | 30                      |   | 229                                  |   | 588                              |   | 679                |   | 1,611     |   |
| Business service                                                      |   | 7                |   | 1                       |   | —                               |   | 35                               |   | 96                 |   | 139       |   |
| Entertainment, leisure and tourism                                    |   | 23               |   | 3                       |   | 7                                    |   | 71                               |   | 332                |   | 436       |   |
| Financial, investment and insurance                                   |   | 61               |   | 5                       |   | 462                                  |   | 564                              |   | 75                 |   | 1,167     |   |
| Government and official institutions                                  |   | 7                |   | 2                       |   | 6                                    |   | 62                               |   | 70                 |   | 147       |   |
| Lease finance                                                         |   | 25               |   | 28                      |   | 79                                   |   | 236                              |   | 2                  |   | 370       |   |
| Manufacturing                                                         |   | 58               |   | 27                      |   | 185                                  |   | 493                              |   | 440                |   | 1,203     |   |
| Personal(2)                                                           |   | 43               |   | 171                     |   | 202                                  |   | 375                              |   | 39                 |   | 830       |   |
| Real estate – construction                                       |   | 16               |   | 27                      |   | 56                                   |   | 153                              |   | 56                 |   | 308       |   |
| Real estate – mortgage(3)                                        |   | 629              |   | 1                       |   | 660                                  |   | 464                              |   | 10,198             |   | 11,952    |   |
| Retail and wholesale trade                                            |   | 51               |   | 10                      |   | 100                                  |   | 385                              |   | 428                |   | 974       |   |
| Other                                                                 |   | 97               |   | 61                      |   | 137                                  |   | 712                              |   | 785                |   | 1,792     |   |
| **Overseas Markets**                                                  |   |             |   |                    |   |                                 |   |                             |   |               |   |      |   |
| Agriculture, forestry, fishing and mining                             |   | 17               |   | 111                     |   | 252                                  |   | 534                              |   | 231                |   | 1,145     |   |
| Business service                                                      |   | 14               |   | 6                       |   | 15                                   |   | 146                              |   | 3                  |   | 184       |   |
| Entertainment, leisure and tourism                                    |   | 6                |   | 16                      |   | 17                                   |   | 32                               |   | 27                 |   | 98        |   |
| Financial, investment and insurance                                   |   | 5                |   | 78                      |   | 23                                   |   | 137                              |   | 106                |   | 349       |   |
| Government and official institutions                                  |   | 11               |   | 9                       |   | 16                                   |   | 81                               |   | 10                 |   | 127       |   |
| Lease finance                                                         |   | 73               |   | 4                       |   | 4                                    |   | 10                               |   | 148                |   | 239       |   |
| Manufacturing                                                         |   | 171              |   | 418                     |   | 394                                  |   | 1,089                            |   | 379                |   | 2,451     |   |
| Personal(2)                                                           |   | 10               |   | 177                     |   | 119                                  |   | 202                              |   | 433                |   | 941       |   |
| Real estate – construction                                       |   | 13               |   | 14                      |   | 8                                    |   | 125                              |   | 4                  |   | 164       |   |
| Real estate – mortgage(3)                                        |   | 49               |   | 16                      |   | 61                                   |   | 403                              |   | 298                |   | 807       |   |
| Retail and wholesale trade                                            |   | 263              |   | 259                     |   | 19                                   |   | 186                              |   | 40                 |   | 767       |   |
| Other                                                                 |   | 242              |   | 191                     |   | 195                                  |   | 1,269                            |   | 1,369              |   | 3,266     |   |
| Gross loans and advances                                              |   | 10,156           |   | 17,565                  |   | 9,482                                |   | 33,650                           |   | 81,934             |   | 152,787   |   |
| Specific provision for doubtful debts                                 |   | (484             | )      | —                  |   | —                               |   | —                           |   | —             |   | (484      | )      |
| Income yet to mature                                                  |   | (96              | )      | (287                    | )      | (256                                 | )      | (661                             | )      | (4                 | )      | (1,304    | )      |
|                                                                  |   | (580             | )      | (287                    | )      | (256                                 | )      | (661                             | )      | (4                 | )      | (1,788    | )      |
| Loans and advances net of specific provision and income yet to mature |   | 9,576            |   | 17,278                  |   | 9,226                                |   | 32,989                           |   | 81,930             |   | 150,999   |   |
| General provision                                                     |   | —           |   | —                  |   | —                               |   | —                           |   | (1,534             | )      | (1,534    | )      |
| Net loans and advances                                                |   | 9,576            |   | 17,278                  |   | 9,226                                |   | 32,989                           |   | 80,396             |   | 149,465   |   |
| **Interest rate sensitivity**                                         |   |             |   |                    |   |                                 |   |                             |   |               |   |      |   |
| Fixed interest rates(4)                                               |   | 372              |   | 8,572                   |   | 4,732                                |   | 22,739                           |   | 19,826             |   | 56,241    |   |
| Variable interest rates                                               |   | 9,784            |   | 8,993                   |   | 4,750                                |   | 10,911                           |   | 62,108             |   | 96,546    |   |
|                                                                  |   | 10,156           |   | 17,565                  |   | 9,482                                |   | 33,650                           |   | 81,934             |   | 152,787   |   |

 

----

(1)   Overdraft includes credit cards and unsecuredlending

(2)   Personal includes non-businessloans to individuals through overdrafts, personal loans, credit cards and fullydrawn advances

(3)   Real estate-mortgage includesresidential and commercial property exposure. Loans within this category arefor the purchase of such properties and must be secured by property

(4)   Housing loans and other loans that are cappedfor an initial period are fixed interest rate loans and their maturities basedon the principal repayments due over the term of the loan

 

138

----

 

**MaturityDistribution and Concentrations of Credit Risk**

Based on remaining term tomaturity at 30 September 2002

 
|                                                                  |   | **Overdraft(1)** |   | **Less than  3 months** |   | **Between  3 months and  12 months** |   | **Between  1 year and  5 years** |   | **After  5 years** |   | **Total** |   |
|-----------------------------------------------------------------------|--------|------------------|--------|-------------------------|--------|--------------------------------------|--------|----------------------------------|--------|--------------------|--------|-----------|--------|
|                                                                  |   | **$m**           |   | **$m**                  |   | **$m**                               |   | **$m**                           |   | **$m**             |   | **$m**    |   |
| **Australia**                                                         |   |             |   |                    |   |                                 |   |                             |   |               |   |      |   |
| Agriculture, forestry, fishing and mining                             |   | 398              |   | 891                     |   | 433                                  |   | 575                              |   | 1,139              |   | 3,436     |   |
| Business service                                                      |   | 278              |   | 215                     |   | 396                                  |   | 481                              |   | 750                |   | 2,120     |   |
| Entertainment, leisure and tourism                                    |   | 98               |   | 175                     |   | 442                                  |   | 893                              |   | 857                |   | 2,465     |   |
| Financial, investment and insurance                                   |   | 1,467            |   | 67                      |   | 818                                  |   | 2,016                            |   | 235                |   | 4,603     |   |
| Government and official institutions                                  |   | 3                |   | —                  |   | 3                                    |   | 22                               |   | 39                 |   | 67        |   |
| Lease finance                                                         |   | —           |   | 93                      |   | 319                                  |   | 1,570                            |   | 521                |   | 2,503     |   |
| Manufacturing                                                         |   | 381              |   | 1,483                   |   | 710                                  |   | 1,011                            |   | 718                |   | 4,303     |   |
| Personal(2)                                                           |   | 3,131            |   | 4,208                   |   | 270                                  |   | 6,723                            |   | 561                |   | 14,893    |   |
| Real estate – construction                                       |   | 235              |   | 29                      |   | 91                                   |   | 347                              |   | 450                |   | 1,152     |   |
| Real estate – mortgage(3)                                        |   | 116              |   | 969                     |   | 1,407                                |   | 9,130                            |   | 45,427             |   | 57,049    |   |
| Retail and wholesale trade                                            |   | 756              |   | 1,748                   |   | 915                                  |   | 752                              |   | 1,786              |   | 5,957     |   |
| Other                                                                 |   | 178              |   | 1,443                   |   | 635                                  |   | 723                              |   | 1,011              |   | 3,990     |   |
| **New Zealand**                                                       |   |             |   |                    |   |                                 |   |                             |   |               |   |      |   |
| Agriculture, forestry, fishing and mining                             |   | 54               |   | 124                     |   | 91                                   |   | 269                              |   | 436                |   | 974       |   |
| Business service                                                      |   | 15               |   | 40                      |   | 31                                   |   | 109                              |   | 64                 |   | 259       |   |
| Entertainment, leisure and tourism                                    |   | 26               |   | 20                      |   | 17                                   |   | 342                              |   | 59                 |   | 464       |   |
| Financial, investment and insurance                                   |   | 59               |   | 69                      |   | 46                                   |   | 863                              |   | 5                  |   | 1,042     |   |
| Government and official institutions                                  |   | 7                |   | 11                      |   | 6                                    |   | 60                               |   | 37                 |   | 121       |   |
| Lease finance                                                         |   | 22               |   | 62                      |   | 57                                   |   | 102                              |   | 132                |   | 375       |   |
| Manufacturing                                                         |   | 91               |   | 134                     |   | 450                                  |   | 688                              |   | 252                |   | 1,615     |   |
| Personal(2)                                                           |   | 41               |   | 173                     |   | 137                                  |   | 296                              |   | 74                 |   | 721       |   |
| Real estate – construction                                       |   | 13               |   | 55                      |   | 39                                   |   | 77                               |   | 52                 |   | 236       |   |
| Real estate – mortgage(3)                                        |   | 619              |   | 297                     |   | 275                                  |   | 1,050                            |   | 8,704              |   | 10,945    |   |
| Retail and wholesale trade                                            |   | 54               |   | 57                      |   | 108                                  |   | 547                              |   | 184                |   | 950       |   |
| Other                                                                 |   | 79               |   | 205                     |   | 160                                  |   | 786                              |   | 166                |   | 1,396     |   |
| **Overseas Markets**                                                  |   |             |   |                    |   |                                 |   |                             |   |               |   |      |   |
| Agriculture, forestry, fishing and mining                             |   | 18               |   | 135                     |   | 141                                  |   | 714                              |   | 544                |   | 1,552     |   |
| Business service                                                      |   | 11               |   | 10                      |   | 29                                   |   | 121                              |   | 5                  |   | 176       |   |
| Entertainment, leisure and tourism                                    |   | 5                |   | 10                      |   | 6                                    |   | 75                               |   | 26                 |   | 122       |   |
| Financial, investment and insurance                                   |   | 7                |   | 26                      |   | 56                                   |   | 223                              |   | 207                |   | 519       |   |
| Government and official institutions                                  |   | 18               |   | —                  |   | 12                                   |   | 52                               |   | 9                  |   | 91        |   |
| Lease finance                                                         |   | —           |   | 188                     |   | —                               |   | 188                              |   | 93                 |   | 469       |   |
| Manufacturing                                                         |   | 211              |   | 549                     |   | 711                                  |   | 910                              |   | 705                |   | 3,086     |   |
| Personal(2)                                                           |   | 14               |   | 84                      |   | 50                                   |   | 400                              |   | 579                |   | 1,127     |   |
| Real estate – construction                                       |   | 18               |   | 102                     |   | 27                                   |   | 123                              |   | 45                 |   | 315       |   |
| Real estate – mortgage(3)                                        |   | 41               |   | 7                       |   | 341                                  |   | 360                              |   | 262                |   | 1,011     |   |
| Retail and wholesale trade                                            |   | 295              |   | 166                     |   | 24                                   |   | 200                              |   | 13                 |   | 698       |   |
| Other                                                                 |   | 329              |   | 439                     |   | 433                                  |   | 1,778                            |   | 1,568              |   | 4,547     |   |
| Gross loans and advances                                              |   | 9,088            |   | 14,284                  |   | 9,686                                |   | 34,576                           |   | 67,715             |   | 135,349   |   |
| Specific provision for doubtful debts                                 |   | (585             | )      | —                  |   | —                               |   | —                           |   | —             |   | (585      | )      |
| Income yet to mature                                                  |   | —           |   | (286                    | )      | (272                                 | )      | (642                             | )      | (8                 | )      | (1,208    | )      |
|                                                                  |   | (585             | )      | (286                    | )      | (272                                 | )      | (642                             | )      | (8                 | )      | (1,793    | )      |
| Loans and advances net of specific provision and income yet to mature |   | 8,503            |   | 13,998                  |   | 9,414                                |   | 33,934                           |   | 67,707             |   | 133,556   |   |
| General provision                                                     |   | —           |   | —                  |   | —                               |   | —                           |   | (1,496             | )      | (1,496    | )      |
| Net loans and advances                                                |   | 8,503            |   | 13,998                  |   | 9,414                                |   | 33,934                           |   | 66,211             |   | 132,060   |   |
| **Interest rate sensitivity**                                         |   |             |   |                    |   |                                 |   |                             |   |               |   |      |   |
| Fixed interest rates(4)                                               |   | 938              |   | 8,519                   |   | 6,434                                |   | 21,481                           |   | 15,552             |   | 52,924    |   |
| Variable interest rates                                               |   | 8,150            |   | 5,765                   |   | 3,252                                |   | 13,095                           |   | 52,163             |   | 82,425    |   |
|                                                                  |   | 9,088            |   | 14,284                  |   | 9,686                                |   | 34,576                           |   | 67,715             |   | 135,349   |   |

 

----

(1)   Overdraft includes credit cards and unsecured lending

(2)   Personal includes non-business loans to individuals through overdrafts, personalloans, credit cards and fully drawn advances

(3)   Real estate mortgage includes residential andcommercial property exposure. Loans within this category are for the purchaseof such properties and must be secured by property

(4)   Housing loans and other loans that are capped for an initial period are fixedinterest rate loans and their maturities based on the principal repayments dueover the term of the loan

 

139

----

 

**14:  Impaired Assets**

 
|                                                                                                                                                                 |   | **Consolidated** |   | **The Company** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                                                                                                                                 |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                                                                                                                                                                 |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   |
| **Summary of impaired assets**                                                                                                                                       |   |             |   |            |   |   |   |   |   |
| Non-accrual loans                                                                                                                                                    |   | 1,007            |   | 1,203           |   | 865 |   | 1,006 |   |
| Restructured loans                                                                                                                                                   |   | —           |   | 1               |   | — |   | 1 |   |
| Unproductive facilities                                                                                                                                              |   | 39               |   | 54              |   | 38 |   | 52 |   |
| **Gross impaired assets**                                                                                                                                            |   | 1,046            |   | 1,258           |   | 903 |   | 1,059 |   |
| Specific provisions                                                                                                                                                  |   |             |   |            |   |   |   |   |   |
| Non-accrual loans                                                                                                                                                    |   | (482             | )      | (575            | )      | (427 | ) | (500 | ) |
| Unproductive facilities                                                                                                                                              |   | (2               | )      | (10             | )      | (2 | ) | (9 | ) |
| Net impaired assets                                                                                                                                                  |   | 562              |   | 673             |   | 474 |   | 550 |   |
| **Non-accrual loans**                                                                                                                                                |   |             |   |            |   |   |   |   |   |
| Non-accrual loans                                                                                                                                                    |   | 1,007            |   | 1,203           |   | 865 |   | 1,006 |   |
| Specific provisions                                                                                                                                                  |   | (482             | )      | (575            | )      | (427 | ) | (500 | ) |
| Total net non-accrual loans                                                                                                                                          |   | 525              |   | 628             |   | 438 |   | 506 |   |
| **Restructured loans**                                                                                                                                               |   |             |   |            |   |   |   |   |   |
| For these loans interest and fees are recognised as income on an  accrual basis                                                                                      |   | —           |   | 1               |   | — |   | 1 |   |
| **Other real estate owned**                                                                                                                                          |   |             |   |            |   |   |   |   |   |
| In the event of customer default, any loan security is held as  mortgagee in possession and therefore the Group does not hold any other real  estate owned assets    |   | —           |   | —          |   | — |   | — |   |
| **Unproductive facilities**                                                                                                                                          |   |             |   |            |   |   |   |   |   |
| Unproductive facilities                                                                                                                                              |   | 39               |   | 54              |   | 38 |   | 52 |   |
| Specific provisions                                                                                                                                                  |   | (2               | )      | (10             | )      | (2 | ) | (9 | ) |
| Net unproductive facilities                                                                                                                                          |   | 37               |   | 44              |   | 36 |   | 43 |   |
| **Accruing loans past due 90 days or more**                                                                                                                          |   |             |   |            |   |   |   |   |   |
| These amounts, comprising loans less than $100,000 or fully secured,  are not classified as impaired assets and therefore are not included within  the above summary |   | 213              |   | 216             |   | 163 |   | 153 |   |

 

Consolidated averagenon-accrual loans: September 2003 $1,103 million; September 2002$1,254 million; September 2001 $1,194 million.

 

Further analysis of impairedassets at 30 September 2003 and interest and/or other income receivedduring the year under Australian Prudential Regulation Authority guidelines isas follows:

 
|                                               |   | **Consolidated**                |   | **The Company**         |   |
|----------------------------------------------------|--------|---------------------------------|--------|-------------------------|--------|
|                                               |   | **Gross  balance  outstanding** |   | **Specific  provision** |   | **Interest and/or  other income  received** |   | **Gross  balance  outstanding** |   | **Specific  provision** |   | **Interest and/or  other income  received** |   |
|                                               |   | **$m**                          |   | **$m**                  |   | **$m** |   | **$m** |   | **$m** |   | **$m** |   |
| **Non-accrual loans**                              |   |                            |   |                    |   |   |   |   |   |   |   |   |   |
| Without provisions                                 |   |                            |   |                    |   |   |   |   |   |   |   |   |   |
| Australia                                          |   | 20                              |   | —                  |   | 5 |   | 19 |   | — |   | 5 |   |
| New Zealand                                        |   | 5                               |   | —                  |   | — |   | — |   | — |   | — |   |
| Overseas markets                                   |   | 69                              |   | —                  |   | 3 |   | 53 |   | — |   | 2 |   |
|                                               |   | 94                              |   | —                  |   | 8 |   | 72 |   | — |   | 7 |   |
| With provisions and no, or partial, performance(1) |   |                            |   |                    |   |   |   |   |   |   |   |   |   |
| Australia                                          |   | 499                             |   | 264                     |   | 5 |   | 439 |   | 246 |   | 4 |   |
| New Zealand                                        |   | 17                              |   | 9                       |   | 1 |   | — |   | — |   | — |   |
| Overseas markets                                   |   | 378                             |   | 207                     |   | 8 |   | 336 |   | 179 |   | 8 |   |
|                                               |   | 894                             |   | 480                     |   | 14 |   | 775 |   | 425 |   | 12 |   |
| With provisions and full performance(1)            |   |                            |   |                    |   |   |   |   |   |   |   |   |   |
| Australia                                          |   | 3                               |   | 2                       |   | — |   | 3 |   | 2 |   | — |   |
| New Zealand                                        |   | —                          |   | —                  |   | — |   | — |   | — |   | — |   |
| Overseas markets                                   |   | 16                              |   | —                  |   | 1 |   | 15 |   | — |   | 1 |   |
|                                               |   | 19                              |   | 2                       |   | 1 |   | 18 |   | 2 |   | 1 |   |
| **Total non-accrual loans**                        |   | 1,007                           |   | 482                     |   | 23 |   | 865 |   | 427 |   | 20 |   |
| **Restructured loans**                             |   | —                          |   | —                  |   | — |   | — |   | — |   | — |   |
| **Unproductive facilities**                        |   | 39                              |   | 2                       |   | — |   | 38 |   | 2 |   | — |   |
| **Total impaired assets**                          |   | 1,046                           |   | 484                     |   | 23 |   | 903 |   | 429 |   | 20 |   |

 

----

(1)   A loan’s performance is assessed against itscontractual repayment schedule

 

140

----

 

**Interest andother income forgone on impaired assets**

The following table shows theestimated amount of interest and other income that would have been recorded hadinterest and other income on non-accrual loans and unproductive facilities beenaccrued to income (or, in the case of restructured loans, had interest andother income been accrued at the original contract rate), and the amount ofinterest and other income received with respect to such loans.

 
|                                                                                                                   |   | **Consolidated** |   | **The Company** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                                                                                   |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                                                                                                                   |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   |
| **Gross interest and other income receivable on non-accrual  loans, restructured loans and unproductive facilities**   |   |             |   |            |   |   |   |   |   |
| Australia                                                                                                              |   | 36               |   | 50              |   | 28 |   | 42 |   |
| New Zealand                                                                                                            |   | 2                |   | 3               |   | — |   | — |   |
| Overseas markets                                                                                                       |   | 31               |   | 30              |   | 23 |   | 23 |   |
| Total gross interest and other income receivable on non-accrual loans,  restructured loans and unproductive facilities |   | 69               |   | 83              |   | 51 |   | 65 |   |
| **Interest and other income received**                                                                                 |   |             |   |            |   |   |   |   |   |
| Australia                                                                                                              |   | (10              | )      | (10             | )      | (9 | ) | (10 | ) |
| New Zealand                                                                                                            |   | (1               | )      | (3              | )      | — |   | — |   |
| Overseas markets                                                                                                       |   | (12              | )      | (16             | )      | (11 | ) | (12 | ) |
| Total interest and other income received                                                                               |   | (23              | )      | (29             | )      | (20 | ) | (22 | ) |
| **Net interest and other income forgone**                                                                              |   |             |   |            |   |   |   |   |   |
| Australia                                                                                                              |   | 26               |   | 40              |   | 19 |   | 32 |   |
| New Zealand                                                                                                            |   | 1                |   | —          |   | — |   | — |   |
| Overseas markets                                                                                                       |   | 19               |   | 14              |   | 12 |   | 11 |   |
| Total net interest and other income forgone                                                                            |   | 46               |   | 54              |   | 31 |   | 43 |   |

 

141

----

 

**15:  Provisions forDoubtful Debts**

 
|                                                                               |   | **Consolidated** |   | **The Company** |   |
|------------------------------------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                                               |   | **2003**         |   | **2002**        |   | **2001** |   | **2003** |   | **2002** |   |
|                                                                               |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   | **$m** |   |
| **General provision**                                                              |   |             |   |            |   |   |   |   |   |   |   |
| Balance at start of year                                                           |   | 1,496            |   | 1,386           |   | 1,373 |   | 1,310 |   | 1,283 |   |
| Adjustment for exchange rate fluctuations                                          |   | (49              | )      | (22             | )      | 2 |   | (70 | ) | (41 | ) |
| Charge to statement of financial performance                                       |   | 614              |   | 610             |   | 531 |   | 465 |   | 460 |   |
| Significant transactions: special charge to statement of financial  performance(1) |   | —           |   | 250             |   | — |   | — |   | 250 |   |
| Transfer to specific provision                                                     |   | (588             | )      | (788            | )      | (595 | ) | (460 | ) | (677 | ) |
| Recoveries                                                                         |   | 61               |   | 60              |   | 75 |   | 38 |   | 35 |   |
| Total general provision                                                            |   | 1,534            |   | 1,496           |   | 1,386 |   | 1,283 |   | 1,310 |   |
| **Specific provision**                                                             |   |             |   |            |   |   |   |   |   |   |   |
| Balance at start of year                                                           |   | 585              |   | 500             |   | 709 |   | 509 |   | 397 |   |
| Adjustment for exchange rate fluctuations                                          |   | (49              | )      | (6              | )      | 30 |   | (43 | ) | (6 | ) |
| Bad debts written off                                                              |   | (640             | )      | (697            | )      | (834 | ) | (497 | ) | (559 | ) |
| Transfer from general provision                                                    |   | 588              |   | 788             |   | 595 |   | 460 |   | 677 |   |
| Total specific provision                                                           |   | 484              |   | 585             |   | 500 |   | 429 |   | 509 |   |
| **Total provisions for doubtful debts**                                            |   | 2,018            |   | 2,081           |   | 1,886 |   | 1,712 |   | 1,819 |   |
| **Provision movement analysis**                                                    |   |             |   |            |   |   |   |   |   |   |   |
| **New and increased provisions**                                                   |   |             |   |            |   |   |   |   |   |   |   |
| Australia                                                                          |   | 418              |   | 423             |   | 562 |   | 360 |   | 348 |   |
| New Zealand                                                                        |   | 45               |   | 54              |   | 67 |   | — |   | — |   |
| Other overseas markets                                                             |   | 212              |   | 421             |   | 47 |   | 163 |   | 409 |   |
|                                                                               |   | 675              |   | 898             |   | 676 |   | 523 |   | 757 |   |
| Provision releases                                                                 |   | (87              | )      | (110            | )      | (81 | ) | (63 | ) | (81 | ) |
|                                                                               |   | 588              |   | 788             |   | 595 |   | 460 |   | 676 |   |
| Recoveries of amounts previously written off                                       |   | (61              | )      | (60             | )      | (75 | ) | (38 | ) | (35 | ) |
| **Net specific provision**                                                         |   | 527              |   | 728             |   | 520 |   | 422 |   | 641 |   |
| Net credit to general provision                                                    |   | 87               |   | 132             |   | 11 |   | 43 |   | 69 |   |
| **Charge to statement of financial performance**                                   |   | 614              |   | 860             |   | 531 |   | 465 |   | 710 |   |
| **Ratios**                                                                         |   | %                |   | %               |   | % |   | % |   | % |   |
| Provisions(2)as a % of total advances(3)                                           |   |             |   |            |   |   |   |   |   |   |   |
| Specific                                                                           |   | 0.3              |   | 0.4             |   | 0.4 |   | 0.3 |   | 0.4 |   |
| General                                                                            |   | 0.9              |   | 1.1             |   | 1.0 |   | 1.0 |   | 1.1 |   |
| Provisions(2)as a % of risk weighted assets                                        |   |             |   |            |   |   |   |   |   |   |   |
| Specific                                                                           |   | 0.3              |   | 0.4             |   | 0.4 |   | 0.4 |   | 0.5 |   |
| General                                                                            |   | 1.0              |   | 1.1             |   | 1.0 |   | 1.1 |   | 1.3 |   |
| Bad debts written off as a % of total advances(3)                                  |   | 0.4              |   | 0.5             |   | 0.6 |   | 0.4 |   | 0.5 |   |
| Net specific provision as a% of total advances(3)                                  |   | 0.3              |   | 0.5             |   | 0.4 |   | 0.3 |   | 0.5 |   |

 

----

(1)   Following an assessment of the generalprovision balance in March 2002, a special provision for doubtful debts of$250 million ($175 million after tax) was charged torestore the provision balance to an appropriate level in the environmentrelevant at that time of unexpected investment grade defaults

(2)   Excludes provisions for unproductive facilities

(3)   See definitions on page 218.

 

142

----

 

**16:  Customers’ Liabilitiesfor Acceptances**

 
|                                                  |   | **Consolidated** |   | **The Company** |   |
|-------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                  |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                                                  |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   |
| **Australia**                                         |   |             |   |            |   |   |   |   |   |
| Agriculture, forestry, fishing and mining             |   | 797              |   | 645             |   | 797 |   | 645 |   |
| Business service                                      |   | 550              |   | 464             |   | 550 |   | 464 |   |
| Entertainment, leisure and tourism                    |   | 473              |   | 474             |   | 473 |   | 474 |   |
| Financial, investment and insurance                   |   | 977              |   | 730             |   | 977 |   | 730 |   |
| Manufacturing                                         |   | 2,251            |   | 2,921           |   | 2,251 |   | 2,921 |   |
| Personal(1)                                           |   | 80               |   | 14              |   | 80 |   | 14 |   |
| Real estate – construction                       |   | 112              |   | 147             |   | 112 |   | 147 |   |
| Real estate – mortgage(2)                        |   | 5,463            |   | 5,012           |   | 5,463 |   | 5,012 |   |
| Retail and wholesale trade                            |   | 1,810            |   | 1,851           |   | 1,810 |   | 1,851 |   |
| Other                                                 |   | 629              |   | 1,426           |   | 629 |   | 1,426 |   |
|                                                  |   | 13,142           |   | 13,684          |   | 13,142 |   | 13,684 |   |
| **Overseas**                                          |   |             |   |            |   |   |   |   |   |
| Agriculture, forestry, fishing and mining             |   | —           |   | 2               |   | — |   | 2 |   |
| Business service                                      |   | —           |   | 1               |   | — |   | 1 |   |
| Financial, investment and insurance                   |   | 11               |   | 51              |   | 11 |   | 51 |   |
| Manufacturing                                         |   | 20               |   | 7               |   | 20 |   | 7 |   |
| Retail and wholesale trade                            |   | 4                |   | 18              |   | 4 |   | 18 |   |
| Other                                                 |   | 1                |   | 33              |   | 1 |   | 33 |   |
|                                                  |   | 36               |   | 112             |   | 36 |   | 112 |   |
| **Total customers’ liabilities for acceptances** |   | 13,178           |   | 13,796          |   | 13,178 |   | 13,796 |   |

 

----

(1)   Personal includes non-business acceptances to individuals

(2)   Real estate mortgage includes residential andcommercial property exposure. Acceptances within this category are for the purchase of such properties and must be secured by property

 

**17:  Regulatory Deposits**

 
|                   |   | **Consolidated** |   | **The Company** |   |
|------------------------|--------|------------------|--------|-----------------|--------|
|                   |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                   |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   |
| Overseas central banks |   | 101              |   | 178             |   | 68 |   | 138 |   |

 

**18:  Shares inControlled Entities, Associates and Joint Venture Entities**

 

Refer notes 43 to 45 fordetails.

 
|                                                                            |   | **Consolidated** |   | **The Company** |   |
|---------------------------------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                                            |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                                                                            |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   |
| Total shares in controlled entities                                             |   | —           |   | —          |   | 8,054 |   | 6,238 |   |
| Total shares in associates                                                      |   | 166              |   | 99              |   | 41 |   | 18 |   |
| Total shares in joint venture entity                                            |   | 1,648            |   | 1,593           |   | — |   | — |   |
| **Total shares in controlled entities, associates and  joint venture entities** |   | 1,814            |   | 1,692           |   | 8,095 |   | 6,256 |   |

 

**Acquisitionsof controlled entities**

There were no materialcontrolled entities acquired during the years ended 30 September 2003 and2002.

 

**Disposals ofcontrolled entities**

There were no materialcontrolled entities disposed of during the year ended 30 September 2003.

 

During the year ended 30September 2002 the following material controlled entities were disposedof:

 

On 30 April 2002, ANZformed a joint venture with ING Australia Pty Ltd.  ANZ have a 49% equity interest in the joint venture and 49% ofthe voting rights.  ANZ sold acontrolling interest in ANZ Life Insurance Company Limited, ANZ ManagedInvestments Limited, ANZ General Insurance Limited and Investment andAdministration Services Limited to the joint venture representing net assets of$392 million (fair value of business $879 million) as well as paying $960million in cash.  ING also contributednet assets of $1,091 million into the joint venture.

ANZ’s businesses were sold atfair value to the joint venture and a profit on sale of $170 million (after taxand transaction costs) was recognised. The results of the joint venture havebeen included in the consolidated financial statements since the date ofacquisition.

Subsequent to 30April 2002, ANZ accounts for its interest in the joint venture using theequity method of accounting.

 

143

----

 

**19:  Deferred Tax Assets**

 
|                                   |   | **Consolidated** |   | **The Company** |   |
|----------------------------------------|--------|------------------|--------|-----------------|--------|
|                                   |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                                   |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   |
| **Future income tax assets comprises** |   |             |   |            |   |   |   |   |   |
| General provision for doubtful debts   |   | 505              |   | 489             |   | 414 |   | 413 |   |
| Other                                  |   | 660              |   | 729             |   | 332 |   | 422 |   |
| **Total income tax assets**            |   | 1,165            |   | 1,218           |   | 746 |   | 835 |   |
| **Future income tax assets**           |   |             |   |            |   |   |   |   |   |
| Australia                              |   | 874              |   | 883             |   | 605 |   | 644 |   |
| Overseas                               |   | 291              |   | 335             |   | 141 |   | 191 |   |
|                                   |   | 1,165            |   | 1,218           |   | 746 |   | 835 |   |

 

Certain potential futureincome tax assets within the Group have not been recognised as assets becauserecovery cannot be regarded as virtually certain. These potential benefitsarise from tax losses and timing differences(benefits could amount to $nil,2002: $6 million), and from realised capital losses (benefits could amount to$nil, 2002: $2 million).

 

These benefits will only beobtained if: 

i)      the relevant entities derive future assessableincome of a nature and amount sufficient to enable the benefit of the taxationdeductions to be realised;

ii)     the relevant entities continue to comply withthe conditions for deductibility imposed by law; and 

iii)    there are no changes in taxation legislationadversely affecting the benefit of the taxation deductions.

 

**20:  Goodwill**

 
|                     |   | **Consolidated** |   | **The Company** |   |
|--------------------------|--------|------------------|--------|-----------------|--------|
|                     |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                     |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   |
| Goodwill – at cost  |   | 248              |   | 250             |   | 128 |   | 126 |   |
| Accumulated amortisation |   | (88              | )      | (70             | )      | (41 | ) | (32 | ) |
| **Total goodwill(1)**    |   | 160              |   | 180             |   | 87 |   | 94 |   |

 

----

(1)   Excludes notional goodwill related to the INGjoint venture of $821 million (September 2002: $865 million)

 

**21:  Other Assets**

 
|                                          |   | **Consolidated** |   | **The Company** |   |
|-----------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                          |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                                          |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   |
| **Property held for resale**                  |   |             |   |            |   |   |   |   |   |
| Cost of acquisition                           |   | 2                |   | 25              |   | — |   | — |   |
| Provision for diminution in value             |   | —           |   | —          |   | — |   | — |   |
|                                          |   | 2                |   | 25              |   | — |   | — |   |
| Accrued interest/prepaid discounts            |   | 1,085            |   | 941             |   | 859 |   | 750 |   |
| Accrued commission                            |   | 81               |   | 133             |   | 55 |   | 93 |   |
| Prepaid expenses                              |   | 398              |   | 373             |   | 115 |   | 126 |   |
| Treasury instruments revaluations             |   | 5,963            |   | 7,918           |   | 5,379 |   | 7,044 |   |
| Security settlements                          |   | 373              |   | 305             |   | 360 |   | 283 |   |
| Operating leases residual value               |   | 461              |   | 437             |   | — |   | — |   |
| Available for sale emerging markets portfolio |   | —           |   | 24              |   | — |   | 24 |   |
| Other                                         |   | 1,861            |   | 1,654           |   | 1,274 |   | 1,283 |   |
| **Total other assets**                        |   | 10,224           |   | 11,810          |   | 8,042 |   | 9,603 |   |

 

144

----

 

**22:  Premises andEquipment**

 
|                                          |   | **Consolidated** |   | **The Company** |   |
|-----------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                          |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                                          |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   |
| **Freehold and leasehold land and buildings** |   |             |   |            |   |   |   |   |   |
| At cost(1)                                    |   | 442              |   | 469             |   | 22 |   | 28 |   |
| Provision for depreciation                    |   | (16              | )      | (14             | )      | (1 | ) | (1 | ) |
|                                          |   | 426              |   | 455             |   | 21 |   | 27 |   |
| **Leasehold improvements**                    |   |             |   |            |   |   |   |   |   |
| At cost                                       |   | 168              |   | 154             |   | 108 |   | 99 |   |
| Provision for amortisation                    |   | (116             | )      | (110            | )      | (71 | ) | (69 | ) |
|                                          |   | 52               |   | 44              |   | 37 |   | 30 |   |
| **Furniture and equipment**                   |   |             |   |            |   |   |   |   |   |
| At cost                                       |   | 725              |   | 706             |   | 507 |   | 477 |   |
| Provision for depreciation                    |   | (488             | )      | (475            | )      | (324 | ) | (316 | ) |
|                                          |   | 237              |   | 231             |   | 183 |   | 161 |   |
| **Computer and office equipment**             |   |             |   |            |   |   |   |   |   |
| At cost                                       |   | 853              |   | 717             |   | 636 |   | 536 |   |
| Provision for depreciation                    |   | (572             | )      | (434            | )      | (419 | ) | (301 | ) |
|                                          |   | 281              |   | 283             |   | 217 |   | 235 |   |
| **Software**                                  |   |             |   |            |   |   |   |   |   |
| At cost                                       |   | 624              |   | 515             |   | 560 |   | 474 |   |
| Provision for amortisation                    |   | (159             | )      | (96             | )      | (139 | ) | (85 | ) |
|                                          |   | 465              |   | 419             |   | 421 |   | 389 |   |
| **Capital works in progress**                 |   |             |   |            |   |   |   |   |   |
| At cost                                       |   | 24               |   | 32              |   | 18 |   | 24 |   |
| **Total premises and equipment**              |   | 1,485            |   | 1,464           |   | 897 |   | 866 |   |

 

----

(1)   In accordance with AASB 1041this represents deemed cost

 

From1 October 2000 as allowed by AASB 1041 ‘Revaluation of Non-Current Assets’the Group elected to revert to the cost basis for measuring the class of assetsland and buildings.

 

Allpremises over a specific value are subject to external valuation at least onceevery three years by independent valuers. Valuations are based on the estimatedopen market value and assume that the premises concerned continue to be used intheir existing manner by the Group.

 

Theindependent valuation of the Group’s freehold land and buildings was carriedout as at 30 June 2002 by Jones Lang La Salle Advisory and resulted in avaluation of $464 million (The Company: $32 million). As land and buildings arerecorded at deemed cost, the valuation was not brought to account.

 

Groupaccounting policy covering the amortisation of software costs capitalised aredetailed in note 1 xiv).  As at 30September 2003 the weighted average amortisation period is 5 years.

 

145

----

 

**Reconciliationsof the carrying amounts for each class of premises and equipment are set outbelow:**

 
|                                          |   | **Consolidated** |   | **The Company** |       |
|-----------------------------------------------|--------|------------------|--------|-----------------|------------|
|                                          |   | **2003**         |   | **2002**        | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                          |   | **$m**           |   | **$m**          |       | **$m** |   | **$m** |   |
| **Freehold and leasehold land and buildings** |   |             |   |            |       |   |   |   |   |
| Carrying amount at beginning of year          |   | 455              |   | 483             |       | 27 |   | 27 |   |
| Additions                                     |   | 13               |   | 24              |       | 4 |   | 7 |   |
| Disposals                                     |   | (35              | )      | (44             | )          | (7 | ) | (3 | ) |
| Depreciation                                  |   | (4               | )      | (4              | )          | (1 | ) | (2 | ) |
| Net foreign currency exchange difference      |   | (3               | )      | (4              | )          | (2 | ) | (2 | ) |
| Carrying amount at end of year                |   | 426              |   | 455             |       | 21 |   | 27 |   |
| **Leasehold improvements**                    |   |             |   |            |       |   |   |   |   |
| Carrying amount at beginning of year          |   | 44               |   | 43              |       | 30 |   | 28 |   |
| Additions                                     |   | 25               |   | 16              |       | 16 |   | 11 |   |
| Disposals                                     |   | (2               | )      | (1              | )          | — |   | — |   |
| Amortisation                                  |   | (15              | )      | (14             | )          | (9 | ) | (8 | ) |
| Net foreign currency exchange difference      |   | —           |   | —          |       | — |   | (1 | ) |
| Carrying amount at end of year                |   | 52               |   | 44              |       | 37 |   | 30 |   |
| **Furniture and equipment**                   |   |             |   |            |       |   |   |   |   |
| Carrying amount at beginning of year          |   | 231              |   | 243             |       | 161 |   | 171 |   |
| Additions                                     |   | 56               |   | 45              |       | 50 |   | 23 |   |
| Disposals                                     |   | (1               | )      | (8              | )          | — |   | (3 | ) |
| Depreciation                                  |   | (45              | )      | (48             | )          | (26 | ) | (28 | ) |
| Net foreign currency exchange difference      |   | (4               | )      | (1              | )          | (2 | ) | (2 | ) |
| Carrying amount at end of year                |   | 237              |   | 231             |       | 183 |   | 161 |   |
| **Computer and office equipment**             |   |             |   |            |       |   |   |   |   |
| Carrying amount at beginning of year          |   | 283              |   | 260             |       | 235 |   | 215 |   |
| Additions                                     |   | 110              |   | 151             |       | 94 |   | 124 |   |
| Disposals                                     |   | (12              | )      | (40             | )          | (36 | ) | (33 | ) |
| Depreciation                                  |   | (100             | )      | (90             | )          | (75 | ) | (71 | ) |
| Net foreign currency exchange difference      |   | —           |   | 2               |       | (1 | ) | — |   |
| Carrying amount at end of year                |   | 281              |   | 283             |       | 217 |   | 235 |   |
| **Software**                                  |   |             |   |            |       |   |   |   |   |
| Carrying amount at beginning of year          |   | 419              |   | 303             |       | 389 |   | 272 |   |
| Additions                                     |   | 141              |   | 178             |       | 115 |   | 170 |   |
| Disposals and writeoffs                       |   | (12              | )      | (12             | )          | (10 | ) | (12 | ) |
| Amortisation                                  |   | (83              | )      | (50             | )          | (73 | ) | (41 | ) |
| Carrying amount at end of year                |   | 465              |   | 419             |       | 421 |   | 389 |   |
| **Capital works in progress**                 |   |             |   |            |       |   |   |   |   |
| Carrying amount at beginning of year          |   | 32               |   | 29              |       | 24 |   | 18 |   |
| Net additions (transfers)                     |   | (8               | )      | 3               |       | (6 | ) | 6 |   |
| Carrying amount at end of year                |   | 24               |   | 32              |       | 18 |   | 24 |   |
| **Total premises and equipment**              |   | 1,485            |   | 1,464           |       | 897 |   | 866 |   |

 

146

----

 

**23:  Dueto Other Financial Institutions**

 
|                                                                       |   | **Consolidated** |   | **The Company** |       |
|----------------------------------------------------------------------------|--------|------------------|--------|-----------------|------------|
|                                                                       |   | **2003**         |   | **2002**        | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                       |   | **$m**           |   | **$m**          |       | **$m** |   | **$m** |   |
| Australia                                                                  |   | 1,652            |   | 2,340           |       | 1,652 |   | 2,340 |   |
| Overseas                                                                   |   | 4,815            |   | 8,520           |       | 3,838 |   | 8,032 |   |
| **Total due to other financial institutions**                              |   | 6,467            |   | 10,860          |       | 5,490 |   | 10,372 |   |
|                                                                       |   |             |   |            |       |   |   |   |   |
| **Maturity analysis based on remaining term to maturity  at 30 September** |   |             |   |            |       |   |   |   |   |
| At call                                                                    |   | 2,887            |   | 2,639           |       | 1,948 |   | 2,338 |   |
| Less than 3 months                                                         |   | 2,893            |   | 6,623           |       | 2,859 |   | 6,453 |   |
| Between 3 months and 12 months                                             |   | 686              |   | 694             |       | 682 |   | 677 |   |
| Between 1 year and 5 years                                                 |   | 1                |   | 904             |       | 1 |   | 904 |   |
| **Total due to other financial institutions**                              |   | 6,467            |   | 10,860          |       | 5,490 |   | 10,372 |   |

 

**24:  Deposits and OtherBorrowings**

 

Depositsand other borrowings are classified between Australia and Overseas based on thelocation of the deposit taking point.

 
|                                                                       |   | **Consolidated** |   | **The Company** |       |
|----------------------------------------------------------------------------|--------|------------------|--------|-----------------|------------|
|                                                                       |   | **2003**         |   | **2002**        | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                       |   | **$m**           |   | **$m**          |       | **$m** |   | **$m** |   |
| **Australia**                                                              |   |             |   |            |       |   |   |   |   |
| Certificates of deposit                                                    |   | 7,029            |   | 5,340           |       | 7,029 |   | 5,340 |   |
| Term deposits                                                              |   | 19,263           |   | 18,864          |       | 19,814 |   | 19,240 |   |
| Other deposits bearing interest                                            |   | 40,864           |   | 37,906          |       | 40,852 |   | 37,890 |   |
| Deposits not bearing interest                                              |   | 3,881            |   | 3,539           |       | 3,881 |   | 3,539 |   |
| Commercial paper                                                           |   | 5,458            |   | 3,963           |       | 3,722 |   | 2,868 |   |
| Borrowing corporations’ debt (1)                                      |   | 6,822            |   | 6,430           |       | — |   | — |   |
| Securities sold under agreement to repurchase                              |   | 299              |   | 10              |       | 299 |   | 10 |   |
| Other borrowings                                                           |   | 713              |   | 1,085           |       | 713 |   | 1,085 |   |
|                                                                       |   | 84,329           |   | 77,137          |       | 76,310 |   | 69,972 |   |
| **Overseas**                                                               |   |             |   |            |       |   |   |   |   |
| Certificates of deposit                                                    |   | 3,119            |   | 6,333           |       | 1,786 |   | 4,075 |   |
| Term deposits                                                              |   | 19,683           |   | 18,395          |       | 10,768 |   | 9,870 |   |
| Other deposits bearing interest                                            |   | 6,536            |   | 6,317           |       | 771 |   | 869 |   |
| Deposits not bearing interest                                              |   | 1,950            |   | 1,710           |       | 452 |   | 472 |   |
| Commercial paper                                                           |   | 6,981            |   | 1,654           |       | — |   | — |   |
| Borrowing corporations’ debt (1)                                      |   | 1,797            |   | 1,713           |       | — |   | — |   |
| Other unsecured borrowings                                                 |   | 99               |   | —          |       | 99 |   | — |   |
|                                                                       |   | 40,165           |   | 36,122          |       | 13,876 |   | 15,286 |   |
| **Total deposits and other borrowings**                                    |   | 124,494          |   | 113,259         |       | 90,186 |   | 85,258 |   |
| **Maturity analysis based on remaining term to maturity  at 30 September** |   |             |   |            |       |   |   |   |   |
| At call                                                                    |   | 48,958           |   | 46,083          |       | 41,457 |   | 39,325 |   |
| Less than 3 months                                                         |   | 56,587           |   | 49,284          |       | 37,323 |   | 36,347 |   |
| Between 3 months and 12 months                                             |   | 10,300           |   | 13,615          |       | 5,291 |   | 8,089 |   |
| Between 1 year and 5 years                                                 |   | 8,628            |   | 4,091           |       | 6,103 |   | 1,404 |   |
| After 5 years                                                              |   | 21               |   | 186             |       | 12 |   | 93 |   |
| **Total deposits and other borrowings**                                    |   | 124,494          |   | 113,259         |       | 90,186 |   | 85,258 |   |

 

----

(1)   Included in this balance is debenture stock ofcontrolled entities. The debenture stock is secured by a trust deed andcollateral debentures, giving floating charges upon the undertaking and all theassets of the entities involved other than land and buildings. All subsidiariesof the controlled entities (except for some subsidiaries which have been placedor are expected to be placed in voluntary deregistration and have minimal bookvalue) have guaranteed the payment of principal, interest and other monies in relation to all debenture stock and unsecured notes issued by thecontrolled entity. No subsidiaries have given any charge over their respectiveassets in support of the above mentioned guarantees

 

147

----

 

**25:  Income TaxLiabilities**

 
|                                            |   | **Consolidated** |   | **The Company** |       |
|-------------------------------------------------|--------|------------------|--------|-----------------|------------|
|                                            |   | **2003**         |   | **2002**        |       | **2003** |   | **2002** |   |
|                                            |   | **$m**           |   | **$m**          | ** ** | **$m** | ** ** | **$m** | ** ** |
| **Australia**                                   |   |             |   |            |       |   |   |   |   |
| Provision for income tax                        |   | (303             | )      | 538             |       | (381 | ) | 476 |   |
| Provision for deferred income tax               |   | 1,168            |   | 593             |       | 801 |   | 315 |   |
|                                            |   | 865              |   | 1,131           |       | 420 |   | 791 |   |
| **Overseas**                                    |   |             |   |            |       |   |   |   |   |
| Provision for income tax                        |   | 52               |   | 37              |       | 26 |   | 32 |   |
| Provision for deferred income tax               |   | 166              |   | 172             |       | 100 |   | 98 |   |
|                                            |   | 218              |   | 209             |       | 126 |   | 130 |   |
| **Total income tax liabilities**                |   | 1,083            |   | 1,340           |       | 546 |   | 921 |   |
| **Provision for deferred income tax comprises** |   |             |   |            |       |   |   |   |   |
| Lease finance                                   |   | 95               |   | 111             |       | 46 |   | 43 |   |
| Treasury instruments                            |   | 511              |   | —          |       | 511 |   | — |   |
| Other                                           |   | 728              |   | 654             |       | 344 |   | 370 |   |
|                                            |   | 1,334            |   | 765             |       | 901 |   | 413 |   |

 

**26:  Payables and OtherLiabilities**

 
|                                     |   | **Consolidated** |   | **The Company** |       |
|------------------------------------------|--------|------------------|--------|-----------------|------------|
|                                     |   | **2003**         |   | **2002**        |       | **2003** |   | **2002** |   |
|                                     |   | **$m**           |   | **$m**          | ** ** | **$m** | ** ** | **$m** | ** ** |
| **Australia**                            |   |             |   |            |       |   |   |   |   |
| Payables                                 |   | 3,102            |   | 2,174           |       | 3,145 |   | 2,137 |   |
| Accrued interest and unearned discounts  |   | 864              |   | 721             |       | 758 |   | 611 |   |
| Treasury instruments revaluations        |   | 5,997            |   | 4,142           |       | 5,995 |   | 4,134 |   |
| Accrued charges                          |   | 312              |   | 258             |       | 299 |   | 237 |   |
| Security settlements                     |   | 165              |   | 363             |       | 165 |   | 363 |   |
| Other liabilities                        |   | 693              |   | 270             |       | 642 |   | 342 |   |
|                                     |   | 11,133           |   | 7,928           |       | 11,004 |   | 7,824 |   |
| **Overseas**                             |   |             |   |            |       |   |   |   |   |
| Payables                                 |   | 197              |   | 124             |       | 5 |   | 10 |   |
| Accrued interest and unearned discounts  |   | 341              |   | 333             |       | 178 |   | 171 |   |
| Treasury instruments revaluations        |   | 1,335            |   | 3,409           |       | 104 |   | 2,263 |   |
| Accrued charges                          |   | 143              |   | 136             |       | 49 |   | 52 |   |
| Security settlements                     |   | —           |   | 48              |       | — |   | 37 |   |
| Other liabilities                        |   | 462              |   | 652             |       | 331 |   | 488 |   |
|                                     |   | 2,478            |   | 4,702           |       | 667 |   | 3,021 |   |
| **Total payables and other liabilities** |   | 13,611           |   | 12,630          |       | 11,671 |   | 10,845 |   |

 

148

----

 

**27:  Provisions**

 
|                                         |   | **Consolidated** |   | **The Company** |       |
|----------------------------------------------|--------|------------------|--------|-----------------|------------|
|                                         |   | **2003**         |   | **2002**        |       | **2003** |   | **2002** |   |
|                                         |   | **$m**           |   | **$m**          | ** ** | **$m** | ** ** | **$m** | ** ** |
| Employee entitlements(1)                     |   | 269              |   | 253             |       | 237 |   | 222 |   |
| Dividends(refer note 7 and note 1(ii))       |   | —           |   | 692             |       | — |   | 692 |   |
| Non-lending losses, frauds and forgeries     |   | 164              |   | 216             |       | 128 |   | 184 |   |
| Restructuring costs and surplus leased space |   | 92               |   | 143             |       | 68 |   | 103 |   |
| Other                                        |   | 244              |   | 298             |       | 181 |   | 268 |   |
| **Total provisions**                         |   | 769              |   | 1,602           |       | 614 |   | 1,469 |   |

 

----

(1)   The aggregate liability for employee benefitslargely comprise employee entitlements provisions plus liability for payrolltax and fringe benefits tax. The aggregate liability as at 30September 2003 was $362 million consolidated and $263 million for the company (30 September 2002: $333 million consolidated and $233 million forthe company)

 

**Reconciliationsof the carrying amounts of each class of provisions, except for employeeentitlements are set out below:**

 
|                                                |   | **Consolidated** |   | **The Company** |   |
|-----------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                |   | **2003**         |   | **2003**        |   |
| **Dividends(1)**                                    |   |             |   |            |   |
| Carrying amount at beginning of the year            |   | 692              |   | 692             |   |
| Interim dividend 2003                               |   | 666              |   | 666             |   |
| Payments made during the year(2)                    |   | (1,358           | )      | (1,358          | )      |
| Carrying amount at the end of the year              |   | —           |   | —          |   |
|                                                |   |             |   |            |   |
| **Restructuring costs and surplus leased space(3)** |   |             |   |            |   |
| Carrying amount at beginning of the year            |   | 143              |   | 103             |   |
| Provision made during the year                      |   | 45               |   | 43              |   |
| Payments made during the year                       |   | (80              | )      | (62             | )      |
| Release of Provisions                               |   | (16              | )      | (16             | )      |
| Carrying amount at the end of the year              |   | 92               |   | 68              |   |
|                                                |   |             |   |            |   |
| **Non-lending losses frauds and forgeries(4)**      |   |             |   |            |   |
| Carrying amount at beginning of the year            |   | 216              |   | 184             |   |
| Provision made during the year                      |   | 17               |   | 6               |   |
| Payments made during the year                       |   | (59              | )      | (57             | )      |
| Release of Provisions                               |   | (10              | )      | (5              | )      |
| Carrying  amount at the end of the year             |   | 164              |   | 128             |   |
|                                                |   |             |   |            |   |
| **Other provisions(5)**                             |   |             |   |            |   |
| Carrying amount at beginning of the year            |   | 298              |   | 268             |   |
| Provision made during the year                      |   | 153              |   | 111             |   |
| Payments made during the year                       |   | (130             | )      | (129            | )      |
| Release of Provisions                               |   | (76              | )      | (68             | )      |
| Adjustment for exchange rate fluctuations           |   | (1               | )      | (1              | )      |
| Carrying amount at the end of the year              |   | 244              |   | 181             |   |

 

----

(1)   A provision for dividends payable will berecognised in the reporting period in which the dividends are declared, determined,or publicly recommended. Current practice is to publiclyannounce dividends after the reporting period to which the dividend relates.

(2)   Includes issue of ordinary shares under the Bonus Option Plan ($25 million)

(3)   Restructuring costs and surplus leased space provisions arise from exit activitiesrelated to material changes in the scope of business undertaken by the Group orthe manner in which that business is undertaken, and includes terminationbenefits.  Costs related to on-goingactivities are not provided for. Provision is made when the Group isdemonstrably committed, it is probable that the costs will be incurred, thoughits timing is uncertain, and the costs can be reliably estimated.

(4)   Non-lending losses frauds andforgeries provisions arise from inadequate or failed internal processes andsystems, or from external events.

(5)   Other provisions comprisevarious other provisions including fringe benefits tax, fleet maintenance,workers compensation and other non-employee entitlement provisions.

 

149

----

 

**28:  Bonds and Notes**

 
|                                                                       |                  | **Consolidated** |   | **The Company** |       |
|----------------------------------------------------------------------------|-----------------------|------------------|--------|-----------------|------------|
|                                                                       |                  | **2003**         |   | **2002**        |       | **2003** |   | **2002** |   |
|                                                                       |                  | **$m**           |   | **$m**          | ** ** | **$m** | ** ** | **$m** | ** ** |
| **Bonds and  notes by currency**                                           |                  |             |   |            |       |   |   |   |   |
| USD                                                                        | United States dollars |             | 5,772  |            | 5,758      |   | 5,331 |   | 5,758 |   |
| GBP                                                                        | Great British pounds  |             | 1,758  |            | 1,346      |   | 1,758 |   | 1,346 |   |
| AUD                                                                        | Australian dollars    |             | 688    |            | 160        |   | 688 |   | 160 |   |
| NZD                                                                        | New Zealand dollars   |             | 31     |            | 183        |   | 31 |   | 11 |   |
| JPY                                                                        | Japanese yen          |             | 304    |            | 83         |   | 304 |   | 83 |   |
| EUR                                                                        | Euro                  |             | 4,903  |            | 4,550      |   | 4,903 |   | 4,550 |   |
| HKD                                                                        | Hong Kong dollars     |             | 2,259  |            | 2,188      |   | 2,259 |   | 2,188 |   |
| CHF                                                                        | Swiss francs          |             | 389    |            | 173        |   | 389 |   | 173 |   |
| CAD                                                                        | Canadian dollars      |             | 184    |            | 14         |   | 184 |   | 14 |   |
| NOK                                                                        | Norwegian krone       |             | 84     |            | 98         |   | 84 |   | 98 |   |
| SGD                                                                        | Singapore dollars     |             | 200    |            | 155        |   | 200 |   | 155 |   |
| **Total  bonds and notes**                                                 |                  | 16,572           |   | 14,708          |       | 16,131 |   | 14,536 |   |
| **Bonds and  notes by maturity**                                           |                  |             |   |            |       |   |   |   |   |
| **Maturity  analysis based on remaining term to maturity at 30 September** |                  |             |   |            |       |   |   |   |   |
| Less than 3 months                                                         |                  | 269              |   | 399             |       | 269 |   | 399 |   |
| Between 3 months and 12  months                                            |                  | 3,652            |   | 3,502           |       | 3,652 |   | 3,330 |   |
| Between 1 year and 5 years                                                 |                  | 12,651           |   | 10,807          |       | 12,210 |   | 10,807 |   |
| **Total  bonds and notes**                                                 |                  | 16,572           |   | 14,708          |       | 16,131 |   | 14,536 |   |

 

**29:  Loan Capital**

 
|                                                                       |                  | **Interest  Rate**                    |     | **Consolidated**   |       | **The Company** |       |
|----------------------------------------------------------------------------|-----------------------|---------------------------------------|----------|--------------------|------------|-----------------|------------|
| **2003**                                                                   |                  | **2002**                              | **2003** |               | **2002**   |
|                                                                       |                  | **%**                                 |     | **$m**             | ** ** | **$m**          | ** ** | **$m** | ** ** | **$m** | ** ** |
| **Perpetual  subordinated notes**                                          |                  |                                  |     |               |       |            |       |   |   |   |   |
| USD                                                                        | 300m                  | floating rate notes                   |     | LIBOR(1) + 0.15    |       | 442             |       | 551 |   | 442 |   | 551 |   |
| USD                                                                        | 258.7m                | fixed rate notes                      |     | 9.125              |       | —          |       | 476 |   | — |   | 476 |   |
|                                                                       |                  |                                  |     |               |       | 442             |       | 1,027 |   | 442 |   | 1,027 |   |
| **Subordinated  notes**                                                    |                  |                                  |     |               |       |            |       |   |   |   |   |
| USD                                                                        | 40m                   | floating rate notes due  2002(2)      |     | LIBOR + 0.70       |       | —          |       | 71 |   | — |   | 71 |   |
| USD                                                                        | 250m                  | fixed notes due 2004                  |     | 6.25               |       | 367             |       | 459 |   | 367 |   | 459 |   |
| USD                                                                        | 500m                  | fixed notes due 2006                  |     | 7.55               |       | 735             |       | 919 |   | 735 |   | 919 |   |
| USD                                                                        | 12.5m                 | floating rate notes due  2007         |     | LIBOR + 0.50       |       | 17              |       | 23 |   | 17 |   | 23 |   |
| JPY                                                                        | 482m                  | floating rate notes due  2007         |     | LIBOR + 0.50       |       | 6               |       | 7 |   | 6 |   | 7 |   |
| JPY                                                                        | 568.8m                | floating rate notes due  2008         |     | LIBOR + 0.55       |       | 8               |       | 9 |   | 8 |   | 9 |   |
| USD                                                                        | 14.3m                 | floating rate notes due  2008         |     | LIBOR + 0.50       |       | 20              |       | 26 |   | 20 |   | 26 |   |
| USD                                                                        | 79m                   | floating rate notes due  2008(3)      |     | LIBOR + 0.53       |       | 115             |       | 145 |   | 115 |   | 145 |   |
| AUD                                                                        | 400m                  | floating rate notes due  2008(4)      |     | BBSW+ 0.57         |       | 400             |       | 400 |   | 400 |   | 400 |   |
| AUD                                                                        | 100m                  | floating rate notes due  2008(4)      |     | BBSW+ 0.57         |       | 100             |       | 100 |   | 100 |   | 100 |   |
| NZD                                                                        | 300m                  | floating rate notes due  2012         |     | BKBM(3) + 0.50     |       | 263             |       | 259 |   | — |   | — |   |
| USD                                                                        | 550m                  | floating rate notes due  2013(5)      |     | LIBOR(3) + 0.55    |       | 808             |       | — |   | 808 |   | — |   |
| EUR                                                                        | 500m                  | fixed/floating rate notes due 2013(6) |     | 4.45               |       | 854             |       | — |   | 854 |   | — |   |
| GBP                                                                        | 400m                  | fixed notes due 2018                  |     | 4.75               |       | 983             |       | — |   | 983 |   | — |   |
| EUR                                                                        | 300m                  | floating rate notes due  2013(7)      |     | EURIBOR(3) + 0.375 |       | 512             |       | — |   | 512 |   | — |   |
|                                                                       |                  |                                  |     |               |       | 5,188           |       | 2,418 |   | 4,925 |   | 2,159 |   |
| **Total loan  capital**                                                    |                  |                                  |     | 5,630              |       | 3,445           |       | 5,367 |   | 3,186 |   |
| **Loan  capital by currency**                                              |                  |                                  |     |               |       |            |       |   |   |   |   |
| AUD                                                                        | Australian dollars    |                                  |     |               |       | 500             |       | 500 |   | 500 |   | 500 |   |
| NZD                                                                        | New Zealand dollars   |                                  |     |               |       | 263             |       | 259 |   | — |   | — |   |
| USD                                                                        | United States dollars |                                  |     |               |       | 2,504           |       | 2,670 |   | 2,504 |   | 2,670 |   |
| JPY                                                                        | Japanese yen          |                                  |     |               |       | 14              |       | 16 |   | 14 |   | 16 |   |
| EUR                                                                        | Euro                  |                                  |     |               |       | 1,366           |       | — |   | 1,366 |   | — |   |
| GBP                                                                        | Great British pounds  |                                  |     |               |       | 983             |       | — |   | 983 |   | — |   |
|                                                                       |                  |                                  |     |               |       | 5,630           |       | 3,445 |   | 5,367 |   | 3,186 |   |
| **Loan  capital by maturity**                                              |                  |                                  |     |               |       |            |       |   |   |   |   |   |
| **Maturity analysis based on remaining term to maturity  at 30 September** |                  |                                  |     |               |       |            |       |   |   |   |   |
| Between 3 months and 12  months                                            |                  |                                  |     | 368                |       | 71              |       | 368 |   | 71 |   |
| Between 1 year and 5 years                                                 |                  |                                  |     | 736                |       | 1,378           |       | 736 |   | 1,378 |   |
| After 5 years                                                              |                  |                                  |     | 4,084              |       | 969             |       | 3,821 |   | 710 |   |
| Perpetual                                                                  |                  |                                  |     | 442                |       | 1,027           |       | 442 |   | 1,027 |   |
|                                                                       |                  |                                  |     | 5,630              |       | 3,445           |       | 5,367 |   | 3,186 |   |
|                                                                            |                       |                                       |          |                    |            |                 |            |  |  |  |  |  |  |  |

 

----

(1)          LIBOR is an average of rates offered on loansto leading banks in the London inter-bank market

(2)          As at 30 September 1998 principal of noteoutstanding was US $200 million. Note is repayable over 5 years ($40 million(20%) per annum), commencing in October 1998

(3)          Prior to January 2002, the interest ratewas LIBOR+ 1.03

(4)          After March 2007 rate changes to BBSW+1.07

(5)          After February 2008 rate changes to LIBOR(3) + 1.05

(6)          After February 2010 rate changes toEURIBOR (3) + 0.50

(7)          After August 2008 rate changes to EURIBOR(3) + 0.875

 

Loan capital is subordinatedin right of payment to the claims of depositors and all other creditors of theCompany and its controlled entities which have issued the notes, andconstitutes tier 2 capital as defined by the Australian Prudential RegulationAuthority for capital adequacy purposes

 

150

----

 

**30:  Share Capital**

 
|                              |   | **The Company** |   |
|-----------------------------------|--------|-----------------|--------|
| **Number of  issued shares**      |   | **2003**        |   | **2002** |   | **2001** |   |
| Ordinary shares each fully paid   |   | 1,521,686,560   |   | 1,503,886,082 |   | 1,488,267,146 |   |
| Preference shares each fully paid |   | 134,032,000     |   | 124,032,000 |   | 124,032,000 |   |
| **Total number of issued shares** |   | 1,655,718,560   |   | 1,627,918,082 |   | 1,612,299,146 |   |

 

**Ordinaryshares**

Ordinary shares entitle theholder to participate in dividends and the proceeds on winding up of thecompany in proportion to the number of and amounts paid on the shares held.

 

On a show of hands everyholder of ordinary shares present at a meeting in person or by proxy, isentitled to one vote, and upon a poll each share is entitled to one vote.

 
|                                |   | **The Company** |   |
|-------------------------------------|--------|-----------------|--------|
| **Number of  issued shares**        |   | **2003**        |   | **2002** |   | **2001** |   |
| Balance at start of year            |   | 1,503,886,082   |   | 1,488,267,146 |   | 1,506,210,690 |   |
| Bonus option plan                   |   | 1,534,987       |   | 1,351,845 |   | 1,554,453 |   |
| Dividend reinvestment plan          |   | 6,223,866       |   | 5,018,513 |   | 5,828,303 |   |
| ANZ employee share acquisition plan |   | 3,615,714       |   | 4,144,988 |   | 5,925,928 |   |
| ANZ share option plan               |   | 6,425,911       |   | 5,103,590 |   | 2,125,120 |   |
| ANZ share purchase scheme           |   | —          |   | — |   | 73,000 |   |
| Share buy back                      |   | —          |   | — |   | (34,626,158 | ) |
| Purchase of Amerika Samoa Bank      |   | —          |   | — |   | 1,175,810 |   |
| **Balance at end of year**          |   | 1,521,686,560   |   | 1,503,886,082 |   | 1,488,267,146 |   |

 

For a reconciliation of themovement in ordinary shares capital refer to Statement of Changes inShareholders Equity on page 121.

 

The Trust Securities arefully paid non-converting non-cumulative preference shares issued for USD 6.25per share via Trust Securities Issues in 1998.

 

The Trust Securities aremandatorily exchangeable for the preference shares issued by the Company, andcarry an entitlement to a non-cumulative trust distribution of 8.00% or 8.08% perannum payable quarterly in arrears. The Trust Securities were issued by a nondiversified closed end management investment company registered under the USInvestment Company Act of 1940. The preference shares themselves carry nopresent entitlement to dividends. Distributions to investors in the TrustSecurities are funded by income distributions made by the Group.

 

Upon maturity of the TrustSecurities in 2048, investors will mandatorily exchange the Trust Securitiesfor the preference shares and thereupon the preference shares will carry anentitlement to non-cumulative dividends of 8.00% or 8.08% per annum payablequarterly in arrears. The mandatory exchange of the Trust Securities for thepreference shares may occur earlier at the Company’s option or in specifiedcircumstances.

 

With the prior consent of theAustralian Prudential Regulation Authority, the preference shares areredeemable at the Company’s option after 5 years, or within 5 years in limitedcircumstances. The entitlement of investors to distributions on the TrustSecurities will cease on redemption of the preference shares.

 

The transaction costs arisingon the issue of these instruments were recognised directly in equity as areduction of the proceeds of the equity instruments to which the costs relate.

 

**b)****    ****ANZ Stapled ExchangeablePreferred Securities (ANZ StEPS)**

 

On 23 September 2003,the Company issued 10 million ANZ StEPS at $100 each pursuant to a prospectusdated 14 August 2003 raising $1 billion (excluding issue costs of $13million: net raising $987 million).  ANZStEPS comprise two fully paid securities - an interest paying unsecured note(issued by ANZ Holdings (New Zealand) Limited, a wholly owned subsidiary of theCompany) stapled to a fully paid preference share (issued by the Company).

 

Distributions on ANZ StEPSare non-cumulative and are payable quarterly in arrears based upon a floatingdistribution rate equal to the 90 day bank bill rate plus a margin.  At each payment date the 90 day bank billrate is reset for the next quarter. Distributions are subject to certain payment tests (ie. APRArequirements and distributable profits being available) and the basis for theircalculation may change on any reset date. Distributions are expected to be payable on 15 March, 15 June, 15September and 15 December of each year.  Dividends are not payable on the preference share while it isstapled to the note.  If distributionsare not paid on ANZ StEPS, the Company may not pay dividends or return capitalon its ordinary shares or any other share capital ranking below the preferenceshare component.

 

On any reset date, ANZ maychange certain terms(subject to certain restrictions) including the next resetdate, market reset (from floating rate to a fixed rate, or vice versa), marginand the frequency and timing of the distribution payment dates.  The first reset date is 15September 2008.  Holders of ANZStEPS can require exchange on any reset date or earlier if certain specifiedevents occur.  On exchange, a holderwill receive (at the Company’s discretion) either $100 cash for each ANZ StEPSexchanged or a number of ordinary shares calculated in accordance with aconversion ratio based on $100 divided by the market price of ordinary sharesat the date of conversion less 2.5%.  Incertain circumstances, the Company may also require exchange other than on areset date.

 

Upon the occurrence of anassignment event, ANZ StEPS become unstapled. In this case, the note will be assigned from the holder, however, theholder will retain the preference share and the rights to exchange thepreference share.

 

The preference shares formingpart of ANZ StEPS rank equally with the preference shares issued in connectionwith Trust Securities Issues in all respects. Except in certain limited circumstances, holders of ANZ StEPS do nothave any right to vote in general meetings of the Company.

 

On a winding up of theCompany, the rights of ANZ StEPS holders will be determined by the preferenceshare component of ANZ StEPS.  Thosepreference shares rank behind all depositors and creditors, but ahead ofordinary shareholders.

 

The transactions costsarising on the issue of these instruments were recognised directly in equity asa reduction of the proceeds of the equity instruments to which the costsrelate.

 

151

----

 
|                                                          |   | **Consolidated** |   | **The Company** |       |
|---------------------------------------------------------------|--------|------------------|--------|-----------------|------------|
|                                                          |   | **2003**         |   | **2002**        |       | **2003** |   | **2002** |   |
|                                                          |   | **$m**           |   | **$m**          | ** ** | **$m** | ** ** | **$m** | ** ** |
| Preference share net proceeds at start of year                |   |             |   |            |       |   |   |   |   |
| • Trust  Securities Issues (USD 748 million)(1)          |   | 1,375            |   | 1,526           |       | 1,375 |   | 1,526 |   |
|                                                          |   | 1,375            |   | 1,526           |       | 1,375 |   | 1,526 |   |
| Retranslation of Trust Securities Issues(2)                   |   | (150             | )      | (151            | )          | (150 | ) | (151 | ) |
|                                                          |   | 1,225            |   | 1,375           |       | 1,225 |   | 1,375 |   |
| Preference share net proceeds from new issues during the year |   |             |   |            |       |   |   |   |   |
| • ANZ StEPS(1)                                           |   | 987              |   | —          |       | 987 |   | — |   |
|                                                          |   | 2,212            |   | 1,375           |       | 2,212 |   | 1,375 |   |
|                                                          |   |             |   |            |       |   |   |   |   |
| Preference share net proceeds at end of year                  |   |             |   |            |       |   |   |   |   |
| • Trust  Securities Issues (USD 748 million)(1)          |   | 1,225            |   | 1,375           |       | 1,225 |   | 1,375 |   |
| • ANZ StEPS(1)                                           |   | 987              |   | —          |       | 987 |   | — |   |
| **Balance at end of year**                                    |   | 2,212            |   | 1,375           |       | 2,212 |   | 1,375 |   |

 

----

(1)          Net of issue costs

(2)          From 1 October 2002, the net proceeds aretranslated at the spot rate applicable at date of issue.  Before 1 October 2002, the net proceeds were translated at the currentspot rate at each reporting period. Refer accounting policy note 1

 

**ShareBuybacks**

The Company conducted noon-market buybacks during the years ended 30 September 2003 and 2002.

 

**31:  Outside Equity Interests**

 
|                               |   | **Consolidated** |   |
|------------------------------------|--------|------------------|--------|
|                               |   | **2003**         |   | **2002** |   |
|                               |   | **$m**           |   | **$m** | ** ** |
| Share capital                      |   | 2                |   | 2 |   |
| Retained Profits                   |   | 15               |   | 15 |   |
| **Total outside equity interests** |   | 17               |   | 17 |   |

 

152

----

 

**32:  Capital Adequacy**

 

The Australian PrudentialRegulation Authority (APRA) adopts a risk-based capital assessment frameworkfor Australian banks based on internationally accepted capital measurementstandards. This risk-based approach requires eligible capital to be divided bytotal risk weighted assets, with the resultant ratio being used as a measure ofa bank’s capital adequacy.

 

Capital is divided into tier1, or ‘core’ capital, and tier 2, or ‘supplementary’ capital. For capitaladequacy purposes, eligible tier 2 capital cannot exceed the level of tier 1capital. Banks are required to deduct from total capital any strategic holdingsof other banks’ capital instruments and investments in entities engaged in lifeinsurance, funds management and securitisation activities. Under APRAguidelines, banks must maintain a ratio of qualifying capital to risk weightedassets of at least 8 per cent.

 

The measurement of riskweighted assets is based on: a) A credit risk-based approach wherein riskweightings are applied to statement of financial position assets and to creditconverted off balance sheet exposures. Categories of risk weights are assignedbased upon the nature of the counterparty and the relative liquidity of theassets concerned and: b) The recognition of risk weighted assets attributableto market risk arising from trading and commodity positions. Trading andcommodity balance sheet positions do not attract a risk weighting under thecredit risk-based approach.

 
|                                                                                                  |   | **Consolidated** |   |
|-------------------------------------------------------------------------------------------------------|--------|------------------|--------|
|                                                                                                  |   | **2003**         |   | **2002** |   |
|                                                                                                  |   | **$m**           |   | **$m** | ** ** |
| **Qualifying capital**                                                                                |   |             |   |   |   |
| **Tier 1**                                                                                            |   |             |   |   |   |
| Total shareholders’ equity and outside equity interests                                          |   | 13,787           |   | 11,465 |   |
| Asset revaluation reserve                                                                             |   | (31              | )      | (31 | ) |
| Dividend                                                                                              |   | (777             | )      | — |   |
| Accumulated retained profits and reserves of insurance, funds  management and securitisation entities |   | (168             | )      | (48 | ) |
| Unamortised goodwill and other intangibles(1)                                                         |   | (1,044           | )      | (158 | ) |
| Investment in ANZ Lenders Mortgage Insurance                                                          |   | (27              | )      | (27 | ) |
| **Tier 1 capital**                                                                                    |   | 11,740           |   | 11,201 |   |
| **Tier 2**                                                                                            |   |             |   |   |   |
| Asset revaluation reserve                                                                             |   | 31               |   | 31 |   |
| Perpetual subordinated notes                                                                          |   | 442              |   | 1,027 |   |
| General provision for doubtful debts(2)                                                               |   | 1,029            |   | 1,007 |   |
|                                                                                                  |   | 1,502            |   | 2,065 |   |
| Subordinated notes(3)                                                                                 |   | 4,563            |   | 1,872 |   |
| **Tier 2 capital**                                                                                    |   | 6,065            |   | 3,937 |   |
| **Deductions**                                                                                        |   |             |   |   |   |
| Investment in Funds Management and securitisation entities                                            |   | (56              | )      | (45 | ) |
| Investment in joint venture with INGA(1)                                                              |   | (708             | )      | (1,591 | ) |
| Other                                                                                                 |   | (156             | )      | (67 | ) |
|                                                                                                  |   | (920             | )      | (1,703 | ) |
| **Total qualifying capital**                                                                          |   | 16,885           |   | 13,435 |   |
| **Adjusted common equity(4)**                                                                         |   | 8,679            |   | 8,073 |   |

 
|                                                                                                                                                                                                  |   | **Assets** | ** ** | **Risk weighted assets** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|------------|--------------------------|------------|
|                                                                                                                                                                                                  |   | **2003**   |       | **2002**                 | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                                                                                                                                                  |   | **$m**     |       | **$m**                   | ** ** | **$m** | ** ** | **$m** | ** ** |
| **Statement of financial position**                                                                                                                                                                   |   |       |       |                     |       |   |   |   |   |
| Cash, claims on Australian Commonwealth, State Governments, Territory  Governments, claims on OECD Central Governments, local currency claims on  non-OECD Governments and other zero weighted assets |   | 19,817     |       | 21,188                   |       | — |   | — |   |
| Claims on approved banks and local Governments                                                                                                                                                        |   | 8,350      |       | 10,827                   |       | 1,670 |   | 2,165 |   |
| Advances secured by residential mortgages                                                                                                                                                             |   | 76,711     |       | 65,575                   |       | 38,355 |   | 32,788 |   |
| Other assets – credit risk                                                                                                                                                                       |   | 88,042     |       | 82,697                   |       | 88,042 |   | 82,697 |   |
| Total statement of financial position assets – credit risk                                                                                                                                       |   | 192,920    |       | 180,287                  |       | 128,067 |   | 117,650 |   |
| Trading assets – market risk                                                                                                                                                                     |   | 2,671      |       | 2,818                    |       | n/a |   | n/a |   |
| **Total statement of financial position assets**                                                                                                                                                      |   | 195,591    |       | 183,105                  |       | 128,067 |   | 117,650 |   |

 

----

(1)          From 1 July 2003 the intangible componentof investments is deducted from Tier 1 Capital.  Prior to this, the deduction was from total capital

(2)          Excluding attributable future income taxbenefit

(3)          Subordinated note issues are reduced by 20% ofthe original amount during each of the last five years to maturity

(4)          Tier 1 capital, less preference share capital(converted at 30 September 2003 rates), less deductions

 

153

----

 
|                                                                  |   | **Contract/  notional amount** |   | **Credit  equivalent** |       | **Risk  weighted assets** |       |
|-----------------------------------------------------------------------|--------|--------------------------------|--------|------------------------|------------|---------------------------|------------|
|                                                                  |   | **2003**                       |   | **2002**               | ** ** | **2003**                  | ** ** | **2002** | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                  |   | **$m**                         |   | **$m**                 | ** ** | **$m**                    | ** ** | **$m** | ** ** | **$m** | ** ** | **$m** | ** ** |
| **Off balance sheet exposures**                                       |   |                           |   |                   |       |                      |       |   |   |   |   |   |   |
| Direct credit substitutes                                             |   | 9,771                          |   | 9,853                  |       | 9,771                     |       | 9,853 |   | 8,115 |   | 8,304 |   |
| Trade and performance related items                                   |   | 10,782                         |   | 12,781                 |       | 4,864                     |       | 5,905 |   | 4,502 |   | 5,431 |   |
| Commitments                                                           |   | 65,396                         |   | 60,409                 |       | 7,632                     |       | 7,296 |   | 7,422 |   | 6,506 |   |
| Foreign exchange, interest rate and other market related transactions |   | 516,773                        |   | 470,287                |       | 11,469                    |       | 10,080 |   | 3,387 |   | 3,126 |   |
| **Total off balance sheet exposures – credit risk**              |   | 602,722                        |   | 553,330                |       | 33,736                    |       | 33,134 |   | 23,426 |   | 23,367 |   |
| **Total risk weighted assets – credit risk**                     |   |                           |   |                   |       |                      |       |   |   | 151,493 |   | 141,017 |   |
| **Risk weighted assets – market risk**                           |   |                           |   |                   |       |                      |       |   |   | 671 |   | 373 |   |
|                                                                  |   |                           |   |                   |       |                      |       |   |   |   |   |   |   |
| **Total risk weighted assets**                                        |   |                           |   |                   |       |                      |       |   |   | 152,164 |   | 141,390 |   |

 
|                          |   |   |   |   |   |   | ** ** |   | ** ** | **%**  |   | **%**  |   |
|-------------------------------|--------|--------|--------|--------|--------|--------|------------|--------|------------|--------|--------|--------|--------|
| **Capital adequacy ratios**   |   |   |   |   |   |   |       |   |       |   |   |   |   |
| Tier 1                        |   |   |   |   |   |   |       |   |       | 7.7    |   | 7.9    |   |
| Tier 2                        |   |   |   |   |   |   |       |   |       | 4.0    |   | 2.8    |   |
| Deductions                    |   |   |   |   |   |   |       |   |       | (0.6   | )      | (1.2   | )      |
| **Total**                     |   |   |   |   |   |   |       |   |       | 11.1   |   | 9.5    |   |
| **Adjusted common equity(1)** |   |   |   |   |   |   |       |   |       | 5.7    |   | 5.7    |   |

 

----

(1)          Tier 1 capital, less preference share capital(converted at 30 September 2003 rates), less deductions

 

154

----

 

**33:  Average BalanceSheet and Related Interest**

 

Averages used in thefollowing table are predominantly daily averages. Interest income figures arepresented on a tax-equivalent basis. Non-accrual loans are included under theinterest earning asset category ‘Loans, advances and bills discounted’.Intragroup interest earning assets and interest bearing liabilities are treatedas external assets and liabilities for the geographic segments.

 
|                                                          |   | **2003**             |   | **2002**     |       | **2001**          |       |
|---------------------------------------------------------------|--------|----------------------|--------|--------------|------------|-------------------|------------|
|                                                          |   | **Average  balance** |   | **Interest** | ** ** | **Average  rate** | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  rate** | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  rate** | ** ** |
|                                                          |   | **$m**               |   | **$m**       | ** ** | **%**             |       | **$m** | ** ** | **$m** |   | **%** | ** ** | **$m** | ** ** | **$m** | ** ** | **%** | ** ** |
| **Interest earning assets**                                   |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Due from other financial institutions**                     |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Australia                                                     |   | 432                  |   | 21           |       | 4.9               |       | 653 |   | 26 |   | 4.0 |   | 858 |   | 47 |   | 5.5 |   |
| New Zealand                                                   |   | 582                  |   | 23           |       | 4.0               |       | 570 |   | 26 |   | 4.6 |   | 589 |   | 34 |   | 5.7 |   |
| Overseas markets                                              |   | 2,046                |   | 48           |       | 2.3               |       | 2,404 |   | 69 |   | 2.9 |   | 2,326 |   | 133 |   | 5.7 |   |
| **Investments in public securities**                          |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Australia                                                     |   | 6,390                |   | 301          |       | 4.7               |       | 5,384 |   | 259 |   | 4.8 |   | 4,517 |   | 254 |   | 5.6 |   |
| New Zealand                                                   |   | 1,642                |   | 73           |       | 4.4               |       | 1,253 |   | 55 |   | 4.4 |   | 1,690 |   | 103 |   | 6.1 |   |
| Overseas markets                                              |   | 1,870                |   | 78           |       | 4.2               |       | 1,550 |   | 82 |   | 5.3 |   | 1,613 |   | 114 |   | 7.1 |   |
| **Loans, advances and bills discounted**                      |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Australia                                                     |   | 110,260              |   | 7,263        |       | 6.6               |       | 95,846 |   | 6,273 |   | 6.5 |   | 90,028 |   | 6,694 |   | 7.4 |   |
| New Zealand                                                   |   | 20,365               |   | 1,577        |       | 7.7               |       | 18,129 |   | 1,363 |   | 7.5 |   | 17,258 |   | 1,466 |   | 8.5 |   |
| Overseas markets                                              |   | 12,213               |   | 503          |       | 4.1               |       | 14,195 |   | 627 |   | 4.4 |   | 15,087 |   | 986 |   | 6.5 |   |
| **Other assets**                                              |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Australia                                                     |   | 1,606                |   | 105          |       | 6.5               |       | 1,463 |   | 17 |   | 1.2 |   | 1,475 |   | 98 |   | 6.7 |   |
| New Zealand                                                   |   | 1,353                |   | 106          |       | 7.8               |       | 1,349 |   | 83 |   | 6.2 |   | 1,109 |   | 69 |   | 6.3 |   |
| Overseas markets                                              |   | 3,395                |   | 140          |       | 4.1               |       | 3,124 |   | 179 |   | 5.7 |   | 2,751 |   | 276 |   | 10.0 |   |
| **Intragroup assets**                                         |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Overseas markets                                              |   | 9,858                |   | 200          |       | 2.0               |       | 9,525 |   | 211 |   | 2.2 |   | 12,358 |   | 536 |   | 4.3 |   |
|                                                          |   | 172,012              |   | 10,438       |       |              |       | 155,445 |   | 9,270 |   |   |   | 151,659 |   | 10,810 |   |   |   |
| Intragroup elimination                                        |   | (9,858               | )      | (200         | )          |              |       | (9,525 | ) | (211 | ) |   |   | (12,358 | ) | (536 | ) |   |   |
|                                                          |   | 162,154              |   | 10,238       |       | 6.3               |       | 145,920 |   | 9,059 |   | 6.2 |   | 139,301 |   | 10,274 |   | 7.4 |   |
|                                                          |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Non-interest earning assets**                               |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Acceptances**                                               |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Australia                                                     |   | 13,492               |   |         |       |              |       | 14,556 |   |   |   |   |   | 15,421 |   |   |   |   |   |
| Overseas markets                                              |   | 88                   |   |         |       |              |       | 152 |   |   |   |   |   | 249 |   |   |   |   |   |
| **Premises and equipment**                                    |   | 1,436                |   |         |       |              |       | 1,349 |   |   |   |   |   | 1,264 |   |   |   |   |   |
| **Other assets**                                              |   | 15,781               |   |         |       |              |       | 18,189 |   |   |   |   |   | 19,957 |   |   |   |   |   |
| **Provisions for doubtful debts**                             |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Australia                                                     |   | (1,838               | )      |         |       |              |       | (1,805 | ) |   |   |   |   | (1,742 | ) |   |   |   |   |
| New Zealand                                                   |   | (211                 | )      |         |       |              |       | (176 | ) |   |   |   |   | (166 | ) |   |   |   |   |
| Overseas markets                                              |   | (75                  | )      |         |       |              |       | (58 | ) |   |   |   |   | (156 | ) |   |   |   |   |
|                                                          |   | 28,673               |   |         |       |              |       | 32,207 |   |   |   |   |   | 34,827 |   |   |   |   |   |
| Total assets                                                  |   | 190,827              |   |         |       |              |       | 178,127 |   |   |   |   |   | 174,128 |   |   |   |   |   |
|                                                          |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total average assets**                                      |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Australia                                                     |   | 142,491              |   |         |       |              |       | 130,515 |   |   |   |   |   | 126,530 |   |   |   |   |   |
| New Zealand                                                   |   | 25,333               |   |         |       |              |       | 22,607 |   |   |   |   |   | 21,925 |   |   |   |   |   |
| Overseas markets                                              |   | 32,861               |   |         |       |              |       | 34,530 |   |   |   |   |   | 38,031 |   |   |   |   |   |
|                                                          |   | 200,685              |   |         |       |              |       | 187,652 |   |   |   |   |   | 186,486 |   |   |   |   |   |
| Intragroup elimination                                        |   | (9,858               | )      |         |       |              |       | (9,525 | ) |   |   |   |   | (12,358 | ) |   |   |   |   |
|                                                          |   | 190,827              |   |         |       |              |       | 178,127 |   |   |   |   |   | 174,128 |   |   |   |   |   |
| % of total average assets attributable to overseas activities |   | 25.3                 | %      |         |       |              |       | 26.7 | % |   |   |   |   | 27.3 | % |   |   |   |   |

 

155

----

 
|                                    |   | **2003**             |   | **2002**     |       | **2001**          |       |
|-----------------------------------------|--------|----------------------|--------|--------------|------------|-------------------|------------|
|                                    |   | **Average  balance** |   | **Interest** | ** ** | **Average  rate** | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  rate** | ** ** | **Average  balance** | ** ** | **Interest** | ** ** | **Average  rate** | ** ** |
|                                    |   | **$m**               |   | **$m**       | ** ** | **%**             |       | **$m** | ** ** | **$m** |   | **%** | ** ** | **$m** | ** ** | **$m** | ** ** | **%** | ** ** |
| **Interest bearing liabilities**        |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Time deposits**                       |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Australia                               |   | 25,171               |   | 1,165        |       | 4.6               |       | 20,741 |   | 937 |   | 4.5 |   | 19,395 |   | 1,081 |   | 5.6 |   |
| New Zealand                             |   | 10,666               |   | 570          |       | 5.3               |       | 8,894 |   | 456 |   | 5.1 |   | 8,411 |   | 519 |   | 6.2 |   |
| Overseas markets                        |   | 14,738               |   | 336          |       | 2.3               |       | 15,113 |   | 417 |   | 2.8 |   | 13,156 |   | 658 |   | 5.0 |   |
| **Savings deposits**                    |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Australia                               |   | 11,959               |   | 279          |       | 2.3               |       | 10,964 |   | 245 |   | 2.2 |   | 9,623 |   | 269 |   | 2.8 |   |
| New Zealand                             |   | 3,285                |   | 79           |       | 2.4               |       | 3,113 |   | 76 |   | 2.4 |   | 2,832 |   | 89 |   | 3.1 |   |
| Overseas markets                        |   | 405                  |   | 3            |       | 0.7               |       | 449 |   | 7 |   | 1.6 |   | 353 |   | 7 |   | 2.0 |   |
| **Other demand deposits**               |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Australia                               |   | 26,718               |   | 963          |       | 3.6               |       | 23,397 |   | 792 |   | 3.4 |   | 20,456 |   | 872 |   | 4.3 |   |
| New Zealand                             |   | 2,108                |   | 98           |       | 4.6               |       | 1,903 |   | 78 |   | 4.1 |   | 1,621 |   | 82 |   | 5.0 |   |
| Overseas markets                        |   | 642                  |   | 9            |       | 1.4               |       | 704 |   | 11 |   | 1.6 |   | 809 |   | 20 |   | 2.5 |   |
| **Due to other financial institutions** |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Australia                               |   | 957                  |   | 49           |       | 5.1               |       | 942 |   | 49 |   | 5.2 |   | 434 |   | 31 |   | 7.2 |   |
| New Zealand                             |   | 631                  |   | 23           |       | 3.6               |       | 514 |   | 17 |   | 3.3 |   | 481 |   | 20 |   | 4.2 |   |
| Overseas markets                        |   | 6,446                |   | 111          |       | 1.7               |       | 7,399 |   | 180 |   | 2.4 |   | 10,224 |   | 539 |   | 5.3 |   |
| **Commercial paper**                    |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Australia                               |   | 5,216                |   | 252          |       | 4.8               |       | 3,888 |   | 178 |   | 4.6 |   | 5,275 |   | 310 |   | 5.9 |   |
| Overseas markets                        |   | 4,740                |   | 58           |       | 1.2               |       | 3,641 |   | 73 |   | 2.0 |   | 5,408 |   | 274 |   | 5.1 |   |
| **Borrowing corporations’ debt**   |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Australia                               |   | 6,626                |   | 353          |       | 5.3               |       | 6,097 |   | 316 |   | 5.2 |   | 6,108 |   | 365 |   | 6.0 |   |
| New Zealand                             |   | 1,824                |   | 108          |       | 5.9               |       | 1,472 |   | 88 |   | 6.0 |   | 1,334 |   | 88 |   | 6.6 |   |
| **Loan capital, bonds and notes**       |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Australia                               |   | 19,783               |   | 1,011        |       | 5.1               |       | 15,639 |   | 756 |   | 4.8 |   | 12,397 |   | 733 |   | 5.9 |   |
| New Zealand                             |   | 521                  |   | 37           |       | 7.1               |       | 441 |   | 30 |   | 6.8 |   | 399 |   | 29 |   | 7.2 |   |
| Overseas markets                        |   | 184                  |   | 4            |       | 2.2               |       | 540 |   | 15 |   | 2.8 |   | 600 |   | 35 |   | 5.9 |   |
| **Other liabilities(1)**                |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Australia                               |   | 2,714                |   | 276          |       | n/a               |       | 1,463 |   | 167 |   | n/a |   | 1,938 |   | 171 |   | n/a |   |
| New Zealand                             |   | 96                   |   | 97           |       | n/a               |       | 117 |   | 98 |   | n/a |   | 108 |   | 160 |   | n/a |   |
| Overseas markets                        |   | 33                   |   | 23           |       | n/a               |       | 37 |   | 33 |   | n/a |   | 47 |   | 66 |   | n/a |   |
| **Intragroup Liabilities**              |   |                 |   |         |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Australia                               |   | 7,926                |   | 134          |       | 1.7               |       | 6,778 |   | 128 |   | 1.9 |   | 8,763 |   | 395 |   | 4.5 |   |
| New Zealand                             |   | 1,932                |   | 66           |       | 3.4               |       | 2,747 |   | 83 |   | 3.0 |   | 3,595 |   | 141 |   | 3.9 |   |
|                                    |   | 155,321              |   | 6,104        |       |              |       | 136,993 |   | 5,230 |   |   |   | 133,767 |   | 6,954 |   |   |   |
| Intragroup elimination                  |   | (9,858               | )      | (200         | )          |              |       | (9,525 | ) | (211 | ) |   |   | (12,358 | ) | (536 | ) |   |   |
|                                    |   | 145,463              |   | 5,904        |       | 4.1               |       | 127,468 |   | 5,019 |   | 3.9 |   | 121,409 |   | 6,418 |   | 5.3 |   |

 

----

(1)          Includes foreign exchange swap costs

 

156

----

 
|                                                               |   | **2003**             |   | **2002**             |       | **2001**             |       |
|--------------------------------------------------------------------|--------|----------------------|--------|----------------------|------------|----------------------|------------|
|                                                               |   | **Average  balance** |   | **Average  balance** | ** ** | **Average  balance** | ** ** |
|                                                               |   | **$m**               |   | **$m**               | ** ** | **$m**               | ** ** |
| **Non-interest bearing liabilities**                               |   |                 |   |                 |       |                 |       |
| **Deposits**                                                       |   |                 |   |                 |       |                 |       |
| Australia                                                          |   | 3,656                |   | 3,925                |       | 3,713                |       |
| New Zealand                                                        |   | 1,159                |   | 873                  |       | 883                  |       |
| Overseas markets                                                   |   | 683                  |   | 597                  |       | 432                  |       |
| **Acceptances**                                                    |   |                 |   |                 |       |                 |       |
| Australia                                                          |   | 13,492               |   | 14,556               |       | 15,421               |       |
| Overseas markets                                                   |   | 88                   |   | 152                  |       | 249                  |       |
| **Other liabilities**                                              |   | 14,113               |   | 19,634               |       | 21,917               |       |
|                                                               |   | 33,191               |   | 39,737               |       | 42,615               |       |
| **Total liabilities**                                              |   | 178,654              |   | 167,205              |       | 164,024              |       |
| **Total average liabilities**                                      |   |                 |   |                 |       |                 |       |
| Australia                                                          |   | 134,462              |   | 123,341              |       | 120,416              |       |
| New Zealand                                                        |   | 24,071               |   | 21,507               |       | 20,988               |       |
| Overseas markets                                                   |   | 29,979               |   | 31,882               |       | 34,978               |       |
|                                                               |   | 188,512              |   | 176,730              |       | 176,382              |       |
| Intragroup elimination                                             |   | (9,858               | )      | (9,525               | )          | (12,358              | )          |
|                                                               |   | 178,654              |   | 167,205              |       | 164,024              |       |
| **Total average shareholders’ equity**                        |   |                 |   |                 |       |                 |       |
| Ordinary share capital(1)                                          |   | 10,929               |   | 9,507                |       | 8,666                |       |
| Preference share capital                                           |   | 1,244                |   | 1,415                |       | 1,438                |       |
|                                                               |   | 12,173               |   | 10,922               |       | 10,104               |       |
| **Total average liabilities and shareholders’ equity**        |   | 190,827              |   | 178,127              |       | 174,128              |       |
| % of total average liabilities attributable to overseas activities |   | 29.2                 | %      | 30.3                 | %          | 31.9                 | %          |

 

----

(1)   Includes reserves and retained profits

 

157

----

 

**34:  Interest Spreadsand Net Interest Average Margins**

 
|                                |   | **2003** |   | **2002** |   | **2001** |   |
|-------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                |   | **$m**   |   | **$m**   |   | **$m**   |   |
| **Net interest income(1)**          |   |     |   |     |   |     |   |
| Australia                           |   | 3,210    |   | 3,009    |   | 2,868    |   |
| New Zealand                         |   | 699      |   | 601      |   | 544      |   |
| Overseas markets                    |   | 425      |   | 432      |   | 446      |   |
|                                |   | 4,334    |   | 4,042    |   | 3,858    |   |
| **Average interest earning assets** |   |     |   |     |   |     |   |
| Australia                           |   | 118,688  |   | 103,346  |   | 96,878   |   |
| New Zealand                         |   | 23,942   |   | 21,301   |   | 20,646   |   |
| Overseas markets                    |   | 29,382   |   | 30,798   |   | 34,135   |   |
| Intragroup elimination              |   | (9,858   | )      | (9,525   | )      | (12,358  | )      |
|                                |   | 162,154  |   | 145,920  |   | 139,301  |   |

 
|                                                                              |   | **%**  |   | **%**  |   | **%**  |   |
|-----------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| **Gross earnings rate(2)**                                                        |   |   |   |   |   |   |   |
| Australia                                                                         |   | 6.48   |   | 6.36   |   | 7.32   |   |
| New Zealand                                                                       |   | 7.43   |   | 7.17   |   | 8.10   |   |
| Overseas markets                                                                  |   | 3.30   |   | 3.79   |   | 5.99   |   |
| Group                                                                             |   | 6.31   |   | 6.21   |   | 7.38   |   |
| **Interest spreads and net interest average margins may  be analysed as follows** |   |   |   |   |   |   |   |
| **Australia**                                                                     |   |   |   |   |   |   |   |
| Gross interest spread                                                             |   | 2.31   |   | 2.44   |   | 2.35   |   |
| Interest forgone on impaired assets(3)                                            |   | (0.02  | )      | (0.04  | )      | (0.03  | )      |
| Net interest spread                                                               |   | 2.29   |   | 2.40   |   | 2.32   |   |
| Interest attributable to net non-interest bearing items                           |   | 0.41   |   | 0.51   |   | 0.64   |   |
| Net interest average margin – Australia                                      |   | 2.70   |   | 2.91   |   | 2.96   |   |
| **New Zealand**                                                                   |   |   |   |   |   |   |   |
| Gross interest spread                                                             |   | 2.30   |   | 2.34   |   | 2.13   |   |
| Interest forgone on impaired assets(3)                                            |   | — |   | — |   | (0.03  | )      |
| Net interest spread                                                               |   | 2.30   |   | 2.34   |   | 2.10   |   |
| Interest attributable to net non-interest bearing items                           |   | 0.62   |   | 0.48   |   | 0.54   |   |
| Net interest average margin – New Zealand                                    |   | 2.92   |   | 2.82   |   | 2.64   |   |
| **Overseas markets**                                                              |   |   |   |   |   |   |   |
| Gross interest spread                                                             |   | 1.37   |   | 1.20   |   | 0.92   |   |
| Interest forgone on impaired assets(3)                                            |   | (0.07  | )      | (0.05  | )      | (0.16  | )      |
| Net interest spread                                                               |   | 1.30   |   | 1.15   |   | 0.76   |   |
| Interest attributable to net non-interest bearing items                           |   | 0.15   |   | 0.25   |   | 0.55   |   |
| Net interest average margin – Overseas markets                               |   | 1.45   |   | 1.40   |   | 1.31   |   |
| **Group**                                                                         |   |   |   |   |   |   |   |
| Gross interest spread                                                             |   | 2.28   |   | 2.31   |   | 2.15   |   |
| Interest forgone on impaired assets(3)                                            |   | (0.03  | )      | (0.04  | )      | (0.06  | )      |
| Net interest spread                                                               |   | 2.25   |   | 2.27   |   | 2.09   |   |
| Interest attributable to net non-interest bearing items                           |   | 0.42   |   | 0.50   |   | 0.68   |   |
| Net interest average margin – Group                                          |   | 2.67   |   | 2.77   |   | 2.77   |   |

 

----

(1)          On a tax equivalent basis

(2)          Average interest rate received on interestearning assets. Overseas markets includes intragroup assets

(3)          Refer note 14 to the financial report

 

158

----

 

**35:  Market Risk**

 

Market risk is the risk toearnings arising from changes in interest rates, currency exchange rates, orfrom fluctuations in bond, commodity or equity prices.

 

The Board of Directorsthrough the Risk Management Committee, a Committee of the Board, hasresponsibility for oversight of market risk within the Group. Routinemanagement of market risk is delegated to two senior management committees chairedby the Chief Financial Officer. The Credit and Trading Risk Committee isresponsible for traded market risk, while the Group Asset and LiabilityCommittee is responsible for non-traded market risk (or balance sheet risk).

 

The Credit and Trading RiskCommittee monitors traded market risk exposures (including Value at Risk andStress Testing) and is responsible for authorising the trading risk limitframework. The Group Asset and Liability Committee reviews balance sheet basedrisk measures and strategies on a monthly basis.

** **

**The Value atRisk (VaR) Measure**

A key measure of market riskis Value at Risk (VaR). VaR is a statistical estimate of the likely daily lossand is based on historical market movements.

 

The confidence level is suchthat there is 97.5% probability that the loss will not exceed the VaR estimateon any given day.

 

The Group’s standard VaRapproach for both traded and non-traded risk is historical simulation. TheGroup calculates VaR using historical changes in market rates and prices overthe previous 500 business days.

 

It should be noted thatbecause VaR is driven by actual historical observations, it is therefore not anestimate of the maximum loss that the Group could experience from an extrememarket event. As a result of this limitation, the Group utilises a number ofother risk measures (eg. stress testing) and associated supplementary limits tomeasure and manage traded market risk.

 

Traded and non-traded marketrisks have been considered separately below.

 

**TradedMarket Risks**

Trading activities arefocused on customer trading, distribution and underwriting of a range ofsecurities and derivative instruments. The principal activities include foreignexchange, interest rate and debt markets. These activities are managed on a globalproduct basis.

 

Below are aggregate VaRexposures covering both derivative and non-derivative trading positions for theGroup’s principal trading centres.

 
|                                  |   | **As at  Sep 03** |   | **High for  period  Sep 03** |   | **Low for  period  Sep 03** |   | **Ave for  period  Sep 03** |   | **As at  Sep 02** |   | **High for  period  Sep 02** |   | **Low for  period  Sep 02** |   | **Avg for  period  Sep 02** |   |
|---------------------------------------|--------|-------------------|--------|------------------------------|--------|-----------------------------|--------|-----------------------------|--------|-------------------|--------|------------------------------|--------|-----------------------------|--------|-----------------------------|--------|
|                                  |   | **$m**            |   | **$m**                       |   | **$m**                      |   | **$m**                      |   | **$m**            |   | **$m**                       |   | **$m**                      |   | **$m**                      |   |
| **Value at risk at 97.5% confidence** |   |              |   |                         |   |                        |   |                        |   |              |   |                         |   |                        |   |                        |   |
| Foreign exchange                      |   | 1.4               |   | 2.0                          |   | 0.3                         |   | 0.8                         |   | 1.1               |   | 2.3                          |   | 0.5                         |   | 1.1                         |   |
| Interest rate                         |   | 1.1               |   | 2.1                          |   | 0.5                         |   | 1.0                         |   | 1.0               |   | 3.4                          |   | 0.7                         |   | 1.5                         |   |
| Diversification benefit               |   | (0.8              | )      | (1.5                         | )      | (0.1                        | )      | (0.5                        | )      | (0.6              | )      | (1.8                         | )      | (0.2                        | )      | (0.5                        | )      |
| Total                                 |   | 1.7               |   | 2.6                          |   | 0.7                         |   | 1.3                         |   | 1.5               |   | 3.9                          |   | 1.0                         |   | 2.1                         |   |

 

VaR is calculated separatelyfor Foreign Exchange/Commodities and for Interest Rate/Debt Markets businessesas well as Total Group. The diversification benefit reflects the correlationimplied by historical rates between Foreign Exchange/Commodities and InterestRate/Debt Markets.

 

**Non-TradedMarket Risks(Balance Sheet Risk)**

The principal objectives ofbalance sheet management are to manage interest income sensitivity whilemaintaining acceptable levels of interest rate and liquidity risk and to hedgethe market value of the Group’s capital.

** **

**InterestRate Risk**

The objective of balancesheet interest rate risk management is to secure stable and optimal netinterest income over both the short (next 12 months) and long term. Non-tradedinterest rate risk relates to the potential adverse impact of changes in marketinterest rates on the Group’s future net interest income. This risk arises fromtwo principal sources: mismatches between the repricing dates of interestbearing assets and liabilities; and the investment of capital and othernon-interest bearing liabilities in interest bearing assets. Interest rate riskis reported as follows using three measures: VaR, scenario analysis (to a 1%shock) and disclosure of the interest rate sensitivity gap (Note 36).

 

159

----

 

**a)****    ****VaR Interest Rate Risk**

 

Below are aggregate VaRfigures covering non-traded interest rate risk.

 
|                                  |   | **As at  Sep 03** |   | **High for****period  Sep 03** |   | **Low for****period  Sep 03** |   | **Ave for****period  Sep 03** |   | **As at  Sep 02** |   | **High for****period  Sep 02** |   |
|---------------------------------------|--------|-------------------|--------|--------------------------------|--------|-------------------------------|--------|-------------------------------|--------|-------------------|--------|--------------------------------|--------|
|                                  |   | **$m**            |   | **$m**                         |   | **$m**                        |   | **$m**                        |   | **$m**            |   | **$m**                         |   |
| **Value at risk at 97.5% confidence** |   |              |   |                           |   |                          |   |                          |   |              |   |                           |   |
| ANZ                                   |   | 24.4              |   | 59.3                           |   | 22.2                          |   | 40.8                          |   | 56.9              |   | 56.9                           |   |
| Diversification impact                |   | —            |   | —                         |   | —                        |   | —                        |   | —            |   | —                         |   |
| Total                                 |   | 24.4              |   | 59.3                           |   | 22.2                          |   | 40.8                          |   | 56.9              |   | 56.9                           |   |

 

**b)****    ****Scenario Analysis – A 1%Shock on the Next 12 Months’ Net Interest Income**

 

A 1% overnight parallelpositive shift in the yield curve is modelled to determine the potential impacton net interest income over the immediate forward period of 12 months. This isa standard risk quantification tool.

 

The figures in the tablebelow indicate the outcome of this risk measure for the current and previousfinancial years – expressed as a percentage of reported net interest income.The sign indicates the nature of the rate sensitivity with a positive numbersignifying that a rate increase is positive for net interest income over thenext 12 months. Conversely, a negative number signifies that a rate increase isnegative for the next 12 months’ net interest income.

 
|                                 |   | **Consolidated** |   |
|--------------------------------------|--------|------------------|--------|
|                                 |   | **2003**         |   | **2002** |   |
| **Impact of 1% Rate Shock**          |   |             |   |   |   |
| As at 30 September                   |   | 1.67             | %      | 0.43 | % |
| Maximum exposure (in absolute terms) |   | 1.67             | %      | 0.63 | % |
| Minimum exposure (in absolute terms) |   | 0.03             | %      | 0.04 | % |
| Average exposure (in absolute terms) |   | 0.74             | %      | 0.25 | % |

 

The extent of mismatchingbetween the repricing characteristics and timing of interest bearing assets andliabilities at any point has implications for future net interest income. On aglobal basis, the Group quantifies the potential variation in future netinterest income as a result of these repricing mismatches each month using astatic gap model.

 

The repricing gaps themselvesare constructed based on contractual repricing information. However, for thoseassets and liabilities where the contractual term to repricing is notconsidered to be reflective of the actual interest rate sensitivity (forexample, products priced at the Group’s discretion), a profile based onhistorically observed and/or anticipated rate sensitivity is used. Thistreatment excludes the effect of basis risk between customer pricing andwholesale market pricing. For example, when wholesale market rates areanticipating an official rate increase the Group does not reprice certaincustomer business until the first repricing date after the official rate rise.

 

The majority of the Group’snon-traded interest exposure exists in Australia and New Zealand. In thesecentres, a sophisticated balance sheet simulation process supplements thisstatic gap information. This allows the net interest income outcomes of anumber of different scenarios – with different market interest rateenvironments and future balance sheet structures – to be identified. Thisbetter enables the Group to accurately quantify the interest rate risksassociated with the balance sheet, and to formulate strategies to managecurrent and future risk profiles.

** **

**ForeignCurrency Related Risks**

The Group’s investment ofcapital in non-Australian operations generates an exposure to changes in therelative value of individual currencies against the Australian Dollar.Variations in the value of these foreign currency investments are reflected inthe Foreign Currency Translation Reserve.

 

Revenue related hedgecontracts outstanding at 30 September 2003 were USD 93 million, GBP 6million and NZD 1,287 million.

 

The Group incurs somenon-traded foreign currency risk related to the potential repatriation ofprofits from non-Australian business units. This risk is routinely monitoredand hedging is conducted where it is likely to add shareholder value. 

 

The risk relating tomismatching of non-traded foreign currency assets and liabilities has not beenpresented, as this type of risk is minimal for the Group.

 

160

----

 

**36:  Interest Sensitivity Gap**

 

The following tablerepresents the interest rate sensitivity as at 30 September 2003 of theGroup’s assets, liabilities and off balance sheet instruments repricing (thatis, when interest rates applicable to each asset or liability can be changed)in the periods shown.

 

Repricing gaps are based uponcontractual repricing information except where the contractual terms are notconsidered to be reflective of actual interest rate sensitivity, for example,those assets and liabilities priced at the Group’s discretion. In such cases,the rate sensitivity is based upon historically observed and/or anticipatedrate sensitivity.

 

Sensitivity to interest ratesarises from mismatches in the period to repricing of assets and that of thecorresponding liability funding. These mismatches are managed within policyguidelines for mismatch positions.

 
| **At 30  September 2003**                              |   | **Less than  3 months** |   | **Between  3 months and  6 months** |   | **Between  6 months and  12 months** |   | **Between  1 year and  5 years** |   | **After  5 years** |   | **Not  bearing  interest** |   | **Total** |   |
|-------------------------------------------------------------|--------|-------------------------|--------|-------------------------------------|--------|--------------------------------------|--------|----------------------------------|--------|--------------------|--------|----------------------------|--------|-----------|--------|
|                                                        |   | **$m**                  |   | **$m**                              |   | **$m**                               |   | **$m**                           |   | **$m**             |   | **$m**                     |   | **$m**    |   |
| Liquid assets and due from other financial institutions     |   | 6,857                   |   | 388                                 |   | 103                                  |   | 47                               |   | 36                 |   | 1,588                      |   | 9,019     |   |
| Trading and investment securities                           |   | 4,452                   |   | 890                                 |   | 1,231                                |   | 2,059                            |   | 291                |   | 57                         |   | 8,980     |   |
| Net loans and advances                                      |   | 117,209                 |   | 6,796                               |   | 7,201                                |   | 18,804                           |   | 466                |   | (1,011                     | )      | 149,465   |   |
| Other assets                                                |   | 640                     |   | 61                                  |   | 92                                   |   | 828                              |   | 58                 |   | 26,448                     |   | 28,127    |   |
| Total assets                                                |   | 129,158                 |   | 8,135                               |   | 8,627                                |   | 21,738                           |   | 851                |   | 27,082                     |   | 195,591   |   |
| Certificates of deposit and term deposits                   |   | 39,945                  |   | 4,313                               |   | 2,634                                |   | 2,158                            |   | 44                 |   | —                     |   | 49,094    |   |
| Other deposits                                              |   | 43,002                  |   | 471                                 |   | 956                                  |   | 2,971                            |   | —             |   | 5,831                      |   | 53,231    |   |
| Other borrowings and due to other financial institutions    |   | 20,408                  |   | 2,591                               |   | 2,352                                |   | 2,024                            |   | 35                 |   | 1,226                      |   | 28,636    |   |
| Other liabilities                                           |   | 480                     |   | 19                                  |   | 65                                   |   | 441                              |   | 117                |   | 27,519                     |   | 28,641    |   |
| Bonds, notes and loan capital                               |   | 10,384                  |   | 1,273                               |   | 241                                  |   | 8,466                            |   | 1,838              |   | —                     |   | 22,202    |   |
| Total liabilities                                           |   | 114,219                 |   | 8,667                               |   | 6,248                                |   | 16,060                           |   | 2,034              |   | 34,576                     |   | 181,804   |   |
| Shareholders’ equity and outside equity interests      |   | —                  |   | —                              |   | —                               |   | —                           |   | —             |   | 13,787                     |   | 13,787    |   |
| Off balance sheet items affecting interest rate sensitivity |   | (4,818                  | )      | (111                                | )      | (1,214                               | )      | 5,227                            |   | 916                |   | —                     |   | —    |   |
| **Interest sensitivity gap**                                |   |                    |   |                                |   |                                 |   |                             |   |               |   |                       |   |      |   |
| •**net**                                               |   | 10,121                  |   | (643                                | )      | 1,165                                |   | 10,905                           |   | (267               | )      | (21,281                    | )      | —    |   |
| •**cumulative**                                        |   | 10,121                  |   | 9,478                               |   | 10,643                               |   | 21,548                           |   | 21,281             |   | —                     |   | —    |   |

 

The bulk of the Group’s loan/depositbusiness is conducted in the domestic balance sheets of Australia and NewZealand and is priced on a floating rate basis. The mix of repricing maturitiesin these books is influenced by the underlying financial needs of customers.

 

Offshore operations, whichare generally wholesale in nature, are able to minimise interest ratesensitivity through closely matching the maturity of loans and deposits. Givenboth the size and nature of their business, the interest rate sensitivities ofthese balance sheets contribute little to the aggregate risk exposure, which isprimarily a reflection of the positions in Australia and New Zealand.

 

In Australia and New Zealand,a combination of pricing initiatives and off-balance sheet instruments are usedin the management of interest rate risk. For example, where a strong medium tolong term rate view is held, hedging and pricing strategies are used to modifythe profile’s rate sensitivity so that it is positioned to take advantage ofthe expected movement in interest rates. However, such positions are takenwithin the overall risk limits specified by policy.

 

The following tablerepresents the interest rate sensitivity as at 30 September 2002 of theGroup’s assets, liabilities and off balance sheet instruments repricing (thatis, when interest rates applicable to each asset or liability can be changed)in the periods shown.

 
| **At 30  September 2002**                              |   | **Less than  3 months** |   | **Between  3 months and  6 months** |   | **Between  6 months and  12 months** |   | **Between  1 year and  5 years** |   | **After  5 years** |   | **Not  bearing  interest** |   | **Total** |   |
|-------------------------------------------------------------|--------|-------------------------|--------|-------------------------------------|--------|--------------------------------------|--------|----------------------------------|--------|--------------------|--------|----------------------------|--------|-----------|--------|
|                                                        |   | **$m**                  |   | **$m**                              |   | **$m**                               |   | **$m**                           |   | **$m**             |   | **$m**                     |   | **$m**    |   |
| Liquid assets and due from other financial institutions     |   | 8,071                   |   | 893                                 |   | 11                                   |   | 44                               |   | 32                 |   | 2,174                      |   | 11,225    |   |
| Trading and investment securities                           |   | 6,339                   |   | 717                                 |   | 646                                  |   | 1,247                            |   | 365                |   | 168                        |   | 9,482     |   |
| Net loans and advances                                      |   | 99,459                  |   | 6,918                               |   | 7,130                                |   | 19,028                           |   | 545                |   | (1,020                     | )      | 132,060   |   |
| Other assets                                                |   | 86                      |   | 56                                  |   | 73                                   |   | 245                              |   | 104                |   | 29,774                     |   | 30,338    |   |
| Total assets                                                |   | 113,955                 |   | 8,584                               |   | 7,860                                |   | 20,564                           |   | 1,046              |   | 31,096                     |   | 183,105   |   |
| Certificates of deposit and term deposits                   |   | 38,231                  |   | 5,183                               |   | 3,638                                |   | 1,869                            |   | 11                 |   | —                     |   | 48,932    |   |
| Other deposits                                              |   | 38,073                  |   | 820                                 |   | 984                                  |   | 4,283                            |   | —             |   | 5,312                      |   | 49,472    |   |
| Other borrowings and due to other financial institutions    |   | 16,494                  |   | 2,694                               |   | 2,589                                |   | 2,014                            |   | 25                 |   | 1,937                      |   | 25,753    |   |
| Other liabilities                                           |   | 124                     |   | 2                                   |   | —                               |   | 1                                |   | 22                 |   | 29,181                     |   | 29,330    |   |
| Bonds, notes and loan capital                               |   | 8,646                   |   | 1,087                               |   | 486                                  |   | 7,458                            |   | 476                |   | —                     |   | 18,153    |   |
| Total liabilities                                           |   | 101,568                 |   | 9,786                               |   | 7,697                                |   | 15,625                           |   | 534                |   | 36,430                     |   | 171,640   |   |
| Shareholders’ equity and outside equity interests      |   |                    |   |                                |   |                                 |   |                             |   |               |   | 11,465                     |   | 11,465    |   |
| Off balance sheet items affecting interest rate sensitivity |   | (7,873                  | )      | (1,859                              | )      | (2,189                               | )      | 12,289                           |   | (368               | )      | —                     |   | —    |   |
| **Interest sensitivity gap**                                |   |                    |   |                                |   |                                 |   |                             |   |               |   |                       |   |      |   |
| •**net**                                               |   | 4,514                   |   | (3,061                              | )      | (2,026                               | )      | 17,228                           |   | 144                |   | (16,799                    | )      | —    |   |
| •**cumulative**                                        |   | 4,514                   |   | 1,453                               |   | (573                                 | )      | 16,655                           |   | 16,799             |   | —                     |   | —    |   |

 

161

----

 

**37:  Net Fair Value of Financial Instruments**

 

Australian AccountingStandard AASB 1033: Presentation and Disclosure of Financial Instruments (AASB1033) requires disclosure of the net fair value of on and off balance sheetfinancial instruments. The disclosures exclude all non-financial instruments,such as income taxes and regulatory deposits, and specified financialinstruments, such as interests in controlled entities. The aggregate net fairvalue amounts do not represent the underlying value of the Group.

 

Fair value is the amount forwhich an asset could be exchanged, or a liability settled, betweenknowledgeable, willing parties in an arm’s length transaction. Net fair valueis the fair value adjusted for transaction costs.  

 

Quoted market prices, whereavailable, are adjusted for material transaction costs and used as the measureof net fair value. In cases where quoted market values are not available, netfair values are based on present value estimates or other valuation techniques.For the majority of short-term financial instruments, defined as those whichreprice or mature in 90 days or less, with no significant change in credit risk,the net fair value was assumed to equate to the carrying amount in the Group’sstatement of financial position.

 

The fair values are based onrelevant information available as at 30 September 2003. While judgement isused in obtaining the net fair value of financial instruments, there areinherent weaknesses in any estimation technique. Many of the estimates involveuncertainties and matters of significant judgement, and changes in underlyingassumptions could significantly affect these estimates. Furthermore, marketprices or rates of discount are not available for many of the financialinstruments valued and surrogates have been used which may not reflect theprice that would apply in an actual sale.

 

The net fair value amountshave not been updated for the purposes of these financial statements since 30September 2003, and therefore the net fair value of the financialinstruments subsequent to 30 September 2003 may be different from theamounts reported.

 
|                                                                   |   | **Net fair value** |   | **Carrying value** |   |
|------------------------------------------------------------------------|--------|--------------------|--------|--------------------|--------|
| **Financial Assets**                                                   |   | **2003**           |   | **2002**           |   | **2003** |   | **2002** |   |
|                                                                   |   | **$m**             |   | **$m**             |   | **$m** |   | **$m** |   |
| Liquid assets                                                          |   | 6,592              |   | 7,410              |   | 6,592 |   | 7,410 |   |
| Due from other financial institutions                                  |   | 2,427              |   | 3,815              |   | 2,427 |   | 3,815 |   |
| Trading securities                                                     |   | 4,213              |   | 5,873              |   | 4,213 |   | 5,873 |   |
| Investment securities, shares in associates and joint venture entities |   | 6,706              |   | 5,389              |   | 6,581 |   | 5,301 |   |
| Loans and advances                                                     |   | 151,058            |   | 133,793            |   | 149,465 |   | 132,060 |   |
| Customers’ liabilities for acceptances                            |   | 13,178             |   | 13,796             |   | 13,178 |   | 13,796 |   |
| Other financial assets                                                 |   | 10,618             |   | 12,114             |   | 9,824 |   | 11,413 |   |

 

**Liquidassets and Due from other financial institutions**

The carrying values of thesefinancial instruments are considered to approximate their net fair values asthey are short-term in nature or are receivable on demand. 

 

**Tradingsecurities**

Trading securities arecarried at market value. Market value is generally based on quoted marketprices, broker or dealer price quotations, or prices for securities withsimilar credit risk, maturity and yield characteristics.

 

**Investmentsecurities**

Net fair value is based onquoted market prices or broker or dealer price quotations. If this informationis not available, net fair value has been estimated using quoted market pricesfor securities with similar credit, maturity and yield characteristics.

 

**Shares inassociates and joint venture entities**

Net fair value is based onquoted market prices or broker or dealer price quotations. If this informationis not available net fair value has been estimated using quoted market pricesfor securities with similar credit, maturity and yield characteristics, or byreference to the net tangible asset backing of the investee.

 

**Loans,advances and Customers’ liabilities for acceptances**

The carrying value of loans,advances and acceptances is net of specific and general provisions for doubtfuldebts and income yet to mature. The estimated net fair value of loans, advancesand acceptances is based on the discounted amount of estimated future cashflows and accordingly has not been adjusted for either specific or general provisionsfor doubtful debts.

 

Estimated contractual cashflows for performing loans are discounted at estimated current bank creditspreads to determine fair value. For loans with doubt as to collection,expected cash flows (inclusive of the value of security) are discounted using arate which includes a premium for the uncertainty of the flows.

 

The difference betweenestimated net fair values of loans, advances and acceptances and carrying valuereflects changes in interest rates and the credit worthiness of borrowers sinceloan origination.

 

Net lease receivables, with acarrying value of $2,996 million (2002 $3,151 million) and a net fair value of$3,003 million (2002: $3,155 million), are included in loans and advances.

 

162

----

 

**Otherfinancial assets**

Included in this category areaccrued interest, fees receivable and derivative financial instruments. Thecarrying values of accrued interest and fees receivable are considered toapproximate their net fair values as they are short term in nature or arereceivable on demand.

 

The fair values of derivativefinancial instruments such as interest rate swaps and currency swaps werecalculated using discounted cash flow models based on current market yields forsimilar types of instruments and the maturity of each instrument. Foreignexchange contracts and interest rate option contracts were valued using marketprices and option valuation models as appropriate.

 

Properties held for resale,deferred tax assets and prepaid expenses are not considered financial assets.

 
|                                |   | **Net fair value** |   | **Carrying value** |   |
|-------------------------------------|--------|--------------------|--------|--------------------|--------|
| **Financial  Liabilities**          |   | **2003**           |   | **2002**           |   | **2003** |   | **2002** |   |
|                                |   | **$m**             |   | **$m**             |   | **$m** |   | **$m** |   |
| Due to other financial institutions |   | 6,467              |   | 10,860             |   | 6,467 |   | 10,860 |   |
| Deposits and other borrowings       |   | 124,519            |   | 113,342            |   | 124,494 |   | 113,259 |   |
| Liability for acceptances           |   | 13,178             |   | 13,796             |   | 13,178 |   | 13,796 |   |
| Bonds and notes                     |   | 16,837             |   | 14,999             |   | 16,572 |   | 14,708 |   |
| Loan capital                        |   | 5,640              |   | 3,505              |   | 5,630 |   | 3,445 |   |
| Other financial liabilities         |   | 13,285             |   | 12,375             |   | 13,062 |   | 12,156 |   |

 

**Due to otherfinancial institutions**

The carrying value of amountsdue to other financial institutions is considered to approximate the net fairvalue.

 

**Deposits andother borrowings**

The net fair value of adeposit liability without a specified maturity or at call is deemed by AASB1033 to be the amount payable on demand at the reporting date. The fair valueis not adjusted for any value expected to be derived from retaining the depositfor a future period of time.

 

For interest bearing fixedmaturity deposits and other borrowings and acceptances without quoted marketprices, market borrowing rates of interest for debt with a similar maturity areused to discount contractual cash flows.

 

**Bonds andnotes and Loan capital**

The aggregate net fair valueof bonds and notes and loan capital at 30 September 2003 was calculatedbased on quoted market prices. For those debt issues where quoted market priceswere not available, a discounted cash flow model using a yield curveappropriate for the remaining term to maturity of the instrument was used.

 

**Otherfinancial liabilities**

This category includesaccrued interest and fees payable for which the carrying amount is consideredto approximate the fair value. Also included are derivative financial instruments,where fair value is determined on the basis described under ‘Other financialassets’.

 

Income tax liabilities, otherprovisions and accrued charges are not considered financial instruments.

 

**Commitmentsand contingencies**

As outlined in note 48, theGroup has various credit related commitments. Based upon the level of feescurrently charged for granting such commitments, taking into account maturityand interest rates, together with any changes in the creditworthiness ofcounterparties since origination of the commitments, their estimatedreplacement or net fair value is not material.

 

**Transactioncosts**

The fair value of financialinstruments required to be disclosed under US accounting standard, Statement ofFinancial Accounting Standards No. 107 ‘Disclosures about Fair Value ofFinancial Instruments’ (SFAS 107) is calculated without regard to estimatedtransaction costs. Such transaction costs are not material, and accordingly thefair values shown above would not differ materially from fair values calculatedin accordance with SFAS 107.

 

163

----

 

**38:  Derivative Financial Instruments**

 

**Derivatives**

Derivative instruments arecontracts whose value is derived from one or more underlying financialinstruments or indices. They include swaps, forward rate agreements, futures,options and combinations of these instruments. The use of derivatives and theirsale to customers as risk management products is an integral part of theGroup’s trading activities. Derivatives are also used to manage the Group’s ownexposure to fluctuations in exchange and interest rates as part of its assetand liability management activities and are classified as other than trading.Derivatives are subject to the same types of credit and market risk as otherfinancial instruments, and the Group manages these risks in a consistentmanner.

 

The principal exchange ratecontracts used by the Group are forward foreign exchange contracts, currencyswaps and currency options. Forward foreign exchange contracts are agreementsto buy or sell a specified quantity of foreign currency on a specified futuredate at an agreed rate. A currency swap generally involves the exchange, ornotional exchange, of equivalent amounts of two currencies and a commitment toexchange interest periodically until the principal amounts are re-exchanged ona future date. Currency options provide the buyer with the right, but not theobligation, either to purchase or sell a fixed amount of a currency at aspecified rate on or before a future date. As compensation for assuming theoption risk, the option writer generally receives a premium at the start of theoption period.

 

The principal interest ratecontracts used by the Group are forward rate agreements, interest rate futures,interest rate swaps and options. Forward rate agreements are contracts for thepayment of the difference between a specified interest rate and a referencerate on a notional deposit at a future settlement date. There is no exchange ofprincipal. An interest rate future is an exchange traded contract for thedelivery of a standardised amount of a fixed income security or time deposit ata future date. Interest rate swap transactions generally involve the exchangeof fixed and floating interest payment obligations without the exchange of theunderlying principal amounts.

 

Derivative transactionsgenerate income for the Group from buy/sell spreads and from trading positionstaken by the Group. Income from these transactions is taken to net interestincome, foreign exchange earnings or profit on trading instruments. Income orexpense on derivatives entered into for balance sheet and revenue hedgingpurposes is accrued and recorded as an adjustment to the interest income orexpense of the related hedged item.

 

**Credit risk**

The credit risk of derivativefinancial instruments arises from the potential for a counterparty to defaulton its contractual obligation. Credit risk arises when market movements aresuch that the derivative has a positive value to the Group. It is the cost ofreplacing the contract in the event of counterparty default. The Group limitsits credit risk within a conservative framework by dealing with creditworthycounterparties, setting credit limits on exposures to counterparties, andobtaining collateral where appropriate.

 

The following table providesan overview of the Group’s exchange rate, credit, commodity and interest ratederivatives. It includes all trading and other than trading contracts. Notionalprincipal amounts measure the amount of the underlying physical or financialcommodity and represent the volume of outstanding transactions. They are not ameasure of the risk associated with a derivative.

 

The credit equivalent amountis calculated in accordance with the Australian Prudential RegulationAuthority’s Capital Adequacy guidelines. It combines the aggregate grossreplacement cost with an allowance for the potential increase in value over theremaining term of the transaction should market conditions change.

 

The fair value of a derivativerepresents the aggregate net present value of the cash inflows and outflowsrequired to extinguish the rights and obligations arising from the derivativein an orderly market as at the reporting date. Fair value does not indicatefuture gains or losses, but rather the unrealised gains and losses from markingto market all derivatives at a particular point in time.

 
| **Consolidated**               |   | **Notional  principal  amount  2003** |   | **Credit  equivalent  amount  2003** |   | **Fair value  2003** |   | **Notional  principal  amount  2002** |   | **Credit  equivalent  amount  2002** |   | **Fair value  2002** |   |
|--------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|----------------------|--------|---------------------------------------|--------|--------------------------------------|--------|----------------------|--------|
|                           |   | **$m**                                |   | **$m**                               |   | **$m**               |   | **$m**                                |   | **$m**                               |   | **$m**               |   |
| **Foreign exchange contracts** |   |                                  |   |                                 |   |                 |   |                                  |   |                                 |   |                 |   |
| Spot and forward contracts     |   | 144,687                               |   | 3,717                                |   | (683                 | )      | 140,867                               |   | 3,390                                |   | 815                  |   |
| Swap agreements                |   | 42,528                                |   | 3,124                                |   | (121                 | )      | 23,834                                |   | 1,807                                |   | (13                  | )      |
| Futures contracts(1)           |   | 353                                   |   | n/a                                  |   | —               |   | 337                                   |   | n/a                                  |   | —               |   |
| Options purchased              |   | 10,971                                |   | 433                                  |   | 395                  |   | 8,779                                 |   | 435                                  |   | 272                  |   |
| Options sold(2)                |   | 15,889                                |   | n/a                                  |   | (451                 | )      | 11,741                                |   | n/a                                  |   | (216                 | )      |
| Other contracts                |   | 3,818                                 |   | 408                                  |   | 112                  |   | 3,046                                 |   | 623                                  |   | 456                  |   |
|                           |   | 218,246                               |   | 7,682                                |   | (748                 | )      | 188,604                               |   | 6,255                                |   | 1,314                |   |
| **Interest rate contracts**    |   |                                  |   |                                 |   |                 |   |                                  |   |                                 |   |                 |   |
| Forward rate agreements        |   | 47,617                                |   | 10                                   |   | 11                   |   | 35,890                                |   | 18                                   |   | 5                    |   |
| Swap agreements                |   | 236,083                               |   | 3,232                                |   | 487                  |   | 212,765                               |   | 3,491                                |   | 634                  |   |
| Futures contracts(1)           |   | 13,458                                |   | n/a                                  |   | 3                    |   | 26,934                                |   | n/a                                  |   | (4                   | )      |
| Options purchased              |   | 11,961                                |   | 117                                  |   | 61                   |   | 16,118                                |   | 127                                  |   | 88                   |   |
| Options sold(2)                |   | 13,987                                |   | n/a                                  |   | (23                  | )      | 9,244                                 |   | n/a                                  |   | (65                  | )      |
|                           |   | 323,106                               |   | 3,359                                |   | 539                  |   | 300,951                               |   | 3,636                                |   | 658                  |   |
| **Credit contracts**           |   |                                  |   |                                 |   |                 |   |                                  |   |                                 |   |                 |   |
| Credit default swaps(3)        |   | 8,520                                 |   | 2,836                                |   | 73                   |   | 5,722                                 |   | 3,277                                |   | (13                  | )      |
|                           |   | 549,872                               |   | 13,877                               |   | (136                 | )      | 495,277                               |   | 13,168                               |   | 1,959                |   |

 

----

(1)          Credit equivalent amounts have not beenincluded as there is minimal credit risk associated with exchange tradedfutures where the clearing house is the counterparty

(2)          Options sold have no credit exposure, as theyrepresent obligations rather than assets

(3)          Credit default swaps include structuredfinancing transactions that expose the Group to the performance of certainassets. The total investment ofthe Group in these transactions is USD 750 million (2002: USD 750 million) 

 

164

----

 

The maturity structure ofderivative activity is a primary component of potential credit exposure. Thetable below shows the remaining maturity profile by class of derivatives, basedon notional principal amounts. The table also shows the notional principalamounts of the derivatives held for trading and other than trading purposes.

 
|                                        |   | **Remaining life**    |   |             |   |                      |   |      |   |
|---------------------------------------------|--------|-----------------------|--------|------------------|--------|---------------------------|--------|-----------|--------|
| **Consolidated  At 30 September 2003** |   | **Less than  1 year** |   | **1 to 5 years** |   | **Greater than  5 years** |   | **Total** |   | **Trading** |   | **Other than  Trading** |   |
|                                        |   | **$m**                |   | **$m**           |   | **$m**                    |   | **$m**    |   | **$m** |   | **$m** |   |
| **Foreign exchange contracts**              |   |                  |   |             |   |                      |   |      |   |   |   |   |   |
| Spot and forward contracts                  |   | 138,559               |   | 5,677            |   | 451                       |   | 144,687   |   | 130,825 |   | 13,862 |   |
| Swap agreements                             |   | 9,632                 |   | 24,616           |   | 8,280                     |   | 42,528    |   | 17,763 |   | 24,765 |   |
| Future contracts                            |   | 348                   |   | 5                |   | —                    |   | 353       |   | 353 |   | — |   |
| Options purchased                           |   | 10,002                |   | 792              |   | 177                       |   | 10,971    |   | 10,971 |   | — |   |
| Options sold                                |   | 14,475                |   | 1,228            |   | 186                       |   | 15,889    |   | 15,889 |   | — |   |
| Other contracts                             |   | 1,379                 |   | 2,258            |   | 181                       |   | 3,818     |   | 3,808 |   | 10 |   |
|                                        |   | 174,395               |   | 34,576           |   | 9,275                     |   | 218,246   |   | 179,609 |   | 38,637 |   |
| **Interest rate contracts**                 |   |                  |   |             |   |                      |   |      |   |   |   |   |   |
| Forward rate agreements                     |   | 47,090                |   | 527              |   | —                    |   | 47,617    |   | 42,764 |   | 4,853 |   |
| Swap agreements                             |   | 94,922                |   | 106,612          |   | 34,549                    |   | 236,083   |   | 186,760 |   | 49,323 |   |
| Futures contracts                           |   | 13,114                |   | 344              |   | —                    |   | 13,458    |   | 13,458 |   | — |   |
| Options purchased                           |   | 5,407                 |   | 5,790            |   | 764                       |   | 11,961    |   | 11,961 |   | — |   |
| Options sold                                |   | 13,987                |   | —           |   | —                    |   | 13,987    |   | 13,987 |   | — |   |
|                                        |   | 174,520               |   | 113,273          |   | 35,313                    |   | 323,106   |   | 268,930 |   | 54,176 |   |
| **Credit contracts**                        |   |                  |   |             |   |                      |   |      |   |   |   |   |   |
| Credit default swaps                        |   | 2,157                 |   | 6,287            |   | 76                        |   | 8,520     |   | 5,298 |   | 3,222 |   |
| **Total**                                   |   | 351,072               |   | 154,136          |   | 44,664                    |   | 549,872   |   | 453,837 |   | 96,035 |   |

 
|                                        |   | **Remaining life**    | ** ** |             | ** ** |                      | ** ** |      | ** ** |
|---------------------------------------------|--------|-----------------------|------------|------------------|------------|---------------------------|------------|-----------|------------|
| **Consolidated  At 30 September 2002** |   | **Less than  1 year** | ** ** | **1 to 5 years** | ** ** | **Greater than  5 years** | ** ** | **Total** | ** ** | **Trading** | ** ** | **Other than  Trading** | ** ** |
|                                        |   | **$m**                |       | **$m**           |       | **$m**                    |       | **$m**    |       | **$m** |   | **$m** |   |
| **Foreign exchange contracts**              |   |                  |       |             |       |                      |       |      |       |   |   |   |   |
| Spot and forward contracts                  |   | 132,923               |       | 7,480            |       | 464                       |       | 140,867   |       | 130,940 |   | 9,927 |   |
| Swap agreements                             |   | 5,315                 |       | 13,448           |       | 5,071                     |       | 23,834    |       | 6,534 |   | 17,300 |   |
| Future contracts                            |   | 325                   |       | 12               |       | —                    |       | 337       |       | 337 |   | — |   |
| Options purchased                           |   | 7,019                 |       | 1,498            |       | 262                       |       | 8,779     |       | 8,779 |   | — |   |
| Options sold                                |   | 9,658                 |       | 1,918            |       | 165                       |       | 11,741    |       | 11,741 |   | — |   |
| Other contracts                             |   | 955                   |       | 1,789            |       | 302                       |       | 3,046     |       | 2,959 |   | 87 |   |
|                                        |   | 156,195               |       | 26,145           |       | 6,264                     |       | 188,604   |       | 161,290 |   | 27,314 |   |
| **Interest rate contracts**                 |   |                  |       |             |       |                      |       |      |       |   |   |   |   |
| Forward rate agreements                     |   | 35,608                |       | 282              |       | —                    |       | 35,890    |       | 32,681 |   | 3,209 |   |
| Swap agreements                             |   | 95,830                |       | 86,697           |       | 30,238                    |       | 212,765   |       | 173,199 |   | 39,566 |   |
| Futures contracts                           |   | 18,087                |       | 8,847            |       | —                    |       | 26,934    |       | 26,705 |   | 229 |   |
| Options purchased                           |   | 9,012                 |       | 6,554            |       | 552                       |       | 16,118    |       | 16,118 |   | — |   |
| Options sold                                |   | 8,959                 |       | 280              |       | 5                         |       | 9,244     |       | 9,244 |   | — |   |
|                                        |   | 167,496               |       | 102,660          |       | 30,795                    |       | 300,951   |       | 257,947 |   | 43,004 |   |
| **Credit contracts**                        |   |                  |       |             |       |                      |       |      |       |   |   |   |   |
| Credit default swaps                        |   | 1,520                 |       | 4,156            |       | 46                        |       | 5,722     |       | 1,718 |   | 4,004 |   |
| **Total**                                   |   | 325,211               |       | 132,961          |       | 37,105                    |       | 495,277   |       | 420,955 |   | 74,322 |   |

 

165

----

 

Concentrations of credit riskexist for groups of counterparties when they have similar economiccharacteristics. Major concentrations of credit risk arise by location and typeof customer.

 

The following table shows theconcentrations of credit risk, by class of counterparty and by geographiclocation, measured by credit equivalent amount.

 

In excess of 50% (2002: 40%)of the Group’s exposures are with counterparties which are either Australianbanks or banks based in other OECD countries.

 
| **Consolidated  At 30 September 2003** |   | **OECD  governments** |   | **Australian  and  OECD banks** |   | **Corporations,  non-OECD  banks and  others** |   | **Total** |   |
|---------------------------------------------|--------|-----------------------|--------|---------------------------------|--------|------------------------------------------------|--------|-----------|--------|
|                                        |   | **$m**                |   | **$m**                          |   | **$m**                                         |   | **$m**    |   |
| Australia                                   |   | 227                   |   | 6,559                           |   | 5,531                                          |   | 12,317    |   |
| New Zealand                                 |   | 21                    |   | 531                             |   | 506                                            |   | 1,058     |   |
| Overseas markets                            |   | 3                     |   | 386                             |   | 113                                            |   | 502       |   |
|                                        |   | 251                   |   | 7,476                           |   | 6,150                                          |   | 13,877    |   |

 
| **Consolidated  At 30 September 2002** |   | **OECD  governments** | ** ** | **Australian  and  OECD banks** | ** ** | **Corporations,  non-OECD  banks and  others** | ** ** | **Total** | ** ** |
|---------------------------------------------|--------|-----------------------|------------|---------------------------------|------------|------------------------------------------------|------------|-----------|------------|
|                                        |   | **$m**                | ** ** | **$m**                          | ** ** | **$m**                                         | ** ** | **$m**    | ** ** |
| Australia                                   |   | 402                   |       | 3,113                           |       | 6,351                                          |       | 9,866     |       |
| New Zealand                                 |   | 17                    |       | 378                             |       | 333                                            |       | 728       |       |
| Overseas markets                            |   | 1                     |       | 2,206                           |       | 367                                            |       | 2,574     |       |
|                                        |   | 420                   |       | 5,697                           |       | 7,051                                          |       | 13,168    |       |

 

The next table shows the fairvalues of the Group’s derivatives by product type, disaggregated into grossunrealised gains and gross unrealised losses.

 

The fair value of a derivativerepresents the aggregate net present value of the cash inflows and outflowsrequired to extinguish the rights and obligations arising from the derivativein an orderly market as at the reporting date. Fair value does not indicatefuture gains or losses, but rather the unrealised gains and losses from markingto market all derivatives at a particular point in time.

 
|                           |   | **Other than Trading**      |   | **Trading**                 |   | **Trading**                 |   |
|--------------------------------|--------|-----------------------------|--------|-----------------------------|--------|-----------------------------|--------|
| **Consolidated**               |   | **Fair value  as at  2003** |   | **Fair value  as at  2002** |   | **Fair value  as at  2003** |   | **Fair value  as at  2002** |   | **Fair value  Average  2003** |   | **Fair value  Average  2002** |   |
|                           |   | **$m**                      |   | **$m**                      |   | **$m**                      |   | **$m** |   | **$m** |   | **$m** |   |
| **Foreign exchange contracts** |   |                        |   |                        |   |                        |   |   |   |   |   |   |   |
| Spot and forward contracts     |   |                        |   |                        |   |                        |   |   |   |   |   |   |   |
| Gross unrealised gains         |   | 628                         |   | 1,452                       |   | 1,923                       |   | 553 |   | 1,284 |   | 2,187 |   |
| Gross unrealised losses        |   | (2,509                      | )      | (349                        | )      | (725                        | )      | (841 | ) | (794 | ) | (1,689 | ) |
| Swap agreements                |   |                        |   |                        |   |                        |   |   |   |   |   |   |   |
| Gross unrealised gains         |   | 397                         |   | 333                         |   | 776                         |   | 436 |   | 554 |   | 354 |   |
| Gross unrealised losses        |   | (283                        | )      | (96                         | )      | (1,011                      | )      | (686 | ) | (672 | ) | (728 | ) |
| Options purchased              |   | —                      |   | —                      |   | 395                         |   | 272 |   | 270 |   | 348 |   |
| Options sold                   |   | —                      |   | —                      |   | (451                        | )      | (216 | ) | (326 | ) | (412 | ) |
| Other contracts                |   |                        |   |                        |   |                        |   |   |   |   |   |   |   |
| Gross unrealised gains         |   | —                      |   | —                      |   | 245                         |   | 501 |   | 315 |   | 459 |   |
| Gross unrealised losses        |   | —                      |   | —                      |   | (133                        | )      | (45 | ) | (136 | ) | (45 | ) |
|                           |   | (1,767                      | )      | 1,340                       |   | 1,019                       |   | (26 | ) | 495 |   | 474 |   |
| **Interest rate contracts**    |   |                        |   |                        |   |                        |   |   |   |   |   |   |   |
| Forward rate agreements        |   |                        |   |                        |   |                        |   |   |   |   |   |   |   |
| Gross unrealised gains         |   | —                      |   | —                      |   | 13                          |   | 16 |   | 7 |   | 19 |   |
| Gross unrealised losses        |   | —                      |   | —                      |   | (2                          | )      | (11 | ) | (1 | ) | (11 | ) |
| Swap agreements                |   |                        |   |                        |   |                        |   |   |   |   |   |   |   |
| Gross unrealised gains         |   | 402                         |   | 605                         |   | 1,843                       |   | 2,013 |   | 1,885 |   | 2,181 |   |
| Gross unrealised losses        |   | (228                        | )      | (267                        | )      | (1,530                      | )      | (1,717 | ) | (1,561 | ) | (1,911 | ) |
| Futures contracts              |   |                        |   |                        |   |                        |   |   |   |   |   |   |   |
| Gross unrealised gains         |   | —                      |   | —                      |   | 51                          |   | 36 |   | 41 |   | 51 |   |
| Gross unrealised losses        |   | —                      |   | —                      |   | (48                         | )      | (40 | ) | (37 | ) | (56 | ) |
| Options purchased              |   | —                      |   | —                      |   | 61                          |   | 88 |   | 79 |   | 81 |   |
| Options sold                   |   | —                      |   | —                      |   | (23                         | )      | (65 | ) | (58 | ) | (71 | ) |
|                           |   | 174                         |   | 338                         |   | 365                         |   | 320 |   | 355 |   | 283 |   |
| **Credit contracts**           |   |                        |   |                        |   |                        |   |   |   |   |   |   |   |
| Credit default swaps           |   |                        |   |                        |   |                        |   |   |   |   |   |   |   |
| Gross unrealised gains         |   | 74                          |   | —                      |   | 34                          |   | 75 |   | 44 |   | 42 |   |
| Gross unrealised losses        |   | —                      |   | (15                         | )      | (35                         | )      | (73 | ) | (69 | ) | (33 | ) |
|                           |   | 74                          |   | (15                         | )      | (1                          | )      | 2 |   | (25 | ) | 9 |   |
| **Total**                      |   | (1,519                      | )      | 1,663                       |   | 1,383                       |   | 296 |   | 825 |   | 766 |   |

 

The fair values ofderivatives vary over time depending on movements in interest and exchangerates and the trading or hedging strategies used

 

166

----

 

In addition to customer andtrading activities, the Group uses, inter alia, derivatives to manage the riskassociated with its balance sheet and future revenue streams. The principalobjectives of asset and liability management are to hedge the market value ofthe Group’s capital and to manage and control the sensitivity of the Group’sincome while maintaining acceptable levels of interest rate and liquidity risk.The Group also uses a variety of foreign exchange derivatives to hedge againstadverse movements in the value of foreign currency denominated assets andliabilities and future revenue streams.

 

During the year NZD 1.6billion hedge of NZD revenue were put in place to lock in historically high NZDexchange rates. Hedge contracts outstanding at 30 September 2003 totalledNZD 1.3 billion.

 

The table below shows thenotional principal amount, credit equivalent amount and fair value ofderivatives held by the Group, split between those entered into forcustomer-related and trading purposes, and those entered into for balance sheethedging and revenue related hedging.

 
| **Consolidated**                             |   | **Notional  principal  amount  2003** |   | **Credit  equivalent  amount  2003** |   | **Fair  value  2003** |   | **Notional  principal  amount  2002** |   | **Credit  equivalent  amount  2002** |   | **Fair  value  2002** |   |
|----------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|-----------------------|--------|---------------------------------------|--------|--------------------------------------|--------|-----------------------|--------|
|                                         |   | **$m**                                |   | **$m**                               |   | **$m**                |   | **$m**                                |   | **$m**                               |   | **$m**                |   |
| **Foreign exchange and commodity contracts** |   |                                  |   |                                 |   |                  |   |                                  |   |                                 |   |                  |   |
| Customer-related and trading purposes        |   | 179,609                               |   | 5,795                                |   | 1,019                 |   | 161,290                               |   | 3,689                                |   | (26                   | )      |
| Balance sheet hedging purposes               |   | 37,360                                |   | 1,874                                |   | (1,857                | )      | 26,926                                |   | 2,562                                |   | 1,361                 |   |
| Revenue related hedging                      |   | 1,277                                 |   | 13                                   |   | 90                    |   | 388                                   |   | 4                                    |   | (21                   | )      |
|                                         |   | 218,246                               |   | 7,682                                |   | (748                  | )      | 188,604                               |   | 6,255                                |   | 1,314                 |   |
| **Interest rate contracts**                  |   |                                  |   |                                 |   |                  |   |                                  |   |                                 |   |                  |   |
| Customer-related and trading purposes        |   | 268,930                               |   | 2,931                                |   | 365                   |   | 257,947                               |   | 2,992                                |   | 320                   |   |
| Balance sheet hedging purposes               |   | 54,176                                |   | 428                                  |   | 174                   |   | 43,004                                |   | 644                                  |   | 338                   |   |
|                                         |   | 323,106                               |   | 3,359                                |   | 539                   |   | 300,951                               |   | 3,636                                |   | 658                   |   |
| **Credit contracts**                         |   |                                  |   |                                 |   |                  |   |                                  |   |                                 |   |                  |   |
| Customer –related and trading purposes  |   | 5,298                                 |   | 427                                  |   | (1                    | )      | 1,718                                 |   | 189                                  |   | 2                     |   |
| Balance sheet hedging purposes               |   | 3,222                                 |   | 2,409                                |   | 74                    |   | 4,004                                 |   | 3,088                                |   | (15                   | )      |
|                                         |   | 8,520                                 |   | 2,836                                |   | 73                    |   | 5,722                                 |   | 3,277                                |   | (13                   | )      |
| **Total**                                    |   | 549,872                               |   | 13,877                               |   | (136                  | )      | 495,277                               |   | 13,168                               |   | 1,959                 |   |

 

Detailed below are the netdeferred realised and unrealised gains and losses arising from other thantrading contracts used to hedge interest rate exposure or to hedge anticipatedtransactions. These gains and losses are deferred only to the extent that thereis an offsetting unrecognised gain or loss on the exposure being hedged.Deferred gains or losses are generally amortised over the expected term of thehedged exposure.

 
|                               |   | **Foreign Exchange  Contracts** |   | **Interest Rate and Credit  Contracts** |   | **Total** |   |
|------------------------------------|--------|---------------------------------|--------|-----------------------------------------|--------|-----------|--------|
| **Consolidated**                   |   | **2003**                        |   | **2002**                                |   | **2003**  |   | **2002** |   | **2003** |   | **2002** |   |
|                               |   | **$m**                          |   | **$m**                                  |   | **$m**    |   | **$m** |   | **$m** |   | **$m** |   |
| **Expected recognition in income** |   |                            |   |                                    |   |      |   |   |   |   |   |   |   |
| Within one year                    |   | 47                              |   | (10                                     | )      | 214       |   | 165 |   | 261 |   | 155 |   |
| One to two years                   |   | 26                              |   | (7                                      | )      | 86        |   | 130 |   | 112 |   | 123 |   |
| Two to five years                  |   | 14                              |   | (3                                      | )      | 117       |   | 105 |   | 131 |   | 102 |   |
| Greater than five years            |   | —                          |   | —                                  |   | (5        | )      | 102 |   | (5 | ) | 102 |   |
|                               |   | 87                              |   | (20                                     | )      | 412       |   | 502 |   | 499 |   | 482 |   |

 

167

----

 

**39:  Securitisation**

 

During the year ended 30September 2003, the Group did not securitise any residential mortgageloans (2002: $nil) or commercial loans (2002: $66 million).

 

Loans previously securitisedhave been removed from the Group’s balance sheet and transferred to third partyspecial purpose entities (SPEs).

 

The Group retains servicingand (for some loans) custodian responsibilities for the loans sold. Following asecuritisation, the Group receives fees for servicing the loans, custodianfees, fees for facilities provided and any excess income derived by the SPEafter interest has been paid to investors and net credit losses and expensesabsorbed.

 

The Group does not hold anymaterial retained interest in the loans that have been sold. There is norecourse against the Group if cash flows from the securitised loans areinadequate to service the obligations of the SPE except to the limited extentprovided in the transaction documents through the provision of arms’ lengthservices and facilities.

 

The securities issued by theSPEs do not represent deposits or other liabilities of the Company or theGroup. Neither the Company nor the Group in any way stands behind the capitalvalue and/or performance of the securities or the assets of the SPEs except tothe limited extent provided in the transaction documents through the provisionof arms’ length services and facilities.

 

The Group may also provideliquidity facilities and other forms of credit enhancement to ensure adequatefunds are available to the SPEs. The facilities are undrawn. The Group alsoprovides hedging facilities to the SPEs to mitigate interest rate and currencyrisks. All these transactions are completed on an arms’ length basis.

 

The following tablesummarises the cash flows between the Group and the SPEs in respect ofsecuritisation activities.

 
|                             |   | **2003** |   | **2002** |   |
|----------------------------------|--------|----------|--------|----------|--------|
|                             |   | **$m**   |   | **$m**   |   |
| Proceeds from securitising loans |   | —   |   | 66       |   |
| Servicing fees received          |   | 4        |   | 6        |   |
| Other cash inflows               |   | 13       |   | 17       |   |

 

**40:  Life Insurance**

 
|                                                                                                  |   | **2003** |   | **Consolidated  2002(1)** |   | **2001** |   |
|-------------------------------------------------------------------------------------------------------|--------|----------|--------|---------------------------|--------|----------|--------|
|                                                                                                  |   | **$m**   |   | **$m**                    |   | **$m**   |   |
| **Reconciliation of Life Insurance margin on services  operating income to profit after income tax:** |   |     |   |                      |   |     |   |
| Premium and related revenue                                                                           |   | —   |   | 701                       |   | 1,600    |   |
| Investment revenue                                                                                    |   | —   |   | 238                       |   | 20       |   |
| Claims expense                                                                                        |   | —   |   | (636                      | )      | (1,330   | )      |
| Insurance policy liabilities expense                                                                  |   | —   |   | (204                      | )      | (100     | )      |
| Life insurance margin on services operating income                                                    |   | —   |   | 99                        |   | 190      |   |
| Operating expenses                                                                                    |   | —   |   | (54                       | )      | (105     | )      |
| Profit before income tax                                                                              |   | —   |   | 45                        |   | 85       |   |
| Income tax expense                                                                                    |   | —   |   | (20                       | )      | (47      | )      |
| **Profit after income tax**                                                                           |   | —   |   | 25                        |   | 38       |   |
| **Profit after income tax arose from:**                                                               |   |     |   |                      |   |     |   |
| Movements in policy liabilities separated between:                                                    |   |     |   |                      |   |     |   |
| Planned margin of revenues over expenses released                                                     |   | —   |   | 18                        |   | 36       |   |
| Difference between actual and assumed experience                                                      |   | —   |   | (1                        | )      | (11      | )      |
| Investment earnings on assets in excess of policy liabilities                                         |   | —   |   | 8                         |   | 13       |   |
| **Profit after income tax**                                                                           |   | —   |   | 25                        |   | 38       |   |

 

----

(1)   ANZ Life Assurance Company Limited was soldinto a joint venture with ING Australia in April 2002. Accordingly theresults shown only include profits to 30 April 2002

 

168

----

 

**41:  Segment Analysis**

 

For management purposes theGroup is organised into nine major business segments including Personal BankingAustralia, ING Australia, Institutional Financial Services, Corporate, NewZealand Banking, Mortgages, Consumer Finance, Esanda and UDC and Asia Pacific.

 

A description of each segmentis shown below:

 
| Personal Banking Australia       |   | Provides a full range of banking and  distribution services for consumers in Australia.                                                                        |
|----------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                             |   |                                                                                                                                                           |
| ING Australia                    |   | A joint venture between ANZ and ING Group,  provides wealth creation, management and protection products and services for  consumers                           |
|                             |   |                                                                                                                                                           |
| Institutional Financial Services |   | Comprises institutional banking,  transaction services, foreign exchange, capital markets, structured finance  international, corporate financing and advisory |
|                             |   |                                                                                                                                                           |
| Corporate                        |   | Comprises corporate banking and small to  medium enterprise banking in Australia                                                                               |
|                             |   |                                                                                                                                                           |
| New Zealand Banking              |   | Provides a full range of banking services  including wealth management, for personal, small business and corporate  customers in New Zealand                   |
|                             |   |                                                                                                                                                           |
| Mortgages                        |   | Provides mortgage finance secured by  residential real estate in Australia and New Zealand                                                                     |
|                             |   |                                                                                                                                                           |
| Consumer Finance                 |   | Provides consumer and commercial credit  cards, ePayment products, personal loans and merchant payment facilities                                              |
|                             |   |                                                                                                                                                           |
| Esanda and UDC                   |   | Provides motor vehicle and equipment  finance; equipment operating leases and management services; fleet management  services; and investment products         |
|                             |   |                                                                                                                                                           |
| Asia Pacific                     |   | Provides retail banking services in the  Pacific Region and Asia, including ANZ’s share of PT Panin Bank in Indonesia                                     |

 

As thecomposition of segments has changed over time, September 2002 comparativeshave been adjusted to be consistent with the 2003 segment definitions. Comparativesfor the year ended 30 September 2001 have not been provided because datacould not reasonably be disaggregated into the changed segments.

 

**BusinessSegment Analysis(1), (2)**

 
| **Consolidated  30 September 2003**                  |   | **Personal  Banking  Australia** |   | **ING  Australia** |   | **Institutional  Financial  Services** |   | **Corporate** |   | **New  Zealand  Banking** |   | **Mortgages** |   | **Consumer  Finance** |   | **Esanda  and UDC** |   | **Asia  Pacific** |   | **Other(3)** |   | **Consolidated  Total** |   |
|-----------------------------------------------------------|--------|----------------------------------|--------|--------------------|--------|----------------------------------------|--------|---------------|--------|---------------------------|--------|---------------|--------|-----------------------|--------|---------------------|--------|-------------------|--------|--------------|--------|-------------------------|--------|
|                                                      |   | **$m**                           |   | **$m**             |   | **$m**                                 |   | **$m**        |   | **$m**                    |   | **$m**        |   | **$m**                |   | **$m**              |   | **$m**            |   | **$m**       |   | **$m**                  |   |
| External interest income                                  |   | 359                              |   | —             |   | 2,146                                  |   | 723           |   | 299                       |   | 4,397         |   | 695                   |   | 1,005               |   | 137               |   | 454          |   | 10,215                  |   |
| External interest expense                                 |   | (861                             | )      | (16                | )      | (2,074                                 | )      | (396          | )      | (475                      | )      | (197          | )      | —                |   | (512                | )      | (129              | )      | (1,244       | )      | (5,904                  | )      |
| Net intersegment interest                                 |   | 1,353                            |   | —             |   | 629                                    |   | 160           |   | 487                       |   | (3,425        | )      | (246                  | )      | (143                | )      | 112               |   | 1,073        |   | —                  |   |
| Net interest income                                       |   | 851                              |   | (16                | )      | 701                                    |   | 487           |   | 311                       |   | 775           |   | 449                   |   | 350                 |   | 120               |   | 283          |   | 4,311                   |   |
| Other external operating income                           |   | 378                              |   | (9                 | )      | 1,193                                  |   | 209           |   | 181                       |   | 90            |   | 358                   |   | 86                  |   | 134               |   | 82           |   | 2,702                   |   |
| Net intersegment income                                   |   | 389                              |   | —             |   | (25                                    | )      | (43           | )      | 46                        |   | (267          | )      | (93                   | )      | (7                  | )      | —            |   | —       |   | —                  |   |
| **Operating income**                                      |   | 1,618                            |   | (25                | )      | 1,869                                  |   | 653           |   | 538                       |   | 598           |   | 714                   |   | 429                 |   | 254               |   | 365          |   | 7,013                   |   |
| Other external expenses                                   |   | (835                             | )      | 2                  |   | (547                                   | )      | (178          | )      | (222                      | )      | (140          | )      | (260                  | )      | (157                | )      | (97               | )      | (794         | )      | (3,228                  | )      |
| Net intersegment expenses                                 |   | (213                             | )      | (2                 | )      | (121                                   | )      | (41           | )      | (92                       | )      | (39           | )      | (87                   | )      | (25                 | )      | (34               | )      | 654          |   | —                  |   |
| **Operating expenses**                                    |   | (1,048                           | )      | —             |   | (668                                   | )      | (219          | )      | (314                      | )      | (179          | )      | (347                  | )      | (182                | )      | (131              | )      | (140         | )      | (3,228                  | )      |
| Share of net profit/loss of equity  accounted investments |   | —                           |   | 55                 |   | 3                                      |   | —        |   | —                    |   | —        |   | (1                    | )      | —              |   | 55                |   | (6           | )      | 106                     |   |
| Charge for doubtful debts                                 |   | (27                              | )      | —             |   | (165                                   | )      | (48           | )      | (13                       | )      | (31           | )      | (152                  | )      | (63                 | )      | (10               | )      | (105         | )      | (614                    | )      |
| Income tax expense                                        |   | (159                             | )      | 8                  |   | (266                                   | )      | (116          | )      | (70                       | )      | (118          | )      | (69                   | )      | (57                 | )      | (36               | )      | (43          | )      | (926                    | )      |
| Outside equity interests                                  |   | —                           |   | —             |   | (1                                     | )      | —        |   | —                    |   | —        |   | (1                    | )      | —              |   | (1                | )      | —       |   | (3                      | )      |
| **Profit after income  tax**                              |   | 384                              |   | 38                 |   | 772                                    |   | 270           |   | 141                       |   | 270           |   | 144                   |   | 127                 |   | 131               |   | 71           |   | 2,348                   |   |
| **Non-Cash Expenses**                                     |   |                             |   |               |   |                                   |   |          |   |                      |   |          |   |                  |   |                |   |              |   |         |   |                    |   |
| Depreciation                                              |   | 56                               |   | —             |   | 16                                     |   | 2             |   | 9                         |   | 6             |   | 27                    |   | 16                  |   | 9                 |   | 106          |   | 247                     |   |
| Amortisation of goodwill                                  |   | —                           |   | —             |   | 1                                      |   | —        |   | —                    |   | 7             |   | 5                     |   | 2                   |   | 3                 |   | —       |   | 18                      |   |
| **Financial Position**                                    |   |                             |   |               |   |                                   |   |          |   |                      |   |          |   |                  |   |                |   |              |   |         |   |                    |   |
| Total external assets                                     |   | 6,696                            |   | 1,736              |   | 56,529                                 |   | 16,085        |   | 4,225                     |   | 77,586        |   | 6,135                 |   | 13,460              |   | 1,949             |   | 11,190       |   | 195,591                 |   |
| Associate investments                                     |   | 12                               |   | 1,648              |   | 32                                     |   | —        |   | —                    |   | —        |   | —                |   | 1                   |   | 117               |   | 4            |   | 1,814                   |   |
| Total external liabilities                                |   | 33,078                           |   | 403                |   | 47,439                                 |   | 17,950        |   | 11,833                    |   | 4,219         |   | 343                   |   | 10,795              |   | 4,850             |   | 50,894       |   | 181,804                 |   |

 

----

(1)          Results are equity standardised

(2)          Intersegment transfers are accounted for anddetermined on an arm’s length or cost recovery basis

(3)          Includes Treasury, Operations, Technology& Shared Services, Corporate Centre, Risk & Finance

 

169

----

 

The following analysis details financial informationby business segment.

 

**BusinessSegment Analysis(****1), (2)**

 
| **Consolidated  30 September 2002**                 |   | **Personal  Banking  Australia** |   | **ING  Australia** |   | **Institutional  Financial  Services** |   | **Corporate** |   | **New  Zealand  Banking** |   | **Mortgages** |   | **Consumer  Finance** |   | **Esanda  and UDC** |   | **Asia  Pacific** |   | **Other(3),(4)** |   | **Consolidated  Total** |   |
|----------------------------------------------------------|--------|----------------------------------|--------|--------------------|--------|----------------------------------------|--------|---------------|--------|---------------------------|--------|---------------|--------|-----------------------|--------|---------------------|--------|-------------------|--------|------------------|--------|-------------------------|--------|
|                                                     |   | **$m**                           |   | **$m**             |   | **$m**                                 |   | **$m**        |   | **$m**                    |   | **$m**        |   | **$m**                |   | **$m**              |   | **$m**            |   | **$m**           |   | **$m**                  |   |
|                                                     |   |                             |   |               |   |                                   |   |          |   |                      |   |          |   |                  |   |                |   |              |   |             |   |                    |   |
| External interest income                                 |   | 360                              |   | (16                | )      | 2,029                                  |   | 630           |   | 250                       |   | 3,671         |   | 598                   |   | 967                 |   | 136               |   | 412              |   | 9,037                   |   |
| External interest expense                                |   | (559                             | )      | (14                | )      | (1,968                                 | )      | (318          | )      | (397                      | )      | (159          | )      | —                |   | (472                | )      | (124              | )      | (1,008           | )      | (5,019                  | )      |
| Net intersegment interest                                |   | 989                              |   | 25                 |   | 653                                    |   | 136           |   | 424                       |   | (2,827        | )      | (206                  | )      | (157                | )      | 110               |   | 853              |   | —                  |   |
| Net interest income                                      |   | 790                              |   | (5                 | )      | 714                                    |   | 448           |   | 277                       |   | 685           |   | 392                   |   | 338                 |   | 122               |   | 257              |   | 4,018                   |   |
| Other external operating income                          |   | 368                              |   | 156                |   | 1,116                                  |   | 197           |   | 167                       |   | 89            |   | 399                   |   | 69                  |   | 115               |   | 263              |   | 2,939                   |   |
| Net intersegment income                                  |   | 399                              |   | (40                | )      | (28                                    | )      | (41           | )      | 46                        |   | (233          | )      | (92                   | )      | (8                  | )      | —            |   | (3               | )      | —                  |   |
| **Operating income**                                     |   | 1,557                            |   | 111                |   | 1,802                                  |   | 604           |   | 490                       |   | 541           |   | 699                   |   | 399                 |   | 237               |   | 517              |   | 6,957                   |   |
| Other external expenses                                  |   | (812                             | )      | (62                | )      | (568                                   | )      | (170          | )      | (191                      | )      | (120          | )      | (234                  | )      | (151                | )      | (95               | )      | (502             | )      | (2,905                  | )      |
| Net intersegment expenses                                |   | (207                             | )      | 19                 |   | (114                                   | )      | (42           | )      | (90                       | )      | (40           | )      | (76                   | )      | (29                 | )      | (29               | )      | 608              |   | —                  |   |
| **Operating expenses**                                   |   | (1,019                           | )      | (43                | )      | (682                                   | )      | (212          | )      | (281                      | )      | (160          | )      | (310                  | )      | (180                | )      | (124              | )      | 106              |   | (2,905                  | )      |
| Share of net profit/loss of equity accounted investments |   | —                           |   | 2                  |   | 2                                      |   | —        |   | —                    |   | —        |   | (5                    | )      | —              |   | 30                |   | 2                |   | 31                      |   |
| Charge for doubtful debts                                |   | (24                              | )      | —             |   | (173                                   | )      | (46           | )      | (13                       | )      | (28           | )      | (161                  | )      | (69                 | )      | (10               | )      | (336             | )      | (860                    | )      |
| Income tax expense                                       |   | (154                             | )      | (27                | )      | (231                                   | )      | (104          | )      | (65                       | )      | (106          | )      | (73                   | )      | (47                 | )      | (35               | )      | (56              | )      | (898                    | )      |
| Outside equity interests                                 |   | —                           |   | —             |   | (3                                     | )      | —        |   | —                    |   | —        |   | —                |   | —              |   | —            |   | —           |   | (3                      | )      |
| **Profit after income tax**                              |   | 360                              |   | 43                 |   | 715                                    |   | 242           |   | 131                       |   | 247           |   | 150                   |   | 103                 |   | 98                |   | 233              |   | 2,322                   |   |
| **Non-Cash Expenses**                                    |   |                             |   |               |   |                                   |   |          |   |                      |   |          |   |                  |   |                |   |              |   |             |   |                    |   |
| Depreciation                                             |   | 41                               |   | 17                 |   | 1                                      |   | 11            |   | 6                         |   | 20            |   | 11                    |   | 2                   |   | 7                 |   | 90               |   | 206                     |   |
| Amortisation of goodwill                                 |   | —                           |   | —             |   | 1                                      |   | —        |   | —                    |   | 7             |   | 7                     |   | 2                   |   | 3                 |   | —           |   | 20                      |   |
| **Financial Position**                                   |   |                             |   |               |   |                                   |   |          |   |                      |   |          |   |                  |   |                |   |              |   |             |   |                    |   |
| Total external assets                                    |   | 5,832                            |   | 1,638              |   | 59,155                                 |   | 13,538        |   | 3,797                     |   | 64,826        |   | 5,551                 |   | 12,410              |   | 1,932             |   | 14,426           |   | 183,105                 |   |
| Associate investments                                    |   | —                           |   | 1,593              |   | 24                                     |   | —        |   | —                    |   | —        |   | 4                     |   | 1                   |   | 67                |   | 3                |   | 1,692                   |   |
| Total external liabilities                               |   | 30,076                           |   | 398                |   | 50,464                                 |   | 15,699        |   | 11,108                    |   | 3,551         |   | 249                   |   | 9,704               |   | 5,148             |   | 45,243           |   | 171,640                 |   |

 

----

(1)          Results are equity standardised

(2)          Intersegment transfers are accounted for anddetermined on an arm’s length or cost recovery basis

(3)          Includes Treasury, Operations, Technology& Shared Services; Corporate Centre, Risk & Finance

(4)          Includes net profit from disposal ofinvestments

 

The following analysisdetails financial information by geographic location.

 

**GeographicSegment Analysis(****5), (6)**

 
| **Consolidated**             |   | **2003** |   | **2002** |   | **2001** |   |
|------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                         |   | **$m**   |   | **%**    |   | **$m**   |   | **%** |   | **$m** |   | **%** |   |
| **Income**                   |   |     |   |     |   |     |   |   |   |   |   |   |   |
| Australia                    |   | 9,508    |   | 73       |   | 8,697    |   | 72 |   | 9,012 |   | 70 |   |
| New Zealand                  |   | 2,149    |   | 17       |   | 1,917    |   | 16 |   | 2,011 |   | 16 |   |
| Overseas markets             |   | 1,366    |   | 10       |   | 1,393    |   | 12 |   | 1,801 |   | 14 |   |
|                         |   | 13,023   |   | 100      |   | 12,007   |   | 100 |   | 12,824 |   | 100 |   |
| **Total assets**             |   |     |   |     |   |     |   |   |   |   |   |   |   |
| Australia                    |   | 151,538  |   | 77       |   | 135,050  |   | 74 |   | 133,057 |   | 72 |   |
| New Zealand                  |   | 25,696   |   | 13       |   | 23,799   |   | 13 |   | 22,337 |   | 12 |   |
| Overseas markets             |   | 18,357   |   | 10       |   | 24,256   |   | 13 |   | 30,099 |   | 16 |   |
|                         |   | 195,591  |   | 100      |   | 183,105  |   | 100 |   | 185,493 |   | 100 |   |
| **Net profit before tax(7)** |   |     |   |     |   |     |   |   |   |   |   |   |   |
| Australia                    |   | 2,371    |   | 72       |   | 2,391    |   | 74 |   | 2,160 |   | 78 |   |
| New Zealand                  |   | 495      |   | 15       |   | 456      |   | 14 |   | 395 |   | 14 |   |
| Overseas markets             |   | 411      |   | 13       |   | 376      |   | 12 |   | 228 |   | 8 |   |
|                         |   | 3,277    |   | 100      |   | 3,223    |   | 100 |   | 2,783 |   | 100 |   |

 

----

(5)          Intersegment transfers are accounted for anddetermined on an arm’s length or cost recovery basis

(6)          The geographic segments represent thelocations in which the transaction was booked

(7)          Includes outside equity interests

 

170

----

 

**42:  Notes to the Statements of Cash Flows**

 
|   |   | **Consolidated** |   | **The Company** |   |
|--------|--------|------------------|--------|-----------------|--------|
|   |   | **2003**         |   | **2002**        |   | **2001** |   | **2003** |   | **2002** |   |
|   |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   | **$m** |   |
|   |   |             |   |            |   |   |   |   |   |   |   |

 

**a)****    ****Reconciliation of net profitafter income tax to net cash provided by operating activities**

 
|                                                                                                   |   | **Inflows  (Outflows)** |   | **Inflows  (Outflows)** |   |
|--------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|-------------------------|--------|
| Net profit after income tax                                                                            |   | 2,348                   |   | 2,322                   |   | 1,870 |   | 3,068 |   | 1,507 |   |
| **Adjustments to reconcile net profit after income tax  to net cash provided by operating activities** |   |                    |   |                    |   |   |   |   |   |   |   |
| Provision for doubtful debts                                                                           |   | 614                     |   | 860                     |   | 531 |   | 464 |   | 710 |   |
| Depreciation and amortisation                                                                          |   | 265                     |   | 226                     |   | 181 |   | 193 |   | 113 |   |
| Provision for employee entitlements, restructuring and other  provisions                               |   | 139                     |   | 248                     |   | 300 |   | 87 |   | 224 |   |
| Payments from provisions                                                                               |   | (269                    | )      | (436                    | )      | (288 | ) | (248 | ) | (299 | ) |
| (Profit) loss on sale of premises and equipment                                                        |   | 5                       |   | (5                      | )      | (1 | ) | 6 |   | (1 | ) |
| Provision for surplus lease space                                                                      |   | (11                     | )      | 1                       |   | — |   | (1 | ) | 1 |   |
| (Profit) on sale of controlled entities and associates                                                 |   | —                  |   | (170                    | )      | — |   | — |   | — |   |
| Recovery from NHB litigation                                                                           |   | —                  |   | (248                    | )      | — |   | — |   | (248 | ) |
| Profit on sale of investment securities                                                                |   | —                  |   | (4                      | )      | — |   | — |   | — |   |
| **Net decrease (increase)**                                                                            |   |                    |   |                    |   |   |   |   |   |   |   |
| Trading securities                                                                                     |   | 1,669                   |   | (1,030                  | )      | (629 | ) | 1,583 |   | (782 | ) |
| Interest receivable                                                                                    |   | (189                    | )      | 328                     |   | 137 |   | (144 | ) | 230 |   |
| Accrued income                                                                                         |   | 51                      |   | (16                     | )      | (34 | ) | 37 |   | (25 | ) |
| Tax balances                                                                                           |   | (386                    | )      | 46                      |   | 88 |   | (447 | ) | 69 |   |
| **Amortisation of discounts/premiums included in  interest income**                                    |   | (19                     | )      | (30                     | )      | (52 | ) | 9 |   | (6 | ) |
| **Net increase (decrease)**                                                                            |   |                    |   |                    |   |   |   |   |   |   |   |
| Interest payable                                                                                       |   | 180                     |   | (348                    | )      | (285 | ) | 184 |   | (272 | ) |
| Accrued expenses                                                                                       |   | 69                      |   | (1                      | )      | (42 | ) | 228 |   | (2 | ) |
| Other                                                                                                  |   | (109                    | )      | (12                     | )      | 73 |   | 14 |   | — |   |
| Total adjustments                                                                                      |   | 2,009                   |   | (591                    | )      | (21 | ) | 1,965 |   | (288 | ) |
| Net cash provided by operating activities                                                              |   | 4,357                   |   | 1,731                   |   | 1,849 |   | 5,033 |   | 1,219 |   |

 

**b)****    ****Reconciliation of cash andcash equivalents(1)**

 

Cash and cash equivalentsinclude liquid assets and amounts due from other financial institutions with anoriginal term to maturity of less than 90 days. Cash and cash equivalents atthe end of the financial year as shown in the statements of cash flows are reconciledto the related items in the statements of financial position as follows

 
|                                                           |   | **Consolidated** |   | **The Company** |   |
|----------------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                           |   | **2003**         |   | **2002**        |   | **2001** |   | **2003** |   | **2002** |   |
|                                                           |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   | **$m** |   |
| Liquid assets – less than 90 days                         |   | 5,509            |   | 4,821           |   | 5,504 |   | 2,834 |   | 3,432 |   |
| Due from other financial institutions – less than 90 days |   | 1,806            |   | 3,104           |   | 3,567 |   | 1,577 |   | 2,021 |   |
|                                                           |   | 7,315            |   | 7,925           |   | 9,071 |   | 4,411 |   | 5,453 |   |

 

----

(1)   At 30 September 2003, cash and cashequivalents totalling nil (2002: nil; 2001: nil) were not available for useoutside the local operations due to exchange control regulations

 

171

----

 

**c)****    ****Acquisitions and disposals(****1)**

 
|                                                                                                                                          |   | **Consolidated** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|
|                                                                                                                                          |   | **2003**         |   | **2002** |   | **2001** |   |
|                                                                                                                                          |   | **$m**           |   | **$m** |   | **$m** |   |
| **Details of aggregate assets and liabilities of  controlled entities and branches acquired, and disposed of, by the Group are  as follows:** |   |             |   |   |   |   |   |
| Fair value of net assets acquired                                                                                                             |   |             |   |   |   |   |   |
| Net loans and advances                                                                                                                        |   | —           |   | 141 |   | 408 |   |
| Trading securities                                                                                                                            |   | —           |   | — |   | 4 |   |
| Other assets                                                                                                                                  |   | —           |   | 106 |   | 30 |   |
| Premises and equipment                                                                                                                        |   | —           |   | 5 |   | 5 |   |
| Payables and other liabilities                                                                                                                |   | —           |   | (7 | ) | (11 | ) |
| Deposits and other borrowings                                                                                                                 |   | —           |   | (231 | ) | (348 | ) |
| Income tax liability                                                                                                                          |   | —           |   | — |   | (42 | ) |
| Fair value of net assets acquired                                                                                                             |   | —           |   | 14 |   | 46 |   |
| Goodwill on acquisition                                                                                                                       |   | —           |   | 53 |   | 5 |   |
| Consideration paid                                                                                                                            |   | —           |   | 67 |   | 51 |   |
| Cash consideration paid                                                                                                                       |   | —           |   | 67 |   | 36 |   |
| **Fair value of net assets disposed**                                                                                                         |   |             |   |   |   |   |   |
| Liquid assets                                                                                                                                 |   | —           |   | 8 |   | 99 |   |
| Due from other financial institutions                                                                                                         |   | —           |   | — |   | — |   |
| Trading securities                                                                                                                            |   | —           |   | — |   | — |   |
| Investment securities                                                                                                                         |   | —           |   | 36 |   | — |   |
| Net loans and advances                                                                                                                        |   | —           |   | — |   | — |   |
| Customers’ liabilities for acceptances                                                                                                   |   | —           |   | — |   | — |   |
| Regulatory deposits                                                                                                                           |   | —           |   | — |   | — |   |
| Life insurance investment assets                                                                                                              |   | —           |   | 5,090 |   | — |   |
| Shares in controlled entities and associates                                                                                                  |   | —           |   | — |   | — |   |
| Other assets                                                                                                                                  |   | —           |   | 38 |   | — |   |
| Premises and equipment                                                                                                                        |   | —           |   | 4 |   | — |   |
| Due to other financial institutions                                                                                                           |   | —           |   | — |   | — |   |
| Deposits and other borrowings                                                                                                                 |   | —           |   | — |   | — |   |
| Liability for acceptances                                                                                                                     |   | —           |   | — |   | — |   |
| Income tax liability                                                                                                                          |   | —           |   | — |   | — |   |
| Payables and other liabilities                                                                                                                |   | —           |   | (22 | ) | — |   |
| Life insurance policy liabilities                                                                                                             |   | —           |   | (4,798 | ) | — |   |
| Provisions                                                                                                                                    |   | —           |   | 36 |   | — |   |
| Loan capital                                                                                                                                  |   | —           |   | — |   | — |   |
| Fair value of net assets disposed                                                                                                             |   | —           |   | 392 |   | 99 |   |
| Profit on disposal net of transaction costs                                                                                                   |   | —           |   | 174 |   | — |   |
| Net consideration received/receivable                                                                                                         |   | —           |   | 566 |   | 99 |   |
| Cash consideration received                                                                                                                   |   | —           |   | — |   | 99 |   |

 

----

(1)   For details on acquisitions and disposalsrefer to Note 18

 

**d)****    ****Non-cash financing andinvesting activities**

 
|                       |   | **Consolidated** |   | **The Company** |   |
|----------------------------|--------|------------------|--------|-----------------|--------|
|                       |   | **2003**         |   | **2002**        |   | **2001** |   | **2003** |   | **2002** |   |
|                       |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   | **$m** |   |
| **Share capital issues**   |   |             |   |            |   |   |   |   |   |   |   |
| Dividend reinvestment plan |   | 115              |   | 94              |   | 86 |   | 115 |   | 94 |   |

 

**e)****    ****Financing arrangements**

 
|                                                                                |   | **2003**      | ** ** | **2002**   | ** ** |
|-------------------------------------------------------------------------------------|--------|---------------|------------|------------|------------|
|                                                                                |   | **Available** |       | **Unused** | ** ** | **Available** | ** ** | **Unused** | ** ** |
|                                                                                |   | **$m**        |       | **$m**     | ** ** | **$m** | ** ** | **$m** | ** ** |
| **Financing arrangements which are available under  normal financial arrangements** |   |          |       |       |       |   |   |   |   |
| **Credit standby arrangements**                                                     |   |          |       |       |       |   |   |   |   |
| Standby lines                                                                       |   | 1,671         |       | 1,242      |       | 1,062 |   | 696 |   |
| **Other financing arrangements**                                                    |   |          |       |       |       |   |   |   |   |
| Overdrafts and other financing arrangements                                         |   | 1,447         |       | 59         |       | 975 |   | 58 |   |
| Total finance available                                                             |   | 3,118         |       | 1,301      |       | 2,037 |   | 754 |   |

 

172

----

 

**43:  Controlled Entities**

 
|                                                            |   | **Incorporated in** |   | **Nature of Business**  |
|-----------------------------------------------------------------|--------|---------------------|--------|-------------------------|
|                                                            |   |                |   |                    |
| All controlled entities are  100% owned unless otherwise noted. |   |                |   |                    |
|                                                            |   |                |   |                    |
| The material controlled  entities of the Group are:             |   |                |   |                    |
| **Australia  and New Zealand Banking Group Limited**            |   | Australia           |   | Banking                 |
| **Alliance  Holdings Limited**                                  |   | Australia           |   | Investment              |
| **ANZ Capel  Court Limited**                                    |   | Australia           |   | Investment Banking      |
| **ANZ  Capital Funding Pty Ltd**                                |   | Australia           |   | Funding                 |
| **ANZ  Capital Hedging Pty Ltd**                                |   | Australia           |   | Hedging                 |
| **ANZCover  Insurance Pty Ltd**                                 |   | Australia           |   | Self-Insurance          |
| **ANZ  Executors & Trustee Company Limited**                |   | Australia           |   | Trustee/Nominee         |
| **ANZ  Financial Products Pty Ltd**                             |   | Australia           |   | Investment              |
| **ANZ Funds  Pty Ltd**                                          |   | Australia           |   | Holding Company         |
| ANZ Holdings (New Zealand) Limited*                             |   | New Zealand         |   | Holding Company         |
| EFTPOS New Zealand Limited*                                     |   | New Zealand         |   | Eftpos Service Provider |
| ANZ Banking Group (New Zealand) Limited*                        |   | New Zealand         |   | Banking                 |
| Tui Securities Limited*                                         |   | New Zealand         |   | Investment              |
| UDC Finance Limited*                                            |   | New Zealand         |   | Finance                 |
| Endeavour Finance Limited*                                      |   | New Zealand         |   | Finance                 |
| Tui Endeavour Limited*                                          |   | New Zealand         |   | Finance                 |
| ANZ International Private Limited*                              |   | Singapore           |   | Finance                 |
| ANZ Singapore Limited*                                          |   | Singapore           |   | Merchant Banking        |
| Minerva Holdings Limited*                                       |   | England             |   | Holding Company         |
| ANZEF Limited*                                                  |   | England             |   | Export Finance          |
| **ANZ  Holdings Pty Ltd**                                       |   | Australia           |   | Property Owner          |
| **ANZ  Investment Holdings Pty Ltd**                            |   | Australia           |   | Investment              |
| 530 Collins Street Property Trust                               |   | Australia           |   | Investment Activities   |
| **ANZ  Lenders Mortgage Insurance Pty Limited**                 |   | Australia           |   | Mortgage Insurance      |
| **ANZ  Orchard Investments Pty Ltd**                            |   | Australia           |   | Investment              |
| **ANZ  Properties (Australia) Pty Ltd**                         |   | Australia           |   | Property Owner          |
| **ANZ  Securities (Holdings) Limited**                          |   | Australia           |   | Holding Company         |
| **Australia and New Zealand Banking Group (PNG)  Limited***     |   | Papua New Guinea    |   | Banking                 |
| **Esanda  Finance Corporation Limited**                         |   | Australia           |   | General Finance         |
| Fleet Partners Pty Limited                                      |   | Australia           |   | Finance                 |
| **NMRSB Pty  Ltd**                                              |   | Australia           |   | Investment              |
| **PT ANZ  Panin Bank*(1)**                                      |   | Indonesia           |   | Banking                 |
| **US  Distribution Trust I**                                    |   | USA                 |   | Investment              |
| **US  Distribution Trust II**                                   |   | USA                 |   | Investment              |

 

----

*      Audited by overseas KPMG firms

(1)   Outside equity interests hold ordinary sharesor units in the controlled entities listed above as follows: PT ANZ Panin Bank– 7,500 IDR 1M shares (15%) (2002: 7,500 IDR 1M shares (15%))

 

**44:  Associates**

 

Significant associates of theGroup are as follows:

 
|                                    |   | **Ownership  Interest  held** |   | **Voting  Interest** |   | **Incorporated in** |   | **Carrying  Value(5)** |   | **Reporting  date** |   | **Principal  activity** |   |
|-----------------------------------------|--------|-------------------------------|--------|----------------------|--------|---------------------|--------|------------------------|--------|---------------------|--------|-------------------------|--------|
|                                    |   |                          |   |                 |   |                |   | **$m**                 |   |                |   |                    |   |
| PT Panin Indonesia Bank(1)              |   | 11                            | %      | 11                   | %      | Indonesia           |   | 117                    |   | 31 December         |   | Banking                 |   |
| ETrade(2)                               |   | 35                            | %      | 35                   | %      | Australia           |   | 12                     |   | 30 June             |   | Online Stockbroking     |   |
| Autobake Pty Ltd(3)                     |   | 43                            | %      | 20                   | %      | Australia           |   | 8                      |   | 30 June             |   | Manufacturing           |   |
| Australian Convenience Foods Pty Ltd(4) |   | 46                            | %      | 20                   | %      | Australia           |   | 7                      |   | 30 June             |   | Manufacturing           |   |
| Other associates                        |   |                          |   |                 |   |                |   | 22                     |   |                |   |                    |   |
| Total shares in associates              |   |                          |   |                 |   |                |   | 166                    |   |                |   |                    |   |

 

----

(1)          An associate from 1 April 2001. Inaddition, the Group holds options over a further 18% of PT Panin Indonesia Bank

(2)          An associate from 1 October 2002

(3)          An associate from 21 August 2002

(4)          An associate from 1 July 2002

(5)          2002 carrying values as follows: PT PaninIndonesia Bank $67 million, Australian Convenience Foods Pty Ltd $7 million and Other associates $25 million. Total $99million

 

173

----

 

**45:  Interests in JointVenture Entities**

 

The Group has an interest ina joint venture entity as follows:

 
|                 |   | **Interest  held** |   | **Voting(2)  Interest** |   | **Incorporated in** |   | **Carrying Value** |   | **Reporting  date** |   | **Principal  activity**         |   |
|----------------------|--------|--------------------|--------|-------------------------|--------|---------------------|--------|--------------------|--------|---------------------|--------|---------------------------------|--------|
|                 |   |               |   |                    |   |                |   | **$m**             |   |                |   |                            |   |
| ING Australia Ltd(1) |   | 49                 | %      | 49                      | %      | Australia           |   | 1,648              |   | 31 December         |   | Funds  Management and Insurance |   |

 

----

(1)          A joint venture entity from 1 May 2002

(2)   The Group has right of veto on certaindecisions

 
|                                                             |   | **2003** |   | **2002** |   |
|------------------------------------------------------------------|--------|----------|--------|----------|--------|
|                                                             |   | **$m**   |   | **$m**   |   |
| **Retained profits attributable to the joint venture  entity**   |   |     |   |     |   |
| At the beginning of the financial year                           |   | 2        |   | —   |   |
| At the end of the financial year                                 |   | 57       |   | 2        |   |
| **Movement in the carrying amount of the joint venture  entity** |   |     |   |     |   |
| Carrying amount at the commencement of the period                |   | 1,593    |   | 1,591    |   |
| Share of net profit                                              |   | 55       |   | 2        |   |
| Distributions received                                           |   | —   |   | —   |   |
| Carrying amount at the end of the financial year                 |   | 1,648    |   | 1,593    |   |
| **Share of assets and liabilities(1)**                           |   |     |   |     |   |
| Investments                                                      |   | 9,659    |   | 9,140    |   |
| Other assets                                                     |   | 663      |   | 732      |   |
| Total assets                                                     |   | 10,322   |   | 9,872    |   |
| Policy holder liabilities                                        |   | 8,928    |   | 8,508    |   |
| Other liabilities                                                |   | 324      |   | 373      |   |
| Total liabilities                                                |   | 9,252    |   | 8,881    |   |
| Net assets                                                       |   | 1,070    |   | 991      |   |
| **Share of revenues, expenses and results**                      |   |     |   |     |   |
| Revenues                                                         |   | 310      |   | 195      |   |
| Expenses                                                         |   | 197      |   | 169      |   |
| Profit from ordinary activities before income tax                |   | 113      |   | 26       |   |
| Income tax expense                                               |   | 14       |   | 6        |   |
| Profit from ordinary activities after income tax                 |   | 99       |   | 20       |   |
| Amortisation of notional goodwill                                |   | (44      | )      | (18      | )      |
| Net equity accounted profit                                      |   | 55       |   | 2        |   |
| **Share of commitments**                                         |   |     |   |     |   |
| Lease commitments                                                |   | 169      |   | 163      |   |
| Other commitments                                                |   | 23       |   | 166      |   |
| Total expenditure commitments                                    |   | 192      |   | 329      |   |

 

----

(1)   This represents the Group’s share of theassets and liabilities of ING Australia, less outside equity interests andincluding goodwill on acquisition of ANZ Funds Management entities

 

**46:  FiduciaryActivities**

 

The Group conducts investmentfiduciary activities for trusts, including deceased estates. These trusts havenot been consolidated as the Company does not have direct or indirect control.

 

Where the Company or itscontrolled entities incur liabilities in respect of these operations as trustee,a right of indemnity exists against the assets of the applicable funds ortrusts. As these assets are sufficient to cover the liabilities and it istherefore not probable that the Company or its controlled entities will berequired to settle the liabilities, the liabilities are not included in thefinancial statements.

 

The aggregate amounts offunds concerned are as follows:

 
|         |   | **2003** |   | **2002** |   |
|--------------|--------|----------|--------|----------|--------|
|         |   | **$m**   |   | **$m**   |   |
| Trusteeships |   | 1,432    |   | 1,849    | (1)    |

 

----

(1)   Includes $323 million of SuperannuationSavings Account balances and a further $153 million associated with a number ofsmaller funds that ANZ Executors & Trustees were previously trustee for.

 

Funds management activitiesare conducted through the ANZ/INGA joint venture. As at 30 September 2003,the ANZ/INGA joint venture had funds under management of $28,655 million (2002:$26,642 million).

 

174

----

 

**47:  Commitments**

 
|                                          |   | **Consolidated** |   | **The Company** |   |
|-----------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                          |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                                          |   | **$m**           |   | **$m**          |   | **$m** |   | **$m** |   |
| **Capital expenditure**                       |   |             |   |            |   |   |   |   |   |
| Contracts for outstanding capital expenditure |   |             |   |            |   |   |   |   |   |
| Not later than 1 year                         |   | 55               |   | 75              |   | 11 |   | 38 |   |
| Later than 1 year but not later than 5 years  |   | 1                |   | —          |   | 1 |   | — |   |
| Total capital expenditure commitments         |   | 56               |   | 75              |   | 12 |   | 38 |   |
| **Lease rentals**                             |   |             |   |            |   |   |   |   |   |
| Future rentals in respect of leases           |   |             |   |            |   |   |   |   |   |
| Land and buildings                            |   |             |   |            |   |   |   |   |   |
| Not later than 1 year                         |   | 164              |   | 163             |   | 134 |   | 133 |   |
| Later than 1 year but not later than 5 years  |   | 391              |   | 426             |   | 320 |   | 347 |   |
| Later than 5 years                            |   | 441              |   | 450             |   | 425 |   | 427 |   |
|                                          |   | 996              |   | 1,039           |   | 879 |   | 907 |   |
| **Furniture and equipment**                   |   |             |   |            |   |   |   |   |   |
| Not later than 1 year                         |   | 17               |   | 16              |   | 12 |   | 10 |   |
| Later than 1 year but not later than 5 years  |   | 23               |   | 7               |   | 20 |   | 3 |   |
|                                          |   | 40               |   | 23              |   | 32 |   | 13 |   |
| Total lease rental commitments                |   | 1,036            |   | 1,062           |   | 911 |   | 920 |   |
| Total commitments                             |   | 1,092            |   | 1,137           |   | 923 |   | 958 |   |

 

The Group leases land andbuildings under operating leases expiring from one to five years. Leasesgenerally provide the Group with a right of renewal at which time all terms arerenegotiated. Lease payments comprise a base amount plus an incrementalcontingent rental. Contingent rentals are based on either movements in theConsumer Price Index or operating criteria.

 

**48:  ContingentLiabilities, Contingent Asset and Credit Related Commitments**

 

**Creditrelated commitments**

The credit risk of thefollowing facilities may be less than the contract amount, but as it cannot beaccurately determined, the credit risk has been taken to be the contractamount.

 
|                    |   | **Consolidated**           |   | **The Company**            |   | **Controlled Entities**    |   |
|-------------------------|--------|----------------------------|--------|----------------------------|--------|----------------------------|--------|
|                    |   | **2003  Contract  amount** |   | **2002  Contract  amount** |   | **2003  Contract  amount** |   | **2002  Contract  amount** |   | **2003  Contract  amount** |   | **2002  Contract  amount** |   |
|                    |   | **$m**                     |   | **$m**                     |   | **$m**                     |   | **$m** |   | **$m** |   | **$m** |   |
| Undrawn facilities      |   | 65,381                     |   | 60,373                     |   | 57,914                     |   | 54,271 |   | 7,467 |   | 6,102 |   |
| Underwriting facilities |   | 15                         |   | 36                         |   | 15                         |   | 36 |   | — |   | — |   |
|                    |   | 65,396                     |   | 60,409                     |   | 57,929                     |   | 54,307 |   | 7,467 |   | 6,102 |   |

 

**Contingentliabilities**

The Group guarantees theperformance of customers by issuing standby letters of credit and guarantees tothird parties. The risk involved is essentially the same as the credit riskinvolved in extending loan facilities to customers, therefore thesetransactions are subjected to the same credit origination, portfolio managementand collateral requirements for customers applying for loans. As the facilitiesmay expire without being drawn upon, the notional amounts do not necessarilyreflect future cash requirements.

 

The credit risk of thesefacilities may be less than the contract amount, but as it cannot be accuratelydetermined, the credit risk has been taken to be the contract amount.

 
|                             |   | **Consolidated**           |   | **The Company**            |   | **Controlled Entities**    |   |
|----------------------------------|--------|----------------------------|--------|----------------------------|--------|----------------------------|--------|
|                             |   | **2003  Contract  amount** |   | **2002  Contract  amount** |   | **2003  Contract  amount** |   | **2002  Contract  amount** |   | **2003  Contract  amount** |   | **2002  Contract  amount** |   |
|                             |   | **$m**                     |   | **$m**                     |   | **$m**                     |   | **$m** |   | **$m** |   | **$m** |   |
| Guarantees                       |   | 4,954                      |   | 3,580                      |   | 4,888                      |   | 3,526 |   | 66 |   | 54 |   |
| Credit derivatives – sold   |   | 2,409                      |   | 3,088                      |   | 2,409                      |   | 3,088 |   | — |   | — |   |
| Standby letters of credit        |   | 1,406                      |   | 1,952                      |   | 1,387                      |   | 1,932 |   | 19 |   | 20 |   |
| Bill endorsements                |   | 148                        |   | 298                        |   | 148                        |   | 298 |   | — |   | — |   |
| Documentary letters of credit    |   | 1,755                      |   | 1,620                      |   | 1,637                      |   | 1,505 |   | 118 |   | 115 |   |
| Performance related contingents  |   | 9,027                      |   | 11,161                     |   | 8,815                      |   | 10,907 |   | 212 |   | 254 |   |
| Other                            |   | 854                        |   | 935                        |   | 601                        |   | 552 |   | 253 |   | 383 |   |
| **Total contingent liabilities** |   | 20,553                     |   | 22,634                     |   | 19,885                     |   | 21,808 |   | 668 |   | 826 |   |

 

175

----

 

The details and estimatedmaximum amount of contingent liabilities that may become payable are set outbelow.

 

i)      Clearing and Settlement Obligations

 

In accordance with theclearing and settlement arrangements set out in the Australian PaymentsClearing Association Limited (APCA) Regulations for the Australian PaperClearing System, the Bulk Electronic Clearing System and the High ValueClearing System (HVCS) and in the Austraclear System Regulations, the Companyhas a commitment to participate in loss-sharing arrangements in the event of afailure to settle by a member institution.

 

For both the APCA HVCS andAustraclear, the obligation arises only in limited circumstances.

 

ii)     The Group will indemnify each customer of controlled entities engaged innominee activities against loss suffered by reason of such entities failing toperform any obligation undertaken by them to a customer.

 

iii)    Interbank Deposit Agreement

 

ANZ has entered into anInterbank Deposit Agreement with the major banks in the payments system. Thisagreement is a payment system support facility certified by the AustralianPrudential Regulation Authority, where the terms are such that if any bank isexperiencing liquidity problems, the other participants are required to depositequal amounts of up to $2 billion for a period of 30 days. At the end of 30days the deposit holder has the option to repay the deposit in cash or by wayof assignment of mortgages to the value of the deposit.

 

iv)   Tax Audit

 

ANZ in Australia is beingaudited by the Australian Taxation Office (ATO) as part of normal ATOprocedures. The Group has received various assessments that are being disputedand is likely to receive further assessments.

 

There are several majorissues that the ATO is considering, including:

 

•      Lease assignments in 1991 and 1992. Tax assessments have been receivedand are being contested in the Federal Court. Profit after tax of approximately$50 million was earned from these transactions.

 

•      Sale of Grindlays in 2000. At ANZ’s request the ATO is reviewing thetaxation treatment of this transaction. ANZ’s profit after tax from thistransaction was $404 million. 

 

Based on external advice, ANZhas assessed the likely progress of these issues, and believes that it holdsappropriate provisions.

 

During the years 1996–2002ANZ was involved in securities lending, equity swaps, and other similar kindsof transactions in the normal course of its business of banking. The ATO hadbeen reviewing these transactions for some time. On 21 February 2003, asettlement was reached between the ATO and ANZ which involved the payment of$262 million to the ATO. The amount was met from ANZ’s existing tax provisions.

 

The ANZ Group in New Zealandis being audited by local revenue authorities as part of normal revenueauthority procedures. No tax assessments have been issued. 

 

v)    Sale of Grindlays businesses

 

As part of the sale on 31July 2000 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 (the Grindlays businesses), to StandardChartered Bank (SCB), ANZ provided warranties relating to those businesses.Where it is anticipated that payments are likely under these warranties,provisions have been made to cover the anticipated liability.

 

In addition, ANZ provided SCBand/or Grindlays with certain indemnities. Those indemnities under which ANZremains exposed as at 30 September 2003 are:

 

•      an indemnity relating to liabilities Grindlays may incur as a result ofcertain claims made against Grindlays and its officers in India (the IndianIndemnity). Details of this indemnity are set out below; and

 

•      an indemnity relating to tax liabilities of Grindlays (and itssubsidiaries) and the Jersey Sub-Group to the extent to which such liabilitieshave not been provided for in the Grindlays accounts as at 31 July 2000.

 

Claims have been made underthe above indemnities and also in relation to certain warranties made by ANZ atthe time of sale. At present the Group is confident that they will have nomaterial impact on the Group.

 

The Indian Indemnity requiresANZ to pay SCB for losses that Grindlays incurs as a result of certain claimsthat have been or may be made against Grindlays and its officers in India.Under the terms of the Indian Indemnity, ANZ will have control of matters forwhich it is potentially liable. No settlement offer can be made or paid byGrindlays without the prior agreement of ANZ. ANZ will continue to manage thesematters in the best interests of the shareholders taking into account its legalobligations.

 

ANZ remains liable forcertain claims under the Indian Indemnity, including in relation to thefollowing two matters that are the subject of current proceedings involvingGrindlays or its officers:

 

•                  In 1991, certain amounts were transferred fromnon-convertible Indian Rupee accounts maintained with Grindlays in India. Inmaking these transactions it would appear that the provisions of the ForeignExchange Regulation Act 1973 were inadvertently not complied with. Grindlays onits own initiative, brought these transactions to the attention of the ReserveBank of India. The Indian authorities have served notices on Grindlays andcertain of its officers in India that could lead to possible penalties.Grindlays has commenced proceedings in the courts contesting the validity ofthese notices.

 

•                  In June 2003, Grindlays was successful inits appeal against orders to repay, with interest, two payments it receivedfrom a stockbroker in 1991 in connection with securities transactions. Theseorders had directed repayment of Indian Rupees 24 million (AUD 0.8 million at30 September 2003 rates, plus interest accruing at 24% since 1991). Grindlaysis awaiting the outcome of proceedings in relation to a further twelve paymentsreceived by it in 1991 in similar circumstances totalling Indian Rupees 277million (AUD 8.9 million at 30 September 2003 rates).

 

176

----

vi)           Pursuant to class order 98/1418 (as amended)dated 13 August 1998, relief was granted to a number of wholly ownedcontrolled entities from the Corporations Act 2001 requirements forpreparation, audit, and publication of financial statements. The entities towhich relief was granted are

 

•      ANZ Properties (Australia) Pty Ltd(1)

•      Alliance Holdings Pty Ltd(1)

•      ANZ Capital Hedging Pty Ltd(1)

•      ANZ Funds Pty Ltd(1)

•      ANZ Infrastructure Investments Ltd(3)

•      ANZ Nominees Ltd(1)

•      ANZ Securities (Holdings) Ltd(3)

•      Binnstone Traders Pty Ltd(1)

•      Deori Pty Ltd(1)

•      ES & A Holdings Pty Ltd(1)

•      Jikk Pty Ltd(1)

•      LFD Ltd(1)

•      NMRSB Pty Ltd(1)

•      ANZ Orchard Investments Pty Ltd(2)

•      Votriant No. 1103 Pty Ltd(2)

 

----

(1)   Relief granted on 21 August 2001

(2)   Relief granted on 13 August 2002

(3)   Relief granted on 9 September 2003

 

It is the condition of theclass order that the Company and each of the above controlled entities enterinto a Deed of Cross Guarantee. A Deed of Cross Guarantee under the class orderwas lodged and approved by the Australian Securities and InvestmentsCommission. The effect of the Deed is that the Company guarantees to eachcreditor payment in full of any debt in the event of winding up any of thecontrolled entities under certain provisions of the Corporations Act 2001. TheCompany will only be liable in the event that after six months any creditor hasnot been paid in full. The controlled entities have also given similarguarantees in the event that the Company is wound up. The consolidatedstatement of financial performance and consolidated statement of financialposition of the Company and its wholly owned controlled entities which haveentered into the Deed of Cross Guarantee are:  

 
|                                          |   | **Consolidated** |   |
|-----------------------------------------------|--------|------------------|--------|
|                                          |   | **2003**         |   | **2002** |   |
|                                          |   | **$m**           |   | **$m** |   |
| Profit before tax                             |   | 2,595            |   | 1,955 |   |
| Income tax expense                            |   | (643             | )      | (654 | ) |
| Profit after income tax                       |   | 1,952            |   | 1,301 |   |
| Retained profits at start of year(1)          |   | 4,788            |   | 4,348 |   |
| Total available for appropriation             |   | 6,740            |   | 5,649 |   |
| Ordinary share dividends provided for or paid |   | (640             | )      | (882 | ) |
| Retained profits at end of year               |   | 6,100            |   | 4,767 |   |
| **Assets**                                    |   |             |   |   |   |
| Liquid assets                                 |   | 3,919            |   | 5,998 |   |
| Investment securities                         |   | 3,818            |   | 2,606 |   |
| Net loans and advances                        |   | 116,557          |   | 100,999 |   |
| Other assets                                  |   | 38,916           |   | 40,520 |   |
| Premises and equipment                        |   | 1,178            |   | 1,189 |   |
| **Total assets**                              |   | 164,388          |   | 151,312 |   |
| **Liabilities**                               |   |             |   |   |   |
| Deposits and other borrowings                 |   | 90,186           |   | 85,258 |   |
| Income tax liability                          |   | 766              |   | 1,064 |   |
| Payables and other liabilities                |   | 59,353           |   | 53,218 |   |
| Provisions                                    |   | 614              |   | 1,611 |   |
| **Total liabilities**                         |   | 150,919          |   | 141,151 |   |
| **Net assets**                                |   | 13,469           |   | 10,161 |   |
| **Shareholders’ equity**                 |   | 13,469           |   | 10,161 |   |

 

----

(1)   The Companies included in the class order havechanged, accordingly retained profits have not carried forward

 

vii)  The Company has guaranteed payment on maturity of the principal andaccrued interest of commercial paper notes issued by ANZ (Delaware) Inc. of$6,988 million as at 30 September 2003 (2002: $1,654 million).

 

viii)The Company is party to an underpinning agreement with ANZ Banking Group(New Zealand) Limited whereby the Company undertakes to assume risk in relationto credit facilities extended by ANZ Banking Group (New Zealand) Limited toindividual customers which exceed 35% of ANZ Banking Group (New Zealand)Limited’s capital base.

 

ix)    The Company is party to an underpinning agreement with Australia and NewZealand Banking Group (PNG) Limited whereby the Company undertakes to assumerisk in relation to credit facilities extended by Australia and New ZealandBanking Group (PNG) Limited to individual customers which exceed 50% ofAustralia and New Zealand Banking Group (PNG) Limited’s capital base.

 

**General**

 

There are outstanding courtproceedings, claims and possible claims against the Group, the aggregate amountof which cannot readily be quantified. Appropriate legal advice has beenobtained and, in the light of such advice, provisions as deemed necessary havebeen made.

177

----

 

**ContingentAsset**

 

On 14 October 2003 ANZissued proceedings in the Victorian Supreme Court against its captive insurancecompany ANZcover Insurance Pty Ltd regarding a $130 million insurance claim.This claim is in relation to the loss on settlement of its former subsidiaryANZ Grindlays Bank Limited’s 1992 dispute with India’s National Housing Bank(NHB). ANZcover is an authorised general insurer restricted to insuring theinterests of ANZ and its subsidiaries. ANZcover in turn purchases reinsurancefrom global reinsurers, primarily in the London reinsurance market. The claim againstANZcover is fully reinsured, and therefore ANZcover has no retained exposure tothe claim.

 

The January 2002settlement of the NHB litigation saw Grindlays recover Rupees 6.20 billion (AUD248 million at 19 January 2002 rates) of the disputed monies thatGrindlays Bank had lodged with the Court, which by that time totalled Rupees16.45 billion (AUD 661 million at 19 January 2002 rates), includinginterest, with NHB receiving the balance. ANZ in turn received a payment of USD124 million from Standard Chartered Bank under the terms of the IndianIndemnity. The claim of $130 million is for the balance of the limit ofindemnity under ANZcover’s reinsurance arrangements for the 1991–92 policyyear.

 

**49:  Superannuation Commitments**

 

A number of pension andsuperannuation schemes have been established by the Group worldwide. The Groupmay be obliged to contribute to the schemes as a consequence of legislation andprovisions of trust deeds. Legal enforceability is dependent on the terms ofthe legislation and trust deeds. The major schemes with assets in excess of $25million are:

 
|        |   |                                |   |                        |   | **Contribution levels** |   |
|-------------|--------|-------------------------------------|--------|-----------------------------|--------|-------------------------|--------|
| **Country** |   | **Scheme**                          |   | **Scheme type**             |   | **Employee**            |   | **Employer** |   |
| Australia   |   | ANZ Australian Staff                |   | Defined Contribution Scheme |   |                    |   |   |   |
|        |   | Superannuation Scheme(1),(2)        |   | Section C              |   | optional                |   | Balance of cost(3) |   |
|        |   |                                |   | or                          |   |                    |   |   |   |
|        |   |                                |   | Defined Contribution Scheme |   |                    |   |   |   |
|        |   |                                |   | Section A              |   | optional                |   | 9% of salary(4) |   |
|        |   |                                |   | or                          |   |                    |   |   |   |
|        |   |                                |   | Defined Benefit Scheme      |   |                    |   |   |   |
|        |   |                                |   | Pension Section(4)          |   | nil                     |   | Balance of cost |   |
|        |   |                                |   |                        |   |                    |   |   |   |
| New Zealand |   | ANZGROUP (New Zealand)              |   |                        |   |                    |   |   |   |
|        |   | Staff Superannuation  Scheme(1),(2) |   | Defined Benefit Scheme(5)   |   | nil                     |   | Balance of cost |   |
|        |   |                                |   | or                          |   |                    |   |   |   |
|        |   |                                |   | Defined Contribution Scheme |   | 2.5% min                |   | 7.5% of salaries |   |
|        |   |                                |   |                        |   |                    |   |   |   |
| England     |   | ANZ UK Staff Pension  Scheme(1)     |   | Defined Benefit Scheme      |   | nil                     |   | Balance of cost |   |
|             |        |                                     |        |                             |        |                         |        |  |  |  |

 

Balance of cost: the Group’scontribution is assessed by the actuary after taking account of members’contributions and the value of the schemes’ assets

 

----

(1)   These schemes provide for pension benefits

(2)   These schemes provide for lump sum benefits

(3)   As recommended by the actuary, currently 9%(2002: 9%) of members’ superannuation salaries

(4)   Closed to new members. Operates to makepension payments to retirees who were members or to dependants of the members

(5)   Closed to new members on 31 March 1990.Operates to make pension payments to retirees who were members of thatsection of the scheme or to dependants of the members.

 

**The detailsof major defined benefit schemes with assets in excess of $25 million are asfollows:**

 
| **2003  Schemes**                                             |   | **Employer’s  contribution** |   | **Accrued  benefits** |   | **Net market  value of  assets held  by scheme** |   | **Excess of  net market  value of assets  over accrued  benefits** |   | **Vested  benefits** |   |
|---------------------------------------------------------------|--------|-----------------------------------|--------|-----------------------|--------|--------------------------------------------------|--------|--------------------------------------------------------------------|--------|----------------------|--------|
|                                                          |   | **$m**                            |   | **$m**                |   | **$m**                                           |   | **$m**                                                             |   | **$m**               |   |
| ANZ Australian Staff Superannuation Scheme Pension Section(1) |   | —                            |   | 43                    |   | 37                                               |   | (6                                                                 | )      | 43                   |   |
| ANZ UK Staff Pension Scheme(1)                                |   | —                            |   | 872                   |   | 771                                              |   | (101                                                               | )      | 845                  |   |

 
| **2002  Schemes**                                             |   | **Employer’s  contribution** |   | **Accrued  benefits** |   | **Net market  value of  assets held  by scheme** |   | **Excess of  net market  value of assets  over accrued  benefits** |   | **Vested  benefits** |   |
|---------------------------------------------------------------|--------|-----------------------------------|--------|-----------------------|--------|--------------------------------------------------|--------|--------------------------------------------------------------------|--------|----------------------|--------|
|                                                          |   | **$m**                            |   | **$m**                |   | **$m**                                           |   | **$m**                                                             |   | **$m**               |   |
| ANZ Australian Staff Superannuation Scheme Pension Section(2) |   | —                            |   | 46                    |   | 47                                               |   | 1                                                                  |   | 46                   |   |
| ANZ UK Staff Pension Scheme(2)                                |   | —                            |   | 998                   |   | 1,053                                            |   | 55                                                                 |   | 963                  |   |

 

----

(1)   Amounts were measured at 31 December 2002

(2)   Amounts were measured at 31 December 2001

 

The Pension Section ofthe ANZ Australian Staff Superannuation Scheme is closed to new members. Thelast full actuarial valuation, conducted by the actuary, Towers Perrin, as at31 December 2001 showed a small surplus. An interim valuation conducted asat 31 December 2002 showed a deficit of $6 million, but since that datethe deficit has reduced. Another interim valuation will be conducted as at 31December 2003, at which time the funding position will be reassessed. Thenext full actuarial valuation is due to be conducted as at 31December 2004.

 

The deficit disclosed abovefor the UK Staff Pension Scheme has been determined for the purpose of AASB1028“Employee Benefits”.

 

Consulting actuaries WatsonWyatt LLP have advised that as at 31 December 2002 the Scheme would havemet the minimum funding requirement (MFR) test as defined in UK legislation.Further, an interim actuarial valuation (which differs from AASB1028 requirements)of the Scheme was performed at 31 December 2002. This valuation, performedin accordance with actuarial standards, indicated a deficit of GBP 0 million toGBP 31 million ($76 million) depending on the assumptions used.

 

The Group has no presentliability under the Scheme’s trust deed to commence contributions or fund thedeficit. However, as a matter of prudence, the Bank has decided to recommencecontributions to the Scheme with effect from 1 October 2003, ahead of thenext formal actuarial review which is due as at 31 December 2003.

 

178

----

 

**50:  Employee Share andOption Plans**

 

The Company has four sharepurchase and option incentive plans available for employees and directors ofthe Group: the ANZ Employee Share Acquisition Plan(1);the ANZ Share Purchase Scheme; the ANZ Share Option Plan; and the ANZDirectors’ Share Plan. Shareholders of the Company have approved theimplementation of each of the current plans. Fully paid ordinary shares issuedunder these plans rank equally with other existing fully paid ordinary shares,other than in respect of voting rights.

 

Each option granted under theANZ Share Option Plan entitles a holder to purchase one ordinary share subjectto any terms and conditions imposed on issue. The exercise price of theoptions, determined in accordance with the rules of the plan, is based on theweighted average price of the Company’s shares traded during the five businessdays preceding the date of granting the options.

 

An offer to employees anddirectors cannot be made under any of the plans if an issue pursuant to thatoffer will result in the aggregate of shares issued and options granted overunissued shares held for employees under various employee share and option incentiveschemes exceeding 7% of the issued capital (and unexercised options) of theCompany.

 

The closing market price ofone ordinary share at 30 September 2003 was $17.95.

 

----

(1)   The ANZ Employee Share Acquisition Planincludes the $1,000 Share Plan, the Deferred Share Plan and the Employee ShareSave Scheme

 

**ANZ EmployeeShare Acquisition Plan**

 

**$1,000 SharePlan**

 

All permanent employees(other than senior executives) who have had continuous service for one yearwith the Company or any of its controlled entities may be eligible toparticipate in a scheme enabling the issue of up to $1,000 of shares to anemployee in each financial year, subject to the approval of the Board. Theshares are retained in trust for a three year vesting period. On expiration ofthat period, an employee may generally sell the shares, transfer them intotheir name, or have them retained in the trust. On termination, the shares aregenerally transferred into the employee’s name. Forfeiture provisions mayapply, depending on jurisdiction.

 

The shares are issued for noconsideration. During the financial year, 1,028,623 shares with an averageissue price of $17.70 were issued under the $1,000 Share Plan (2002: 1,070,986shares with an average issue price of $17.21 were issued). These shares areissued from the Share Capital account, hence only an increase in the number ofshares on issue results.

 

Details of the movement inemployee shares under the $1,000 Share Plan are as follows:

 
|                                      |   | **The Company** |   |
|-------------------------------------------|--------|-----------------|--------|
|                                      |   | **2003**        |   |
| Number of shares at beginning of the year |   | 4,217,660       |   |
| Number of shares issued to the trust      |   | 1,242,614       |   |
| Number of shares distributed to employees |   | (915,612        | )      |
| Number of shares forfeited                |   | (6,986          | )      |
| Number of shares at end of the year       |   | 4,537,676       |   |

 
|                                                                      |   | **The Company** |   |
|---------------------------------------------------------------------------|--------|-----------------|--------|
|                                                                      |   | **2003**        |   | **2002** |   |
| Number of shares acquired since commencement of the $1,000 Share  Plan(2) |   | 7,013,921       |   | 5,985,298 |   |

 

**DeferredShare Plan**

 

Selected employees may alsobe issued deferred shares, which vest in the employee three years from the dateof issue (previously one or three years). Ordinary shares issued under thisplan may be held in trust for up to 10 years, and may be required to meetperformance hurdles before being able to be traded after the restriction periodhas expired. The issue price is based on the volume weighted average price ofthe shares traded on the ASX in the weeks leading up to and including the dateof issue. Unvested shares are forfeited on resignation or dismissal, or if aperformance condition has not been met.

 

During the financial year,2,587,091 (2002: 3,074,002) deferred shares were issued under this Plan.

 

Details of the movement inemployee shares under the Deferred Share Plan are as follows:

 
|                                      |   | **The Company** |   |
|-------------------------------------------|--------|-----------------|--------|
|                                      |   | **2003**        |   |
| Number of shares at beginning of the year |   | 7,500,351       |   |
| Number of shares issued to the trust      |   | 2,666,291       |   |
| Number of shares distributed to employees |   | (2,024,878      | )      |
| Number of shares forfeited                |   | (120,916        | )      |
| Number of shares at end of the year       |   | 8,020,848       |   |

 
|                                                                        |   | **The Company** |   |
|-----------------------------------------------------------------------------|--------|-----------------|--------|
|                                                                        |   | **2003**        |   | **2002** |   |
| Number of shares acquired since commencement of the Deferred Share  Plan(2) |   | 13,878,185      |   | 11,291,094 |   |

 

----

(2)   Excludes shares issued under the bonus optionplan and the dividend reinvestment plan

 

179

----

 

**EmployeeShare Save Scheme**

 

Eligible employees have theopportunity to request that a proportion of their income be directed to thepurchase of ANZ shares. The amount they elect to contribute is deductedfortnightly and shares are purchased on market quarterly in arrears by thetrust. The Company contributes 5% of the purchase price and pays for brokersfees and stamp duty. Senior executives may participate but are not eligible toreceive the 5% discount. Employees are eligible to participate in the Scheme ifthey are permanent full-time or part-time employees of the Company and havebeen employed since 1 October immediately prior to the invitation beingmade by the Company. Employees nominate a restriction period between 1 to 10years during which period the shares are held in trust. Dividends are paid tothe employees.

 

Details of the movement inemployee shares under the ANZ Employee Share Save Scheme are as follows:

 
|                                      |   | **The Company** |   |
|-------------------------------------------|--------|-----------------|--------|
|                                      |   | **2003**        |   |
|                                      |   |            |   |
| Number of shares at beginning of the year |   | 302,410         |   |
| Number of shares purchased                |   | 291,210         |   |
| Number of shares issued to the trust      |   | 16,408          |   |
| Number of shares distributed to employees |   | (215,623        | )      |
| Number of shares forfeited                |   | —          |   |
| Number of shares at end of the year       |   | 394,405         |   |

 
|                                                                                |   | **The Company** |   |
|-------------------------------------------------------------------------------------|--------|-----------------|--------|
|                                                                                |   | **2003**        |   | **2002** |   |
| Number of shares acquired since commencement of the ANZ Employee Share  Save Scheme |   | 763,652         |   | 472,442 |   |

 

Costs associated with the ANZEmployee Share Save Scheme were recognised in Personnel Expenses and LiquidAssets (amounts were less than $500,000).

 

**ANZ SharePurchase Scheme**

 

The ANZ Share Purchase Schemeis a closed scheme. Shares are progressively being paid up by eligible officersthat were offered fully paid ordinary shares. No fully paid ordinary shareshave been issued under this Scheme since 1996.

 

Details of the movement inemployee shares under the ANZ Share Purchase Scheme are as follows:

 
|                                      |   | **The Company** |   |
|-------------------------------------------|--------|-----------------|--------|
|                                      |   | **2003**        |   | **2002** |   |
| Number of shares at beginning of the year |   | 1,272,500       |   | 1,997,500 |   |
| Number of shares redeemed by employees(1) |   | (1,043,000      | )      | (725,000 | ) |
| Number of shares at end of the year       |   | 229,500         |   | 1,272,500 |   |

 

----

(1)   Redeemed once paid out by employee

 

180

----

 

**ANZ ShareOption Plan**

Selected employees may begranted options, which entitle them to purchase ordinary fully paid shares inthe Company at or greater than a price fixed at the time when the options areissued (depending on whether the exercise price is indexed or not). Votingrights will be attached to the unissued ordinary shares when the options havebeen exercised.

 

Details of the options overunissued ordinary shares as at the beginning and end of the financial year andmovements during the year are set out below.

 
| **Grant date** |   | **Exercise  price** |   | **Earliest  exercise  date** |   | **Expiry  date** |   | **No. options  at beginning  of the  year** |   | **Options  granted** |   | **Options  lapsed** |   | **Options  exercised** |   | **No. options outstanding  at 30 September 2003** |   | **Performance  hurdles for each  option class** |   |
|----------------|--------|---------------------|--------|------------------------------|--------|------------------|--------|--------------------------------------------------|--------|----------------------|--------|---------------------|--------|------------------------|--------|--------------------------------------------------------|--------|-------------------------------------------------|--------|
| **On issue**   |   | **Vested**          |
|           |   | **$**               |   |                         |   |             |   |                                             |   |                 |   |                |   |                   |   |                                                   |   |                                            |   |   |   |
| 23/01/1998     |   | 11.45               |   | 23/01/2001                   |   | 22/01/2003       |   | 2,565                                            |   | —               |   | —              |   | 2,565                  |   | —                                                 |   | Yes                                             |   | N |   |
| 24/02/1998     |   | 9.51                |   | 24/02/2001                   |   | 23/02/2003       |   | 325,000                                          |   | —               |   | —              |   | 325,000                |   | —                                                 |   | Yes                                             |   | A |   |
| 28/10/1998     |   | 8.97                |   | 28/10/2001                   |   | 27/10/2003       |   | 250,000                                          |   | —               |   | —              |   | 250,000                |   | —                                                 |   | Yes                                             |   | A |   |
| 11/12/1998     |   | 10.34               |   | 11/12/2001                   |   | 10/12/2003       |   | 195,000                                          |   | —               |   | —              |   | 180,000                |   | 15,000                                                 |   | Yes                                             |   | A |   |
| 28/01/1999     |   | 10.41               |   | 28/01/2002                   |   | 27/01/2004       |   | 10,000                                           |   | —               |   | —              |   | 10,000                 |   | —                                                 |   | Yes                                             |   | A |   |
| 25/03/1999     |   | 11.44               |   | 25/03/2002                   |   | 24/03/2004       |   | 82,000                                           |   | —               |   | —              |   | 60,000                 |   | 22,000                                                 |   | Yes                                             |   | A |   |
| 02/06/1999     |   | 11.20               |   | 02/06/2002                   |   | 01/06/2004       |   | 237,500                                          |   | —               |   | 2,500               |   | 120,000                |   | 115,000                                                |   | Yes                                             |   | N |   |
| 02/06/1999     |   | 11.20               |   | 02/06/2002                   |   | 01/06/2004       |   | 1,615,000                                        |   | —               |   | —              |   | 1,290,000              |   | 325,000                                                |   | Yes                                             |   | A |   |
| 07/06/1999     |   | 11.26               |   | 07/06/2002                   |   | 06/06/2004       |   | 2,500                                            |   | —               |   | —              |   | 2,500                  |   | —                                                 |   | Yes                                             |   | N |   |
| 12/07/1999     |   | 11.30               |   | 12/07/2002                   |   | 11/07/2004       |   | 150,000                                          |   | —               |   | —              |   | 150,000                |   | —                                                 |   | Yes                                             |   | A |   |
| 27/10/1999     |   | 9.94                |   | 27/10/2002                   |   | 26/10/2004       |   | 900,000                                          |   | —               |   | —              |   | 900,000                |   | —                                                 |   | Yes                                             |   | A |   |
| 31/12/1999     |   | 11.49               |   | 31/12/2002                   |   | 31/12/2004       |   | 750,000                                          |   | —               |   | —              |   | 750,000                |   | —                                                 |   | Yes                                             |   | E |   |
| 31/01/2000     |   | 10.63               |   | 31/01/2003                   |   | 30/01/2005       |   | 100,000                                          |   | —               |   | —              |   | 100,000                |   | —                                                 |   | Yes                                             |   | A |   |
| 23/02/2000     |   | 10.11               |   | 23/02/2003                   |   | 22/02/2007       |   | 1,050,000                                        |   | —               |   | 30,000              |   | 578,000                |   | 442,000                                                |   | Yes                                             |   | B |   |
| 08/03/2000     |   | 10.20               |   | 08/03/2003                   |   | 07/03/2007       |   | 350,000                                          |   | —               |   | —              |   | —                 |   | 350,000                                                |   | Yes                                             |   | B |   |
| 23/05/2000     |   | 11.81               |   | 23/05/2003                   |   | 23/05/2007       |   | 447,500                                          |   | —               |   | 10,000              |   | 166,250                |   | 271,250                                                |   | Yes                                             |   | N |   |
| 07/06/2000     |   | 12.23               |   | 07/06/2003                   |   | 06/06/2007       |   | 200,000                                          |   | —               |   | —              |   | 200,000                |   | —                                                 |   | Yes                                             |   | B |   |
| 26/09/2000     |   | 12.75               |   | 26/09/2003                   |   | 25/09/2007       |   | 75,000                                           |   | —               |   | 5,000               |   | 12,500                 |   | 57,500                                                 |   | Yes                                             |   | N |   |
| 21/11/2000     |   | 14.34               |   | 22/11/2003                   |   | 21/11/2007       |   | 2,373,258                                        |   | —               |   | 41,000              |   | 289,000                |   | 2,043,258                                              |   | No                                              |   | B |   |
| 27/12/2000     |   | 14.63               |   | 25/10/2003                   |   | 07/02/2008       |   | 1,642,500                                        |   | —               |   | 79,600              |   | 90,400                 |   | 1,472,500                                              |   | No                                              |   | N |   |
| 31/12/2000     |   | 14.78               |   | 31/12/2003                   |   | 31/12/2004       |   | 750,000                                          |   | —               |   | —              |   | —                 |   | 750,000                                                |   | No                                              |   | E |   |
| 27/01/2001     |   | 14.63               |   | 07/02/2004                   |   | 07/02/2008       |   | 1,034,250                                        |   | —               |   | 51,000              |   | 62,250                 |   | 921,000                                                |   | No                                              |   | N |   |
| 21/02/2001     |   | 14.92               |   | 21/02/2004                   |   | 20/02/2008       |   | 4,510,025                                        |   | —               |   | 162,250             |   | 283,950                |   | 4,063,825                                              |   | No                                              |   | N |   |
| 27/02/2001     |   | 15.47               |   | 27/02/2004                   |   | 26/02/2008       |   | 75,000                                           |   | —               |   | —              |   | —                 |   | 75,000                                                 |   | No                                              |   | B |   |
| 07/03/2001     |   | 15.66               |   | 07/03/2004                   |   | 06/03/2008       |   | 50,000                                           |   | —               |   | —              |   | 50,000                 |   | —                                                 |   | No                                              |   | B |   |
| 24/04/2001     |   | 13.70               |   | 25/04/2004                   |   | 24/04/2008       |   | 2,485,227                                        |   | —               |   | 76,500              |   | 137,312                |   | 2,271,415                                              |   | No                                              |   | N |   |
| 24/04/2001     |   | 13.70               |   | 25/04/2004                   |   | 24/04/2008       |   | 1,119,900                                        |   | —               |   | 110,500             |   | 74,500                 |   | 934,900                                                |   | No                                              |   | B |   |
| 07/05/2001     |   | 13.70               |   | 07/05/2004                   |   | 06/05/2008       |   | 194,800                                          |   | —               |   | 5,050               |   | 12,850                 |   | 176,900                                                |   | No                                              |   | N |   |
| 01/06/2001     |   | 15.33               |   | 01/06/2004                   |   | 31/05/2008       |   | 453,500                                          |   | —               |   | 11,500              |   | 27,750                 |   | 414,250                                                |   | No                                              |   | N |   |
| 23/08/2001     |   | 16.49               |   | 21/08/2004                   |   | 20/08/2008       |   | 76,000                                           |   | —               |   | —              |   | —                 |   | 76,000                                                 |   | No                                              |   | B |   |
| 27/08/2001     |   | 16.81               |   | 27/08/2004                   |   | 26/08/2008       |   | 84,000                                           |   | —               |   | 4,500               |   | 3,750                  |   | 75,750                                                 |   | No                                              |   | N |   |
| 24/10/2001     |   | 17.05               |   | 25/10/2004                   |   | 24/10/2008       |   | 1,043,100                                        |   | —               |   | 115,400             |   | 57,500                 |   | 870,200                                                |   | No                                              |   | B |   |
| 24/10/2001     |   | 17.05               |   | 25/10/2004                   |   | 24/10/2008       |   | 3,356,525                                        |   | —               |   | 113,125             |   | 141,475                |   | 3,101,925                                              |   | No                                              |   | N |   |
| 24/10/2001     |   | 0.00                |   | 24/10/2002                   |   | 24/10/2003       |   | 72,242                                           |   | —               |   | —              |   | 71,833                 |   | 409                                                    |   | Yes                                             |   | N |   |
| 24/10/2001     |   | 17.05               |   | 24/10/2004                   |   | 23/10/2008       |   | 50,000                                           |   | —               |   | —              |   | —                 |   | 50,000                                                 |   | No                                              |   | B |   |
| 31/12/2001     |   | 17.20               |   | 31/12/2004                   |   | 31/12/2005       |   | 500,000                                          |   | —               |   | —              |   | —                 |   | 500,000                                                |   | No                                              |   | E |   |
| 31/12/2001     |   | 17.52               |   | 31/12/2003                   |   | 31/12/2007       |   | 500,000                                          |   | —               |   | —              |   | —                 |   | 500,000                                                |   | No                                              |   | F |   |
| 28/02/2002     |   | 18.21               |   | 26/02/2005                   |   | 25/02/2009       |   | 20,000                                           |   | —               |   | —              |   | —                 |   | 20,000                                                 |   | No                                              |   | B |   |
| 24/04/2002     |   | 18.75               |   | 24/04/2005                   |   | 24/04/2009       |   | 3,386,680                                        |   | —               |   | 199,080             |   | 3,751                  |   | 3,183,849                                              |   | No                                              |   | N |   |
| 24/04/2002     |   | 0.00                |   | 24/04/2003                   |   | 24/04/2004       |   | 24,098                                           |   | —               |   | 235                 |   | 19,158                 |   | 4,705                                                  |   | Yes                                             |   | N |   |
| 24/04/2002     |   | 18.75               |   | 24/04/2005                   |   | 24/04/2009       |   | 1,000,500                                        |   | —               |   | 112,291             |   | 3,016                  |   | 885,193                                                |   | No                                              |   | C |   |
| 24/04/2002     |   | 18.75               |   | 24/04/2005                   |   | 24/04/2009       |   | 435,000                                          |   | —               |   | 20,000              |   | —                 |   | 415,000                                                |   | No                                              |   | C |   |
| 31/05/2002     |   | 19.27               |   | 14/05/2005                   |   | 13/05/2009       |   | 145,000                                          |   | —               |   | —              |   | —                 |   | 145,000                                                |   | No                                              |   | N |   |
| 27/06/2002     |   | 19.27               |   | 28/06/2005                   |   | 27/06/2009       |   | 297,970                                          |   | —               |   | 11,500              |   | —                 |   | 286,470                                                |   | No                                              |   | N |   |
| 21/07/2002     |   | 17.90               |   | 22/07/2005                   |   | 21/07/2009       |   | 17,000                                           |   | —               |   | —              |   | —                 |   | 17,000                                                 |   | No                                              |   | C |   |
| 23/10/2002     |   | 18.06               |   | 23/10/2005                   |   | 22/10/2009       |   | —                                           |   | 2,638,774            |   | 54,279              |   | 143                    |   | 2,584,352                                              |   | No                                              |   | D |   |
| 23/10/2002     |   | 18.06               |   | 23/10/2005                   |   | 22/10/2009       |   | —                                           |   | 2,346,050            |   | 80,481              |   | 458                    |   | 2,265,111                                              |   | No                                              |   | N |   |
| 20/11/2002     |   | 18.28               |   | 20/11/2005                   |   | 19/11/2009       |   | —                                           |   | 40,000               |   | —              |   | —                 |   | 40,000                                                 |   | No                                              |   | D |   |
| 31/12/2002     |   | 17.41               |   | 31/12/2004                   |   | 31/12/2007       |   | —                                           |   | 1,000,000            |   | —              |   | —                 |   | 1,000,000                                              |   | No                                              |   | F |   |
| 20/05/2003     |   | 18.32               |   | 20/05/2006                   |   | 19/05/2010       |   | —                                           |   | 2,904,522            |   | 13,891              |   | —                 |   | 2,890,631                                              |   | No                                              |   | D |   |
| 20/05/2003     |   | 18.32               |   | 20/05/2006                   |   | 19/05/2010       |   | —                                           |   | 2,177,066            |   | 37,575              |   | —                 |   | 2,139,491                                              |   | No                                              |   | N |   |
| 09/06/2003     |   | 18.84               |   | 09/06/2006                   |   | 08/06/2010       |   | —                                           |   | 10,000               |   | —              |   | —                 |   | 10,000                                                 |   | No                                              |   | N |   |
| **Totals**     |   |                |   |                         |   |             |   | 32,438,640                                       |   | 11,116,412           |   | 1,347,257           |   | 6,425,911              |   | 35,781,884                                             |   |                                            |   |   |   |

 

The aggregate fair value ofshares issued as a result of the exercise of options during the 2003 financialyear was $117 million.

 

181

----

 

On 24 October 2003 theCompany issued a prospectus to invite shareholders to participate in a pro ratarenounceable rights issue. In accordance with the rules set out in the ANZShare Option Plan in the event of a rights issue, the exercise price of optionsgranted under the plan is to be reduced in accordance with ASX Listing Rule6.22. As a result the exercise price of each option issued under the ANZ ShareOption Plan is reduced by 72 cents from the amount disclosed.

 

Details of performancehurdles applicable to options are as follows:

 

N             No performance hurdles apply. Once theexercise period has been reached, the options may be exercised.

 

A             During the two year period commencing threeyears and ending five years after the date of issue of the options, thepercentage change of the ANZ Total Shareholder Return (ANZ TSR) to exceed thepercentage change of the S&P/ASX 200 Banks (Industry Group) AccumulationIndex from date of issue to any time from the third anniversary date up to andincluding the proposed exercise date.

 

B & C     During the four-year period commencing three years, and ending sevenyears, after the issue date of the options:

 

•              50% of the options allocated may be exercisedby the option holder subject to the ANZ TSR exceeding the percentage change inthe S&P/ASX 200 Banks (Industry Group) Accumulation Index measured over thesame period and calculated as at the last trading day of any month; and  

 

•              50% of the options allocated may be exercisedby the option holder subject to the ANZ TSR exceeding the percentage change inthe S&P/ASX 100 Accumulation Index measured over the same period andcalculated as at the last trading day of any month.

 

D             Options may be exercised during the four-yearperiod commencing three years, and ending seven years, after the issue date ofthe options. The exercise price will be set according to the movement in theS&P/ASX 200 Banks (Industry Group) Accumulation Index (excluding ANZ) sinceissue date, and can be no lower than the base issue price.

 

E              The options may be exercised only if the ANZAccumulation Index over the period from the date on which the options aregranted to the last trading day of any month occurring during the relevantexercise period equals or exceeds the ASX 100 Accumulation Index calculatedover the same period (applicable to the CEO only).

 

F              One half of the options may be exercised onlyif the ANZ TSR calculated over the period commencing on the date of grant andending on the last day of any month after the second anniversary of their dateof grant exceeds the percentage change in the S&P/ASX 200 Banks (IndustryGroup) Accumulation Index over that same period; and the other half of theoptions may be exercised only if the ANZ TSR calculated over the relevantperiod exceeds the percentage change in the S&P/ASX 100 Accumulation Indexover that same period (applicable to the CEO only).

 

Theseoptions will expire immediately on termination of employment, except in theevent of retirement, retrenchment, death or disablement or where agreed by thedirectors of the Company, in which case the exercise of the options may be allowed.

 

Inthe event of a takeover offer or takeover announcement, the directors of theCompany may allow the options to be exercised.

 

Ifthere is a bonus issue prior to the expiry or exercise of the options, thenupon exercise of the options, option holders are entitled to those shares as ifthe options had been exercised prior to that issue. Those shares will beallotted to the option holder when the options are exercised. 

 

Thefollowing options were exercised by employees and former employees during the financialyear:

 
| **Exercise price** |   | **No. of shares issued** |      | **Proceeds received** |   | **Exercise price** |   | **No. of shares issued** |   | **Proceeds received** |    |
|--------------------|--------|--------------------------|-----------|-----------------------|--------|--------------------|--------|--------------------------|--------|-----------------------|---------|
| $                  | 0.00   |                     | 71,833    |                  | $      | 0.00               |   | $                        | 12.75  |                  | 12,500  |   | $ | 159,375 |   |
| $                  | 0.00   |                     | 19,158    |                  | $      | 0.00               |   | $                        | 13.70  |                  | 137,312 |   | $ | 1,881,174 |   |
| $                  | 8.97   |                     | 250,000   |                  | $      | 2,242,500          |   | $                        | 13.70  |                  | 74,500  |   | $ | 1,020,650 |   |
| $                  | 9.51   |                     | 325,000   |                  | $      | 3,090,750          |   | $                        | 13.70  |                  | 12,850  |   | $ | 176,045 |   |
| $                  | 9.94   |                     | 900,000   |                  | $      | 8,946,000          |   | $                        | 14.34  |                  | 289,000 |   | $ | 4,144,260 |   |
| $                  | 10.11  |                     | 578,000   |                  | $      | 5,843,580          |   | $                        | 14.63  |                  | 90,400  |   | $ | 1,322,552 |   |
| $                  | 10.34  |                     | 180,000   |                  | $      | 1,861,200          |   | $                        | 14.63  |                  | 62,250  |   | $ | 910,718 |   |
| $                  | 10.41  |                     | 10,000    |                  | $      | 104,100            |   | $                        | 14.92  |                  | 283,950 |   | $ | 4,236,534 |   |
| $                  | 10.63  |                     | 100,000   |                  | $      | 1,063,000          |   | $                        | 15.33  |                  | 27,750  |   | $ | 425,408 |   |
| $                  | 11.20  |                     | 120,000   |                  | $      | 1,344,000          |   | $                        | 15.66  |                  | 50,000  |   | $ | 783,000 |   |
| $                  | 11.20  |                     | 1,290,000 |                  | $      | 14,448,000         |   | $                        | 16.81  |                  | 3,750   |   | $ | 63,038 |   |
| $                  | 11.26  |                     | 2,500     |                  | $      | 28,150             |   | $                        | 17.05  |                  | 57,500  |   | $ | 980,375 |   |
| $                  | 11.30  |                     | 150,000   |                  | $      | 1,695,000          |   | $                        | 17.05  |                  | 141,475 |   | $ | 2,412,149 |   |
| $                  | 11.44  |                     | 60,000    |                  | $      | 686,400            |   | $                        | 18.06  |                  | 143     |   | $ | 2,583 |   |
| $                  | 11.45  |                     | 2,565     |                  | $      | 29,369             |   | $                        | 18.06  |                  | 458     |   | $ | 8,271 |   |
| $                  | 11.49  |                     | 750,000   |                  | $      | 8,617,500          |   | $                        | 18.75  |                  | 3,751   |   | $ | 70,331 |   |
| $                  | 11.81  |                     | 166,250   |                  | $      | 1,963,413          |   | $                        | 18.75  |                  | 3,016   |   | $ | 56,550 |   |
| $                  | 12.23  |                     | 200,000   |                  | $      | 2,446,000          |   |                     |   |                  |    |   |   |

 

Forthose options exercised by employees and former employees during the financialyear, the market price of the Company’s shares during the year were as follows:

 
| High                         |   | $ | 19.23 |   |
|------------------------------|--------|---|-------|--------|
| Low                          |   | $ | 15.95 |   |
| As at 30 September 2003 |   | $ | 17.95 |   |

 

Asat the date of the Directors’ Report, unexercised options over ordinary sharesare as per the table on the previous page, adjusted for the exercise of thefollowing options which were exercised by employees and former employees sincethe end of the financial year.

 

182

----

 
| **Exercise price** |   | **No. of shares issued** |    | **Proceeds received** |   | **Exercise price** |   | **No. of shares issued** |   | **Proceeds received** |   |
|--------------------|--------|--------------------------|---------|-----------------------|--------|--------------------|--------|--------------------------|--------|-----------------------|--------|
| $                  | 0.00   |                     | 4,254   |                  | $      | 0                  |   | $                        | 13.91  |                  | 6,000  |   | $ | 83,460 |   |
| $                  | 10.11  |                     | 195,000 |                  | $      | 1,971,450          |   | $                        | 14.20  |                  | 750    |   | $ | 10,650 |   |
| $                  | 10.72  |                     | 10,000  |                  | $      | 107,200            |   | $                        | 14.34  |                  | 8,000  |   | $ | 114,720 |   |
| $                  | 11.09  |                     | 7,500   |                  | $      | 83,175             |   | $                        | 14.63  |                  | 87,250 |   | $ | 1,276,468 |   |
| $                  | 11.20  |                     | 15,000  |                  | $      | 168,000            |   | $                        | 14.92  |                  | 21,000 |   | $ | 313,320 |   |
| $                  | 11.81  |                     | 22,500  |                  | $      | 265,725            |   | $                        | 15.33  |                  | 3,000  |   | $ | 45,990 |   |
| $                  | 12.75  |                     | 2,500   |                  | $      | 31,875             |   | $                        | 16.33  |                  | 375    |   | $ | 6,124 |   |
| $                  | 12.98  |                     | 375     |                  | $      | 4,868              |   | $                        | 17.05  |                  | 15,600 |   | $ | 265,980 |   |
| $                  | 13.70  |                     | 13,450  |                  | $      | 184,265            |   | $                        | 18.06  |                  | 285    |   | $ | 5,147 |   |

 

Foroptions granted in the current year, valuations have been determined inaccordance with the fair value measurement provisions of Accounting ExposureDraft ED 108, using a modified Black-Scholes option pricing model.

 

Thesevaluations take into account the probability of achieving the performancehurdle required for these options to vest and have used the followingsignificant assumptions:

 
| **Range or  Average**     |   | **2003**                   |   | **2002**  |   | **2001**  |
|---------------------------|--------|----------------------------|--------|-----------|--------|-----------|
| Risk free interest rate   |   | 4.76% – 5.22%         |   | 6.14%     |   | 6.33%     |
| Life of options           |   | 3.5 years – 5.0 years |   | 6.8 years |   | 6.9 years |
| Volatility of share price |   | 20.70% – 22.00%       |   | 22.00%    |   | 24.96%    |
| Dividend rate             |   | 5.00%                      |   | 4.45%     |   | 4.66%     |

 

Amountsreceived from exercising options under the ANZ Share Option Plan during thefinancial year were recognised as follows:

 
|          |   | **The Company** |   |
|---------------|--------|-----------------|--------|
|          |   | **2003**        |   | **2002** |   |
|          |   | **$m**          |   | **$m** |   |
| Share capital |   | 73              |   | 57 |   |
| Liquid assets |   | 73              |   | 57 |   |

 

**ANZ Directors’ Share Plan**

 

Directorsmay elect to forgo remuneration to which they may have otherwise becomeentitled and receive shares to the value of the remuneration forgone.Participation in the Plan is voluntary.

 

Theshares are purchased on market and are held in trust for up to 10 years. Thedirector selects a restriction period of between 1 and 10 years during whichthe shares cannot be traded. The shares are subject to forfeiture for seriousmisconduct. All costs associated with the Plan are met by the Company.

 

Detailsof the movement in shares under this Scheme are as follows:

 
|                                      |   | **The Company(1)  2003** |   |
|-------------------------------------------|--------|--------------------------|--------|
| Number of shares at beginning of the year |   | 349,767                  |   |
| Number of shares purchased                |   | 114,700                  |   |
| Number of shares sold                     |   | —                   |   |
| Number of shares forfeited                |   | —                   |   |
| Number of shares at end of the year       |   | 464,467                  |   |

 

----

(1)   Includes deferred shares

 

183

----

 

**51:  Related PartyDisclosures**

 

Thedirectors during the year were:

CB Goode (Chairman)

JC Dahlsen

RS Deane

JK Ellis

MA Jackson

JMcFarlane

BW Scott

DM Gonski

 

Australianbanks, parent entities of Australian banks and controlled entities ofAustralian banks have been exempted, subject to certain conditions, by anAustralian Securities and Investments Commission (ASIC) class order, 98/110dated 10 July 1998, from making disclosures of loans made, guaranteed orsecured by a bank to related parties (other than specified categories ofdirectors) and financial instrument transactions (other than shares and shareoptions) of a bank where a director of the relevant entity is not a party tothe transaction and where the loan or financial instrument transaction islawfully made and occurs in the course of ordinary banking business either atarm’s length or with the approval of a general meeting of the relevant entityand its ultimate chief entity (if any).

 

Theclass order does not apply to a loan or financial instrument transaction ofwhich any director of the relevant entity should reasonably be aware that, ifnot disclosed, would have the potential to adversely affect the decisions madeby users of the financial statements about the allocation of scarce resources.

 

Acondition of the class order is that for each financial year to which itapplies, the Company must provide evidence to ASIC that the Company has systemsof internal controls and procedures which:

 

i)      in the case of any material financial instrument transaction, ensurethat; and

 

ii)     in any other case, are designed to provide a reasonable degree ofassurance that, any financial instrument transaction of a bank which may berequired to be disclosed in the Company’s financial statements and which is notentered into regularly, is drawn to the attention of the directors.

 

**a)****    ****Transactions with directorsand director-related entities**

 

**Shares and Share Options**

Theaggregate number of shares issued to, acquired for, disposed or no longer heldby directors, and share options granted to and exercised by directors of theCompany and their director-related entities by the Company during the financialyear were as follows:

 
|                                                                                  |   | **The Company** |   |
|---------------------------------------------------------------------------------------|--------|-----------------|--------|
|                                                                                  |   | **2003**        |   | **2002** |   |
|                                                                                  |   | **No.**         |   | **No.** |   |
| Fully paid ordinary shares in the Company acquired                                    |   | 878,987         |   | 1,127,098 |   |
| Fully paid ordinary shares in the Company disposed of or no longer  held by directors |   | (650,000        | )      | (605,864 | ) |
| Options granted under the ANZ Share Option Plan                                       |   | 1,000,000       |   | 1,000,000 |   |
| Options exercised under the ANZ Share Option Plan                                     |   | (750,000        | )      | (1,000,000 | ) |

 

Aggregatenumber of shares and share options held directly, indirectly or beneficially bydirectors of the Company and their director-related entities, as at balancedate, were as follows:

 
|                                              |   | **The Company** |   |
|---------------------------------------------------|--------|-----------------|--------|
|                                              |   | **2003**        |   | **2002** |   |
|                                              |   | **No.**         |   | **No.** |   |
| Fully paid ordinary shares in the Company(1)      |   | 2,046,146       |   | 1,817,159 |   |
| Share options over ordinary shares in the Company |   | 2,750,000       |   | 2,500,000 |   |

 

----

(1)   Includes deferred shares

 

Directorsof the Company and their director-related entities receive normal dividends onthese shares.

 

184

----

 

**Loans made to Directors**

 

Loansmade to non-executive directors of the Company and controlled entities are madein the course of ordinary business on normal commercial terms and conditions.Loans to executive directors of the Company and controlled entities are madepursuant to the Executive Directors’ Loan Scheme authorised by shareholders on18 January 1982, on the same terms and conditions applicable to otheremployees within the Group in accordance with established policy.

 

Underthe Australian Securities and Investments Commission class order referred toabove, disclosure is limited to the aggregate amount of loans made, guaranteedor secured by:

i)      the Company to its directors;

ii)     any controlled entity to the directors of the Company;

iii)    banking corporation controlled entities to their directors; and

iv)   non-banking corporation controlled entities to directors of controlledentities and to parties related to any one of them or the directors of theCompany.

 

Thedirectors involved were:

SArmstrong(1),(2),(4)

PK Cromby(1),(3)

AJ Holdstock(1),(2)

MKalangis(1),(2),(3),(4)

KD McKay(1),(2)

BPoedjirahardjo(1),(2),(3)

MRostian(1),(2),(3)

GTunstall(1),(2),(3),(4)

GJ Camm(1),(2)

DC Hannam(1),(2),(3),(4)

DHornery(1),(3)

JMcFarlane(1),(2),(3),(4)

NJ Merrick(1),(2),(3)

JTodd(3),(4)

 

----

(1)   Repayments made during the year

(2)   Loans made or outstanding during the year

(3)   Repayments made during the prior year

(4)   Loans made during the prior year

 

Theaggregate amount of such loans outstanding at 30 September 2003 were:

 
|                                                                                                                           |   | **Consolidated** |   | **The Company** |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                                                                                           |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                                                                                                                           |   | **$’000**   |   | **$’000**  |   | **$’000** |   | **$’000** |   |
| Balance outstanding at 30 September                                                                                            |   | 1,906            |   | 6,284           |   | 18 |   | 5,889 |   |
| Total interest received                                                                                                        |   | 149              |   | 414             |   | 37 |   | 362 |   |
| The aggregate amount of repayments received from directors and their  director-related entities during the financial year was: |   |             |   |            |   |   |   |   |   |
| Normal terms and conditions                                                                                                    |   | 9,587            |   | 6,500           |   | 9,587 |   | 6,500 |   |
| Employee terms and conditions                                                                                                  |   | 283              |   | 97              |   | — |   | — |   |
| The aggregate amount of loans made during the financial year was:                                                              |   |             |   |            |   |   |   |   |   |
| Normal terms and conditions                                                                                                    |   | 3,716            |   | 11,518          |   | 3,716 |   | 11,518 |   |
| Employee terms and conditions                                                                                                  |   | 1,804            |   | 36              |   | — |   | — |   |

 

**Other transactions of Directors andDirector-Related Entities**

 

i)      Financial instrument transactions

 

Underthe Australian Securities and Investments Commission class order referred toabove, disclosure of financial instrument transactions regularly made by a bankis limited to disclosure of such transactions with a director of the entityconcerned. Financial instrument transactions which have occurred on arm’slength terms and conditions, and are deemed trivial or domestic in nature arerequired to be disclosed by general description.

 

Financialinstrument transactions between the directors and the Bank during the financialyear were in the nature of normal personal banking, investment and deposittransactions. These transactions occurred on an arm’s length basis and onnormal commercial terms and conditions no more favourable than those given toother employees or customers.

 

ii)     Transactions other than financial instrument transactions of banks

 

Alltransactions with directors and their director-related entities are conductedon arm’s length terms and conditions, and are deemed trivial or domestic innature. These transactions are in the nature of deposits, debentures, orinvestment transactions conducted with non-bank controlled entities.

 

Allother transactions with director-related entities occur within a normalcustomer or supplier relationship and are on arms length terms.

 

185

----

 

**b)****    ****Transactions with associatesand joint venture entities**

 

Duringthe course of the financial year the Company and the Group conductedtransactions with associated and joint venture entities on normal commercialterms and conditions as shown below:

 
|                                                          |   | **Consolidated** |   | **The Company** |   |
|---------------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                          |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                                                          |   | **$’000**   |   | **$’000**  |   | **$’000** |   | **$’000** |   |
| **Aggregate**                                                 |   |             |   |            |   |   |   |   |   |
| Amounts receivable from associates and joint venture entities |   | 30,691           |   | 26,097          |   | 1,139 |   | — |   |
| Interest revenue                                              |   | 1,126            |   | —          |   | 507 |   | — |   |
| Dividend revenue                                              |   | 5,606            |   | 760             |   | 326 |   | 760 |   |
| Commissions received from INGA joint venture                  |   | 79,146           |   | 32,019          |   | 70,504 |   | 32,019 |   |
| Costs recovered from joint INGA venture                       |   | 15,802           |   | 12,213          |   | 15,544 |   | 12,213 |   |

 

**52:  Remunerationof Directors**

 

Remunerationincludes income from salaries, bonuses, other benefits (including non-cashbenefits), retirement benefits and superannuation contributions. The maximumtotal remuneration for non-executive directors of the Company was set at theAnnual General Meeting held on 13 December 2002 at $2.5 million. Totalfees paid to non-executive directors by the Company for the year were $1.3million (2002: $1.2 million). Retirement benefits accrued for the year but notpaid applicable to the directors of the Company are detailed in the AnnualReport. There were no retirement benefits paid to directors of the Company in2003 (2002: $98,090 paid to G K Toomey).

 

Thenumber of directors of the Company with total income(1) in each of the following bands was:

 
|                      |   | **The Company(1)** |   |
|---------------------------|--------|--------------------|--------|
|                      |   | **2003**           |   | **2002** |   |
| $90,001 to $100,000       |   | —             |   | 2 |   |
| $110,001 to $120,000      |   | 1                  |   | — |   |
| $120,001 to $130,000      |   | —             |   | 1 |   |
| $130,001 to $140,000      |   | —             |   | 3 |   |
| $140,001 to $150,000      |   | 3                  |   | — |   |
| $160,001 to $170,000      |   | 1                  |   | — |   |
| $210,001 to $220,000      |   | —             |   | 1 |   |
| $220,001 to $230,000      |   | 1                  |   | — |   |
| $350,001 to $360,000      |   | —             |   | 1 |   |
| $360,001 to $370,000      |   | 1                  |   | — |   |
| $2,480,001 to $2,490,000  |   | 1                  |   | — |   |
| $2,890,001 to $2,900,000  |   | —             |   | 1 |   |
| Total number of directors |   | 8                  |   | 9 |   |

 
|                                                                                                                    |   | **Consolidated** |   | **The Company** |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                                                                                    |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
|                                                                                                                    |   | **$’000**   |   | **$’000**  |   | **$’000** |   | **$’000** |   |
| Total income paid or payable to directors of the Company and  controlled entities from the Company or related entity(2) |   | 34,573           |   | 42,606          |   | 3,783 |   | 4,194 |   |

 

----

(1)   For the purpose of this note:

i)      long term incentive options of the executivedirector are valued at intrinsic value (nil); and

ii)     accrued retirement benefits are not included.

(2)   Including the total income of executivedirectors, excluding directors of controlled entities who are executives of theCompany

 

**53:  Remunerationof Executives**

 

Executivesare defined as members of the Chief Executive’s Group. Remuneration includessalaries, bonuses, other benefits (including non-cash benefits), andsuperannuation contributions. The remuneration of executives who work wholly ormainly outside Australia are excluded from this disclosure. Executiveemoluments disclosed in the Annual Report include the emoluments of the sixhighest paid executives, calculated to include the amortised cost of Short TermIncentive deferred shares and Long Term Incentive options and deferred sharesgranted prior to or during 2003. For the purposes of this note:

 

i)      Long Term Incentive options granted are valued at intrinsic value (nil);and

 

ii)     the performance related bonus components of Short Term andLong Term Incentive deferred shares have been expensed in full and included inthe amounts below.

 

Thenumber of executives with total remuneration exceeding $100,000 in each of thefollowing bands was:

 

186

----

|                                                                                                                                            |   | **Consolidated** |   | **The Company** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|-----------------|--------|
|                                                                                                                                       |   | **2003**         |   | **2002**        |   | **2003** |   | **2002** |   |
| $120,001 to $130,000                                                                                                                       |   | 1                |   | —          |   | 1 |   | — |   |
| $150,001 to $160,000                                                                                                                       |   | 1                |   | —          |   | 1 |   | — |   |
| $190,001 to $200,000                                                                                                                       |   | —           |   | 1               |   | — |   | 1 |   |
| $250,001 to $260,000                                                                                                                       |   | —           |   | 1               |   | — |   | 1 |   |
| $260,001 to $270,000                                                                                                                       |   | 1                |   | 1               |   | 1 |   | 1 |   |
| $280,001 to $290,000                                                                                                                       |   | 1                |   | 1               |   | 1 |   | 1 |   |
| $290,001 to $300,000                                                                                                                       |   | 1                |   | —          |   | 1 |   | — |   |
| $310,001 to $320,000                                                                                                                       |   | 1                |   | —          |   | 1 |   | — |   |
| $340,001 to $350,000                                                                                                                       |   | 1                |   | 1               |   | 1 |   | 1 |   |
| $350,001 to $360,000                                                                                                                       |   | —           |   | 1               |   | — |   | 1 |   |
| $360,001 to $370,000                                                                                                                       |   | —           |   | 1               |   | — |   | 1 |   |
| $370,001 to $380,000                                                                                                                       |   | 1                |   | 1               |   | 1 |   | 1 |   |
| $390,001 to $400,000                                                                                                                       |   | 1                |   | 2               |   | 1 |   | 2 |   |
| $400,001 to $410,000                                                                                                                       |   | —           |   | 1               |   | — |   | 1 |   |
| $410,001 to $420,000                                                                                                                       |   | 1                |   | —          |   | 1 |   | — |   |
| $420,001 to $430,000                                                                                                                       |   | 3                |   | 1               |   | 3 |   | 1 |   |
| $430,001 to $440,000                                                                                                                       |   | —           |   | 1               |   | — |   | 1 |   |
| $440,001 to $450,000                                                                                                                       |   | 2                |   | 1               |   | 2 |   | 1 |   |
| $450,001 to $460,000                                                                                                                       |   | 2                |   | —          |   | 2 |   | — |   |
| $460,001 to $470,000                                                                                                                       |   | 5                |   | 3               |   | 5 |   | 3 |   |
| $470,001 to $480,000                                                                                                                       |   | 1                |   | 1               |   | 1 |   | 1 |   |
| $480,001 to $490,000                                                                                                                       |   | 1                |   | —          |   | 1 |   | — |   |
| $490,001 to $500,000                                                                                                                       |   | 2                |   | —          |   | 2 |   | — |   |
| $520,001 to $530,000                                                                                                                       |   | 1                |   | —          |   | 1 |   | — |   |
| $530,001 to $540,000                                                                                                                       |   | 1                |   | 1               |   | 1 |   | 1 |   |
| $540,001 to $550,000                                                                                                                       |   | 2                |   | —          |   | 2 |   | — |   |
| $560,001 to $570,000                                                                                                                       |   | —           |   | 2               |   | — |   | 2 |   |
| $570,001 to $580,000                                                                                                                       |   | —           |   | 4               |   | — |   | 4 |   |
| $580,001 to $590,000                                                                                                                       |   | 1                |   | —          |   | 1 |   | — |   |
| $590,001 to $600,000                                                                                                                       |   | —           |   | 1               |   | — |   | 1 |   |
| $600,001 to $610,000                                                                                                                       |   | 1                |   | 1               |   | 1 |   | 1 |   |
| $610,001 to $620,000                                                                                                                       |   | —           |   | 1               |   | — |   | 1 |   |
| $620,001 to $630,000                                                                                                                       |   | —           |   | 1               |   | — |   | 1 |   |
| $660,001 to $670,000                                                                                                                       |   | 2                |   | —          |   | 2 |   | — |   |
| $670,001 to $680,000                                                                                                                       |   | —           |   | 1               |   | — |   | 1 |   |
| $690,001 to $700,000                                                                                                                       |   | 1                |   | —          |   | 1 |   | — |   |
| $700,001 to $710,000                                                                                                                       |   | 1                |   | —          |   | 1 |   | — |   |
| $730,001 to $740,000                                                                                                                       |   | 1                |   | —          |   | 1 |   | — |   |
| $740,001 to $750,000                                                                                                                       |   | —           |   | 1               |   | — |   | 1 |   |
| $760,001 to $770,000                                                                                                                       |   | —           |   | 1               |   | — |   | 1 |   |
| $770,001 to $780,000                                                                                                                       |   | —           |   | 1               |   | — |   | 1 |   |
| $780,001 to $790,000                                                                                                                       |   | 1                |   | —          |   | 1 |   | — |   |
| $790,001 to $800,000                                                                                                                       |   | —           |   | 1               |   | — |   | 1 |   |
| $800,001 to $810,000                                                                                                                       |   | 1                |   | —          |   | 1 |   | — |   |
| $810,001 to $820,000                                                                                                                       |   | —           |   | 1               |   | — |   | 1 |   |
| $820,001 to $830,000                                                                                                                       |   | 1                |   | 1               |   | 1 |   | 1 |   |
| $850,001 to $860,000                                                                                                                       |   | 1                |   | —          |   | 1 |   | — |   |
| $860,001 to $870,000                                                                                                                       |   | —           |   | 2               |   | — |   | 2 |   |
| $910,001 to $920,000                                                                                                                       |   | —           |   | 1               |   | — |   | 1 |   |
| $920,001 to $930,000                                                                                                                       |   | 1                |   | 1               |   | 1 |   | 1 |   |
| $970,001 to $980,000                                                                                                                       |   | 1                |   | 1               |   | 1 |   | 1 |   |
| $1,010,001 to $1,020,000                                                                                                                   |   | 1                |   | —          |   | 1 |   | — |   |
| $1,020,001 to $1,030,000                                                                                                                   |   | 1                |   | —          |   | 1 |   | — |   |
| $1,060,001 to $1,070,000                                                                                                                   |   | 1                |   | —          |   | 1 |   | — |   |
| $1,100,001 to $1,110,000                                                                                                                   |   | 1                |   | —          |   | 1 |   | — |   |
| $1,110,001 to $1,120,000                                                                                                                   |   | —           |   | 2               |   | — |   | 2 |   |
| $1,120,001 to $1,130,000                                                                                                                   |   | 1                |   | —          |   | 1 |   | — |   |
| $1,160,001 to $1,170,000                                                                                                                   |   | —           |   | 1               |   | — |   | 1 |   |
| $1,190,001 to $1,200,000                                                                                                                   |   | —           |   | 1               |   | — |   | 1 |   |
| $1,200,001 to $1,210,000                                                                                                                   |   | —           |   | 1               |   | — |   | 1 |   |
| $1,240,001 to $1,250,000                                                                                                                   |   | —           |   | 1               |   | — |   | 1 |   |
| $1,270,001 to $1,280,000                                                                                                                   |   | 1                |   | —          |   | 1 |   | — |   |
| $1,340,001 to $1,350,000                                                                                                                   |   | —           |   | 1               |   | — |   | 1 |   |
| $1,360,001 to $1,370,000                                                                                                                   |   | 2                |   | —          |   | 2 |   | — |   |
| $1,400,001 to $1,410,000                                                                                                                   |   | 1                |   | —          |   | 1 |   | — |   |
| $1,430,001 to $1,440,000                                                                                                                   |   | —           |   | 2               |   | — |   | 2 |   |
| $1,450,001 to $1,460,000                                                                                                                   |   | 1                |   | —          |   | 1 |   | — |   |
| $1,490,001 to $1,500,000                                                                                                                   |   | —           |   | 1               |   | — |   | 1 |   |
| $1,510,001 to $1,520,000                                                                                                                   |   | 1                |   | —          |   | 1 |   | — |   |
| $1,540,001 to $1,550,000                                                                                                                   |   | —           |   | 1               |   | — |   | 1 |   |
| $1,550,001 to $1,560,000                                                                                                                   |   | —           |   | 1               |   | — |   | 1 |   |
| $1,580,001 to $1,590,000                                                                                                                   |   | —           |   | 1               |   | — |   | 1 |   |
| $2,480,001 to $2,490,000                                                                                                                   |   | 1                |   | —          |   | 1 |   | — |   |
| $2,890,000 to $2,900,000                                                                                                                   |   | —           |   | 1               |   | — |   | 1 |   |
| Total number of executives                                                                                                                 |   | 55               |   | 55              |   | 55 |   | 55 |   |
| Total remuneration received or due and receivable directly or  indirectly by executives of the Company and controlled entities($’000) |   |             |   |            |   |   |   |   |   |
|                                                                                                                                       |   | 38,499           |   | 43,477          |   | 38,499 |   | 43,477 |   |

 

187

----

 

**54:  US GAAPReconciliation**

 

Theconsolidated financial statements of the Group are prepared in accordance withGenerally Accepted Accounting Principles applicable in Australia (AustralianGAAP) which differ in some respects from Generally Accepted AccountingPrinciples in the United States (US GAAP).

 

Thefollowing are reconciliations of the net profit, shareholders’ equity and totalassets, applying US GAAP instead of Australian GAAP.

 
|                                                                                                                                         |   | **Note** |   | **2003** |   | **2002** |   | **2001** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
|                                                                                                                                         |   |     |   | **$m**   |   | **$m**   |   | **$m**   |   |
| **Net profit reported under Australian GAAP**                                                                                                |   |     |   | 2,348    |   | 2,322    |   | 1,870    |   |
| **Items having the effect of increasing (decreasing)  net income according to US GAAP (total tax impact of adjustments shown  separately):** |   |     |   |     |   |     |   |     |   |
| Employee share issue and options                                                                                                             |   | (xix)    |   | (21      | )      | (40      | )      | (49      | )      |
| Depreciation charged on the difference between revaluation amount and  historical cost of buildings                                          |   | (i)      |   | 2        |   | 2        |   | 2        |   |
| Difference in gain or loss on disposal of properties revalued under  historical cost                                                         |   | (i)      |   | 2        |   | 5        |   | 17       |   |
| Deferred profit on sale and leaseback transactions over the lease term                                                                       |   | (iii)    |   | (4       | )      | (9       | )      | —   |   |
| Amortisation of goodwill                                                                                                                     |   | (ii)     |   | 62       |   | (6       | )      | (28      | )      |
| Amortisation of deferred profit on sale and leaseback transactions  over the lease term                                                      |   | (iii)    |   | 25       |   | 25       |   | 23       |   |
| Pension expense adjustment                                                                                                                   |   | (vi)     |   | 2        |   | 18       |   | 20       |   |
| Provisions                                                                                                                                   |   | (xvi)    |   | —   |   | —   |   | (361     | )      |
| Transition adjustment related to the initial application of SFAS 133                                                                         |   | (xv)     |   | —   |   | —   |   | 11       |   |
| Derivatives and hedging activities                                                                                                           |   | (xv)     |   | (47      | )      | (17      | )      | 284      |   |
| Adjustment on entering joint venture                                                                                                         |   | (xvii)   |   | —   |   | (205     | )      | —   |   |
| Interest accrual on reclassified preference shares                                                                                           |   | (xx)     |   | (1       | )      | —   |   | —   |   |
| Total tax impact of the above adjustments                                                                                                    |   |     |   | 12       |   | 2        |   | 7        |   |
| Net income according to US GAAP                                                                                                              |   |     |   | 2,380    |   | 2,097    |   | 1,796    |   |
|                                                                                                                                         |   |     |   |     |   |     |   |     |   |
| **Earnings per share (cents) according to US GAAP**                                                                                          |   | (xiv)    |   |     |   |     |   |     |   |
| Basic                                                                                                                                        |   |     |   | 150.4    |   | 132.3    |   | 112.4    |   |
| Diluted                                                                                                                                      |   |     |   | 150.0    |   | 131.6    |   | 112.1    |   |
| **Adjustments to determine other comprehensive income  for US GAAP**                                                                         |   |     |   |     |   |     |   |     |   |
| Net income according to US GAAP                                                                                                              |   |     |   | 2,380    |   | 2,097    |   | 1,796    |   |
| Currency translation adjustments, net of hedges after tax: Tax is (Sep  2003: $54m; Sep 2002: $43m; Sep 2001: -$58m)                         |   |     |   | (356     | )      | (98      | )      | 197      |   |
| Unrealised profit (loss) on available for sale securities net of tax:  Tax is (Sep 2003: -$1m; Sep 2002: $1m; Sep 2001: $8m)                 |   | (ix)     |   | (2       | )      | 3        |   | 15       |   |
| Transition adjustment related to the initial application of SFAS 133  net of tax: Tax is (Sep 2001: -$27m)                                   |   | (xv)     |   | —   |   | —   |   | (52      | )      |
| Derivatives and hedging activities net of tax: Tax is (Sep 2003: $33m;  Sep 2002: $26m; Sep 2001: -$34m)                                     |   | (xv)     |   | 76       |   | 60       |   | (66      | )      |
| Pension plan deficit net of tax: Tax is: (Sep 2003: -$42m)                                                                                   |   | (vi)     |   | (99      | )      | —   |   | —   |   |
| Total comprehensive income according to US GAAP                                                                                              |   |     |   | 1,999    |   | 2,062    |   | 1,890    |   |
| **Shareholders’ equity reported under Australian  GAAP(1)**                                                                             |   |     |   | 13,770   |   | 11,448   |   | 10,538   |   |
| Elimination of gross asset incremental revaluations                                                                                          |   | (i)      |   | (247     | )      | (266     | )      | (287     | )      |
| Unrealised profit (loss) on available for sale securities                                                                                    |   | (ix)     |   | 1        |   | 3        |   | —   |   |
| Adjustment to accumulated depreciation on buildings revalued                                                                                 |   | (i)      |   | 50       |   | 48       |   | 46       |   |
| Restoration of previously deducted goodwill                                                                                                  |   | (ii)     |   | 695      |   | 695      |   | 692      |   |
| Accumulated amortisation of goodwill                                                                                                         |   | (ii)     |   | (452     | )      | (514     | )      | (505     | )      |
| Deferred profit on sale and leaseback transactions                                                                                           |   | (iii)    |   | (17      | )      | (20      | )      | (18      | )      |
| Provision for final cash dividend                                                                                                            |   | (iv)     |   | —   |   | 681      |   | 583      |   |
| Pension expense adjustment                                                                                                                   |   | (vi)     |   | (14      | )      | 126      |   | 114      |   |
| Derivatives and hedging activities                                                                                                           |   | (xv)     |   | 309      |   | 247      |   | 117      |   |
| Adjustment on entering joint venture                                                                                                         |   | (xvii)   |   | (203     | )      | (203     | )      | —   |   |
| Reclassification of preference shares                                                                                                        |   | (xx)     |   | (988     | )      | —   |   | —   |   |
| Total tax impact of the above adjustments                                                                                                    |   |     |   | (84      | )      | (106     | )      | (73      | )      |
| Shareholders’ equity according to US GAAP                                                                                               |   |     |   | 12,820   |   | 12,139   |   | 11,207   |   |
| **Total assets reported under Australian GAAP**                                                                                              |   |     |   | 195,591  |   | 183,105  |   | 185,493  |   |
| Elimination of gross incremental revaluations                                                                                                |   | (i)      |   | (203     | )      | (205     | )      | (210     | )      |
| Unrealised profit (loss) on available for sale securities                                                                                    |   | (ix)     |   | 2        |   | 3        |   | (1       | )      |
| Adjustment to accumulated depreciation on buildings revalued                                                                                 |   | (i)      |   | 50       |   | 48       |   | 46       |   |
| Restoration of previously deducted goodwill                                                                                                  |   | (ii)     |   | 695      |   | 695      |   | 692      |   |
| Accumulated amortisation of goodwill                                                                                                         |   | (ii)     |   | (452     | )      | (514     | )      | (505     | )      |
| Prepaid pension adjustment                                                                                                                   |   | (vi)     |   | 66       |   | 67       |   | 58       |   |
| Reclassification of deferred tax assets against deferred tax  liabilities                                                                    |   | (v)      |   | (726     | )      | (462     | )      | (552     | )      |
| Revaluation of hedges                                                                                                                        |   | (xv)     |   | 397      |   | 501      |   | 552      |   |
| Issue Costs                                                                                                                                  |   | (xx)     |   | 13       |   | —   |   | —   |   |
| Adjustment to carrying value of the ING joint venture                                                                                        |   | (xvii)   |   | (203     | )      | (203     | )      | —   |   |
| Total assets according to US GAAP                                                                                                            |   |     |   | 195,230  |   | 183,035  |   | 185,573  |   |

 

----

(1)   Excluding outside equity interest

 

188

----

 

**i)****    ****Premises and equipment**

Inaccordance with Australian GAAP, the Groupholds its properties at a deemed cost value(refer note 1). However in the past the Group at various times, has revalued properties, increasing the book value of these assets.Any increments on revaluation werecredited directly to the AssetRevaluation Reserve (ARR), anddecrements were debited to the ARR to the extent of any previous revaluationincrements.  

 

Decrementsin excess of any previousrevaluationincrements were charged to the statementof financial performance. The ARR formspart of Shareholders’ equity and is not available for future property writedowns while properties are measured at deemed cost.

 

UnderUS GAAP, revaluation of properties isnot permitted except for decrements which are regarded as other than temporary. Any suchdecrements are recorded in the statement of financial performance. Subsequent recoveries to the statement of financial performance arenot allowed.  

 

Theimpact of previous revaluations underAustralian GAAP is that depreciation charges are generally higher and profits on disposalare lower than those recordedunder US GAAP. The depreciationcharges, together with the profits andlosses on revalued assets sold have been adjusted to historical cost in the US GAAP reconciliation.  

 

**ii)****   ****Goodwill**

UnderAustralian GAAP the Group changed itsaccounting policy in respect of goodwill in the financial year ended 30 September 1993 sothat goodwill is amortised over a period not exceeding 20 years. Previously, goodwill on acquisition was charged in full to the Group’sstatement of financial performance in the year of acquisition.

 

Historically,under US GAAP, goodwill has beencapitalised and amortised over the period of time during which the benefits are expected toarise, such period not exceeding 20 years. Adjustments have been made in the USGAAP reconciliation statement torestore goodwill written-off infull under Australian GAAP and to amortise such goodwill over the period ofthe expected benefits. Under US GAAP forgoodwill acquired during the year ended30 September 2002 and for all goodwill balances after 30 September 2002 a review for impairment test will apply rather than systematic goodwill amortisation. This reviewis undertaken in accordance withSFAS 142 ‘Goodwill and otherIntangible Assets.’ Goodwillacquired is allocated to reporting segmentsthat are expected to benefit from the acquisition. These units have beenevaluated using a combination ofdiscounted cashflows and multiples of earnings methodologies. Any impairment isrecognised in earnings in the yearin which it is identified. The 2003 review did not indicate any impairment.

 

Forcomparability the table below reconciles theGroups US GAAP reported income to ‘adjusted’income excluding the effect of goodwill amortisation.  

 
|                                                  |   | **2002** |   | **2001** |   |
|-------------------------------------------------------|--------|----------|--------|----------|--------|
| US GAAP reported net income                           |   | $        | 2,097  | m        | $      | 1,796 | m |
| Goodwill amortisation                                 |   | $        | 26     | m        | $      | 45 | m |
| Reported net income excluding effect of  amortisation |   | $        | 2,123  | m        | $      | 1,841 | m |
| Basic EPS using adjusted net income                   |   | 134.0    |   | 115.4    |   |
| Diluted EPS using adjusted net income                 |   | 133.3    |   | 115.1    |   |

 

**iii)****  ****Sale-leaseback transactions**

UnderAustralian GAAP for operating leases,gains on disposal under sale-leaseback transactions can be recognised in the period of sale. Under US GAAP, the gain is amortisedover the remaining lease term.This difference in treatment hasbeen adjusted in the US GAAP reconciliation.

 

**iv)****   ****Dividends in 2002 and 2001**

HistoricallyAustralian GAAP dividendswereshown in the statement of financial performance in the period to which they relate rather than in the period when they are declared as required by US GAAP. Thisdifference in treatment has been adjusted in the US GAAP shareholders’ equity reconciliation. Changes in Australian GAAP for 2003 disallows accrual of dividends, thusthere is no adjustment for the 2003 year.

 

**v)****    ****Income taxes**

UnderAustralian GAAP, tax benefits relatingto carry forward tax losses must be ‘virtually certain’ of being realised before beingbooked. Realisations of benefitsrelating to other timing differencesmust be ‘beyond reasonable doubt’ beforethey may be booked. These tests are more stringent than those applied under US GAAP. However no material adjustment to future tax benefits for US GAAP is required.

 

AustralianGAAP allows offsetting of futureincome tax benefits and liabilities to the extent they will reverse in the same period.

 

UnderUS GAAP, deferred tax liabilities anddeferred tax assets are offset and presented for each tax paying component of an enterprise andwithin each particular tax jurisdiction. The impact of the difference in this approach to Australian GAAP has been adjusted for in theUS GAAP reconciliation for total assets.

 

**vi)****   ****Pension commitments**

UnderAustralian GAAP, contributions in respectof defined benefit schemes are recorded in the income statement and are made at levelsnecessary to ensure that these schemes are maintained with sufficient assets to meet their actuarially assessed liabilities. Any netdeficiency arising from the aggregation of assets and liabilities of the Group’s defined benefit schemes, where there is a legal orconstructive obligation, is provided forin the Group’s financialstatements (refer note 49).

 

UnderUS SFAS 87 ‘Employers’ Accounting forPensions’ and the disclosure requirements of SFAS 132 ‘Employers’ Disclosures about Pensions and Other Post Retirement Benefits’,pension expense is a function of an employee’s service period, interest costs,expected actuarial return on the schemes’ assets, amortisation of nettransition asset and recognised prior service cost. In addition, reconciliation between the accrued pensionliability/prepaid asset and the fundedstatus (difference betweenprojected benefit obligation andfair value of pension plan assets)of the pension schemes is required.

 

Asrequired under US GAAP an additionalliability has been recognised for the Group’s UK Pension plan of $142 million ($99 millionafter tax) as at September 2003. This liability is required to be recognised where the accumulated benefit obligation exceeds thefair value of plan assets and an assethas been recognised as prepaidpension cost, or the liabilityalready recognised as unfunded accrued pension cost, is less than the unfundedaccumulated benefit obligation.  

 

**vii)**** ****Post retirement and postemployment benefits**

Postretirement and post employment benefitsother than pension payments are not material and no adjustment is required in the US GAAPreconciliation.  

 

**viii)********Trading securities**

USGAAP requires that in instances wheretrading securities are not bought and held principally for the purpose of selling them inthe near term, they should be classified as available for sale and recorded at market value with unrealised profits and losses in respectof market value adjustmentsrecognised as other comprehensiveincome in Shareholders’ equity.

 

Theresidual emerging markets portfolio hadbeen classified as available for sale with the market value write down taken through thestatement of financial performance for both Australian GAAP and US GAAP purposes.

 

Exceptfor the above no adjustment is requiredto be made in the US GAAP reconciliation as the effect of reclassifying certain tradingsecurities as available for saleis not material.  

 

**ix)****  ****Investment Securities**

USGAAP requires that investments notclassified as trading securities or as held to maturity securities shall be classified asavailable for sale securities and be recorded at market value in accordance with SFAS 115 ‘Accounting for Certain Investments in Debtand Equity Securities’. Anadjustment is made in the US GAAPreconciliation to reclassify certain investment securities under AustralianGAAP to reflect available forsale securities which are carriedat market value with unrealised profitsand losses in respect of market valueadjustments being reported as other comprehensive income in shareholders’ equity.  

 

**x)****    ****Accounting for the impairmentof loans**

SFAS114 ‘Accounting by Creditors forImpairment of a Loan’, as amended by SFAS 118 ‘Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures’,requires the value of an impaired loan to be measured as the present value of future cash flows discounted at the loan’s initialeffective interest rate, theloan’s observable market price orthe fair value of the collateral, if the loan is collateral dependent.  

 

189

----

 

Thereis no requirement under Australian GAAPto discount the expected future cash flows attributable to impaired loans in assessingthe level of specific provisionfor doubtful debts. No adjustmentis required in the US GAAP reconciliationas the estimated fair value of impairedloans is not materially different from the carrying value.  

 

**xi)****  ****Accounting for the impairmentof long****livedassets and for long-lived assets to****be disposed of**

SFAS144 ‘Accounting for the Impairment ordisposal of Long-Lived Assets’, requires that where an event or a change in circumstanceindicates that the carrying value of an asset that is expected to be held and used may not be recoverable, an impairment loss should berecognised. The standard also requiresthat where there is a committedplan to dispose of an asset, theasset should be reported at the lowerof the carrying value or fair value less selling costs.

 

TheGroup has assessed the carrying values ofall non-current assets and determined that they are not in excess of their recoverableamounts.  

 

**xii)**** ****Accounting for transfers andservicing****offinancial assets and extinguishments****of liabilities**

SFAS140 ‘Accounting for Transfers andServicing of Financial Assets and Extinguishments of Liabilities’ prescribes the accounting and disclosure requirements fortransfers of financial assets and extinguishments of liabilities. Under certaincircumstances, the statement alsorequires a transferor offinancial assets that are pledged ascollateral to reclassify those assets, and the transferee to recognise those assets and their obligation to returnthem.

 

Noadjustment is required in the US GAAPreconciliation as the effect of adopting the provisions of SFAS 140 on total assets is notmaterial. Refer to note 39 for the required disclosures.  

 

**xiii)********Comprehensive Income**

SFAS130 ‘Reporting Comprehensive Income’establishes standards for reporting and display of comprehensive income and its components.Comprehensive income is defined as allchanges in shareholders’ equity during a period excluding those resulting frominvestments by shareholders and distributions to shareholders.

 

Accordingly,the Group has shown currencytranslation adjustments, unrealised profit on available for sale securities, additionalpension liability and certain SFAS 133 adjustments as components of othercomprehensive income with net income according to US GAAP forming the remainingcomponent of comprehensive income.Amounts transferred in and out ofcomprehensive income relating tounrealised profits on availablefor sale securities are specificto individual assets. The fair value of equity investments recorded as available for sale subject to adjustment in the US GAAPreconciliation was $3.5 million as at 30September 2003, with a book valueof $1.9 million.

 

Thecurrency translation adjustment throughcomprehensive income includes a net gain on hedges after tax of $126 million.  

 

**xiv)**** ****Earnings per share (‘EPS’)**

UnderUS GAAP, EPS is computed inaccordancewith SFAS 128 ‘Earnings Per Share’. This Standard is similar to Australian GAAP.  

 

**xv)****  ****Accounting for derivativeinstruments and****hedging activities**

TheGroup has adopted SFAS 133 ‘Accountingfor Derivative Instruments and Hedging Activities’ as amended by SFAS 138 ‘Accounting for Certain Derivative Instruments and Certain Hedging Activities’ in its US GAAPreconciliation from 1 October 2000. SFAS 133 requires all derivatives to be recognised onbalance sheet at fair value. Movementsin the fair value of derivativesare taken to the statement offinancial performance, unless the derivativesmeet the criteria prescribed in SFAS 133 for fair value, cash flow, or foreign currency hedges. If certain criteria are metderivatives can be designated ashedges. Under SFAS 133 normalbanking hedging practices may not qualify for hedge accounting, notwithstandingtheir ability to hedge existing balance sheet positions from an economic perspective.

 

Asa result future fair value movementsrecognised in the US GAAP reconciliation may not be indicative of the Group’s risk profile.The Group uses instruments andhedging techniques that areeffective in managing interestrate risk and foreign exchange risk.

 

Furtherinformation on the results of theGroup’s hedging activities, and the effectiveness of the risk management policies, can be assessed better by considering theinformation provided on interest rate risk in note 35, and the information on hedging derivatives provided in note 38: Derivative Financial Instruments. The accounting forderivatives under Australian GAAP is outlined in note 1.  

 

UnderSFAS 133, movements in the value ofderivatives designated as fair value hedges are taken to the statement of financial performance, along with the movement in thefair value of the underlying exposure that is being hedged to the extent the hedge is effective. These amounts largely offset each other with any ineffectiveness recognised inthe US GAAP statement of financialperformance.

 

Movementsin the effective portion of the fairvalue of derivatives designated as cash flow hedges are taken to other comprehensiveincome. Any ineffectiveness is recognised in the US GAAP statement of financial performance immediately. Amounts are subsequently reclassified out of other comprehensive income into earnings as the hedged transaction impacts earnings.

 

Theimpact on adoption of SFAS 133 andSFAS 138 at 1 October 2000 was a transitional adjustment to increase US GAAP profit by $11 million, and a transitionaladjustment to decrease other comprehensive income by $52 million. Changes in market conditions and the Group’s hedging policies may result in volatility in these US GAAPadjustments going forward. The net gain/(loss)after tax in the net income accordingto US GAAP recognised during the September 2003year due to fair value and cashflow hedge ineffectiveness or non compliance is$(57) million and $24 million respectively.

 

**xvi)**** ****Provisions**

At30 September 2000, the Group recorded aprovision for restructuring in accordance withAustralian GAAP amounting to $361 million before tax with an associated taxation credit of $116 million. US GAAP requires certaincriteria to be met before a restructuring provision is recognised. These criteria, which are more detailed than the Australian recognition criteria, include public announcement of many details of the programs prior to balance date. Accordingly,the provision and associated taxation effect were recognised for US GAAP during the year ended 30 September 2001.  

 

**xvii)  Gain andnon-capitalisable costs recognised****on entering joint venture**

Inaccordance with Australian GAAP theGroup recognised a profit (net of transaction costs) based on the difference between fair valueand carrying value of the share of businesses transferred to an external partyon entering into a joint venture.

 

UnderUS GAAP the gain may not berecognisedas it occurred as a result of a non-monetary transaction, which involved transferringownership of controlled entities inexchange for a non-controlling ownership interest in the joint venture.  

 

**xviii)**** ****Guarantees**

Asof 1 January 2003 FIN 45 ‘GuarantorsAccounting and Disclosure Requirements for Guarantors, including indirect Guarantees ofindebtedness of Others’ requires a guarantor (for non derivative contracts) to recognise at inception a liability equal to the fair valueof the obligations undertaken inissuing that guarantee. The fairvalue of the obligation in issuing the guarantee at inception is typicallyequal to the net present value of the future amount of the premium receivable under the contract.

 

190

----

 

ANZprovides a variety of guarantees andindemnifications to our customers to enhance their credit standing or allow them to complete various business transactions. Thegroup considers the following off balance sheet non derivative arrangements to be guarantees under FIN 45: Standby letters of credit, Guarantees, Bill endorsements, Documentary letters of credit, Performancerelated contingents. The fair value of the estimated liability related to guarantees for the forementioned instruments at 30 September 2003 is not material and hasnot been adjusted in thereconciliation.  

 

Standbyletters of credit generally includeguarantees of payments for loans, credit facilities, promissory notes and trade acceptances and are generally issued in connection with agreements made by customers with counterparties. Documentary letters of credit are an undertaking by thebank to guarantee payment to a beneficiary provided documents are presented in strict compliance with the terms and conditions ofthe documentary credit. Performance guarantees are issued to guaranteecompletion of projects in accordance with contract terms. They can be issued tosupport a customers obligation tosupply specified products,commodities or maintenance or warranty services to a third party. ANZ asguarantor becomes obligated to perform under the guarantee when a counterpartydoes not fulfill its obligations underan associated contract. Themajority of these contracts areshort term.

 

Sold– credit derivatives also meet thedefinition of guarantees under this statement but are recorded in the statement of financialposition at their fair value.

 

Detailsof the maximum potential amount offuture payments can be found at note 48. The amounts detailed in note 48 represent the notional amounts that could be lost under the guarantees and indemnifications if therewas a total default by the guaranteed parties, without consideration of possible recoveries.  

 

**xix)**** ****Accounting for stock – compensation plans**

UnderAustralian GAAP an expense is notrequired to be recognised for share options issued to employees or for shares issued at adiscount.

 

SFAS123 ‘Accounting for Stock-BasedCompensation’ requires shares and options issued as part of a compensation plan to employees to be recognised using either the fair value method or the intrinsic valuemethod as prescribed by APB No.25 and its related interpretations.

 

ForUS GAAP APB No. 25 share-based employeecompensation cost for variable share option plans (those with performance hurdles) ismeasured using the intrinsic value method. US GAAP compensation cost is determined at date of issue and is expensed if the strike priceis less than the market price atthe time and it is probable thatperformance hurdles are met.  

 

Tothe extent that the intrinsic value increasesin subsequent periods an additional expense isrecorded.  

 

Variableshare option plans include all planswith performance conditions. The Group’s policy is to generally grant share options at the average market price of the underlying sharesat the date of grant.  

 

Shareissues to employees under the $1000Share Plan are expensed in the year issued under US GAAP. Under Australian GAAP they areissued from Share Capital Account and are not expensed.

 

Ifthe fair value basis of accounting had beenapplied to account for compensation costs asstipulated in SFAS 123, the following profit after income tax and earnings per share wouldhave appeared.

 

191

----

 
|                                               |   | **2003** |   | **2002** |   | **2001** |   |
|----------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                               |   | **$m**   |   | **$m**   |   | **$m**   |   |
| Net income according to US GAAP                    |   | 2,380    |   | 2,097    |   | 1,796    |   |
| Intrinsic method adjustment (APB 25)               |   | 21       |   | 40       |   | 49       |   |
| Fair value adjustment (SFAS 123)                   |   | (50      | )      | (44      | )      | (32      | )      |
| Adjusted Pro Forma net income according to US GAAP |   | 2,351    |   | 2,093    |   | 1,813    |   |

 
|                                       |   | **As  Reported** |   | **Pro  Forma** |   | **As  Reported** |   | **Pro  Forma** |   | **As  Reported** |   | **Pro  Forma** |   |
|--------------------------------------------|--------|------------------|--------|----------------|--------|------------------|--------|----------------|--------|------------------|--------|----------------|--------|
| • Basic earnings  per share (cents)   |   | 150.4            |   | 148.5          |   | 132.3            |   | 132.0          |   | 112.4            |   | 113.5          |   |
| • Diluted  earnings per share (cents) |   | 150.0            |   | 148.1          |   | 131.6            |   | 131.3          |   | 112.1            |   | 113.2          |   |

 

Detailsof the share-based compensation plans are included in note 50 to the FinancialStatements.

 

**xx)****  ****Classification of financialinstruments with characteristics of both liability and equity – all new issuespost May 2003**

UnderAustralian GAAP, preference shares issued on 23 September 2003 (known asANZ StEPS) are classified as equity instruments as they are not considered tobe mandatorily converting to ordinary shares and do not meet the classificationrequirements of a financial liability upon issue.

 

SFAS150 ‘Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equity’ requires that the StEPS be classified as a liabilitybecause the monetary value of the obligation to the holders of the securitiesis known at inception and the holders are not exposed to changes in the fairvalue of equity. Any associated dividends have been reclassified as interestexpense in the US GAAP reconciliation.

 

Notethat SFAS 150 does not as at 30 September 2003 apply to previous issues ofpreference shares.

 

**xxi)********Details of Pension Schemesand Pension Expense**

Reconciliationsof the funded status of major defined benefit schemes as at 30 June 2003are summarised below.

Detailsof the funding of the schemes are set out in note 49.

 
|                                                                                |   | **Australian Scheme** |   |
|-------------------------------------------------------------------------------------|--------|-----------------------|--------|
|                                                                                |   | **2003**              |   | **2002** |   | **2001** |   |
|                                                                                |   | **$m**                |   | **$m** |   | **$m** |   |
| **Change in benefit obligation**                                                    |   |                  |   |   |   |   |   |
| Balance at start of year                                                            |   | 51                    |   | 54 |   | 54 |   |
| Interest costs                                                                      |   | 3                     |   | 3 |   | 3 |   |
| Benefits paid                                                                       |   | (6                    | )      | (6 | ) | (6 | ) |
| Actuarial gains (losses)                                                            |   | 2                     |   | — |   | 3 |   |
| Benefit obligation, 30 June                                                         |   | 50                    |   | 51 |   | 54 |   |
| **Change in plan assets**                                                           |   |                  |   |   |   |   |   |
| Fair value at start of year                                                         |   | 43                    |   | 49 |   | 52 |   |
| Actual return on plan assets                                                        |   | (2                    | )      | — |   | 3 |   |
| Employer contribution                                                               |   | —                |   | — |   | — |   |
| Benefits paid                                                                       |   | (6                    | )      | (6 | ) | (6 | ) |
| Total fair value of plan assets, 30 June                                            |   | 35                    |   | 43 |   | 49 |   |
| Funded status                                                                       |   | (15                   | )      | (8 | ) | (5 | ) |
| Unrecognised net transition loss                                                    |   | 1                     |   | 2 |   | 3 |   |
| Unrecognised net loss                                                               |   | 16                    |   | 10 |   | 7 |   |
| Adjustment required to recognise minimum unfunded projected benefit  obligation     |   | (17                   | )      | (12 | ) | (10 | ) |
| **Net amount recognised**                                                           |   | (15                   | )      | (8 | ) | (5 | ) |
| Amounts recognised in the consolidated statement of financial position  consist of: |   |                  |   |   |   |   |   |
| Prepaid benefits costs                                                              |   | —                |   | — |   | — |   |
| Accrued benefit liabilities                                                         |   | (15                   | )      | (8 | ) | (5 | ) |
| The assumptions used in the actuarial calculations are as follows:                  |   |                  |   |   |   |   |   |
| Discount rate used in determining present values                                    |   |                  |   |   |   |   |   |
| • pensioners                                                                   |   | 5.0                   | %      | 6.0 | % | 6.0 | % |
| Annual increase in future compensation levels                                       |   |                  |   |   |   |   |   |
| • pensions                                                                     |   | 2.5                   | %      | 2.5 | % | 2.9 | % |
| Expected long-term rate of return on assets                                         |   | 7.5                   | %      | 7.5 | % | 7.5 | % |

 

192

----

 
|                                                                                |   | **UK Scheme** |   |
|-------------------------------------------------------------------------------------|--------|---------------|--------|
|                                                                                |   | **2003**      |   | **2002** |   | **2001** |   |
|                                                                                |   | **$m**        |   | **$m** |   | **$m** |   |
| **Change in benefit obligation**                                                    |   |          |   |   |   |   |   |
| Balance at start of year                                                            |   | 1,034         |   | 1,038 |   | 923 |   |
| Service cost                                                                        |   | 13            |   | 15 |   | 17 |   |
| Interest cost                                                                       |   | 53            |   | 62 |   | 55 |   |
| Benefits paid                                                                       |   | (49           | )      | (62 | ) | (50 | ) |
| Actuarial gains (losses)                                                            |   | 56            |   | 27 |   | (15 | ) |
| Foreign currency exchange rate fluctuations                                         |   | (155          | )      | (46 | ) | 108 |   |
| Benefit obligation, 30 June                                                         |   | 952           |   | 1,034 |   | 1,038 |   |
| **Change in plan assets**                                                           |   |          |   |   |   |   |   |
| Fair value at start of year                                                         |   | 982           |   | 1,152 |   | 1,120 |   |
| Actual return on plan assets                                                        |   | (4            | )      | (69 | ) | (43 | ) |
| Employer contribution                                                               |   | (1            | )      | (2 | ) | 2 |   |
| Benefits paid                                                                       |   | (49           | )      | (62 | ) | (50 | ) |
| Foreign currency exchange rate fluctuations                                         |   | (138          | )      | (37 | ) | 123 |   |
| Total fair value of plan assets, 30 June                                            |   | 790           |   | 982 |   | 1,152 |   |
| Funded status                                                                       |   | (162          | )      | (52 | ) | 114 |   |
| Unrecognised net transition gain                                                    |   | (10           | )      | (19 | ) | (28 | ) |
| Unrecognised loss (gain)                                                            |   | 194           |   | 92 |   | (81 | ) |
| Unrecognised prior service cost                                                     |   | 44            |   | 46 |   | 53 |   |
| Adjustment required to recognise minimum benefit obligation                         |   | (142          | )      | — |   | — |   |
| **Net amount recognised**                                                           |   | (76           | )      | 67 |   | 58 |   |
| Amounts recognised in the consolidated statement of financial position  consist of: |   |          |   |   |   |   |   |
| Prepaid benefits costs                                                              |   | 66            |   | 67 |   | 58 |   |
| Accrued benefit liabilities                                                         |   | (142          | )      | — |   | — |   |
| The assumptions used in the actuarial calculations are as follows:                  |   |          |   |   |   |   |   |
| Discount rate used in determining present values                                    |   |          |   |   |   |   |   |
| • active members                                                               |   | 5.25          | %      | 5.75 | % | 6.0 | % |
| • pensioners                                                                   |   | 5.25          | %      | 5.75 | % | 6.0 | % |
| Annual increase in future compensation levels                                       |   |          |   |   |   |   |   |
| • salary                                                                       |   | 4.25          | %      | 4.5 | % | 4.75 | % |
| • pensions                                                                     |   | 2.25          | %      | 2.5 | % | 2.9 | % |
| Expected long-term rate of return on assets                                         |   | 6.25          | %      | 6.75 | % | 7.0 | % |

 

The elements of the netperiodic pension cost of the above schemes are as follows:

 
|                                    |   | **2003** |       | **2002** | ** ** | **2001** | ** ** |
|-----------------------------------------|--------|----------|------------|----------|------------|----------|------------|
|                                    |   | **$m**   | ** ** | **$m**   | ** ** | **$m**   | ** ** |
| Service cost                            |   | 14       |       | 13       |       | 17       |       |
| Interest cost                           |   | 57       |       | 59       |       | 55       |       |
| Expected return on schemes’ assets |   | (70      | )          | (77      | )          | (74      | )          |
| Amortisation net transition asset       |   | (6       | )          | (7       | )          | (7       | )          |
| Recognised prior service cost           |   | 4        |       | 4        |       | 4        |       |
| Net periodic pension cost               |   | (1       | )          | (8       | )          | (5       | )          |

 

TheGroup also sponsors defined contribution schemes. The Group’s contributions tomajor defined contribution schemes amounted to $89 million for the year (2002:$80 million; 2001: $83 million).

 

193

----

 

**55:**** ****Exchange Rates**

 

Theexchange rates used in the translation of the results and the assets andliabilities of major overseas branches and controlled entities are:

 
|                 |   | **2003**    |   | **2002**    |   | **2001**    |   |
|----------------------|--------|-------------|--------|-------------|--------|-------------|--------|
|                 |   | **Closing** |   | **Average** |   | **Closing** |   | **Average** |   | **Closing** |   | **Average** |   |
|                 |   |        |   |        |   |        |   |   |   |   |   |   |   |
| Great British pound  |   | 0.4070      |   | 0.3822      |   | 0.3477      |   | 0.3621 |   | 0.3331 |   | 0.3627 |   |
| United States dollar |   | 0.6795      |   | 0.6124      |   | 0.5441      |   | 0.5323 |   | 0.4903 |   | 0.5230 |   |
| New Zealand dollar   |   | 1.1431      |   | 1.1139      |   | 1.1585      |   | 1.2001 |   | 1.2127 |   | 1.2473 |   |

 

**56:**** ****Events Since The End Of TheFinancial Year**

 

**The National Bank of New Zealand (NBNZ)**

 

On24 October 2003, the Company announced the acquisition of NBNZ from LloydsTSB.

 

Thepurchase price was approximately GBP 2,043.8 million ($4,915 million atexchange rates on 23 October 2003) excluding a dividend to Lloyds TSBof NZD 575 million ($498 million) from NBNZ’s retained earnings and transactioncosts of $25 million.

 

Theacquisition will be funded as follows:

 

•      A 2 for 11 renounceable rights issue at $13 per share in the Companyraising $3,570 million; and

 

•      $1,370 million in hybrid Tier 1 capital, subordinated debt, andwholesale funding.

 

Thecompletion date of the acquisition is 1 December 2003.

 

Furthermatters can be obtained by reference to the ANZ Renounceable Rights Issueprospectus dated 24 October 2003.

 

Thefinancial effect of this acquisition has not been recognised in these financialstatements.

 

**Trust Securities Issues (TrUEPrS)**

 

On6 November 2003, ANZ called for the buy-back of the ANZ Preference Sharesissued as part of the trust units exchangeable for preference shares (TrUEPrS)Series 1 (September 1998 – CUSIP No.001823202) and Series 2 (November 1998– CUSIP No.0018241010).  The buy-back isfor the entire issue of both series.

 

Thebuy-back date will be effective on 12 December 2003.  This buy-back will also result in ANZredeeming the TrUEPrS on the same date.

 

Theredemption price will be US $25.00 plus an amount equal to the accrued butunpaid interest on each US $25.00 principal amount of the debt securities fromand including the Interest Payment Date immediately preceding the Exchange Dateto, but excluding, the Exchange Date.

 

Thefinancial effect of this transaction has not been recognised in these financialstatements.

 

194

----

 

**Directors’Declaration**

 

Thedirectors of Australia and New Zealand Banking Group Limited declare that thefinancial statements and notes of the Company and the consolidated entity:

 

a)     are in accordance with the Corporations Act 2001, including:

 

i)      complying with applicable Australian Accounting Standards, and othermandatory professional reporting requirements; and

 

ii)     giving a true and fair view of the financial position of the Company andof the consolidated entity as at 30 September 2003 and of theirperformance as represented by the results of their operations and their cashflows, for the year ended on that date; and

 

b)    in the directors’ opinion at the date of this declaration there arereasonable grounds to believe that the Company will be able to pay its debts asand when they become due and payable.

 

TheCompany and some of its wholly owned controlled entities listed in note 48executed a Deed of Cross Guarantee enabling them to take advantage of theaccounting and audit relief offered by class order 98/1418 (as amended), dated13 August 1998 issued by the Australian Securities and Investments Commission.

 

Thenature of the Deed of Cross Guarantee is to guarantee each creditor payment infull of any debt in accordance with the terms of the Deed of Cross Guarantee.

 

Atthe date of this declaration, there are reasonable grounds to believe that theCompany and its controlled entities to which the class order applies, are able,as an economic entity, to meet any obligations or liabilities to which theyare, or may become, subject by virtue of the Deed of Cross Guarantee.

 

Signedin accordance with a resolution of the directors

 

 
| /s/ John Dahlsen  |   | /s/ John McFarlane      |   |
|-------------------|--------|-------------------------|--------|
| **John  Dahlsen** |   | **John  McFarlane**     |
| Director          |   | Chief Executive Officer |

 

7 November 2003

 

195

----

 

**Auditors’ Report**

 

Independentaudit report to the members of Australia and New Zealand Banking Group Limited

 

**Scope**

 

Wehave audited the financial report of Australia and New Zealand Banking GroupLimited for the financial year ended 30 September 2003, consisting of thestatements of financial performance, statements of financial position,statements of changes in shareholders’ equity, statements of cash flows,accompanying notes 1 to 56 and the directors’ declaration set out on pages 119to 195. The financial report includes the consolidated financial statements of theconsolidated entity, comprising the Company and the entities it controlled atthe end of the year or from time to time during the financial year. TheCompany’s directors are responsible for the financial report. We have conductedan independent audit of this financial report in order to express an opinion onit to the members of the Company.

 

Ouraudit has been conducted in accordance with Auditing Standards of Australia andthe United States of America to provide reasonable assurance whether the financialreport is free of material misstatement. Our procedures included examination,on a test basis, of evidence supporting the amounts and other disclosures inthe financial report, and the evaluation of accounting policies and significantaccounting estimates. These procedures have been undertaken to form an opinionwhether, in all material respects, the financial report is presented fairly inaccordance with Accounting Standards and other mandatory professional reportingrequirements in Australia and statutory requirements so as to present a viewwhich is consistent with our understanding of the Company’s and theconsolidated entity’s financial position, and performance as represented by theresults of their operations and their cash flows.

 

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

 

**Audit Opinion**

 

Inour opinion, the financial report of Australia and New Zealand Banking GroupLimited is in accordance with:

 

a)     the Corporations Act 2001, including:

 

i)      giving a true and fair view of the Company’s and consolidated entity’sfinancial position as at 30 September 2003 and of their performance forthe financial year ended on that date; and

 

ii)     complying with Accounting Standards in Australia and the CorporationsRegulations 2001; and

 

b)    other mandatory professional reporting requirements in Australia.

 

Accountingprinciples generally accepted in Australia vary in certain respects fromaccounting principles generally accepted in the United States of America. Anexplanation of the major differences between the two sets of principles ispresented in note 54 to the financial statements.

 

Theapplication of the United States principles would have affected thedetermination of consolidated net profit for each of the three years in theperiod ended 30 September 2003 and the determination of the consolidatedfinancial position as of 30 September 2003, 2002 and 2001 to the extentsummarised in note 54 to the financial statements.

 

 
| /s/ KPMG                        |           | /s/ Peter Nash |   |
|---------------------------------|----------------|----------------|--------|
| **KPMG**                        | **Peter Nash** |
| Chartered Accountants           | Partner        |
|                            |           |
| Melbourne  7 November 2003 |           |

 

196

----

 

**CriticalAccounting Policies**

 

TheGroup prepares its consolidated financial statements in accordance withAustralian Accounting Standards and other authoritative accountingpronouncements. However, notwithstanding the existence of relevant accountingstandards, there are a number of critical accounting treatments, which includecomplex or subjective decisions or assessments. The Group requires all such applicationsof judgement to be reviewed and agreed by Group Finance, and where the impactis material, the accounting treatment be reviewed during the audit process bythe Group’s external auditors.

Allmaterial changes to accounting policy are approved by the Audit Committee ofthe Board.

 

**Historical changes**

 

Nochange has been made to any of the critical accounting policies or theirrelated methodologies over the last 3 years.

Abrief discussion of critical accounting policies, and their impact on the Group,follows:

 

**a)****    ****Economic Loss Provisioning**

 

**Description and Significance**

 

Eachmonth the Group recognises an expense for credit losses based on the expectedlong term loss ratio for each part of the loan portfolio.  The monthly charge is booked to the GeneralProvision which is maintained to cover losses inherent within the Group’sexisting loan portfolio.  The methodused by the Group for determining this monthly expense charge is referred to as‘economic loss provisioning’ (ELP). The Group uses ELP models to calculate theexpected loss by considering:

 

•      the history of credit loss for each type and risk grade of lending; and

 

•      the size, composition and risk profile of the current loan portfolio.

 

**Ongoing reviews**

 

TheGroup regularly reviews the assumptions used in the ELP models. These reviewsare conducted in recognition of the subjective nature of the ELP methodology.Methodologies are updated as improved analysis becomes available. In addition,the robustness of outcomes is reviewed considering the Group’s actual lossexperience, and losses sustained by other banks operating in similar markets.

 

Tothe extent that credit losses are not consistent with previous loss patternsused to develop the assumptions within the ELP methodology, the existingGeneral Provision may be determined to be either in excess of or insufficientto cover credit losses not yet specifically identified.

 

Asa result of thereassessments, ELP charge levels may be periodically increased or decreasedwith a direct impact on profitability.

 

Aspart of its review of the ELP model outputs, the Group also regularly evaluatesthe overall level of the General Provision. The Group is required, by APRAprudential standards, to have policies which cover the level of GeneralProvisions that are needed to absorb estimated losses inherent in the creditportfolio. In some limited circumstances, the assessment of the inherent lossesin the portfolio may require an additional charge to profits to ensure theadequacy of the General Provision. The Group considers it appropriate tomaintain its General Provision in excess of the APRA guidelines.

 

**Quantification of Sensitivity**

 

Theaverage charge to profitfor ELP was 0.39% of average net lending assets or $614 million (Sep 2002:0.43% or $610 million excluding the special general provision of $250million.  During 2002 an additionalprovision for bad debts of $250 million was added to the general provision torestore its balance to an appropriate level). During the same period, specifically identified credit losses net ofrecoveries during the year were $527 million (Sep 2002: $728 million).

 

Asat September 2003, the balance of the General Provision of $1,534 million(Sep 2002: $1,496 million) represents 1.01% (Sep 2002: 1.06%) of risk weightedassets.

 

**b)****    ****Specific Provisioning**

 

**Description and Significance**

 

TheGroup maintains a specificprovision for doubtful debts arising from its exposure to organisations andcredit counterparties.

 

TheGroup’s ELP provisioningmethodology is used to estimate the extent of losses inherent within the loanbook. Once a specific doubtful debt loss is identified as being probable, itsvalue is transferred from the General Provision to the Specific Provision.Specific provisioning methodology applies when the full recovery of one of theGroup’s exposures is identified as being doubtful resulting in the creation ofa specific provision equal to the full amount of the expected loss plus anyenforcement/recovery expenses.

 

Recoveriesresulting from excess specific provisions arising when actual losses aredetermined to be less than the amount provided for within the specificprovision are transferred back to the General Provision.

 

197

----

 

**Quantification of Sensitivity**

 

Therecognition of losses has an impact on the size of the General Provision ratherthan directly impacting profit. However, to the extent that the GeneralProvision is drawn down beyond a prudent amount it will be restored through atransfer from the current year’s earnings. Recoveries of amounts previouslyspecifically provided against are applied to the restoration of the GeneralProvision balance. The amount of net transfer from the General Provision to theSpecific Provision, net of recoveries, during the year was $527 million (Sept2002: $728 million).

 

**c)****    ****Deferred acquisition costs,software assets and deferred income**

 

**Description and Significance**

 

TheGroup recognises assets and liabilities that represent:

 

•      Deferred acquisition costs – direct costs fromthe acquisition of interest earning assets;

 

•      Software assets – direct costs incurred indeveloping software systems; and

 

•      Deferred income – liabilities representingincome received in advance of services performed.

 

Deferredacquisition costs - Initially, expenses related to the acquisition of interestearning assets are recognised as part of the cost of acquiring the asset andwritten-off as an adjustment to its yield over its expected life. For assetssubject to prepayment, expected life is determined on the basis of thehistorical behaviour of the asset portfolio, taking into account prepayments.Commissions paid to third party mortgage brokers are an example of expenditurethat is deferred and amortised over the expected average life of a mortgage of4 years.

 

Software assets – Costs incurred in acquiring and building software andcomputer systems are capitalised as fixed assets and expensed as depreciationover periods of between 3 and 5 years except for the branch front endapplications where 7 years is used. The carrying value of these assets issubject to a ‘recoverable amount test’ to determine their value to the Group.If it is determined that the value of the asset is less than its ‘book’ value,the asset is written down to the recoverable amount. Costs incurred in planningor evaluating software proposals, or in maintaining systems afterimplementation, are not capitalised.

 

Deferredincome – Income received in advance of the Group’s performance of services orin advance of having been earned, is initially recorded as a liability. Oncethe recognition criteria are met, it is then recognised as income.

 

**Quantification of Sensitivity**

 

Deferredacquisition costs – At 30 September, the Group’s assets included $336 million(Sep 2002: $289 million) in relation to costs incurred in acquiring interestearning assets. During the year, amortisation of $169 million (Sep 2002: $132million) was recognised as an adjustment to the yield earned on interestearning assets.

 

Softwareassets – At 30 September, the Group’s fixed assets included $465 million (Sep2002: $419 million) in relation to costs incurred in acquiring and developingsoftware. During the year, depreciation expense of $83 million (Sep 2002: $50million) was recognised and adjustments were made to recognise the right to usesoftware in Tradecentrix.  Followingprior periods of above average project activity which replaced significantparts of the Group’s core infrastructure, the software depreciation expensewill increase before stabilising going forward.  Consistent with US accounting rules on software capitalisationonly costs incurred during configuration, coding and installation stages arecapitalised. Administrative, preliminary project and post implementation costsincluding determining performance requirements, vendor selection and trainingcosts are expensed as incurred.

 

Deferredincome – At 30 September, the Group’s liabilities included $272 million (Sep2002: $170 million) in relation to income received in advance. This income islargely comprised of 2 components: (1) fees received for services not yetcompleted; and (2) profit made on an interest rate swap that was hedging futurepayments (years 2004 and forward) on the Group’s preference shares. UnderAustralian Accounting Standards, this profit is deferred and recognised whenthe hedged transaction occurs, or immediately if the hedged transaction is nolonger expected to occur.

 

Thebalances of deferred assets at 30 September were:

 
|                       |   | **Deferred Acquisition Costs** |   | **Software Assets** |   | **Deferred Income** |   |
|----------------------------|--------|--------------------------------|--------|---------------------|--------|---------------------|--------|
|                       |   | **2003**                       |   | **2002**            |   | **2003**            |   | **2002** |   | **2003** |   | **2002** |   |
|                       |   | **$m**                         |   | **$m**              |   | **$m**              |   | **$m** |   | **$m** |   | **$m** |   |
| Personal Banking Australia |   | —                         |   | —              |   | 242                 |   | 176 |   | — |   | — |   |
| Corporate                  |   | —                         |   | —              |   | 14                  |   | 9 |   | 7 |   | 11 |   |
| Institutional              |   | 7                              |   | 27                  |   | 50                  |   | 14 |   | 7 |   | 30 |   |
| Consumer Finance           |   | —                         |   | —              |   | 47                  |   | 45 |   | 9 |   | — |   |
| Mortgages                  |   | 102                            |   | 73                  |   | 33                  |   | 27 |   | — |   | — |   |
| Asset Finance              |   | 227                            |   | 189                 |   | 21                  |   | 29 |   | — |   | — |   |
| Asia Pacific               |   | —                         |   | —              |   | 2                   |   | 1 |   | — |   | 2 |   |
| Other                      |   | —                         |   | —              |   | 56                  |   | 118 |   | 249 |   | 127 |   |
| Total                      |   | 336                            |   | 289                 |   | 465                 |   | 419 |   | 272 |   | 170 |   |

 

198

----

 

**d)****    ****Derivatives and Hedging**

 

**Description and Significance**

 

TheGroup buys and sells derivatives as part of its trading operations and to hedgeits interest rate risk, foreign exchange risk and equity risks (in the INGAustralia joint venture). The derivative instruments used to hedge the Group’sexposures include:

 

•      swaps;

 

•      forward rate agreements; 

 

•      futures; 

 

•      options; and

 

•      combinations of the above instruments.

 

Accountingtreatment – In accordance with the requirements of Australian AccountingStandards, derivative instruments entered into for the purpose of hedging areaccounted for on the same basis as the underlying exposures or risks.

 

Derivativeinstruments entered into to hedge exposures that are not recorded at fairvalue, do not have their fair values recorded in the Group’s Statement ofFinancial Position (in accordance with Australian Accounting Standards).

 

Exposureshedged by derivatives not recorded at their fair value include risks relatedto:

 

•      revenues from foreign operations;

 

•      structured lending transactions;

 

•      lending assets; and

 

•      funding liabilities.

 

Hedgeaccounting is only applied when the hedging relationship is identified at thetime the Group enters into the hedging derivative transaction.  If a hedge ceases to be effective, thehedging derivative transaction will be recognised at fair value. Gains andlosses on derivative instruments not carried at their fair value amounts arerecognised at the same time as the gain or loss on the hedged exposure isbooked.

 

Movementsin the value of foreign exchange contracts that are hedging overseas operationsare not recognised as income or expenses. Instead these movements arerecognised in the Foreign Currency Translation Reserve together with the netdifference arising from the translation of the overseas operation.

 

Fairvalue determination –Derivatives entered into as part of the Group’s tradingoperations are carried at their fair values with any change in fair value beingimmediately recognised as part of trading income. Where liquid markets exist,fair value is based on quoted market prices. For certain complex or illiquidderivative instruments, it may be necessary to use projections, estimates andmodels to determine fair value. In addition, judgemental factors such as theneed for credit adjustments, liquidity and other valuation adjustments affectthe reported fair value amounts of derivatives.

 

**e)****    ****Special purpose and offbalance sheet vehicles**

 

TheGroup may invest in or establish special purpose companies, or vehicles (SPVs),to enable it to undertake specific types of transactions.

 

Wherethe Group controls such vehicles, they are consolidated into the Groupfinancial results.

 

CertainSPVs may be set up by the Group to facilitate Group strategic aims, or toassist with structured transactions for clients. The accounting treatment ofeach SPV is assessed using existing Australian guidance, with reference also toInternational and US accounting standards where specific issues are yet to beaddressed in Australia. The table below summarises the main types of SPVs thatare not consolidated into the Group, the reason for their establishment, andthe key risks associated with them.

 
| **Type of  Special  Purpose Vehicle (SPV)** |   | **Reason for establishment**                                                   |       | **Key Risks**                                                                                                                                                                                                                              |       | **SPV Assets** |       |
|---------------------------------------------|--------|--------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------|------------|
| **2003**                                    |   | **2002**                                                                       |
|                                        |   |                                                                           | ** ** |                                                                                                                                                                                                                                       | ** ** | **$m**         | ** ** | **$m** | ** ** |
| Securitisation vehicles                     |   | Assets are sold to an SPV  which funds the purchase by issuing securities.     |       | ANZ may manage  securitisation vehicles, service assets in a vehicle or provide liquidity  support or other support and retains the risks associated with the provision  of these services.                                                |       | 9,954          | (1)        | 6,992 | (1) |
|                                        |   | Enables ANZ or customers to  increase diversity of funding sources.            |       | Credit and market risks  associated with the underlying assets are not retained or assumed by ANZ. ANZ  may also provide other services (eg. swaps, credit guarantees). ANZ earns  fees at a commercial rate for providing these services. |       |           |       |   |   |
|                                        |   |                                                                           |       |                                                                                                                                                                                                                                       |       |           |       |   |   |
| Structured finance entities                 |   | These entities are set up  to assist with the structuring of client financing. |       | ANZ may retain liquidity  risk, if it provides liquidity support to the vehicle. ANZ may also manage  these vehicles.                                                                                                                      |       | 2,124          |       | 1,968 |   |
|                                        |   |                                                                           |       |                                                                                                                                                                                                                                       |       |           |       |   |   |
| Managed funds                               |   | These funds invest in  specified investments on behalf of clients.             |       | The ANZ/ING Australia joint  venture, as manager of the funds, exposes ANZ to operational risk and  reputational risk.                                                                                                                     |       | 28,655         |       | 26,642 |   |

 

----

(1)   The amounts disclosed are the total assetsmanaged or arranged by ANZ.  Theyinclude SPV’s that purchase assets from sellers other than ANZ

 

199

----

 

**f)****    ****Valuation of investment inING Australia Limited (INGA)**

 

**Description and significance**

 

TheGroup adopts the equity method of accounting for its 49% interest in the INGAjoint venture.  As of 30September 2003, the Group’s carrying value is $1,648 million (2002: $1,593million).

 

Thecarrying value is subject to a recoverable amount test, to ensure that thisdoes not exceed its recoverable amount at the reporting date.  This involves, the Group obtaining anindication of whether the carrying value may be less than the recoverableamount.  If so, an independent valuationis sourced to determine current recoverable amount.

 

Anyexcess of carrying value above recoverable amount is written off to theStatement of Financial Performance.

 

**Quantification of sensitivity**

 

Duringthe year the Group engaged Ernst and Young ABC Ltd (EY ABC) to provide anindependent valuation of INGA as at 31 March 2003.  The valuation was a stand alone market basedassessment of economic value, and excluded the Group’s specific synergies andhedging arrangements.  The independentvaluation was based on a discounted cashflow approach, with allowance for thecost of capital.  EY ABC presented anindependent valuation range of $3,304 million to $3,690 million, reflecting arange of sales and cost base assumptions.

 

Thekey assumptions used in that valuation were reviewed by EY ABC against recentbusiness experience as at 30 September 2003 to assess any potentialvaluation impacts. Based on this review, ANZ believes no change is required tothe carrying value of the investment at 30 September 2003.

 

**Key valuation assumptions**

 

The31 March 2003 valuation was based on a 31 December 2002 benchmarkdate with a roll-forward assesment to 31 March 2003. The valuation wasbased on a discounted cash flow approach comprising the present value ofestimated future distributable profits after corporate tax, together with (inAustralia only) the present value of 70% of the attaching imputation credits.

 

Theassumptions underlying the cash flow projections were generally based on a longterm view, together with an assessment of the current market environment.

 

Thefollowing gross of tax risk discount rates were used:

 
| • | Australian life insurance  business     |   | 10.75  | % pa |
|--------|-----------------------------------------|--------|--------|-----------|
|   |                                    |   |   |      |
| • | Australian funds management  businesses |   | 11.75  | % pa |
|   |                                    |   |   |      |
| • | New Zealand businesses                  |   | 13.00  | % pa |

 

Alleconomic assumptions, including future investment earnings and discount rates,were derived using the Capital Asset Pricing Model.

 

Thevalue of future new business was based on a projection of 20 years of futurenew business allowing for:

 

•      anticipated new business growth and volumes; and

 

•      future margin squeeze

 

Other business assumptions were set relative to the experience of thebusiness and the industry as well as management business plans.

 

200

----

 

**FinancialInformation**

 

**1:  Cross Border Outstandings**

 

Crossborder outstandings of the Group to countries which individually represented inexcess of 0.75% of the Group’s total assets are shown below. There were nocross border outstandings to any other country exceeding 0.75% of total assets.

 

Crossborder foreign outstandings are based on the country of domicile of the borroweror guarantor of the ultimate risk and comprise loans (including accruedinterest), placements with banks, acceptances and other monetary assetsdenominated in currencies other than the borrower’s local currency.

Forcertain countries, local currency obligations are also included. Cross borderforeign outstandings are before specific and general provisions.

 
|                          |   | **Governments  and other  official institutions** |   | **Banks and  other financial  institutions** |   | **Other  commercial  and industrial** |   | **Total** |   | **% of  Group  assets** |   |
|-------------------------------|--------|---------------------------------------------------|--------|----------------------------------------------|--------|---------------------------------------|--------|-----------|--------|-------------------------|--------|
|                          |   | **$m**                                            |   | **$m**                                       |   | **$m**                                |   | **$m**    |   |                    |   |
| **At 30 September 2003** |   |                                              |   |                                         |   |                                  |   |      |   |                    |   |
| United Kingdom                |   | 205                                               |   | 1,571                                        |   | 2,769                                 |   | 4,545     |   | 2.3                     |   |
| USA                           |   | 94                                                |   | 1,818                                        |   | 1,171                                 |   | 3,083     |   | 1.6                     |   |
| New Zealand                   |   | 6                                                 |   | 1,254                                        |   | 392                                   |   | 1,652     |   | 0.8                     |   |
| **At 30 September 2002** |   |                                              |   |                                         |   |                                  |   |      |   |                    |   |
| United Kingdom                |   | 273                                               |   | 1,079                                        |   | 4,581                                 |   | 5,933     |   | 3.2                     |   |
| USA                           |   | 29                                                |   | 2,456                                        |   | 1,705                                 |   | 4,190     |   | 2.3                     |   |
| South Korea (1)               |   | 245                                               |   | 1,305                                        |   | 171                                   |   | 1,721     |   | 0.9                     |   |
| Singapore (1)                 |   | 603                                               |   | 388                                          |   | 629                                   |   | 1,620     |   | 0.9                     |   |
| France                        |   | 358                                               |   | 349                                          |   | 890                                   |   | 1,597     |   | 0.9                     |   |
| Germany                       |   | 370                                               |   | 345                                          |   | 797                                   |   | 1,512     |   | 0.8                     |   |

 

----

(1)   Includes local lending in local currency

 

**2:  Certificates of Deposit and TermDeposit Maturities**

 

Thefollowing table shows the maturity profile of the Group’s certificates ofdeposit and term deposits in excess of $100,000 issued at 30 September 2003.

 
|                    |   | **Less than  3 months** |   | **Between  3 months and  6 months** |   | **Between  6 months and  12 months** |   | **After  1 year** |   | **Total** |   |
|-------------------------|--------|-------------------------|--------|-------------------------------------|--------|--------------------------------------|--------|-------------------|--------|-----------|--------|
|                    |   | **$m**                  |   | **$m**                              |   | **$m**                               |   | **$m**            |   | **$m**    |   |
| **Australia**           |   |                    |   |                                |   |                                 |   |              |   |      |   |
| Certificates of deposit |   | 3,979                   |   | 748                                 |   | 399                                  |   | 1,903             |   | 7,029     |   |
| Term deposits           |   | 13,111                  |   | 838                                 |   | 580                                  |   | 163               |   | 14,692    |   |
|                    |   | 17,090                  |   | 1,586                               |   | 979                                  |   | 2,066             |   | 21,721    |   |
| **Overseas**            |   |                    |   |                                |   |                                 |   |              |   |      |   |
| Certificates of deposit |   | 2,579                   |   | 298                                 |   | 128                                  |   | 114               |   | 3,119     |   |
| Term deposits           |   | 14,465                  |   | 1,133                               |   | 797                                  |   | 402               |   | 16,797    |   |
|                    |   | 17,044                  |   | 1,431                               |   | 925                                  |   | 516               |   | 19,916    |   |
| **Total**               |   | 34,134                  |   | 3,017                               |   | 1,904                                |   | 2,582             |   | 41,637    |   |

 

201

----

 

**3:  Volume and Rate Analysis**

 

Thefollowing table allocates changes in interest income and interest expensebetween changes in volume and changes in rate for the past two years. Volumeand rate variances have been calculated on the movement in average balances andthe change in the interest rates on average interest earning assets and averageinterest bearing liabilities. The variance caused by the change of both volumeand rate has been allocated in proportion to the relationship of the absolutedollar amounts of each change to the total.

 
|                                                   |   | **Volume** |   | **2003 over 2002  Change due to  Rate** |   | **Total** |   | **Volume** |   | **2002 over 2001  Change due to  Rate** |   | **Total** |   |
|--------------------------------------------------------|--------|------------|--------|-----------------------------------------|--------|-----------|--------|------------|--------|-----------------------------------------|--------|-----------|--------|
|                                                   |   | **$m**     |   | **$m**                                  |   | **$m**    |   | **$m**     |   | **$m**                                  |   | **$m**    |   |
| **Interest earning assets**                            |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| **Due from other financial institutions**              |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| Australia                                              |   | (10        | )      | 5                                       |   | (5        | )      | (10        | )      | (11                                     | )      | (21       | )      |
| New Zealand                                            |   | 1          |   | (4                                      | )      | (3        | )      | (1         | )      | (7                                      | )      | (8        | )      |
| Overseas markets                                       |   | (9         | )      | (12                                     | )      | (21       | )      | 4          |   | (68                                     | )      | (64       | )      |
| **Regulatory deposits with Reserve Bank of Australia** |   | —     |   | —                                  |   | —    |   | —     |   | —                                  |   | —    |   |
| **Investments in public securities**                   |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| Australia                                              |   | 47         |   | (5                                      | )      | 42        |   | 45         |   | (40                                     | )      | 5         |   |
| New Zealand                                            |   | 17         |   | 1                                       |   | 18        |   | (23        | )      | (25                                     | )      | (48       | )      |
| Overseas markets                                       |   | 15         |   | (19                                     | )      | (4        | )      | (4         | )      | (28                                     | )      | (32       | )      |
| **Loans, advances and bills discounted**               |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| Australia                                              |   | 949        |   | 41                                      |   | 990       |   | 414        |   | (835                                    | )      | (421      | )      |
| New Zealand                                            |   | 172        |   | 42                                      |   | 214       |   | 71         |   | (174                                    | )      | (103      | )      |
| Overseas markets                                       |   | (84        | )      | (40                                     | )      | (124      | )      | (55        | )      | (304                                    | )      | (359      | )      |
| **Other assets**                                       |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| Australia                                              |   | 2          |   | 86                                      |   | 88        |   | (1         | )      | (80                                     | )      | (81       | )      |
| New Zealand                                            |   | —     |   | 23                                      |   | 23        |   | 15         |   | (1                                      | )      | 14        |   |
| Overseas markets                                       |   | 14         |   | (53                                     | )      | (39       | )      | 34         |   | (131                                    | )      | (97       | )      |
| **Intragroup assets**                                  |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| Overseas markets                                       |   | 7          |   | (18                                     | )      | (11       | )      | (104       | )      | (221                                    | )      | (325      | )      |
| Change in interest income                              |   | 1,121      |   | 47                                      |   | 1,168     |   | 385        |   | (1,925                                  | )      | (1,540    | )      |
| Intragroup elimination                                 |   | (7         | )      | 18                                      |   | 11        |   | 104        |   | 221                                     |   | 325       |   |
|                                                   |   | 1,114      |   | 65                                      |   | 1,179     |   | 489        |   | (1,704                                  | )      | (1,215    | )      |
|                                                   |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| **Interest bearing liabilities**                       |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| **Time deposits**                                      |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| Australia                                              |   | 205        |   | 23                                      |   | 228       |   | 71         |   | (215                                    | )      | (144      | )      |
| New Zealand                                            |   | 94         |   | 20                                      |   | 114       |   | 29         |   | (92                                     | )      | (63       | )      |
| Overseas markets                                       |   | (10        | )      | (71                                     | )      | (81       | )      | 87         |   | (328                                    | )      | (241      | )      |
| **Savings deposits**                                   |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| Australia                                              |   | 23         |   | 11                                      |   | 34        |   | 34         |   | (58                                     | )      | (24       | )      |
| New Zealand                                            |   | 4          |   | (1                                      | )      | 3         |   | 8          |   | (21                                     | )      | (13       | )      |
| Overseas markets                                       |   | (1         | )      | (3                                      | )      | (4        | )      | 2          |   | (2                                      | )      | —    |   |
| **Other demand deposits**                              |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| Australia                                              |   | 117        |   | 54                                      |   | 171       |   | 115        |   | (195                                    | )      | (80       | )      |
| New Zealand                                            |   | 9          |   | 11                                      |   | 20        |   | 13         |   | (17                                     | )      | (4        | )      |
| Overseas markets                                       |   | (1         | )      | (1                                      | )      | (2        | )      | (2         | )      | (7                                      | )      | (9        | )      |
| **Due to other financial institutions**                |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| Australia                                              |   | 1          |   | (1                                      | )      | —    |   | 28         |   | (10                                     | )      | 18        |   |
| New Zealand                                            |   | 4          |   | 2                                       |   | 6         |   | 1          |   | (4                                      | )      | (3        | )      |
| Overseas markets                                       |   | (21        | )      | (48                                     | )      | (69       | )      | (122       | )      | (237                                    | )      | (359      | )      |
| **Commercial paper**                                   |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| Australia                                              |   | 64         |   | 10                                      |   | 74        |   | (72        | )      | (60                                     | )      | (132      | )      |
| Overseas markets                                       |   | 18         |   | (33                                     | )      | (15       | )      | (71        | )      | (130                                    | )      | (201      | )      |
| **Borrowing corporations’ debt**                  |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| Australia                                              |   | 28         |   | 9                                       |   | 37        |   | (1         | )      | (48                                     | )      | (49       | )      |
| New Zealand                                            |   | 21         |   | (1                                      | )      | 20        |   | 9          |   | (9                                      | )      | —    |   |
| **Loan capital, bonds and notes**                      |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| Australia                                              |   | 210        |   | 45                                      |   | 255       |   | 171        |   | (148                                    | )      | 23        |   |
| New Zealand                                            |   | 6          |   | 1                                       |   | 7         |   | 3          |   | (2                                      | )      | 1         |   |
| Overseas markets                                       |   | (8         | )      | (3                                      | )      | (11       | )      | (3         | )      | (17                                     | )      | (20       | )      |
| **Other liabilities**                                  |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| Australia                                              |   | 129        |   | (18                                     | )      | 111       |   | (47        | )      | 43                                      |   | (4        | )      |
| New Zealand                                            |   | (19        | )      | 18                                      |   | (1        | )      | 12         |   | (74                                     | )      | (62       | )      |
| Overseas markets                                       |   | (3         | )      | (7                                      | )      | (10       | )      | (12        | )      | (21                                     | )      | (33       | )      |
| **Intragroup liabilities**                             |   |       |   |                                    |   |      |   |       |   |                                    |   |      |   |
| Australia                                              |   | 20         |   | (14                                     | )      | 6         |   | (75        | )      | (192                                    | )      | (267      | )      |
| New Zealand                                            |   | (27        | )      | 10                                      |   | (17       | )      | (29        | )      | (29                                     | )      | (58       | )      |
| Change in interest expense                             |   | 863        |   | 13                                      |   | 876       |   | 149        |   | (1,873                                  | )      | (1,724    | )      |
| Intragroup elimination                                 |   | (7         | )      | 18                                      |   | 11        |   | 104        |   | 221                                     |   | 325       |   |
|                                                   |   | 856        |   | 31                                      |   | 887       |   | 253        |   | (1,652                                  | )      | (1,399    | )      |
| Change in net interest income                          |   | 258        |   | 34                                      |   | 292       |   | 236        |   | (52                                     | )      | 184       |   |

 

202

----

 

**4:  Concentrations of Credit Risk**

 

Concentrationsof credit risk exist if a number of counterparties are engaged in similaractivities and have similar economic characteristics that would cause theirability to meet contractual obligations to be similarly affected by changes ineconomic or other conditions. Off balance sheet transactions of the Group aresubstantially with other banks.

 
|                                      |   | **2003**                   |   | **2002**                |   | **2001**                   |   |
|-------------------------------------------|--------|----------------------------|--------|-------------------------|--------|----------------------------|--------|
|                                      |   | **Loans and  advances(1)** |   | **Specific  provision** |   | **Loans and  advances(1)** |   | **Specific  provision** |   | **Loans and  advances(1)** |   | **Specific  provision** |   |
|                                      |   | **$m**                     |   | **$m**                  |   | **$m**                     |   | **$m** |   | **$m** |   | **$m** |   |
| **Australia**                             |   |                       |   |                    |   |                       |   |   |   |   |   |   |   |
| Agriculture, forestry, fishing and mining |   | 3,829                      |   | 71                      |   | 3,436                      |   | 16 |   | 3,500 |   | 104 |   |
| Business service                          |   | 2,632                      |   | 4                       |   | 2,120                      |   | 5 |   | 2,044 |   | 7 |   |
| Entertainment, leisure and tourism        |   | 2,632                      |   | 23                      |   | 2,465                      |   | 28 |   | 2,293 |   | 27 |   |
| Financial, investment and insurance       |   | 4,966                      |   | 5                       |   | 4,603                      |   | 13 |   | 4,311 |   | 3 |   |
| Government and official institutions      |   | 51                         |   | —                  |   | 67                         |   | — |   | 122 |   | — |   |
| Lease finance                             |   | 2,613                      |   | 2                       |   | 2,503                      |   | 2 |   | 2,524 |   | 5 |   |
| Manufacturing                             |   | 5,366                      |   | 5                       |   | 4,303                      |   | 7 |   | 4,034 |   | 11 |   |
| Personal(2)                               |   | 15,648                     |   | 23                      |   | 14,893                     |   | 27 |   | 13,435 |   | 36 |   |
| Real estate – construction           |   | 1,767                      |   | 4                       |   | 1,152                      |   | 5 |   | 1,198 |   | 11 |   |
| Real estate – mortgage(3)            |   | 69,660                     |   | 11                      |   | 57,049                     |   | 32 |   | 49,127 |   | 13 |   |
| Retail and wholesale trade                |   | 6,821                      |   | 54                      |   | 5,957                      |   | 15 |   | 6,017 |   | 16 |   |
| Other                                     |   | 5,335                      |   | 65                      |   | 3,990                      |   | 61 |   | 3,850 |   | 70 |   |
|                                      |   | 121,320                    |   | 267                     |   | 102,538                    |   | 211 |   | 92,455 |   | 303 |   |
| **Overseas**                              |   |                       |   |                    |   |                       |   |   |   |   |   |   |   |
| Agriculture, forestry, fishing and mining |   | 2,756                      |   | 12                      |   | 2,526                      |   | 3 |   | 2,686 |   | 8 |   |
| Business service                          |   | 323                        |   | 1                       |   | 435                        |   | 1 |   | 214 |   | 1 |   |
| Entertainment, leisure and tourism        |   | 534                        |   | 5                       |   | 586                        |   | 4 |   | 361 |   | 1 |   |
| Financial, investment and insurance       |   | 1,516                      |   | 5                       |   | 1,561                      |   | 21 |   | 2,276 |   | 26 |   |
| Government and official institutions      |   | 274                        |   | —                  |   | 212                        |   | — |   | 372 |   | 27 |   |
| Lease finance                             |   | 609                        |   | —                  |   | 844                        |   | 1 |   | 936 |   | 4 |   |
| Manufacturing                             |   | 3,654                      |   | 17                      |   | 4,701                      |   | 34 |   | 5,153 |   | 30 |   |
| Personal(2)                               |   | 1,771                      |   | 19                      |   | 1,848                      |   | 7 |   | 1,804 |   | 18 |   |
| Real estate – construction           |   | 472                        |   | 1                       |   | 551                        |   | 1 |   | 921 |   | 9 |   |
| Real estate – mortgage(3)            |   | 12,759                     |   | 4                       |   | 11,956                     |   | 5 |   | 11,638 |   | 12 |   |
| Retail and wholesale trade                |   | 1,741                      |   | 9                       |   | 1,648                      |   | 15 |   | 2,021 |   | 18 |   |
| Other                                     |   | 5,058                      |   | 144                     |   | 5,943                      |   | 282 |   | 5,853 |   | 43 |   |
|                                      |   | 31,467                     |   | 217                     |   | 32,811                     |   | 374 |   | 34,235 |   | 197 |   |
| **Total portfolio**                       |   | 152,787                    |   | 484                     |   | 135,349                    |   | 585 |   | 126,690 |   | 500 |   |

 

----

(1)   Loans and advances exclude acceptances

(2)   Personal includes non-business loans toindividuals through overdrafts, personal loans, credit cards and fully drawnadvances

(3)   Real estate mortgage includes residential andcommercial property exposure. Loans within this category are for the purchaseof such properties and must be secured by property

 

203

----

 
|                                      |   | **2000**                   |   | **1999**                |   |
|-------------------------------------------|--------|----------------------------|--------|-------------------------|--------|
|                                      |   | **Loans and  advances(1)** |   | **Specific  provision** |   | **Loans and  advances(1)** |   | **Specific  provision** |   |
|                                      |   | **$m**                     |   | **$m**                  |   | **$m** |   | **$m** |   |
| **Australia**                             |   |                       |   |                    |   |   |   |   |   |
| Agriculture, forestry, fishing and mining |   | 4,157                      |   | 34                      |   | 4,288 |   | 12 |   |
| Business service                          |   | 2,206                      |   | 6                       |   | 1,717 |   | 5 |   |
| Entertainment, leisure and tourism        |   | 2,062                      |   | 4                       |   | 2,007 |   | 25 |   |
| Financial, investment and insurance       |   | 5,532                      |   | 1                       |   | 4,438 |   | 5 |   |
| Government and official institutions      |   | 103                        |   | —                  |   | 106 |   | — |   |
| Lease finance                             |   | 2,821                      |   | 8                       |   | 3,585 |   | 5 |   |
| Manufacturing                             |   | 4,236                      |   | 19                      |   | 3,815 |   | 19 |   |
| Personal(2)                               |   | 12,728                     |   | 131                     |   | 9,280 |   | 94 |   |
| Real estate – construction           |   | 1,376                      |   | 7                       |   | 1,376 |   | 6 |   |
| Real estate – mortgage(3)            |   | 43,912                     |   | 9                       |   | 35,862 |   | 48 |   |
| Retail and wholesale trade                |   | 5,691                      |   | 24                      |   | 4,946 |   | 23 |   |
| Other                                     |   | 4,196                      |   | 17                      |   | 3,835 |   | 39 |   |
|                                      |   | 89,020                     |   | 260                     |   | 75,255 |   | 281 |   |
| **Overseas**                              |   |                       |   |                    |   |   |   |   |   |
| Agriculture, forestry, fishing and mining |   | 2,429                      |   | 12                      |   | 2,131 |   | 17 |   |
| Business service                          |   | 274                        |   | 1                       |   | 550 |   | 7 |   |
| Entertainment, leisure and tourism        |   | 505                        |   | 6                       |   | 665 |   | 4 |   |
| Financial, investment and insurance       |   | 1,952                      |   | 128                     |   | 2,214 |   | 156 |   |
| Government and official institutions      |   | 627                        |   | 25                      |   | 750 |   | — |   |
| Lease finance                             |   | 504                        |   | —                  |   | 405 |   | 1 |   |
| Manufacturing                             |   | 4,781                      |   | 118                     |   | 6,493 |   | 213 |   |
| Personal(2)                               |   | 1,876                      |   | 16                      |   | 2,304 |   | 35 |   |
| Real estate – construction           |   | 820                        |   | 36                      |   | 753 |   | 32 |   |
| Real estate – mortgage(3)            |   | 10,628                     |   | 16                      |   | 9,645 |   | 25 |   |
| Retail and wholesale trade                |   | 1,950                      |   | 35                      |   | 2,010 |   | 72 |   |
| Other                                     |   | 4,266                      |   | 56                      |   | 4,376 |   | 64 |   |
|                                      |   | 30,612                     |   | 449                     |   | 32,296 |   | 626 |   |
| **Total portfolio**                       |   | 119,632                    |   | 709                     |   | 107,551 |   | 907 |   |

 

----

(1)   Loans and advances exclude acceptances

(2)   Personal includes non-business loans toindividuals through overdrafts, personal loans, credit cards and fully drawnadvances

(3)   Real estate mortgage includes residential andcommercial property exposure. Loans within this category are for the purchaseof such properties and must be secured by property

 

204

----

 

**5:  Doubtful Debts – Industry Analysis**

 
|                                                                |   | **2003** |   | **2002** |   | **2001** |   | **2000** |   | **1999** |   |
|---------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
|                                                                |   | **$m**   |   | **$m**   |   | **$m**   |   | **$m**   |   | **$m**   |   |
|                                                                |   |     |   |     |   |     |   |     |   |     |   |
| Balance at start of year                                            |   | 2,081    |   | 1,886    |   | 2,082    |   | 2,302    |   | 2,220    |   |
| Adjustment for exchange rate fluctuations                           |   | (98      | )      | (28      | )      | 32       |   | 37       |   | (79      | )      |
| Bad debts written off (refer (i) below)                             |   | (640     | )      | (697     | )      | (834     | )      | (539     | )      | (382     | )      |
| Charge to statement of financial performance                        |   | 614      |   | 860      |   | 531      |   | 502      |   | 510      |   |
| Recoveries (refer (ii) below)                                       |   | 61       |   | 60       |   | 75       |   | 46       |   | 33       |   |
| Other(1)                                                            |   | —   |   | —   |   | —   |   | (266     | )      | —   |   |
| Total provisions for doubtful debts                                 |   | 2,018    |   | 2,081    |   | 1,886    |   | 2,082    |   | 2,302    |   |
|                                                                |   |     |   |     |   |     |   |     |   |     |   |
| **i)****    ****Total write-offs by  industry** |   |     |   |     |   |     |   |     |   |     |   |
|                                                                |   |     |   |     |   |     |   |     |   |     |   |
| **Australia**                                                       |   |     |   |     |   |     |   |     |   |     |   |
| Agriculture, forestry, fishing and mining                           |   | (4       | )      | (72      | )      | (14      | )      | (12      | )      | (6       | )      |
| Business service                                                    |   | (11      | )      | (8       | )      | (6       | )      | (5       | )      | (4       | )      |
| Entertainment, leisure and tourism                                  |   | (3       | )      | (4       | )      | (5       | )      | (10      | )      | (3       | )      |
| Financial, investment and insurance                                 |   | (9       | )      | (8       | )      | (7       | )      | (3       | )      | (28      | )      |
| Lease finance                                                       |   | (22      | )      | (7       | )      | (11      | )      | (9       | )      | (5       | )      |
| Manufacturing                                                       |   | (10      | )      | (17      | )      | (22      | )      | (11      | )      | (18      | )      |
| Personal(2)                                                         |   | (177     | )      | (237     | )      | (292     | )      | (133     | )      | (67      | )      |
| Real estate – construction                                     |   | (10      | )      | (12      | )      | (13      | )      | (5       | )      | (8       | )      |
| Real estate – mortgage(3)                                      |   | (11      | )      | (19      | )      | (13      | )      | (51      | )      | (16      | )      |
| Retail and wholesale trade                                          |   | (42      | )      | (47      | )      | (97      | )      | (28      | )      | (19      | )      |
| Other                                                               |   | (15      | )      | (37      | )      | (28      | )      | (8       | )      | (48      | )      |
| **Overseas**                                                        |   |     |   |     |   |     |   |     |   |     |   |
| Other                                                               |   | (326     | )      | (229     | )      | (326     | )      | (264     | )      | (160     | )      |
| **Total write-offs**                                                |   | (640     | )      | (697     | )      | (834     | )      | (539     | )      | (382     | )      |
|                                                                |   |     |   |     |   |     |   |     |   |     |   |
| **ii)****   ****Total recoveries by  industry**      |   |     |   |     |   |     |   |     |   |     |   |
|                                                                |   |     |   |     |   |     |   |     |   |     |   |
| **Australia**                                                       |   |     |   |     |   |     |   |     |   |     |   |
| Agriculture, forestry, fishing and mining                           |   | 2        |   | 3        |   | 5        |   | 4        |   | —   |   |
| Business service                                                    |   | 1        |   | 1        |   | 1        |   | —   |   | —   |   |
| Entertainment, leisure and tourism                                  |   | 1        |   | 2        |   | 1        |   | 1        |   | —   |   |
| Financial, investment and insurance                                 |   | 1        |   | —   |   | 2        |   | 4        |   | 3        |   |
| Lease finance                                                       |   | 2        |   | 2        |   | 1        |   | 2        |   | 2        |   |
| Manufacturing                                                       |   | 6        |   | 3        |   | 2        |   | 5        |   | 1        |   |
| Personal(2)                                                         |   | 24       |   | 27       |   | 30       |   | 9        |   | 8        |   |
| Real estate – construction                                     |   | 3        |   | 2        |   | 1        |   | 1        |   | —   |   |
| Real estate – mortgage(3)                                      |   | 1        |   | 4        |   | 3        |   | 4        |   | 1        |   |
| Retail and wholesale trade                                          |   | 3        |   | 3        |   | 2        |   | 2        |   | —   |   |
| Other                                                               |   | —   |   | 1        |   | 1        |   | 2        |   | 2        |   |
| **Overseas**                                                        |   |     |   |     |   |     |   |     |   |     |   |
| Other                                                               |   | 17       |   | 12       |   | 26       |   | 12       |   | 16       |   |
| **Total recoveries**                                                |   | 61       |   | 60       |   | 75       |   | 46       |   | 33       |   |
| Net write-offs                                                      |   | (579     | )      | (637     | )      | (759     | )      | (493     | )      | (349     | )      |
| Ratio of net write-offs to average loans and acceptances            |   | 0.4      | %      | 0.4      | %      | 0.5      | %      | 0.4      | %      | 0.3      | %      |

 

----

(1)   2000 includes $266 million reduction from thesale of Grindlays

(2)   Personal includes non-business loans toindividuals through overdrafts, personal loans, credit cards and fully drawnadvances

(3)   Real estate mortgage includes residential andcommercial property exposure. Loans within this category are for the purchaseof such properties and must be secured by property

 

205

----

 

**6:  Short Term Borrowings**

 

TheGroup’s short-term borrowings comprise commercial paper, as well as unsecurednotes issued by subsidiary borrowing corporations with an original term tomaturity of less than one year. The Group has commercial paper programs in theUnited States, where it issues paper through ANZ(Delaware) Inc., and in Europeand Asia, where the Group issues paper direct.

 
|                                                         |   | **2003** |   | **2002** |   | **2001** |   |
|--------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                                         |   | **$m**   |   | **$m**   |   | **$m**   |   |
| **Balance at end of year**                                   |   |     |   |     |   |     |   |
| Commercial paper – ANZ (Delaware) Inc.                  |   | 6,981    |   | 1,654    |   | 4,059    |   |
| Commercial paper – other                                |   | 5,458    |   | 3,963    |   | 5,043    |   |
| Unsecured notes                                              |   | —   |   | 12       |   | 28       |   |
| **Weighted average interest rate at end of year**            |   |     |   |     |   |     |   |
| Commercial paper – ANZ (Delaware) Inc.                  |   | 1.07     | %      | 1.85     | %      | 4.67     | %      |
| Commercial paper – other                                |   | 4.76     | %      | 4.92     | %      | 3.78     | %      |
| Unsecured notes                                              |   | —   |   | 6.22     | %      | 5.69     | %      |
| **Maximum amount outstanding at any month end during  year** |   |     |   |     |   |     |   |
| Commercial paper – ANZ (Delaware) Inc.                  |   | 6,988    |   | 5,541    |   | 7,096    |   |
| Commercial paper – other                                |   | 7,407    |   | 5,647    |   | 7,193    |   |
| Unsecured notes                                              |   | 7        |   | 29       |   | 99       |   |
| **Average amount outstanding during year**                   |   |     |   |     |   |     |   |
| Commercial paper – ANZ (Delaware) Inc.                  |   | 4,740    |   | 3,641    |   | 5,408    |   |
| Commercial paper – other                                |   | 5,216    |   | 3,888    |   | 5,275    |   |
| Unsecured notes                                              |   | 7        |   | 14       |   | 53       |   |
| **Weighted average interest rate during year**               |   |     |   |     |   |     |   |
| Commercial paper – ANZ (Delaware) Inc.                  |   | 1.22     | %      | 2.00     | %      | 5.07     | %      |
| Commercial paper – other                                |   | 4.83     | %      | 4.57     | %      | 5.87     | %      |
| Unsecured notes                                              |   | 5.85     | %      | 5.54     | %      | 5.73     | %      |

 

206

----

 

**Glossary**

 

**Asia Pacific**provides primarilyretail banking services in the Pacific Region and Asia, including ANZ’s shareof PT Panin Bank in Indonesia. Excludes Institutional Financial Services andCorporate transactions.

 

**Esanda and UDC**providesmotor vehicle and equipment finance, equipment operating leases and managementservices, fleet management services, and investment products to customers inAustralia and New Zealand through its three businesses – Esanda (Australia),Esanda Fleet Partners (Australia and New Zealand) and UDC (New Zealand).

 

**ConsumerFinance**providesconsumer and commercial credit cards, ePayment products, personal loans, andmerchant payment facilities in Australia, New Zealand and selected overseasmarkets.

 

**Corporate**business segment comprises corporate bankingand small to medium enterprise banking in Australia. Corporate providesfinancial products and develops product strategies for medium sized businesses.Small to medium enterprise banking provides a full range of banking servicesfor metropolitan based small to medium business with turnover up to $10million.

 

**Economicloss provisioning (ELP)**chargeis determined based on the expected average annual loss of principal over theeconomic cycle for the current risk profile of the lending portfolio.

 

**Equitystandardisation**EconomicValue Added (EVATM) principles are in use throughout the Group,whereby risk adjusted capital is allocated and charged against business units.Equity standardised profit is determined by eliminating the impact of earningson each business unit’s book capital and attributing earnings on the businessunit’s risk adjusted capital. This enhances comparability of business unitperformance. Geographic results are not equity standardised.

 

**Impairedassets**are loans orother credit facilities where there is reasonable doubt about thecollectability of interest, fees (past and future) or principal outstanding, orwhere concessional terms have been provided because of the financialdifficulties of the customer.

 

**INGAustralia (INGA)**is ajoint venture between the Group and the ING Group, providing integratedmanufacture and distribution of wealth creation, management and protectionproducts and services aligned to the Groups distribution and the open market.The INGA segment result for 2002 includes seven months ANZ Funds Managementresult (to 1 May 2002).

 

**InstitutionalFinancial Services**comprisesInstitutional Banking, Transaction Services, Foreign Exchange, Capital Markets,Structured Finance International, and Corporate Financing and Advisory.

 

**Mortgages**provides mortgage finance secured byresidential real estate in Australia and New Zealand.

 

**Net advances**include gross loansand advances and acceptances less income yet to mature and provisions (for bothas at and average volumes).

 

**Net interestaverage margin**is netinterest income as a percentage of average interest earning assets.Non-assessable interest income is grossed up to the equivalent before taxamount for the purpose of these calculations.

 

**Net interestspread**is the averageinterest rate received on interest earning assets less the average interestrate paid on interest bearing liabilities. Non-assessable interest income is grossedup to the equivalent before tax amount for the purpose of these calculations.

 

**Netnon-interest bearing items,**which are referred to in the analysis of interest spread and netinterest average margin, includes shareholders’ equity, provisions for doubtfuldebts, and deposits not bearing interest and other liabilities not bearinginterest, offset by premises and equipment and other non-interest earningassets. Non-accrual loans are included within interest bearing loans, advancesand bills discounted.

 

**Net specificprovision**is thetransfer from the general provision to the specific provision (representing newand increased specific provisions less specific provision releases on impairedassets) less recoveries.

 

**New Zealandbanking**provides afull range of banking services, including wealth management, for personal,small business and corporate customers in New Zealand through branches, callcentres, relationship managers and on-line banking.  New Zealand Banking excludes Mortgages, Consumer Finance and UDC.New Zealand geography (page 170) includes all ANZ operations in New Zealand.

 

**Operatingexpenses**excludecharge for doubtful debts.

 

**Operations,Technology& Shared Services**is the Group’s core support unit and is responsible for the Group’sglobal technical platforms, development and maintenance of businessapplications, the Group’s payments business and the provisions of otheressential shared services to the Group, including property, Human Resourcesoperations services, procurement and outsourcing.

 

**Overseas**includes the results of all operations outsideAustralia.

 

**Overseasmarkets**includes theresults of operations in the UK, Europe, Asia, Pacific and Americas. TheGroup’s geographic segments are Australia, New Zealand and Overseas markets.

 

**PersonalBanking Australia**comprisespersonal distribution and banking products. Personal distribution provides afull range of banking and financial planning services to personal customersacross Australia, and to small business and agricultural customers in ruralAustralia.  Banking Productsmanufactures deposit, transaction accounts and margin lending products. Inaddition, the business manage ANZ’s direct channels covering Phone Banking,ATMs and Internet Banking.

 

**Servicetransfer pricing**is inuse throughout the Group, whereby business and support units recover the costof services provided to other units. The basis of pricing for internal servicesvaries from cost recovery, to market equivalent. There are some head officecosts which are not recharged.

 

**Totaladvances**include grossloans and advances and acceptances less income yet to mature (for both as atand average volumes).

 

**Treasury**is the banker to all Group businesses.Treasury provides cash flow support, ensures liquidity, manages interest raterisk and provides capital to the Group businesses.

 

**Unproductivefacilities**comprisefacilities (such as standby letters of credit, bill endorsements, documentaryletters of credit and guarantees to third parties, undrawn facilities to whichthe Group is irrevocably committed and market related exposures) where thecustomer status is non-accrual.

 

207

----

 

**AlphabeticalIndex**

 
| Accounting  Policies                                                      |   |
|---------------------------------------------------------------------------|--------|
| Associates                                                                |   |
| Auditors’ Report                                                     |   |
| Average  Balance Sheet and Related Interest                               |   |
| Bonds and Notes                                                           |   |
| Capital Adequacy                                                          |   |
| Certificates  of Deposit and Term Deposit Maturities                      |   |
| Commitments                                                               |   |
| Concentrations of Credit  Risk                                            |   |
| Contingent Liabilities, Contingent Assets  and Credit Related Commitments |   |
| Controlled Entities                                                       |   |
| Critical Accounting  Policies                                             |   |
| Cross Border Outstandings                                                 |   |
| Customers’ Liabilities for Acceptances                               |   |
| Deferred Tax Assets                                                       |   |
| Deposits and Other Borrowings                                             |   |
| Derivative  Financial Instruments                                         |   |
| Directors’  Declaration                                              |   |
| Dividends                                                                 |   |
| Doubtful Debts –  Industry Analysis                                  |   |
| Due  from Other Financial Institutions                                    |   |
| Due to Other  Financial Institutions                                      |   |
| Earnings  Per Ordinary Share                                              |   |
| Employee Share and Option Plans                                           |   |
| Equity Instruments Issued to  Employees                                   |   |
| Events Since  the End of the Financial Year                               |   |
| Exchange Rates                                                            |   |
| Expenses                                                                  |   |
| Fiduciary  Activities                                                     |   |
| Glossary                                                                  |   |
| Goodwill                                                                  |   |
| Impaired Assets                                                           |   |
| Income                                                                    |   |
| Income Tax Expense                                                        |   |
| Income  Tax Liabilities                                                   |   |
| Interest  Sensitivity Gap                                                 |   |
| Interest Spreads and Net Interest  Average Margins                        |   |
| Interests in Joint Venture  Entities                                      |   |
| Investment Securities                                                     |   |
| Life Insurance                                                            |   |
| Liquid Assets                                                             |   |
| Loan Capital                                                              |   |
| Market Risk                                                               |   |
| Net Fair Value of Financial Instruments                                   |   |
| Net Loans and Advances                                                    |   |
| Notes to the  Financial Statements                                        |   |
| Notes  to the Statements of Cash Flows                                    |   |
| Other Assets                                                              |   |
| Outside Equity Interests                                                  |   |
| Payables and Other Liabilities                                            |   |
| Premises and Equipment                                                    |   |
| Provisions                                                                |   |
| Provisions for Doubtful Debts                                             |   |
| Regulatory Deposits                                                       |   |
| Related Party Disclosures                                                 |   |
| Remuneration of Auditors                                                  |   |
| Remuneration of Directors                                                 |   |
| Remuneration of Executives                                                |   |
| Securitisation                                                            |   |
| Segment Analysis                                                          |   |
| Share Capital                                                             |   |
| Shares in Controlled Entities,  Associates and Joint Venture Entities     |   |
| Short  Term Borrowings                                                    |   |
| Statements  of Cash Flows                                                 |   |
| Statements  of Changes in Shareholders’ Equity                       |   |
| Statements  of Financial Performance                                      |   |
| Statements  of Financial Position                                         |   |
| Superannuation Commitments                                                |   |
| Trading Securities                                                        |   |
| US  GAAP Reconciliation                                                   |   |
| Volume  and Rate Analysis                                                 |   |

 

208

----

 

This page has been left blankintentionally

 

209

----

 

Australia and New ZealandBanking Group Limited is a company limited by shares, incorporated anddomiciled in Australia. Its registered office and principal place of businessis:

 

Australia and New ZealandBanking Group Limited Level 6, 100 Queen Street Melbourne, Victoria 3000Australia

 

The principal activities ofthe Group during the year were general banking, mortgage lending, lifeinsurance, leasing, hire purchase and general finance, international andinvestment banking, investment and portfolio management and advisory services,nominee and custodian services and executor and trustee services.

 

The number of employees (fulltime equivalents) as at 30 September 2003 was 23,137.

 

----

 

Australia and New ZealandBanking Group LimitedABN 11 005 357 522

 

 
| *www.anz.com* |  |
|---------------|--|

 

----

 

The Board of DirectorsAustralia and New Zealand Banking Group Limited

 

 

**Independent Auditor’s Consent**

 

We consent to theincorporation, by reference in the registration statements (No. 333-8572 and333-5456) on Form F-3 of the Australia and New Zealand Banking Group Limited,of our report dated 7 November 2003 with respect to the consolidatedstatements of financial position of the Australia and New Zealand Banking GroupLimited as of 30 September 2003 and 2002, and the related statements offinancial performance, changes in shareholders, cash flows and accompanyingnotes to the financial statements for each of the years in the three year periodended 30 September 2003, which report appears in the 2003 Financial Reportof the Australia and New Zealand Banking Group Limited.

 

 
| /s/ KPMG               |   |
|------------------------|--------|
|                   |
|                   |
| **KPMG**               |
| Melbourne,  Australia  |
| 22  December 2003 |

 

----

 

*Item 19**: Exhibits*

 

**Exhibit 1**– Australia and New ZealandBanking Group Limited Constitution

 
| **Exhibit 4**                    |         |   |
|----------------------------------|--------------|--------|
|                             |         |   |
|                             | Exhibit 4.1  |   | National Bank of New  Zealand Acquisition |
|                             | 4.1.1        |   | Underwriting agreement |
|                             | 4.1.2        |   | Share sale agreement |
|                             | 4.1.3        |   | Licence agreement - Trade  Mark licence |
|                             | 4.1.4        |   | Revolving Loan Facility |
|                             | 4.1.5        |   | Standby Hybrid Underwriting  agreement |
|                             |         |   |
|                             | Exhibit 4.2  |   | Employment contracts |
|                             | 4.2.1        |   | Mr T L’Estrange |
|                             | 4.2.2        |   | Mr G Camm |
|                             | 4.2.3        |   | Mr M Grime |
|                             |         |   |
| **Exhibit 8**– Subsidiaries |
|                             |         |   |
| **Exhibit 12**                   |         |   |
|                             |         |   |
|                             | Exhibit 12.1 |   | 302 Certification by Chief  Executive Officer |
|                             |         |   |
|                             | 12.2         |   | 302 Certification by Chief  Financial Officer |
|                             |         |   |
| **Exhibit 13**                   |         |   |
|                             |         |   |
|                             | Exhibit 13.1 |   | 906 Certification by Chief  Executive Officer |
|                             |         |   |
|                             | 13.2         |   | 906 Certification by Chief  Financial Officer |
|                                  |              |        |  |  |

 

210

----

 

*Signatures*

 

The registrant herebycertifies that it meets all of the requirements for filing on Form 20-F andthat it has duly caused andauthorizedthe undersigned to sign this annual report on its behalf.

 

 
| AUSTRALIA AND NEW ZEALAND  BANKING GROUP LIMITED |
|--------------------------------------------------|
|                                             |
| (Registrant)                                     |
|                                             |
|                                             |
| By:                                              | /s/ P R Marriott |   |
|                                             |
| P R MARRIOTT                                     |
|                                             |
| Chief Financial Officer                          |
|                                             |
| Date: December 19,  2003                    |

 

211

----

 

*Index toExhibits*

 
| **Exhibit 1  –** Australia and New  Zealand Banking Group Limited Constitution |
|-------------------------------------------------------------------------------------|
|                                                                                |   |   |
| **Exhibit 4**                                                                       |   |   |
|                                                                                |   |   |
|                                                                                | Exhibit 4.1 |   | National Bank of New  Zealand Acquisition |
|                                                                                | 4.1.1 |   | Underwriting agreement |
|                                                                                | 4.1.2 |   | Share sale agreement |
|                                                                                | 4.1.3 |   | Licence agreement - Trade  Mark licence |
|                                                                                | 4.1.4 |   | Revolving Loan Facility |
|                                                                                | 4.1.5 |   | Standby Hybrid Underwriting  agreement |
|                                                                                |   |   |
|                                                                                | Exhibit 4.2 |   | Employment contracts |
|                                                                                | 4.2.1 |   | Mr T L’Estrange |
|                                                                                | 4.2.2 |   | Mr G Camm |
|                                                                                | 4.2.3 |   | Mr M Grime |
|                                                                                |   |   |
| **Exhibit 8  –** Subsidiaries                                                  |
|                                                                                |   |   |
| **Exhibit 12**                                                                      |   |   |
|                                                                                |   |   |
|                                                                                | Exhibit 12.1 |   | 302 Certification by Chief  Executive Officer |
|                                                                                |   |   |
|                                                                                | 12.2 |   | 302 Certification by Chief  Financial Officer |
|                                                                                |   |   |
| **Exhibit 13**                                                                      |   |   |
|                                                                                |   |   |
|                                                                                | Exhibit 13.1 |   | 906 Certification by Chief  Executive Officer |
|                                                                                |   |   |
|                                                                                | 13.2 |   | 906 Certification by Chief  Financial Officer |
|                                                                                     |  |  |  |  |

 

212

----