Australia and New Zealand Banking Group
Annual Report 1996

Plain-text annual report

A u s t r a l i a a n d N e w Z e a l a n d B a n k i n g G r o u p i L m i t e d 1 9 9 6 A n n u a l R e p o r t AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED 1996 Annual Report ANZ has branches or representative offices in 43 countries: Australia New Zealand Argentina Bahrain Bangladesh Brazil Chile China Cook Islands Fiji France Germany Greece Guernsey Hong Kong India Indonesia Iran Japan Jersey Jordan Korea Malaysia Mexico Nepal Oman Pakistan Papua New Guinea Philippines Qatar Singapore Solomon Islands Sri Lanka Switzerland Taiwan Thailand Tonga United Arab Emirates United Kingdom United States of America Vanuatu Vietnam Western Samoa Australia and New Zealand Banking Group Limited ACN 005 357 522 Registered Office: Level 2, 100 Queen Street, Melbourne, Victoria 3000, Australia. Telephone: (03) 9273 6141 Facsimile: (03) 9273 6142 Key Dates C O N T E N T S S H A R E H O L D E R I N F O R M A T I O N Books close for Final Dividend 13 December 1996 Annual General Meeting 15 January 1997 Payment of Final Dividend 15 January 1997 Announcement of Interim Results 28 May 1997* Books close for Interim Dividend 6 June 1997* Payment of Interim Dividend 7 July 1997* Announcement of Final Results 19 November 1997* *tentative dates only Cover: Five channels of banking available to ANZ customers – Front:Smart Card Technology p10 OnLine Banking p10 Customer Service Officer p8 Back:Supermarket Banking p12 Branch Network ANZ at a Glance ......................................................... 2 Brief overview of the Group, Australia, New Zealand and International operations Chairman’s Report ...................................................... 4 “good profit outcome for shareholders” Chief Executive Officer’s Review ............................ 6 “change initiatives are the key task” Key Strategic Initiatives ........................................... 8 ANZ Investment Bank Back Office Support Projects Commercial Banking System Commentary Australia .......................................................... 10 “new delivery channels” New Zealand .................................................. 12 “facing competitive pressures” International ................................................... 14 “strong growth” Management Structure ........................................... 16 Board of Directors.................................................... 18 Corporate Governance ............................................ 20 Risk Management Framework .............................. 22 Financial System Inquiry ........................................ 24 ANZ in the Community and Environment ............. 25 1116 Seven Year Summary ............................................... 27 Review of 1996 Results ........................................... 28 Financial Highlights in Key Currencies ............... 32 1996 Financial Statements ...................................... 33 ANZ’s Worldwide Representation ...................... 119 Shareholder Information .............Inside back cover Australia and New Zealand Banking Group Limited ACN 005 357 522 Paper: Corporate Section – 100% Australian paper Financial Statements – 100% Australian recycled paper Unless otherwise stated, all amounts are expressed in Australian dollars ANZ INTERNET ADDRESS Home Page: www.anz.com Dividends The final dividend of 24 cents per share will be paid on 15 January 1997 bringing the full year dividend to 42 cents per share. The interim dividend paid in July 1996 was 50% franked and the final dividend is fully franked at 36% for Australian taxation purposes. Dividends may be paid directly to a bank account in Australia, New Zealand or United Kingdom. Shareholders who want their dividends paid this way should advise the relevant Share Registry in writing prior to books closing date. Dividend reinvestment and Bonus option plans are available to shareholders. The plans are detailed in a booklet called “Shareholder Alternatives”, copies of which are available from the Share Registrars at the addresses shown. Stock Exchange Listings The Group’s ordinary shares are listed on the Australian Stock Exchange, the International Stock Exchange in London and the New Zealand Stock Exchange. The Capital Securities offered in February 1993 are listed on the New York Stock Exchange. American Depositary Receipts The Bank of New York sponsors an American Depositary Receipt program in the United States of America. The ADRs were listed on the New York Stock Exchange on 6 December 1994. ADR holders should deal directly with the Depositary, Bank of New York, New York, Telephone (212) 815-2729, Fax (212) 571-3050 on all matters relating to their ADRs. Enquiries Shareholders who wish to contact the Company on any matter related to their shareholding are invited to telephone or write to the most convenient Share Registry. Change of Address It is important that shareholders notify the Company in writing if there is a change to their address. For added protection shareholders should quote their Shareholder Number. Removal from Annual Report Mailing List Shareholders who do not want the Annual Report or who are receiving more than one copy should advise the Share Registrar in writing. These shareholders will continue to receive all other shareholder information. To Consolidate Shareholdings Shareholders who wish to consolidate their separate holdings should advise the share registry in writing. Annual General Meeting The Annual General Meeting will be held at the Savoy Ballroom, Grand Hyatt Melbourne, 123 Collins Street, Melbourne on Wednesday, 15 January 1997. Chairman’s Address A summary of the Chairman’s address to the AGM will be published in the “Shareholder Contact” magazine issued in January 1997. Credit Ratings (December 1996) Short Term Debt Moody’s Investors Service Standard & Poor’s Ratings Group P-1 A-1+ Long Term Debt Moody’s Investors Service Standard & Poor’s Ratings Group Aa3 AA- Registered Office Level 2, 100 Queen Street, Melbourne, Victoria 3000 Australia Phone: (03) 9273-6141 Fax: (03) 9273-6142 Secretary and Chief Financial Officer: D T Craig General Manager Investor Relations: D H Ward Share Registrars Australia Coopers & Lybrand Level 12, 333 Collins Street, Melbourne, Victoria 3000 Phone: (03) 9205 4999 Toll Free: 1800 331 721 Fax: (03) 9205 4900 New Zealand C/- ANZ Banking Group (New Zealand) Limited 8th Floor, 215-229 Lambton Quay, Wellington Phone: (04) 496 7000 Fax: (04) 496 8872 United Kingdom Computershare Limited Level 5, Bowman House, 29 Wilson Street, London EC2M 2SJ Phone: (0171) 920 0010 Fax: (0171) 920 0120 W H O W E A R E ANZ is Australia and New Zealand’s international bank. In our home markets of Australia and New Zealand, we are a major financial institution providing the full range of banking and other financial services. We seek to differentiate ourselves from our competitors by the quality of our customer service, our professionalism, and our international capability. Overseas, we have a significant presence in countries from the Middle East through South and East Asia to the Pacific – the region of greatest geographic and economic relevance to Australia and New Zealand. These businesses are complemented by wholesale and investment banking operations in the world’s major financial centres. O U R V A L U E S We have a strong customer focus and build relationships based on integrity, superior service and mutual benefit. We strive for profit and sound growth. We work as a team to serve the best interests of the Group. We are relentless in pursuit of business innovation and improvement. We value and respect people and make decisions about people based on merit. We base recognition and reward on performance. We value open and honest communication. We are responsible, trustworthy and law-abiding in all we do. What was achieved in 1996 Profit growth of 8% Asset growth of 13% 18.3% return on shareholders’ equity Increased dividends, 42 cents from 33 cents Fully franked final dividend Upgrade to AA status Creation of shareholder value Sharemarket Accumulation Index 250 200 150 100 50 Sep91 Sep92 Sep93 Sep94 Sep95 Sep96 ANZ All Ords (cid:13) (cid:13) (cid:13) (cid:13) (cid:13) (cid:13) (cid:13) (cid:13) (cid:13) (cid:13) (cid:13) (cid:13) (cid:13) (cid:13) (cid:13) A N Z A T A G L A N C E G R O U P P R O F I L E A U S T R A L I A $128B Group Assets 43 Countries of Operation 39,721 Employees $6.3B Shareholders’ Equity 1,744 Points of Representation $75B Assets 59% of Group Assets 23,727 Employees 1,070 Branches 1,010 Automatic Teller Machines 17,315 EFTPOS Machines 2 The Group originated in the United Kingdom in 1835 when the Bank of Australasia was established by Royal Charter. In 1951, The Bank of Australasia merged with Union Bank of Australia to form Australia and New Zealand Bank Limited which in 1970 merged with The English, Scottish and Australian Bank Limited. In 1977 ANZ transferred its domicile from the United Kingdom to Australia (Melbourne). In 1979 ANZ acquired the Bank of Adelaide. In 1984 ANZ acquired Grindlays Bank plc. In 1989 ANZ acquired PostBank Limited (in New Zealand). In 1990 ANZ acquired both the National Mutual Royal Bank Limited and the Town & Country Building Society in Australia. Performance Operating profit after tax $1,116 million Return on shareholders’ equity 18.3% Earnings per share 76.3 cents Annual dividend 42 cents Asset growth 13% Return on average risk weighted assets 1.3% Highlights Credit rating upgrade Franking lifted to 100% of final dividend ANZ Grindlays became an Australian bank Introduction of Economic Value Added Formation of ANZ Investment Bank Risk management further strengthened Group Human Resources strategy developed Forward Strategy Growth, strongest in international operations Achievement of significant efficiency gains ANZ is one of the “big four” Australian domestic banks providing a full range of financial services. Within this spectrum, ANZ’s relative strengths are in business banking, cards and international banking services. Through wholly owned subsidiaries ANZ offers complementary financial services-investment and insurance services through ANZ Funds Management; personal and corporate stockbroking services through ANZ Stockbroking and ANZ Securities Limited; and specialised leasing, motor vehicle and property finance services through Esanda Finance Corporation Limited, the largest finance company in Australia. Performance Operating profit after tax ................... $ 657 million Banking .................................... $ 498 million Esanda ...................................... $ 100 million ANZ Funds Management ........ $ 59 million Return on average risk weighted assets 1.2% Lending growth 10% Highlights Customer satisfaction rated above competitors Centralisation of back office functions New products launched • ANZ Direct • ANZ OnLine • Qantas Telstra Visa Card EFTPOS terminal base doubled Strong funds management product growth Forward Strategy High focus on cost control Business Banking efficiency improvements Branch rationalisation 24 hour telephone banking Internet Banking Smart cards Growth in ANZ Funds Management Building on ANZ’s international and investment banking capability All data as at 30 September 1996 To pages 4 & 6 for details To page 10 for details Australia and New Zealand Banking Group Limited – 1996 Annual Report N E W Z E A L A N D I N T E R N A T I O N A L $17B Assets 14% of Group Assets 5,939 Employees 259 Branches 303 Automatic Teller Machines 11,514 EFTPOS Machines ANZ has been operating in New Zealand since 1840. ANZ is the oldest and one of the largest banks in the country. ANZ provides a complete range of products and services to the retail and business markets, and is known as New Zealand’s export bank. The finance subsidiary (UDC Finance Limited) is New Zealand’s largest finance company specialising in leasing and motor vehicle finance. ANZ Securities (NZ) Limited provides wholesale broking services while ANZ Funds Management provides investment management services. Performance Operating profit after tax $138 million (Pre-tax profit same as 1995 record) Return on average risk weighted assets 1.1% Lending growth 13% Highlights Intense competition in overbanked market Market share maintained Shift to electronic delivery continues EFTPOS terminals more than doubled Supermarket branches, telephone and bill payment service introduced Number of branches reduced by 61 42% growth in funds under management in ANZ Funds Management Non-executive directors appointed to ANZ (New Zealand) Board Forward Strategy High focus on cost control Restructuring delivery channels Further branch rationalisation Building on ANZ’s international and investment banking capability $35B Assets 27% of Group Assets 41 Countries of Operation 10,055 Employees 208 Branches & Representative Offices ANZ has a network of niche banking operations (principally trading as ANZ and ANZ Grindlays) providing trade finance and commercial banking services in 41 countries outside Australia and New Zealand, mainly throughout Greater Asia (pages 119 & 120 list ANZ’s worldwide representation). This network is complemented by an active presence in major global financial centres. ANZ provides on-the-ground banking services to support the international activity of ANZ’s customers worldwide. Performance Operating profit after tax ................... $ 321 million UK & Europe ............................ $ 106 million Asia Pacific ............................... $ 99 million South Asia ................................. $ 36 million Americas .................................... $ 38 million Middle East ................................ $ 42 million Return on average risk weighted assets 1.7% Lending growth 18% Highlights ANZ Grindlays Bank migrated to Australia ANZ Investment Bank formed New branches in Ho Chi Minh City (Vietnam) and Manila (Philippines) ANZ Link introduced into China, Middle East and countries in the Pacific New banking system (CBS) piloted Expansion of international card activity Best Australian Large Business Activity in Asia Award Forward Strategy Expand ANZ’s representation Installation of new banking system Expansion of international cards & electronic banking and other global products Expand ANZ Investment Bank activities Grindlays Private Banking refocus and expansion To page 12 for details To page 14 for details 3 C H A I R M A N ’ S R E P O R T Dear Shareholders In 1996 ANZ achieved a good profit outcome for shareholders. The profit of $1,116 million is an 8% increase on the 1995 profit before abnormal items. The result was built around continued growth of the Group’s business across all sectors, particularly the international operations. Dividends were increased with the final dividend fully franked. 4 % 20 15 10 5 0 -5 -10 -15 ¢ 90 60 30 0 -30 -60 Return on Average Shareholders’ Equity* 18.3 91 92 *before abnormal items 93 94 95 96 Earnings and Dividends Per Share 76.3 42 91 92 93 94 95 96 Earnings* # Dividends *before abnormal items(cid:13) #excludes preference shares Earnings per share grew by 11% to 76.3 cents for the year. Dividends were increased to 42 cents per share for the year, compared to 33 cents in 1995. The 1996 final dividend of 24 cents was fully franked at 36%. We are particularly pleased to be able to move to full franking earlier than had been anticipated. We expect to sustain full franking at least for the 1997 financial year. However, there may be some limit on our franking capacity thereafter if the proportion of Group profits earned offshore continues to increase. A highlight of the year was the upgrade in ANZ’s credit ratings by US rating agencies Moody’s Investors Service and Standard and Poor’s. These upgrades returned the Group to “AA” status and recognised the improvement in our financial position. The upgrades also reflected comfort with the changes we have made to the way we manage risk throughout the Group. We now have considerable expertise in this area which will benefit ANZ through the economic cycle. Corporate Structure Two major changes to our corporate structure were completed during 1996. First, the domicile of the major offshore subsidiary ANZ Grindlays Bank was migrated to Australia from the United Kingdom. This brings together all the Group’s head office functions in Melbourne and will enable better co-ordination and support of our international operations in South Asia and the Middle East. The second change was bringing together in one business unit all the investment banking activities of the Group. We have had significant investment banking operations for a long time, particularly in Australia and London. The co-ordination of these activities on a global basis will enable us to maximise business opportunities wherever they occur. Australia and New Zealand Banking Group Limited – 1996 Annual Report With the migration of ANZ Grindlays, Sir Brian Shaw, Sir John Thompson and Mr Rick Wheeler-Bennett have retired from the Board of ANZ Grindlays. We wish them well and thank them for their significant contributions over many years. With ANZ Grindlays now an Australian registered bank, Ms Margaret Jackson and Dr Brian Scott, non-executive directors of the Group, have also become non-executive directors of ANZ Grindlays. Also, in Australia, Mr Donald McDonald, Mr Charles Williams and Mr Lawrence Willet AO, became non-executive directors of companies within the ANZ Funds Management group. In New Zealand, the Hon Fran Wilde and Mr Jeff Todd joined the Board of ANZ Banking Group (New Zealand) Limited. We warmly welcome them all to ANZ. Managing for Increased Shareholder Value Many companies around the world have been seeking ways to align management objectives more closely with the creation of long term shareholder value. The Economic Value Added methodology developed by consulting firm Stern Stewart & Co (EVATM) is one approach gathering support among industrial companies and financial institutions worldwide. EVA is a method of determining how much shareholder value has been created. It measures profit contributions after making a charge for credit risk, which represents an estimate of credit costs over an economic cycle, and after an allowance for the cost of capital. ANZ is now using EVA to bring increased focus on customer and business unit profitability and as a basis for management remuneration. The introduction of EVA based remuneration is part of the Group’s focus to improve the way we motivate, assess and reward staff which is so important in a changing environment. Structural Change in the Financial Services Industry Technological development is driving enormous change in the banking industry. New, more convenient and more efficient ways to deliver banking services are now available to customers, and new providers are entering the industry. At the same time distinctions between providers of different financial services are becoming increasingly blurred. The Government has commissioned a review of the regulatory framework governing the financial system, chaired by Mr Stan Wallis. ANZ supported the holding of such an inquiry and has submitted a detailed statement, a summary of which is contained on page 24 of this report. Your directors believe ANZ is of sufficient size, and has the growth opportunities available to continue to be a successful independent bank in the changing environment. Outlook We expect an acceleration in economic activity in Australia later in 1997, but growth in the first half is likely to remain subdued. There are some risks to the short-term outlook for New Zealand arising from the prolonged period of very high real interest rates and uncertainty surrounding the new political arrangements there. Asia as a whole should continue to enjoy strong economic growth. However some countries within Asia may encounter periods of less robust growth than in recent years. The challenges now facing ANZ are very different from the last four years. The return to full franking and ‘AA’ status completes the recovery process. ANZ is financially strong and well able to meet the competitive challenges now in front of us. Our franchises at home and abroad are strong with growth opportunities, particularly in our international operations. While we are facing increasing competitive pressure in our domestic banking markets, the initial benefits from the major restructuring program now underway are expected to emerge during 1997. Overall, ANZ is well placed to continue to add to shareholder value over the coming years. Charles Goode Chairman 5 C H I E F E X E C U T I V E O F F I C E R ’ S R E V I E W The Group profit in 1996 of $1,116 million represents an 18.3% return on shareholders’ equity. This is a good result, achieved under very competitive market conditions. With the Australian finance industry undergoing rapid change, the challenge for management is to increase earnings, while investing in major change programs to reposition the Group for the future. 6 1996 in Review ANZ achieved an 8% increase in operating profit after tax to $1,116 million in the year ended 30 September 1996. There were no abnormal items. The 18.3% return on shareholders’ equity is significantly above the Group’s cost of capital. Our international operations contributed to the Group result with strong lending growth, particularly in Asia, and a good performance by our investment banking operations in London. In Australia, we have seen a reduction in underlying profitability reflecting very competitive market conditions, higher personnel costs and the additional costs associated with the significant re- engineering program underway. However we benefited from a lower charge for doubtful debts and a lower effective tax rate. In New Zealand underlying earnings remained stable. The benefits of asset growth were offset by competitive pressures on interest margins. Re-engineering costs continue to be a significant factor in New Zealand. Managing our People The rate of technological advance and change in the finance industry is creating challenges for the way we manage our staff. Skill requirements are changing, and entire job functions are being eliminated. Nevertheless, the delivery of superior service to our customers remains dependent upon the best use of resources, both people and technology. ANZ is committed to attracting, retaining and developing staff of the highest calibre. Building on ANZ’s core values we have developed a comprehensive human resources philosophy to provide the framework for managing our people. Central to this is our intention to make improvements in the way we assess, develop and reward individuals to build a performance based culture throughout the Group. A key tenet of this philosophy is to treat all staff fairly and with dignity and respect. These principles particularly apply in handling issues associated with the restructuring program. ANZ is open and honest in communication with staff and follows the procedures endorsed by respective industrial relations authorities. Restructuring is never an easy process, but is absolutely necessary if ANZ is to remain a competitive, successful and independent financial institution. Strategic Challenges The strategic issues ANZ faces in our domestic markets and overseas are very different. In Australia and New Zealand the priority is to restructure our business to meet the challenges of intense competition. In our international operations the objective is the continuation of sound growth. Australia New competitors and new lower cost delivery channels are driving downward pressure on interest margins making improving efficiency in the delivery of financial services essential. We have had several initiatives underway for the past two years to improve efficiency through centralisation of back office activity and closer targeting of services to customer needs. These Australia and New Zealand Banking Group Limited – 1996 Annual Report Group Results* Operating profit after tax ($M) – Australia – New Zealand – International Total 1996 1995 1994 657 138 321 612 146 275 1,116 1,033 457 95 251 803 Operating profit before debt provisions and tax ($M) 1,769 1,722 1,586 Return on average shareholders’ equity (%) Return on average risk weighted assets (%) Cost to income (%) Total assets ($B) Capital adequacy (%) Employees (full-time equivalents) *before abnormal items 18.3 1.3 67.3 128 10.5 17.6 15.2 1.3 65.9 113 10.9 1.1 66.0 104 11.3 39,721 39,240 39,642 initiatives are now well advanced, with the new centralised support platform now complete. The task for 1997 is to complete the implementation of these initiatives and achieve the benefits. ANZ also has developed new products to deliver banking services electronically including ANZ OnLine for business customers and ANZ Direct for retail customers. With the high level of customer acceptance of these products their use will continue to grow rapidly. New Zealand Competitive conditions are even more intense in New Zealand leading to significant falls in interest margins during 1996. For the past two years we have been working to migrate customer transactions to lower cost delivery channels. The number of ATMs and EFTPOS terminals have been increased, telephone banking has been introduced and new card products launched. Strong growth in the use of electronic systems has enabled a reduction in the number of branches. This focus on improving efficiency will continue through 1997. International The strategic expansion of our operations in East Asia over recent years has identified ANZ as Australia and New Zealand’s international bank. In 1996 we opened branches in Manila (Philippines) and Ho Chi Minh City (Vietnam). We will continue to broaden and deepen this network. To support expansion, and to improve efficiency, we are investing in a new core banking system to be installed across the network over the next two years (see page 8). We will also increase the range of banking services provided in many countries with the introduction of electronic and card based products. We have re-organised our investment banking activities to create a global line of business which can deliver the best that ANZ can offer wherever in the world this is required. For example, our largest customers in Australia can now benefit from the full range of ANZ’s London based expertise in Treasury, Capital Markets and Structured and Project Finance (see page 9). We are pleased that John Sunderland, previously a senior executive with BZW, has joined us to head up ANZ’s investment banking activities. Systems Integrity One of the rather different issues we face relates to the integrity of our computer systems after 31 December 1999. Systems may require modification to ensure that transactions are accurately processed when the change to the year 2000 occurs. At this stage the review is not complete and the total costs of the modifications cannot be quantified. Conclusion We see growth opportunities for the Group particularly in our international operations and also in investment banking, cards and funds management. However, the benefits of growth are likely to be partially offset by a further contraction of interest margins in Australia and New Zealand in the year ahead. Completion of the implementation of our change initiatives to improve efficiency is the key task for 1997. This will involve some branch closures as banking services are increasingly delivered to customers using electronic channels. We expect the initial benefits to emerge during 1997, with more significant benefits thereafter. Don Mercer Chief Executive Officer 7 K E Y S T R A T E G I C I N I T I A T I V E S The centralisation of transaction processing into co-ordinated state based sites enables more efficient processing and storage of banking instructions. Overall, these projects provide ANZ with a state of the art support platform to significantly improve efficiency and customer service. Commercial Banking System ANZ operates in 41 countries outside the domestic markets of Australia and New Zealand. However, the 170 branches that make up the international network have very different support systems, many of which are still heavily manual and are becoming dated. A key strategic initiative for ANZ has been to develop and install a modern core banking system throughout the international network to support the full range of banking products and services. Such a system, internally referred to as the Commercial Banking System or CBS, has now been developed. It will replace all existing computer and paper based processing, accounting and management information systems. CBS offers significant benefits to both ANZ and its customers. For ANZ the installation of a standard system throughout the international network will increase efficiency through the elimination of manual back office tasks, reduce the costs of supporting the current multitude of systems and improve the collection of accounting Josephine Sam, Customer Services in Port Vila. Day 1 for CBS, ANZ’s new Commercial Banking System for the international network. 8 Angela Olsen, Customer Service Officer. The National Teleservicing Centre has the capacity to handle most of the 120,000 phone calls received from customers daily. Back Office Support Projects In the early 1990s ANZ was the first major bank to remove back office functions from metropolitan branches to improve efficiency and free up staff to concentrate on customer service. Phase two, the centralisation of back office functions from a zone basis (13 around Australia) to national centres, has been underway for the past 18 months and is now almost complete. This has involved reducing the number of back office processing sites from 33 to 8 and the extension of centralised back office support services to include country branches. A key facility in this program is located in Flinders Street, Melbourne. The National Teleservicing Centre has the capacity to handle most of the 120,000 phone calls ANZ receives from customers daily and operates from 8.00am to 8.00pm. In early 1997, telephone banking will be extended to allow customers 24 hour access to obtain account balances, transfer funds between accounts and pay bills. Support for retail lending activities has also been centralised incorporating computer assisted online credit assessment which enables branch staff and mobile lenders to advise most customers of the decision on their mortgage application immediately on completion of the interview. The monitoring of loans to ensure accounts are in order and initiation of any necessary follow-up action is also controlled from the centre. Australia and New Zealand Banking Group Limited – 1996 Annual Report and risk management information. Importantly, it provides the platform to support multibranch banking, as well as enabling the introduction of retail banking products not currently offered. For ANZ customers CBS will provide a range of consistently high standard banking products and customer information and will enable improved electronic access including remote access to bank accounts in different countries. The development phase of CBS has been completed with the initial pilot in Vanuatu operating successfully since May. The second installation is now underway in Bahrain. The system will be rolled out to other points of the network over the next twenty-four months. Formation of ANZ Investment Bank A key part of ANZ’s business banking franchise has been the provision of professional Treasury and other sophisticated banking services to large corporate and institutional customers in Australia, New Zealand and overseas. Around the world some 2,000 staff are involved in this part of ANZ’s business. Up to now ANZ has been organised primarily geographically with reporting lines running to “country heads”. To improve product delivery co-ordination across borders, optimise the use of ANZ expertise wherever it is located around the world, assist innovation and improve risk management, we are drawing all investment banking activities into one unit, ANZ Investment Bank. This will be organised on functional rather than geographical basis. The key global lines of business forming the Investment Bank are: Financial Markets encompassing foreign exchange, derivatives, capital market activities including specialist funds management and money markets; Global Structured Finance including project finance, corporate finance, originations and syndications, leasing and tax based finance and Islamic finance; Stockbroking and related services including equity derivatives, capital raising, advice and the distribution of ANZ originated Australian, New Zealand and selected Asian equity research; Relationship Management for large corporate customers covering Australia, New Zealand, Asia, UK/Europe and the Americas. Importantly ANZ’s on-the-ground banking capability in Asia, where so many infrastructure projects will proceed in coming years, will be a competitive advantage for ANZ in winning business. 9 ANZ has drawn all investment banking activities into one unit including Treasury functions in Australia and overseas. ANZ Treasury, Melbourne. ANZ OnLine: Electronic delivery channels are changing the nature of retail and business banking in Australia. 10 A U S T R A L I A With 59% of Group assets generating an equivalent percentage of Group earnings, the Australian operations remain the largest part of ANZ’s business. Reasonable loan growth continues to be achieved in Australia, although intense competitive pressures are reducing fee income and margins. A major transformation program has been underway to centralise back office functions and utilise new technology to improve efficiency and customer service. The initial benefits of this program will emerge during 1997 with more significant benefits thereafter. 1996 Financial Performance Business Developments The Australian operations produced a contribution to Group profit of $657 million, up 7% from 1995. Lower provisions for doubtful debts and a lower effective tax rate offset the reduction in underlying earnings. Australian lending assets grew 10% with reasonable growth in home mortgage and corporate lending. However, competitive pressures reduced interest margins in the second half of the year. Retail lending fees were also lower due to competitive pressure. Costs were higher, mostly in personnel. Personnel costs increased as a result of additional staff being employed in the implementation phase of the major change programs, salary increases from the enterprise bargaining agreement, the effect of the move to total employment cost packaging for managerial staff, restructuring expenses and profit participation by staff. Costs associated with developing and running computer systems also increased, while premises costs fell. Asset quality continues to improve. The level of net non-accrual loans fell by over $300 million or 36%. The total charge to profit for doubtful debts was lower as a reduction in the general provision charge more than offset a higher specific provision charge. The increase in the specific provision charge reflected a lower level of recoveries and releases rather than an increase in new and top-up provisions, which remained stable. Increased levels of tax preferred income and the favourable resolution of issues under dispute with revenue authorities led to the lower effective tax rate. Growth in the use of electronic delivery channels is changing the nature of retail and business banking in Australia. ANZ’s major projects to centralise back office functions on a national basis and more fully utilise online computer assisted credit assessment, are now in their final phases of implementation. Further details on this initiative are on page 8. Throughout this process ANZ has maintained the focus on customer service. Independent market research shows ANZ as having a clear lead over other major banks in regard to retail customer satisfaction. Along with the extension of the ATM and EFTPOS networks, alternative forms of banking have also been trialled including the opening of banking facilities in four supermarkets. ANZ has introduced a new direct banking service for customers in Sydney, ANZ Direct. This includes a range of very competitive mortgage products along with transaction account and funds management products delivered only through electronic channels. The developments during the year have been managed against a background of major computer and procedural changes to ensure compliance with the new Uniform Consumer Credit Law. Cards are the key to access electronic banking services. The issuing of 370,000 ANZ Telstra Visa Cards since the launch in June 1995 has significantly increased our penetration in the cards market and led to a 45% increase in business turnover. Qantas joined the program in September with the launch of the ANZ Qantas Telstra Visa Card allowing customers to build frequent flyer points. Australia and New Zealand Banking Group Limited – 1996 Annual Report Australian Results* Outlook A reasonably promising outlook for the global economy will support continued growth in Australia. However, Australian growth rates are likely to remain subdued into the first half of 1997, ahead of an expected acceleration in activity later in the year and into 1998. Longer-term prospects for Australia will be shaped by the Government’s success in its labour market reforms and in improving the country’s national saving performance. ANZ expects continued intense competitive pressures in the financial services industry to lead to a further contraction of interest margins. The task for ANZ in 1997 is to complete the implementation of the re-engineering initiatives we have been working on over the past eighteen months. This will involve some branch closures as banking services are increasingly delivered to customers using electronic channels. During 1997 ANZ will be launching further new banking services, including the introduction of ‘around the clock’ telephone banking service using interactive voice response technology, providing home banking facilities over the internet and expanding the use of stored value cards. Funds management is the fastest growing part of the Australian financial system and ANZ expects to participate fully in that growth. In summary, the key focus for 1997 will be to continue with the restructuring of the Australian operations and ensure the initial benefits emerge during the year with more significant benefits to flow thereafter. 11 Operating profit after tax ($M) Operating profit 1996 1995 1994 657 612 457 before debt provisions & tax ($M) 1,016 1,055 953 Return on average risk weighted assets (%) Total assets ($B) 1.2 75 1.2 68 0.9 64 Employees (full-time equivalents) 23,727 23,129 23,596 Total points of representation 1,261 1,322 1,396 *before abnormal items Esanda, ANZ’s finance company, achieved $4.9 billion in new business writings, an increase of 2.5% on 1995. Market conditions were very competitive, which caused a decline in margins and overall profit. A major initiative is underway to re-engineer Esanda’s operations using technology to automate work flows and improve efficiency. ANZ Funds Management again achieved strong growth in sales through the branch network with total retail funds under management increasing by 11% to $7.2 billion. Profits were slightly below the 1995 record profit which benefited from a reassessment of mortality assumptions in ANZ Life. In Business Banking the process of market segmentation to improve service delivery across the range of business customers is now complete. The use of risk adjusted measures as the financial benchmark for assessing customer profitability is driving management strategies to improve credit quality while maximising income and reducing costs. The position of trade finance and other international banking services has always been a key part of ANZ’s business, linking the traditional domestic business banking franchise with the overseas network. Process re-engineering and new technology such as ANZ OnLine will enable significant improvements in the delivery of customer service to be achieved over the next 12 months. At the top end of the corporate market, the global needs of ANZ’s largest corporate customers are being met through ANZ Investment Bank. This includes treasury operations in Australia, which continue to perform well, and the stockbroking subsidiary, ANZ Securities, which has substantially completed its rebuilding program. Stored value cards were successfully piloted during 1996 for wider use in 1997. ANZ/PostBank is New Zealand’s third largest banking group. 12 N E W Z E A L A N D With $17 billion in total assets earning $138 million after tax, the Group’s New Zealand operations accounted for 14% of total assets and 12% of total profit in the 1996 financial year. The banking environment in New Zealand remains intensely competitive with increased activity from non-traditional players in both the consumer and business markets. ANZ’s focus is to improve efficiency and customer service through the continued migration of customers to electronic delivery channels and rationalisation of the branch network, while continuing to grow the business. 1996 Financial Performance The performance of the Group’s operations in New Zealand remains satisfactory. Underlying earnings were about the same as in 1995, while an increase in the effective tax rate reduced profits. Strong growth was achieved in both business and home mortgage lending. Overall lending assets grew by 13%, reflecting a slight increase in market share. However, very competitive conditions reduced margins, leaving net interest income down slightly. Non-interest income increased as a result of the expansion of UDC’s operating lease business and growth in income from cards. Costs increased by 8%, principally reflecting increased staff salaries, restructuring costs and direct revenue costs. However, greater focus on cost management and a 4% reduction in staff numbers meant there was little increase in costs in the second half. Asset quality in New Zealand remains very good. The charge to profit for doubtful debts remained at a low 0.1% of net lending advances. Business Developments The central focus of ANZ’s strategy in New Zealand has been to migrate customers to more convenient and efficient electronic delivery channels, and to seek other internal efficiency gains. Over the year ATM numbers increased by a further 11% while EFTPOS terminals more than doubled to 11,500 nationwide. Telephone banking has also seen a strong growth in registered customers, giving a market penetration of around 10% of the population. The increased use of electronic channels is facilitating the reshaping of the distribution network. Branch numbers were reduced from 320 to 259. At the same time, alternative specialist sales channels such as supermarket banking and mobile mortgage managers are being trialled or expanded. Good growth in home mortgage lending and retail deposits continues to be achieved. ANZ retains a strong position in the business banking market by providing a full suite of corporate, treasury and international services. To further improve customer service, business banking activities were segmented into Corporate, Middle Market, and Property, while the global needs of the largest corporates are served by ANZ Investment Bank. The finance company subsidiary, UDC, which is the largest finance company in New Zealand, had another outstanding year. Increased operating lease activity offset the competitive pressure on interest margins resulting in another record profit. Very strong growth in both retail and whole- sale funds (42%) saw ANZ Funds Management (ANZFM) in New Zealand exceed the $NZ1 billion funds under management mark. Good investment performance underpinned this growth. ANZFM’s outstanding performance was acknowledged by receipt of the industry awards for the most improved fund manager, the third best fund manager overall (out of 35) and the first among major banks. Australia and New Zealand Banking Group Limited – 1996 Annual Report New Zealand Results* Outlook Operating profit after tax ($M) Operating profit 1996 1995 1994 138 146 95 before debt provisions and tax ($M) 222 224 159 Return on average risk weighted assets (%) Total assets ($B) Employees (full-time equivalents) Total points of representation *before abnormal items 1.1 17 1.3 15 1.0 13 5,939 6,205 6,313 275 351 424 Board Appointments Following changes to the regulatory regime in New Zealand, the Group was pleased to appoint Mr J G Todd and the Hon F H Wilde as non- executive directors to the Board of ANZ Banking Group (New Zealand) Limited. Mr Todd, with his background in accounting and superannuation reform, brings to the Board detailed knowledge and understanding of the finance industry, while Ms Wilde’s broad experience in local and national politics and business also brings an added and most valuable perspective to ANZ’s New Zealand operations. Following a sustained period of strong growth and very high real interest rates, the New Zealand economy has slowed in the past year. Nonetheless, the economy remains sound and ANZ anticipates strengthening in activity from the second half of 1997 and into 1998. Inflation pressures are abating which should provide some scope for an easing in monetary policy, although the sustainability of lower interest rates is partly contingent upon a stable political and economic policy outlook. ANZ expects the highly competitive banking environment will continue through 1997. New entrants into the home mortgage market will add to the competition coming from other existing banks. Increasing disintermediation by corporate borrowers may dampen demand for traditional banking products and services from that sector. For ANZ, the focus will continue to be on restructuring delivery channels while generating more business from the large customer base and internationally using ANZ’s international network. 13 Supermarket Banking, Auckland. Alternative specialist channels, such as supermarket banking, are being trialled. I N T E R N A T I O N A L A key element of ANZ’s strategy over recent years has been to build the Group’s commercial banking presence throughout Greater Asia, the region of most geographic and economic relevance to Australia and New Zealand. ANZ is differentiated from the other Australian banks by this international network, which extends over 41 countries. These operations account for 27% of Group assets and 29% of Group profits. They are the most profitable and fastest growing part of the Group. ANZ Manila was officially opened in March 1996. 14 1996 Financial Performance The profit contribution from the international operations increased in 1996 by 17% to $321 million. Strong lending growth (18%) with stable margins, a good performance by the investment banking operations and continuing sound asset quality underpinned this performance. The strongest lending growth was achieved in Asia Pacific where businesses established in recent years continue to expand and deepen. While good growth was also achieved in South Asia in domestic currency terms, this was masked by the appreciation of the Australian dollar against the Indian rupee. The continuing cost of funding the deposit with the National Housing Bank and restructuring provisions adversely affected profits from South Asia. A strong performance by the investment banking operations in London, particularly in the second half, contributed to the profit improvement in UK/Europe. The branch in New York and representative offices in Latin America continued to expand their cross-border finance activities. The more mature business in the Middle East continued to perform well, although with a slightly lower profit contribution than in 1995, which benefited from provision write-backs. Business Developments There have been several important changes over the past year in the way ANZ manages its international operations. In July the domicile of the major international subsidiary, ANZ Grindlays Bank, was migrated from London to Melbourne and became an Australian bank. This move consolidates all the head office functions of the Group in Melbourne and will enable better co- ordination and support of our operations in South Asia and the Middle East. Cost savings result from the elimination of duplication. As noted earlier the investment banking activities of the Group have been grouped together in one business unit, ANZ Investment Bank, to provide greater focus in meeting the global financial needs of ANZ’s largest customers’ business. A full description of this initiative is contained on page 9. The expansion of the network in Asia has continued. In March, ANZ officially opened its first branch in Manila (Philippines), and is the only Australian bank represented in the Philippines. A branch was also opened in March in Ho Chi Minh City, the commercial centre in the south of Vietnam. ANZ is one of only a few international banks to have two branches in Vietnam. The Group has also announced a restructuring of the operation in Oman. A local company has been formed, in which ANZ has taken a minority interest, to acquire the business. As elsewhere in the Group, the development of electronic delivery channels is a key element of ANZ’s strategy. ANZ Link, which facilitates remote access by customers to their bank accounts, was introduced in the Middle East, China and countries in the Pacific. ANZ believes that having branches located in the countries where its customers are doing business is the most effective way to deliver high quality and comprehensive international banking services. The effectiveness of this strategy is clearly Australia and New Zealand Banking Group Limited – 1996 Annual Report Upgrading the core banking system used by the international operations is central to ANZ’s strategy to build an integrated network. The new Commercial Banking System (CBS) was successfully piloted in 1996 and will be implemented throughout the network over the next two years. Details of this project are discussed on page 8. The installation of CBS will supplement and enable the further expansion of international electronic banking services currently available on line to domestic customers through ANZ Link. There is enormous demand for card-based banking products, enhanced by electronic delivery channels throughout Greater Asia. ANZ already has card businesses operating in several countries in Asia and the Pacific with all processing done in Melbourne. The combination of ANZ’s customer base of high net worth individuals in many countries in the region and the scale of the card processing operations in Melbourne, provides clear opportunities for further profitable expansion of this business. Over recent years ANZ has had a consistent international strategy of being the bank with the expertise and on-the-ground presence to assist its customers with the expansion of their business activities in Greater Asia. This aspect of the business is not only the fastest growing, it is also the most profitable. ANZ is now recognised as Australia and New Zealand’s international bank, a position on which we intend to build. 15 International Results* Operating profit after tax ($M) Operating profit before debt provisions and tax ($M) Return on average risk weighted assets (%) Total assets ($B) 1996 1995 1994 321 275 251 531 1.7 35 443 474 1.6 30 1.6 27 Employees (full-time equivalents) 10,055 9,906 9,733 Total points of representation 208 208 206 *before abnormal items demonstrated by ANZ’s receipt of a number of awards during the year including: International Business Asia magazine’s “Best Australian Large Business Activity in Asia” and ANZ being named as the “Best Commercial Bank in Australia” by Asiamoney partly because of its international capability. Outlook The outlook for the global economy is reasonably promising, with overall world growth likely to strengthen during 1997 and 1998. Supporting this continued expansion is moderate inflation and smaller current account imbalances than were experienced during the 1980s. A gradual slowing in the US economy, with its more mature business cycle than elsewhere, is likely to be offset by stronger growth in Western Europe and Japan. Asia should continue to enjoy strong growth although some countries may encounter periods of less robust growth than in recent years. ANZ expects that its international operations will continue to grow at a faster rate than the domestic operations. The careful expansion of the greenfield operations in East Asia will continue, and ANZ will look to add strategically to the network where the business case exists and opportunities arise. In addition to the growing trade and investment flows, the rapid pace of economic development in Asia is creating numerous demands for infrastructure projects (ports, airports, electricity and communications networks) throughout the region. This presents significant opportunities for ANZ Investment Bank. ANZ Ho Chi Minh City, Vietnam, was opened in March 1996. M A N A G E M E N T S T R U C T U R E ANZ is organised into principal business units with a strong customer focus and support functions which span the group. Chief Executive Officer Don Mercer Don Mercer joined ANZ in March 1984 as General Manager, Strategic Planning and Economics after many years with Shell International Petroleum Co. Ltd where he held positions in the United Kingdom, Holland, Canada, Indonesia and Australia. In 1988 Don Mercer was appointed to the position of Chief General Manager Australian Retail Services which he held until 1992 when he became Managing Director and Chief Executive Officer. 16 Acting Managing Director ANZ Banking Group (New Zealand) Limited Andrew Ward Retail Banking Business Banking Finance Treasury & Economics Operations & Payment Services UDC Group Human Resources Strategic Planning Executive Director Alister Maitland Alister Maitland’s career with ANZ spans 33 years. Following positions as an Economist in Australia, New Zealand and London he was appointed Chief Economist in 1979. He held a number of executive positions in Management Services, Retail Banking and Global Treasury before he was appointed Managing Director ANZ New Zealand in June 1990. Alister Maitland assumed his present post in November 1992 as Executive Director with responsibilities for ANZ’s international operations. South Asia Middle east Asia Pacific Global Private Banking Correspondent Banking Nominees CBS Project Executive Director John Ries John Ries joined ANZ in 1961 and has held senior management positions within the corporate banking and international banking divisions. In June 1988 he was appointed as Managing Director, ANZ Grindlays Bank, London. He returned to Melbourne in August 1990 to take up the position of Chief General Manager International Banking. In August 1992, John Ries was appointed to the ANZ Board as Executive Director with responsibility for Australia. He currently has direct oversight of the Group’s global investment banking activities and the bank’s business banking activities in Australia. Managing Director ANZ Investment Bank John Sunderland John Sunderland joined ANZ in late 1996 to head the Group’s global investment banking activities. He has responsibility for the various business activities undertaken by ANZ to support its large corporate and institutional customers around the globe. Prior to joining ANZ John Sunderland held senior investment banking roles with BZW in London, New York and Hong Kong. UK and Europe Americas Japan / Singapore Financial Markets / Capital Markets Esanda Global Balance Sheet Management International Services Structured Finance Relationship Management ANZ Securities Senior General Manager Business Banking Bob Edgar Bob Edgar joined ANZ in December 1984 as Senior Economist. In 1986 Dr Edgar was appointed Chief Economist. Since then he has been Group Executive, Strategic Planning and Economics, General Manager - South Asia, ANZ Grindlays Bank Plc, based in Bombay responsible for India, Bangladesh and Nepal and Managing Director, Esanda. In March 1995 he was appointed to his present position of Senior General Manager - Business Banking. Before joining ANZ Bob Edgar held senior positions with the Australian Bankers Association and the Reserve Bank of Australia in Sydney. Business Banking B U S I N E S S U N I T S Australia and New Zealand Banking Group Limited – 1996 Annual Report Chief General Manager Australian Operations & Payments Division Charles Carbonaro Charles Carbonaro joined ANZ in January 1987. Subsequently he engineered the centralisation of ANZ’s cards business and turned it into a highly successful operation. He was appointed to his current position in February 1995 and is responsible for the total service support of ANZ’s banking distribution. National Teleservicing Centre Computer & Network Services Strategy & Int. Payments National Finance Centre Transaction Processing Centres Cards Operations International Cards Acting Managing Director ANZ Funds Management Bill Casimir ANZ Funds Management is the arm of ANZ that offers a broad range of non- bank financial services, including insurance, investment, estate planning and management and financial planning, as well as a range of personal, business and wholesale superannuation services. Financial Planning Estate Planning & Management Insurance Investment Strategy Marketing Operations Finance Human Resources Chief General Manager Australian Retail Division Peter Hawkins Peter Hawkins joined ANZ in December 1971 and has had considerable experience in all aspects of banking. He was appointed to his present position in February 1995 after two and a half years as Managing Director ANZ Banking Group (New Zealand) Limited, where he re- oriented distribution and service delivery and oversaw the integration of PostBank into ANZ. Prior to that Peter Hawkins was General Manager Asia Pacific. Retail Marketing Retail Operations Network Development Cards and Electronic Delivery Australian Private Banking Retail Transformation Program Town & Country 17 Chief Financial Officer & Company Secretary David Craig Group General Manager Credit/ Risk Management Peter Marriott Group General Manager Human Resources Peter Wilson Group General Manager Corporate Development Dave Richardson Dave Richardson joined ANZ as General Manager Information Technology in March 1993. He was appointed to his current role as Group General Manager Corporate Development in January 1996. This position is responsible for Strategic Planning, Economics, Public Affairs and Technology. Dave Richardson has over 20 years experience in Information Technology and has held a variety of senior positions in Coles Myer, Ansett Australia and overseas. Strategic Planning IT Development IT Planning & Architecture Economics Public Affairs David Craig joined ANZ in January 1955 at Temuka, New Zealand. He has held senior positions in a number of divisions within the Bank in Australia and overseas including Executive Director ANZ Grindlays, Managing Director Esanda and Chief General Manager Business Banking. He was appointed to his present position in June 1992. Accounting Audit Expenditure Review Group General Counsel / Legal Investor Relations Peter Marriott joined ANZ in February 1993 as General Manager Accounting. He was previously a partner of KPMG Peat Marwick located in the Melbourne office and has been involved in the finance industry for more than 16 years. He was appointed to his current position in July 1995 and is responsible for the institutionalisation and operation of credit and other risk management systems and processes. Australian Credit Operations New Zealand Credit Operations International Credit Operations Operating Risk Credit Policy Regulatory Affairs Secretariat Taxation Credit / Portfolio Management Credit Inspection Group Credit Management Market Risk Oversight Peter Wilson joined ANZ in October 1990 as Group General Manager, Strategic Planning and Economics. From 1992- 95, he was General Manager, Asia Pacific at ANZ, and responsible for the bank’s operations in North Asia, South East Asia, Sri Lanka, Papua New Guinea and the Pacific Islands. Peter Wilson joined ANZ after a 20 year career with the Commonwealth and Victorian Treasuries, and also as a commissioner with the State Electricity Commission of Victoria. He took up his current role as Group General Manager, Human Resources in January 1996. Management Services Group Executive Development Human Resources Policy Operations & Administration S U P P O R T B O A R D O F D I R E C T O R S MR C B GOODE (left) B Com (Hons) (Melb), MBA (Columbia University, New York), FCPA, FSIA Chairman Company Director Director since July 1991, appointed Chairman August 1995. Director of CSR Limited, Pacific Dunlop Ltd, Queensland Investment Corporation, Woodside Petroleum Ltd, Mercury Asset Management Ltd and other companies. Former Chairman and Chief Executive of Potter Partners Group Ltd. Lives in Melbourne. Age 58. MR D P MERCER BSc (Hons), MA (Econ) Chief Executive Officer Executive Director since April 1992, appointed Group Managing Director in June 1992 and to his present position in October 1992. A senior executive of the Group since 1984 including Chief General Manager, Australian Retail Services (1988 – 1992). Director and President of Australian Coalition of Services Industries Inc. Director and Victorian President of the Australian Institute of Company Directors 1994– 1996. Former executive of Shell International Petroleum Co. Ltd. (1965 – 1984). Lives in Melbourne. Age 55. 18 (standing left to right) MR J F RIES B Bus, FCPA, FAIB Executive Director Executive Director since August 1992 and appointed to his present position in October 1992. Thirty-six years experience in banking with the Group including Managing Director, ANZ Grindlays Bank plc, London (1988 – 1990) and Chief General Manager, International Banking (1990 – 1992). Lives in Melbourne. Age 52. MR J K ELLIS MA (Oxon) FAIMM FTS Deputy Chairman, The Broken Hill Proprietary Co Ltd. Director since October 1995. Chairman of Sandvik Australia Pty Ltd. President of the Minerals Council of Australia and Executive Committee Member of the International Copper Association Ltd. Board Member of the Museum of Contemporary Art. Lives in Melbourne. Age 59. DR B W SCOTT AO (seated) B Ec, MBA, DBA Company Director Director since August 1985. Chairman of Management Frontiers Pty Ltd, W.D. Scott International Development Consultants Pty Ltd, Television Makers Pty Ltd and the Foundation for Development Co-operation. Director of Air Liquide Australia Ltd and the James N. Kirby Foundation Australian member of the Board of Governors of the Asian Institute of Management and Chairman of the Australia- Korea Foundation. Former Chairman of the Australian Government’s Trade Development Council (1984–1990). Lives in Sydney. Age 61. SIR RONALD TROTTER B Com (Wellington), Hon LLD (Wellington), FCA, Cert in Agriculture Company Director Director since December 1988. Chairman of Toyota New Zealand Ltd and Wrightson Limited. Director of Air New Zealand Ltd, and Wrightson Farmers Finance Limited. Formerly Chairman and Chief Executive of Fletcher Challenge Limited, Director of the Reserve Bank of New Zealand, Chairman of New Zealand Business Roundtable and a member of a number of government, economic, advisory and rural industry bodies. Lives in Wellington, New Zealand. Age 69. Australia and New Zealand Banking Group Limited – 1996 Annual Report (left to right) MR J C DAHLSEN LLB, MBA (Melb) Solicitor and Company Director Director since May 1985. Consultant to and former Partner of the legal firm Corrs Chambers Westgarth. Director of Woolworths Ltd, Southern Cross Broadcasting (Australia) Ltd, Mining Project Investors Pty Ltd, Melbourne Business School Ltd, The Smith Family, and J. C. Dahlsen Pty Ltd Group. Former Chairman of The Herald and Weekly Times Ltd and Deputy Chairman Myer Emporium Ltd. Lives in Melbourne. Age 61. MR R B VAUGHAN AO Company Director Director since January 1988. Chairman of MIM Holdings Ltd. Deputy Chairman of National Commercial Union Assurance Limited and Transgrid. Chairman of the Federal Government’s Trade Policy Advisory Council, APEC Committee and Sugar Industry Review Working Party, and Vice-President of the Australia Japan Business Co-operation Committee. President and Chairman of the Research Institute for Asia and the Pacific. Former Chairman and Chief Executive of Dalgety Farmers Ltd and former Chairman of ICI Australia Ltd. Lives in Sydney. Age 68. MS M A JACKSON MBA, B Econ, FCA Company Director Director since March 1994. Chairman of Transport Accident Commission (Victoria). Director of The Broken Hill Proprietary Co Ltd, Pacific Dunlop Ltd, Qantas Airways Ltd and other companies. Fund Committee Member of The Walter and Eliza Hall Institute of Medical Research. Lives in Melbourne. Age 43. 19 (left to right) DR R S DEANE PhD, B Com (Hons), FCA, FCIS, FNZIM Chief Executive and Managing Director, Telecom New Zealand Limited. Director since September 1994. Director of Fletcher Challenge Limited, The Centre for Independent Studies Ltd and Institute of Policy Studies, Victoria University, Wellington. Formerly Chief Executive, Electricity Corporation of New Zealand Ltd, Chairman State Services Commission, Alternate Executive Director, International Monetary Fund and Deputy Governor, Reserve Bank of New Zealand. Lives in Wellington, New Zealand. Age 55. MR C J HARPER CA (Scots) Company Director Director since October 1976. Director of CSL Ltd and North Ltd. Former General Manager and Chief Executive of the merchant bank Australian United Corporation Ltd (1968 –1976) and since then a professional non-executive director. Inaugural National Vice President of The Australian Institute of Company Directors. Lives in Melbourne. Age 65. MR A T L MAITLAND B Com, AAIB, FAIM Executive Director Executive Director since April 1992 and appointed to his present position in November 1992. Thirty-three years experience in banking with the Group including Group Chief Economist (1979 – 1982) and Managing Director, ANZ Banking Group (New Zealand) Ltd (1990 –1992). Chairman of the Australia India Business Council, Director of the Committee for Economic Development of Australia, and member of the Australian Government’s Trade Policy Advisory Council and APEC Committee. Lives in Melbourne. Age 55. C O R P O R A T E G O V E R N A N C E The Board of Directors is responsible for the overall corporate governance of ANZ, ensuring the Group is run in a proper manner. Policies and procedures are required to balance the objectives of shareholders, employees, and customers while meeting the requirements of the regulators and the communities in which the Group operates around the world. The Role of the Board of Directors The Board of Directors is responsible to shareholders for the overall corporate governance of ANZ. This involves charting the direction of the Group by participating in the setting of objectives and strategy formulation and establishing policy guidelines. The Board is then responsible for monitoring management’s running of the business to ensure implementation is in accordance with the agreed framework. To achieve these objectives a well structured Board is necessary. Details of directors, their qualifications and experience are set out on pages 18 and 19. To ensure the benefit of independent views the Articles of Association of the Company state that there must be a majority of non- executive directors on the Board. ANZ’s Board currently has nine non- executive directors and three executive directors, including the Chief Executive Officer. The Articles also provide that the role of Chairman cannot be held by an executive director ensuring that the roles of Chairman and Chief Executive Officer are separate. Non-executive directors appointed since 1993 have agreed that they will not seek re- election after 15 years service. Procedural Guidelines The Board has established guidelines setting out proper procedures for matters such as conduct of Board meetings, conflicts of interest, trading in the Bank’s shares and obtaining independent professional advice. Directors are required to hold at least 2,000 shares in the Company. They must refrain from dealing in the Company’s shares for their personal benefit except in three four week periods; following the announcement of half year and full year results, and the Annual General Meeting, and in each case the Chairman of the Board must be informed prior to any trading. The same restrictions are also imposed upon senior management and those staff in departments with access to market sensitive information, with the notification being required to the Chief Executive Officer. Attendance of Board and Committee meetings for the period 1/10/95 – 30/9/96. 20 Board A 10 10 10 10 10 10 10 10 10 10 10 10 B 10 10 10 10 10 10 10 10 10 10 9 10 Audit & Compliance B A Risk Management B A 13 13 13 13 13 1 4 13 5 13 10 12 8 1 4 13 7 7 1 5 7 7 7 4 7 1 5 7 6 6 Personnel A 3 3 3 3 B 3 3 3 3 C B Goode J C Dahlsen R S Deane* J K Ellis C J Harper M A Jackson A T L Maitland D P Mercer J F Ries B W Scott Sir Ronald Trotter* R B Vaughan Board Executive App. & Remuneration Nominations B A A B 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 2 1 3 1 3 3 3 1 1 1 1 1 1 1 1 Donations Superannuation A 2 B 2 A B 2 2 8 8 7 8 Column A–Indicates number of meetings held during the period the Director was a Member of the Board and/or Committee. Column B–Indicates number of meetings attended during the period the Director was a Member of the Board and/or Committee. The Chairman is an ex officio member of all Board committees. *Resident of New Zealand Australia and New Zealand Banking Group Limited – 1996 Annual Report To assist in the exercise of their responsibilities, Directors are entitled to seek independent professional advice. With the Chairman’s prior approval the advice can be obtained at the Company’s expense and is to be made available to the whole Board. Committee Structure The Board’s function is to address issues in their broadest context. It is through the Board’s committee structure that specific areas of detail are examined. There are seven board committees, each with a defined Charter. These committees are charged with providing quality and independent advice to the Board as a whole. Directors have also participated in meetings of Committees of the Board (16 meetings during 1996) to declare dividends, to make allotments under the Company’s various dividend reinvestment and employee share schemes and to sign the accounts. There is also an Executive Committee of the Board which has general executive authority to deal with all matters relating to the Company’s affairs when normal Board timetables are not convenient. This committee was not required to meet during 1996. Directors also create opportunities to meet and discuss current issues with management and staff and participate in visits to ANZ operations. The Board held its March meeting in New Zealand which allowed Directors to visit local banking operations, meet staff and customers, and representatives of the New Zealand Government. Subsidiary Boards – Non-executive Directors ANZ has a number of subsidiary companies some of which have non-executive directors. The major subsidiaries in this regard are: ANZ Grindlays Bank Limited Non-executive directors - M A Jackson, B W Scott ANZ Banking Group (New Zealand) Limited Non-executive directors - J G Todd, F H Wilde Companies within ANZ Funds Management Group Non-executive directors - D P McDonald, C M Williams, L J Willet AO. The Group also has independent directors for its joint ventures overseas as well as advisory boards in several countries to provide external advice on local conditions, policies and practices. The Audit & Compliance Committee (Chairman – J C Dahlsen) Reviews the Group’s accounting policies and practices; financial statements; due diligence processes in relation to capital raisings; and compliance with the Group’s statutory responsibilities including those relating to Consumer Credit Legislation, Trade Practices Act and privacy issues. Monitors compliance with approved policies and controls; liaises with internal and external auditors. Approves audit plans and the audit fee of the external auditor. The Risk Management Committee (Chairman – C J Harper) Supervises all aspects of risk management. This includes approving and overseeing the setting of delegation policies, standards and reporting mechanisms for credit risk, trading risk, balance sheet risk and operating risk. Monitors the risks being assumed by the Group to ensure standards are being met. A full description of the Group’s Risk Management procedures is contained on pages 22 to 23 of this report. Personnel Committee (Chairman – Dr B W Scott) Reviews and advises on executive remuneration policies. Has been charged with the responsibility of developing the new senior executive remuneration scheme, which more closely aligns management remuneration to the generation of shareholder value. The Executive Appointment & Remuneration Committee (Chairman – C B Goode) Approves appointments and individual remuneration packages for the senior officers of the Group. The Committee obtains independent advice on the appropriateness of remuneration packages. The Board Nominations Committee (Chairman – C B Goode) Reviews the composition of the Board to ensure that it has the appropriate mix of expertise and experience. Recommends appointments to the Board where it is considered that the Board would benefit from the service of a new director with particular skills. The Donations Committee (Chairman – C B Goode) Advises on donations policy and considers requests for corporate contributions. The Superannuation Committee (Chairman – R B Vaughan) Advises on staff superannuation issues. Members of the committee also sit on the Board of the main Australian Staff Superannuation and Pension companies. 21 R I S K M A N A G E M E N T Effective risk management is central to good banking. At ANZ we are continuing to strengthen our systems and procedures to ensure risks are accurately identified and assessed, and to make risk management a core competence of the organisation. ANZ manages risk through an approval and delegation of limits structure that starts with the Board of Directors. The Risk Management Committee of the Board approves and oversees the framework of risk standards, policies and processes for credit, market and operating risks. Delegations pass through Executive Committees to individual customer controllers and risk managers. Regular reports and compliance checks are presented back through the Risk Management Committee to the Board. The Credit/Risk Management Department has overall responsibility for ensuring the cohesion and effectiveness of the Group’s risk management framework and oversees the activities of all areas involving risk policy and monitoring. There are also separate processes of independent review and audit by both the internal and external auditors to ensure compliance with policies, procedures and industry/government regulations. In banking, there are three major areas of risk; credit risk, market risk and operating risk. Credit Risk Management Credit risk is the potential financial loss resulting from the failure of customers to honour fully the terms of a loan or contract. Credit risk represents just over 50% of the Group’s total risk exposure. ANZ’s credit approvals policy and structure underpins the soundness of lending decisions. The Board establishes the framework of delegated authority limits for the approval of credit risk transactions. The largest transactions are approved by the Risk Management Committee. This Committee also reviews all asset quality issues, including portfolio composition, large customer exposures, and developments in credit management policy and processes. The Credit Portfolio and Policy Committee, involving senior executives, formulates and administers the credit portfolio strategy, policy and processes. Specialist credit and business areas have been established for the larger portfolios (eg real estate), whilst a specialist group will continue for the effective management of problem loans. At an operational level, in all major lending decisions, dual approval is required by independent specialist credit officers alongside customer relationship managers. A sophisticated customer credit risk grading system, supported by objective risk measurement tools, aids in the assessment of the risk of default at transactional levels. This assists in the management of individual loans and provides information for portfolio management purposes. Market Risk Management The Group’s exposure to fluctuations in market prices is the second largest risk exposure faced by the Group. There are two key areas, balance sheet risk and trading risk. Each unit operates with a set limit of financial exposure and such exposures are independently monitored daily and regularly reported to the Global Funds Management Committee and the Risk Management Committee. Balance Sheet Risk Management Balance sheet risk is the potential risk to earnings and capital resulting from changes in interest rates, liquidity conditions, and the impact of exchange rate fluctuations on the Group’s capital position. Balance sheet interest rate risks are monitored through the Global Funds Management Committee within limits set by the Risk Management Committee. The objective is to minimise the fluctuations in net interest income that may occur over time as a result of changes in market interest rates. Gap and simulation modelling techniques are used to manage this risk. Liquidity management policies seek to ensure funds are available at all times (including possible “unfounded name crisis” conditions) to meet maturing obligations as they fall due. Foreign exchange exposures are managed with the objective of ensuring that ANZ’s capital ratio is not adversely impacted by movements in exchange rates. 22 Australia and New Zealand Banking Group Limited – 1996 Annual Report Sources of Risk Operating & Other Risk Credit Risk Customers unable to meet contractual obligations Market Risk Potential loss due to fluctuations in interest or exchange rate markets Illustrative Trading Risk Management Operating Risk Management 23 ANZ’s operations around the world are open to other forms of business risk that need to be effectively managed. Examples include the impact of natural disasters, errors in processing and settlement of transactions, safeguarding of assets, adherence to laws and regulations, system failure, fraud and forgery. The assessment and management of these risks is undertaken under the auspices of the Operating Risk Executive Committee. This Committee assesses, approves and reviews policies, guidelines and actions in respect of all operating risks of ANZ world-wide, including those related to business operations, systems, procedures, security, ethics, products or services. Business units are charged with the ongoing responsibility of identifying and assessing key operating risks facing their individual units. They must develop, test and maintain plans which will ensure that they are capable of prompt resumption of their businesses should a major disruption occur. ANZ has decided to follow, wherever practicable, the risk management standards established jointly by Australia and New Zealand Standards bodies. Trading risk involves the exposure to change in foreign exchange rates, interest rates and equity/ security prices in our operations and financial markets. The taking of proprietary trading positions by business units is limited and highly controlled (the primary objective of the Group’s activity in foreign exchange, debt and derivative markets is to serve customer needs). With the establishment of ANZ Investment Bank which groups the majority of the Group’s trading activities in one unit, the Group’s financial market activity is more globally co-ordinated and centrally managed. Trading activities are governed by a set of standards, policies and controls, involving clear separation of trading and processing functions. ANZ uses the industry best practice methodology of managing trading risks through setting limits for “value at risk” (the potential loss of revenue which a particular risk position may incur, based on historical fluctuations in market prices). The Market Risk Management unit within Group Credit/Risk Management provides the independent monitoring of the exact nature and size of the risks involved in trading activities and the balance sheet. It also co-ordinates the Professional Standards Review in which specialists conduct reviews of ANZ’s major trading activities and geographically isolated operations to ensure high standards of professional conduct throughout all offices of the Group worldwide. T H E F I N A N C I A L S Y S T E M I N Q U I R Y In May 1996 the Federal Treasurer announced an inquiry into the financial system, chaired by Mr Stan Wallis. The committee of inquiry was asked to: Provide a stocktake on financial deregulation; Identify the factors that will drive future change in the financial services industry; and Make recommendations on changes to regulatory arrangements to ensure the financial services industry is efficient and competitive, as well as stable, fair and prudently managed. A discussion paper was issued in late November, with the final report to be submitted to the Treasurer by 31 March 1997. ANZ supported the need for a thorough review of the financial system. Since the financial market deregulation of the 1980s, the financial services industry has changed dramatically. Products and services traditionally offered by banks are now available from a much wider range of suppliers including insurance companies and niche financial services providers which operate under very different regulatory frameworks. With more change ahead, ANZ believed it was timely to assess the appropriateness of the current regulatory framework. In its submission to the Inquiry, ANZ recommended changes to regulatory arrangements to improve efficiency and responsiveness to customer demands while safeguarding the stability and integrity that are features of Australia’s financial system. The Canberra Times Thursday 18 January, 1996 24 The Australian Monday 13 May, 1996 The Weekend Australian Saturday 25 May, 1996 The key recommendations in ANZ’s submission were: The roles of existing regulators be modified to reduce overlap and provide more effective supervision of financial conglomerates. The Reserve Bank of Australia to take responsibility for the prudential oversight of building societies and credit unions as well as banks. A ‘lead regulator’ approach to the prudential supervision of financial conglomerates be adopted. Removal of the so-called “Six Pillars” policy which precludes merger between the largest market participants, leaving competition policy to be applied to banking in the same way as it is to other industries, ie by the Australian Competition and Consumer Commission. Debits Tax and Financial Institutions Duty, both charged to bank customers, be abolished. The depositor protection provisions of the Banking Act be retained. To safeguard the stability and integrity of the financial system, direct access to the payments system be limited to institutions supervised by the Reserve Bank of Australia. Responsibility for consumer protection, currently fragmented across a range of regulators, be vested with one national regulator. In recognition of the international nature of the financial services industry, Australia to continue to adhere to the Basle Capital Accord (or any globally recognised framework that succeeds it). Acceptance of these recommendations would allow market participants reasonable scope to determine their preferred size and structure while ensuring consumer interests are protected through healthy and effective competition. C O M M U N I T Y & E N V I R O N M E N T Each year, ANZ supports a wide range of organisations and activities. These include charitable contributions to medical research, community welfare, education and heritage projects. ANZ also contributes to some of Australia’s leading arts companies such as the Australian Opera and provides support for a series of free outdoor concerts. At the local level, ANZ plays an active role supporting sports activities, ethnic festivals and initiatives in rural areas. Some of these include: Wagga Wagga Tennis Association Western Australian Farmers Federation Chinatown Carnivale – Sydney Brisbane Broncos Tasmanian Agricultural Festival During 1996, ANZ has also encouraged community involvement by staff through a commitment to the ANZ Foundation, a charitable trust funded by staff donations. Zoological Parks Board of NSW – Australia During 1996, ANZ developed a relationship with the Zoological Parks Board of New South Wales to support the construction of a lecture theatre complex at the world famous Taronga Zoo in Sydney. The lecture theatre will be a centre of excellence in environmental education, reflecting the Zoological Parks Board’s increasing role in conservation research initiatives, international liaison and its positioning as the leading wildlife conservation centre in Australasia. aNZkids program involved ANZ employees who assisted with 25 fundraising. aNZkids – New Zealand ANZ’s major community initiative in New Zealand, called aNZkids, is a program designed to benefit a wide range of children. The aNZkids program involved ANZ employees who assisted with fund-raising, giving their time to support projects and work alongside a number of health organisations throughout the country to raise public funds. The public donations received were matched dollar for dollar, up to a pre-agreed amount, by ANZ. Model of the new lecture theatre at Taronga Zoo in Sydney to be used for environmental education. C O M M U N I T Y & E N V I R O N M E N T A five day Leadership and Management training program was provided to staff from Vietnamese banks. ANZ and the Environment ANZ believes that being a good corporate citizen requires recognition of environmental concerns. Two key programs have been launched internally over recent years. An Energy Awareness Program aims to assist staff in the efficient use of energy at their work place without affecting existing working conditions and customer service levels. The other program is the Visy Recycling and Waste Management project which began in 1995 and is a comprehensive paper recycling program. The program benefits include reductions in ANZ’s waste management costs in Australia by more than 50%, saving about $500,000 annually, while maintaining stringent security controls over the disposal of confidential information. 26 At a local level, each ANZ and PostBank branch and banking centre had funds available to support local kindergartens and playcentres. Language Nests, similar to kindergartens but with teaching in Maori, Samoan, Tongan or Fijian, and Plunket early childhood health centres, were also supported. Organisations were chosen for their high degree of parental involvement and their outreach into every community in New Zealand. Banking Education ANZ, through its presence in developing countries, assists in building the local financial infrastructure through training initiatives in banking. A five day Leadership and Management training program was provided to staff from Vietnamese banks which deal with agriculture, industry development and retailing. Similar programs have also been conducted in China. The mix of staff from ANZ and other financial institutions gives participants the chance to share ideas and build networks which are helpful in the day to day operations of the financial system. Over 400 staff from other banks have now been trained in the programs. The Visy Recycling and Waste Management project is a comprehensive paper recycling program. S E V E N Y E A R S U M M A R Y Profit and loss Interest income Interest expense Net interest income Other operating income Net operating income Operating expenses Operating profit before tax, debt provisions and abnormal items Provisions for doubtful debts - specific - general Operating profit(loss) before abnormal items Income tax (expense)benefit Outside equity interests Operating profit(loss) before abnormal items Net abnormal profit(loss) Operating profit(loss) after income tax and outside equity interests Balance sheet1 Assets Liabilities Net assets Issued and paid-up capital Reserves and retained earnings Outside equity interests Share information (per fully paid share) Dividend - declared rate Franked portion Earnings after abnormal items - basic Net tangible assets Rights issue Share price on ordinary shares - high - low Number of shares on issue (millions) Ordinary shares - fully paid - paid to 10¢ - preference shares Dividend reinvestment plan Share price - interim - final Ratios (after abnormal items) Dividend payout ratio (ordinary & preference) Return on average shareholders’ equity Return on average assets Capital adequacy - total Other information Points of representation Number of employees (full-time equivalents) Number of shareholders 1996 $M 1995 $M 1994 $M 1993 $M 1992 $M 1991 $M 1990 $M 9,286 (5,969) 8,310 (5,229) 6,485 (3,685) 6,887 (4,344) 8,083 (5,645) 10,180 (7,578) 10,188 (7,713) 3,317 2,096 3,081 1,975 2,800 1,969 2,543 1,875 2,438 2,109 2,602 2,067 2,475 1,765 5,413 (3,644) 5,056 (3,334) 4,769 (3,183) 4,418 (3,124) 4,547 (3,329) 4,669 (3,153) 4,240 (2,848) 1,769 (117) (37) 1,615 (490) (9) 1,116 - 1,722 (63) (111) 1,548 (505) (10) 1,033 19 1,586 (368) (13) 1205 (395) (7) 803 17 1,294 (629) (5) 1,218 (1,600) (337) 1,516 (1,037) (16) 660 (193) (7) 460 (213) (719) 146 (5) (578) (1) 463 (193) (4) 266 1 1,392 (788) (5) 599 (186) (1) 412 (191) 1,116 1,052 822 247 (579) 267 221 127,604 112,587 103,874 103,045 101,138 121,268 106,840 96,547 98,370 5,747 97,912 5,133 6,336 4,591 5,504 1,478 4,812 46 42.0¢ 79% 76.3¢ $4.24 - $7.28 $5.41 1,446 4,254 47 33.0¢ 18% 69.9¢ $3.94 - $5.75 $3.55 1,360 4,096 48 25.0¢ - 55.9¢ $3.58 - $5.68 $3.78 1,315 3,774 44 20.0¢ - 13.5¢ $3.43 - $4.40 $2.53 1,165 3,377 49 20.0¢ 50% -60.2¢ $3.40 1 for 5 $4.88 $2.87 1,478.1 1,446.0 0.9 - 0.7 - 1,353.6 1,308.2 1,054.5 3.6 6.0 3.1 6.0 2.1 6.0 27 98,212 93,194 99,300 94,977 5,018 1,026 3,958 34 20.0¢ 100% 26.9¢ $4.31 - $4.20 $2.92 1,019.3 4.0 6.0 4,323 972 3,340 11 38.0¢ 100% 24.2¢ $4.45 - $6.38 $3.95 971.1 4.5 - $5.59 - $4.40 $6.27 $3.78 $3.73 $3.42 $4.44 $3.58 $2.51 $3.42 $4.46 $4.35 $2.72 55.5% 52.1% 18.3% 17.9% 0.9% 0.9% 10.5% 10.9% 50.5% 133.3% 15.6% 0.8% 11.3% n/a 5.0% -11.4% -0.6% 0.2% 9.0% 10.8% 75.6% 160.0% 5.4% 5.8% 0.2% 0.3% 8.6% 9.9% 1,744 2,367 39,721 46,261 121,847 114,829 121,070 115,000 112,036 101,188 2,302 43,977 2,136 40,277 2,026 39,642 1,881 39,240 2,431 48,182 92,606 1 Assets and liablities have been increased by $2,685 million at 30 September 1994 and by $3,112 million at 30 September 1993, due to the change in practice, effective 1 October 1994, whereby unrealised losses arising from marking to market trading derivative contracts are not offset against unrealised gains unless a legal right of set-off exists. Comparative information prior to 30 September 1993 is unavailable R E V I E W O F 1 9 9 6 R E S U L T S $M 1200 1000 800 600 400 200 0 -200 -400 -600 % 20 15 10 5 0 -5 -10 -15 28 Operating Profit* 1116 91 92 *before abnormal items 93 94 95 96 Return on Average Shareholders’Equity* Overview Australia and New Zealand Banking Group Limited achieved an 8% increase in operating profit after tax to $1,116 million for the year ended 30 September 1996. There were no abnormal items. The return on shareholders’ equity increased to 18.3% from 17.6%. Earnings per share were 11% higher at 76.3 cents and total dividends per share for the year were 42 cents, up from 33 cents in 1995, an increase of 9 cents. The 1996 result was built around continued growth of the group’s business, particularly the international operations. Total income was 7% higher than in 1995, while costs increased by 9% largely reflecting higher personnel costs. A lower charge for doubtful debts, together with a lower effective tax rate also contributed to the higher result. The international operations contributed strongly with a 17% increase in profit. There was strong lending growth, particularly in Asia, and a good contribution from the investment banking activities based in London. In Australia ANZ achieved solid asset growth, generating increased interest income notwithstanding a contraction in interest margins in the second half. Costs were higher, mainly personnel expenses. The total charge for doubtful debts was lower, as was the effective tax rate. In New Zealand underlying earnings were stable. The benefits of 18.3 good asset growth were offset by a decline in interest margins. At year end, the Group had total assets of $128 billion, shareholders’ equity of $6.3 billion, and a Tier 1 capital ratio of 6.7%. 91 92 *before abnormal items 93 94 95 96 Group Profit New Zealand 12% International 29% Australia 59% $M 1300 1200 1000 800 600 400 200 0 Improvement in Profitability 122 -310 293 Non-(cid:13) Interest(cid:13) Income 15 20 Costs Provisioning Tax 1116 1033 -78 21 Competitive(cid:13) Pressure Lower(cid:13) Non-(cid:13) Accruals Balance (cid:13) Sheet(cid:13) Growth Interest Income 1995 Profit 1996 Profit Australia and New Zealand Banking Group Limited – 1996 Annual Report Income The Group’s principal source of revenue is net interest income which arises from the difference between interest revenue and interest expense. Net interest income grew by 8%. Good lending growth was achieved in all markets; 10% in Australia, 13% in New Zealand and 18% in International. Strong growth in retail liabilities was also achieved in Australia and New Zealand. However, there was an 8 basis point decline in the Group’s net interest margin over the year. Lower margins in New Zealand were the principal cause, although intensifying competitive pressures in Australia, particularly in the home mortgage market, reduced margins in the second half. In International, margins were stable. Other operating income for the Group came from lending fees, other banking fees, foreign exchange earnings, the net profit or loss on securities and other income which included rental and leasing income. Fee income grew 5%, principally in international markets which benefited from a strong performance by the investment banking operations in London. Other positive factors were growth in Australian corporate lending fees in the first half and the expansion of the cards business. Competitive pressure continued to adversely affect retail lending fees in Australia, notwithstanding the increase in loan volumes. Growth in the operating lease business in New Zealand and increased trading profits from London lifted other income. The Group continues to make good returns on its foreign exchange activities. Operating Expenses Higher personnel expenses were the main factor in the 9% increase in operating costs. In Australia, the higher costs reflected additional staff being employed in the implementation phase of the major change programs, salary increases from the enterprise bargaining agreement, the effect of the move to total employment cost packaging for managerial staff and profit participation for staff. Restructuring expenses occurred throughout the Group. Premises costs were down, principally in Australia. The increase in computer expenses reflected costs associated with the Australian change program and systems development for the International network and Treasury. Within “Other Expenses”, revenue related expenses (credit card interchange costs, operating lease depreciation and brokerage) were 11% higher, reflecting significant expansion in business volumes, while non- lending losses were 30% lower. $M 6000 5000 4000 3000 2000 1000 0 Operating Income 2096 3317 91 92 93 94 95 96 Net Int. Income Non-Int. Income Operating Expenses Premises 10.5% Computer 9% 29 Other 29.4% Personnel 51.1% Operating Expenses as % of Net Income 67.3 91 92 93 94 95 96 % 80 75 70 65 60 55 50 R E V I E W O F 1 9 9 6 R E S U L T S Asset Quality Asset quality continued to improve. Gross non-accrual loans fell by $549 million to $1,225 million as the ongoing asset realisation program more than offset new non-accrual loans. Net non-accrual loans fell to $724 million and represent 11.4% of shareholders’ equity as at September 1996, down from 18.8% in 1995. The coverage ratio (specific provisions to gross non-accrual loans) has increased slightly to above 40%. The total charge to profit for doubtful debts was reduced by 11% to $154 million. While the level of new and increased provisions was stable, releases and recoveries were lower leading to a higher specific provision charge of $117 million compared to $63 million in 1995. The $37 million general provision charge reflected the growth in risk weighted assets during the year. (The 1995 general provision charge included an additional $80 million to bolster the general provision). The general provision remains at 0.8% of risk weighted assets – well in excess of the industry benchmark of 0.5%. Income Tax The effective tax rate in 1996 was 30.3%, a slight reduction on 32.6% in 1995 (notwithstanding the increase in the Australian corporate tax rate). Increased levels of tax preferred income in Australia and the favourable resolution of issues under dispute with tax authorities led to the lower effective tax rate. Dividends The strong growth in earnings per share to 76.3 cents led Directors to increase total dividends to 42 cents from 33 cents in 1995. Just over 55% of Group earnings was distributed to shareholders as dividends. The interim dividend of 18 cents was 50% franked, and the final dividend of 24 cents was fully franked at 36% tax rate. The Group expects to be able to sustain full franking at least for the 1997 financial year. However, there may be some limit on franking capacity thereafter, if the proportion of Group profits earned offshore continues to increase. 30 % 80 70 60 50 40 30 20 10 0 $M 2000 1800 1600 1400 1200 1000 800 600 400 200 0 ¢ 90 60 30 0 -30 -60 Net Non-Accrual Loans to Shareholders’ Equity 11.4 91 92 93 94 95 96 Provisions for Doubtful Debts 154 91 92 93 94 95 96 Earnings* and Dividends# Per Share 76.3 42 91 92 93 94 95 96 Earnings* # Dividends *before abnormal items(cid:13) #excludes preference shares Australia and New Zealand Banking Group Limited – 1996 Annual Report Balance Sheet Total Group assets grew by 13% to $128 billion. Strong lending growth was achieved across the Group. The strongest lending growth was achieved in International (18%), particularly in Asia. In Australia, the 10% lending growth was principally in corporate and home mortgage lending. In New Zealand, business and home mortgage lending both contributed to the 13% growth in lending assets. Wholesale liquid assets also grew strongly, particularly in London. Good growth in retail deposits was achieved in Australia and New Zealand, reducing the reliance on wholesale funding and contributing to the maintenance of interest margins. Capital Resources ANZ continues to be a very soundly capitalised bank with an overall capital adequacy ratio of 10.5%. This is in line with ANZ’s domestic and international peers. Under the Reserve Bank of Australia (RBA) guidelines, ANZ must maintain a ratio of qualifying capital to risk weighted assets of at least 8%. The Group’s Tier 1 (paid up capital, share reserves and retained profits) ratio stood at 6.7%, up from 6.6% at September 1995. The Group seeks to maintain the Tier 1 ratio in the range of 6.5% to 7.0%. Tier 2 capital (principally subordinated debt and general provision for doubtful debts) increased by 5%. The issue of USD 500 million subordinated debt more than offset the repayment of NZD 125 million subordinated debt in December, the amortisation of existing Tier 2 debt, and the impact of the stronger Australian dollar. Due to a change in RBA prudential requirements, the Group’s investments in funds management subsidiaries are now deducted from the aggregate of Tier 1 and Tier 2 capital. This resulted in a 0.2% fall in the capital adequacy ratio. $B 120 100 80 60 40 20 0 % 12 10 *8 6 *4 2 0 Group Assets 128 94 91 92 93 94 95 96 Total Assets Risk Weighted Assets Group Assets New Zealand 14% 31 International 27% Australia 59% Capital Adequacy 10.5 6.7 91 92 93 94 95 96 Tier 1 *RBA minima F I N A N C I A L H I G H L I G H T S I N K E Y C U R R E N C I E S Millions Profit and loss Net income Operating expenses Profit before tax and doubtful debts Provisions for doubtful debts - specific - general Profit before tax and abnormal items Income tax expense Outside equity interests Profit after tax and abnormal items Profit after tax by geographic segment Australia New Zealand UK & Europe Asia Pacific South Asia2 Americas Middle East3 Profit after tax 32 Balance Sheet Assets Liabilities Shareholders’ equity4 Ratios Earnings per share Dividends per share - declared rate Net tangible assets per share 1996 AUD 5,413 (3,644) 1,769 (117) (37) 1,615 (490) (9) 1,116 657 138 106 99 36 38 42 1,116 1996 USD1 1996 GBP1 1996 NZD1 4,160 (2,800) 1,360 (90) (28) 1,242 (377) (7) 858 506 106 81 76 28 29 32 858 2,686 (1,809) 877 (58) (18) 801 (243) (4) 554 326 68 53 49 18 19 21 554 6,138 (4,132) 2,006 (133) (42) 1,831 (556) (10) 1,265 745 156 120 112 41 43 48 1,265 127,604 121,268 6,336 100,986 95,972 5,014 64,593 61,386 3,207 144,371 137,202 7,169 76.3¢ 42.0¢ $4.24 58.7¢ 32.4¢ $3.36 37.9p 20.9p £2.15 86.5¢ 47.7¢ $4.80 1 USD, GBP and NZD amounts - profit and loss converted at average rates for financial year ended 30 September 1996 and balance sheet items at closing rates at 30 September 1996 2 Includes Bangladesh, India and Nepal 3 Includes Bahrain, Greece, Jordan, Oman, Pakistan, Qatar and United Arab Emirates 4 Includes outside equity interests 1996 Financial Statements 33 Table of Contents Alphabetical index ......................................... 35 35 Contingent liabilities and Page Page Directors’ report ........................................... 36 Profit and loss accounts ................................. 39 Balance sheets .............................................. 40 Statements of changes in shareholders’ equity ...................................... 41 Statements of cash flows ................................ 43 Notes to the financial statements 1 Accounting policies ............................................. 44 2 Income ................................................................ 48 3 Expenses .............................................................. 48 4 Remuneration of auditors .................................... 50 5 Abnormal items ................................................... 50 6 Income tax expense ............................................. 51 7 Dividends ............................................................ 52 8 Earnings per share ................................................ 53 9 Liquid assets ......................................................... 54 10 Due from other banks .......................................... 54 11 Trading securities ................................................. 55 12 Investment securities ............................................ 56 13 Net loans and advances ........................................ 57 14 Impaired assets ..................................................... 58 15 Provisions for doubtful debts ................................ 60 16 Regulatory deposits ............................................. 60 17 Shares in controlled entities and associates ............ 60 18 Other assets .......................................................... 62 19 Premises and equipment ...................................... 63 20 Due to other banks .............................................. 63 21 Deposits and other borrowings ............................. 64 22 Income tax liability .............................................. 65 23 Creditors and other liabilities ............................... 65 24 Provisions ............................................................ 65 25 Bonds and notes ................................................... 66 26 Loan capital ......................................................... 67 27 Outside equity interests ........................................ 68 28 Segment analysis .................................................. 68 29 Notes to the statements of cash flows ................... 70 30 Controlled entities ............................................... 72 31 Associates ............................................................. 77 32 Commitments ...................................................... 78 33 Derivative financial instruments ........................... 78 34 Fair value information .......................................... 84 credit related commitments .................................. 86 36 Superannuation commitments .............................. 89 37 Assets and liabilities of non-banking controlled entities ................................................ 90 38 Financing arrangements ....................................... 90 39 Exchange rates ..................................................... 90 40 Employee share purchase and share option schemes ........................................... 91 41 Related party disclosures ...................................... 93 42 Remuneration of directors ................................... 96 43 Remuneration of executives ................................ 97 44 US GAAP reconciliation...................................... 98 45 Operation of systems in Year 2000 ..................... 101 46 Events since the end of the financial year ........... 101 Directors’ statement .................................... 102 Auditors’ report .......................................... 103 Financial information 1 Capital adequacy ................................................ 104 2 Average balance sheet and related interest .......... 105 3 Interest spreads and net interest average margins . 107 4 Volume and rate analysis .................................... 108 5 Interest sensitivity gap ........................................ 110 6 Investment securities by maturities and yields ..... 111 7 Loans and advances by industry .......................... 112 8 Concentrations of credit risk .............................. 113 9 Maturity distribution and interest rate sensitivity of loans ........................... 114 10 Cross border outstandings .................................. 114 11 Doubtful debts - industry analysis ....................... 115 12 Certificates of deposit and term deposit maturities ............................................... 116 13 Short term borrowings ....................................... 116 Shareholder information 1 Major shareholders ............................................. 117 2 Substantial ordinary shareholders ........................ 117 3 Average size of shareholdings ............................. 117 4 Distribution of shareholdings ............................. 117 5 Voting rights of shareholders .............................. 118 6 Holders of non-marketable parcels ..................... 118 7 Employee shareholder information ..................... 118 8 Directors’ shareholding interests ......................... 118 34 Alphabetical Index Page Page Abnormal items ......................................................... 50 Accounting policies ................................................... 44 Assets and liabilities of non-banking controlled entities ...................................................... 90 Associates .................................................................. 77 Auditors’ report ....................................................... 103 Average balance sheet and related interest ................ 105 Average size of shareholdings ................................... 117 Balance sheets ........................................................... 40 Bonds and notes ........................................................ 66 Capital adequacy ..................................................... 104 Certificates of deposit and term deposit maturities .................................................... 116 Commitments ........................................................... 78 Concentrations of credit risk ................................... 113 Contingent liabilities and credit related commitments ....................................... 86 Controlled entities ..................................................... 72 Creditors and other liabilities ..................................... 65 Cross border outstandings ........................................ 114 Deposits and other borrowings .................................. 64 Derivative financial instruments ................................. 78 Directors’ report ........................................................ 36 Directors’ shareholding interests ............................... 118 Directors’ statement ................................................. 102 Distribution of shareholdings ................................... 117 Dividends .................................................................. 52 Doubtful debts - industry analysis ............................ 115 Due from other banks ............................................... 54 Due to other banks .................................................... 63 Earnings per share ..................................................... 53 Employee share purchase and share option schemes.......................................................... 91 Employee shareholder information .......................... 118 Events since the end of the financial year ................. 101 Exchange rates .......................................................... 90 Expenses ................................................................... 48 Fair value information ............................................... 84 Financial information .............................................. 104 Financing arrangements ............................................. 90 Holders of non-marketable parcels ........................... 118 Impaired assets ........................................................... 58 Income ..................................................................... 48 Income tax expense ................................................... 51 Income tax liability .................................................... 65 Interest sensitivity gap .............................................. 110 Interest spreads and net interest average margins ....................................................... 107 Investment securities ................................................. 56 Investment securities by maturities and yields .......... 111 Liquid assets .............................................................. 54 Loan capital ............................................................... 67 Loans and advances by industry ............................... 112 Major shareholders .................................................. 117 Maturity distribution and interest rate sensitivity of loans ................................. 114 Net loans and advances .............................................. 57 Notes to the financial statements ............................... 44 Notes to the statements of cash flows ......................... 70 Other assets ............................................................... 62 Operation of systems in Year 2000 ........................... 101 Outside equity interests ............................................. 68 Premises and equipment ............................................ 63 Profit and loss accounts .............................................. 39 Provisions .................................................................. 65 Provisions for doubtful debts ..................................... 60 Regulatory deposits ................................................... 60 Related party disclosures ........................................... 93 Remuneration of auditors ......................................... 50 Remuneration of directors ........................................ 96 Remuneration of executives ...................................... 97 Segment analysis ........................................................ 68 Shareholder information .......................................... 117 Shares in controlled entities and associates .................. 60 Short term borrowings ............................................ 116 Statements of cash flows ............................................ 43 Statements of changes in shareholders’ equity ............. 41 Substantial ordinary shareholders ............................. 117 Superannuation commitments ................................... 89 Trading securities ...................................................... 55 US GAAP reconciliation ........................................... 98 Volume and rate analysis .......................................... 108 Voting rights of shareholders .................................... 118 35 Directors’ Report The directors present their report together with the Review of Operations accounts of the parent entity (the Company) and the A review of the operations of the Economic entity consolidated accounts of the Economic entity for the during the financial year and the results of those year ended 30 September 1996. The information is provided in conformity with the Corporations Law. Activities The principal activities of the Economic entity during the year were general banking, mortgage and instalment lending, life insurance, leasing, hire purchase and general finance, international and investment banking, investment and portfolio management and advisory services, nominee and custodian services, stockbroking and executor and trustee services. There has been no significant change in the nature of the principal activities of the Economic entity during the financial year. At 30 September 1996, the Economic entity had 1,744 points of representation. Result Consolidated operating profit after income tax attributable to members of the Company was $1,116 million. Further details are contained in the Chief Executive Officer’s Review and the Review of 1996 Results on pages 6 and 7 and pages 28 to 31 respectively of the 1996 Annual Report. Dividends The directors propose payment of a final dividend of 24 cents per ordinary fully paid share, fully franked at operations are contained in the Chairman’s Report, the Chief Executive Officer’s Review, the Review of 1996 Results and in the financial statements. State of Affairs In the directors’ opinion, there have been no significant changes in the state of affairs of the Economic entity during the financial year, other than: Net loans and advances increased by 11% from $68,216 million to $75,901 million, primarily from non-housing term loan growth of $6,087 million. Deposits and other borrowings increased by 13% from $70,238 million to $79,709 million. The charge for provisions for doubtful debts reduced by 11% to $154 million. New and increased specific provisions were $292 million and releases and recoveries totalled $175 million. The charge for the general provision reduced from $111 million in 1995 to $37 million for 1996. Gross non-accrual loans fell to $1,225 million, or 1.6% of net loans and advances, from $1,774 million at 30 September 1995. ANZ Grindlays Bank plc, a wholly owned subsidiary, changed its place of incorporation from the United Kingdom to Australia on 22 July 1996 and was renamed ANZ Grindlays Bank Limited on that date. ANZ Grindlays Bank Limited has been granted an authority under the Banking Act of Australia and is subject to the supervision of the Reserve Bank of 36%, to be formally declared on 16 December 1996 Australia. and to be paid on 15 January 1997. The proposed During the year the Economic entity’s credit ratings payment amounts to $355 million. Since the end of the previous financial year, the were upgraded to “AA” status by United States rating agencies, Moody’s Investor Services and Standard and following partially franked dividends on fully paid Poors. ordinary shares have been paid: While the above matters are those considered to be significant changes in the state of affairs, reviews of matters affecting the Economic entity’s state of affairs are contained in the Chairman’s Report, the Chief Executive Officer’s Review, the Review of 1996 Results and the financial statements. Type Final Interim Cents per share Amount before bonus option $m Date of payment 18 18 260 264 17 Jan 1996 8 July 1996 The final dividend paid on 17 January 1996 was detailed in the directors’ report dated 1 December 1995. Neither the interim dividend paid on 8 July 1996 nor the current proposed dividend have been mentioned in previous directors’ reports. 36 Directors’ Report Events since the End of the Financial Year The Company is of the kind referred to in class No item, transaction or event of a material and unusual order 94/284 issued by the Australian Securities nature has arisen between 30 September 1996 and the Commission on 8 March 1994 under which the date of this report that has significantly affected or may significantly affect the operations of the Economic entity, the results of those operations or the state of affairs of the Economic entity in subsequent years. Future Developments Details of likely developments in the operations of the Economic entity in subsequent financial years are contained in the Chairman’s Report and the Chief Executive Officer’s Review on pages 4 and 5 and pages 6 and 7 respectively of the 1996 Annual Report. In the opinion of the directors, disclosure of any further information would be likely to result in unreasonable prejudice to the Economic entity. directors are relieved from the need to disclose the names of employees and relevant details in respect of options granted to those employees under the schemes. The directors have availed themselves of the relief granted under this class order. The names of all persons who currently hold options granted under the schemes are entered in the register kept by the Company pursuant to section 216C of the Corporations Law and the register may be inspected free of charge. No person entitled to exercise any option has or had, by virtue of the option, a right to participate in any share issue of any other body corporate. Further details on the ANZ Group Share Option Rounding of Amounts The Company is a company of the kind referred to in the Australian Securities Commission class order Scheme are contained in Note 40 of the financial statements and form part of this report. Directors’ Share and Option Purchase Scheme 94/1253, issued on 17 August 1994 pursuant to section At the date of this report, there are 100,000 313(6) of the Corporations Law. As a result, amounts unexercised options over ordinary shares of $1 each at in this report and the accompanying financial an exercise price of $3.43 per share with an expiry date statements have been rounded to the nearest million of 1 March 1998 or 90 days after cessation of a dollars except where otherwise indicated. director’s term of office, whichever is the earlier. 37 Shareholdings The directors’ interests, beneficial and non-beneficial, in the shares of the Company are detailed on page 118. The directors are not aware of any single beneficial interest of five per cent or more in the share capital of the Company. Share Options ANZ Group Share Option Scheme At the date of this report, there are 7,445,000 outstanding options at an exercise price of $5.34 per share. The options held by current employees cannot be exercised earlier than three years from the date of issue or later than 30 January 1999 and may only be exercised if the basic earnings per share of the Company (before abnormal items) for the relevant one of the financial years ending 30 September 1996, 1997 or 50,000 partly paid shares were issued during the year ended 30 September 1996. In addition 100,000 fully paid shares were issued during the year upon the exercise of options. Details of directors’ shareholdings interests are set out on page 118 of the Shareholder Information section of the 1996 Annual Report. Directors, their Qualifications and Experience The Board includes nine non-executive directors who have a diversity of business and community experience and three directors with executive responsibilities who have extensive banking experience. The names, qualifications and experience of the directors who are in office at the date of this report are contained on pages 18 and 19 of the 1996 Annual Report. Special responsibilities and attendance at meetings, 1998 are at least 50% over the equivalent figure for the are shown on pages 20 and 21 of the 1996 Annual 1993 financial year. 185,000 options were exercised Report. and 185,000 shares issued since the end of the financial year, in accordance with the Rules of the Scheme. Directors’ Report Directors’ Benefits corporate, where the liability arises out of conduct No director has, during or since the end of the financial involving good faith, and for costs and expenses year, received or become entitled to receive a benefit incurred in defending proceedings in which the officer (other than a benefit included in the aggregate amount or auditor is successful. An indemnity for officers or of emoluments received, or due and receivable, by employees, who are not directors, secretaries or directors shown in the Company’s financial statements executive officers, is not expressly restricted by the for the financial year or the fixed salary of a full-time Corporations Law. employee of the Company, or an entity controlled by In addition to its obligations under Article 143, it the Company, or a body corporate that was related to is the policy of the Company to: the Company at a relevant time) because of a contract (a) indemnify, in the same terms as Article 143, that the director, or a firm of which the director is a directors, secretaries and executive officers of member, or an entity in which the director has a substantial financial interest, has made with the Company or an entity that the Company controlled, or a body corporate that was related to the Company, when the contract was made or when the director received, or became entitled to receive the benefit, with the exception of benefits which may arise pursuant to the subscription by a director for shares under the Directors’ Share and Option Purchase Scheme or benefits that may be deemed to have arisen because legal fees have been paid or are payable to Corrs Chambers Westgarth of which J C Dahlsen is a consultant. Further details are set out in note 41 to the financial statements dealing with Related Party Disclosures. related bodies corporate; and (b) indemnify other employees of related bodies corporate for all liability incurred, where they are acting in good faith in furtherance of the objectives of the Company and its related bodies corporate. The directors, the secretaries of the Company, being D T Craig, R T Jones and J E Clark, and executive officers of the Company have the benefit of the indemnity in Article 143. During the financial year, and again since the end of the financial year, the Company has paid a premium for an insurance policy for the benefit of the directors, secretaries as named above and executive officers of the Company, and directors, secretaries and executive Directors’ and Officers’ Indemnity officers of related bodies corporate of the Company. In Article 143 provides that to the extent permitted by the accordance with common commercial practice, the Corporations Law “every director, secretary or insurance policy prohibits disclosure of the nature of employee of the Company shall be entitled to be the liability insured against and the amount of the indemnified by the Company against all costs, charges, premium. losses, expenses and liabilities incurred by him in the Except for the above, during the financial year and execution and discharge of his duties or in relation since the end of it, no person has been indemnified nor thereto”. The Corporations Law prohibits a company has the Company or a related body corporate of the from indemnifying directors, secretaries, executive Company made an agreement for indemnifying any officers and auditors for liabilities except for a liability person who is or has been an officer or auditor of the to a party, other than the Company or a related body Company or of a related body corporate. Signed in accordance with a resolution of the directors. 38 Charles B Goode Chairman 29 November 1996 D P Mercer Chief Executive Officer Australia and New Zealand Banking Group Limited and Controlled Entities Profit and Loss Accounts for the year ended 30 September 1996 Interest income Interest expense Net interest income Other operating income Operating income Operating expenses Operating profit before debt provisions and abnormal items Provisions for doubtful debts Operating profit before abnormal items Abnormal profit Operating profit Income tax (expense)benefit Operating profit Abnormal items Income tax expense Operating profit after income tax Outside equity interests Operating profit after income tax attributable to members of the Company Retained profits at start of year Total available for appropriation Transfers (to)from reserves Dividends provided for or paid Ordinary shares Preference shares Retained profits at end of year Earnings per share(cents) Before abnormal items After abnormal items Consolidated 1995 $M 1996 $M 1994 $M The Company 1995 $M 1996 $M Note 2 3 2 3 3 5 6 5 6 7 8 9,286 (5,969) 8,310 (5,229) 6,485 (3,685) 5,974 (4,037) 5,230 (3,546) 3,317 2,096 3,081 1,975 2,800 1,969 1,937 1,994 1,684 1,447 5,413 (3,644) 5,056 (3,334) 4,769 (3,183) 3,931 (2,574) 3,131 (2,303) 1,769 (154) 1,615 - 1,615 (490) - (490) 1,125 (9) 1,116 1,106 2,222 (55) (584) - 1,722 (174) 1,548 - 1,548 (505) 19 (486) 1,062 (10) 1,052 585 1,637 (27) (424) (80) 1,583 1,106 1,586 (381) 1,205 17 1,222 (395) 2 (393) 829 (7) 822 198 1,020 (42) (313) (80) 585 1,357 (110) 1,247 - 1,247 (224) - (224) 1,023 - 1,023 317 1,340 15 (574) - 781 76.3 76.3 68.5 69.9 54.5 55.9 828 (149) 679 - 679 (271) 22 (249) 430 - 430 337 767 46 (416) (80) 317 The notes appearing on pages 44 to 101 form an integral part of these financial statements 39 Australia and New Zealand Banking Group Limited and Controlled Entities Balance Sheets as at 30 September 1996 Consolidated The Company 1996 $M 1995 $M 1996 $M 1995 $M Note Assets Liquid assets Due from other banks Trading securities Investment securities Net loans and advances Customers’ liabilities for acceptances Due from controlled entities Regulatory deposits Shares in controlled entities and associates Other assets Premises and equipment Total assets Liabilities Due to other banks Deposits and other borrowings Liability for acceptances Due to controlled entities Income tax liability Creditors and other liabilities Provisions Bonds and notes Loan capital Total liabilities 40 Net assets Shareholders’ equity Issued and paid-up capital Reserves Retained profits Share capital and reserves attributable to members of the Company Outside equity interests Total shareholders’ equity and outside equity interests Commitments Derivative financial instruments Contingent liabilities and credit related commitments 6,901 11,352 7,334 2,570 75,901 14,013 - 1,163 10 6,340 2,020 5,054 8,759 5,785 2,833 68,216 12,646 - 1,174 10 6,119 1,991 4,784 8,258 6,157 910 48,086 13,307 6,251 612 4,769 4,196 480 2,472 5,352 4,840 832 41,686 11,766 6,066 553 5,004 3,796 403 127,604 112,587 97,810 82,770 12,682 79,709 14,013 - 575 7,471 954 2,264 3,600 11,161 70,238 12,646 - 652 6,481 862 1,579 3,221 11,363 50,443 13,307 4,310 301 5,551 785 2,264 3,196 121,268 106,840 91,520 6,336 5,747 6,290 1,478 3,229 1,583 6,290 46 1,446 3,148 1,106 5,700 47 1,478 4,031 781 6,290 - 9,499 42,776 11,766 3,068 285 4,731 667 1,579 2,699 77,070 5,700 1,446 3,937 317 5,700 - 6,336 5,747 6,290 5,700 9 10 11 12 13 16 17 18 19 20 21 22 23 24 25 26 27 32 33 35 The notes appearing on pages 44 to 101 form an integral part of these financial statements Australia and New Zealand Banking Group Limited and Controlled Entities Statements of Changes in Shareholders’ Equity for the year ended 30 September 1996 Authorised capital 2,100,000,000 shares of $1 each 1,000,000,000 preference shares of $0.01 each Total authorised capital Issued and paid-up capital Balance at start of year Conversion of preference shares Ordinary shares1 Shares issued on conversion of preference shares Share buy-back Dividend reinvestment plan2 Employee share purchase scheme3 Bonus option plan4 Senior officers’ share purchase scheme5 Directors’ share and option purchase scheme6 Consolidated 1995 $M 1996 $M 1994 $M The Company 1995 $M 1996 $M 2,100 10 2,110 2,100 10 2,110 2,100 10 2,110 2,100 10 2,110 2,100 10 2,110 1,446 - 1,360 (6) 1,315 - 1,446 - 1,360 (6) - - 23 3 6 # # 129 (100) 47 2 11 3 # - - 34 2 5 4 # - - 23 3 6 # # 129 (100) 47 2 11 3 # Total issued and paid-up capital 1,478 1,446 1,360 1,478 1,446 Share premium reserve Balance at start of year Premium on issue of shares Conversion of preference shares Share buy-back Total share premium reserve Asset revaluation reserve Balance at start of year Revaluation of investments in controlled entities Transfer to retained profits Total asset revaluation reserve Foreign currency translation reserve Balance at start of year Currency translation adjustments, net of hedges after tax Total foreign currency translation reserve General reserve Balance at start of year Transfers from retained profits Total general reserve Capital reserve Total reserves 2,516 121 - - 2,637 2,905 621 (594) (416) 2,516 2,783 122 - - 2,905 - - - - - - - - - - - - 2,516 121 - - 2,637 1,143 24 (15) 2,905 621 (594) (416) 2,516 574 615 (46) 1,152 1,143 (88) (87) 142 223 225 (95) (183) (1) (88) (229) (87) (36) 187 (2) 223 571 55 626 149 544 27 571 149 502 42 544 149 55 - 55 - 55 - 55 - 3,229 3,148 3,511 4,031 3,937 41 Australia and New Zealand Banking Group Limited and Controlled Entities Statements of Changes in Shareholders’ Equity for the year ended 30 September 1996 Retained profits Balance at start of year Operating profit after income tax Consolidated 1995 $M 1996 $M Note 1,106 585 attributable to shareholders of the Company 1,116 1,052 1994 $M 198 822 Total available for appropriation Transfers (to)from reserves Dividends provided for or paid Ordinary shares Preference shares Retained profits at end of year 7 2,222 (55) 1,637 (27) 1,020 (42) (584) - (424) (80) 1,583 1,106 (313) (80) 585 The Company 1995 $M 1996 $M 317 1,023 1,340 15 (574) - 781 337 430 767 46 (416) (80) 317 Total shareholders’ equity attributable to members of the Company 6,290 5,700 5,456 6,290 5,700 Number of issued shares Ordinary shares of $1 each fully paid Ordinary shares of $1 each paid to 10 cents per share Non-redeemable non-cumulative 13.25% converting preference shares of $1 each fully paid The Company 1996 1995 1994 1,478,089,641 687,500 1,446,047,877 1,353,580,687 2,103,000 929,500 - - 6,000,000 Total number of issued shares 1,478,777,141 1,446,977,377 1,361,683,687 The notes appearing on pages 44 to 101 form an integral part of the financial statements 6 Directors’ share and option purchase scheme issue of shares 50,000 ordinary shares at $6.20 per share (partly paid to $0.10) 50,000 ordinary shares at $3.44 per share (on exercise of options) 50,000 ordinary shares at $4.09 per share (on exercise of options) issue proceeds from conversion of partly paid to fully paid 50,000 ordinary shares at $3.75 per share 50,000 ordinary shares at $4.09 per share 50,000 ordinary shares at $6.20 per share Total uncalled capital at 30 September 1996 was $3.2 million, comprising capital of $0.6 million and share premium of $2.6 million 42 # Amounts less than $500,000 1 The purpose of the issues of ordinary shares was to strengthen the Economic entity's capital base and to raise funds for general purposes 2 Dividend reinvestment plan issues were 12,904,287 ordinary shares at $6.27 per share 9,759,336 ordinary shares at $5.59 per share 3 Employee Share Purchase Scheme issues were 2,791,459 ordinary shares at $4.96 per share 358,024 ordinary shares at $4.80 per share 4 Bonus option plan issues were 3,473,973 ordinary shares at $6.27 per share 2,311,685 ordinary shares at $5.59 per share 5 Senior officers’ share purchase scheme issue of shares 51,000 ordinary shares at $6.20 per share issue proceeds from conversion of partly paid to fully paid 3,000 ordinary shares at $3.42 per share 10,000 ordinary shares at $3.44 per share 27,000 ordinary shares at $3.75 per share 10,000 ordinary shares at $4.85 per share 10,000 ordinary shares at $4.90 per share 3,000 ordinary shares at $4.93 per share 5,000 ordinary shares at $5.04 per share 28,000 ordinary shares at $5.20 per share 3,000 ordinary shares at $5.26 per share 16,000 ordinary shares at $5.36 per share 17,000 ordinary shares at $5.42 per share 10,000 ordinary shares at $5.46 per share Australia and New Zealand Banking Group Limited and Controlled Entities Statements of Cash Flows for the year ended 30 September 1996 Cash flows from operating activities Interest received Dividends received Fees and other income received Interest paid Personnel expenses paid Premises expenses paid Other operating expenses paid Income taxes paid Net (increase)decrease in trading securities Net cash provided by(used in) operating activities Cash flows from investing activities Net (increase)decrease Due from other banks Regulatory deposits Loans and advances Shares in controlled entities and associates Investment securities Purchases Proceeds from sale or maturity Controlled entities Purchased (net of cash acquired) Proceeds from sale (net of cash disposed) Premises and equipment Purchases Proceeds from sale Other Consolidated 1995 $M 1996 $M 1994 $M The Company 1995 $M 1996 $M Note Inflows/(Outflows) Inflows/(Outflows) 9,458 111 1,946 (6,136) (1,850) (351) (1,134) (353) (1,595) 7,945 4 1,918 (4,864) (1,618) (362) (1,118) (153) (1,222) 6,446 5 1,919 (3,789) (1,459) (362) (1,058) (160) 852 6,061 516 1,490 (4,101) (1,309) (333) (755) (79) (1,339) 5,035 8 1,423 (3,299) (1,115) (364) (727) (12) (1,678) 29(a) 96 530 2,394 151 (729) (171) (28) (8,269) - (1,801) (291) (7,487) (6) (646) 107 (5,114) - (562) (61) (6,769) 480 (2,166) 2,381 (6,949) 8,573 (13,747) 13,252 29(c) (718) 609 (198) - 12 23 (269) 373 464 (202) 5 (1,832) 13 14 (412) 104 (954) (81) 14 (361) 69 (44) (1,584) (27) (3,798) 56 (4,875) 6,491 (22) - (95) 16 335 43 Net cash used in investing activities (9,488) (8,364) (5,545) (9,248) (3,503) Cash flows from financing activities Net increase(decrease) Due to other banks Deposits and other borrowings Due from/to controlled entities Creditors and other liabilities Bonds and notes Issue proceeds Redemptions Loan capital Issue proceeds Redemptions Decrease in outside equity interests Dividends paid Share capital issues Share buy-back 2,094 10,109 - 879 520 6,080 - (186) 570 3,839 - 259 1,427 (655) 634 (110) (8) (354) 18 - 655 (578) 165 - (8) (241) 19 (516) 547 (592) 353 (271) (2) (198) 31 - 2,395 7,959 929 653 1,427 (655) 634 - - (343) 18 - 780 3,385 (1,109) 83 655 (578) - - - (233) 19 (516) Net cash provided by financing activities 14,034 5,910 4,536 13,017 2,486 Net cash provided by(used in) operating activities Net cash used in investing activities Net cash provided by financing activities Net increase(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Foreign currency translation on opening balances 96 (9,488) 14,034 4,642 7,079 (475) 530 (8,364) 5,910 (1,924) 9,092 (89) 2,394 (5,545) 4,536 1,385 9,080 (1,373) 151 (9,248) 13,017 3,920 3,238 (354) (729) (3,503) 2,486 (1,746) 5,044 (60) Cash and cash equivalents at end of year 29(b) 11,246 7,079 9,092 6,804 3,238 The notes appearing on pages 44 to 101 form an integral part of these financial statements Notes to the Financial Statements 1: Accounting Policies This general purpose financial report complies with the accounts provisions of the Banking Act, applicable Australian Accounting Standards, the accounts provisions of the Corporations Law and Urgent Issues Group Consensus Views. The accounting policies are consistent with those adopted in the prior year. The financial statements also include disclosures required by the United States Securities and Exchange Commission in respect of foreign registrants. (i) Bases of accounting These financial statements have been prepared in accordance with the historical cost convention except where otherwise stated. The carrying values of all non-current assets have been assessed and are not in excess of their recoverable amounts. In assessing recoverable amounts, the relevant cash flows have not been discounted to their present value. (ii) Consolidation The financial statements of the Economic entity are a consolidation of the financial statements of Australia and New Zealand Banking Group Limited (the Company) and its controlled entities listed in note 30. Where controlled entities have been sold or acquired during the year, their operating results have been included to the date of disposal or from the date of acquisition. (iii) Goodwill Goodwill, representing the excess of the purchase consideration over the fair value of the identifiable net assets of a controlled entity at the date of gaining control, is recognised as an asset and amortised on a straight line basis over the period during which the benefits are expected to arise, not exceeding 20 years. The unamortised balance of goodwill and the period of amortisation are reviewed annually. Where the balance exceeds the value of expected future benefits, the difference is charged to the profit and loss account. (iv) Shares in controlled entities and associates Shares in controlled entities are revalued annually based on the net tangible assets of the entity. Associates are accounted for by the cost method. Supplementary equity financial statements are not prepared as the impact is immaterial. (v) Foreign currency All amounts are expressed in Australian dollars, unless otherwise stated. Revenues and expenses of overseas branches and controlled entities are translated at average exchange rates for the year, while assets and liabilities are translated at the mid-point rates of exchange ruling at balance date. Net translation differences arising from the translation of overseas branches and controlled entities considered to be self-sustaining operations are included in the foreign currency translation reserve, after allowing for those positions hedged by foreign exchange contracts and related currency borrowings. Assets and liabilities denominated in foreign currencies are translated into Australian dollars at the rates of exchange ruling at balance date. It is the Economic entity’s general policy in respect of trading risk to maintain a substantially matched position in foreign currencies, and the total amount of unmatched foreign currency assets and liabilities and consequent foreign currency exposures are not material. (vi) Comparative figures Where necessary, amounts shown for the previous year have been reclassified to facilitate comparison. (vii) Rounding of amounts The Company is a company of the kind referred to in the Australian Securities Commission class order 94/1253, dated 17 August 1994. Consequently, amounts in the financial statements have been rounded to the nearest million dollars except where otherwise indicated. (viii) Life insurance business The Economic entity conducts life insurance business through ANZ Life Assurance Company Limited (ANZ Life). The Economic entity’s financial statements include its interest in the actuarially assessed surplus of ANZ Life’s statutory funds for the year, after allowing for increases in policyholder reserves determined on a realistic basis. The result for the year of $55 million (1995: $52 million) has been included in the profit and loss account and then transferred to general reserve within the consolidated financial statements until available for distribution under the requirements and restrictions of the Life Insurance Act 1995 and statutory accounting practices. 44 Notes to the Financial Statements The Economic entity’s interest in the accumulated retained earnings of the life insurance statutory funds of $354 million (1995: $302 million), together with the net assets of the shareholders’ funds of ANZ Life, are included within the balance sheet of the Economic entity. Due to the provisions of the Life Insurance Act 1995, the assets of the life insurance statutory funds attributable to policyholders of ANZ Life do not form part of the assets to which the Economic entity is entitled and are therefore not consolidated. (ix) Funds under management The Company and certain of its controlled entities act as trustee and/or manager for a number of investment funds and trusts including retirement funds, mortgage funds, approved deposit funds, and equity and property unit trusts. The value of funds under management by the Economic entity exceeds $12 billion (1995: $10 billion). These funds have not been consolidated as the Company does not have direct or indirect control of the funds. Where the Company or its controlled entities incur liabilities in respect of these operations as trustee, a right of indemnity exists against the assets of the applicable funds or trusts, and as these assets are sufficient to cover liabilities and it is therefore not probable that the Company or its controlled entities will be required to settle the liabilities, the liabilities are not included in the financial statements. Commissions and fees earned in respect of the Economic entity’s trust activities are included in the profit and loss account. (x) Income tax The Economic entity adopts the liability method of tax effect accounting whereby income tax expense is calculated based on accounting profit adjusted for permanent differences. Permanent differences are items of revenue and expense which are recognised in the profit and loss account but are not part of taxable income or vice-versa. General provisions for doubtful debts are treated as permanent differences as the provisions do not relate to specific accounts for which a tax deduction would be available in the event of a loss. Future tax benefits and deferred tax liabilities relating to timing differences and tax losses are carried forward at tax rates applicable to future periods. Future tax benefits relating to tax losses are only carried forward where realisation of the benefit is considered virtually certain. Provision for Australian income tax is made where the earnings of overseas controlled entities are subjected to Australian tax under the attribution rules for the taxation of foreign sourced income. Otherwise, no provision is made for overseas withholding tax or Australian income tax which may arise on repatriation of earnings from overseas controlled entities, where it is expected these earnings will be retained by those entities to finance their ongoing business. (xi) Trading securities Securities held for trading purposes are recorded at market value. Unrealised gains and losses on revaluation are taken to the profit and loss account. (xii) Investment securities Investment securities are those which the Economic entity purchased with the positive intent and ability to hold until maturity. Such securities are recorded at cost or at cost adjusted for amortisation of premiums or discounts. Premiums and discounts are capitalised and amortised from date of purchase to maturity. Interest and dividend income is accrued. Changes in market values of securities are not taken into account unless there is considered to be a permanent diminution in value. (xiii) Net loans and advances Net loans and advances include direct finance provided to customers such as bank overdrafts, credit cards, term loans, lease finance, hire purchase finance and commercial bills. Overdrafts, credit cards and term loans are carried at principal balances outstanding. Interest on amounts outstanding is accounted for on an accruals basis. Finance leases and hire purchase contracts are accounted for using the finance method whereby income is taken to account progressively over the life of the lease or the contract in proportion to the outstanding investment balance. Investments in leveraged leases are recorded at an amount equal to the investment participation, and income is taken to account on an actuarial basis over the term of each lease. Customer financing through redeemable preference shares is included within net loans and advances. Dividends received on redeemable preference shares are taken to the profit and loss account as part of interest income. 45 Notes to the Financial Statements (xiv) Bad and doubtful debts Specific provisions are maintained to cover identified doubtful debts. General provisions are maintained for losses which, although not specifically identified, are known from experience to be inherent in any asset portfolio. The level of the general provision is determined having regard to economic conditions, the level of on and off-balance sheet assets and other general risk factors. All known bad debts are written off in the year in which they are identified. Provisions for doubtful debts are deducted from loans and advances in the balance sheet. (xv) Credit assessment All loans are subject to regular scrutiny and graded according to the level of credit risk. Loans are classified as either productive or non-accrual. The Economic entity has adopted the Reserve Bank of Australia Impaired Assets Guidelines in assessing non-accrual loans. Non-accrual loans include loans where the accrual of interest and fees has ceased due to doubt as to full recovery, and loans that have been restructured with an effective yield below the Economic entity's average cost of funds at the date of restructuring. A specific provision is raised to cover the expected loss, where full recovery of principal is doubtful. Restructured loans are loans with an effective yield above the Economic entity's cost of funds and below the yield applicable to a customer of equal credit standing. Cash receipts on non-accrual loans are, in the absence of a contrary agreement with the customer, applied as income or fees in priority to being applied as a reduction in principal, except where the cash receipt relates to proceeds from the sale of security. (xvi) Leasing Leases entered into by the Economic entity as lessee are predominantly operating leases, and the operating lease payments are included in the profit and loss account in equal instalments over the lease term. Assets relating to operating leases entered into by the Economic entity as lessor are included within Premises and equipment with rental income and depreciation separately classified in income and expense. (xvii) Premises and equipment Premises and equipment (including computer equipment) are carried at cost less depreciation or amortisation, or at valuation. Any surplus on revaluation of a class of assets is credited directly to the asset revaluation reserve. Where a deficit arises, this is debited to the asset revaluation reserve to the extent of any previous revaluation surplus for that class, and the excess debited to the profit and loss account. Potential capital gains tax arising from revaluations is not taken into account as the Economic entity has no current intention to dispose of the subject properties. Valuations of premises are assessed annually by officers of the Economic entity. All premises over a specified value are also subject to external valuation at least once every three years by independent valuers. Valuations are based on the estimated open market value and assume that the premises concerned continue to be used in their existing manner by the Economic entity. The directors carried out a valuation in September 1996 supported by independent and officer valuations. The market value of premises exceeded the book value by $55 million. This excess has not been booked in the financial statements. Profit or loss on the disposal of premises and equipment is determined as the difference between the carrying amount of the assets at the time of disposal and the proceeds of disposal, and is included in the results of the Economic entity in the year of disposal. Assets other than freehold land are depreciated at rates based upon their expected useful economic lives, using the straight line method. Leasehold improvements are amortised on a straight line basis over the remaining period of each lease. (xviii) Property held for resale Property held for resale comprises properties held for development and sale. These are recorded at the lower of net investment level or estimated realisable value. To determine estimated realisable value, estimated future cash flows associated with each development are expressed in present value terms using an appropriate discount rate. Marketing and holding costs such as interest, rates and taxes associated with each development are not capitalised (except in the case of selected major developments and only then to the extent that they are considered recoverable). Other development costs are capitalised to the extent that they enhance the value of the development and to the extent they are considered to be recoverable. Profit is recognised on sale of a development, or in the case of multi-staged developments, when the value of the sales in a particular stage equals or exceeds 30% of the total value of lots available for sale in that stage; until that time the profit is offset against inventory value. Sales are recognised at date of settlement, or when a deposit (normally 10%) is received and it is virtually certain that settlement will proceed. 46 (xxii) Repurchase agreements Securities sold under repurchase agreements are retained in the financial statements and a counterparty liability is disclosed under the classifications of Due to other banks or Deposits and other borrowings. The difference between the sale price and the repurchase price is amortised over the life of the repurchase agreement and charged to interest expense in the profit and loss account. Securities purchased under agreements to resell are recorded as Liquid assets, Net loans and advances, or Due from other banks, depending on the term of the agreement and the counterparty. (xxiii) Superannuation commitments Contributions, which are determined on an actuarial basis, to superannuation schemes are charged to personnel expense in the profit and loss account. Any aggregate deficiencies arising from the actuarial valuations of the Economic entity’s defined benefit schemes have been provided for in the financial statements. The assets and liabilities of the schemes have not been consolidated as the Company does not have direct or indirect control of the schemes. (xxiv) Employee entitlements The amounts expected to be paid in respect of employees’ entitlements to annual leave are accrued at current salary rates including on costs. Liability for long service leave is accrued in respect of all applicable employees at the present value of future amounts expected to be paid. 47 Notes to the Financial Statements (xix) Acceptances Commercial bills accepted but not held in portfolio are accounted for and disclosed as a liability with a corresponding contra asset. The Economic entity’s own acceptances discounted are held as part of either the trading securities portfolio or the loan portfolio, depending on whether, at the time of such discount, the intention was to hold the acceptances for resale or until maturity. (xx) Derivative financial instruments Derivative financial instruments include foreign exchange contracts, forward rate agreements, interest rate and currency swaps, futures and options. Trading derivative financial instruments, comprising derivatives entered into for customer- related or proprietary reasons or for hedging the trading portfolio, are measured at fair value and all gains and losses are taken to the profit and loss account. Fair value losses arising from trading derivative financial instruments are not offset against fair value gains unless a legal right of set-off exists. Derivative financial instruments designated, and effective, as hedges of underlying non-trading exposures are accounted for on the same basis as the underlying exposures. Gains and losses resulting from the termination of a derivative instrument that was designated as a hedge of non-trading exposures are deferred and amortised over the remaining period of the original term covered by the terminated instrument where the underlying exposure still exists. Where the underlying exposure no longer exists, the gains and losses are recognised in the profit and loss account. Gains and losses on derivative financial instruments related to hedging exposures arising from anticipated transactions are deferred and recognised in the financial statements when the anticipated transaction occurs. These gains and losses are deferred only to the extent that there is an offsetting unrecognised (unrealised) gain or loss on the exposures being hedged. Deferred gains and losses are amortised over the expected term of the hedged exposure. (xxi) Cash and cash equivalents For the purpose of the statements of cash flows, cash and cash equivalents include liquid assets and amounts due from other banks with original term to maturity of 90 days or less. Notes to the Financial Statements 2: Income Interest income From other banks On regulatory deposits On trading and investment securities On loans and advances Dividends from redeemable preference share finance Other From controlled entities Total interest income Other operating income (i) Fee income Lending Other From controlled entities Total fee income 48 (ii) Other income Foreign exchange earnings Foreign exchange gains on hedges of investments in controlled entities Profit on trading instruments Rental income Operating lease income Life insurance fund surplus Development ventures Income Diminution in value Profit on sale of premises and equipment Other1 Total other income Consolidated 1995 $M 1994 $M 1996 $M The Company 1995 $M 1996 $M 766 25 754 7,320 9 412 9,286 - 9,286 550 854 1,404 - 1,404 231 - 113 36 116 55 6 7 10 118 692 661 43 698 6,502 2 404 8,310 - 8,310 537 801 1,338 - 1,338 226 - 96 33 89 52 13 14 4 110 637 516 33 566 5,080 7 283 6,485 - 6,485 559 763 1,322 - 1,322 222 - 126 34 61 42 12 (21) - 171 647 525 14 480 4,381 - 216 5,616 358 5,974 440 571 1,011 269 1,280 410 30 419 3,744 - 191 4,794 436 5,230 420 493 913 268 1,181 132 130 8 80 28 - - - 6 3 457 714 2 60 43 - - (8) 26 3 10 266 Total other operating income 2,096 1,975 1,969 1,994 1,447 Abnormal items (refer note 5) - - 19 - - Total income 11,382 10,285 8,473 7,968 6,677 1 Includes dividend income of $111 million (1995: $4 million) for the Economic entity and $516 million (1995: $8 million) for the Company. The Company's dividends include dividends received from controlled entities of $405 million (1995: $8 million) 3: Expenses Interest expense To other banks On deposits On borrowing corporations’ debt On commercial paper On bonds and notes On loan capital Other To controlled entities Total interest expense 862 3,826 520 247 134 245 135 5,969 - 5,969 809 3,271 490 179 114 254 112 5,229 - 5,229 637 2,146 472 88 61 207 74 3,685 - 3,685 694 2,498 - 109 134 210 107 3,752 285 4,037 647 2,116 - 59 114 217 97 3,250 296 3,546 Notes to the Financial Statements 3: Expenses (continued) Provisions for doubtful debts (refer note 15) New and increased provisions Provision releases Recoveries of amounts previously written off Specific provision General provision Total provisions for doubtful debts Operating expenses (i) Personnel Salaries and wages Pension fund Employee taxes Payroll Fringe benefits tax Provision for employee entitlements Retrenchment and redeployment Other Consolidated 1995 $M 1994 $M 1996 $M The Company 1995 $M 1996 $M 292 (129) 163 (46) 117 37 154 293 (178) 115 (52) 63 111 174 n/a n/a 456 (88) 368 13 381 201 (87) 114 (26) 88 22 110 1,387 105 1,270 93 1,170 87 1,031 10 73 53 29 57 158 64 48 19 13 116 57 28 12 11 103 70 48 27 30 122 211 (144) 67 (22) 45 104 149 911 8 60 42 14 8 74 49 Total personnel expenses 1,862 1,623 1,468 1,338 1,117 (ii) Premises Rent Depreciation of buildings and integrals Amortisation of leasehold improvements Other To controlled entities Total premises expenses (iii) Other Direct income-related expenditure Brokerage paid Interchange and card costs Operating lease depreciation Computer costs Depreciation Other Non-lending losses, frauds and forgeries Remuneration of auditors (refer note 4) Depreciation of furniture and equipment Depreciation of motor vehicles Loss on disposal of premises and equipment Management fees Other Management fees - controlled entities Total other expenses Total operating expenses Total expenses 204 31 13 137 385 - 385 61 172 62 97 231 55 8 49 3 24 7 628 207 31 16 147 401 - 401 67 150 49 86 224 79 8 49 5 5 - 588 216 30 16 139 401 - 401 69 127 34 70 212 98 8 52 7 - 1 636 1,397 - 1,397 3,644 9,767 1,310 - 1,310 3,334 8,737 1,314 - 1,314 3,183 7,249 144 4 7 92 247 87 334 22 141 - 64 150 44 3 31 2 15 - 412 884 18 902 157 4 8 98 267 98 365 27 121 - 55 137 46 3 32 3 - 3 363 790 31 821 2,574 6,721 2,303 5,998 Notes to the Financial Statements 4: Remuneration of Auditors Amounts received and due and receivable Auditing the accounts By KPMG By other Economic entity auditors Other services By KPMG Audit related services1 Other By other Economic entity auditors Total remuneration of auditors 1996 $'000 Consolidated 1995 $'000 1994 $'000 The Company 1995 $'000 1996 $'000 3,376 8 3,384 2,419 1,769 42 4,230 7,614 3,566 84 3,650 2,390 2,186 101 4,677 8,327 4,523 230 4,753 2,145 1,357 75 3,577 8,330 1,373 - 1,373 1,177 477 5 1,659 3,032 1,360 - 1,360 916 468 - 1,384 2,744 By virtue of an Australian Securities Commission class order dated 29 June 1992, the auditors of Australia and New Zealand Banking Group Limited and its related bodies corporate, KPMG, have been exempted from compliance with the requirements of Section 324(2) of the Corporations Law. The class order exemption applies in that partners and associates of KPMG not engaged on the audit of Australia and New Zealand Banking Group Limited and its related bodies corporate may be indebted to the Company, provided that such indebtedness arose upon ordinary commercial terms and conditions. 1 Audit related services are services other than those relating to the audit of the statutory financial statements of the Economic entity. These services include prudential supervision reviews for central banks, prospectus and half-yearly reviews, trust audits and other audits required for local statutory purposes 50 Consolidated 1995 $M 1994 $M 1996 $M The Company 1995 $M 1996 $M 5: Abnormal Items Profits before tax Residual gain on sale of LFD Limited’s pastoral and shipping businesses Sale of controlled entities and associates Losses before tax Sale of premises Total abnormal profit before tax Abnormal tax benefit Sale of controlled entities and associates Restatement of net deferred tax balances to reflect the increase in the Australian corporate tax rate Total abnormal tax benefit Total abnormal profit after tax - - - - - - - - - - - - - - - 19 19 19 12 7 19 2 17 2 - 2 19 - - - - - - - - - - - - - - - 22 22 22 Notes to the Financial Statements 6: Income Tax Expense Reconciliation of the prima facie income tax payable on operating profit and abnormal items with the income tax expense charged in the profit and loss account Operating profit before income tax and before abnormal items Prima facie income tax at 36% (1995, 1994: 33%) Tax effect of permanent differences Overseas tax rate differential Other non-assessable income Rebateable and non-assessable dividends Non-allowable depreciation and amortisation General provision for doubtful debts Other Income tax over provided in prior years Total income tax expense on operating profit before abnormal items Abnormal profit before tax Prima facie income tax at 36% (1995, 1994: 33%) Tax effect of permanent differences Restatement of net deferred tax balances (refer note 5) Loss on sale and revaluation of premises Profit on controlled entities and associates Residual gain on sale of LFD Limited’s pastoral and shipping businesses Total income tax benefit on abnormal items Total income tax expense Current income tax expense Deferred income tax expense Total income tax expense 1996 $M Consolidated 1995 $M 1994 $M The Company 1995 $M 1996 $M 1,615 1,548 1,205 1,247 581 511 398 449 679 224 6 (6) (3) 2 35 14 272 (1) 6 (24) (184) 3 8 (15) 243 (19) 224 271 - - - - - - - 224 142 82 224 - - (22) - - - (22) 249 109 140 249 51 1 (27) (41) 4 13 (19) 512 (22) 18 (34) (4) 3 37 (10) 521 (16) 490 505 - - - - - - - 490 355 135 490 - - (19) - - - (19) 486 365 121 486 44 (33) (6) 3 4 (3) 407 (12) 395 17 6 - 1 (5) (4) (2) 393 185 208 393 Notes to the Financial Statements 7: Dividends Ordinary dividends Interim dividend Proposed final dividend Bonus option plan adjustment (see below) Dividends on ordinary shares Preference dividends (13.25% per annum, unfranked) Dividend paid in January Dividend paid in July Dividends on preference shares Total dividends 1996 $M Consolidated 1995 $M 1994 $M The Company 1995 $M 1996 $M 264 355 (35) 584 - - - 208 260 (44) 424 40 40 80 146 189 (22) 313 40 40 80 254 355 (35) 574 - - - 200 260 (44) 416 40 40 80 584 504 393 574 496 A final dividend of 24 cents fully franked at 36% is proposed to be paid on each fully paid ordinary share (1995: final dividend of 18 cents per fully paid share, franked to 6 cents at 36%; 1994: final unfranked dividend 14 cents per fully paid share). Non-resident shareholders will be exempt from dividend withholding tax on the full dividend. The 1996 interim dividend of 18 cents was franked to 9 cents at 36% (1995: unfranked interim dividend of 15 cents per fully paid ordinary share; 1994: unfranked interim dividend of 11 cents per fully paid ordinary share). The difference between the consolidated dividend and the Company dividend is due to dividends of $10 million (1995: $8m; 1994: $8m) paid by ANZ U.K. Dividends (AUD) Limited, a wholly owned controlled entity, under the ‘Dividend Selection Plan’ available to the Company’s shareholders in the United Kingdom. This plan was suspended after the payment of the 1996 interim dividend. Restrictions which Limit the Payment of Dividends There are presently no significant restrictions on the payment of dividends from controlled entities to the Company. Various capital adequacy, liquidity, statutory reserve and other prudential requirements must be observed by certain controlled entities and the impact on these requirements caused by the payment of cash dividends is monitored. In practice however, there are significant tax considerations associated with the receipt of dividends from controlled entities by a company. Payment of dividends from domestic controlled entities constitutes assessable income to a recipient Australian company. The recipient company is generally entitled to a rebate of tax otherwise payable on the assessable dividend. Should the recipient company's total assessable income be less than the dividend income, or it be in a tax loss position, the rebate will reduce or be eliminated. The Economic entity therefore acts to preserve the availability of rebates by avoiding the payment of dividends by domestic controlled entities in this situation. Payments of dividends from overseas controlled entities may attract withholding taxes which have not been provided for in these financial statements. (i) There are presently no restrictions on payment of dividends by the Company other than the share premium reserve is not available for distribution other than in the form of bonus issues (share dividends); and (ii) reductions of shareholders' equity through payment of cash dividends is monitored having regard to the regulatory requirements to maintain a specified capital adequacy ratio. In particular, the Reserve Bank of Australia has advised Australian banks that a bank under its supervision must consult with it before declaring a dividend if the bank has incurred a loss, or proposes to pay dividends which exceed the level of profits earned. 52 Notes to the Financial Statements 7: Dividends (continued) Bonus option plan Dividends paid during the year have been reduced by way of certain shareholders participating in the bonus option plan and forgoing all or part of their right to dividends in return for the receipt of bonus shares. Final dividend 1995 Interim dividend 1996 8: Earnings per Share Before abnormal items Basic Operating profit after income tax attributable to shareholders of the Company Abnormal items after tax Operating profit after tax before abnormal items Preference share dividend Total adjusted earnings DECLARED DIVIDEND $M 260 264 524 BONUS OPTIONS EXERCISED $M 22 13 35 AMOUNT PAID $M 238 251 489 1996 $M Consolidated 1995 $M 1994 $M 1,116 - 1,116 - 1,116 1,052 (19) 1,033 (80) 953 822 (19) 803 (80) 723 Weighted average number of ordinary shares (millions) 1,462.3 1,390.3 1,327.6 Basic earnings per share (cents) 76.3 68.5 54.5 After abnormal items Basic Operating profit after income tax attributable to shareholders of the Company Preference share dividend Total adjusted earnings 1,116 - 1,116 1,052 (80) 972 822 (80) 742 Weighted average number of ordinary shares (millions) 1,462.3 1,390.3 1,327.6 Basic earnings per share (cents) 76.3 69.9 55.9 Separate disclosure of diluted earnings per share has not been made as amounts are not materially different from basic earnings per share. 53 Notes to the Financial Statements 9: Liquid Assets Australia Coins, notes and cash at bankers Loans to authorised dealers in Australian short term money market Money at call Other banks’ certificates of deposit Securities purchased under agreement to resell less than 90 days Bills receivable and remittances in transit Overseas Coins, notes and cash at bankers Money at call Other banks’ certificates of deposit Securities purchased under agreement to resell less than 90 days Bills receivable and remittances in transit Total liquid assets Maturity analysis based on original term to maturity at 30 September Less than 90 days More than 90 days 54 Total liquid assets 10: Due from Other Banks Australia Overseas Total due from other banks Maturity analysis based on original term to maturity at 30 September Less than 90 days More than 90 days Total due from other banks Consolidated 1996 $M 1995 $M 1,351 - 25 7 130 3 1,516 216 687 3,321 900 261 5,385 6,901 4,285 2,616 6,901 1,607 9,745 11,352 6,961 4,391 11,352 256 314 30 6 121 176 903 259 469 2,756 146 521 4,151 5,054 2,824 2,230 5,054 288 8,471 8,759 4,255 4,504 8,759 The Company 1996 $M 1,334 - - - 130 2 1,466 23 145 2,695 445 10 3,318 4,784 2,456 2,328 4,784 1,507 6,751 8,258 4,348 3,910 8,258 1995 $M 240 314 - - 121 165 840 33 60 1,212 125 202 1,632 2,472 1,463 1,009 2,472 288 5,064 5,352 1,775 3,577 5,352 Notes to the Financial Statements 11: Trading Securities Trading securities are allocated between Australia and Overseas based on the domicile of the issuer Listed - Australia Commonwealth securities Local and semi-government securities Other securities and equity investments Listed - Overseas Indian government securities Other securities and equity investments Total listed Unlisted - Australia Treasury notes and bills Other government securities ANZ accepted bills Other securities and equity investments Unlisted - Overseas Treasury notes and bills Other government securities Other securities and equity investments Total unlisted Total trading securities Consolidated The Company 1996 $M 1995 $M 1996 $M 1995 $M 1,496 10 91 1,597 272 265 537 2,517 10 39 2,566 247 303 550 1,496 10 - 1,506 - 236 236 2,517 10 - 2,527 - 233 233 2,134 3,116 1,742 2,760 103 1,577 1,317 269 3,266 1,564 64 306 1,934 5,200 7,334 856 - 1,016 121 1,993 272 91 313 676 2,669 5,785 103 1,577 1,249 199 3,128 1,177 64 46 1,287 4,415 6,157 856 - 931 134 1,921 159 - - 159 2,080 4,840 55 Notes to the Financial Statements 12: Investment Securities Investment securities are allocated between Australia and Overseas based on the domicile of the issuer Listed - Australia Commonwealth securities Local and semi-government securities Other securities and equity investments Listed - Overseas Indian government securities Other government securities Other securities and equity investments Total listed Unlisted - Australia Other securities and equity investments Unlisted - Overseas New Zealand government securities Indian government securities Other government securities Other securities and equity investments Total unlisted Total investment securities Market value information Listed - Australia 56 Commonwealth securities Local and semi-government securities Other securities and equity investments Listed - Overseas Indian government securities Other government securities Other securities and equity investments Total market value of listed investment securities 1,112 Unlisted - Australia Other securities and equity investments Unlisted - Overseas New Zealand government securities Indian government securities Other government securities Other securities and equity investments Total market value of unlisted investment securities Total market value of investment securities 140 537 32 575 171 1,315 1,455 2,567 Consolidated The Company 1996 $M 1995 $M 1996 $M 1995 $M 4 46 297 347 304 147 316 767 1,114 139 540 32 576 169 1,317 1,456 2,570 4 46 297 347 300 149 316 765 4 29 116 149 352 200 162 714 863 477 618 2 558 315 1,493 1,970 2,833 4 29 117 150 348 203 164 715 865 478 610 2 558 313 1,483 1,961 2,826 4 46 286 336 10 83 187 280 616 134 9 - 146 5 160 294 910 4 46 286 336 10 83 187 280 616 134 9 - 145 6 160 294 910 4 7 53 64 12 90 47 149 213 472 9 - 115 23 147 619 832 4 7 55 66 12 90 48 150 216 471 9 - 115 23 147 618 834 Notes to the Financial Statements 13: Net Loans and Advances Loans and advances are classified between Australia and Overseas based on the domicile of the lending point Australia Overdrafts Credit card outstandings Term loans - owner-occupied housing Term loans - other Lease finance (refer below) Hire purchase Commercial bills Redeemable preference share finance Other Overseas Overdrafts Credit card outstandings Term loans - housing Term loans - non-housing Lease finance (refer below) Hire purchase Commercial bills Redeemable preference share finance Other Consolidated The Company 1996 $M 1995 $M 1996 $M 1995 $M 3,358 1,156 15,001 23,026 3,282 5,803 21 20 422 3,887 989 14,218 20,335 3,138 5,264 304 20 117 3,352 1,156 15,001 20,583 657 - - - 412 3,872 989 14,218 17,868 651 - 270 - 97 52,089 48,272 41,161 37,965 2,699 231 6,878 15,590 68 458 568 9 329 2,732 210 6,233 12,194 50 419 921 3 260 26,830 23,022 587 2 187 6,868 22 - 189 - - 7,855 436 2 102 3,707 9 11 462 - 10 4,739 Total gross loans and advances 78,919 71,294 49,016 42,704 Provisions for doubtful debts (refer note 15) Income yet to mature (1,218) (1,800) (1,380) (1,698) (3,018) (3,078) (884) (46) (930) (958) (60) (1,018) Total net loans and advances 75,901 68,216 48,086 41,686 Lease finance consists of gross lease receivables Current Non-current Included in the above are receivables of controlled entity borrowing corporations net of income yet to mature Not later than 1 year Later than 1 year but not later than 2 years Later than 2 years but not later than 5 years Later than 5 years 885 2,465 3,350 3,493 2,831 3,500 240 10,064 1,170 2,018 3,188 4,000 2,126 3,106 198 9,430 187 492 679 105 555 660 57 Notes to the Financial Statements 14: Impaired Assets Summary of impaired assets Non-accrual loans Restructured loans Other real estate owned Unproductive facilities Gross impaired assets Specific provisions Non-accrual loans Unproductive facilities Net impaired assets Non-accrual loans Non-accrual loans Specific provisions Total net non-accrual loans 58 Restructured loans For these loans interest and fees are recognised as income on an accruals basis Other real estate owned In the event of customer default, any loan security is held as mortgagee in possession and therefore the Economic entity does not hold any other real estate owned assets Unproductive facilities These facilities comprise standby letters of credit, bill endorsements, documentary letters of credit and guarantees to third parties Unproductive facilities Specific provisions Net unproductive facilities 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 Consolidated The Company 1996 $M 1995 $M 1996 $M 1995 $M 1,225 33 - 82 1,340 (501) (8) 831 1,225 (501) 724 1,774 25 - 86 1,885 (694) (8) 1,183 1,774 (694) 1,080 835 25 - 22 882 (338) (7) 537 835 (338) 497 1,305 25 - 29 1,359 (447) (6) 906 1,305 (447) 858 33 25 25 25 - - - - 82 (8) 74 86 (8) 78 22 (7) 15 29 (6) 23 212 153 174 114 Notes to the Financial Statements 14: Impaired Assets (continued) Further analysis of non-accrual loans at 30 September 1996 and interest and/or other income received during the year under RBA guidelines is as follows Consolidated The Company Gross balance outstanding $M Specific provision $M Interest and/or other income received $M Gross balance Specific outstanding provision $M $M Interest and/or other income received $M Non-accrual loans Without provisions Australia New Zealand International markets With provisions and no, or partial performance1 Australia New Zealand International markets With provisions and full performance1 Australia New Zealand International markets 207 28 32 267 552 86 123 761 152 14 31 197 - - - - 275 42 117 434 50 6 11 67 Total non-accrual loans 1,225 501 1 A loan’s performance is assessed against its contractual repayment schedule 24 1 2 27 30 2 3 35 15 1 3 19 81 150 - 7 157 444 - 66 510 152 - 16 168 835 - - - - 243 - 36 279 50 - 9 59 338 24 - 1 25 30 - 1 31 15 - 1 16 72 Total interest forgone on impaired assets The following tables show the estimated amount of interest income that would have been recorded had interest on non-accrual loans been accrued to income (or, in the case of restructured loans, had interest been accrued at the original contract rate), and the amount of interest income received with respect to such loans. Consolidated The Company Gross interest receivable on non-accrual loans and restructured loans Australia New Zealand International markets Total gross interest receivable on non-accrual loans and restructured loans Interest income received Australia New Zealand International markets Total interest income received Net interest forgone Australia New Zealand International markets Total net interest forgone 1996 $M 149 13 19 181 69 4 8 81 80 9 11 100 1995 $M 214 16 40 270 87 15 46 148 127 1 (6) 122 1996 $M 128 - 4 132 69 - 3 72 59 - 1 60 1995 $M 173 - 9 182 81 - 15 96 92 - (6) 86 59 Notes to the Financial Statements Consolidated The Company 1996 $M 1995 $M 1996 $M 1995 $M 15: Provisions for Doubtful Debts Specific provision Balance at start of year Adjustment for exchange rate fluctuations Bad debts written off Transfer from profit and loss account (refer note 3) Acquired Total specific provision General provision Balance at start of year Adjustment for exchange rate fluctuations Charge to profit and loss account (refer note 3) Acquired Total general provision 702 (10) (346) 163 - 509 678 (6) 37 - 709 1,085 (1) (497) 115 - 702 567 - 111 - 678 Total provisions for doubtful debts 1,218 1,380 Ratios Provisions1 as a % of total advances2 Specific General Provisions as a % of risk weighted assets Specific General 60 Bad debts written off as a % of total advances2 Specific provision charge as a % of total advances2 % 0.5 0.8 0.5 0.8 0.4 0.1 % 0.8 0.8 0.8 0.8 0.6 0.1 454 (3) (239) 114 19 345 504 (1) 22 14 539 884 % 0.5 0.8 0.5 0.7 0.4 0.1 760 - (373) 67 - 454 400 - 104 - 504 958 % 0.8 0.9 0.7 0.8 0.7 0.1 1 Excludes provisions for unproductive facilities 2 Total advances comprise gross loans, advances, acceptances and ANZ accepted bills held as part of trading securities less income yet to mature 16: Regulatory Deposits Reserve Bank of Australia Overseas central banks Total regulatory deposits 551 612 505 669 1,163 1,174 551 61 612 505 48 553 17: Shares in Controlled Entities and Associates Refer notes 30 and 31 for details of controlled entities and associates Controlled entities At directors’ valuation 1995 At directors’ valuation 1996 Total shares in controlled entities Associates Total shares in associates Total shares in controlled entities and associates - 4,768 4,768 5,003 - 5,003 10 10 10 10 1 1 4,769 5,004 Notes to the Financial Statements 17: Shares in Controlled Entities and Associates (continued) Acquisitions of controlled entities Date acquired Interest acquired % Year ended 30 September 1996 Autofleet Pty Ltd1 1 Jul 1996 50.0 Year ended 30 September 1995 Sebrof Holdings Ltd2 Bank of Western Samoa3 7 Aug 1995 26 Sep 1995 100.0 25.0 Disposals of controlled entities The entire interest in these entities was disposed of during the year Consideration Net tangible assets on acquisition $M $M Goodwill $M # 81 7 88 # 81 3 84 - - 4 4 Profit on disposal Net tangible assets on disposal $M $M Year ended 30 September 1996 4,5 Esanda Limited Pukeko Holdings Limited Pukeko Investments Limited Pukeko Securities Limited6 Year ended 30 September 1995 Broadbreach Waters Pty Ltd The Potter Mercantile Unit Trust No. 1 - - - - # # - - - - # # 61 # Amounts less than $500,000 1 During the year, the remaining 50% interest in Autofleet Pty Ltd was acquired by Esanda Finance Corporation Limited, bringing the total interest to 100% 2 The following entities were included in the acquisition of Sebrof Holdings Ltd by ANZ Banking Group (New Zealand) Limited Pukeko Holdings Ltd Pukeko Investments Ltd 3 During 1995, the remaining 25% interest in Bank of Western Samoa was acquired by ANZ Funds Pty Ltd, bringing the total interest to 100% 4 The following controlled entities were liquidated during the year ended 30 September 1996 and had no impact on the financial statements ANZ II Limited Partnership ANZ Finance Corporation Limited ANZ Grindlays Pension Trustees Limited ANZ Grindlays Trust Holdings Limited ANZ McCaughan Properties Limited ANZ Realty Holdings II (USA) Inc ANZCAP Securities Limited Anzstock Securities Limited Binnstone (Sydney) Limited Capel Court Finance (Vic) Pty Limited Capel Court Inc Capel Court Nominees Ltd Castle-Lane (Nominees) Pty Limited Ceylonite Pty Limited Dalyee Pty Limited Development Finance Corporation Limited Durham Developments Pty Limited Erolnot Pty Limited ES&A Properties (UK) Limited Fifth Mallatri Pty Ltd G&DPL Pty Ltd Grindlays Equipment Finance Limited McCaughan Dyson Holdings Limited Mercantile Underwood Limited Mercredits Wholesale Limited NMRB Australia Finance Limited NMRB Investments Limited Noreag Pty Ltd Pemarvin Pty Limited Port Phillip Scouring Pty Limited Rinope Pty Limited Royaust Management Limited Sebrof Holdings Limited The National Alliance Insurance Company Limited Watlingford Real Estate Pty Limited 5 The following controlled entities, which had their final meeting prior to 30 September 1996 and will be liquidated within the statutory period (3 months), had no impact on the financial statements A.F.T. Limited ANZ McCaughan Asset Management Limited ANZ McCaughan Clearing Services Limited Bronzan Pty Limited Capel Court Finance Limited Capel Court Investments Pty Limited NMRB Management Services Limited 6 Formerly ANZ Securities (New Zealand) Limited Notes to the Financial Statements 18: Other Assets Property held for resale Cost of acquisition Development expenses capitalised Interest, rates and taxes capitalised Provision for diminution in value Accrued interest/prepaid discounts Accrued commission Prepaid expenses Future income tax benefits (refer below) Treasury instruments revaluations National Housing Bank deposit (refer note 35) Life insurance reserves (refer note 1[viii]) Other Total other assets Future income tax benefits comprises Provision for doubtful debts Interest Tax losses Provision for employee entitlements Provision for non-lending losses, frauds and forgeries Provision for leased premises surplus to current requirements Provision for diminution in development ventures Development venture income Treasury instruments Leveraged leasing Other 62 Consolidated The Company 1996 $M 1995 $M 1996 $M 1995 $M 70 68 3 141 (16) 125 836 39 48 491 3,070 179 354 1,198 6,340 148 3 26 80 54 12 8 22 11 19 108 491 88 84 5 177 (28) 149 1,102 47 56 666 2,693 198 302 906 6,119 225 22 123 91 48 19 11 34 5 13 75 5 14 - 19 (12) 7 575 32 23 344 2,692 - - 523 4,196 107 - 3 68 43 12 4 4 11 24 68 7 12 1 20 (19) 1 699 40 30 399 2,467 - - 160 3,796 167 - 33 64 35 19 7 8 5 20 41 666 344 399 Certain potential future income tax benefits within the Economic entity arising from tax losses and timing differences which could amount to $5 million (1995: $26 million) have not been recognised as assets because recovery cannot be regarded as virtually certain. In addition, potential future income tax benefits within the Economic entity of $133 million (1995: $91 million) arising from realised capital losses for tax purposes have not been recognised as assets because recovery cannot be regarded as virtually certain. These benefits will only be obtained if (i) the relevant entities derive future assessable income of a nature and amount sufficient to enable the benefit of the taxation deductions to be realised; (ii) the relevant entities continue to comply with the conditions for deductibility imposed by law; and (iii) there are no changes in taxation legislation adversely affecting the benefit of the taxation deductions. Notes to the Financial Statements 19: Premises and Equipment Freehold and leasehold land and buildings At directors’ valuation 1993 At cost Provision for depreciation Leasehold improvements At cost Provision for amortisation Furniture and equipment At cost Provision for depreciation Computer equipment At cost Provision for depreciation Motor vehicle operating lease assets At cost Provision for depreciation Capital works in progress At cost Total premises and equipment 20: Due to Other Banks Australia Overseas Total due to other banks Consolidated 1996 $M 1995 $M The Company 1996 $M 1995 $M 944 26 (20) 950 121 (71) 50 811 (429) 382 668 (423) 245 430 (97) 333 997 10 (13) 994 149 (85) 64 861 (457) 404 547 (329) 218 347 (76) 271 60 40 2,020 1,991 83 1 (1) 83 61 (35) 26 374 (210) 164 416 (260) 156 - - - 51 480 32 2 (1) 33 95 (52) 43 411 (240) 171 317 (183) 134 - - - 22 403 717 11,965 648 10,513 717 10,646 12,682 11,161 11,363 648 8,851 9,499 63 Notes to the Financial Statements 21: Deposits and Other Borrowings Deposits and other borrowings are classified between Australia and Overseas based on the location of the deposit taking point Australia Certificates of deposit Term deposits Other deposits bearing interest Deposits not bearing interest Commercial paper Borrowing corporations’ debt Securities sold under agreement to repurchase Other borrowings Unsecured Overseas Certificates of deposit Term deposits Other deposits bearing interest Deposits not bearing interest Commercial paper Borrowing corporations’ debt Securities sold under agreement to repurchase Other borrowings Secured Unsecured 64 Consolidated The Company 1996 $M 1995 $M 1996 $M 1995 $M 1,135 17,366 17,612 2,751 2,341 5,286 394 2,618 15,973 14,910 2,860 2,044 5,044 128 1,135 17,313 17,612 2,751 1,394 - 394 2,618 15,928 14,910 2,857 1,221 - 128 20 109 20 109 46,905 43,686 40,619 37,771 4,218 16,880 5,837 2,459 946 1,199 1,171 94 - 2,077 14,315 5,187 2,396 1,166 1,158 155 7 91 2,203 5,583 547 257 - - 1,142 92 - 596 3,673 384 158 - - 103 - 91 32,804 26,552 9,824 5,005 Total deposits and other borrowings 79,709 70,238 50,443 42,776 Included in the above are liabilities of controlled entity borrowing corporations with remaining terms to maturity Not later than 1 year Later than 1 year but not later than 2 years Later than 2 years but not later than 5 years Later than 5 years Charges over assets in respect of these borrowings1 Secured Unsecured 5,374 121 1,806 131 7,432 5,887 1,545 7,432 4,540 1,476 1,009 - 7,025 5,735 1,290 7,025 1 Debenture stock of controlled entity borrowing corporations is constituted and secured by trust deeds and collateral debentures, giving floating charges over the assets of these controlled entities Notes to the Financial Statements 22: Income Tax Liability Australia Provision for income tax Provision for deferred income tax (refer below) Overseas Provision for income tax Provision for deferred income tax (refer below) Total income tax liability Provision for deferred income tax comprises Lease finance Depreciation Investment income Other 23: Creditors and Other Liabilities Australia Creditors Accrued interest and unearned discounts Treasury instruments revaluations Accrued charges Security settlements Other liabilities Overseas Creditors Accrued interest and unearned discounts Treasury instruments revaluations Accrued charges Security settlements Other liabilities Total creditors and other liabilities 24: Provisions Employee entitlements Dividends (refer note 7) Non-lending losses, frauds and forgeries Leased premises surplus to current requirements Other Total provisions Consolidated The Company 1996 $M 1995 $M 1996 $M 1995 $M 116 384 500 14 61 75 575 204 33 8 200 445 306 748 1,648 93 170 436 3,401 164 647 2,249 134 594 282 4,070 7,471 272 355 171 32 124 954 181 349 530 41 81 122 652 186 32 6 206 430 308 795 1,448 61 - 289 2,901 146 802 2,179 105 112 236 3,580 6,481 260 260 168 49 125 862 95 154 249 25 27 52 301 33 8 1 139 181 228 497 1,648 88 170 183 2,814 13 312 1,890 49 376 97 2,737 5,551 211 355 120 21 78 785 88 168 256 2 27 29 285 26 16 1 152 195 216 552 1,446 56 - 122 2,392 15 341 1,880 35 3 65 2,339 4,731 182 260 98 39 88 667 65 Notes to the Financial Statements 25: Bonds and Notes USD medium term notes GBP medium term notes AUD medium term notes JPY medium term notes USD 125m floating rate notes due 1996 GBP 200m floating rate notes due 1997 GBP 78m floating rate notes due 1997 USD 250m floating rate notes due 1998 USD 300m floating rate note due 1998 Total bonds and notes Bonds and notes by currency USD United States dollars GBP Great British pounds JPY Japanese yen AUD Australian dollars Bonds and notes by maturity Due not later than 1 year Due later than 1 year but not later than 2 years Due later than 2 years but not later than 5 years Due later than 5 years 66 Consolidated The Company 1996 $M 834 89 235 257 - - 154 379 316 1995 $M 78 84 235 105 165 418 163 331 - 1996 $M 834 89 235 257 - - 154 379 316 1995 $M 78 84 235 105 165 418 163 331 - 2,264 1,579 2,264 1,579 1,529 243 257 235 2,264 831 1,038 333 62 2,264 575 664 105 235 1,579 249 644 624 62 1,579 1,529 243 257 235 2,264 831 1,038 333 62 2,264 575 664 105 235 1,579 249 644 624 62 1,579 Notes to the Financial Statements 26: Loan Capital Perpetual subordinated notes USD 300m USD 258.7m fixed rate notes USD 120m USD 30m floating rate notes floating rate notes floating rate notes Subordinated notes LUX 1,000m fixed notes due 1998 AUD 48.8m fixed notes due 1999 10,000m fixed notes due 19992 JPY floating rate notes due 1999 USD 30m floating rate notes due 1999 USD 70m floating rate notes due 1999 USD 200m fixed notes due 2000 22.7m GBP floating rate notes due 2000 AUD 65m floating rate notes due 2000 AUD 55.3m floating rate notes due 2000 USD 140m floating rate notes due 2000 USD 70m floating rate notes due 2000 NZD 125m floating rate notes due 20014 AUD 58.2m fixed notes due 2001 GBP floating rate notes due 2002 USD 200m fixed rate notes due 2004 USD 250m floating rate notes due 2005 USD 125m fixed notes due 2006 USD 500m floating rate notes due 2007 USD 12.5m 482m JPY floating rate notes due 2007 568.8m floating rate notes due 2008 JPY floating rate notes due 2008 USD 14.3m floating rate notes due 20085 USD 79m 60m Total loan capital Loan capital by currency USD United States dollars AUD Australian dollars GBP Great British pounds Japanese yen JPY NZD New Zealand dollars LUX Luxembourg francs Loan capital by maturity Due later than 1 year but not later than 2 years Due later than 2 years but not later than 5 years Due later than 5 years Perpetual Interest Rate % Consolidated 1996 $M 1995 $M The Company 1995 $M 1996 $M LIBOR1 + 0.15 9.125 LIBOR + 0.80 LIBOR + 0.80 9.375 7.720 7.430, 5.800 LIBOR + 0.46 LIBOR + 0.46 LIBOR + 0.50 7.050 BB3 + 0.40 BB + 0.40 LIBOR + 0.50 LIBOR + 0.625 14.25 BB + 0.40 12.625 LIBOR + 0.70 6.25 LIBOR + 0.45 7.55 LIBOR + 0.50 LIBOR + 0.50 LIBOR + 0.55 LIBOR + 0.50 LIBOR + 1.03 379 327 152 38 896 40 49 114 38 88 253 57 65 55 177 88 - 58 119 253 316 157 632 16 5 6 18 100 2,704 3,600 3,032 227 176 125 - 40 3,600 40 985 1,679 896 3,600 397 343 159 40 939 45 49 135 40 93 265 48 65 55 185 93 109 58 125 265 331 166 - 17 6 8 19 105 2,282 3,221 2,518 227 173 149 109 45 3,221 - 1,073 1,209 939 3,221 379 327 - - 706 40 49 114 38 88 253 - 65 55 177 88 - 58 119 253 316 - 632 16 5 6 18 100 2,490 3,196 2,685 227 119 125 - 40 3,196 40 928 1,522 706 3,196 397 343 - - 740 45 49 135 40 93 265 - 65 55 185 93 - 58 125 265 331 - - 17 6 8 19 105 1,959 2,699 2,153 227 125 149 - 45 2,699 - 1,025 934 740 2,699 67 1 LIBOR is an average of rates offered for US dollar deposits by leading banks in London 2 Two equal tranches of notes were issued with different interest rates 3 BB is the stated average of Bank Bill rates 4 Prior to July 1996 the interest rate was 12.5% p.a. 5 After January 2002 the interest rate is LIBOR+ 0.53% Loan capital is subordinated in right of payment to the claims of depositors and all other creditors of the Company and its controlled entities which have issued the notes, and constitutes tier 2 capital as defined by the Reserve Bank of Australia for capital adequacy purposes Notes to the Financial Statements 27: Outside Equity Interests Issued and paid-up capital Reserves Retained profits Total outside equity interests Consolidated 1996 $M 1995 $M 22 14 10 46 30 14 3 47 28: Segment Analysis The following analysis shows segment income, operating profit, total assets and risk weighted assets based on geographical locations and income, operating profit and total assets by industry segments. Geographical Income Australia New Zealand UK and Europe Asia Pacific South Asia Americas Middle East 68 Operating profit before income tax Australia New Zealand UK and Europe Asia Pacific South Asia Americas Middle East Abnormal items Australia New Zealand Operating profit after income tax Australia New Zealand UK and Europe Asia Pacific South Asia Americas Middle East Abnormal items Australia New Zealand 1996 Consolidated 1995 1994 $M 6,623 1,886 1,000 826 435 325 287 % 58 16 9 7 4 3 3 $M 6,145 1,657 861 680 339 317 286 % 60 16 8 7 3 3 3 11,382 100 10,285 100 886 203 155 147 81 64 79 55 13 9 9 5 4 5 903 204 116 124 57 60 84 58 13 8 8 4 4 5 $M 5,191 1,138 740 504 369 265 266 8,473 639 141 99 89 77 85 75 % 62 13 9 6 4 3 3 100 53 12 9 7 6 7 6 1,615 100 1,548 100 1,205 100 - - - - - - 14 3 17 1,615 1,548 1,222 657 138 106 99 36 38 42 59 12 10 9 3 3 4 612 146 83 79 27 39 47 59 14 8 8 3 4 4 1,116 100 1,033 100 - - - 19 - 19 1,116 1,052 457 95 64 57 32 59 39 803 16 3 19 822 57 12 8 7 4 7 5 100 Notes to the Financial Statements 28: Segment Analysis (continued) Total assets Australia New Zealand UK and Europe Asia Pacific South Asia Americas Middle East Risk weighted assets Australia New Zealand UK and Europe Asia Pacific South Asia Americas Middle East Industry Income General and investment banking Finance Insurance and funds management Operating profit before income tax General and investment banking Finance Insurance and funds management Abnormal items Operating profit after income tax General and investment banking Finance Insurance and funds management Abnormal items Total assets General and investment banking Finance Insurance and funds management 1996 Consolidated 1995 1994 $M % $M % $M % 75,110 17,463 15,008 9,163 3,333 4,723 2,804 59 13 12 7 3 4 2 67,594 15,310 12,001 7,874 3,306 3,666 2,836 60 13 11 7 3 3 3 63,706 12,730 10,279 7,582 3,299 3,701 2,577 61 12 10 7 3 4 3 127,604 100 112,587 100 103,874 100 59,681 13,492 6,220 5,358 2,244 4,527 1,995 93,517 64 14 7 6 2 5 2 53,531 11,748 5,238 4,766 2,213 3,535 2,045 65 14 6 6 3 4 2 50,941 9,709 4,687 4,110 2,111 2,838 1,631 67 13 6 5 3 4 2 100 83,076 100 76,027 100 9,951 1,253 178 87 11 2 8,955 1,154 176 87 11 2 11,382 100 10,285 100 79 15 6 100 77 15 8 100 82 13 5 100 81 12 7 100 1,217 234 97 1,548 - 1,548 793 158 82 1,033 19 1,052 1,330 201 84 1,615 - 1,615 909 133 74 1,116 - 1,116 116,411 10,639 554 127,604 7,299 1,005 169 8,473 965 182 58 1,205 17 1,222 622 128 53 803 19 822 69 86 12 2 100 80 15 5 100 78 16 6 100 91 9 - 91 102,120 8 9,997 1 470 91 9 - 94,512 8,968 394 100 112,587 100 103,874 100 Notes to the Financial Statements Consolidated 1995 $M 1996 $M 1994 $M The Company 1995 $M 1996 $M 29: Notes to the Statements of Cash Flows a) Reconciliation of operating profit after income tax to net cash provided by(used in) operating activities Inflows (Outflows) Inflows (Outflows) Operating profit after income tax 1,116 1,052 822 1,023 430 Adjustments to reconcile operating profit after income tax to net cash provided by operating activities Provision for doubtful debts Depreciation and amortisation Provisions for employee entitlements and other Payments from provisions Loss(profit) on sale of premises and equipment Profit on sale of controlled entities and associates Provision for surplus lease space Net (increase)decrease Trading securities Interest receivable Accrued income Net debit tax balances Amortisation of discounts/premiums included in interest income Net (decrease)increase Interest payable Accrued expenses Amortisation of discounts/premiums included in interest expense Other 154 255 189 (194) 14 - (7) 174 236 201 (190) 1 - 2 (1,595) 230 8 137 (1,222) (282) 6 333 (58) (83) (167) 62 - (48) 364 (2) 1 (61) 381 209 199 (124) 2 (7) (7) 852 (3) 5 233 (50) (92) 26 2 (54) 110 108 81 (49) 12 - (8) 149 102 76 (86) (3) - - (1,339) 101 8 145 (1,678) (177) 3 237 (14) (64) 44 - (7) (18) 246 16 1 (27) Total adjustments (1,020) (522) 1,572 (872) (1,159) Net cash provided by(used in) operating activities 96 530 2,394 151 (729) b) Reconciliation of cash and cash equivalents Cash and cash equivalents at the end of the financial year as shown in the statements of cash flows are reconciled to the related items in the balance sheets as follows: Liquid assets - less than 90 days Due from other banks - less than 90 days 4,285 6,961 11,246 2,824 4,255 7,079 3,771 5,321 9,092 2,456 4,348 6,804 1,463 1,775 3,238 70 Notes to the Financial Statements 1996 $M Consolidated 1995 $M 1994 $M The Company 1996 $M 1995 $M 29: Notes to the Statements of Cash Flows (continued) c) Acquisitions and disposals Details of aggregate assets and liabilities of controlled entities acquired, and disposed of, by the Economic entity are as follows Fair value of net assets acquired Liquid assets Due from other banks Trading securities Regulatory deposits Net loans and advances Other assets Premises and equipment Due to other banks Creditors and other liabilities Deposits and other borrowings Due to controlled entities Income tax liability Provisions Outside equity interests in controlled entities Fair value of net assets acquired Goodwill on acquisition Consideration paid Cash acquired Cash consideration (received)paid Fair value of net assets disposed Premises and equipment Outside equity interests in controlled entities Fair value of net assets disposed Net profit on disposal Consideration received/receivable Deferred settlements Cash consideration received 13 - - - 2 1 - - (1) - - (5) (10) - - - - (13) (13) - - - - - 14 14 - - - - - 81 - - - - - - - - 81 - 81 - 81 - - - - - 14 14 56 12 - 4 125 3 1 (107) (32) (19) - (1) (5) (6) 31 5 36 (48) (12) 5 (1) 4 5 9 14 23 10 1,672 - - 42 83 4 (39) (16) (1,596) (7) (9) - - 144 64 208 (10) 198 - - - - - - - 2 - 145 22 2,093 9 2 - (36) (1,195) (1,015) - (3) - 24 - 24 (2) 22 - - - - - - - 71 d) Non-cash financing and investing activities Share capital issue Dividend reinvestment plan Bonus option plan 135 6 192 11 137 5 135 6 192 11 Notes to the Financial Statements Incorporated in Book value 1995 $M 1996 $M Contribution to the consolidated result 1996 $M 1995 $M Nature of Business 30: Controlled Entities All controlled entities are 100% owned unless otherwise noted1 Australia and New Zealand Banking Group Limited2 557 417 Banking Australian Fixed Trusts Limited ‡ ANZ Banking Group (New Zealand) Limited * ANZ Finance (Far East) Limited ‡ ANZ Funds Pty Ltd ‡ Adelaide Nominees Limited * A.F.T. Investors Services Limited ‡ ANZ Grindlays International Limited * 5 ANZ Asia Pacific Holdings Limited * 6 ANZ Management Company (Guernsey) Limited * ANZ Trust Company (Guernsey) Limited * A.F.T. Property Management Pty Limited ‡ A.F.T. Property Services Pty Limited ‡ ANZ Adelaide Group Limited ‡ 4 ANZ Bank (Guernsey) Limited * ANZ Business Licensing Pty Ltd ‡ ANZ Capital Hedging Limited ‡ ANZ (Delaware) Inc. * ANZ Eurofinance B.V. * ANZ Executors & Trustee Company Limited ANZ Asia Limited * ANZ Bank (Vanuatu) Limited * ANZ Securities (Asia) Limited * 7 ANZ International Private Limited * ANZCOVER Insurance Pte Ltd* ANZ Holdings (New Zealand) Limited * England Australia Australia Australia Australia Australia Guernsey Guernsey Guernsey Australia Australia USA Netherlands Australia Australia ANZ Executors Nominees Limited ANZ Executors & Trustee Co. (Canberra) Limited Australia ANZ Executors & Trustee Co. (South Australia) Limited Australia Australia B. & R. Securities Proprietary Limited Australia Australia Hong Kong Hong Kong Hong Kong Vanuatu Hong Kong Singapore Singapore New Zealand New Zealand ANZ Finance (New Zealand) No. One Limited * New Zealand ANZ Investment Services (New Zealand) Limited * New Zealand Bage Investments Limited * New Zealand Endeavour Investments (New Zealand) Limited * New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand Singapore India Thailand Western Samoa Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia BF Limited Binnstone Pty Limited Binnstone Traders Pty Limited DAOL Limited DBPL Pty Limited DET Pty Limited § DFN Pty Limited DPSPL Pty Limited GNPL Limited Montage Pty Limited RFDL Limited ANZ Singapore Limited * Index Computing Private Limited * Siam Digest Limited * Bank of Western Samoa * LFD Limited Active Day Hospitals of Australia Pty Limited § Asquith Investments Pty Limited § Glen Gala Estates Pty Limited Mutual Leasing Limited * Kea Car Sales Limited * Truck Leasing Limited * Truck Rental Limited * National Mutual Permanent Building Society * UDC Group Holdings Limited * 8 UDC Finance Limited * 9 UDC Leasing Limited * - 6 1 # 1 63 27 # # - 52 # 2 41 # 1 1 - 22 3,327 # 71 2 # 2 715 75 203 355 - - 221 843 8 54 16 1 2 - 16 12 11 # # 18 204 # # # 1 # # # # # # # 11 # 1 - 6 1 - 1 60 25 # # - 16 - 2 32 # 1 1 - 22 3,548 - 4 2 # 2 715 25 199 349 - - 217 830 65 53 4 1 2 - # 12 11 # # 18 201 # # # 1 # # # # # # # 11 # 1 - # - - - 3 3 # - - 8 - # 9 - # # - # 21 # 1 8 3 1 (2) 15 (12) 60 1 - 13 47 - 22 5 - # - 2 # 6 # # 3 23 1 - 3 - - # 5 # (1) # # # # 8 Non-operative Holding Company Non-operative Real Estate Manager Real Estate Manager Property Owner Banking Funds Management Company Administration Non-operative Capital Hedging Finance Finance Trustee/Nominee Non-operative Trustee/Nominee Trustee/Nominee Non-operative Property Owner Holding Company Holding Company Holding Company Finance Banking Finance Banking - # - - - (1) 3 - - - 7 - # 10 - # # - # 55 # 1 9 2 # Merchant Banking Holding Company # Insurance 6 (13) Holding Company 75 Banking 1 Investment - Funds Management 10 Investment 48 Holding Company - Holding Company 20 Finance 4 Lease Finance - Non-operative # Leasing - Non-operative Lease Finance 2 (1) Non-operative 5 Merchant Banking # # 2 (1) 11 - - - - # # - 6 - # # - 5 Computer Consultant Investment Banking Finance Finance Investment Property Development Non-operative Non-operative Non-operative Non-operative Non-operative Finance Non-operative Non-operative Non-operative Non-operative Finance 72 Notes to the Financial Statements Incorporated in Book value 1995 $M 1996 $M Contribution to the consolidated result 1996 $M 1995 $M Nature of Business 30: Controlled Entities (continued) Minerva Holdings Limited * 10 ANZ Global Nominees Limited * 11,12 ANZ Grindlays Executor & Trustee Company Limited * 12 ANZ Grindlays Export Finance Limited * 12 ANZ Grindlays Finance Corporation Limited * 12 Camberley Developments Limited * § 12 ANZ Leasing Limited * ANZ Leasing (No.2) Limited * ANZMB Limited * ANZ McCaughan (UK) Limited * ANZ Securities (UK) Limited * 13 ANZ Securities Inc. * Brandts Nominees Limited * 12 Minerva Nominees Limited * National and Grindlays Bank Limited * Grindlays Nominees Limited * 14 PFP Finance Limited * Spey Industrials Limited * Gillespie Bros & Company Limited * Town & Country Land Holdings Limited ANZ Lenders Mortgage Insurance Pty Limited Glencove Pty Limited § T&C Management Pty Limited T&C Technology Pty Limited § Topgard Pty Ltd § 15 GMBS International No.3 Ltd * § 15 Town & Country Housing Trust Town & Country Property Growth Trust Town & Country Properties Ltd ANZ General Insurance Pty Limited ANZ Grindlays Jersey Holdings Limited * ANZ Grindlays Bank (Jersey) Limited * ANZ Grindlays Bank Nominees (Jersey) Limited * ANZ Grindlays Trust Corporation (Jersey) Limited * ANZ Grindlays Nominees Limited * ANZ Grindlays Secretaries Limited * ANZ Grindlays Trust (Jersey) Limited * ANZ Grindlays Yacht Services Limited * ANZ One Limited * ANZ Three Limited * ANZ Two Limited * Olec Secretaries Limited * Olec Trustee Limited * Valiant Heart Limited * ANZ Grindlays Holdings Limited ‡ 16 ANZ Grindlays Bank Limited 17 ANZ Finanziaria Sp A * § ANZ McCaughan Securities (Switzerland) AG * ANZ Grindlays Trust (Switzerland) SA * Clive Street Nominees Private Limited † Esanda Finanz and Leasing Limited * 18 Finanz Investments (Private) Limited * Grindlays Bahrain Bank B.S.C. † 19 Grindlays International (Cayman Islands) Limited † Grindlays International (Nederland) B.V. † Grindlays Modaraba Management (Private) Limited † Grindlays Services of Pakistan (Private) Limited † Hotel Regina S.A. * 20 Nepal Grindlays Bank Limited † Societe Immobiliere Quai Du Mont-Blanc 7 * England England England England England England England England England England England USA England England England England England England England Australia Australia Australia Australia Australia Australia Cayman Islands Australia Australia Australia Australia Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Australia Australia Italy Switzerland Switzerland India India India Bahrain Cayman Islands Netherlands Pakistan Pakistan Switzerland Nepal Switzerland 82 - # 43 - - - - - 29 - 1 - - - - # - - 115 9 - # - - - 46 6 # 3 130 51 # # # # # # # # # # # # 841 204 # 5 - - 1 - 14 - # # 2 # 10 7 193 - # 1 193 - - - 59 30 3 1 - - - - - - - 115 8 # # # # # 39 6 # - 80 80 # # # # # # # # # # # # 1,120 219 1 4 - - 1 - 5 - # # 2 # 1 3 # # - 2 - - # # # 1 # # - - - - # # - (1) 2 - # - - - # 1 1 # - 17 - 2 - - - - - - - - - - 1 94 - # - - # - 2 - # - # - 3 # 5 # Holding Company Property/Nominee Non-operative Export Finance Investment Company Non-operative Lease Finance Lease Finance Non-operative Investment Company Non-operative Broker Nominee Nominee Non-operative Nominee Non-operative Non-operative Non-operative Property Development - # 4 - # (1) 3 (6) # # - - - - - - - 27 2 Mortgage Insurance Non-operative # Property Manager # Non-operative - Non-operative - Non-operative - Property Investment # Property Investment 1 1 Management - - 17 - - - - - - - - - - - - (3) Holding Company General Insurance Holding Company Banking Nominee Trust Manager Nominee Company Administration Trust Manager Non-operative Nominee Nominee Nominee Secretarial Services Non-operative Property Holder 119 - # - - # - 2 - # - # - 2 # Banking Non-operative Holding Company Trust Manager Nominee Lease Finance Non-operative Banking Non-operative Holding Company Fund Management Fund Management Non-operative Banking Property Holder 73 Notes to the Financial Statements Contribution to the consolidated result Book value Incorporated in 1996 $M 1995 $M 1996 $M 1995 $M Nature of Business 74 30: Controlled Entities (continued) A.N.Z. Holdings Limited ‡ ANZ Infrastructure Investments Limited ANZ Investment Holdings Limited ‡ 530 Collins Street Property Trust A.N.Z. Investments Limited A.N.Z Discounts Limited ANZ Leasing Pty Ltd ‡ ANZ Leasing (ACT) Pty Ltd ‡ ANZ Leasing (NSW) Pty Ltd ‡ ANZ Leasing (NT) Pty Ltd ‡ ANZ Leasing (Vic) Pty Ltd ‡ ANZ Life Assurance Company Limited ANZ Limited Partnership * 21 ANZ Managed Investments Limited A.N.Z Nominees Limited ‡ ANZ Nominees (Guernsey) Limited * ANZ Payment Services Pty Limited ‡ ANZ Participacoes E Servicos Ltda * ANZ Pensions (UK) Limited * A.N.Z Properties (Australia) Limited ‡ Weelya Pty Ltd ‡ ANZ Realty Holdings (USA) Inc. * ANZ Securities (Holdings) Limited 22 ANZ Futures Limited 23 ANZ Securities (Corporate) Limited 24 ANZ Securities (NZ) Limited * 25 ANZMAC Securities (NZ) Nominees Limited * Tui Nominees Limited * ANZ Securities (Services) Pty Limited 26 A.N.Z. Securities (USA) Inc * 27 ANZ Securities Limited 28 ANZ Margin Services Pty Limited 29 Bow Lane Nominees Pty Ltd Skeet Nominees Pty Ltd Australian International Limited * ANZ U.K. Dividends (AUD) Limited * Australia and New Zealand Banking Group (PNG) Limited * Dinias Pty Ltd ‡ Eriel Pty Limited ‡ E.S.&A. Holdings Limited ‡ E.S.&A. Properties (Australia) Limited ‡ Esanda Finance Corporation Limited Autofleet Pty Limited 30 Esanda (Finance) Australia Limited Esanda (Wholesale) Proprietary Limited Finance Corporation of Australia Limited Esanda Equipment Credit Pty Limited International Corporate Park Management Pty Ltd Mercantile Credits Limited Alliance Holdings Limited Alliance Acceptance Co. Limited The John Beesley Alliance Unit Trust ANZCAP Leasing Nominees Pty Ltd ANZCAP Leasing Nominees (Vic) Pty Ltd ANZCAP Leasing Services Limited ANZCAP Leasing (Vic) Pty Ltd F.C.A. Finance Pty Limited ‡ Analed Pty Ltd ‡ Grindlays Eurofinance BV * Japan Australia Venture Capital Fund (MIC) Limited Mardi Pty Limited § Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia USA Australia Australia Guernsey Australia Brazil England Australia Australia USA Australia Australia Australia New Zealand New Zealand New Zealand Australia USA Australia Australia Australia Australia Vanuatu England Papua New Guinea Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Netherlands Australia Australia 128 # 44 397 16 - - - - - - 354 - 70 # - - - # 21 1 - 47 # 1 1 - - - 2 6 - - - # # 27 - - 2 6 937 # # # 75 8 # 9 119 2 # # # # # 13 # 5 5 - 125 - 27 397 16 - - - - - - 302 - 61 - - - # 1 22 4 - 73 # 1 1 - - - 2 6 - - - # 1 14 - - - 7 834 - # # 75 8 # 9 119 2 # # # # # 8 # 6 6 - # (4) # 18 # (44) - - - - - 55 - 11 - - - - - (1) # - (1) 1 # (1) - - 4 # 6 - - - # # 13 - - 2 # 95 - # - 3 # - (2) 1 # # # # 1 # 3 2 # # - Property owner # Investment - Investment 1 Investment Activities 26 Deposit Taker 1 Superannuation Contributor (39) Leveraged Leasing - Leveraged Leasing - Leveraged Leasing - Leveraged Leasing - Leveraged Leasing - Life Assurance 52 Non-operative - Investment Services 14 Nominee Services - Nominee Services - Lockbox Services - Representative - Pension Fund Trustee - Property Owner - Property Owner - - Non-operative (7) Holding Company 1 # (1) - - (8) 2 15 - - - # Merchant Banking Dividend Plan # Futures Trading Corporate Advisory Stockbroking Nominee Nominee Administration Stockbroking Stockbroking Nominee Nominee Nominee Banking Non-operative Trustee Property Owner Property Owner General Finance Fleet Management Lease Finance 11 - - 2 - 94 - # - Motor Vehicle Finance Real Estate Finance 7 Lease Finance # - Management Company (2) General Finance # Holding Company # # 1 # 4 2 2 5 # Finance Property Development Lease Finance Lease Finance Lease Finance Lease Finance Real Estate Finance Property Development Finance # - Investment Non-operative Notes to the Financial Statements 30: Controlled Entities (continued) NMRB Limited ‡ ANZ Capel Court Limited Capel Court International Investments Pty Ltd y Capel Court Management Limited y Capel Court Pacific Inc. * § NMRB Finance Limited § NMRSB Limited ‡ Ecomel Pty Limited ‡ Elgeba Pty Limited ‡ NMRB Insurance (Agents) Pty Limited ‡ PT ANZ Panin Bank * The Anchorage Port Stephens Pty Ltd 31 The Anchorage Unit Trust 31 Zan Investments Limited * § Total contributions to the Economic entity result after income tax and abnormal items Adjustment for controlled entities sold/liquidated Adjustments on consolidation Consolidated operating profit after income tax Incorporated in Book value 1995 $M 1996 $M Contribution to the consolidated result 1996 $M 1995 $M Australia Australia Australia Australia USA Australia Australia Australia Australia Australia Indonesia Australia Australia Singapore 420 57 - 1 - - 132 - - 1 41 4 - - 328 57 - 1 # - 132 - - 1 37 21 - 128 2 5 1 # - - # # # - 8 - - # 4 1 # # - 1 # # # - 5 - - (2) 1,116 1,048 # 4 # # 1,116 1,052 Nature of Business Holding Company Investment Banking Investment Investment Non-operative Non-operative Holding Company Agency Agency Non-operative Banking Property Management Property Development Investment * † ‡ # § 1 2 3 4 5 6 7 Audited by overseas KPMG firms Audited by firms other than members of KPMG These controlled entities and the Company entered into a Deed of Cross Guarantee in respect of relief granted from specific accounting and financial reporting requirements and other matters in accordance with Australian Securities Commission class order 95/1530 dated 10 November 1995 These controlled entities and ANZ Capel Court Limited entered into a deed of Cross Guarantee in respect of relief granted from specific accounting and financial reporting requirements and other matters in accordance with Australian Securities Commission class order 95/1530 dated 10 November 1995 Amounts less than $500,000 Company currently in liquidation All controlled entities are 100% owned with the exception of Australia and New Zealand Banking Group (PNG) Limited (93%), Esanda Finanz and Leasing Limited (51%), GMBS International No. 3 Limited (33%), Grindlays Bahrain Bank B.S.C (40%), International Corporate Park Management Pty Ltd (72%), Japan-Australia Venture Capital Fund (MIC) Ltd (77%), Nepal Grindlays Bank Limited (50%), PT ANZ Panin Bank (85%), The Anchorage Port Stephens Pty Ltd (33%), The Anchorage Unit Trust (33%), Topgard Pty Ltd (33%), Town & Country Housing Trust (93% (1995: 90%)), Truck Leasing Limited (80%) and Truck Rentals Limited (80%) Australia and New Zealand Banking Group Limited carries on business in various countries throughout the world. Overseas controlled entities carry on business in their country of incorporation with the exception of ANZ McCaughan Securities Limited, which has a branch office in the United Kingdom and representative offices in Japan and Hong Kong; ANZ Grindlays Bank Limited, which has branch offices in Switzerland, Bangladesh, India, Bahrain, Dubai, Jordan, Oman, Pakistan, Qatar, UAE, Greece and Sri Lanka; and ANZ Nominees Limited which has operations in New Zealand Outside equity interests hold ordinary shares or units in the following controlled entities: 75 Australia and New Zealand Banking Group (PNG) Limited - 371,507 PGK1 shares (7%) Esanda Finanz and Leasing Limited - 2,365,000 INR10 shares (49%) GMBS International No. 3 Limited - 67 USD1 shares (67%) Grindlays Bahrain Bank B.S.C - 3,600,000 BHD1 shares (60%) International Corporate Park Management Pty Ltd - 1,393 class "A" shares and 2 class "D" shares (28%) Japan-Australia Venture Capital Fund (MIC) Limited - 19,224 $1 shares (23%) Nepal Grindlays Bank Limited - 750,000 NPR100 shares (50%) PT ANZ Panin Bank - 7,500 IDR1m shares (15%) The Anchorage Port Stephens Pty Ltd - 66 $1 shares (67%) The Anchorage Unit Trust - 19,702,673 $1 units (67%) Topgard Pty Ltd - 67 $1 shares (67%) Town & Country Housing Trust - 2,535,122 $1 units (7%) Truck Leasing Limited - 633,000 NZD1 shares (20%) Truck Rentals Limited - 20 NZD1 shares (20%) ANZ Adelaide Group Limited owns 100% of the issued ordinary shares of Penplaza Investments Pty Limited but does not control that company as it does not have substantially all the risks and benefits incidental to ownership or control ANZ Grindlays International Limited was previously a controlled entity of Australia and New Zealand Banking Group Limited and was purchased by ANZ Funds Pty Ltd during the year ANZ Asia Pacific Holdings Ltd was previously a controlled entity of ANZ International Pte Ltd and was purchased by ANZ Grindlays International Limited during the year Formerly ANZ McCaughan Securities (Asia) Limited y Notes to the Financial Statements 8 9 ANZ Banking Group (New Zealand) Ltd owns an additional 21% of the issued ordinary shares of UDC Group Holdings Ltd. This investment is recorded in the books of ANZ Banking Group (New Zealand) Ltd at an amount of $8m During the year, the assets and liabilites of Southland Development Corporation Limited, UDC Developments Limited and UDC Finance (1991) Limited were amalgamated with those of UDC Finance Limited 10 Minerva Holdings Limited was previously a controlled entity of Grindlays Equipment Finance Limited and was purchased by ANZ Funds 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Pty Ltd during the year Formerly Anvid Limited These entities were previously controlled entities of ANZ Grindlays Bank Ltd and were purchased by Minerva Holdings Limited during the year Formerly ANZ McCaughan Securities (UK) Limited Formerly National and Grindlays Bank Trust Company Limited Town & Country Land Holdings Limited controls Topgard Pty Limited and GMBS International No. 3 Ltd as it has substantially all the risks and benefits incidental to ownership Formerly ANZ Holdings (UK) plc Formerly ANZ Grindlays Bank plc. Australia and New Zealand Banking Group Limited owns an additional 25% of the issued ordinary shares of ANZ Grindlays Bank Limited. This investment is recorded in the books of Australia and New Zealand Banking Group Limited at an amount of $71m Index Computing Pte Limited owns an additional 21% of the issued ordinary shares of Esanda Finanz and Leasing Ltd. This investment is recorded in the books of Index Computing Pte Limited at an amount of $0.4m ANZ Grindlays Bank Limited controls Grindlays Bahrain Bank B.S.C. due to the existence of a management contract that gives ANZ Grindlays Bank Limited the capacity to dominate decision making ANZ McCaughan Securities (Switzerland) AG owns an additional 50% of the issued ordinary share capital of Hotel Regina SA. This investment is recorded in the books of ANZ McCaughan Securities (Switzerland) AG at an amount of $50 ANZ Realty Holdings (USA) Inc owns an additional 10.9% of the issued ordinary shares of ANZ Limited Partnership. This investment is recorded in the books of ANZ Realty Holdings (USA) Inc at an amount of nil Formerly ANZ McCaughan Limited Formerly ANZ McCaughan Futures Limited Formerly ANZ McCaughan Corporate Limited Formerly ANZ McCaughan Securities (NZ) Limited Formerly ANZ McCaughan Services Pty Limited Formerly ANZ McCaughan Securities (USA) Inc Formerly ANZ McCaughan Securities Limited Formerly Snipe Nominees (1981) Pty Limited Esanda Finance Corporation Limited acquired the remaining 50% interest in Autofleet Pty Ltd during the year. At 30 September 1996 it is a 100% owned controlled entity (1995:50%) 31 The Company has no ownership interest in The Anchorage Port Stephens Pty Ltd or The Anchorage Unit Trust but controls them because it has assumed responsibility for the business and operating decisions of these entities, in order to maximise the financial return to the Economic entity 32 The following entities: AFT (Canberra) Ltd, ANZASSS No. 2 (NMRBE) Pty Ltd, ANZASSS No. 3 (NMRBS) Pty Ltd, ANZASSS No. 4 (FCA) Pty Ltd, ANZASSS No. 5 (MCL) Pty Ltd, ANZASSS No. 6 (ANZCAP) Pty Ltd, ANZASSS No. 7 (T&C) Pty Ltd, McCaughan RBF Pty Ltd, ANZ Pensions Pty Ltd, ANZ Staff Superannuation (Australia) Pty Limited, DPF Pty Ltd and Greater Pacific Nominees Pty Limited all of which act as the corporate trustee for a number of the ANZ staff superannuation funds, have not been consolidated into the accounts of the Economic entity, although the Company owns 100% of the issued ordinary share capital of these entities. These entities are not controlled entities as they do not meet the control criteria as specified in AASB 1024 “Consolidated Accounts”. They currently act as the trustee of regulated superannuation funds, in accordance with the Superannuation Industry (Supervision) Act 1993 and Regulations (“SIS Legislation”). They exercise their powers and duties in the best interests of the beneficiaries. In addition, there is equal employer/employee director representation for each of these entities, in accordance with the SIS Legislation 76 Notes to the Financial Statements Incorporated in Interest % Book value 1996 1995 $M $M Balance date Held By Principal activity 31: Associates Amalgamated Finance Limited ANZ Grindlays 3i Investment Services Limited New Zealand 50.0 Guernsey 50.0 Asian International Merchant Bankers Berhad Cardlink Services Ltd Malaysia Australia 26.5 20.0 5 # 4 # 4 31 Mar UDC Finance Limited Finance # 31 Mar Australia and New Fund Administration Zealand Banking Group Limited 4 31 Jan ANZ Grindlays Merchant Banking Bank Limited # 30 Jun Australia and New Charge Card Services Zealand Banking Group Limited Charge Card Services Ltd Australia 20.0 # # 30 Jun Australia and New Property Management Zealand Banking Group Limited Computer Services Ltd Cribellum Pty Ltd Western Samoa Australia 22.8 37.5 Fleetlink Leasing Pty Ltd 1 Australia Industrial Asset Management Pty Limited Australia Malcha Properties Limited India Meadow Springs FairwayVillage Pty Ltd Australia Mondex Australia Pty Ltd Australia Mulwala Unit Trust Network Trust Australia Australia 50.0 50.0 50.0 39.0 25.0 50.0 37.5 New Zealand Bankcard Associates Limited § New Zealand 50.0 Renishaw Pty Ltd Australia Rosignol Development Corporation Panama Roslin Pty Ltd Tovepool Pty Limited Valuta Group Pty Ltd Australia Australia Australia 50.0 50.0 25.0 50.0 33.3 # # 1 # # # # # # # # # # # # # 31 Dec Bank of Western Samoa Computer Services # 30 Jun Australia and New Zealand Banking Group Limited 30 Jun Esanda Finance 1 Corporation Limited # 30 Jun Esanda Finance Corporation Limited # 31 Mar ANZ Grindlays Bank Limited Property Development Lease Finance/ Management Lease Finance/ Management Property Owner 77 # 30 Jun Town & Country Property - 31 Dec Australia and New Land Holdings Limited Development Stored Value Card Technology Zealand Banking Group Limited # 30 Jun Mercantile Credits Non-operative Limited # 30 Jun Australia and New Zealand Banking Group Limited Property Development # 30 Sep ANZ Banking Group Non-operative (New Zealand) Limited # 30 Jun Mercantile Credits Non-operative Limited # 30 Sep ANZ Grindlays Non-operative Bank Limited # 30 Jun ANZ Capel Court Investment Limited # 30 Jun Mercantile Credits Non-operative Limited # 30 Jun Capel Court Investment Management Limited Associates disposed of or reclassified as controlled entities or unlisted equity investments during the current year Total shares in associates # Amounts less than $500,000 § Company currently in liquidation 1 Formerly Link Asset Management Pty Ltd # 1 10 10 Notes to the Financial Statements 32: Commitments Capital expenditure Contracts for outstanding capital expenditure Not later than 1 year Total capital expenditure commitments Lease rentals Future rentals in respect of leases Land and buildings Not later than 1 year Later than 1 year but not later than 2 years Later than 2 years but not later than 5 years Later than 5 years Furniture and equipment Not later than 1 year Later than 1 year but not later than 2 years Later than 2 years but not later than 5 years Later than 5 years Consolidated The Company 1996 $M 1995 $M 1996 $M 1995 $M 43 43 143 131 251 475 1,000 4 3 1 - 8 49 49 142 133 267 420 962 16 4 5 2 27 9 9 114 107 204 472 897 - - 1 - 1 898 907 19 19 110 106 210 371 797 12 1 1 - 14 811 830 Total lease rental commitments Total commitments 1,008 1,051 989 1,038 78 33: Derivative Financial Instruments Derivatives Derivative instruments are contracts whose value is derived from one or more underlying financial instruments or indices. They include swaps, forward rate agreements, futures, options and combinations of these instruments. The use of derivatives and their sale to customers as risk management products is an integral part of the Economic entity’s trading activities. Derivatives are also used to manage the Economic entity’s own exposure to fluctuations in exchange and interest rates as part of its asset and liability management activities. Derivatives are subject to the same types of credit and market risk as other financial instruments, and the Economic entity manages these risks in a consistent manner. The principal exchange rate contracts used by the Economic entity are forward foreign exchange contracts, currency swaps and currency options. Forward foreign exchange contracts are agreements to buy or sell a specified quantity of foreign currency on a specified future date at an agreed rate. A currency swap generally involves the exchange, or notional exchange, of equivalent amounts of two currencies and a commitment to exchange interest periodically until the principal amounts are re-exchanged on a future date. Currency options provide the buyer with the right, but not the obligation, either to purchase or sell a fixed amount of a currency at a specified rate on or before a future date. As compensation for assuming the option risk, the option writer generally receives a premium at the start of the option period. The principal interest rate contracts used by the Economic entity are forward rate agreements, interest rate futures, interest rate swaps and options. Forward rate agreements are contracts for the payment of the difference between a specified interest rate and a reference rate on a notional deposit at a future settlement date. There is no exchange of principal. An interest rate future is an exchange traded contract for the delivery of a standardised amount of a fixed income security or time deposit at a future date. Interest rate swap transactions generally involve the exchange of fixed and floating interest payment obligations without the exchange of the underlying principal amounts. Derivative transactions generate income for the Economic entity from buy-sell spreads and from trading positions taken by the Economic entity. Income from these transactions is taken to net interest income, foreign exchange earnings or profit on trading instruments. Income or expense on derivatives entered into for balance sheet hedging purposes is accrued and recorded as an adjustment to the interest income or expense of the related hedged item. Notes to the Financial Statements 33: Derivative Financial Instruments (continued) Credit risk The credit risk of derivative financial instruments arises from the potential for a counterparty to default on its contractural obligation. Credit risk arises when market movements are such that the derivative has a positive value to the Economic entity. It is the cost of replacing the contract in the event of counterparty default. The Economic entity limits its credit risk within a conservative framework by dealing with creditworthy counterparties, setting credit limits on exposures to counterparties, and obtaining collateral where appropriate. The following table provides an overview of the Economic entity’s exchange rate and interest rate derivatives. It includes all trading and non trading contracts. Notional principal amounts measure the amount of the underlying physical or financial commodity and represent the volume of outstanding transactions. They are not a measure of the risk associated with a derivative. The gross replacement cost is the cost of replacing those financial instruments with a positive market value to the Economic entity. It represents the potential credit loss had all counterparties defaulted on the reporting date and any collateral become worthless. There is no allowance for netting arrangements. The credit equivalent amount is calculated in accordance with the Reserve Bank of Australia’s Capital Adequacy guidelines. It combines the aggregate gross replacement cost with an allowance for the potential increase in value over the remaining term of the transaction should market conditions change. Consolidated Foreign exchange contracts Spot and forward contracts Swap agreements Options purchased Options sold1 Interest rate contracts Forward rate agreements Swap agreements Futures contracts2 Options purchased Options sold1 Other contracts Notional principal amount 1996 $M Gross replacement cost 1996 $M Credit equivalent amount 1996 $M Notional principal amount 1995 $M Gross replacement cost 1995 $M Credit equivalent amount 1995 $M 159,243 5,872 5,637 5,385 176,137 95,994 148,495 87,864 4,001 3,632 248 340,234 516,371 1,487 127 47 n/a 1,661 65 1,256 n/a 8 n/a 3 1,332 2,993 2,916 355 111 n/a 3,382 137 1,567 n/a 15 n/a 4 1,723 5,105 147,791 3,127 6,569 6,243 163,730 72,754 94,676 56,488 3,376 3,249 64 230,607 394,337 1,647 35 103 n/a 1,785 55 1,146 n/a 9 n/a 11 1,221 3,006 3,164 162 175 n/a 3,501 86 1,346 n/a 12 n/a 13 1,457 4,958 79 1 Options sold have no credit exposure, as they represent obligations rather than assets 2 Replacement costs have not been included as there is minimal credit risk associated with exchange traded futures, where the clearing house is the counterparty Notes to the Financial Statements 33: Derivative Financial Instruments (continued) The maturity structure of derivative activity is a primary component of potential credit exposure. The table below shows the remaining maturity profile by class of derivatives based on notional principal amounts. Consolidated At 30 September 1996 Foreign exchange contracts Spot and forward contracts Swap agreements Options purchased Options sold Interest rate contracts Forward rate agreements Swap agreements Futures contracts Options purchased Options sold Other contracts Total 80 At September 1995 Foreign exchange contracts Spot and forward contracts Swap agreements Options purchased Options sold Interest rate contracts Forward rate agreements Swap agreements Futures contracts Options purchased Options sold Other contracts Total Remaining life 1 to 5 years $M Greater than 5 years $M 1,800 3,921 183 146 6,050 14,421 58,518 22,926 1,293 1,230 19 98,407 104,457 2,686 2,107 364 210 5,367 6,115 37,705 16,224 868 1,074 15 62,001 67,368 14 306 - - 320 - 3,881 535 132 133 1 4,682 5,002 18 284 - - 302 - 2,329 43 82 82 - 2,536 2,838 Less than 1 year $M 157,429 1,645 5,454 5,239 169,767 81,573 86,096 64,403 2,576 2,269 228 237,145 406,912 145,087 736 6,205 6,033 158,061 66,639 54,642 40,221 2,426 2,093 49 166,070 324,131 Total $M 159,243 5,872 5,637 5,385 176,137 95,994 148,495 87,864 4,001 3,632 248 340,234 516,371 147,791 3,127 6,569 6,243 163,730 72,754 94,676 56,488 3,376 3,249 64 230,607 394,337 Notes to the Financial Statements 33: Derivative Financial Instruments (continued) Concentrations of credit risk exist for groups of counterparties when they have similar economic characteristics. Major concentrations of credit risk arise by location and type of customer. The following table shows the concentrations of credit risk, by class of counterparty and by geographic location, measured by credit equivalent amount. In excess of 82% of the Economic entity’s exposures are with counterparties which are either Australian banks or banks based in other OECD countries. Consolidated Class of Counterparty Commonwealth and OECD governments Australian and OECD banks Corporations, non-OECD banks and others Geographic location Australia New Zealand International markets Credit equivalent 1996 $M 60 4,200 845 5,105 1995 $M 99 3,993 866 4,958 Credit equivalent 1996 $M 1,959 486 2,660 5,105 1995 $M 1,889 363 2,706 4,958 Market risk The market risk of derivatives arises from the potential for changes in value due to movements in interest and foreign exchange rates. The Economic entity calculates value at risk based on historical models of movements in interest rates and exchange rates, and using a 97.5% confidence level that the adverse movements will not exceed the value at risk. If value at risk is estimated to be $1 million, then based on historical analysis over 500 working days there is approximately one chance in 40 of seeing an adverse movement in excess of $1 million for the specified period. Reflecting the nature of its trading activities, the Economic entity monitors its value at risk by reference to close-to-close (overnight) risk levels. Below are the Economic entity’s aggregate value at risk figures covering both physical and derivatives trading positions for its principal treasury trading centres. 81 Consolidated Value at risk at 97.5% confidence Foreign exchange Interest rate As at Maximum Average 1996 $M 1996 $M 30 Sep 96 $M As at 30 Sep 95 $M Maximum 1995 $M Average 1995 $M 2 10 5 13 2 6 1 5 5 10 2 6 Notes to the Financial Statements 33: Derivative Financial Instruments (continued) The next table shows the fair values of the Economic entity’s derivatives by product type, disaggregated into gross unrealised gains and gross unrealised losses. The fair value of a derivative represents the aggregate net present value of the cash inflows and outflows required to extinguish the rights and obligations arising from the derivative in an orderly market as at the reporting date. Fair value does not indicate future gains or losses, but rather the unrealised gains and losses from marking to market all derivatives at a particular point in time. Consolidated Foreign exchange contracts Spot and forward contracts Gross unrealised gains Gross unrealised losses Swap agreements Gross unrealised gains Gross unrealised losses Options purchased Options sold Interest rate contracts Forward rate agreements Gross unrealised gains Gross unrealised losses Swap agreements Gross unrealised gains Gross unrealised losses Futures contracts Gross unrealised gains Gross unrealised losses Options purchased Options sold Other contracts Gross unrealised gains Gross unrealised losses Total Fair value as at 30 Sep 1996 $M Average fair value 1996 $M Fair value as at 30 Sep 1995 $M Average fair value 1995 $M 1,510 (1,778) 127 (343) 47 (73) (510) 65 (71) 1,256 (1,579) 6 (26) 8 - 3 - (338) (848) 1,515 (1,736) 88 (325) 66 (104) (496) 5 (23) 1,174 (1,385) 12 (30) 7 (7) 2 - (245) (741) 1,668 (1,801) 35 (254) 102 (118) (368) 55 (65) 1,145 (1,504) 1 (14) 6 (9) 9 - (376) (744) 1,612 (1,788) 118 (266) 97 (131) (358) 84 (86) 1,183 (1,415) 4 (7) 10 (15) 10 (1) (233) (591) The fair values of derivatives vary over time depending on movements in interest and exchange rates and the trading or hedging strategies used. The negative fair value as at 30 September 1996 does not represent the profitability from such transactions. It arises from contracts that have generated net positive cash flows (on which interest is being earned) since their inception but which are expected to generate negative cash flows over their remaining term. 82 Notes to the Financial Statements 33: Derivative Financial Instruments (continued) In addition to customer and trading activities, the Economic entity uses, inter alia, derivatives to manage the risk associated with its balance sheet. The principal objectives of asset and liability management are to hedge the market value of the Economic entity’s capital and to manage and control the sensitivity of the Economic entity’s income while maintaining acceptable levels of interest rate and liquidity risk. The Economic entity also uses a variety of foreign exchange derivatives to hedge against adverse movements in the value of foreign currency denominated assets and liabilities. The table below shows the notional principal amount, gross replacement cost and fair value of derivatives held by the Economic entity, split between those entered into for customer-related and trading purposes, and those entered into for balance sheet hedging purposes. Consolidated Notional principal amount 1996 $M Gross replacement cost 1996 $M Fair value 1996 $M Notional principal amount 1995 $M Gross replacement cost 1995 $M Foreign exchange contracts Customer-related and trading purposes 165,861 10,276 Balance sheet hedging purposes 176,137 1,587 74 1,661 (323) (187) 158,218 5,512 (510) 163,730 Interest rate contracts Customer-related and trading purposes 317,122 23,112 Balance sheet hedging purposes Total 340,234 516,371 1,102 230 1,332 2,993 (396) 58 211,835 18,772 (338) 230,607 (848) 394,337 1,695 90 1,785 992 229 1,221 3,006 Fair value 1995 $M (326) (42) (368) (447) 71 (376) (744) Detailed below are the net deferred realised and unrealised gains and losses arising from hedging contracts used to manage interest rate exposure or used to hedge anticipated transactions. These gains and losses are deferred only to the extent that there is an offsetting unrecognised gain or loss on the exposure being hedged. Deferred gains or losses are generally amortised over the expected term of the hedged exposure. 83 Consolidated Expected recognition in income Within one year One to two years Two to five years Greater than five years Balance sheet hedging contracts at 30 Sep 1996 $M Balance sheet hedging contracts at 30 Sep 1995 $M 19 (16) 39 (20) 22 43 (20) 48 (21) 50 Notes to the Financial Statements 34: Fair Value Information US accounting standard, Statement of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair Value of Financial Instruments”, requires disclosure of the estimated fair value of on and off- balance sheet financial instruments for which it is practical to estimate fair value. The disclosures exclude all non-financial instruments, such as regulatory deposits, and specified financial instruments, such as leases and investments in controlled entities. Accordingly, the aggregate estimated fair value amounts do not represent the underlying value of the Economic entity. Quoted market prices, when available, are used as the measure of fair value. In cases where quoted market prices are not available, fair values are based on present value estimates or other valuation techniques. For the majority of short term financial instruments, defined as those which reprice or mature in 90 days or less, with no significant change in credit risk, the fair value was assumed to equate to the carrying amount in the Economic entity’s balance sheet. The estimates of fair value are based on relevant information available as at 30 September 1996. While best judgement is used in estimating the fair value of financial instruments, there are inherent weaknesses in any estimation technique. Many of the estimates involve uncertainties and matters of significant judgement and cannot be determined with precision. Changes in underlying assumptions could significantly affect these estimates. SFAS 107 requires that fair values be calculated by reference to the value of one trading unit without regard to any premium or discount that may result from concentrations of ownership of a financial instrument, possible taxes on the sale of financial instruments and estimated transaction costs. Furthermore, market prices or rates of discount are not available for many of the financial instruments valued and surrogates have been used which may not reflect the price that would apply in an actual sale. Therefore, for substantially all financial instruments, the fair value estimates are not necessarily indicative of the amounts the Economic entity could have realised in a sale transaction as at 30 September 1996. The estimated fair value amounts have not been updated for the purposes of these financial statements since 30 September 1996 and, therefore, the estimated fair value of these financial instruments subsequent to 30 September 1996 may be different from the amounts reported. 84 Significant financial assets Loans, advances and acceptances Investment securities and shares in associates Trading securities Other financial assets Carrying value 1996 $M 1995 $M Estimated fair value 1995 1996 $M $M 87,034 2,580 7,334 23,863 78,067 2,843 5,785 19,083 88,100 2,577 7,334 23,993 78,869 2,843 5,785 19,179 Loans, advances and acceptances The carrying value of loans, advances and acceptances is net of specific and general provisions for doubtful debts and income yet to mature, and also excludes lease finance receivables. Lease finance receivables have a carrying value of $2,880 million (1995: $2,795 million) and an estimated fair value of $2,864 million (1995: $2,779 million). The estimated fair value of loans, advances and acceptances represents the discounted amount of estimated future cash flows and accordingly has not been adjusted for either specific or general provisions for doubtful debts. Estimated contractual cash flows for performing loans are discounted at estimated current market rates to determine fair value. For loans with doubt as to collection, expected cash flows (inclusive of the value of security) are discounted using a rate which includes a premium for the uncertainty of the flows. The difference between estimated fair value of loans, advances and acceptances and in carrying value reflects changes in interest rates and the credit worthiness of borrowers since loan origination. The excess of estimated fair value of loans, advances and acceptances over the carrying value is primarily a result of the offsetting of the general provision for doubtful debts against the carrying value and the effect of declining interest rates. Notes to the Financial Statements 34: Fair Value Information (continued) Investment securities and shares in associates Fair value is based on quoted market prices or broker or dealer price quotations. If this information is not available, fair value has been estimated using quoted market prices for securities with similar credit, maturity and yield characteristics, or by reference to the net tangible asset backing of the investee. Trading securities Trading securities are carried at market value, with the resulting gains and losses included in trading revenue. Market value is generally based on quoted market prices, broker or dealer price quotations, or prices for securities with similar credit risk, maturity and yield characteristics. Other financial assets Included in this category are cash, amounts due from other banks, accrued interest and fees receivable. The carrying values of these financial instruments are considered to approximate their fair values as they are short term in nature or are receivable on demand. The fair values of derivative financial instruments such as interest rate swaps and currency swaps were calculated using discounted cash flow models based on current market yields for similar types of instruments and the maturity of each instrument. Foreign exchange contracts and interest rate option contracts were valued using market prices and option valuation models as appropriate. Properties held for resale, future income tax benefits and prepaid expenses are not considered financial assets. Carrying value 1996 $M 1995 $M Estimated fair value 1995 1996 $M $M Significant financial liabilities Deposits and other borrowings and acceptances Loan capital and bonds and notes Other financial liabilities 93,722 5,864 19,797 82,884 4,800 17,412 93,730 5,863 19,857 82,894 4,773 17,441 85 Deposits and other borrowings and acceptances Under SFAS 107, the estimated fair value of deposits with no stated maturity, which includes non-interest bearing deposits, is deemed to equal the amount repayable on demand. SFAS 107 does not permit the fair value to be adjusted for any value expected to be derived from retaining the deposits for a future period of time. For interest bearing fixed maturity deposits and other borrowings and acceptances without quoted market prices, market borrowing rates of interest for debt with a similar remaining maturity are used to discount contractual cash flows. The estimated fair value of interest bearing deposits and other liabilities reflects the shortening term of the Economic entity’s funding during the year ended 30 September 1996. Loan capital and bonds and notes The aggregate fair value of loan capital and bonds and notes at 30 September 1996 was calculated based on quoted market prices. For those debt issues where quoted market prices were not available, a discounted cash flow model using a yield curve appropriate for the remaining term to maturity of the instrument was used. Other financial liabilities This category includes amounts due to other banks, accrued interest and fees payable for which the carrying amount is considered to be a reasonable estimate of fair value. The fair values of derivative financial instruments were determined on the basis described under the caption “other financial assets”. Income tax liabilities, other provisions and accrued charges are not considered financial liabilities. Commitments and contingencies As outlined in note 35, the Economic entity has various credit-related commitments. Based upon the level of fees currently charged for granting such commitments, taking into account maturity and interest rates, together with any changes in the creditworthiness of counterparties since origination of the commitments, their estimated replacement or fair value is not material. Notes to the Financial Statements 35: Contingent Liabilities and Credit Related Commitments Contingent liabilities The Economic entity guarantees the performance of customers by issuing standby letters of credit and guarantees to third parties. The risk involved is essentially the same as the credit risk involved in extending loan facilities to customers, therefore these transactions are subjected to the same credit origination, portfolio maintenance and collateral requirements for customers applying for loans. As the facilities may expire without being drawn upon, the notional amounts do not necessarily reflect future cash requirements. The credit risk of these facilities may be less than the contract amount, but as it cannot be accurately determined, the credit risk has been taken to be the contract amount. Guarantees Standby letters of credit Bill endorsements Documentary letters of credit Performance related contingents Other Consolidated 1996 Contract amount $M 2,149 355 29 1,349 6,614 828 1995 Contract amount $M 2,165 215 14 1,320 6,454 1,049 Total contingent liabilities 11,324 11,217 The Company 1996 Contract amount $M 1995 Contract amount $M Controlled Entities 1995 Contract amount $M 1996 Contract amount $M 1,431 319 25 608 5,328 631 8,342 1,402 205 12 652 4,182 772 7,225 718 36 4 741 1,286 197 2,982 763 10 2 668 2,272 277 3,992 Credit related commitments The credit 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 be the contract amount. 86 Undrawn facilities Underwriting facilities Securities lending Consolidated 1996 Contract amount $M 30,014 361 590 1995 Contract amount $M 25,453 267 - The Company 1996 Contract amount $M 1995 Contract amount $M 21,592 82 590 17,228 133 - 30,965 25,720 22,264 17,361 Controlled Entities 1995 Contract amount $M 1996 Contract amount $M 8,422 279 - 8,701 8,225 134 - 8,359 Notes to the Financial Statements 35: Contingent Liabilities and Credit Related Commitments (continued) The details and estimated maximum amount of contingent liabilities classified according to the party from whom the contingent liability could arise are set out below The Company In accordance with the clearing arrangements set out in the Australian Payments Clearing Association Regulations for the Australian Paper Clearing System and the Bulk Electronic Clearing System, the Company has a commitment to provide liquidity support to these clearing systems in the event of a failure to settle by a member institution. Controlled entities (i) The Economic entity will indemnify each customer of controlled entities engaged in nominee activities against loss suffered by reason of such entities failing to perform any obligation undertaken by them to a customer. (ii) Pursuant to class order 95/1530 dated 10 November 1995, relief was granted during the year to a number of wholly owned controlled entities (refer footnote ‡ in note 30) from the Corporations Law requirements for preparation, audit, and publication of accounts. It is the condition of the class order that the Company and each of its controlled entities enter into a Deed of Cross Guarantee. A Deed of Cross Guarantee under the class order was lodged and approved by the Australian Securities Commission. The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up any of the controlled entities under certain provisions of the Corporations Law. The Company will only be liable in the event that after six months any creditor has not been paid in full. The controlled entities have also given similar guarantees in the event that the Company is wound up. A Deed of Revocation was executed during the year for all companies which were party to a Deed of Cross Guarantee (as amended) under previous class orders. At 30 September 1996 the controlled entities which are parties to the Deed had external aggregate assets of $2,721 million (1995: $2,960 million); external aggregate liabilities of $747 million (1995: $753 million); and their operating profit after tax and abnormal items for the year was $418 million (1995: $16 million). (iii) Pursuant to class order 95/1530 dated 10 November 1995, relief was granted during the year to a number of wholly owned controlled entities (refer footnote Y in note 30) from the Corporations Law requirements for preparation, audit and publication of accounts. It is the condition of the class order that ANZ Capel Court Limited and each of its controlled entities enter into a Deed of Cross Guarantee. A Deed of Cross Guarantee under the class orders was lodged and approved by the Australian Securities Commission. The effect of the Deed is that ANZ Capel Court Limited guarantees to each creditor payment in full of any debt in the event of winding up any of its controlled entities under certain provisions of the Corporations Law. ANZ Capel Court Limited will only be liable in the event that after six months any creditor has not been paid in full. The controlled entities have also given similar guarantees in the event that ANZ Capel Court Limited is wound up. A Deed of Revocation was executed during the year for all companies which were party to a Deed of Cross Guarantee (as amended) under previous class orders. At 30 September 1996 ANZ Capel Court Limited and its controlled entities which are party to the Deed had external aggregate assets of $358 million (1995: $279 million); external aggregate liabilities of $163 million (1995: $191 million); and their operating profit after tax and abnormal items for the year was $1 million (1995: $1 million). (iv) The Company has guaranteed payment on maturity of the principal and accrued interest of commercial paper notes issued by ANZ (Delaware) Inc. of $946 million (1995: $1,164 million). (v) The Company is party to an underpinning agreement with ANZ Grindlays Bank Limited whereby the Company undertakes to assume risk in relation to credit facilities extended by ANZ Grindlays Bank Limited to certain individual customers which exceed 25% of ANZ Grindlays Bank Limited’s capital base. (vi) The Company is party to an underpinning agreement with ANZ Banking Group (New Zealand) Ltd whereby the Company undertakes to assume risk in relation to credit facilities extended by ANZ Banking Group (New Zealand) Ltd to individual customers which exceed 35% of ANZ Banking Group (New Zealand) Ltd's capital base. (vii)The Company has guaranteed, on a subordinated basis, the issue of $157 million Subordinated Floating Rate Notes issued by ANZ Banking Group (New Zealand) Ltd. 87 Notes to the Financial Statements 35: Contingent Liabilities and Credit Related Commitments (continued) General There are outstanding court proceedings, claims and possible claims against the Economic entity, the aggregate amount of which cannot readily be quantified. Where considered appropriate, legal advice has been obtained and, in the light of such advice, provisions as deemed necessary have been made. India - National Housing Bank The branch of ANZ Grindlays Bank Limited in India (“the Bank”) has received a claim, aggregating approximately Indian Rupees 5.06 billion ($179 million) from the National Housing Bank (“NHB”) in that country. The claim arises out of certain cheques drawn by NHB in favour of the Bank, the proceeds of which were credited into the account of one of the customers of the Bank. On 4 November 1992, and pursuant to a directive from the Reserve Bank of India (“RBI”), the Bank made a payment to NHB under protest, without admission of liability, and subject to an agreement with NHB, entered into on the same date, providing for arbitration of the disputes between the parties. The RBI, which is NHB’s parent company, has confirmed in writing, that it will ensure that NHB meets its liabilities under this arbitration agreement, including repaying the Bank if NHB loses the arbitration. The arbitration is currently in progress and arbitration arrangements provide that the matter is treated as sub-judice and therefore comment by the parties is limited. The Economic entity has obtained firm legal advice from senior counsel and based on that advice no provision has been made in respect of the claim or the amount paid to NHB. India - Financial markets scam The after effects of the much publicised 1992 India financial markets scam continue. Banks, including ANZ Grindlays Bank Limited, which provided banking services to banks and brokers subsequently identified as involved in the scam, are now facing legal issues as transactions are potentially unwound and the legality of some transactions which were commonly executed in the market are challenged. Resolution of these matters is likely to be protracted, especially because in many cases these issues are without legal precedent, and the Economic entity may be exposed to claims and potential losses the aggregate amount of which cannot be quantified. The Economic entity is being advised by senior counsel and no material loss is currently anticipated. India - Foreign Exchange Regulation Act In 1991 certain amounts were transferred from non-convertible Indian Rupee accounts to convertible Rupee accounts maintained with the Bank in India. In making these transactions it would appear that the provisions of the Foreign Exchange Regulation Act 1973 were inadvertently not complied with. The Bank, on its own initiative, brought these transactions to the attention of the Reserve Bank of India. The Indian authorities have served preliminary notices on the Bank and certain of its officers in India which could lead to proceedings and possible penalties. The Economic entity’s lawyers in India have prepared responses to these notices, and the Economic entity considers that the outcome will have no material adverse effect on the financial statements. 88 Notes to the Financial Statements 36: Superannuation Commitments A number of pension/superannuation schemes have been established by the Economic entity worldwide. The Economic entity is obliged to contribute to the schemes as a consequence of legislation and provisions of trust deeds. Legal enforceability is dependent on the terms of the legislation and trust deeds. The major schemes with assets in excess of $20 million are Country Australia Australia Scheme ANZGROUP (Australia) Staff Pension Scheme1 ANZ Australian Staff Superannuation Scheme2 New Zealand ANZGROUP (New Zealand) Staff Superannuation Scheme1, 2 England ANZ UK Staff Pension Scheme1 Scheme type Employee Employer Contribution levels Last formal actuarial valuation Actuary Defined Benefit Scheme nil Defined Contribution Scheme 2.5% min Defined 5.5% Benefit Scheme min or Defined Contribution Scheme 2.5% min Defined Benefit Scheme nil Balance of cost Dec 1995 C J Haberecht F.I.A.A. Balance of cost3 Dec 1995 C J Haberecht F.I.A.A. Balance of cost Dec 1993 William M Mercer Ltd Balance of cost4 Dec 1993 William M Mercer Ltd Balance of cost Dec 1995 Watson, Wyatt Partners Balance of cost: the Economic entity’s contribution 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, not to exceed 7.25% of members’ superannuation salaries for the financial year ended 30 September 1997 4 7.5% of superannuation salaries Details of major defined benefit schemes are as follows Employer’s contribution $M 1996 Scheme ANZGROUP (Australia) Staff Pension Scheme1 ANZ UK Staff Pension Scheme2 Employer’s contribution $M 1995 Scheme ANZGROUP (Australia) Staff Pension Scheme3 ANZ UK Staff Pension Scheme4 Accrued benefits Net market value of assets held by scheme $M 64 459 $M 44 584 Accrued benefits Net market value of assets held by scheme $M 66 433 $M 50 545 Excess(deficiency) of net market value of assets over accrued benefits $M (20) 125 Excess(deficiency) of net market value of assets over accrued benefits $M (16) 112 Vested benefits $M 53 429 Vested benefits $M 54 397 5 - 5 - 1 Amounts were measured at 30 September 1996 2 Amounts were measured at 31 December 1995 3 Amounts were measured at 31 December 1994 4 Amounts were measured at 30 September 1995 Any aggregate deficit arising from the actuarial valuation of the Economic entity’s defined benefit schemes has been provided for in the Economic entity’s financial statements. 89 Notes to the Financial Statements 37: Assets and Liabilities of Non-Banking Controlled Entities Under class order 92/621 issued by the Australian Securities Commission on 24 June 1992, the balance sheets of the Economic entity and the Company are presented in accordance with International Accounting Standard IAS 30 “Disclosures in the Financial Statements of Banks and Similar Financial Institutions”. This standard requires assets and liabilities of a bank to be classified by their nature and to be disclosed in their approximate order of liquidity. The class order requires the amounts of total assets and total liabilities reported in the consolidated balance sheet that are attributable to controlled entities which are not prescribed corporations, defined in Section 408A(1) of the Corporations Law as either an Australian Bank or a body corporate that is registered under the Life Insurance Act 1995 at the end of the financial year, to be separately disclosed. Total assets Total liabilities 1996 $M 34,257 28,566 1995 $M 40,428 32,872 38: Financing Arrangements The financing arrangements of controlled entity borrowing corporations and controlled entities registered under the Financial Corporations Act (Australia) 1974 are detailed below 90 Financing arrangements which are available to such controlled entities (under normal financial arrangements) Credit standby arrangements Commercial bills acceptance discount lines Standby lines Other financing arrangements 1996 Available $M Unused $M 1995 Available $M Unused $M 100 1,955 100 1,854 100 1,723 100 1,721 Overdrafts and other financing arrangements 457 449 450 444 Total finance made available to such controlled entities 2,512 2,403 2,273 2,265 Financing arrangements which have been made available by such controlled entities (contractually arranged for each client) Standby lines 482 127 424 110 In addition, credit facilities of $126 million (1995: $111 million) have been made available to the Economic entity, of which $7 million is utilised as at 30 September 1996 (1995: $55 million). 39: Exchange Rates The exchange rates used in the translation of the results and the assets and liabilities of major overseas branches and controlled entities are Great British pound United States dollar New Zealand dollar 1996 1995 1994 Closing Average Closing Average Closing Average 0.5062 0.7914 1.1314 0.4963 0.7685 1.1340 0.4764 0.7520 1.1498 0.4659 0.7406 1.1407 0.4685 0.7393 1.2254 0.4653 0.7064 1.2200 Notes to the Financial Statements 40: Employee Share Purchase and Share Option Schemes The Company has four share purchase and share option schemes available for employees and directors of the Group: the ANZ Group Employee Share Purchase Scheme; the ANZ Group Senior Officers’ Share Purchase Scheme; the ANZ Group Share Option Scheme; and the Directors’ Share and Option Purchase Scheme. Shareholders of the Company have approved the Rules of each of the schemes. Fully paid ordinary shares issued under these schemes rank equally with other existing fully paid ordinary shares, except for fully paid ordinary shares issued on conversion from partly paid shares which are not entitled to the first dividend paid. Partly paid ordinary shares, paid to 10 cents, issued under the ANZ Group Senior Officers’ Share Purchase Scheme and the Directors’ Share and Option Purchase Scheme are not entitled to dividends payable by the Company, but are entitled to one vote for every ten partly paid shares. They are also entitled to participate in rights and bonus issues. Each option granted under the ANZ Group Share Option Scheme and the Directors’ Share and Option Purchase Scheme entitles a holder to purchase one ordinary share subject to any attached terms and conditions. An offer to employees and non-executive directors cannot be made under any of the schemes if an issue pursuant to that offer will result in the aggregate of shares issued, and those liable to be issued pursuant to exercisable options granted under any of the schemes, and bonus shares issued in respect of shares issued under these schemes, exceeding 7% of the issued capital of the Company. During the financial year, loans at concessional interest rates were available for financing shares purchased under the ANZ Group Employee Share Purchase Scheme and the ANZ Group Senior Officers’ Share Purchase Scheme. Shares issued under these schemes are free of brokerage and stamp duty costs. The market price of one ordinary share at 30 September 1996 was $7.23. Amounts received from employee share purchase and share option schemes are accounted for as follows the par value of fully paid shares and amounts received on partly paid shares are recognised as issued and paid-up capital; - the difference between par value and issue price is credited to the share premium reserve; and amounts received for options are credited to the general reserve. Amounts received from employee share purchase and share option schemes during the financial year, excluding calls on partly paid shares issued in prior financial years, were recognised as follows 91 Issued and paid-up capital Share premium reserve General reserve 1996 3,200,483 12,679,869 - The Company 1995 3,411,594 11,087,670 64,100 ANZ Group Employee Share Purchase Scheme All employees, excluding part-time service employees, who have had continuous service for one year with the Company or any of its controlled entities are eligible to participate in this scheme. Each eligible employee’s entitlement depends on the employment level of the employee, and the maximum entitlement is 5,000 ordinary shares. During the financial year, 3,149,483 fully paid ordinary shares were issued at a 20% discount to the market price at 28 February 1996 to 2,300 eligible employees for a total consideration of $15,564,152. 33,618 employees were eligible to participate in this offer. The total market value of the shares at issue date, which was 22 March 1996, was $19,652,774. At 30 September 1996, 39,663,335 ordinary shares had been issued since the commencement of this scheme. ANZ Group Senior Officers’ Share Purchase Scheme Senior officers eligible to participate in this scheme may be offered fully paid or partly paid ordinary shares. During the financial year, 51,000 fully paid ordinary shares were issued at market price to 10 eligible senior officers for a total consideration of $316,200, which was the total market value of the shares at issue date which was 28 February 1996. 775 senior officers were eligible to participate in this offer. At 30 September 1996, 11,035,400 fully paid ordinary shares and 7,805,000 partly paid ordinary shares had been issued since the commencement of this scheme. The partly paid ordinary shares were paid to 10 cents on application and the balance payable either at the request of the employee or upon cessation of employment, except in the event of death, retirement or illness, in which case, the balance is payable three months after the event. - - Notes to the Financial Statements 40: Employee Share Purchase and Share Option Schemes (continued) ANZ Group Share Option Scheme Executive directors and executive officers may be invited to purchase options at one cent each under this scheme. These options do not entitle the holder to participate in a share issue of any other body corporate apart from the Company. No options were issued during the financial year. 80,000 options granted under the scheme lapsed during the financial year. At 30 September 1996, 7,630,000 options were outstanding under this scheme. These options may only be exercised within the exercisable period if the basic earnings per share of the Economic entity (before abnormal items) for one of the financial years ending 30 September 1996, 1997 or 1998 is at least 50% over the equivalent figure for the 1993 financial year. No. of options outstanding at 30 September 1996 Exercise price Exercisable period (subject to performance condition) 1,350,000 1,520,000 4,760,000 $5.34 $5.34 $5.34 Not exercisable before 31 Jan 1997, or later than 30 Jan 1999 Not exercisable before 22 Dec 1997, or later than 30 Jan 1999 Not exercisable before 23 Mar 1998, or later than 30 Jan 1999 These options will expire immediately on termination of employment, except in the event of retirement, death or where agreed by the directors of the Company, in which case, the directors may allow the options to be exercised. 185,000 options were exercised by former employees since the end of the financial year with the consent of the directors. In the event of a takeover offer or takeover announcement, the directors of the Company may allow the options to be exercised within thirty days from the date of notification. If there is a bonus issue prior to the expiry or exercise of the options, option holders are entitled to those shares as if the options have been exercised prior to that issue. These shares will be allotted to the option holder when the options are exercised. Directors’ Share and Option Purchase Scheme Each non-executive director is entitled to subscribe for up to 50,000 partly paid ordinary shares at market price, paid to 10 cents, under this scheme, with the balance payable any time at the request of the director or upon ceasing to be a director, except in the event of retirement, death or illness, in which case the balance is payable ninety days after such date. Each director is, subject to the Board’s approval, eligible to subscribe for an equivalent number of options at one cent each under this scheme. Options granted under this scheme are exercisable within five years after issuance or within 90 days after ceasing to be a director, if earlier. The exercise price of an option is based on the market price of an ordinary share when the option is granted, less one cent, which is payable on issue of the option. During the financial year, one director was eligible to subscribe for up to 50,000 shares under the scheme. 50,000 partly paid shares, paid to 10 cents, were issued on 28 February 1996 at $6.20, which was the market price as at that date. No options were offered during the financial year. 100,000 options were exercised during the financial year. At 30 September 1996, 950,000 partly paid shares, paid to 10 cents and 1,100,000 options had been issued since the commencement of this scheme. No. of options outstanding at 30 September 1996 Exercise Price Expiry date 100,000 $3.43 1 March 1998 92 Notes to the Financial Statements 41: Related Party Disclosures The directors during the year were C B Goode J C Dahlsen Dr R S Deane J K Ellis (appointed 1 October 1995) C J Harper M A Jackson A T L Maitland D P Mercer J F Ries Dr B W Scott Sir Ronald Trotter R B Vaughan Australian banks, parent entities of Australian banks and controlled entities of Australian banks have been exempted, subject to certain conditions, by an Australian Securities Commission class order, 93/837 dated 6 August 1993, from making disclosures of loans made, guaranteed or secured by a bank to related parties (other than specified categories of directors) and financial instrument transactions (other than shares and share options) of a bank where a director of the relevant entity is not a party to the transaction and where the loan or financial instrument transaction is lawfully made and occurs in the course of ordinary banking business either at arm’s length or with the approval of a general meeting of the relevant entity and its ultimate chief entity (if any). The class order does not apply to a loan or financial instrument transaction of which any director of the relevant entity should reasonably be aware that, if not disclosed, would have the potential to adversely affect the decisions made by users of the financial statements about the allocation of scarce resources. A condition of the class order is that for each financial year to which it applies, the Company must provide evidence to the Commission that the Company has systems of internal controls and procedures which (i) in the case of any material financial instrument transaction, ensure that; and (ii) in any other case, are designed to provide a reasonable degree of assurance that, any financial instrument transaction of a bank which may be required to be disclosed in the Company’s financial statements in accordance with AASB 1017 “Related Party Disclosures”, and which is not entered into regularly, is drawn to the attention of the directors. (a) Transactions with directors and director-related entities Shares and Share Options Aggregate number of shares and share options issued to directors of the Company and their director-related entities by the Company were as follows Fully paid ordinary shares in the Company Partly paid ordinary shares in the Company The Company 1995 No. 1996 No. 224,229 50,000 56,508 100,000 Certain executive directors have acquired fully paid ordinary shares under the ANZ Group Senior Officers’ Share Purchase Scheme on conditions no more favourable than those offered to other employees. All other fully paid ordinary shares were acquired on terms and conditions no more favourable than those offered to other shareholders. Certain non-executive directors have acquired partly paid ordinary shares under the Directors’ Share and Option Purchase Scheme, approved by shareholders in January 1988. No share options have been issued to directors under this scheme during the financial year. The reduction in the number of partly paid shares held by directors of the Company and their director- related entities during the financial year was 100,000 (1995: nil). Aggregate number of shares and share options held directly, indirectly or beneficially by directors of the Company and their director-related entities, as at balance date, were as follows Fully paid ordinary shares in the Company Partly paid ordinary shares, paid to 10 cents per share, in the Company Share options over ordinary shares in the Company 1996 No. 1995 No. 872,544 290,000 1,200,000 698,315 340,000 1,300,000 93 Notes to the Financial Statements 41: Related Party Disclosures (continued) Directors of the Company and their director-related entities received normal dividends on these shares, with the exception of partly paid ordinary shares, paid to 10 cents per share, which qualify for dividends only when fully paid. Loans made to Directors Loans made to non-executive directors of the Company and controlled entities are made in the course of ordinary business on normal commercial terms and conditions. Loans to executive directors of the Company and controlled entities are made pursuant to the Executive Directors' Loan Scheme authorised by shareholders on 18 January 1982, on the same terms and conditions applicable to other employees within the Economic entity in accordance with established policy. Under the Australian Securities Commission class order referred to above, disclosure is limited to the the Company to its directors; aggregate amount of loans made, guaranteed or secured by (i) (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 controlled entities and to parties related to any one of them or the directors of the Company. The directors involved are A D Betham3,4 A K Bommakanti3 I Brandon1,2 T J Brennan3 D J Brunskill1,2 A Buhindi1,4 M I Calderwood3 G J Camm1,3 P J Conway2 J C Dahlsen1,3 P H Ellis3 C J Harper1,3 1 Repayments made during the year 2 Loans made during the year 3 Repayments made during the prior year 4 Loans made during the prior year 94 P J O Hawkins3 M B Hensley3,4 P F Horsfall1,2,3,4 G G Howard3,4 W D B Johnstone3 B J Jolliffe1,2,3,4 R G Jones1,3 R E Knight3 J M Lineham3 A T L Maitland1,3,4 D W Manoa2,3 D P Mercer1,2,3,4 I F Peterkin1 J F Ries1,2,3,4 J L Roach1,3,4 J D Tait3 J G Todd1,2 R R Trotter2 R H C Turner3,4 D B Valentine3,4 A E Ward1,3 D F Wicks1 The aggregate amount of such loans outstanding at 30 September was Consolidated The Company 1995 $’000 1996 $’000 1996 $’000 1995 $’000 Balance outstanding at 30 September Total interest received The aggregate amount of repayments received from directors and their director-related entities during the year was Normal terms and conditions Employee terms and conditions The aggregate amount of loans made during the financial year was Normal terms and conditions Employee terms and conditions 2,176 173 5,657 304 1,198 89 2,736 98 1,012 1,689 523 1,345 305 1,460 5 839 273 238 696 1,382 13 187 - 1,004 Notes to the Financial Statements 41: Related Party Disclosures (continued) Other transactions of Directors and Director-Related Entities (i) Financial instrument transactions Under the Australian Securities Commission class order referred to above, disclosure of financial instrument transactions regularly made by a bank is limited to disclosure of such transactions with a director of the entity concerned. AASB 1017 requires financial instrument transactions which have occurred on arm’s length terms and conditions, and are deemed trivial or domestic in nature, to be disclosed by general description. Financial instrument transactions between the directors and the banks during the financial year were in the nature of normal personal banking, investment and deposit transactions. These transactions occurred on an arm’s length basis and on normal commercial terms and conditions no more favourable than those given to other employees or customers. (ii) Transactions other than financial instrument transactions of banks All other transactions with directors and their director-related entities are conducted on arm’s length terms and conditions, and are deemed trivial or domestic in nature. These transactions are in the nature of deposits, debentures, or investment transactions conducted with non-bank controlled entities. (b) Transactions with associated entities During the course of the year the Company and the Economic entity conducted transactions with associated entities (listed in note 31) on normal commercial terms and conditions, other than an interest free loan of nil (1995: $3,768,602) to Network Trust and a loan of $2,390,000 (1995: $2,390,000) to Valuta Group Pty Ltd at an interest rate of 5%. A provision for doubtful debts of nil (1995: $646,093) is held against the loan to Network Trust. Transactions with associated entities are detailed below. Aggregate Amounts receivable from associated entities provision for doubtful debts provision for doubtful debts - charge Property held for resale in development ventures with associated entities provision for diminution in value Interest revenue Dividend revenue Interest expense Other revenue Consolidated The Company 1996 $’000 1995 $’000 2,290 - - - - 509 2,581 105 172 12,795 846 646 356 356 1,092 1,639 - - 1996 $’000 300 - - - - 24 - - - 1995 $’000 4,069 646 646 356 356 39 - - - 95 Notes to the Financial Statements 42: Remuneration of Directors Remuneration includes salaries, bonuses, other benefits (including non-cash benefits) and retirement benefits and superannuation contributions. The maximum total remuneration for non-executive directors of the company was set at the Annual General Meeting on 20 January 1995 at $0.85 million. Total fees paid to non-executive directors by the Company for the year was $0.7 million (1995: $0.7 million). The number of directors of the Company with total remuneration in each of the following bands was $50,001 to $60,000 $60,001 to $70,000 $70,001 to $80,000 $80,001 to $90,000 $90,001 to $100,000 $130,001 to $140,000 Total number of directors The Company 1996 1995 The Company 1996 1995 - 4 4 - - - 1 2 3 1 1 1 $160,001 to $170,000 $480,001 to $490,000 $530,001 to $540,000 $580,001 to $590,000 $810,001 to $820,000 $1,000,001 to $1,010,000 1 - - 2 - 1 - 2 1 - 1 - 12 13 Consolidated The Company 1996 $’000 1995 $’000 1996 $’000 1995 $’000 96 Total remuneration received or due and receivable by directors of the Company and controlled entities from the Company or related body corporate1 7,555 9,477 2,911 3,040 1 Including the total remuneration of executive directors, excluding executive directors of controlled entities who are executives of the Company Under class order 96/1171 issued by the Australian Securities Commission on 25 July 1996, the Company is relieved from the disclosure requirements in respect of directors’ remuneration set out in Australian Accounting Standard AASB 1017 “Related Party Disclosures”. The disclosure requirements in respect of directors’ remuneration set out in Schedule 5 of the Corporations Law have been complied with. Remuneration amounts (including comparatives) are disclosed in accordance with the class order. Notes to the Financial Statements 43: Remuneration of Executives Remuneration includes salaries, bonuses, other benefits, and superannuation contributions. The remuneration of executives who work wholly or mainly outside Australia are excluded from this disclosure. The number of executives with total remuneration exceeding $100,000 in each of the following bands was Consolidated The Company 1996 1995 1996 1995 Consolidated 1996 1995 The Company 1996 1995 $110,001 to $120,000 $130,001 to $140,000 $140,001 to $150,000 $150,001 to $160,000 $160,001 to $170,000 $170,001 to $180,000 $180,001 to $190,000 $190,001 to $200,000 $200,001 to $210,000 $210,001 to $220,000 $220,001 to $230,000 $230,001 to $240,000 $240,001 to $250,000 $250,001 to $260,000 $260,001 to $270,000 $270,001 to $280,000 $280,001 to $290,000 $290,001 to $300,000 $300,001 to $310,000 $320,000 to $330,000 $330,001 to $340,000 2 11 - 21 3 2 4 2 51 1 4 2 1 1 1 3 4 1 - 21 11 - 3 3 1 1 3 3 2 1 2 2 2 3 - 3 1 4 1 2 2 3 2 1 - - 1 - - - - - 1 1 1 - 2 1 1 1 1 1 3 1 - 21 - - - - - - - - - 2 2 1 2 - - 3 1 1 2 3 2 1 - - $340,001 to $350,000 $350,001 to $360,000 $360,001 to $370,000 $370,001 to $380,000 $380,001 to $390,000 $390,001 to $400,000 $400,001 to $410,000 $420,001 to $430,000 $430,001 to $440,000 $440,001 to $450,000 $460,001 to $470,000 $480,001 to $490,000 $520,001 to $530,000 $540,001 to $550,000 $580,001 to $590,000 $640,001 to $650,000 $650,001 to $660,000 $720,001 to $730,000 $760,001 to $770,000 $810,001 to $820,000 $1,000,001 to $1,010,000 $1,140,001 to $1,150,000 1 1 21 - 31 1 1 1 2 1 - - 2 - 2 - 11 1 11 - 1 - 1 1 - 3 - - 2 1 - - - 1 1 2 1 1 1 1 1 1 1 1 - 1 1 - 1 - 1 1 1 1 1 - 31 1 1 1 2 1 - - 2 - 2 - 11 1 - - 1 - 1 1 - 3 - - 1 - - - - 2 - - - - - - - 1 - 11 Total number of executives 63 58 36 28 Total remuneration received or due and receivable directly or indirectly by executives of the Company and controlled entities ($’000) 19,778 18,109 13,621 9,827 1 The executives whose remuneration is recorded in these bands include fixed term employees with contracts which recognise their particular expertise and that they have been recruited by the Economic entity for specialised activities. These bands also include employees in the sharebroking industry whose income includes bonuses in accord with the practice of that industry 97 Notes to the Financial Statements 44: US GAAP Reconciliation The consolidated financial statements of the Economic entity are prepared in accordance with Generally Accepted Accounting Principles applicable in Australia (“Australian GAAP”) which differ in some respects from Generally Accepted Accounting Principles in the United States (“US GAAP”). The following are reconciliations of the financial statements, applying US GAAP instead of Australian GAAP Operating profit after income tax using Australian GAAP Items having the effect of increasing(decreasing) reported income: Depreciation charged on the difference between revaluation amount and historical cost of buildings Difference in gain or loss on disposal of properties revalued under historical cost Amortisation of goodwill Write-off of goodwill Amortisation of sale-leaseback gain over lease term Pension expense adjustment Amortisation of capitalised profit arising from sale of Coles Myer warrants Net income according to US GAAP Shareholders’ equity reported at year end using Australian GAAP Elimination of gross asset revaluation reserves Adjustment to provision for depreciation on buildings revalued Restoration of previously deducted goodwill Accumulated amortisation and write-off of goodwill Provision for final dividend Pension expense adjustment Restoration of deferred gain on sale-leaseback transactions less amortisation Shareholders’ equity according to US GAAP Total assets reported using Australian GAAP Elimination of gross asset revaluation reserves Adjustment to provision for depreciation on buildings revalued Restoration of previously deducted goodwill Accumulated amortisation and write-off of goodwill Prepaid pension adjustment Reclassification of deferred tax assets against deferred tax liabilities Total assets according to US GAAP Note 1996 $M 1995 $M 1994 $M 1,116 1,052 822 (i) (i) (ii) (ii) (iii) (vii) (iv) (i) (i) (ii) (ii) (v) (vii) (iii) (i) (i) (ii) (ii) (vii) (vi) 1 4 (36) (7) 4 5 - 2 2 (36) (5) 5 2 - 1,087 1,022 1 3 (37) (5) 17 - 10 811 6,290 (366) 33 807 (436) 355 34 5,700 (370) 32 807 (393) 260 30 5,456 (372) 30 807 (352) 189 - - (4) (9) 6,717 6,062 5,749 127,604 112,587 (370) 32 807 (393) 26 (366) 33 807 (436) 26 103,874 (372) 30 807 (352) - (388) (350) (315) 127,280 112,339 103,672 98 Notes to the Financial Statements 44: US GAAP Reconciliation (continued) Premises and equipment (i) Properties have been revalued by the Economic entity at various times, increasing the book value of these assets (refer note 1 (xvii) in the Financial Statements). Under Australian GAAP, any increments on revaluation are credited directly to the Asset Revaluation Reserve (“ARR”), and decrements are debited to the ARR to the extent of any previous revaluation increments. Decrements in excess of any previous revaluation increments are charged to the Profit and Loss Account. The ARR forms part of Shareholders’ equity. Under US GAAP, revaluation of properties is not permitted except for decrements which are regarded as permanent. Accordingly, under Australian GAAP, depreciation charges are generally higher and profits on disposal are lower than those required under US GAAP. The depreciation charges, together with the profits and losses on revalued assets sold have been adjusted to historical cost in the US GAAP reconciliation. (ii) Goodwill The Economic entity changed its accounting policy in respect of goodwill in the financial year ended 30 September 1993. Previously, goodwill on acquisition was charged in full to the Economic entity’s Profit and Loss Account in the year of acquisition. Under US GAAP, goodwill is capitalised and amortised over the period of time during which the benefits are expected to arise, such period not exceeding 40 years generally or 25 years in respect of bank acquisitions. Adjustments have been made in the US GAAP reconciliation statement to writeback goodwill written-off in full and to amortise such goodwill over the period of the expected benefits. Additionally, to the extent that periodic reviews of the carrying amount of goodwill lead to a write-down of goodwill previously capitalised for US purposes, this is adjusted in the US GAAP reconciliation. Sale-leaseback transactions (iii) Under Australian 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 amortised over the remaining lease term. This difference in treatment has been adjusted in the US GAAP reconciliation. (iv) Option transactions - Coles Myer Warrants Under US GAAP, premia on options written over equities held in portfolio are amortised over the term of the option. Adopting Australian GAAP, the Economic entity has recognised as profit that part of the option premium associated with the warrant issue representing the intrinsic value of the option, and amortised the remainder. This has been adjusted in the US GAAP reconciliation. (v) Dividends Under Australian GAAP, dividends are shown in the Profit and Loss Account in the period to which they relate rather than in the period when they are declared as required by US GAAP. This difference in treatment has been adjusted in the US GAAP shareholders’ equity reconciliation. Income taxes (vi) Under Australian GAAP, tax benefits relating to carry forward tax losses must be “virtually certain” of being realised before being booked. Realisations of benefits relating to other timing differences must be “beyond a reasonable doubt” before they may be booked. These tests are as stringent as those applied under US GAAP and hence no write-down of future tax benefits is required. Australian GAAP allows offsetting of future income tax benefits and liabilities to the extent they will reverse in the same period. US GAAP requires an offset of these two items where reversal will occur within twelve months and in the period exceeding twelve months. This has been adjusted in the US GAAP reconciliation. (vii) Pension commitments Under Australian GAAP, contributions in respect of defined benefit schemes are made at levels necessary to ensure that these schemes are maintained with sufficient assets to meet their actuarially assessed liabilities. Any net deficiency arising from the aggregation of assets and liabilities of the Economic entity’s defined benefit schemes is provided for in the Economic entity’s financial statements (refer note 36 in the Financial Statements). Under US SFAS 87, “Employer’s Accounting for Pensions”, pension expense is a function of an employee’s service period, interest costs, actuarial return on the schemes’ assets, amortisation of unrecognised prior service costs and unrecognised net gains or losses. No adjustment was made to the US GAAP reconciliation in 1994 as the impact on net income, shareholders’ equity and total assets was not material. 99 100 Notes to the Financial Statements 44: US GAAP Reconciliation (continued) (viii) Post retirement benefits Post retirement benefits other than pension payments are not material and no adjustment is required in the US GAAP reconciliation. (ix) Trading securities US GAAP requires that in instances where trading securities are not bought and held principally for the purpose of selling them in the near term, they should be classified as available for sale and recorded at market value with unrealised profits and losses in respect of market value adjustments recognised in Shareholders’ equity. No adjustment is required to be made in the US GAAP reconciliation as the effect of reclassifying certain trading securities as available for sale is not material. (x) Foreclosed and in-substance foreclosed assets The Economic entity does not carry assets acquired in foreclosure proceedings or assets that would be treated as in-substance foreclosures under US GAAP as a separate balance sheet item, because the Economic entity considers the management of security by the Economic entity to constitute part of the loan recovery program. These assets are carried on the Economic entity’s balance sheet under Loans and Advances. As part of doubtful debt assessment procedures, provisions are raised to reflect any shortfall in the collateral value over the loan balance where full recovery of a loan is considered doubtful. As a result, these assets are effectively carried at the fair or market value of the collateral which approximates net realisable value. Therefore, the application of the Securities and Exchange Commission’s Financial Reporting Policy 401.09 regarding in-substance foreclosures would not result in an adjustment in the US GAAP reconciliation. (xi) Accounting for the impairment of loans SFAS 114 “Accounting by Creditors for Impairment 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 effective interest rate, the loan's observable market price or the fair value of the collateral, if the loan is collateral dependent. There is no requirement under Australian GAAP to discount the expected future cash flows attributable to impaired loans in assessing the level of specific provision for doubtful debts. No adjustment is required in the US GAAP reconciliation as the estimated fair value of impaired loans is not materially different from the carrying value as at 30 September 1996. (xii) Accounting for the impairment of long- lived assets and for long-lived assets to be disposed of SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ”, requires that where an event or a change in circumstance indicates that the carrying value of an asset that is expected to be held and used may not be recoverable, an impairment loss shall be recognised. The standard also requires that where there is a committed plan to dispose of an asset, the asset shall be reported at the lower of the carrying value or fair value less selling costs. SFAS 121 will become effective in the Economic entity’s financial statements for the year ending 30 September 1997. The adoption of this standard is not anticipated to have a material impact on the Economic entity’s net income, total assets or shareholders’ equity. (xiii) Accounting for stock-compensation plans Under Australian GAAP, an expense is not recognised for share options issued to employees or for shares issued at a discount. SFAS 123 “Accounting for Stock-Based Compensation”, requires share options and shares issued to employees to be recognised using either the fair value based method or the intrinsic value based method as prescribed by APB No 25. No adjustment is made for the impact of the intrinsic value based method in the US GAAP reconciliation as the impact is not material. The disclosure provisions of SFAS 123, which are not effective until financial years commencing on or after 15 December 1995, have not been adopted by the Economic entity. They will be adopted in the financial year commencing on 1 October 1996. (xiv) Accounting for transfers and servicing of financial assets and extinguishments of liabilities The Economic entity has not adopted the provisions of SFAS 125 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. SFAS 125 prescribes the accounting and reporting requirements for transfers of financial assets and extinguishments of liabilities occurring after 31 December 1996. The Statement also requires, under certain circumstances, a transferor of financial assets that are pledged as collateral to reclassify those assets and the transferee to recognise those assets and their obligation to return them. It is estimated that the adoption of the provisions of SFAS 125 by the Economic entity as at 30 September 1996 would not have resulted in a material adjustment to the US GAAP reconciliation. Notes to the Financial Statements 44: US GAAP Reconciliation (continued) (xv) Details of Pension Schemes and Pension Expense Reconciliations of the funded status of major defined benefit schemes as at 30 June 1996 are summarised below. Details of the funding of the schemes are set out in note 36. Accumulated benefit obligation - vested Projected benefit obligation Fair value of plan assets (Deficiency)excess of assets over projected benefit obligation Unrecognised net transition loss(gain) Unrecognised net loss(gain) Unrecognised prior service cost Adjustment needed to recognise minimum liability (Pension liability)prepaid pension cost The assumptions used in the actuarial calculations are as follows Australian Scheme accumulated benefits exceed assets $M UK Scheme assets exceed accumulated benefits $M 58 58 47 (11) 8 3 - (11) (11) 456 498 603 105 (45) (49) 15 - 26 Australian Scheme UK Scheme Discount rate used in determining present values - active members - pensioners Annual increase in future compensation levels - salary - pensions Expected long-term rate of return on assets 7.5% 9.0% 5% 3% 8% The elements of the net periodic pension cost of the above schemes are as follows Service cost Interest cost Actual return on schemes’ assets Net amortisation and deferral Net periodic pension cost 101 8.75% - 7% - 9.5% 1996 $M 11 44 (96) 42 1 The Economic entity also sponsors defined contribution schemes. Details of the major schemes are set out in note 36. The Economic entity’s contributions to major defined contribution schemes amounted to $83 million for the year. 45: Operation of Systems in Year 2000 The Economic entity is reviewing its systems to ensure they will operate satisfactorily when the year changes from 1999 to 2000. The reason for this is that some computer systems process transactions based on storing two digits for the year of a transaction, rather than a full four digits (for example, “96” for 1996). These systems may require modification to ensure that transactions are accurately processed in the year 2000. At this stage the review is not complete and the total cost of the modifications cannot be quantified. Such costs, being in the nature of maintenance, will be expensed. 46: Events Since the End of the Financial Year There have been no significant events since 30 September 1996 to the date of this Report. Directors’ Statement In the opinion of the directors of Australia and New Zealand Banking Group Limited, the accompanying financial statements of the Company and the Economic entity are properly drawn up in accordance with the provisions of the Corporations Law in the manner authorised for a prescribed corporation being a bank and on this basis (i) the financial statements set out on pages 39 to 101 are drawn up so as to give a true and fair view of the results and cash flows for the financial year ended 30 September 1996, and the state of affairs at 30 September 1996, of the Company and the Economic entity; the consolidated accounts have been made out in accordance with Divisions 4A and 4B of Part 3.6 of the Corporations Law; and (ii) (iii) at the date of this statement there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due. 102 Signed in accordance with a resolution of the directors The financial statements have been prepared in accordance with applicable Australian Accounting Standards and Urgent Issues Group Consensus Views. The Company and some of its wholly owned controlled entities listed in note 30 executed a Deed of Cross Guarantee enabling them to take advantage of the accounting and audit relief offered by the class order 95/1530, dated 10 November 1995 issued by the Australian Securities Commission. The nature of the Deed of Cross Guarantee is to guarantee each creditor payment in full of any debt in accordance with the terms of the Deed of Cross Guarantee. At the date of this statement, there are reasonable grounds to believe that the Company and its controlled entities to which the class orders apply, are able, as an Economic entity, to meet any obligations or liabilities to which they are, or may become, subject by virtue of the Deed of Cross Guarantee. Charles B Goode Chairman 29 November 1996 D P Mercer Chief Executive Officer Auditors’ Report To the Members of Australia and New Zealand Banking Group Limited Scope We have audited the financial statements of Australia and New Zealand Banking Group Limited for the financial year ended 30 September 1996, consisting of the profit and loss accounts, balance sheets, statements of changes in shareholders’ equity, statements of cash flows, accompanying notes and the directors’ statement set out on pages 39 to 102. The financial statements comprise the accounts of the Company and the consolidated accounts of the Economic entity being the Company and its controlled entities. The Company’s directors are responsible for the preparation and presentation of the financial statements and the information they contain. We have conducted an independent audit of these financial statements in order to express an opinion on them to the members of the Company. Our audit has been conducted in accordance with Australian Auditing Standards (which are substantially the same as auditing standards generally accepted in the United States of America) to provide reasonable assurance as to whether the financial statements are free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial statements, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion as to whether, in all material respects, the financial statements are presented fairly in accordance with accounting standards and other mandatory professional reporting requirements (Urgent Issues Group Consensus Views) and statutory requirements in the manner authorised for a prescribed corporation being a banking corporation so as to present a view which is consistent with our understanding of the Company’s and the Economic entity’s financial position, the results of their operations and their cash flows. The names of the controlled entities of which we have not acted as auditors are set out in note 30. We have received sufficient information and explanations concerning these controlled entities to enable us to form an opinion on the consolidated accounts. The audit opinion expressed in this report has been formed on the above basis. Qualification The audit report on the financial statements for the year ended 30 September 1996 of a controlled entity of the Company, being ANZ Grindlays Bank Limited, states that the ultimate outcome of a claim against ANZ Grindlays Bank Limited by the National Housing Bank of India is at present uncertain. This material uncertainty is detailed within note 35 of the financial statements under the heading “India - National Housing Bank”. In view of the circumstances, and in particular having regard to the legal opinion obtained by the Economic entity, we concur with the basis on which the financial statements of the Economic entity have been presented. Qualified Audit Opinion In our opinion, the financial statements of Australia and New Zealand Banking Group Limited, and, subject to the effects of such adjustments, if any, as might have been required had the ultimate resolution of the uncertainty discussed in the qualification paragraph been known, the financial statements of the Economic entity, are properly drawn up: (a) so as to give a true and fair view of: (i) the state of affairs of the Economic entity at 30 September 1996 and 1995 and of the results and cash flows of the Economic entity for the financial years ended on 30 September 1996, 1995 and 1994; (ii) the state of affairs of the Company at 30 September 1996 and 1995 and of the results and cash flows of the Company for the financial years ended 30 September 1996 and 1995; and (iii) the other matters required by Divisions 4, 4A and 4B of Part 3.6 of the Corporations Law to be dealt with in the financial statements; (b) (c) in accordance with the provisions of the Corporations Law in the manner authorised for a prescribed corporation being a banking corporation; and in accordance with applicable Australian Accounting Standards and other mandatory professional reporting requirements. Accounting principles generally accepted in Australia vary in certain respects from accounting principles generally accepted in the United States of America. An explanation of the major differences between the two sets of principles is presented in note 44 to the financial statements. The application of the United States principles would have affected the determination of consolidated net profit for each of the three years in the period ended 30 September 1996 and the determination of the consolidated financial position as of 30 September 1996, 1995 and 1994 to the extent summarised in note 44 to the financial statements. KPMG Chartered Accountants Melbourne 29 November 1996 P M Burroughs Partner 103 Financial Information 1: Capital Adequacy The Reserve Bank of Australia (RBA) adopts a risk-based capital assessment framework for Australian banks based on internationally accepted capital measurement standards. This risk-based approach requires eligible capital to be divided by total risk weighted assets, with the resultant ratio being used as a measure of a bank’s capital adequacy in relation to its credit risk. Capital is divided into tier 1, or ‘core’ capital, and tier 2, or ‘supplementary’ capital. For capital adequacy purposes, eligible tier 2 capital cannot exceed the level of tier 1 capital. Banks are required to deduct from total capital any strategic holdings of other banks' capital instruments and investments in entities engaged in life insurance, funds management and securitisation activities. Under RBA guidelines, banks must maintain a ratio of qualifying capital to risk weighted assets of at least 8 per cent. Risk weightings are applied to balance sheet assets and to credit converted off-balance sheet exposures to determine total risk weighted assets. Categories of risk weights are assigned based upon the nature of the counterparty and the relative liquidity of the assets concerned. Qualifying capital Tier 1 Total shareholders’ equity and outside equity interests Unamortised goodwill Net future income tax benefit Tier 1 capital Tier 2 Perpetual notes - subordinated General provision for doubtful debts Subordinated notes1 Tier 2 capital 104 Investment in ANZ Life Investments in funds management and securitisation activities2 Total qualifying capital Balance sheet assets Liquid assets Due from other banks Trading securities Investment securities Net loans and advances Customers’ liabilities for acceptances Regulatory deposits Shares in associates Other assets Premises and equipment 1996 $M 1995 $M 1996 $M 1995 $M 1996 $M 1995 $M 6,336 (17) (46) 6,273 895 709 1,604 2,419 4,023 (354) (122) 5,747 (8) (236) 5,503 943 678 1,621 2,213 3,834 (302) n/a 9,820 9,035 Assets Risk weighted assets 6,901 11,352 7,334 2,570 75,901 14,013 1,163 10 6,340 2,020 5,054 8,759 5,785 2,833 68,216 12,646 1,174 10 6,119 1,991 1,715 2,403 2,681 630 59,142 12,948 178 10 1,538 2,020 1,534 1,771 1,809 840 52,449 12,178 134 10 1,740 1,991 127,604 112,587 83,265 74,456 Off-balance sheet exposures Direct credit substitutes Trade and performance related items Commitments Foreign exchange, interest rate and other market related transactions Contract/ notional amount 3,360 7,964 30,965 3,419 7,798 25,720 516,371 394,337 Credit equivalent 3,360 3,577 4,085 5,105 3,419 3,496 2,204 4,958 Total risk weighted assets and off-balance sheet exposures Capital adequacy ratios Tier 1 Tier 2 Deductions Total 1 Subordinated note issues are reduced each year by 20% of the original amount during the last five years to maturity 2 RBA guidelines did not require investments in funds management and securitisation activities to be deducted in 1995 2,369 3,202 3,431 1,250 10,252 2,437 3,068 1,898 1,217 8,620 93,517 83,076 % 6.7 4.3 (0.5) 10.5 % 6.6 4.6 (0.3) 10.9 Financial Information 2: Average Balance Sheet and Related Interest Averages used in the following table are predominantly daily averages. Interest income figures are presented on a tax-equivalent basis. Non-accrual loans are included under the interest earning asset category “Loans, advances and bills discounted”. Amounts classified as “International markets” represent assets and liabilities of the Economic entity’s non-Australian and non-New Zealand banking offices and controlled entities. 1996 Average balance $M Interest $M Average rate % Average balance $M 1995 Interest $M Average rate % Average balance $M 1994 Interest $M Average rate % Interest earning assets Due from other banks Australia New Zealand International markets Regulatory deposits with Reserve Bank of Australia Investments in public securities Australia New Zealand International markets Loans, advances and bills discounted Australia New Zealand International markets Other assets Australia New Zealand International markets Non-interest earning assets Acceptances Australia New Zealand International markets Premises and equipment Other assets Provisions for doubtful debts Australia New Zealand International markets Total assets Total assets Australia New Zealand International markets 12,581 597 462 2,027 6,842 (1,002) (118) (238) 21,151 120,822 70,917 16,212 33,693 120,822 % of total assets attributable to overseas activities 41.3% 390 339 8,940 491 4,464 1,116 3,195 25 28 607 30 332 81 290 6.4 8.3 6.8 6.1 7.4 7.3 9.1 737 660 7,002 27 37 452 3.6 5.6 6.5 460 22 4.8 4,485 1,013 3,577 238 59 294 44,783 11,134 10,313 4,471 1,143 922 10.0 10.3 8.9 41,411 8,803 9,510 3,648 714 743 630 346 10,209 535 4,897 1,090 2,973 41 27 699 13 380 88 289 48,399 12,619 11,770 4,939 1,315 1,084 618 760 4,825 53 77 293 6.5 7.8 6.8 2.4 7.8 8.1 9.7 10.2 10.4 9.2 8.6 10.1 6.1 861 800 4,086 61 70 278 99,671 9,298 9.3 90,912 8,338 5.3 5.8 8.2 8.8 8.1 7.8 6.0 6.7 4.8 7.8 105 7.1 8.8 6.8 9.2 779 254 4,766 47 17 229 83,457 6,527 10,708 740 703 1,934 8,675 (1,607) (117) (632) 20,404 103,861 62,743 12,187 28,931 103,861 39.6% 11,521 672 586 1,982 7,714 (1,163) (96) (300) 20,916 111,828 66,095 14,924 30,809 111,828 40.9% 106 Financial Information 2: Average Balance Sheet and Related Interest (continued) Average balance $M 1996 Interest $M Average rate % Average balance $M 1995 Interest $M Average rate % Average balance $M 1994 Interest $M Average rate % Interest bearing liabilities Time deposits Australia New Zealand International markets 18,542 7,313 11,722 1,340 622 785 Savings deposits Australia New Zealand International markets Other demand deposits Australia New Zealand International markets Due to other banks Australia New Zealand International markets Commercial paper Australia New Zealand International markets Borrowing corporations’ debt Australia New Zealand International markets Loan capital, bonds and notes Australia New Zealand International markets Other liabilities1 Australia New Zealand International markets 7,530 2,183 1,142 8,683 1,534 810 397 732 11,501 2,469 - 1,087 5,081 1,167 - 4,246 186 621 676 - 698 264 83 57 520 121 35 27 72 763 186 - 61 420 99 - 322 19 37 76 7 53 7.2 8.5 6.7 3.5 3.8 5.0 6.0 7.9 4.3 6.8 9.8 6.6 7.5 - 5.6 8.3 8.5 - 7.6 10.2 6.0 n/a n/a n/a 17,605 6,175 9,885 1,251 491 644 7,408 1,959 1,158 7,207 1,395 628 213 863 10,902 1,601 - 1,173 4,915 1,137 2 4,060 120 605 727 - 406 239 52 55 408 103 30 15 69 722 110 - 68 402 87 - 314 17 38 78 9 27 88,320 5,969 6.8 80,144 5,229 Non-interest bearing liabilities Deposits 7.1 8.0 6.5 3.2 2.7 4.7 5.7 7.4 4.8 7.0 8.0 6.6 6.9 - 5.8 8.2 7.7 - 7.7 14.2 6.3 n/a n/a n/a 6.5 14,374 4,061 9,154 7,440 1,930 1,038 7,355 1,293 727 340 901 10,958 1,738 - 932 4,779 877 - 4,194 102 618 469 7 642 757 239 481 209 41 48 289 61 21 15 42 580 75 - 39 386 59 - 223 15 30 45 6 24 73,929 3,685 5.3 5.9 5.3 2.8 2.1 4.6 3.9 4.7 2.9 4.3 4.7 5.3 4.3 - 4.2 8.1 6.7 - 5.3 14.7 4.9 n/a n/a n/a 5.0 Australia New Zealand International markets Acceptances Australia New Zealand International markets Other liabilities Total liabilities Total liabilities Australia New Zealand International markets Shareholders’ equity Total liabilities and shareholders’ equity 2,736 1,139 1,249 12,581 597 462 7,586 26,350 114,670 66,679 15,352 32,639 114,670 6,152 120,822 % of total liabilities attributable to overseas activities 41.9% 1 Includes foreign exchange swap costs 3,340 1,075 1,139 11,521 672 586 7,420 25,753 105,897 62,193 14,022 29,682 105,897 5,931 111,828 41.3% 3,581 855 1,082 10,708 740 703 6,935 24,604 98,533 58,561 11,397 28,575 98,533 5,328 103,861 40.6% Financial Information 3: Interest Spreads and Net Interest Average Margins Net interest income Australia New Zealand International markets Average interest earning assets Australia New Zealand International markets Gross earnings rate1 Australia New Zealand International markets Total Interest spreads and net interest average margins may be analysed as follows Australia Gross interest spread Interest forgone on impaired assets2 Net interest spread3 Interest attributable to net non-interest bearing items Net interest average margin4 - Australia New Zealand Gross interest spread Interest forgone on impaired assets2 Net interest spread3 Interest attributable to net non-interest bearing items Net interest average margin4 - New Zealand International markets Gross interest spread Interest forgone on impaired assets2 Net interest spread3 Interest attributable to net non-interest bearing items Net interest average margin4 - International markets Group Gross interest spread Interest forgone on impaired assets2 Net interest spread3 Interest attributable to net non-interest bearing items Net interest average margin4 - Group 1996 $M 2,271 484 574 3,329 1995 $M 1994 $M 2,102 494 513 3,109 1,983 364 495 2,842 55,079 14,815 29,777 50,989 13,389 26,534 47,871 10,730 24,856 99,671 90,912 83,457 % % % 9.85 10.17 7.94 9.33 9.65 9.87 7.90 9.17 8.32 7.71 6.91 7.82 3.37 (0.15) 3.22 0.90 4.12 2.43 (0.06) 2.37 0.90 3.27 1.49 (0.04) 1.45 0.48 1.93 2.67 (0.10) 2.57 0.77 3.34 3.46 (0.25) 3.21 0.91 4.12 2.77 (0.01) 2.76 0.93 3.69 1.48 0.02 1.50 0.43 1.93 2.79 (0.14) 2.65 0.77 3.42 3.87 (0.47) 3.40 0.74 4.14 2.80 (0.14) 2.66 0.73 3.39 1.67 0.16 1.83 0.16 1.99 3.07 (0.24) 2.83 0.57 3.40 1 Average interest rate received on interest earning assets 2 Refer note 14 to the Financial Statements 3 Average interest rate received on interest earning assets less the average interest rate paid on interest bearing liabilities 4 Net interest income as a percentage of average interest earning assets 107 Financial Information 4: Volume and Rate Analysis The following table allocates changes in interest income and interest expense between changes in volume and changes in rate for the past two years. Volume and rate variances have been calculated on the movement in average balances and the change in the interest rates on average interest earning assets and average interest bearing liabilities. The variance caused by the change of both volume and rate has been allocated in proportion to the relationship of the absolute dollar amounts of each change to the total. 1996 over 1995 Change due to Rate $M Volume $M Total $M Volume $M 1995 over 1994 Change due to Rate $M Interest earning assets Due from other banks Australia New Zealand International markets Regulatory deposits with Reserve Bank of Australia Investments in public securities Australia New Zealand International markets Loans, advances and bills discounted Australia New Zealand International markets Other assets Australia New Zealand International markets Change in interest income 16 1 87 2 33 (2) (21) 367 155 133 (19) (4) 47 795 - (2) 5 16 (1) 92 (19) (17) 15 9 20 101 17 29 11 11 (32) 165 48 7 (1) 468 172 162 (8) 7 15 960 (16) (22) 131 2 (1) 6 (33) 312 214 66 5 46 (36) 674 108 14 13 24 6 95 16 29 511 215 113 9 7 85 1,137 1,811 Total $M (2) (9) 155 8 94 22 (4) 823 429 179 14 53 49 Financial Information 4: Volume and Rate Analysis (continued) 1996 over 1995 Change due to Rate $M Volume $M Total $M Volume $M 1995 over 1994 Change due to Rate $M Interest bearing liabilities Time deposits Australia New Zealand International markets Savings deposits Australia New Zealand International markets Other demand deposits Australia New Zealand International markets Due to other banks Australia New Zealand International markets Commercial paper Australia New Zealand International markets Borrowing corporations’ debt Australia New Zealand International markets Loan capital, bonds and notes Australia New Zealand International markets Other liabilities Australia New Zealand International markets Change in interest expense Change in net interest income 67 95 123 4 6 (1) 87 11 8 13 (11) 40 65 - (5) 14 2 - 14 8 1 (6) - 22 557 238 22 36 18 21 25 3 25 7 (3) (1) 14 1 11 - (2) 4 9 - (6) (7) (2) 4 - 4 89 131 141 25 31 2 112 18 5 12 3 41 76 - (7) 18 11 - 8 1 (1) (2) - 26 183 (18) 740 220 194 151 41 (1) 1 6 (6) 5 (3) (7) (2) (3) (6) - 12 11 19 - (7) 3 (1) 27 (3) (11) 420 254 Total $M 494 252 163 30 11 7 119 42 9 - 27 142 35 - 29 16 28 - 91 2 8 33 3 3 109 300 101 122 31 10 1 125 37 12 7 29 145 41 - 17 5 9 - 98 (1) 9 6 6 14 1,124 1,544 13 267 Financial Information 5: Interest Sensitivity Gap The following table represents the interest rate sensitivity as at 30 September 1996 of the Economic entity’s assets, liabilities and off-balance sheet instruments repricing (ie when interest rates applicable to each asset or liability can be changed) in the periods shown. Sensitivity to interest rates arises from mismatches in the period to repricing of assets and that of the corresponding liability funding. These mismatches are managed within policy guidelines for gap positions. Major changes in gap positions can be made to adjust the profile as market outlooks change. At 30 September 1996 Net loans and advances Liquid assets and due from other banks Trading and investment securities Other assets To 3 months $M 3 to 6 months $M 6 to 12 months $M 1 to 5 years $M Greater than 5 years $M Not bearing interest $M Total $M 41,819 7,799 7,806 17,127 1,335 15 75,901 13,924 4,357 872 2,514 1,186 7 730 354 - 202 1,902 14 4 1,794 3 879 311 22,650 18,253 9,904 23,546 Total assets 60,972 11,506 8,890 19,245 3,136 23,855 127,604 Certificates of deposit and term deposits Other deposits Other borrowings and due to other banks Bond, notes and loan capital Other liabilities 28,014 22,529 14,656 3,329 34 6,835 393 2,641 1,038 5 5,661 85 1,376 274 - 3,558 4 357 517 15 160 438 43 706 - - 5,210 44,228 28,659 431 - 22,959 19,504 5,864 23,013 Total liabilities 68,562 10,912 7,396 4,451 1,347 28,600 121,268 110 Shareholders’ equity and outside equity interests Off-balance sheet items affecting interest rate sensitivity Interest sensitivity gap - net - cumulative - - - - - 6,336 6,336 5,359 (820) (1,197) (2,712) (630) - (2,231) (2,231) (226) (2,457) 297 (2,160) 12,082 1,159 9,922 11,081 (11,081) - - - - Financial Information 6: Investment Securities by Maturities and Yields Investment securities are allocated between Australia and Overseas based on the domicile of the issuer. Market value total $M 4 46 437 487 537 27 332 697 487 Total $M 4 46 436 486 540 28 336 695 485 2,084 2,570 2,080 n/a n/a 2,567 Based on remaining term to maturity at 30 September 1996 At book value Australia Commonwealth securities Local and semi-government securities Other securities and equity investments Overseas New Zealand government securities US treasury and government securities Indian government securities Other government securities Other securities and equity investments Total book value Total market value Weighted average yields1 Australia Commonwealth securities Local and semi-government securities Other securities and equity investments Overseas New Zealand government securities US treasury and government securities Indian government securities Other government securities Other securities and equity investments Due in 1 year or less $M Due between 1 year and 5 years $M Due between 5 years and 10 years $M Due after 10 years $M 4 9 281 294 526 28 88 507 302 1,451 1,745 1,741 % 8.35 7.70 6.53 9.21 5.67 9.60 10.54 8.41 - 37 152 189 14 - 231 164 174 583 772 772 % - 8.04 7.42 8.00 - 11.65 9.29 7.38 - - 1 1 - - 12 22 3 37 38 37 % - - - - - 11.76 5.45 5.59 - - 2 2 - - 5 2 6 13 15 17 % - - 5.73 - - 13.22 10.50 8.65 1 Based on coupon rates for fixed interest securities, effective yields for discounted securities and dividend yield for equity investments at 30 September 1996 111 Financial Information 7: Loans and Advances by Industry The Economic entity’s loans and advances classified according to industry segments are set out below Australia Agriculture, forestry, fishing and mining Business service Entertainment, leisure and tourism Financial, investment and insurance Government and official institutions Lease finance Manufacturing Personal1 Real estate - construction Real estate - mortgage2 Retail and wholesale trade Other Overseas Agriculture, forestry, fishing and mining Business service Entertainment, leisure and tourism Financial, investment and insurance Government and official institutions Lease finance Manufacturing Personal1 Real estate - construction Real estate - mortgage2 Retail and wholesale trade Other Rescheduled country debt Gross loans and advances Provisions for doubtful debts Income yet to mature3 112 1996 $M 1995 $M 1994 $M 1993 $M 1992 $M 2,038 950 1,302 2,472 70 3,282 2,998 7,384 857 23,518 4,210 3,008 52,089 1,471 439 393 4,493 377 68 3,722 3,115 753 8,034 1,711 2,254 n/a 1,721 1,053 1,079 2,106 104 3,138 2,639 7,109 817 22,734 3,615 2,157 1,884 851 827 2,359 345 3,179 1,752 6,379 704 21,674 3,362 1,451 1,802 759 894 1,638 205 3,212 1,948 6,252 774 19,676 3,497 2,042 1,889 727 896 2,333 327 3,610 2,006 6,357 1,022 19,245 3,309 2,257 48,272 44,767 42,699 43,978 1,309 501 319 2,066 320 51 3,973 3,221 602 7,488 1,554 1,618 n/a 750 481 237 1,703 595 52 2,598 2,388 373 6,245 1,485 1,486 n/a 901 449 227 1,776 409 63 2,821 2,366 331 5,492 1,524 1,391 600 722 505 356 2,043 408 68 2,912 2,251 414 4,777 1,375 1,022 691 26,830 23,022 18,393 18,350 17,544 78,919 71,294 63,160 61,049 61,522 (1,218) (1,800) (1,380) (1,698) (1,652) (1,477) (2,690) (2,075) (3,338) (2,417) (3,018) (3,078) (3,129) (4,765) (5,755) Net loans and advances 75,901 68,216 60,031 56,284 55,767 n/a Not applicable 1 Personal includes non-business loans to individuals through overdrafts, personal loans, credit cards and fully drawn advances 2 Real estate mortgage includes residential and commercial property exposure. Loans within this category must be for the purchase of such properties and must be secured by property 3 Effective from 30 September 1994, the Economic entity ceased the practice of reserving interest on certain non-accrual loans. The reserved interest balance as at 30 September 1994 of $286 million for the Economic entity has been written back against the relevant loan accounts. Income yet to mature as at 30 September 1993 includes reserved interest of $517 million for the Economic entity Financial Information 8: Concentrations of Credit Risk Concentrations of credit risk exist if a number of counterparties are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Off-balance sheet transactions of the Economic entity are substantially with other banks. 1996 Loans and advances Acceptances $M $M Total $M Specific provision $M 1995 Total $M Specific provision $M Australia Agriculture, forestry, fishing and mining Business service Entertainment, leisure and tourism Financial, investment and insurance Government and official institutions Lease finance Manufacturing Personal1 Real estate - construction Real estate - mortgage2 Retail and wholesale trade Other Overseas Agriculture, forestry, fishing and mining Business service Entertainment, leisure and tourism Financial, investment and insurance Government and official institutions Lease finance Manufacturing Personal1 Real estate - construction Real estate - mortgage2 Retail and wholesale trade Other 2,038 950 1,302 2,472 70 3,282 2,998 7,384 857 23,518 4,210 3,008 556 228 1,629 1,054 8 - 2,155 343 111 4,079 1,904 890 2,594 1,178 2,931 3,526 78 3,282 5,153 7,727 968 27,597 6,114 3,898 21 27 18 22 - 8 17 35 12 82 51 53 52,089 12,957 65,046 346 1,471 439 393 4,493 377 68 3,722 3,115 753 8,034 1,711 2,254 24 94 1 218 - - 311 28 45 6 168 161 1,495 533 394 4,711 377 68 4,033 3,143 798 8,040 1,879 2,415 4 6 3 23 3 - 55 15 16 8 28 2 2,326 1,534 2,178 3,734 114 3,138 4,409 7,417 1,001 25,898 5,383 2,552 59,684 1,352 589 325 2,356 322 51 4,335 3,262 636 7,494 1,698 1,836 25 36 23 32 - 14 62 40 15 126 75 57 505 11 9 7 26 3 - 54 11 16 10 27 23 Total portfolio 26,830 1,056 27,886 78,919 14,013 92,932 163 509 24,256 83,940 197 702 1 Personal includes non-business loans to individuals through overdrafts, personal loans, credit cards and fully drawn advances 2 Real estate mortgage includes residential and commercial property exposure. Loans within this category must be for the purchase of such properties and must be secured by property 113 Financial Information 9: Maturity Distribution and Interest Rate Sensitivity of Loans Based on remaining term to maturity at 30 September 1996 Australia Agriculture, forestry, fishing and mining Business service Entertainment, leisure and tourism Financial, investment and insurance Government and official institutions Lease finance Manufacturing Personal Real estate - construction Real estate - mortgage Retail and wholesale trade Other Overseas Gross loans and advances Interest rate sensitivity Fixed interest rates1 Variable interest rates Due in 1 year or less $M Due between 1 year and 5 years $M Due over 5 years $M 235 153 443 632 36 613 195 2,906 143 18,302 578 502 5,233 Total $M 2,038 950 1,302 2,472 70 3,282 2,998 7,384 857 23,518 4,210 3,008 26,830 767 357 453 993 29 1,808 1,450 2,182 281 3,124 1,639 1,198 7,485 21,766 29,971 78,919 15,361 6,405 21,766 13,058 16,913 29,971 42,916 36,003 78,919 1,036 440 406 847 5 861 1,353 2,296 433 2,092 1,993 1,308 14,112 27,182 14,497 12,685 27,182 1 Housing loans and other loans that are capped for an initial period are treated as fixed interest rate loans and maturity profiled on the principal repayments due over the term of the loan 114 10: Cross Border Outstandings Cross border outstandings of the Economic entity to countries which individually represented in excess of 0.75% of the Economic entity’s total assets are shown below. There were no cross border outstandings to any other country exceeding 0.75% of total assets. Cross border foreign outstandings are based on the country of domicile of the borrower or guarantor of the ultimate risk and comprise loans (including accrued interest), placements with banks, acceptances and other monetary assets denominated in currencies other than the borrower’s local currency. Governments and other official institutions $M Banks and other financial institutions $M Other commercial and industrial $M 10 916 96 78 22 1 87 77 98 87 94 26 361 588 679 1,351 1,552 990 767 965 724 1,444 479 1,165 1,388 46 2,984 875 776 577 282 456 69 3,134 2,114 910 493 253 484 % of Economic entity assets Commitments including irrevocable letters of credit $M 2.8 1.9 1.7 1.7 1.0 1.0 0.9 3.5 3.2 1.3 1.6 1.5 0.8 1,217 16 27 175 248 218 63 1,871 436 560 678 34 746 Total $M 3,582 2,470 2,223 2,207 1,294 1,224 1,121 3,935 3,656 1,476 1,752 1,667 891 At 30 September 1996 New Zealand USA United Kingdom Japan Singapore Hong Kong France At 30 September 19951 New Zealand United Kingdom USA Japan Singapore India 1 Prior year amounts include gross unhedged investment in overseas branches and controlled entities Financial Information 11: Doubtful Debts - Industry Analysis Balance at start of year Adjustment for exchange rate fluctuations Write-offs (refer (i) below) Transfer from/charge to profit and loss account Provisions acquired(disposed) Tax (liability)benefit realised on rescheduled debt Recognition of provisions previously netted against tax benefits Other 1996 $M 1,380 (16) (346) 200 - - - - 1995 $M 1,652 (2) (497) 226 - - - 1 1994 $M 2,690 (84) (1,427) 469 3 - - 1 1993 $M 3,338 56 (1,440) 718 (22) (2) 35 7 1992 $M 1,993 110 (769) 1,975 40 1 - (12) Total provisions for doubtful debts 1,218 1,380 1,652 2,690 3,338 (i) Total write-offs by industry Australia Agriculture, forestry, fishing and mining Business service Entertainment, leisure and tourism Financial, investment and insurance Government and official institutions Lease finance Manufacturing Personal1 Real estate - construction Real estate - mortgage2 Retail and wholesale trade Other Overseas Rescheduled country debt Other Total write-offs (ii) Total recoveries by industry Australia Agriculture, forestry, fishing and mining Business service Entertainment, leisure and tourism Financial, investment and insurance Government and official institutions Lease finance Manufacturing Personal1 Real estate - construction Real estate - mortgage2 Retail and wholesale trade Other Overseas Rescheduled country debt Other Total recoveries Net write-offs Ratio of net write-offs to average loans and acceptances (11) (17) (19) (8) - (12) (49) (46) (6) (77) (33) (23) n/a (45) (346) 3 1 2 3 - 3 2 9 1 9 2 2 n/a 9 46 (19) (11) (29) (11) (75) (52) (95) (34) - (#) (26) (79) (42) (36) (382) (127) (21) (45) (41) (47) (6) (102) (50) (55) n/a (81) (321) (137) (55) (75) (22) (49) - (53) (46) (91) (22) (576) (93) (18) (82) (258) (497) (1,427) (1,440) 1 1 3 2 - 3 1 10 - 3 4 3 n/a 21 52 4 1 3 4 - 4 1 11 1 5 6 3 12 33 88 1 2 1 5 - 5 # 8 # 7 2 1 30 9 71 115 (37) (56) (21) (36) (3) (28) (45) (48) (16) (206) (61) (38) (11) (163) (769) 1 1 # 1 - 4 1 10 # 6 1 5 - 7 37 (300) (445) (1,339) (1,369) (732) 0.3% 0.6% 1.9% 1.9% 1.0% # Amounts less than $500,000 n/a Not applicable 1 Personal includes non-business loans to individuals through overdrafts, personal loans, credit cards and fully drawn advances 2 Real estate mortgage includes residential and commercial property exposure. Loans within this category must be for the purchase of such properties and must be secured by property Financial Information 12: Certificates of Deposit and Term Deposit Maturities The following table shows the maturity profile of the Economic entity’s certificates of deposit and term deposits in excess of $100,000 issued at 30 September 1996 Due in 3 months or less $M Due between 3 months and 6 months $M Due between 6 months and 1 year $M Due in over 1 year $M Australia Certificates of deposit Term deposits Overseas Certificates of deposit Term deposits Total 980 7,177 8,157 2,205 9,378 11,583 19,740 39 1,130 1,169 1,441 1,780 3,221 4,390 72 863 935 347 756 1,103 2,038 Total $M 1,135 9,759 10,894 4,209 12,256 16,465 44 589 633 216 342 558 1,191 27,359 13: Short Term Borrowings The Economic entity’s short term borrowings comprise commercial paper, as well as unsecured notes issued by subsidiary borrowing corporations with an original term to maturity of less than one year. The Economic entity has commercial paper programmes in the United States, where it issues paper through ANZ (Delaware) Inc., and in Europe and Asia, where the Economic entity issues paper direct. 116 Balance at end of year Commercial paper - ANZ (Delaware) Inc. Commercial paper - other Unsecured notes Weighted average interest rate at end of year Commercial paper - ANZ (Delaware) Inc. Commercial paper - other Unsecured notes Maximum amount outstanding at any month end during year Commercial paper - ANZ (Delaware) Inc. Commercial paper - other Unsecured notes Average amount outstanding during year Commercial paper - ANZ (Delaware) Inc. Commercial paper - other Unsecured notes Weighted average interest rate during year Commercial paper - ANZ (Delaware) Inc. Commercial paper - other Unsecured notes 1996 $M 946 2,341 490 5.58% 7.22% 6.93% 1,841 3,021 506 1,087 2,469 478 5.58% 7.53% 6.48% 1995 $M 1,164 2,046 382 5.76% 5.71% 7.40% 1,860 2,396 419 1,172 1,602 379 5.80% 6.90% 7.40% 1994 $M 1,375 1,730 394 4.86% 5.15% 6.95% 1,439 2,048 481 931 1,740 466 4.16% 4.29% 6.94% Shareholder Information 1: Major Shareholders Ordinary shares At 8 November 1996 the twenty largest holders of ordinary shares held 761,601,271 ordinary shares, equal to 51.5 per cent of the total issued ordinary capital. Chase Manhattan Nominees Ltd Westpac Custodian Nominees Limited ANZ Nominees Ltd National Nominees Limited MLC Life Limited Australian Mutual Provident Society State Authorities Superannuation Board Queensland Investment Corporation Permanent Trustee Company Limited Permanent Trustee Australia Limited The National Mutual Life Association of Australasia Limited Mercantile Mutual Life Insurance Company Limited Pendal Nominees Pty Limited Citicorp Nominees Pty Limited Commonwealth Custodial Services Limited Perpetual Trustees Nominees Limited HKBA Nominees Pty Limited Prudential Corporation Australia Limited Perpetual Trustees Victoria Limited Barclays Australian Custodian Services Limited Number of shares 171,790,437 120,298,089 75,140,425 65,390,474 33,379,089 32,862,238 30,959,941 28,804,585 24,678,981 20,797,283 17,557,421 17,107,171 16,678,740 16,487,349 16,462,655 16,092,837 15,368,867 15,362,917 13,871,734 12,510,038 761,601,271 % 11.6 8.2 5.1 4.4 2.3 2.2 2.1 1.9 1.7 1.4 1.2 1.2 1.1 1.1 1.1 1.1 1.0 1.0 0.9 0.9 51.5 2: Substantial Ordinary Shareholders At 8 November 1996, there was one entry in the Register of Substantial Shareholdings. During the year to 8 November 1996 a notice was received from The Capital Group Companies, Inc. advising that on 21 December 1995 they became a substantial shareholder with a holding of 72,390,211 ordinary shares. This holding is held by several of the nominee companies listed in item 1 above. 117 3: Average Size of Shareholdings At 8 November 1996 the average size of holding of ordinary shareholdings was 12,119 (1995: 12,594) shares. 4: Distribution of Shareholdings Ordinary shares - fully paid At 8 November 1996 Range 1 to 1,000 shares 1,001 to 5,000 shares 5,001 to 10,000 shares 10,001 to 100,000 shares Over 100,001 shares Number of holders % of holders 43,786 57,439 12,252 7,924 566 35.9 47.1 10.0 6.5 0.5 Number of shares ’000 21,552 137,463 86,722 168,952 1,063,401 % of shares 1.5 9.3 5.9 11.4 71.9 121,967 100.0 1,478,090 100.0 Shareholder Information 5: Voting Rights of Shareholders Ordinary shares - fully paid The Articles provide for (i) on show of hands 1 vote; (ii) on a poll 1 vote for each ordinary share held; and (iii) 1 vote for every 10, 10 cent paid shares issued pursuant to the Company’s Senior Officers’ Share Purchase Scheme and the Directors’ Share and Option Purchase Scheme. 6: Holders of Non-Marketable Parcels Ordinary shares At 8 November 1996, shareholdings of less than a marketable parcel (1 to 99 shares) were 5,370 (1995: 4,838), which is 4.4% of the total holdings of ordinary shares. 7: Employee Shareholder Information At the January 1994 Annual General Meeting, shareholders approved a limit of 7% of the issued share capital of the Company on the number of shares which may be issued under the Employee and Senior Officers’ Share Purchase Schemes and the unissued shares to which options may be granted under any incentive schemes for employees and directors of the Group. At 8 November 1996, participants in the Employee and Senior Officers’ Share Purchase Schemes held 1.8% (1995: 1.9%) of the issued share capital. Options to purchase 7,730,000 ordinary shares have been granted under the Directors’ Share and Option Purchase and the ANZ Group Share Option Schemes. 8: Directors’ Shareholding Interests 118 C B Goode J C Dahlsen Dr R S Deane J K Ellis C J Harper M A Jackson A T L Maitland D P Mercer J F Ries Dr B W Scott Sir Ronald Trotter R B Vaughan A B C D E 253,199 33,400 25,000 52,343 26,814 20,026 82,730 62,056 102,000 32,284 12,400 83,913 786,165 - 50,000 50,000 - 40,000 50,000 - - - 50,000 50,000 - - - - - - - 50,000 - 50,000 - - - - - - - - - 300,000 500,000 300,000 - - - 290,000 100,000 1,100,000 - 12,000 - - - - - - - - - - 12,000 A Beneficially held - fully paid ordinary shares of $1.00 each B Beneficially held - partly paid ordinary shares of $1.00 each, paid to 10 cents, issued pursuant to the Directors’ Share and Option Purchase Scheme C Beneficially held - options issued pursuant to the Directors’ Share and Option Purchase Scheme to take up shares in the Company during the period of 5 years after issue at market prices fixed as at the time of issue less one cent, which was paid on issue of the option D Beneficially held - options issued pursuant to the ANZ Group Share Option Scheme to take up shares in the Company no earlier than 3 years or later than 5 years after issue at market prices fixed as at the time of issue less one cent, which was paid on issue of the option, provided certain performance criteria are met E Non-beneficially held - fully paid ordinary shares of $1.00 each W O R L D W I D E R E P R E S E N T A T I O N Australia Group Headquarters Australia and New Zealand Banking Group Limited, 100 Queen Street, Melbourne, Victoria 3000 GPO Box 537E, Melbourne 3001 Telephone: (61-3) 9273 5555 Telex: AA 68210 (International) AA 139920 (Domestic) Fax: (61-3) 9273 4909 Principal State Offices New South Wales 20 Martin Place, Sydney 2000 GPO Box 495, Sydney 2001 Telephone: (61-2) 227 1911 Queensland 324 Queen Street, Brisbane 4000 GPO Box 1051, Brisbane 4001 Telephone: (61-7) 3228 3228(cid:12) South Australia 13 Grenfell Street, Adelaide 5000 GPO Box 1819, Adelaide 5001 Telephone: (61-8) 218 8122 Tasmania ANZ Centre 2nd Floor, 22 Elizabeth Street, Hobart 7000 GPO Box 504E, Hobart 7001 Telephone: (61-02) 212 601 Western Australia 77 St. George’s Terrace, Perth 6001 GPO Box L905, Perth 6001 Telephone: (61-9) 323 8111 Australian Capital Territory 25 Petrie Plaza, Canberra City 2601 GPO Box 371, Canberra City 2601 Telephone: (61-6) 276 4100 Northern Territory 43 Smith Street The Mall, Darwin 0801 GPO Box 1, Darwin 0800 Telephone: (61-89) 823 555 Subsidiary Companies ANZ Funds Management, (ANZ Managed Investments Limited/ANZ Life Assurance Company Limited/ANZ Executors and Trustee Company Limited) 68 Pitt Street, Sydney 2000 Telephone: (61-2) 216 2345 Fax: (61-2) 216 2350 ANZ Securities Limited, 10th Floor, 530 Collins Street, Melbourne 3000 Telephone: (61-3) 9205 1400 Fax: (61-3) 9649 7023 Esanda Finance Corporation Limited, 85 Spring Street, Melbourne 3000 Telephone: (61-3) 9666 9100 Fax: (61-3) 9666 9626 Town & Country Bank (a division of Australia and New Zealand Banking Group Limited) 297 Murray Street, Perth W.A. 6000 Telephone: (61-9) 267 3333 Fax: (61-9) 267 3435 New Zealand Headquarters ANZ Banking Group (New Zealand) Limited, 215-229 Lambton Quay, Wellington PO Box 1492, Wellington Telephone: (64-4) 496 7000 Telex: NZ 3385 Fax: (64-4) 473 6919 ANZ Bank House Cnr Queen & Victoria Streets Auckland Telephone: (64-9) 358 9200 Fax: (64-9) 358 9339 104 Victoria Street, Christchurch Telephone: (64-3) 371 4100 Fax: (64-3) 371 4120 Subsidiary Companies ANZ Securities (NZ) Limited, 21st Floor, ASB Building, 135 Albert Street, Auckland PO Box 6243, Wellesley Street, Auckland Telephone: (64-9) 308 9867 Freephone: 0800 800 611 Telex: 63372 Fax: (64-9) 309 9410 UDC Group Holdings Limited, 113-119 The Terrace, Wellington PO Box 1616, Wellington Telephone: (64-4) 471 4500 Fax: (64-4) 471 4592 International Headquarters Australia and New Zealand Banking Group Limited, International Banking Division, 20th Floor, 100 Queen Street, Melbourne, Victoria 3000 Telephone: (61-3) 9273 6042 Fax: (61-3) 9273 4777 Asia Pacific China, Peoples Republic of Australia and New Zealand Banking Group Limited, 201A West Wing Office Complex, Equatorial hotel, 65 Yanan Road West Shanghai 200040 Telephone: (86-21) 248 8877 Fax: (86-21) 248 0080 Cook Islands Australia and New Zealand Banking Group Limited, Development Bank Building, PO Box 907, Avarua, Rarotonga Telephone: (682) 21750 Telex: 62038 Fax: (682) 21760 Fiji Australia and New Zealand Banking Group Limited, ANZ House, PO Box 179, Suva Telephone: (679) 302 144 Telex: 2194 Fax: (679) 300 267 Hong Kong Australia and New Zealand Banking Group Limited 27th Floor, One Exchange Square, 8 Connaught Place Central, Hong Kong Telephone: (852) 2843 7111 Telex: 86019 Fax: (852) 2525 2475 Indonesia PT ANZ Panin Bank 17th Floor, BNI Building JI. Jend., Sudirman No. 1 Jakarta Pusat 10220 Telephone: (62-21) 251 0530 Fax: (62-21) 570 5135 Japan Australia and New Zealand Banking Group Limited, 8th Floor, Yanmar Tokyo Bldg, 1-1 Yaesu 2-Chome, Chuo-ku, Tokyo 104 Telephone: (81-3) 3271 1151 Telex: 24157 Fax: (81-3) 3281 8417 ANZ Banking Group (Merchant Banking), Tokyo Representative Office, 8th Floor, Yanmar Tokyo Bldg, 1-1 Yaesu 2-Chome, Chuo-ku, Tokyo 104 Telephone: (81-3) 5202 0731 Fax: (81-3) 5202 0730 Korea Australia and New Zealand Banking Group Limited, 18th Floor, Kyobo Building, 1 Chongro 1, Chongro-Ku, KPO 1065, Seoul Telephone: (82-2) 730 3151 Telex: 27338 Fax: (82-2) 737 6325 Malaysia Australia and New Zealand Banking Group Limited, Suite 1, 4th Floor, Wisma Genting, Jalan Sultan Ismail 50250 Kuala Lumpur Telephone: (60-3) 261 6088 Telex: 31054 Fax: (60-3) 261 3210 Papua New Guinea Australia and New Zealand Banking Group (PNG) Limited, 2nd Floor, Defens Haus, Cnr Champion Parade and Hunter Street, Port Moresby Telephone: (675) 3223 333 Telex: 22178 Fax: (675) 3223 306 Philippines Australia and New Zealand Banking Group Limited, Tower One, Ayala Triangle, Ayala Avenue Makati City Telephone: (623) 848 5091 Fax: (623) 848 5086 Singapore Australia and New Zealand Banking Group Limited, 10 Collyer Quay, No 17 02/05, Ocean Building, Singapore 0104 Telephone: (65) 535 8355 Telex: 23336 Fax: (65) 539 6111 Solomon Islands Australia and New Zealand Banking Group Limited, Mendana Avenue, Honiara Telephone: (677) 21835 Telex: 66321 Fax: (677) 22957 Sri Lanka ANZ Grindlays Bank Limited, PO Box 112, 37 York Street, Colombo 1 Telephone: (94-1) 446 130 Telex: 21130/21521/21845 Fax: (94-1) 446 158 Taiwan Australia and New Zealand Banking Group Limited, 8F, 44 Chung Shan North Road, Section 2, Taipei Telephone: (886-2) 568 3353 Telex: 11894 Fax: (886-2) 511 1232 Tonga Australia and New Zealand Banking Group Limited, Cnr Railway & Salote Roads, Nuku’ Alofa Tel: (676) 24944 Fax: (676) 23870 Thailand Australia and New Zealand Banking Group Limited, Representative Office 9th Floor, Tower A, Diethelm Towers, 93/1 Wireless Road, Bangkok 10330 Telephone: (66-2) 256 6350 Telex: 21583 Fax: (66-2) 256 6347 Vanuatu ANZ Bank (Vanuatu) Limited, ANZ House, Kumul Highway, Port Vila Telephone: (678) 22536 Telex: 21012 Fax: (678) 22814 119 W O R L D W I D E R E P R E S E N T A T I O N Americas United States of America New York Australia and New Zealand Banking Group Limited, 1177 Avenue of the Americas New York, NY 10036 Telephone: (1-212) 801 9800 Telex: 667559 Fax: (1-212) 801 9859 Argentina Australia and New Zealand Banking Group Limited, Bouchard 547, 10th Floor, 1106 Buenos Aires Tel: (54-1) 315 2330 Fax: (54-1) 313 3967 Brazil Australia and New Zealand Banking Group Limited, Av Nilo Pecanha, 50 Grupo 810, 20.044 Rio de Janeiro-RJ Telephone: (55-21) 240 2294 Fax: (55-21) 220 0840 Chile Australia and New Zealand Banking Group Limited, Representative Office, Edificio Atlantis, Av. El Bosque Norte 0440, Las Condes, Santiago Telephone: (56-2) 203 5217 Fax: (56-2) 203 5226 Mexico Australia and New Zealand Banking Group Limited, Representative Office, Ejercito Nacional, No 926-20 Piso 11510 Mexico D.F. Tel: (52-5) 580 1036 Fax: (52-5) 580 1031 120 Vietnam, Socialist Republic of Australia and New Zealand Banking Group Limited, 14 Le Thai To Street, Hanoi Telephone: (84-4) 8258 190 Fax: (84-4) 8258 188 Western Samoa Bank of Western Samoa, PO Box L1855, Apia Telephone: (685) 22422 Telex: 258 BWS SX Fax: (685) 24595 South Asia India ANZ Grindlays Bank Limited, PO Box 725, 90 Mahatma Gandhi Road, Mumbai 400 001 Telephone: (91-22) 267 1295 Telex: 011-4792 RDSA IN Fax: (91-22) 261 9903 Eastern India PO Box 2465, 19 Netaji Subhas Road, Calcutta 700 001 Telephone: (91-33) 208 346 Telex: 021 7341 GBCL IN Fax: (91-33) 282 266 Northern India PO Box 624, ‘H’ Block, Connaught Circus, New Delhi 110 001 Telephone: (91-11) 332 0793 Telex: 031-66528 GBND IN Fax: (91-11) 332 2364 Southern India PO Box 1359, 19 Rajaji Salai, Madras 600 001 Telephone: (91-44) 534 4025 Telex: 041-212 GBMS IN Fax: (91-44) 534 1065 Western India PO Box 141, 90 Mahatma Gandhi Road, Bombay 400 001 Telephone: (91-22) 267 1295 Telex: 011-2240 GBBY IN Fax: (91-22) 261 9903 Bangladesh ANZ Grindlays Bank Limited, PO Box 502, No. 2 Dilkusha C.A., Dhaka - 1000 Telephone: (880-2) 833 958 Telex: 642597/642841/642654 Fax: (880-2) 956 2329 Nepal Nepal Grindlays Bank Limited, Kantipath PO Box 3990, Kathmandu Telephone: (977-1) 228 474 Telex: 2531/2532 Fax: (977-1) 228 692 Middle East Bahrain Grindlays Bahrain Bank B.S.C. (c), PO Box 793, Manama Centre, Government Road, Manama Telephone: (973) 225 999 Telex: 8335 Fax: (973) 224 482 ANZ Grindlays Bank plc, Offshore Banking Unit, PO Box 5793 1st Floor, Manama Centre, Manama Telephone: (973) 224 210 Telex: 8722/8723/8796 Fax: (973) 224 478 Iran Australia and New Zealand Banking Group Limited, 3rd Floor, No. 14, 4th Alley, Shahid Ahmad Ghasir, (ex Bucharest Avenue), Tehran 15146 Telephone: (98-21) 873 3554 Telex: 213948 Fax: (98-21) 873 3559 Jordan ANZ Grindlays Bank Limited, PO Box 9997, Shmeissani, Amman Telephone: (962-6) 660201/7 Telex: 21980/21209 Fax: (962-6) 679115 Oman Oman Savings & Finance Bank, PO Box 3550, Ruwi, Postal Code 112 Telephone: (968) 70 3013/4035/ 5826 Telex: 3393 Fax: (968) 70 6911 Pakistan ANZ Grindlays Bank Limted, PO Box 5556, I.I. Chundrigar Road, Karachi, Tel: (92-21) 241 4131/2671 Telex: 2755 Fax: (92-21) 241 4914 Qatar ANZ Grindlays Bank Limited, PO Box 2001, Doha Telephone: (974) 418 222 Telex: 4209 Fax: (974) 428 077/423 956 United Arab Emirates ANZ Grindlays Bank Limited, PO Box 4166, Al Maktoum Street (Near Deira Clock Tower) Deira, Dubai Telephone: (971-4) 285 663/ 228 171 Telex: 45618 Fax: (971-4) 233 501 Europe United Kingdom Australia and New Zealand Banking Group Limited, Minerva House, PO Box 7, Montague Close, London SE1 9DH Telephone: (44-171) 378 2121 Telex: 8812741-4 ANZBKAG Fax: (44-171) 378 2378 Australia and New Zealand Banking Group Limited, Private Bank, 13 St. James’s Square, London SW1Y 4LF Telephone: (44-171) 930 4611 Telex: 885043-6 GRNDLY G Fax: (44-171) 930 5501 Channel Islands ANZ Bank (Guernsey) Limited, PO Box 153, St. Peter Port, Guernsey Telephone: (44-1481) 72 6771 Telex: 4191663 ANZGSY G Fax: (44-1481) 72 7851 ANZ Grindlays Bank (Jersey) Limited PO Box 80, West House, West’s Centre, Peter Street, St. Helier, Jersey Telephone: (44-1534) 874248 Telex: 4192062 GRNDLY G Fax: (44-1534) 877695 ANZ Grindlays Trust Corporation (Jersey) Limited West House, West’s Centre Peter Street, St Helier, Jersey Tel: (44-1534) 607351 Fax: (44-1534) 37600 France Australia and New Zealand Banking Group Limited, 6 rue de Berri 75008 Paris Telephone: (33-1) 40 75 0537 Telex: 643311 F ANZB Fax: (33-1) 40 75 0546 Germany Australia and New Zealand Banking Group Limited, Mainzer Landstr. 46, 60325 Frankfurt/Main 17 Telephone: (49-69) 710 0080 Telex: 4185126 ANZBD Fax: (49-69) 710 00821 Greece ANZ Grindlays Bank Limited, 7 Merlin Street, PO Box 30391, Athens 10671 Telephone: (30-1) 3624 601 Telex: 214651 GRIN GR Fax: (30-1) 3603 811 Switzerland ANZ Grindlays Bank Limited, Case Postale 1560, 7 Quai du Mont Blanc, CH-1211 Geneva 1 Telephone: (44-22) 906 0111 Telex: 412521 ANZCH Fax: (44-22) 906 0122 Key Dates C O N T E N T S S H A R E H O L D E R I N F O R M A T I O N Books close for Final Dividend 13 December 1996 Annual General Meeting 15 January 1997 Payment of Final Dividend 15 January 1997 Announcement of Interim Results 28 May 1997* Books close for Interim Dividend 6 June 1997* Payment of Interim Dividend 7 July 1997* Announcement of Final Results 19 November 1997* *tentative dates only Cover: Five channels of banking available to ANZ customers – Front:Smart Card Technology p10 OnLine Banking p10 Customer Service Officer p8 Back:Supermarket Banking p12 Branch Network ANZ at a Glance ......................................................... 2 Brief overview of the Group, Australia, New Zealand and International operations Chairman’s Report ...................................................... 4 “good profit outcome for shareholders” Chief Executive Officer’s Review ............................ 6 “change initiatives are the key task” Key Strategic Initiatives ........................................... 8 ANZ Investment Bank Back Office Support Projects Commercial Banking System Commentary Australia .......................................................... 10 “new delivery channels” New Zealand .................................................. 12 “facing competitive pressures” International ................................................... 14 “strong growth” Management Structure ........................................... 16 Board of Directors.................................................... 18 Corporate Governance ............................................ 20 Risk Management Framework .............................. 22 Financial System Inquiry ........................................ 24 ANZ in the Community and Environment ............. 25 1116 Seven Year Summary ............................................... 27 Review of 1996 Results ........................................... 28 Financial Highlights in Key Currencies ............... 32 1996 Financial Statements ...................................... 33 ANZ’s Worldwide Representation ...................... 119 Shareholder Information .............Inside back cover Australia and New Zealand Banking Group Limited ACN 005 357 522 Paper: Corporate Section – 100% Australian paper Financial Statements – 100% Australian recycled paper Unless otherwise stated, all amounts are expressed in Australian dollars ANZ INTERNET ADDRESS Home Page: www.anz.com Dividends The final dividend of 24 cents per share will be paid on 15 January 1997 bringing the full year dividend to 42 cents per share. The interim dividend paid in July 1996 was 50% franked and the final dividend is fully franked at 36% for Australian taxation purposes. Dividends may be paid directly to a bank account in Australia, New Zealand or United Kingdom. Shareholders who want their dividends paid this way should advise the relevant Share Registry in writing prior to books closing date. Dividend reinvestment and Bonus option plans are available to shareholders. The plans are detailed in a booklet called “Shareholder Alternatives”, copies of which are available from the Share Registrars at the addresses shown. Stock Exchange Listings The Group’s ordinary shares are listed on the Australian Stock Exchange, the International Stock Exchange in London and the New Zealand Stock Exchange. The Capital Securities offered in February 1993 are listed on the New York Stock Exchange. American Depositary Receipts The Bank of New York sponsors an American Depositary Receipt program in the United States of America. The ADRs were listed on the New York Stock Exchange on 6 December 1994. ADR holders should deal directly with the Depositary, Bank of New York, New York, Telephone (212) 815-2729, Fax (212) 571-3050 on all matters relating to their ADRs. Enquiries Shareholders who wish to contact the Company on any matter related to their shareholding are invited to telephone or write to the most convenient Share Registry. Change of Address It is important that shareholders notify the Company in writing if there is a change to their address. For added protection shareholders should quote their Shareholder Number. Removal from Annual Report Mailing List Shareholders who do not want the Annual Report or who are receiving more than one copy should advise the Share Registrar in writing. These shareholders will continue to receive all other shareholder information. To Consolidate Shareholdings Shareholders who wish to consolidate their separate holdings should advise the share registry in writing. Annual General Meeting The Annual General Meeting will be held at the Savoy Ballroom, Grand Hyatt Melbourne, 123 Collins Street, Melbourne on Wednesday, 15 January 1997. Chairman’s Address A summary of the Chairman’s address to the AGM will be published in the “Shareholder Contact” magazine issued in January 1997. Credit Ratings (December 1996) Short Term Debt Moody’s Investors Service Standard & Poor’s Ratings Group P-1 A-1+ Long Term Debt Moody’s Investors Service Standard & Poor’s Ratings Group Aa3 AA- Registered Office Level 2, 100 Queen Street, Melbourne, Victoria 3000 Australia Phone: (03) 9273-6141 Fax: (03) 9273-6142 Secretary and Chief Financial Officer: D T Craig General Manager Investor Relations: D H Ward Share Registrars Australia Coopers & Lybrand Level 12, 333 Collins Street, Melbourne, Victoria 3000 Phone: (03) 9205 4999 Toll Free: 1800 331 721 Fax: (03) 9205 4900 New Zealand C/- ANZ Banking Group (New Zealand) Limited 8th Floor, 215-229 Lambton Quay, Wellington Phone: (04) 496 7000 Fax: (04) 496 8872 United Kingdom Computershare Limited Level 5, Bowman House, 29 Wilson Street, London EC2M 2SJ Phone: (0171) 920 0010 Fax: (0171) 920 0120 A u s t r a l i a a n d N e w Z e a l a n d B a n k i n g G r o u p i L m i t e d 1 9 9 6 A n n u a l R e p o r t AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED 1996 Annual Report ANZ has branches or representative offices in 43 countries: Australia New Zealand Argentina Bahrain Bangladesh Brazil Chile China Cook Islands Fiji France Germany Greece Guernsey Hong Kong India Indonesia Iran Japan Jersey Jordan Korea Malaysia Mexico Nepal Oman Pakistan Papua New Guinea Philippines Qatar Singapore Solomon Islands Sri Lanka Switzerland Taiwan Thailand Tonga United Arab Emirates United Kingdom United States of America Vanuatu Vietnam Western Samoa Australia and New Zealand Banking Group Limited ACN 005 357 522 Registered Office: Level 2, 100 Queen Street, Melbourne, Victoria 3000, Australia. Telephone: (03) 9273 6141 Facsimile: (03) 9273 6142 

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