Strength.
Momentum.
Connectivity.
2011 ANNUAL REPORT
BUILDING A BANK OF GLOBAL QUALITY
WITH A REGIONAL FOCUS
OUR PROGRESS
ANZ is the only Australian bank with a clearly articulated strategy to
ANZ is the only Australian bank with a clearly articulated strategy to
take advantage of Australia and New Zealand’s geographic, business
take advantage of Australia and New Zealand’s geographic, business
and cultural linkages with Asia, the fastest growing region in the world.
and cultural linkages with Asia, the fastest growing region in the world.
We have made signifi cant progress in delivering our strategy since
We have made signifi cant progress in delivering our strategy since
2007 and today our Asia Pacifi c, Europe & America business represents
2007 and today our Asia Pacifi c, Europe & America business represents
13% of Group profi t up from 7% in 2007.
13% of Group profi t up from 7% in 2007.
We have established a leadership team of international bankers
We have established a leadership team of international bankers
with a breadth of experience and a range of capabilities to grow in
with a breadth of experience and a range of capabilities to grow in
both our developed home markets and in the emerging markets of
both our developed home markets and in the emerging markets of
Asia. We created a new business structure in late 2008 focused on our
Asia. We created a new business structure in late 2008 focused on our
customers and core geographies supported by stronger governance
customers and core geographies supported by stronger governance
and risk controls suited to our aspirations.
and risk controls suited to our aspirations.
We have completed a number of strategic acquisitions in Asia,
We have completed a number of strategic acquisitions in Asia,
Australia and New Zealand which provide us with an enhanced
Australia and New Zealand which provide us with an enhanced
network, broader product capabilities and more customer
network, broader product capabilities and more customer
relationships across those three core geographies.
relationships across those three core geographies.
ANZ’s strategy and our fi nancial strength provides us with the
ANZ’s strategy and our fi nancial strength provides us with the
opportunity to continue expanding the support we provide to
opportunity to continue expanding the support we provide to
customers, driving superior long-term growth and diff erentiated
customers, driving superior long-term growth and diff erentiated
returns, and creating value for our shareholders and the communities
returns, and creating value for our shareholders and the communities
we work in.
we work in.
WHO WE ARE AND WHERE WE OPERATE
ANZ‘s history of expansion and growth stretches over 175 years.
ANZ‘s history of expansion and growth stretches over 175 years.
We have a strong franchise in Retail, Commercial and Institutional
We have a strong franchise in Retail, Commercial and Institutional
banking in our home markets of Australia and New Zealand and we
banking in our home markets of Australia and New Zealand and we
have been operating in Asia Pacifi c for more than 30 years.
have been operating in Asia Pacifi c for more than 30 years.
Today, ANZ operates in 32 markets globally. We are the third largest
Today, ANZ operates in 32 markets globally. We are the third largest
bank in Australia, the largest banking group in New Zealand and the
bank in Australia, the largest banking group in New Zealand and the
Pacifi c, and among the top 50 banks in the world.
Pacifi c, and among the top 50 banks in the world.
OUR SUPER REGIONAL STRATEGY
We articulated our super regional strategy in late 2007. The rationale
We articulated our super regional strategy in late 2007. The rationale
behind our strategy is simple – to deliver shareholders long-term
behind our strategy is simple – to deliver shareholders long-term
growth and diff erentiated returns through connectivity with the
growth and diff erentiated returns through connectivity with the
growth markets of Asia – returns we do not believe to be available
growth markets of Asia – returns we do not believe to be available
through a domestic-only strategy.
through a domestic-only strategy.
Our aspiration is for Asia Pacifi c, Europe & America sourced revenues to
Our aspiration is for Asia Pacifi c, Europe & America sourced revenues to
drive between 25 and 30% of Group earnings by the end of 2017.
drive between 25 and 30% of Group earnings by the end of 2017.
Connectivity is at the heart of ANZ’s strategy by being part of the
Connectivity is at the heart of ANZ’s strategy by being part of the
growth within Asia and supporting the increasing trade, investment
growth within Asia and supporting the increasing trade, investment
and people links between Asia and our major domestic markets
and people links between Asia and our major domestic markets
in Australia, New Zealand and the Pacifi c. This is refl ected in the
in Australia, New Zealand and the Pacifi c. This is refl ected in the
aspiration within our Institutional banking business to build the
aspiration within our Institutional banking business to build the
world’s best bank for customers driven by trade and capital fl ows
world’s best bank for customers driven by trade and capital fl ows
in the Asia Pacifi c region, particularly in resources, agribusiness
in the Asia Pacifi c region, particularly in resources, agribusiness
and infrastructure.
and infrastructure.
Having grown our Asia Pacifi c business signifi cantly since 2007, ANZ is
Having grown our Asia Pacifi c business signifi cantly since 2007, ANZ is
now working to realise the full potential of the super regional strategy
now working to realise the full potential of the super regional strategy
by expanding our geographic footprint while maintaining our strong
by expanding our geographic footprint while maintaining our strong
domestic franchises, increasing our management bench strength,
domestic franchises, increasing our management bench strength,
and continuing to focus on strong risk processes in order to build a
and continuing to focus on strong risk processes in order to build a
balanced exposure to Asia.
balanced exposure to Asia.
At the same time, we are continuing to invest in our international
At the same time, we are continuing to invest in our international
technology and operations hubs to support productivity gains across
technology and operations hubs to support productivity gains across
all our businesses.
all our businesses.
With the structural shift in the world economy as economic growth
With the structural shift in the world economy as economic growth
shifts from the West to the East, we believe we are in the right part
shifts from the West to the East, we believe we are in the right part
of the world, with the right strategy, at the right time.
of the world, with the right strategy, at the right time.
Directors’ Report
1
2
ANZ Annual Report 2011
CONTENTS
SECTION 1
Financial Highlights
Chairman’s Report
Chief Executive Offi cer’s Report
Directors’ Report
Remuneration Report
Corporate Governance Statement
SECTION 2
Review of Operations
Principal Risks and Uncertainties
Five Year Summary
SECTION 3
Financial Statements
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
SECTION 4
Financial Information
Shareholder Information
Glossary of Financial Terms
Alphabetical Index
5
6
8
10
15
46
65
76
84
86
92
209
210
212
220
225
228
ANZ Annual Report 2011
3
Financial Highlights
Chairman’s Report
Chief Executive Offi cer’s Report
Directors’ Report
Remuneration Report
Corporate Governance Statement
5
6
8
10
15
46
4
ANZ Annual Report 2011
Financial Highlights
Profi tability
Profi t attributable to shareholders of the Company ($m)
Underlying profi t1 ($m)
Return on:
Average ordinary shareholders’ equity2
Average ordinary shareholders’ equity (underlying profi t basis)1,21,2
Average ordinary shareholders’ equity (underlying profi t basis)
Average assets
Total income
Net interest margin
Net interest margin (excluding Global Markets)
Underlying profi t per average FTE ($)1
Effi ciency ratios
Operating expenses to operating income
Operating expenses to average assets
Operating expenses to operating income (underlying)1
Operating expenses to average assets (underlying)1
Credit impairment provisioning
Collective provision charge ($m)
Individual provision charge ($m)
Total provision charge ($m)
Individual provision charge as a % of average net advances
Total provision charge as a % of average net advances
Ordinary share dividends (cents)
Interim – 100% franked (Mar 2010: 100% franked)
Final – 100% franked (Sep 2010: 100% franked)
Total dividend
Ordinary share dividend payout ratio3
Underlying ordinary share dividend payout ratio3
Preference share dividend ($m)
Dividend paid4
2011
2010
5,355
5,652
4,501
5,025
15.3%
16.2%16.2%
0.95%
14.9%
2.46%
2.81%
120,204
13.9%
15.5%15.5%
0.86%
14.3%
2.47%
2.74%
116,999
47.4%
1.42%
45.9%45.9%
1.37%1.37%
7
1,230
1,237
0.32%
0.32%
64
76
140
68.5%
64.9%
46.5%
1.39%
44.2%44.2%
1.33%1.33%
(4)
1,791
1,787
0.51%
0.50%
52
74
126
71.6%
64.1%
12
11
1 Profit has been adjusted to exclude non-core items to arrive at underlying profit, the result for the ongoing business activities of the Group. These adjustments have been determined on a
consistent basis with those made in prior periods. The adjustments made in arriving at underlying earnings are included in statutory profit, and are therefore subject to audit within the context
of the Group statutory audit opinion. The external auditor has informed the Audit Committee that the adjustments are based on the guidelines released by the Australian Institute of Company
Directors (AICD) and the Financial Services Institute of Australia (FINSIA), and consistent with prior period adjustments.
2 Average ordinary shareholders’ equity excludes non-controlling interests and preference shares.
3 The 2011 dividend payout ratio is calculated using the March 2011 interim and the proposed September 2011 final dividend. The 2010 dividend payout ratio is calculated using the March 2010
interim and September 2010 dividend.
4 Represents dividends paid on Euro Trust Securities issued on 13 December 2004.
Financial Highlights
5
Chairman’s Report
A MESSAGE FROM JOHN MORSCHEL
ANZ delivered increased profi t in 2011 while continuing to invest in the development of its
super regional strategy to deliver value for shareholders, customers and the community.
I am pleased to report that ANZ’s statutory profi t after tax for the
year ended 30 September 2011 was $5.4 billion, up 19% refl ecting
a solid performance across the bank and continued improvement
in the credit environment. The fi nal dividend of 76 cents per share
brings the total dividend for the year to 140 cents per share fully
franked, an increase of 11%.
ANZ’s underlying profi t for 2011, which takes into account various
one-off items which occurred during the year, was $5.6 billion,
up 12%.
ANZ remains strongly capitalised with a Tier 1 ratio as at 30 September
2011 of 10.9% and a Common Equity Tier 1 ratio of 8.5%, 0.8% and
0.5% respectively above 2010 levels. The Group is well placed to meet
new capital standards. ANZ is one of only a handful of banks globally
which retain a AA rating from all 3 credit ratings agencies.
Expansion and Growth
In 2011, we continued to advance our super regional strategy
through growth in Asia by increasing connectivity between Asia and
our key domestic franchises in Australia, New Zealand and the Pacifi c.
We were delighted to achieve a key milestone in our regional
expansion plans, most notably with the re-establishment of
our presence in India with the opening of our Mumbai branch
in June 2011.
This strategy is helping ANZ deliver more diversifi ed earnings
by product, customer and geography together with growth in
our customer base. This year we set a new long-term aspiration
for revenues sourced from Asia Pacifi c, Europe & America to
drive 25-30% of Group profi t by 2017.
Customers and the Community
In 2011, ANZ maintained its momentum in delivering value for its
customers and for the community. In Australia, we continue to have
the highest level of retail customer satisfaction and further improved
customer satisfaction in New Zealand.
A number of the communities in which ANZ operates experienced
disasters during 2011. These included earthquakes in the Canterbury
region of New Zealand; the fl oods in Queensland and throughout
eastern Australia; and the tsunami and nuclear emergency in Japan.
ANZ contributed to the relief eff orts through donations, direct grants
and the eff orts of many ANZ staff .
Our Corporate Responsibility framework continues to help guide
our decision making. New responsible lending policies will govern
our business lending to sensitive social and environmental sectors.
Australian Government support helped expand our work to assist
low income communities build their savings.
During 2011, ANZ was named as one of the most sustainable banks
globally in the Dow Jones Sustainability Index.
Our combined Annual Shareholder and Corporate Responsibility Review
provides an integrated view of how ANZ is managing fi nancial and
non-fi nancial issues and is designed to represent ANZ’s performance
across all aspects of our business.
6
ANZ Annual Report 2011
Outlook
We expect the global economic uncertainty will continue well into
2012, however growth in Asia (excluding Japan) is forecast to continue
at an annual rate exceeding 7%, while growth in Europe and the
United States is expected to remain subdued. The Australian and New
Zealand economies are expected grow at over 3% and 2.5%
respectively.
As the uncertainties around sovereign debt in Europe continue to play
out, we expect continued volatility in world markets. This is fl owing
through to higher funding costs and at the same time regulators
around the world are pushing ahead with new capital and liquidity
requirements for banks. These changes will increase capital costs,
ultimately placing further pressure on the fragile global economy.
Our unique super regional strategy positions us to take advantage
of the signifi cant opportunities we expect to arise in Asia Pacifi c.
These will come from our exposure to growth markets, our strong
capital position and the experience of our international management
team. With the diffi cult global economic situation, however, it will
also be prudent to manage our business tightly.
ANZ has a clear direction and our results in 2011 demonstrate the
progress we are making in delivering value and performance for our
shareholders, our customers and the community.
These results also refl ect the ongoing commitment and dedication
of our management team and the entire staff of ANZ and I would like
to take this opportunity to thank them for their eff orts during the
year. My thanks also go to my fellow Directors for their commitment
and support during 2011.
JOHN MORSCHEL
CHAIRMAN
Chairman’s Report
7
Chief Executive Offi cer’s Report
A MESSAGE FROM MICHAEL SMITH
ANZ’s super regional strategy and our fi nancial strength provide us with unique
opportunities – opportunities which are open to very few banks in the world right now.
ANZ’s key customer franchises in Australia, New Zealand and Asia Pacifi c
produced solid performances in 2011.
Provision charges were 33% lower than 2010 which helped to drive
ANZ’s performance together with somewhat subdued revenue growth
of 7%. This was signifi cantly impacted by the volatile global economic
situation in the second half of the year and like most banks in Australia
and around the world, conditions for our Institutional Markets trading
business deteriorated and impacted Group earnings.
While we would have liked a stronger performance in the last few
months of the year, we didn’t see the environment as one in which
it was prudent to expose ANZ to excessive risk.
We continued to invest heavily in our super regional strategy with
costs up by 11% although, refl ecting the more diffi cult economic
environment later in the year, cost growth in the second half was
contained to 2%.
During 2011, we continued to strengthen our capital position and
improve diversity in our sources of funding including further growth
in deposits which now account for 61% of Group funding.
Importantly, we also saw a signifi cant improvement in staff engagement.
Employee engagement increased from 64% to 70% and our goal is
to continue to improve this measure to meet the global best-in-class
standard in future years.
Regional Performance
In 2011 we produced solid results in each area of our business
highlighting the strength of our key franchises in Australia,
New Zealand and Asia Pacifi c.
In Australia, profi t increased 4% based on good cost management
and solid results in Retail and Commercial. In Wealth, profi ts fell
refl ecting diffi cult market conditions and increased insurance costs
following the extreme weather events early in the year. Pleasingly, we
have continued to increase customer satisfaction in all segments and
despite increasing competition, we’ve maintained our number one
ranking for customer satisfaction in Retail.
In Asia Pacifi c, Europe & America, we maintained momentum with US
Dollar profi t up 22%. We are continuing to invest in Asia to build scale
and capability however, having completed the integration of
the Asian business we acquired from the Royal Bank of Scotland,
we are now managing expenses more tightly while still investing
for growth. The benefi t of this investment is showing in the franchise
we are building.
In New Zealand, profi t rose by 50% driven by a large fall in provisions
and tight control of costs. The New Zealand economy is slowly
recovering but the environment is likely to remain soft for some time.
Nevertheless, we have a consistent focus on simplifi cation and
effi ciency within our New Zealand business and I’m optimistic about
what can be achieved.
Institutional profi t increased by 7%. The business is delivering more
diversifi ed earnings by product, customer and geography, and
continued growth in our client base as a result of a clear strategy to
build the world’s best bank for clients driven by trade and capital fl ows
in the Asia Pacifi c region, particularly in resources, agribusiness and
infrastructure. However, the key issue for Institutional in 2011 was
the fall in Global Markets earnings as a result of the extremely volatile
market conditions although this has been consistent with the
performances seen at other banks both domestically and globally.
Unique Growth Opportunities
ANZ’s super regional strategy is clear, consistent and aligned to
the economic opportunity in the Asia Pacifi c region. We are focused
on realising its full potential by successfully executing against that
strategy in all our key markets.
We believe the global economic diffi culties, the structural shift taking
place as world economic growth shifts from the West to the East
particularly China and India, and the subdued domestic environment
plays perfectly to ANZ’s strengths.
We have a portfolio, diversifi ed by geography, businesses and
industry focus, which is increasingly connected so the sum is
greater than the parts.
8
ANZ Annual Report 2011
That diversifi ed portfolio gives us options and choices to deliver
diff erentiated revenue growth and shareholder value by building our
customer franchises in Australia and Asia while maintaining our strong
position in New Zealand. These growth options are simply not available
with a domestic-only strategy.
Our fi nancial strength will provide us with opportunities for careful
strategic growth as capital-constrained international banks retreat
from our region.
The investment we have made in technology and our operations
hubs continues to support the transformation of our productivity
performance. This is already underway and we will also respond by
placing a stronger emphasis on generating on-going effi ciencies
given the more constrained domestic conditions.
So we are optimistic about the future for ANZ. We have choices and
opportunities that are open to very few banks in the world right now
– but they are open to ANZ.
They create another window for ANZ to make a step change in growth,
to expand the support we provide to customers, to drive superior
long-term growth and diff erentiated returns, and to create value for
our shareholders and the communities we work in.
MICHAEL SMITH
CHIEF EXECUTIVE OFFICER
Chief Executive Offi cer’s Report
9
Directors’ Report
The Directors present their report together with the Financial Report of the consolidated entity (the Group), being Australia
and New Zealand Banking Group Limited (the Company) and its controlled entities, for the year ended 30 September 2011
and the Independent Auditor’s Report thereon. The information is provided in conformity with the Corporations Act 2001.
Principal Activities
The Group provides a broad range of banking and fi nancial
products and services to retail, small business, corporate and
institutional clients.
The Group conducts its operations primarily in Australia and
New Zealand and the Asia Pacifi c region. It also operates in a
number of other countries including the United Kingdom and
the United States.
At 30 September 2011, the Group had 1,381 branches and
other points of representation worldwide excluding Automatic
Teller Machines (ATMs).
Results
Consolidated profi t after income tax attributable to shareholders
of the Company was $5,355 million, an increase of 19% over the
prior year.
Strong growth in profi t before credit impairment and income tax
of $521 million or 6% and a reduction in the credit provision of
$550 million with improvements across the New Zealand, Institutional
and Asia Pacifi c, Europe & America portfolios.
Balance sheet growth was strong with total assets increasing by
$62.8 billion (12%) and total liabilities increasing by $59.0 billion
(12%). Movements within the major components include:
Net loans and advances including acceptances increased by
$33.9 billion (9%) primarily driven by above system Australian
housing lending growth of $10.9 billion (7%) and Asia Pacifi c,
Europe & America growth of $11.7 billion (43%) across all
business lines.
Growth in customer deposits of $39.9 billion (16%) was
concentrated in the second half, and refl ected growth in Retail,
Commercial and Institutional in Australia of $18.9 billion (12%)
as consumers and corporates deleverage and growth in Asia
Pacifi c, Europe & America of $18.2 billion (39%) driven by strong
momentum across the region.
Further details are contained on pages 65 to 75 of this Annual Report.
State of Aff airs
In the Directors’ opinion there have been no signifi cant changes
in the state of aff airs of the Group during the fi nancial year.
Further review of matters aff ecting the Group’s state of aff airs is
also contained in the Review of Operations on page 65 to 75 of this
Annual Report.
Dividends
The Directors propose that a fully franked fi nal dividend of 76 cents
per fully paid ordinary share will be paid on 16 December 2011.
The proposed payment amounts to approximately $1,999 million.
During the fi nancial year, the following fully franked dividends were
paid on fully paid ordinary shares:
Type
Final 2010
Interim 2011
Cents
per share
Amount before bonus
option plan adjustment
$m
Date of
payment
74
64
1,895
1,662
17 December 2010
1 July 2011
The proposed fi nal dividend of 76 cents together with the interim
dividend of 64 cents brings total dividends in relation to the year
ended 30 September 2011 to 140 cents fully franked.
Further details of dividends provided for or paid during the year
ended 30 September 2011 on ANZ’s ordinary and preference
shares are set out in notes 7, 27 and 28 to the fi nancial statements.
Review of Operations
Review of the Group during the fi nancial year and the results of
those operations, including an assessment of the fi nancial position
and business strategies of the Group, is contained in the Chairman’s
Report, the Chief Executive Offi cer’s Report and the Review of
Operations of this Annual Report.
10
ANZ Annual Report 2011
Events Since the End of the Financial Year
There were no signifi cant events from 30 September 2011 to the
date of this report.
Future Developments
Details of likely developments in the operations of the Group and
its prospects in future fi nancial years are contained in this Annual
Report under the Chairman’s and Chief Executive Offi cer’s Report.
In the opinion of the Directors, disclosure of any further information
would be likely to result in unreasonable prejudice to the Group.
Environmental Regulation
The Company recognises the expectations of its stakeholders –
customers, shareholders, staff and the community – to operate
in a way that mitigates the Company’s environmental impact.
The Company sets and reported against public targets regarding its
environmental performance.
The Company is subject to two relevant pieces of legislation. The
Company’s operations in Australia are categorised as a ‘high energy
user’ under the Energy Effi ciency Opportunities Act 2006 (Cth)
(EEO). The Company has a mandatory obligation to identify energy
effi ciency opportunities and report to the Australian Federal
Government progress with the implementation of the opportunities
identifi ed. As required under the legislation, the Company submitted
a fi ve year energy effi ciency assessment plan in 2006 and has
reported to the Government annually, every December, until the
end of the fi ve year reporting cycle in December 2011. The Company
complies with its obligations under the EEO.
The National Greenhouse Energy Reporting Act 2007 (Cth) has been
designed to create a national framework for energy and associated
greenhouse gas emissions reporting. The Act makes registration
and reporting mandatory for corporations whose energy production,
energy use, or greenhouse gas emissions trigger the specifi ed
corporate or facility threshold. The Company is over the corporate
threshold defi ned within this legislation and as a result was required
to submit its fi rst report on 31 October 2009. Subsequent reports
have been submitted in 2010 and 2011.
The Company’s operations are not subject to any site specifi c or
license requirements which could be considered particular or
signifi cant environmental regulation under any law of the Australian
Commonwealth Government or of any state or territory thereof.
The Company may become subject to environmental regulation
as a result of its lending activities in the ordinary course of business
or when enforcing securities over land. The Company has developed
policies to manage such environmental risks.
Having made due enquiry, and to the best of the Company’s
knowledge, no entity of the Group has incurred any material
environmental liability during the year.
Further details on the Company’s environmental performance,
including progress against its targets and details of its emissions
profi le are available on anz.com > About us > Corporate
Responsibility.
Directors’ Qualifi cations, Experience
and Special Responsibilities
At the date of this report, the Board comprises seven Non-Executive
Directors who have a diversity of business and community experience
and one Executive Director, the Chief Executive Offi cer, who has
extensive banking experience. The names of Directors and details of
their skills, qualifi cations, experience and when they were appointed
to the Board are contained on pages 47 to 49 of this Annual Report.
Details of the number of Board and Board Committee meetings
held during the year, Directors’ attendance at those meetings and
details of Directors’ special responsibilities, are shown on pages 47
to 58 of this Annual Report. No Directors retired during the 2011
fi nancial year.
Details of directorships of other listed companies held by each
current Director in the three years prior to the end of the 2011
fi nancial year are listed on pages 47 to 49.
Directors’ Report
11
DIRECTORS’ REPORT (continued)
Company Secretaries’ Qualifi cations
and Experience
Currently there are three people appointed as Company Secretaries
of the Company. Details of their roles are contained on page 54. Their
qualifi cations and experience are as follows:
Bob Santamaria, BCom, LLB (Hons)
Group General Counsel and Company Secretary.
Mr Santamaria joined ANZ in 2007. He had previously been
a Partner at the law fi rm Allens Arthur Robinson since 1987.
He was Executive Partner Corporate, responsible for client liaison
with some of Allens Arthur Robinson’s largest corporate clients.
Mr Santamaria brings to ANZ a strong background in leadership
of a major law fi rm, together with signifi cant experience in
securities, mergers and acquisitions. He holds a Bachelor of
Commerce and Bachelor of Laws (Honours) from the University of
Melbourne. He is also an Affi liate of Chartered Secretaries Australia.
Peter Marriott, BEc (Hons), FCA
Chief Financial Offi cer and Company Secretary.
Mr Marriott has been involved in the fi nance industry for more
than 30 years. Mr Marriott joined ANZ in 1993. Prior to his career at
ANZ, Mr Marriott was a Partner in the Melbourne offi ce of the then
KPMG Peat Marwick. He is a Fellow of the Institute of Chartered
Accountants in Australia and the Australian Institute of Banking
and Finance and a Member of the Australian Institute of Company
Directors. Mr Marriott is also a director of ASX Limited.
John Priestley, BEc, LLB, FCIS
Company Secretary.
Mr Priestley, a qualifi ed lawyer, joined ANZ in 2004. Prior to
ANZ, he had a long career with Mayne Group and held positions
which included responsibility for the legal, company secretarial,
compliance and insurance functions. He is a Fellow of Chartered
Secretaries Australia and also a member of Chartered Secretaries
Australia’s National Legislation Review Committee.
Non-audit Services
The Company’s Relationship with External Auditor Policy (which
incorporates requirements of the Corporations Act 2001) states that
the external auditor may not provide services that are perceived to
be in confl ict with the role of the auditor. These include consulting
advice and sub-contracting of operational activities normally
undertaken by management, and engagements where the auditor
may ultimately be required to express an opinion on their own work.
Specifi cally the policy:
limits the non-audit services that may be provided;
requires that audit, audit-related and permitted non-audit services
must be pre-approved by the Audit Committee, or pre-approved by
the Chairman of the Audit Committee (or up to a specifi ed amount
by the Chief Financial Offi cer, the Deputy Chief Financial Offi cer,
the Head of External Reporting or the Head of Financial Policy
and Governance) and notifi ed to the Audit Committee; and
requires the external auditor to not commence any engagement
for the Group, until the Group has confi rmed that the engagement
has been pre-approved.
12
ANZ Annual Report 2011
Further details about the policy can be found in the Corporate
Governance Statement on page 59.
The Audit Committee has reviewed a summary of non-audit services
provided by the external auditor for 2011, and has confi rmed that
the provision of non-audit services for 2011 is consistent with the
Company’s Relationship with External Auditor Policy and compatible
with the general standard of independence for auditors imposed
by the Corporations Act 2001. This has been formally advised to the
Board of Directors.
The external auditor has confi rmed to the Audit Committee that
they have:
implemented procedures to ensure they comply with
independence rules both in Australia and the United States; and
complied with domestic policies and regulations, together with
the regulatory requirements of the SEC, and ANZ’s policy regarding
the provision of non-audit services by the external auditor.
The non-audit services supplied to the Group by the Group’s external
auditor, KPMG, and the amount paid or payable by the Group by type
of non-audit service during the year ended 30 September 2011 are
as follows:
Amount paid/payable
$’000’s
Non-audit services
Collective provision review (on behalf of APRA)
Managed investment schemes distribution
model review
Review script for script audit validation model
and trust voting analysis models
R&D claim review
Review output from counterparty credit risk
review project
Presentations
Prudential standard impact assessment
Training courses
Accounting advice
Witness branch transfer of deposit boxes
Market Risk benchmarking review
Market Risk system capability review
Overseas branch registration regulatory assistance
Review of foreign exchange process in
overseas branch
2011
101
81
46
40
20
18
11
9
5
4
–
–
–
–
2010
–
–
–
–
–
–
–
–
82
–
50
30
2
8
Total
335
172
Further details on the compensation paid to KPMG is provided
in note 5 to the fi nancial statements. Note 5 also provides details
of audit-related services provided during the year of $4.444 million
(2010: $2.819 million).
For the reasons set out above, the Directors are satisfi ed that the
provision of non-audit services by the external auditor during the
year ended 30 September 2011 is compatible with the general
standard of independence for auditors imposed by the Corporations
Act 2001.
Directors and Offi cers who were previously Partners
of the Auditor
Mr Marriott, the Company’s Chief Financial Offi cer, was a Partner
of KPMG at a time when KPMG was the auditor of the Company.
In particular, Mr Marriott was a Partner in the Melbourne offi ce
of the then KPMG Peat Marwick prior to joining the Company
in 1993.
Chief Executive Offi cer/Chief Financial Offi cer
Declaration
The Chief Executive Offi cer and the Chief Financial Offi cer have
given the declarations to the Board concerning the Group’s fi nancial
statements and other matters as required under section 295A(2) of
the Corporations Act 2001 and Recommendation 7.3 of the ASX
Corporate Governance Principles and Recommendations.
Directors’ and Offi cers’ Indemnity
The Company’s Constitution (Rule 11.1) permits the Company to
indemnify each offi cer or employee of the Company against liabilities
(so far as may be permitted under applicable law) incurred in the
execution and discharge of the offi cer’s or employee’s duties. It is the
Company’s policy that its employees should not incur any liability to
any third party as a result of acting in the course of their employment,
subject to appropriate conditions.
Under the policy, the Company will indemnify employees against any
liability they incur in carrying out their role. The indemnity protects
employees and former employees who incur a liability when acting as
an employee, trustee or offi cer of the Company, another corporation
or other body at the request of the Company or a related body corporate.
The indemnity is subject to applicable law and in addition will not
apply to liability arising from:
serious misconduct, gross negligence, or lack of good faith;
illegal, dishonest or fraudulent conduct; or
material non-compliance with the Company’s policies, processes
or discretions.
The Company has entered into Indemnity Deeds with each of
its Directors, with certain secretaries and former Directors of the
Company, and with certain employees and other individuals who
act as directors or offi cers of related bodies corporate or of another
company. To the extent permitted by law, the Company indemnifi es
the individual for all liabilities, including costs, damages and expenses
incurred in their capacity as an offi cer of the company to which they
have been appointed.
The Company has indemnifi ed the trustees and former trustees of
certain of the Company’s superannuation funds and directors, former
directors, offi cers and former offi cers of trustees of various Company
sponsored superannuation schemes in Australia. Under the relevant
Deeds of Indemnity, the Company must indemnify each indemnifi ed
person if the assets of the relevant fund are insuffi cient to cover any
loss, damage, liability or cost incurred by the indemnifi ed person in
connection with the fund, being loss, damage, liability or costs for
which the indemnifi ed person would have been entitled to be
indemnifi ed out of the assets of the fund in accordance with the
trust deed and the Superannuation Industry (Supervision) Act 1993.
This indemnity survives the termination of the fund. Some of the
indemnifi ed persons are or were Directors or executive offi cers
of the Company.
The Company has also indemnifi ed certain employees of the
Company, being trustees and administrators of a trust, from and
against any loss, damage, liability, tax, penalty, expense or claim
of any kind or nature arising out of or in connection with the
creation, operation or dissolution of the trust or any act or omission
performed or omitted by them in good faith and in a manner that
they reasonably believed to be within the scope of the authority
conferred by the trust.
Except for the above, neither the Company nor any related body
corporate of the Company has indemnifi ed or made an agreement
to indemnify any person who is or has been an offi cer or auditor of
the Company against liabilities incurred as an offi cer or auditor of
the Company.
During the fi nancial year, and again since the end of the fi nancial
year, the Company has paid a premium for an insurance policy
for the benefi t of the directors and employees of the Company
and related bodies corporate of the Company. In accordance with
common commercial practice, the insurance policy prohibits
disclosure of the nature of the liability insured against and the
amount of the premium.
Rounding of Amounts
The Company is a company of the kind referred to in Australian
Securities and Investments Commission class order 98/100 (as
amended) pursuant to section 341(1) of the Corporations Act 2001.
As a result, amounts in this Directors’ Report and the accompanying
fi nancial statements have been rounded to the nearest million dollars
except where otherwise indicated.
Directors’ Report
13
DIRECTORS’ REPORT (continued)
Executive Offi cers’ and Employee Share and
Option Plans
Details of share options/rights issued over shares granted to the
Chief Executive Offi cer and Disclosed Executives, and on issue as
at the date of this report are detailed in the Remuneration Report.
Details of options/rights issued over shares granted to employees
and on issue as at the date of this report are detailed in note 46 of
the 2011 fi nancial report.
Details of shares issued as a result of the exercise of options/rights
granted to employees as at the date of this report are detailed in
note 46 of the 2011 fi nancial report.
Other details about the share options/rights issued, including any
rights to participate in any share issues of the Company, are set out
in note 46 of the 2011 fi nancial report. No person entitled to exercise
any option/right has or had, by virtue of an option/right, a right to
participate in any share issue of any other body corporate. The names
of all persons who currently hold options/rights are entered in the
register kept by the Company pursuant to section 170 of the
Corporations Act 2001. This register may be inspected free of charge.
Lead Auditor’s Independence Declaration
The lead auditor’s independence declaration given under section 307C of the Corporations Act 2001 is set out below and forms part of this
Directors’ Report for the year ended 30 September 2011.
THE AUDITOR’S INDEPENDENCE DECLARATION
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
To: the Directors of Australia and New Zealand Banking Group Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the fi nancial year ended 30 September 2011, there have been:
(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
(ii) no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Peter Nash
Partner
Melbourne
2 November 2011
14
ANZ Annual Report 2011
REMUNERATION REPORT
Contents
Remuneration Report – Summary (Unaudited)
Remuneration Structure and 2011 Outcomes
Non-Executive Directors
Chief Executive Offi cer and Disclosed Executives
CEO Actual Remuneration
Disclosed Executives Actual Remuneration
Short Term Incentive (STI) – Targets and Outcomes
Remuneration Report – Full (Audited)
Board Oversight of Remuneration
Non-Executive Directors
CEO and Disclosed Executives
1. Non-Executive Director Remuneration
1.1. Board Policy on Remuneration
1.2. Components of Non-Executive Director Remuneration
1.3. Shareholdings of Non-Executive Directors
1.4. Remuneration paid to Non-Executive Directors
2. CEO and Disclosed Executive Remuneration
2.1. Remuneration Guiding Principles
2.2. Performance of ANZ
2.3. Remuneration Structure Overview
2.4. Remuneration Components
2.5. CEO Remuneration
2.6. Disclosed Executive Remuneration
2.6.1. Fixed Remuneration
2.6.2. Variable Remuneration
2.6.3. Short Term Incentives (STI)
2.6.4. Long Term Incentives (LTI)
2.7. Clawback
2.8. Hedging and Margin Lending Prohibition
2.9. Shareholding guidelines
2.10. Equity Granted as Remuneration
2.11. Equity Valuations
2.12. Equity Vested/Exercised/Lapsed During 2011
2.13. Shareholdings of the CEO and Disclosed Executives
2.14. Legacy LTI Programs
2.15. Remuneration paid to the CEO and Disclosed Executives
3. Contract Terms
3.1. CEO’s Contract Terms
3.2. Disclosed Executives’ Contract Terms
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44
Remuneration Report
15
REMUNERATION REPORT – SUMMARY (Unaudited)
Remuneration Report – Summary (Unaudited)
This overview has been written to provide a clear and simple
summary of ANZ’s remuneration structure and the actual value
received from the various remuneration components by the
Non-Executive Directors (NEDs), the Chief Executive Offi cer (CEO)
and Disclosed Executives in 2010 and 2011. The term ‘Disclosed
Executives’ is used in this report to refer to these executives
other than the CEO. Detailed data is provided in the Directors’
Remuneration Report on pages 22 to 45.
Remuneration Structure and 2011 Outcomes
NON-EXECUTIVE DIRECTORS
Full details of the fees paid to NEDs in 2010 and 2011 are provided
on page 24 of the Remuneration Report. In summary, the Chairman
receives a base fee which covers all responsibilities including all
Board committees. NEDs receive a base fee for being a Director of
the Board and additional fees for either chairing or being a member
of a committee, working on special committees and/or for serving
on a subsidiary Board. They do not receive any performance/incentive
payments and are not eligible to participate in any of the Group’s
incentive arrangements. All fees payable to NEDs fall within the fee
limit set by shareholders.
There has been no increase to the NED fee pool since 2008.
Based on an independent assessment of the competitiveness of
ANZ’s NED remuneration in comparison to other major companies
and forecast market movements, the Board elected to increase NED
fees for the 2011 year.
CHIEF EXECUTIVE OFFICER AND DISCLOSED EXECUTIVES
ANZ’s remuneration framework is designed to create and enhance
value for all ANZ stakeholders and to ensure there is strong alignment
between the short and long-term interests of shareholders and the
CEO and Disclosed Executives. A key feature of ANZ’s reward structure
is the role it plays in helping drive ANZ’s strategy to build a culture of
out-performance with integrity, by ensuring diff erentiation of rewards
and recognition of key contributors. To achieve this, remuneration for
the CEO and Disclosed Executives is comprised of:
Fixed pay: This is the only ‘guaranteed’ part of the remuneration
package. ANZ positions fi xed pay for the CEO and Disclosed
Executives against the median of the relevant fi nancial services
market and based on internal relativities refl ecting responsibilities,
performance, qualifi cations, experience and location.
The fi nancial services market is considered the appropriate market
as this is the key pool of sourcing talent for ANZ, consisting of
companies operating in a similar regulatory environment to ANZ.
This market consists of companies where key talent may be lost to
and therefore competitive remuneration against these companies
is appropriate.
Short Term Incentive (STI): The STI provides an annual opportunity
for an incentive award. It is assessed against Group and individual
objectives and is awarded provided that there have been no
inappropriate behaviour or risk/compliance/audit breaches.
Long Term Incentive (LTI): The LTI provides an annual opportunity
for an equity award that aligns a signifi cant portion of overall
remuneration to shareholder value over the longer term.
16
ANZ Annual Report 2011
CEO ACTUAL REMUNERATION
Fixed pay: From 1 October 2010 the level of fi xed annual pay for the
CEO was increased to $3.15 million from $3 million and was the fi rst
adjustment since his commencement in 2007. The Board determined
that based on fi xed remuneration remaining unchanged since
commencement, and the importance of rewarding the CEO
commensurate with his peers who have signifi cant Asian experience,
it was appropriate to provide a fi xed pay increase of 5%.
Short Term Incentive (STI): The CEO has an annual opportunity
to receive a bonus payment equivalent to the value of his fi xed
remuneration, i.e. $3.15 million. The actual amount paid can increase
or decrease from this number dependent on his performance as
CEO and the performance of the organisation as a whole. Specifi cally,
if, in the Board’s view the CEO has out-performed and exceeded his
targets, the Board may exercise its discretion to increase the STI
beyond his target payment.
The CEO’s STI payment for 2011 has been determined having regard
to his delivery against a balanced scorecard of objectives for the
year as well as the progress achieved in relation to ANZ’s long-term
strategic goals. The STI payment for 2011 will be $3.3 million with
$1.75 million paid in cash and the balance ($1.55 million) awarded
as deferred shares. Half the deferred shares will be restricted for one
year and half for two years.
Special Equity Allocation: At the 2008 Annual General Meeting,
shareholders approved an additional grant of 700,000 options to
the CEO at an exercise price of $14.18 and with a vesting date of
18 December 2011. No options have been granted subsequently.
Long Term Incentive (LTI): Three tranches of performance rights were
provided to the CEO in December 2007, covering his fi rst three years
in the role. The fi rst of these tranches was tested against a relative
Total Shareholder Return (TSR) hurdle after three years, i.e. December
2010. As a result of the testing, 258,620 performance rights vested at
a value of $6.117 million, based on the one day volume weighted
average price (VWAP) of $23.6535 per share on 17 December 2010
(19 December 2010 was a non-trading day) and were exercised during
the year. The other two tranches will be tested in December 2011 and
December 2012 respectively. There is no retesting of these grants.
At the 2010 Annual General Meeting shareholders approved an
LTI grant to the CEO equivalent to 100% of his 2010 fi xed pay, being
$3 million. This equated to a total of 253,164 performance rights
being allocated, which will be subject to testing against the relative
TSR hurdle after 3 years, i.e. December 2013.
Other: In addition to his standard remuneration arrangements,
the CEO was provided with additional equity as part of his original
sign-on arrangements to recognise remuneration forgone from
his previous employer in order to join ANZ. The CEO was off ered
$9 million on his commencement which could have been taken in
cash but which he elected to take as shares, with one third vesting
at his 1st, 2nd and 3rd anniversaries respectively. This equated to a
total of 330,033 ANZ shares at the time of grant when the share price
was $27.2751. The fi rst and second tranches vested in October 2008
and October 2009 respectively. The third tranche vested on 2 October
2010. At that time, the value was $2.589 million, based on the one day
VWAP of $23.5385 per share on 1 October 2010 (2 October 2010 was
a non-trading day).
The following tables, relating to the CEO, show:
The actual amounts or grants made in respect of the years 2010 and 2011;
Any amounts which had to be deferred in respect of the years 2010 and 2011; and
The actual amounts received in respect of the years 2010 and 2011.
The information provided in this table is diff erent from the information provided in the statutory remuneration table on page 42, which has
been prepared in accordance with Australian Accounting Standards.
Chief Executive Offi cer
(M Smith)1,2
2011
Fixed pay
($)
STI
($)
LTI
($)
Other grants
/benefi ts
($)
TOTAL
($)
Amounts paid or granted in respect of 2011 year
3,150,000
3,300,000
3,150,0003
105,5155
9,705,515
less amounts which must be deferred in respect of 2011 year
–
1,550,000
3,150,0003
–
4,700,000
Amounts received in respect of 2011 year
3,150,000
1,750,000
–3
105,5155
5,005,515
2010
Amounts paid or granted in respect of 2010 year
3,000,000
4,750,000
3,000,0004
5,5005
10,755,500
less amounts which must be deferred in respect of 2010 year
–
2,250,000
3,000,0003
–
5,250,000
Amounts received in respect of 2010 year
3,000,000
2,500,000
–3
5,5005
5,505,500
1 On commencement with ANZ, M Smith was granted three tranches of equity valued at $3 million each. The second tranche became available on 2 October 2009 – price at vesting $23.5600
(based on one day VWAP as at 2 October 2009). Therefore the value of this tranche at date of vesting was $2,591,859. The third tranche became available on 2 October 2010 – price at vesting
$23.5385 (based on one day VWAP as at 1 October 2010, as 2 October 2010 was a non-trading day). Therefore the value of this tranche at date of vesting was $2,589,494. These amounts are not
reflected in the table above as they relate to a specific equity arrangement associated with his commencement and are not a part of his standard remuneration arrangements.
2 Equity which has been previously disclosed in remuneration reports in prior years that first vested in 2011 included STI deferred shares granted 13 November 2009, valued at $1,074,274 at
vesting on 13 November 2010 (based on one day VWAP on 12 November 2010, as 13 November 2010 was a non-trading day) and LTI performance rights granted 19 December 2007, valued at
$6,117,268 at vesting on 19 December 2010 (based on one day VWAP on 17 December 2010, as 19 December 2010 was a non-trading day).
3 The 2011 LTI relates to the LTI grant that is proposed for 2011, subject to approval by shareholders at the 2011 Annual General Meeting.
4 The 2010 LTI relates to the LTI grant approved by shareholders at the 2010 Annual General Meeting.
5 Other grants/benefits includes car parking, life insurance and taxation services. The insurance coverage for M Smith was updated in 2011 to a full Life and Personal Accident Insurance Policy
which provides more comprehensive cover.
2012 Remuneration: The CEO’s fi xed pay will remain unchanged
at $3.15 million for the year commencing 1 October 2011.
The STI target is 100% of fi xed pay, therefore, for the 2012 year the
STI target will remain at $3.15 million. The actual payment will be
determined having regard to performance against relevant objectives
and targets for the 2012 year.
For 2011, it is proposed to allocate $3.15 million LTI to be delivered as
performance rights with a relative TSR hurdle, subject to shareholder
approval at the 2011 Annual General Meeting.
DISCLOSED EXECUTIVES ACTUAL REMUNERATION
CHIEF RISK OFFICER (CRO)
The CRO’s remuneration arrangements have been structured
diff erently to other Disclosed Executives to preserve the
independence of this role and to minimise any confl icts of interest.
The CRO’s role has a greater weighting on fi xed pay with more limited
leverage for individual performance and none (either positive or
negative) for Group performance. In 2010, LTI awards were delivered
as unhurdled deferred shares and in 2011 (and beyond) will be
delivered as unhurdled deferred share rights, both with a three year
time based hurdle. The Company’s relative TSR performance hurdle
is not associated with the LTI award to ensure greater impartiality
and independence of this role.
ALL OTHER DISCLOSED EXECUTIVES
Fixed pay: A review identifi ed that ANZ’s fi xed remuneration levels
for Disclosed Executives were generally competitively positioned
within the market, and where they were not, appropriate adjustments
were made.
Short Term Incentive (STI): Disclosed Executives have an opportunity
to receive an on-target STI payment equivalent to 120% of their fi xed
pay, with top performers able to receive incentive payments well above
the target level whereas weaker performers receive a signifi cantly
reduced or no incentive payment at all. All incentives paid in the 2011
fi nancial year related to performance from the 2010 fi nancial year, and
all deferred components are subject to the Board’s discretion to reduce
or adjust to zero before vesting. The total of STI payments for Disclosed
Executives for the 2011 year has decreased from 2010, refl ecting the
link between performance and variable reward outcomes.
STI payments for Disclosed Executives are subject to a mandatory
deferral threshold (currently $200,000), with 50% of all amounts
above this threshold subject to deferral – half of the deferred equity
is restricted for a one year period and the other half of the deferred
equity is restricted for a two year period. This is designed to strengthen
the link between the STI award and longer term alignment with
shareholder interests.
Long Term Incentive (LTI): The target LTI is 50% of their fi xed pay. This
dollar value is converted into an actual number of performance rights
using an independent and audited external valuation. These rights
are subject to a relative TSR performance hurdle that compares ANZ’s
performance with a selection of other comparable fi nancial institutions
over the three year period following the grant. ANZ’s performance
ranking must be equal to the median for any rights to vest and at or
above the 75th percentile to fully vest. If the hurdle is achieved, the rights
are able to be exercised, and if not, they are forfeited. There is no retesting.
The LTI grants made in October 2007 were tested against the TSR
performance of the comparator group in October 2010. ANZ’s TSR
performance was ranked above the 75th percentile of the comparator
group. Accordingly, 100% of the performance rights vested in October 2010.
Remuneration Report
17
REMUNERATION REPORT – SUMMARY (Unaudited)
The following tables cover those Disclosed Executives who were employed at the executive level for 2010 and 2011. The tables detail:
The actual amounts paid or granted in respect of the years 2010 and 2011;
Any amounts which had to be deferred in respect of the years 2010 and 2011; and
The actual amounts received in respect of the years 2010 and 2011.
The information provided in these tables is diff erent from the information provided in the statutory remuneration table on page 42, which has
been prepared in accordance with Australian Accounting Standards.
Chief Executive Offi cer, Australia
(P Chronican)1
2011
Fixed pay
($)
STI
($)
LTI
($)
Other grants
/benefi ts
($)
TOTAL
($)
Amounts paid or granted in respect of 2011 year
1,300,000
1,600,000
650,000
5,744
3,555,744
less amounts which must be deferred in respect of 2011 year
–
700,000
650,000
–
1,350,000
Amounts received in respect of 2011 year
1,300,000
900,000
–
5,744
2,205,744
2010
Amounts paid or granted in respect of 2010 year
1,079,000
1,400,000
650,000
296,974
3,425,974
less amounts which must be deferred in respect of 2010 year
–
600,000
650,000
–
1,250,000
Amounts received in respect of 2010 year
1,079,000
800,000
Chief Executive Offi cer, Institutional
(S Elliott)2
2011
Fixed pay
($)
STI
($)
–
LTI
($)
296,974
2,175,974
Other grants
/benefi ts
($)
TOTAL
($)
Amounts paid or granted in respect of 2011 year
1,050,000
1,008,000
650,000
10,191
2,718,191
less amounts which must be deferred in respect of 2011 year
–
404,000
650,000
–
1,054,000
Amounts received in respect of 2011 year
1,050,000
604,000
–
10,191
1,664,191
2010
Amounts paid or granted in respect of 2010 year
1,000,000
2,500,000
550,000
12,334
4,062,334
less amounts which must be deferred in respect of 2010 year
–
1,150,000
550,000
–
1,700,000
Amounts received in respect of 2010 year
1,000,000
1,350,000
Chief Executive Offi cer, New Zealand
(D Hisco)3
2011
Fixed pay
($)
STI
($)
–
LTI
($)
12,334
2,362,334
Other grants
/benefi ts
($)
TOTAL
($)
Amounts paid or granted in respect of 2011 year
960,000
1,612,800
480,000
357,283
3,410,083
less amounts which must be deferred in respect of 2011 year
–
710,400
480,000
–
1,190,400
Amounts received in respect of 2011 year
960,000
902,400
–
357,283
2,219,683
2010
Not a Disclosed Executive in 2010
18
ANZ Annual Report 2011
Chief Executive Offi cer, Asia Pacifi c, Europe & America
(A Thursby)4
2011
Fixed pay
($)
STI
($)
LTI
($)
Other grants
/benefi ts
($)
TOTAL
($)
Amounts paid or granted in respect of 2011 year
1,050,000
1,600,000
700,000
7,375
3,357,375
less amounts which must be deferred in respect of 2011 year
Amounts received in respect of 2011 year
–
1,050,000
700,000
900,000
700,000
–
1,400,000
–
7,375
1,957,375
2010
Amounts paid or granted in respect of 2010 year
1,000,000
2,500,000
550,000
23,570
4,073,570
less amounts which must be deferred in respect of 2010 year
–
1,150,000
550,000
–
1,700,000
Amounts received in respect of 2010 year
1,000,000
1,350,000
Deputy Chief Executive Offi cer
(G Hodges)5
2011
Fixed pay
($)
STI
($)
–
LTI
($)
23,570
2,373,570
Other grants
/benefi ts
($)
TOTAL
($)
Amounts paid or granted in respect of 2011 year
1,000,000
1,200,000
500,000
24,350
2,724,350
less amounts which must be deferred in respect of 2011 year
–
500,000
500,000
–
1,000,000
Amounts received in respect of 2011 year
1,000,000
700,000
–
24,350
1,724,350
2010
Amounts paid or granted in respect of 2010 year
1,000,000
1,140,000
500,000
17,309
2,657,309
less amounts which must be deferred in respect of 2010 year
Amounts received in respect of 2010 year
–
1,000,000
470,000
670,000
Chief Financial Offi cer
(P Marriott)6
2011
Fixed pay
($)
STI
($)
500,000
–
970,000
–
LTI
($)
17,309
1,687,309
Other grants
/benefi ts
($)
TOTAL
($)
Amounts paid or granted in respect of 2011 year
1,000,000
1,440,000
500,000
5,774
2,945,774
less amounts which must be deferred in respect of 2011 year
–
620,000
500,000
–
1,120,000
Amounts received in respect of 2011 year
1,000,000
820,000
–
5,774
1,825,774
2010
Amounts paid or granted in respect of 2010 year
1,000,000
1,140,000
500,000
2,595
2,642,595
less amounts which must be deferred in respect of 2010 year
Amounts received in respect of 2010 year
–
1,000,000
470,000
670,000
Chief Risk Offi cer
(C Page)7
2011
Amounts paid or granted in respect of 2011 year
less amounts which must be deferred in respect of 2011 year
Amounts received in respect of 2011 year
Fixed pay
($)
STI
($)
1,100,000
1,500,000
–
1,100,000
650,000
850,000
500,000
–
970,000
–
LTI
($)
–
–
–
2,595
1,672,595
Other grants
/benefi ts
($)
TOTAL
($)
7,375
2,607,375
–
650,000
7,375
1,957,375
2010
Amounts paid or granted in respect of 2010 year
1,100,000
1,320,000
425,000
60,565
2,905,565
less amounts which must be deferred in respect of 2010 year
Amounts received in respect of 2010 year
–
1,100,000
560,000
760,000
425,000
–
985,000
–
60,565
1,920,565
Remuneration Report
19
REMUNERATION REPORT – SUMMARY (Unaudited) (continued)
1 P Chronican – P Chronican commenced on 30 November 2009 so 2010 payments reflect amounts received for the partial service for the 2010 year. Other grants/benefits includes car parking
and relocation expenses.
2 S Elliott – Other grants/benefits includes car parking and relocation expenses. Equity which has been previously disclosed in remuneration reports in prior years that first vested in 2011
included STI deferred shares granted 13 November 2009, valued at $25,566 at vesting on 13 November 2010 and STI deferred options granted 13 November 2009, valued at $2,796 at vesting
on 13 November 2010 (based on one day VWAP on 12 November 2010, as 13 November was a non-trading day). In addition to remuneration shown above, S Elliott received an equity grant in
2009 in accordance with his employment arrangements on joining ANZ. ANZ agreed to provide S Elliott with shares to the value of $125,000 deferred for one year and shares to the value of
$125,000 deferred for two years. The shares were granted on 11 June 2009. The one year deferred shares became available on 11 June 2010, valued at $172,589 at vesting. The two year deferred
shares became available on 11 June 2011, valued at $162,464 at vesting.
3 D Hisco – D Hisco commenced in role on 13 October 2010 so 2011 payments reflect amounts received for the partial service for the 2011 year. Other grants/benefits includes relocation
expenses such as flight and housing assistance, and taxation services. Equity which first vested in 2011 included STI deferred shares granted 13 November 2009, valued at $136,836 at vesting
on 13 November 2010 (based on one day VWAP on 12 November 2010, as 13 November was a non-trading day) and LTI performance rights granted 30 October 2007, valued at $634,134 at vesting
on 31 October 2010.
4 A Thursby – Other grants/benefits includes car parking and relocation expenses. Equity which has been previously disclosed in remuneration reports in prior years that first vested in 2011
included STI deferred shares granted 31 October 2008, valued at $308,051 at vesting on 31 October 2010, STI deferred shares granted 13 November 2009, valued at $613,871 at vesting on
13 November 2010 (based on one day VWAP on 12 November 2010, as 13 November was a non-trading day), STI deferred options granted 31 October 2008, valued at $635,420 at vesting on
31 October 2010 and LTI performance rights granted 30 October 2007, valued at $1,153,007 at vesting on 31 October 2010. In addition to remuneration shown above, A Thursby received an
equity grant in 2009 in accordance with his employment arrangements on joining ANZ. ANZ agreed to provide A Thursby with three separate tranches of deferred shares to the value of $1 million
per annum. The first tranche was made on 3 September 2007, the second on 28 August 2008 and the final tranche was granted on 22 September 2009. The shares are restricted and held in trust
for three years from the date of allocation. The first tranche became available on 3 September 2010, valued at $804,989 at vesting. The second tranche became available on 28 August 2011,
valued at $1,249,537 at vesting.
5 G Hodges – Other grants/benefits includes car parking and taxation services. Equity which has been previously disclosed in remuneration reports in prior years that first vested in 2011 included
STI deferred shares granted 13 November 2009, valued at $168,817 at vesting on 13 November 2010 (based on one day VWAP on 12 November 2010, as 13 November was a non-trading day),
STI deferred options granted 31 October 2008, valued at $261,641 at vesting on 31 October 2010, STI deferred share rights granted 31 October 2008, valued at $141,038 at vesting on 31 October
2010 and LTI performance rights granted 30 October 2007, valued at $1,441,258 at vesting on 31 October 2010.
6 P Marriott – Other grants/benefits includes car parking. Equity which has been previously disclosed in remuneration reports in prior years that first vested in 2011 included STI deferred shares
granted 31 October 2008, valued at $90,580 at vesting on 31 October 2010, STI deferred shares granted 13 November 2009, valued at $166,251 at vesting on 13 November 2010 (based on one
day VWAP on 12 November 2010, as 13 November was a non-trading day), STI deferred options granted 31 October 2008, valued at $186,886 at vesting on 31 October 2010 and LTI performance
rights granted 30 October 2007, valued at $1,441,258 at vesting on 31 October 2010.
7 C Page – Other grants/benefits includes car parking, relocation expenses and taxation services. Equity which has been previously disclosed in remuneration reports in prior years that first vested
in 2011 included STI deferred shares granted 13 November 2009, valued at $358,091 at vesting on 13 November 2010 (based on one day VWAP on 12 November 2010, as 13 November was a
non-trading day).
Short Term Incentive (STI) – Targets and Outcomes
ANZ uses a balanced scorecard to measure performance in relation to the Group’s main STI program. The scorecard provides a framework
whereby a combination of measures can be applied to ensure a broader long term strategic focus on driving shareholder value as well as
a focus on short term outcomes.
In 2011 there were four categories containing a total of 20 measures agreed at the beginning of the fi nancial year and they have not been
changed. Each of the four categories are broadly equal in weight.
The following table provides examples of some of the key measures used in 2011 for assessing performance for the purpose of determining
bonus pools and also individual performance outcomes. The list is not comprehensive but provides examples of the measures under each of
the balanced scorecard categories.
Category
Measure
Outcome
Customer
Customer satisfaction
(based on external
survey outcomes)
Finance
Tier 1 capital
Liquidity stress
testing policies
Core funding ratio
Underlying earnings
per share
Underlying
economic profi t
Total shareholder
return
ANZ aims to achieve top quartile customer satisfaction across each of its businesses based on external
survey outcomes. In 2011 ANZ maintained top quartile performance in Australia in the Retail, Commercial
and Institutional segments and in the Institutional segment in New Zealand. In New Zealand, satisfaction
in Retail improved and remained constant in Commercial, however, satisfaction levels were slightly
behind the other major banks.
Individual measures in the Finance category target both fi nancial strength and fi nancial performance
relative to peers and internal targets. In the current economic environment, fi nancial strength measures
for Capital, Liquidity and Funding are regarded as particularly important. For each of those measures
the target was met or exceeded. ANZ is well capitalised with the Tier 1 ratio of 10.9% comfortably above
both internal targets and regulator requirements. Throughout the period ANZ has complied with internal
liquidity stress testing policies and has maintained its Core Funding Ratio at comfortable levels.
Underlying Earnings Per Share and Underlying Economic Profi t are each measured against strong growth
objectives set by the Board. Total Shareholder Return is measured against the mean of our Australian
peers. While ANZ’s EPS grew strongly (up 10% for the year), a signifi cant decline in Global Markets trading
income, in line with global sector trends, in the last half dampened the growth. Economic Profi t is
measured against the Board approved Operating Plan and performance fell short due to Global Markets
income. While Statutory Profi t and Underlying Profi t grew 19% and 12% respectively year on year and
dividends increased 11%, the shareholder return lagged peers with share price growth reducing
somewhat after outperformance in 2010.
20
ANZ Annual Report 2011
Category
Measure
Outcome
People
Employee engagement
Percentage of women
in management
Corporate social
responsibility
Process/ Risk Underlying individual
provision charge
Number of high
severity IT incidents
Number of operational
incidents
Number of outstanding
internal audit items
An engaged workforce is regarded as an important driver of above average long term performance.
ANZ employee engagement increased from 64% in 2010 to 70% in 2011, above the 68% internal target.
ANZ is focused on increasing the diversity of its workforce and targeted an increase in women in
management; however results remained fl at year on year. ANZ met its Corporate Responsibility Targets
for 2011.
The management of risk is fundamental to the ongoing stability of the banking industry. In this scorecard
category ANZ has measures for both credit and operating risk. In 2011 ANZ achieved a 33% reduction in
credit losses, compared to a target of 28%, with provisioning levels beginning to revert to pre-crisis levels.
This reduction was achieved despite the impact of a number of natural disasters in New Zealand and Australia.
High severity IT incidents reduced by 47%. ANZ Global Internal Audit conduct a rigorous review process
to identify any weaknesses in procedures and/or compliance with policies and in 2011 there was a
signifi cant reduction in the number of outstanding internal audit items with the Group outperforming
against target.
Performance and Short Term Incentive Correlation
Short Term Incentive Payments for the CEO and Disclosed Executives on average were lower for 2011 than for the prior year. For 2011 the
average STI for the CEO and Disclosed Executives was 110% of target compared to 137% of target for the prior year. Whilst ANZ has had another
record year and profi ts have increased steadily, performance needs to be assessed across the full range of quantitative and qualitative measures.
The Board has given full consideration to the performance of the Group and the Disclosed Executives, and determined that whilst still
performing strongly, on balance the rewards should be reduced from prior year. The Board sets stretching growth targets for the Management
Team to drive strong, responsible and sustainable growth.
Remuneration Report
21
REMUNERATION REPORT – FULL (Audited)
Remuneration Report – Full (Audited)
The Directors’ Remuneration Report is designed to provide shareholders with an understanding of ANZ’s remuneration policies which relate
to Key Management Personnel (KMP) as defi ned under the Corporations Act and the link between remuneration and ANZ’s performance, along
with individual outcomes for ANZ’s Non-Executive Directors (NEDs), Chief Executive Offi cer (CEO) and Disclosed Executives.
This Remuneration Report has been prepared in accordance with section 300A of the Corporations Act for the Company and the consolidated
entity for 2010 and 2011.
The information provided in this Remuneration Report has been audited as required by section 308(3C) of the Corporations Act. This Remuneration
Report forms part of the Directors’ Report.
Board Oversight of Remuneration
The Human Resources (HR) Committee has responsibility for reviewing and making recommendations to the Board in relation to director
and executive remuneration, and executive succession (excluding the role of Group General Manager Global Internal Audit which is addressed
separately by the Board Audit Committee). The HR Committee specifi cally makes recommendations to the Board on remuneration and
succession matters related to the CEO, and individual remuneration arrangements for other key executives covered by the Group’s
Remuneration Policy, the design of signifi cant incentive plans (such as the ANZ Employee Reward Scheme (ANZERS) and the Institutional
Incentive Plan) and remuneration structures for senior executives and others specifi cally covered by the Remuneration Policy (refer to page 57
of the Corporate Governance Report for more details about the Committee’s role, and anz.com > About Us > Our Company > Corporate
Governance > ANZ Human Resources Committee Charter, which details the terms of reference under which the HR Committee operates).
On a number of occasions throughout the year, the HR Committee and management received information from external providers (the
following advisors were used: Ernst & Young, Hay Group, Freehills, Mercer (Australia) Pty Ltd and PricewaterhouseCoopers). This information
related to remuneration market data and analysis, remuneration market practice regarding the structure and design of short term incentive
and long term incentive programs, analysis of legislative requirements in relation to executive remuneration, and interpretation of Australian
and global remuneration governance and regulatory requirements.
The HR Committee did not receive any recommendations from remuneration consultants during the year in relation to the remuneration
arrangements of KMP. ANZ employs in house remuneration professionals who analyse and interpret the information received from external
providers and where recommendations were provided to the Board, these were direct from management.
The Board’s decisions were made independently using the information provided and having careful regard to ANZ’s position, strategic
objectives and current requirements.
Non-Executive Directors
Throughout this report specifi c disclosures are provided in relation to the remuneration of the Non-Executive Directors (NEDs) set out in Table 1,
who fall within the defi nition of KMP of the Company and of the Group.
TABLE 1: NON-EXECUTIVE DIRECTORS
Current Non-Executive Directors
J Morschel
G Clark
P Hay
H Lee
I Macfarlane
D Meiklejohn
A Watkins
Chairman, Independent Non-Executive Director – Appointed Director October 2004;
Appointed Chairman 1 March 2010
Independent Non-Executive Director – Appointed February 2004
Independent Non-Executive Director – Appointed November 2008
Independent Non-Executive Director – Appointed February 2009
Independent Non-Executive Director – Appointed February 2007
Independent Non-Executive Director – Appointed October 2004
Independent Non-Executive Director – Appointed November 2008
Former Non-Executive Directors
C Goode
J Ellis
Chairman, Independent Non-Executive Director – Appointed Director July 1991;
Appointed Chairman August 1995; Retired 28 February 2010
Independent Non-Executive Director – Appointed October 1995; Retired 18 December 2009
22
ANZ Annual Report 2011
CEO and Disclosed Executives
Throughout this report specifi c disclosures are provided in relation to the remuneration of both the Chief Executive Offi cer (CEO) and the
other current and former executives set out in Table 2 below. The term ‘Disclosed Executives’ is used in this report to refer to these executives
other than the CEO.
The Disclosed Executives are those direct reports of the CEO with key responsibility for the strategic direction and management of a major
revenue generating Division or who control material revenue and expenses who fall within the defi nition of KMP of the Company and of the
Group, and include the fi ve highest paid executives in the Company and the Group (being the fi ve highest paid, relevant Group and Company
executives who participate in making decisions that aff ect the whole, or a substantial part, of the business of the Company or who have the
capacity to signifi cantly aff ect the Company’s fi nancial standing).
The Group operates on a divisional structure with Australia, Asia Pacifi c, Europe & America (APEA), Institutional and New Zealand being the
major operating divisions.
TABLE 2: CEO AND DISCLOSED EXECUTIVES
Executive Director
M Smith
Current Disclosed Executives
P Chronican
S Elliott
D Hisco
G Hodges
P Marriott
C Page
A Thursby
Former Disclosed Executives
Chief Executive Offi cer
Chief Executive Offi cer, Australia – appointed 30 November 2009
Chief Executive Offi cer, Institutional
Chief Executive Offi cer, New Zealand – appointed 13 October 2010
Deputy Chief Executive Offi cer
Chief Financial Offi cer
Chief Risk Offi cer
Chief Executive Offi cer, Asia Pacifi c, Europe & America
J Fagg
Former Chief Executive Offi cer, New Zealand – stepped down from role due to illness 1 September 2010
1. Non-Executive Director Remuneration
1.1. BOARD POLICY ON REMUNERATION
Table 3 sets out the key principles that underpin the Board’s policy on NED remuneration:
TABLE 3: PRINCIPLES UNDERPINNING THE REMUNERATION POLICY FOR NEDs
Principle
Comment
Aggregate Board and
Committee fees are within
the maximum annual
aggregate limit approved
by shareholders
Fees are set by reference
to key considerations
The remuneration structure
preserves independence
whilst aligning interests
of NEDs and shareholders
No retirement benefi ts
The current aggregate fee pool for NEDs of $3.5 million was approved by shareholders at the 2008 Annual
General Meeting. The annual total of NEDs’ fees, including superannuation contributions, is within this agreed
limit. NEDs are also eligible for other payments outside the limit such as reimbursement for business related
expenses, including travel, and retirement benefi ts accrued as at September 2005.
Board and Committee fees are set by reference to a number of relevant considerations including:
general industry practice and best principles of corporate governance;
the responsibilities and risks attaching to the role of NED;
the time commitment expected of the NEDs on Group and Company matters; and
reference to fees paid to other NEDs of comparable companies.
So that independence and impartiality is maintained, fees are not linked to the performance of the Company
and NEDs are not eligible to participate in any of the Group’s incentive arrangements. NEDs also have adopted
Shareholding Guidelines (refer section 1.3).
NEDs do not accrue separate retirement benefi ts in addition to statutory superannuation entitlements.
(Refer to Table 4 for details of preserved benefi ts for NEDs who participated in the ANZ Directors’ Retirement
Scheme prior to its closure in 2005).
Remuneration Report
23
REMUNERATION REPORT – FULL (Audited) (continued)
1.2. COMPONENTS OF NON-EXECUTIVE DIRECTOR REMUNERATION
NEDs receive a fee for being a Director of the Board, and additional fees for either chairing or being a member of a committee. The Chairman
of the Board does not receive additional fees for service on Board Committees.
There has been no increase to the NED fee pool since 2008.
Based on an independent assessment of the competitiveness of ANZ’s NED remuneration in comparison to other major companies and forecast
market movements the Board elected to increase NED fees for the 2011 fi nancial year, in order to remain market competitive and to refl ect
the increased accountability and time commitment of NEDs. For details of remuneration paid to Directors for the years 2010 and 2011, refer to
Table 6 in this Remuneration Report.
TABLE 4: COMPONENTS OF REMUNERATION FOR NEDS
Elements
Details
Board/Committee fees
2011
Fees per annum are:
Board Chairman Fee
Board NED Base Fee
Committee Fees
Audit
Risk
Human Resources
Governance
Technology
$775,000
$210,000
Committee
Chair
$65,000
$57,000
$55,000
$35,000
$35,000
Committee
Member
$32,500
$30,000
$25,000
$15,000
$15,000
Other fees/benefi ts
Post-employment benefi ts
Work on Special Committees may attract additional fees of an amount considered appropriate
in the circumstances.
Superannuation contributions are made at a rate of 9% (but only up to the Government’s prescribed
maximum contributions limit) which satisfi es the Company’s statutory superannuation contributions
and are not included in the base fee.
The ANZ Directors’ Retirement Scheme was closed eff ective 30 September 2005. Accrued entitlements
relating to the ANZ Directors’ Retirement Scheme were fi xed at 30 September 2005 and NEDs had the option
to convert these entitlements into ANZ shares. Such entitlements, either in ANZ shares or cash, will be
carried forward and transferred to the NED when they retire (including interest accrued at the 30 day bank
bill rate for cash entitlements).
The accrued entitlements for current NEDs fi xed under the ANZ Directors’ Retirement Scheme as at
30 September 2005 were as follows:
G Clark
D Meiklejohn
J Morschel
$83,197
$64,781
$60,459
With eff ect from 1 October 2009, ANZ ceased all new purchases under the Directors’ Share Plan (the Plan),
although existing shares will continue to be held in trust. As shares were purchased from remuneration
forgone, they were not subject to performance conditions. Participation in the plan was voluntary. Shares
acquired under the Plan were purchased on market and were subject to a minimum one year restriction,
during which the shares could not be traded. In the event of serious misconduct, all shares held in trust will
be forfeited. All costs associated with the Plan are met by the Company.
The Plan was not a performance-based share plan and was not intended as an incentive component of
NED remuneration.
Directors’ Share Plan
24
ANZ Annual Report 2011
1.3. SHAREHOLDINGS OF NON-EXECUTIVE DIRECTORS
In recognising that ownership of Company shares aligns Directors’ interests with those of shareholders, Directors adopted Shareholding
Guidelines in 2005. These guidelines require Directors to accumulate shares, over a fi ve year period from appointment, to the value of 100%
(200% for the Chairman) of the base annual NED fee and to maintain this shareholding while a Director of ANZ. Directors have agreed that
where their holding is below this guideline they will direct a minimum of 25% of their fees each year toward achieving this shareholding.
The movement during the reporting period in shareholdings of NEDs (held directly, indirectly and by related parties) is provided below:
TABLE 5: NED SHAREHOLDINGS
Name
Type of shares
Current Non-Executive Directors
J Morschel
G Clark
P Hay4
H Lee
I Macfarlane
D Meiklejohn
A Watkins
Directors' Share Plan
Ordinary shares
Directors' Share Plan
Ordinary shares
Directors' Share Plan
Ordinary shares
Directors' Share Plan
Ordinary shares
Directors' Share Plan
Ordinary shares
CPS2
CPS3
Ordinary shares
Directors' Share Plan
Ordinary shares
Balance as at
1 Oct 2010
Shares from
changes during
the year1
Balance as at
30 Sep 20112,3
Balance as at
report sign-off
date
7,860
8,042
5,479
10,000
2,812
6,231
1,654
8,000
2,574
11,042
500
–
16,198
3,419
16,042
–
3,000
–
–
178
2,422
105
–
(2,574)
6,574
–
1,000
–
–
–
7,860
11,042
5,479
10,000
2,990
8,653
1,759
8,000
–
17,616
500
1,000
16,198
3,419
16,042
7,860
11,042
5,479
10,000
2,990
8,653
1,759
8,000
–
17,616
500
1,000
16,198
3,419
16,042
1 Shares from changes during the year include the net result of any shares purchased/sold or acquired under the Dividend Reinvestment Plan.
2 The following shares (included in the holdings above) were held on behalf of the NEDs (i.e. indirect beneficially held shares) as at 30 September 2011: J Morschel – 11,860; G Clark – 15,479;
P Hay – 11,369; H Lee – 1,759; I Macfarlane – 19,116; D Meiklejohn – 13,698; A Watkins – 18,419.
3 Total shareholding balance as at 30 September 2011 as a % of base fee: J Morschel – 176%; G Clark – 144%; P Hay – 108%; H Lee – 91%; I Macfarlane – 178%; D Meiklejohn – 151%; A Watkins – 181%.
The value of shares has been calculated using the closing price on 30 September 2011 of $19.52. The percentage of base fee has been determined by comparing the share value against the current
base annual NED fee of $210,000.
4 Shareholdings for P Hay excludes 19,855 shares as at 30 September 2011 (2010: 19,855) which are held indirectly where P Hay has no beneficial interest.
Remuneration Report
25
REMUNERATION REPORT – FULL (Audited) (continued)
1.4. REMUNERATION PAID TO NON-EXECUTIVE DIRECTORS
Remuneration details of NEDs for 2010 and 2011 are set out below in Table 6.
Overall, there is a decrease in total NED remuneration year on year, largely due to termination benefi ts provided to C Goode and J Ellis on their
retirement from the Board in the 2010 year.
TABLE 6: NED REMUNERATION FOR 2011 AND 2010
Short-Term
Employee Benefi ts
Financial
Year
Board fees
$
Committee
fees
$
Short term
incentive
$
Other
$
Current Non-Executive Directors4
J Morschel (Appointed Director October 2004;
appointed Chairman March 2010)
Independent Non Executive Director, Chairman
G Clark (Appointed February 2004)
Independent Non-Executive Director
P Hay (Appointed November 2008)
Independent Non-Executive Director
H Lee (Appointed February 2009)
Independent Non-Executive Director
I Macfarlane (Appointed February 2007)
Independent Non-Executive Director
D Meiklejohn (Appointed October 2004)
Independent Non-Executive Director
A Watkins (Appointed November 2008)
Independent Non-Executive Director
Former Non-Executive Directors
C Goode (Appointed Director July 1991;
appointed Chairman August 1995; retired
28 February 2010)
Independent Non-Executive Director, Chairman
J Ellis (Appointed October 1995;
retired 18 December 2009)
Independent Non-Executive Director
Total of all Non-Executive Directors4
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
775,000
517,917
210,000
200,000
210,000
200,000
210,000
200,000
210,000
200,000
210,000
200,000
210,000
200,000
2010
326,250
2010
2011
2010
43,000
2,035,000
2,087,167
–
48,333
90,000
61,000
92,500
76,000
70,000
35,000
104,500
72,000
110,000
106,000
102,500
103,000
–
–
569,500
501,333
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
–
–
–
–
–
–
–
–
–
–
1863
–
–
–
8,2333
8,5463
186
16,779
1 The termination benefits paid to C Goode and J Ellis (in 2010) on their respective retirements from the Board relate to the benefits accrued under the ANZ Director’s Retirement Scheme which
existed prior to September 2005 and interest on that benefit. For C Goode, shares acquired under the ANZ Director’s Retirement Scheme were transferred on retirement. The price on retirement
was $22.9507 (based on one day VWAP as at 26 February 2010). For J Ellis, shares acquired under the ANZ Director’s Retirement Scheme were transferred on retirement. The price on retirement
was $21.3694 (based on one day VWAP as at 18 December 2009).
2 Amounts disclosed for remuneration of Directors exclude insurance premiums paid by the Group in respect of Directors’ and officers’ liability insurance contracts. The total premium, which cannot
be disclosed because of confidentiality requirements, has not been allocated to the individuals covered by the insurance policy as, based on all available information, the Directors believe that no
reasonable basis for such allocation exists.
3 For D Meiklejohn, other relates to office space. For C Goode, other relates to gifts on retirement. For J Ellis, other relates to car parking, office space and gifts on retirement.
4 Due to consistency of remuneration structure, the remuneration details of the CEO (who is the only Executive Director) are included in Table 17 with other Disclosed Executives.
26
ANZ Annual Report 2011
Post- Employment
Long-Term
Employee Benefi ts
Termination
Benefi ts1
Share-Based
Payments
Total
$
Super
contributions
$
Long service
leave accrued
during the year
$
775,000
566,250
300,000
261,000
302,500
276,000
280,000
235,000
314,500
272,000
320,186
306,000
312,500
303,000
15,343
14,646
15,343
14,646
15,343
14,646
15,343
14,646
15,343
14,646
15,343
14,646
15,343
14,646
334,483
7,231
51,546
2,604,686
2,605,279
3,615
107,401
113,368
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,398,845
478,333
–
1,877,178
Total amortisation
value of equity
$
Total
Remuneration2
$
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
790,343
580,896
315,343
275,646
317,843
290,646
295,343
249,646
329,843
286,646
335,529
320,646
327,843
317,646
1,740,559
533,494
2,712,087
4,595,825
Remuneration Report
27
REMUNERATION REPORT – FULL (Audited) (continued)
2. CEO and Disclosed Executive Remuneration
2.1. REMUNERATION GUIDING PRINCIPLES
ANZ’s remuneration strategies and initiatives shape the Group’s Remuneration Policy, which is approved by the Board.
The following principles underpin ANZ’s Remuneration Policy for Executives:
Focus on creating and enhancing value for all ANZ stakeholders;
Emphasis on ‘at risk’ components of total rewards which are designed to encourage behaviour that supports both the long-term fi nancial
soundness and the risk management framework of ANZ, and delivers superior long-term total shareholder returns;
Diff erentiation of individual rewards in line with ANZ’s culture of rewarding for out performance, adherence to standards of behaviour,
and to risk and compliance policies and processes; and
The provision of a competitive reward proposition to successfully attract, motivate and retain the highest quality individuals required
to deliver ANZ’s business and growth strategies.
2.2. PERFORMANCE OF ANZ
Sustained Company performance over the long-term is a key focus for ANZ. The success of ANZ’s Remuneration Policy in aligning shareholder
and the CEO and Disclosed Executive rewards is achieved through the clear link between Company performance over time and the benefi ts
derived by the CEO and Disclosed Executives from the ‘at-risk’ components of their remuneration over the past fi ve years.
TABLE 7: ANZ’S PERFORMANCE 2007 – 2011
Basic earnings per share (EPS)
NPAT ($m)
Total dividend (cps)
Share price at 30 September ($)
Total shareholder return (12 month %)
Underlying profi t1
2011
208.2
5,355
140
19.52
-12.6
5,652
2010
178.9
4,501
126
23.68
1.9
5,025
2009
131.0
2,943
102
24.39
40.3
3,772
2008
170.4
3,319
136
18.75
-33.5
3,426
2007
224.1
4,180
136
29.70
15.6
3,924
1 Profit has been adjusted to exclude non-core items to arrive at underlying profit, the result for the ongoing business activities of the Group. These adjustments have been determined on a
consistent basis with those made in prior periods. The adjustments made in arriving at underlying earnings are included in statutory profit, and are therefore subject to audit within the context of
the Group statutory audit opinion. Underlying profit is not audited, however, the external auditor has informed the Audit Committee that the adjustments are based on the guidelines released by
the Australian Institute of Company Directors (AICD) and the Financial Services Institute of Australasia (FINSIA), and consistent with prior period adjustments.
Figure 1 compares ANZ’s TSR performance against the median TSR and upper quartile TSR of the LTI comparator group and the S&P/ASX 200
Banks Accumulation Index (Fin Index) over the 2007 to 2011 measurement period.
FIGURE 1: ANZ 5-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN PERFORMANCE
e
g
a
t
n
e
c
r
e
P
140
130
120
110
100
90
80
70
60
50
Upper Quartile TSR
Median TSR
Fin Index TSR
ANZ TSR
6
0
p
e
S
7
0
r
a
M
7
0
p
e
S
8
0
r
a
M
8
0
p
e
S
9
0
r
a
M
9
0
p
e
S
0
1
r
a
M
0
1
p
e
S
1
1
r
a
M
1
1
p
e
S
Performance period
Note that from 31 May 2010 onwards, ANZ’s TSR was ranked at the 75th percentile of its comparator group. This has resulted in the convergence
of ANZ’s TSR and the 75th percentile TSR lines since 31 May 2010.
28
ANZ Annual Report 2011
FIGURE 2: ANZ – UNDERLYING PROFIT1 & AVERAGE STI PAYMENTS ($ MILLION)
,
5
6
5
2
,
5
0
2
5
,
3
9
2
4
,
3
4
2
6
,
3
7
7
2
X
,
X
X
X
% of target STI paid
to the CEO and
Disclosed Executives
110%
76%
106%
137%
110%
07
08
09
10
11
Underlying Profit ($milion)1
Average STI payments against targets
Target STI
Figure 2 illustrates the relationship between the average actual STI payments against
target and the Group’s performance measured using underlying profi t over the last
5 years. The average STI payments for each year are based on those executives (including
the CEO) disclosed in each relevant reporting period. We use a balanced scorecard
approach to determine annual STI outcomes, meaning factors other than just underlying
profi t outcomes can infl uence the STI awarded in a particular year. As illustrated in the
chart, the average STI payments are generally in alignment with the underlying profi t
trend, however, for 2011, while underlying profi t has increased the Board determined
that based on the overall Company performance against the balanced scorecard of
measures, the average percentage of STI payment paid against target would be less
than in prior years. This demonstrates a strong correlation between overall performance
and reward.
1 Profit has been adjusted to exclude non-core items to arrive at underlying profit, the result for the ongoing business
activities of the Group. These adjustments have been determined on a consistent basis with those made in prior
periods. The adjustments made in arriving at underlying earnings are included in statutory profit, and are therefore
subject to audit within the context of the Group statutory audit opinion. Underlying profit is not audited, however,
the external auditor has informed the Audit Committee that the adjustments are based on the guidelines released by
the Australian Institute of Company Directors (AICD) and the Financial Services Institute of Australasia (FINSIA), and
consistent with prior period adjustments.
150
125
100
75
2.3. REMUNERATION STRUCTURE OVERVIEW
The key aspects of ANZ’s remuneration strategy for Disclosed Executives (including the CEO) are set out below:
REMUNERATION OBJECTIVES
Shareholder
value creation
Emphasis on ‘at risk’
components
Reward diff erentiation to
drive out-performance
Attract, motivate
and retain talent
Pay for performance
Total target remuneration set by reference
to geographic market
Fixed
At risk
Fixed remuneration
Short Term Incentive (STI)
Long Term Incentive (LTI)
Fixed remuneration is set based on fi nancial
services market/internal relativities
refl ecting: responsibilities, performance,
qualifi cations, experience and location
STI targets are linked to the
performance targets of the Group,
Division and Individual using a
balanced scorecard approach
LTI Targets are linked to relative
TSR over the longer term
The Group’s Remuneration Policy promotes a strong focus on key performance measures that align executive short and long term reward with
shareholder returns.
Remuneration Report
29
REMUNERATION REPORT – FULL (Audited) (continued)
2.4. REMUNERATION COMPONENTS
The Board aims to achieve a balance between fi xed and at-risk components of remuneration that refl ects market conditions for each seniority level.
The relative proportion of fi xed and at-risk remuneration is as set out below:
TABLE 8: ANNUAL TOTAL REWARD MIX PERCENTAGE (% BASED ON AT TARGET LEVELS OF PERFORMANCE)
CEO
Disclosed Executives
2.5. CEO REMUNERATION
The CEO is the only Executive Director at ANZ.
Fixed
Fixed remuneration
33%
37%
At Risk
STI
33%
44%
LTI
33%
19%
The components of the CEO’s remuneration package are substantially the same as other Disclosed Executives. However, there are some diff erences
in the quantum, delivery and timing of the CEO’s arrangements. In the interests of clarity and in order to ensure a thorough understanding of the
arrangements that are in place for the CEO, the following table provides a summary of these arrangements as well as cross references to other
sections of the report where these arrangements are outlined in further detail.
Details
Summary
Fixed remuneration
This is the only ‘guaranteed’ component of the CEO’s remuneration package.
The level of fi xed pay for the CEO was increased from $3 million to $3.15 million in October 2010 and this was the
fi rst increase since the CEO’s commencement in October 2007.
The Board determined that based on fi xed remuneration remaining unchanged since commencement, and the
importance of rewarding the CEO commensurate with his peers, it was appropriate to provide a fi xed pay increase
of 5%.
The CEO’s fi xed pay will remain unchanged at $3.15 million for the year commencing 1 October 2011.
Short-Term Incentives
(STI)
The CEO has an annual opportunity to receive an incentive payment equivalent to the value of his fi xed remuneration,
i.e. $3.15 million. The actual amount paid can increase or decrease from this number dependent on his performance
as CEO and the performance of the organisation as a whole. Specifi cally, if, in the Board’s view the CEO has out-
performed and exceeded his targets, the Board may exercise its discretion to increase his STI beyond his target payment.
The actual short term incentive paid in November 2010 which related to the 2010 year, was $4.75 million of which
$2.25 million was deferred (half deferred for one year and the other half deferred for two years). The Board assessed
the CEO’s performance against his 2010 scorecard as exceeding his objectives.
The Board approved the CEO’s 2011 balanced scorecard at the start of the year and then assessed his performance
against these objectives at the end of the 2011 year to determine the appropriate incentive (relative to target). As per
the HR Committee Charter, robust performance measures and targets for the CEO that encourage superior long-term
performance and ethical behaviour are recommended by the HR Committee to the full Board.
The key objectives for 2011 included a number of quantitative and qualitative measures, which included (but were
not limited to) fi nancial goals, customer satisfaction, risk management, progress towards long-term strategic goals,
strengthening the management bench, and people/culture measures.
These measures were selected as the Board’s view was that they best represented alignment to the achievement
of ANZ’s short and long term strategic goals through a balanced approach taking into consideration impacts on
the fi nancials, customer, employees, processes and risk management. A balanced scorecard is used as it provides
a framework where a combination of metrics can be applied to ensure a broad strategic focus on performance rather
than just having a focus on short-term activities.
The method of assessment to determine the outcomes against each measure involved an independent review and
endorsement by the Chief Risk Offi cer (CRO) and Chief Financial Offi cer (CFO), followed by review and endorsement
by the HR Committee to the Board.
The method of assessment used to measure performance has been adopted to ensure validation from a risk management
and fi nancial performance perspective, along with independent input and recommendation from the HR Committee
to the Board for approval.
Based on the Board’s assessment, the STI payment for the CEO for the 2011 year will be $3.3 million with $1.75 million
paid in cash and the balance ($1.55 million) awarded as deferred shares. Half the deferred shares will be restricted for
one year and half for two years.
30
ANZ Annual Report 2011
2.5. CEO REMUNERATION (CONTINUED)
Details
Summary
Special equity
allocation
Long Term Incentives
(LTI)
Purpose
In 2008 the Board reviewed the contract and retention arrangements of the CEO to ensure that they continued to
be market competitive. Following this review, the Board considered it reasonable and appropriate to grant the CEO
700,000 options. This resolution was approved by shareholders at the 2008 AGM and the options were granted on
18 December 2008.
These options will be available for exercise from the date of vesting, 18 December 2011, with the option exercise price
being equal to the market value of ANZ shares at the date they were granted i.e. $14.18 per share. Upon exercise, each
option entitles the CEO to one ordinary ANZ share. At grant the options were independently valued at $2.27 each i.e. a
total value of $1.589 million. The value at vesting date will be based on the amount by which the market price exceeds
the exercise price multiplied by the total number of options.
The LTI arrangements are designed to link a signifi cant portion of remuneration to shareholder interests by ensuring
rewards are commensurate with shareholder return from their investment.
Type of equity awarded LTI is delivered to the CEO as performance rights. A performance right is a right to acquire a share at nil cost, subject to
meeting time and performance hurdles. Upon exercise, each performance right entitles the CEO to one ordinary share.
Time restrictions
Performance rights awarded to the CEO will be tested once only against the performance hurdle at the end of three
years. A three year time based hurdle provides a reasonable period to align CEO reward with shareholder return and
also acts as a retention vehicle to motivate and retain the CEO. If the performance rights do not achieve the required
performance hurdle they are forfeited at that time. Subject to the performance hurdle being met, the CEO then has a
one year exercise period.
Performance hurdle
The performance rights granted to the CEO have a single long-term performance measure.
The performance rights are designed to reward the CEO if the Company’s TSR is at or above the median TSR of a group
of peer companies over a three year period. TSR represents the change in the value of a share plus the value of reinvested
dividends paid. TSR was chosen as the most appropriate comparative measure as it focuses on the delivery of shareholder
value and is a well understood and tested mechanism to measure performance.
Vesting schedule
The proportion of performance rights that become exercisable will depend upon the TSR achieved by ANZ relative to
the companies in the comparator group (shown below) at the end of the three year period.
An averaging calculation is used for TSR over a 90 day period for start and end values in order to reduce the impact of
share price volatility. To ensure an independent TSR measurement, ANZ engages the services of an external organisation
(Mercer (Australia) Pty Ltd) to calculate ANZ’s performance against the TSR hurdle. Performance equal to the median
of the comparator group will result in half of the performance rights vesting. Achieving TSR above the median will result
in further performance rights vesting, increasing on a straight line basis until ANZ’s TSR equals or exceeds the 75th
percentile of the comparator group at which time all the performance rights vest. Where ANZ’s performance falls
between two of the comparators, TSR is measured on a pro-rata basis.
Comparator group
Due to the merger of AMP Limited and AXA Asia Pacifi c Holdings Limited on 31 March 2011 and in accordance with
the specifi c terms of the grant, the Board approved the following changes to the LTI comparator group against which
ANZ’s TSR performance is measured.
For existing grants which are still subject to performance testing the comparator group has been reduced to eight
companies, as below, i.e. AXA Asia Pacifi c Holdings Limited has been removed entirely:
AMP Limited
Commonwealth Bank of Australia Limited
Insurance Australia Group Limited
Macquarie Bank Limited
National Australia Bank Limited
QBE Insurance Group Limited
Suncorp-Metway Limited
Westpac Banking Corporation Limited
For 2011 LTI awards and any subsequent LTI awards, the Board approved that ASX Limited be added to the
comparator group.
Remuneration Report
31
REMUNERATION REPORT – FULL (Audited) (continued)
Long Term Incentives
(LTI) – grants covering
fi rst 3 years
(2007 – 2009)
Three tranches of performance rights were provided to the CEO in December 2007, each to a maximum value of
$3 million, covering his fi rst three years in the role. Each tranche is to be tested based on ANZ’s relative TSR against the
comparator group. The fi rst tranche was tested after three years and as a result of performance testing (a result of
90.27%) 258,620 performance rights vested on 19 December 2010. The value at vesting was $6.117 million (based on the
one day VWAP of $23.6535 per share), and they were subsequently exercised during the year. The other two tranches will
be tested in December 2011 and December 2012 respectively. No retesting is available. The CEO will only receive a
benefi t from the second and third tranches if the performance hurdles are met.
Long Term Incentives
(LTI) – 2010
At the 2010 Annual General Meeting shareholders approved an LTI grant of performance rights to the CEO equivalent to
100% of his 2010 Fixed Pay, being $3 million. This equated to a total of 253,164 performance rights, at an allocation value
of $11.85 per right, which will be subject to testing against the relative TSR hurdle after three years, i.e. December 2013.
The Board recommended the LTI grant, having regard to the need to motivate the CEO, and in the best interests of the
Company and its shareholders as the grant strengthens the alignment of the CEO’s interests with shareholders over the
next three years.
Long Term Incentives
(LTI) – 2011
For 2011, it is proposed to allocate $3.15 million (100% of fi xed pay) LTI to be delivered as performance rights which
will be subject to testing against the relative TSR hurdle after three years, i.e. December 2014, subject to shareholder
approval at the 2011 Annual General Meeting.
Sign-on award
Cessation of
employment provisions
In addition to his standard remuneration arrangements, the CEO was provided with additional equity as part of his
original sign-on arrangements to recognise remuneration forgone from his previous employer in order to join ANZ.
The CEO was off ered $9 million on his commencement which he elected to take as deferred shares, with one third of
the award vesting in each of October 2008, 2009 and 2010 respectively. The sign-on award equated to a total of 330,033
ANZ shares at the time of grant when the share price was $27.2751.
Given the purpose of the sign-on award for the CEO was to compensate him for remuneration forgone, the ANZ deferred
shares were not subject to any performance hurdles. The allocation of deferred shares does, however, strengthen the
alignment of the CEO’s interests with shareholders.
On 2 October 2008, 110,011 of those shares became available to the CEO. However, the nominal value of the shares
had declined from the original grant value of $3 million to $2.097 million on 2 October 2008 (based on the one day
VWAP of $19.0610 per share). The second tranche vested on 2 October 2009 and, based on the one day VWAP of
$23.5600 per share, the value at vesting was $2.592 million. The fi nal tranche vested on 2 October 2010 and, based on
the one day VWAP of $23.5385 per share on 1 October 2010 (2 October 2010 was a non-trading day); the value at vesting
was $2.589 million.
The provisions that apply in the case of cessation of employment are detailed in Section 3.1 CEO’s Contract Terms.
2.6. DISCLOSED EXECUTIVE REMUNERATION
The reward structure for Disclosed Executives is as detailed below. The only exception is the Chief Risk Offi cer (CRO) whose remuneration
arrangements have been structured diff erently to preserve the independence of this role and to minimise any confl icts of interest to carry
out the risk control function across the organisation.
The CRO’s role has a greater weighting on fi xed pay with more limited leverage for individual performance and none (either positive or negative)
for Group performance. In 2010, LTI awards were delivered as unhurdled deferred shares and in 2011 (and beyond) will be delivered as
unhurdled deferred share rights, both with a three year time based hurdle. The Company’s relative TSR performance hurdle is not associated
with the LTI award to ensure greater impartiality and independence of this role.
2.6.1. FIXED REMUNERATION
The fi xed remuneration amount is expressed as a total dollar amount which can be taken as cash salary, 9% superannuation contributions,
and other nominated benefi ts (e.g. novated car lease).
Fixed remuneration at ANZ is reviewed annually. ANZ sets remuneration ranges with a midpoint targeted to the local market median being
paid in the fi nancial services industry in the relevant global markets in which ANZ operates and based on internal relativities refl ecting
responsibilities, performance, qualifi cations, experience and location.
The fi nancial services market is considered the appropriate market as this is the key pool of sourcing talent for ANZ, consisting of companies
operating in a similar geographic environment to ANZ. This market consists of companies where key talent may be lost to and therefore
competitive remuneration against these companies is appropriate.
32
ANZ Annual Report 2011
2.6.2. VARIABLE REMUNERATION
Variable remuneration forms a signifi cant part of Disclosed Executives’ potential remuneration, providing at risk components that are designed
to drive performance in the short, medium and long-term. The term ‘variable remuneration’ within ANZ covers both the STI and LTI arrangements.
2.6.3. SHORT TERM INCENTIVES (STI)
Details of the STI arrangements for Disclosed Executives are provided in Table 9 below:
TABLE 9: SUMMARY OF STI ARRANGEMENTS
Purpose
The STI arrangements support ANZ’s strategic objectives by providing rewards that are signifi cantly diff erentiated
on the basis of achievement against annual performance targets.
ANZ’s Employee Reward Scheme (ANZERS) structure is reviewed by the HR Committee and approved by the Board.
The size of the overall pool is determined by the Board and is based on an assessment of the balanced scorecard
of measures of the Group, with this pool then distributed between the diff erent Divisions based on their relative
performance against a balanced scorecard of quantitative and qualitative measures.
Performance targets
The STI targets are set to ensure appropriate focus on achievement of ANZ, Division and individual performance
aligned with ANZ’s overall strategy.
Individual performance objectives for Disclosed Executives are based on a number of qualitative and quantitative
measures which may include:
Financial measures including economic profi t, revenue growth, EPS growth, capital, liquidity and operating costs,
as these are the measures that refl ect shareholder returns;
Customer measures including customer satisfaction and market share;
Process measures including process improvements and cost benefi ts; and risk management, audit and compliance
measures/standards, in light of operational excellence objectives; and
People measures including employee engagement, diversity targets and corporate responsibility.
Targets are set considering prior year performance, industry standards and ANZ’s growth agenda.
The specifi c targets and features relating to all these qualitative and quantitative measures have not been provided
in detail due to their commercial sensitivity.
The performance and achievements of relevant Disclosed Executives against these objectives is reviewed at the
end of the year by the CEO, taking into consideration input on each individual’s risk management from the CRO
and input on the fi nancial performance of all key divisions from the CFO. Preliminary and fi nal review is completed
by the HR Committee and fi nal outcomes are approved by the Board.
The method of assessment used to measure performance has been adopted to ensure validation from a risk
management and fi nancial performance perspective, along with independent input and recommendation from
the HR Committee to the Board for approval.
Determining STI pools
The 2011 target STI award level for Disclosed Executives (excluding the CEO) is 120% of fi xed remuneration.
Rewarding performance The STI program and the targets that are set have been designed to motivate and reward superior performance.
The size of the actual STI payment made at the end of each fi nancial year to individuals will be determined based
on performance as detailed above as determined by the Board, and provided that there have been no inappropriate
behaviour or risk/compliance/audit breaches.
Within the overall incentive pool approved by the Board, Disclosed Executives who out-perform relative to their peers
and signifi cantly exceed targets may be rewarded with an STI award which is signifi cantly higher than their target STI.
Conversely, the weaker performers relative to their peers may not be eligible to receive any STI award.
Remuneration Report
33
REMUNERATION REPORT – FULL (Audited) (continued)
Mandatory deferral
Mandatory deferral of a portion of the STI places an increased emphasis on having a variable structure that is
fl exible, continues to be performance linked, has signifi cant retention elements and motivates Disclosed Executives
to drive continued performance over the longer term.
Since 2008, the following tiered STI deferral approach has applied to Disclosed Executives:
STI up to the threshold (currently $200,000) paid in cash
25% of STI amounts above the threshold deferred in ANZ equity for one year
25% of STI amounts above the threshold deferred in ANZ equity for two years
The balance (i.e. 50%) of STI amounts above the threshold is paid as cash1.
The deferred component of bonuses paid in relation to the 2011 year is delivered as ANZ deferred shares
or deferred share rights2. In previous years most Disclosed Executives had the choice to receive the deferred
component as either shares or a mix of shares and options – this choice was removed in 2010.
As the incentive amount has already been earned, there are no further performance measures attached to the
shares or share rights (and options from previous years).
Cessation of
employment provisions
The provisions that apply in the case of cessation of employment are detailed in Section 3.2 Disclosed Executive’s
Contract Terms.
Conditions of grant
The conditions under which STI deferred shares and STI deferred share rights are granted are approved by the
Board in accordance with the rules of the ANZ Employee Share Acquisition Plan and the ANZ Share Option Plan.
1 Disclosed Executives are able to elect to take any cash bonus amounts they may be awarded as cash and/or superannuation.
2
In 2010, J Fagg and in 2011, D Hisco received share rights rather than shares due to taxation regulations in New Zealand. A share right effectively provides a right in the future to acquire a share
in ANZ at nil cost to the employee.
2.6.4. LONG TERM INCENTIVES (LTI)
Details of the LTI arrangements for Disclosed Executives are provided in Table 10 below:
TABLE 10: SUMMARY OF LTI ARRANGEMENTS
Purpose
The LTI arrangements are designed to link a signifi cant portion of remuneration to shareholder interests by ensuring
rewards are commensurate with shareholder return from their investment.
LTI arrangements for Disclosed Executives (excluding the CRO)
Type of equity awarded LTI is delivered to Disclosed Executives as 100% performance rights (apart from the CRO who receives unhurdled deferred
share rights as detailed below). A performance right is a right to acquire a share at nil cost, subject to meeting time and
performance hurdles. Upon exercise, each performance right entitles the Disclosed Executive to one ordinary share.
The future grant value may range from zero to an undefi ned amount depending on the share price at the time of exercise.
Time restrictions
The time restrictions are the same as detailed for the CEO under Section 2.5 CEO LTI Arrangements, page 31, excluding
the exercise period which is two years.
Performance hurdle,
vesting schedule and
comparator group
Size of LTI grants
The performance hurdle, vesting schedule and comparator group for Disclosed Executives are the same as detailed
for the CEO under Section 2.5 CEO LTI Arrangements, page 31.
The size of individual LTI grants for Disclosed Executives is determined by reference to market practice, an individual’s
level of responsibility, their performance and the assessed potential of the Disclosed Executive. The target LTI for
Disclosed Executives is around 50% of fi xed remuneration. Disclosed Executives are advised of the dollar value of
their LTI grant, which is then converted into a number of performance rights based on an independent valuation.
Refer to section 2.11 for further details on the valuation approach and inputs.
LTI allocations are made annually after the annual performance and remuneration review which occurs in October.
The following example uses the November 2010 allocation value.
Example:
Disclosed Executive granted LTI value of $500,000
Approved allocation valuation is $11.96 per performance right
(independently valued by external advisors)
$500,000 / $11.96 = 41,806 performance rights
34
ANZ Annual Report 2011
Cessation of
employment provisions
The provisions that apply in the case of cessation of employment are detailed in Section 3.2 Disclosed Executives’
Contract Terms.
Conditions of grant
The conditions under which performance rights are granted are approved by the Board in accordance with the
rules of the ANZ Share Option Plan.
LTI arrangements for the CRO
Deferred Shares (2010)
The CRO is the only Disclosed Executive to receive deferred shares as LTI.
Deferred share rights
(2011)
The deferred shares are subject to a time-based vesting hurdle of three years, during which time they are held
in trust. The value used to determine the number of LTI deferred shares to be allocated is based on the volume
weighted average price of the shares traded on the ASX in the week leading up to and including the date of grant.
The CRO is the only Disclosed Executive to receive deferred share rights as LTI.
Deferred share rights are subject to a time-based vesting hurdle of three years, during which time they are held in
trust. Upon vesting, there is a two year exercise period after which time they will lapse if they have not been exercised.
The value used to determine the number of LTI deferred share rights to be allocated is based on an independent
valuation, as detailed in Section 2.11.
Cessation of
employment provisions
The provisions that apply in the case of cessation of employment are detailed in Section 3.2 Disclosed Executives’
Contract Terms.
Conditions of grant
The conditions under which LTI deferred shares and LTI deferred share rights are granted are approved by the Board
in accordance with the rules of the ANZ Employee Share Acquisition Plan and the ANZ Share Option Plan.
2.7. CLAWBACK
The Board has on-going and absolute discretion to adjust
performance-based components of remuneration (including
previously deferred equity) downwards, or to zero at any time,
including after the grant of such remuneration, where the Board
considers such an adjustment is necessary to protect the fi nancial
soundness of ANZ or to meet unexpected or unknown regulatory
requirements, or if the Board subsequently considers that having
regard to information which has come to light after the grant of
deferred equity, the deferred equity was not justifi ed.
Prior to releasing deferred equity, the Board considers whether
any downward adjustment should be made.
2.8. HEDGING AND MARGIN LENDING PROHIBITION
As specifi ed in the ANZ Securities Trading Policy, equity allocated
under ANZ incentive schemes must remain at risk until fully vested
(in the case of deferred shares) or exercisable (in the case of options,
deferred share rights or performance rights). As such, it is a condition
of grant that no schemes are entered into that specifi cally protects
the unvested value of shares, options, deferred share rights or
performance rights allocated. Doing so would constitute a breach
of the grant conditions and would result in the forfeiture of the
relevant shares, options, deferred share rights or performance rights.
ANZ also prohibits the CEO and Disclosed Executives providing
ANZ securities in connection with a margin loan or similar fi nancing
arrangements under which they may be subject to a call.
To monitor adherence to this policy, ANZ’s CEO and Disclosed
Executives are required to sign an annual declaration stating that
they and their closely related parties have not entered into (and
are not currently involved in) any schemes to protect the value of
their interests in any unvested ANZ securities. Based on the 2011
declarations, ANZ can advise that the CEO and Disclosed Executives
are fully compliant with this policy.
2.9. SHAREHOLDING GUIDELINES
The CEO and Disclosed Executives are expected to accumulate
ANZ shares over a fi ve year period, to the value of 200% of their
fi xed remuneration and to maintain this shareholding while an
executive of ANZ. New Disclosed Executives are expected to
accumulate the required holdings within fi ve years of appointment.
Shareholdings for this purpose include all vested and allocated
but unvested equity which is not subject to performance hurdles.
The CEO and all Disclosed Executives have met or, if less than
fi ve years tenure, are on track to meet their minimum shareholding
guidelines requirement.
Remuneration Report
35
REMUNERATION REPORT – FULL (Audited) (continued)
2.10. EQUITY GRANTED AS REMUNERATION
Details of deferred shares, options, deferred share rights and performance rights granted to the CEO and Disclosed Executives during the 2011
year are set out in Table 11 below.
All shares underpinning equity awards may be purchased on market, or be newly issued shares or a combination of both. For the 2010 grants,
STI deferred shares were purchased on market and LTI deferred shares were newly issued shares. For STI deferred share rights, STI deferred
options and LTI performance rights, the approach to satisfy awards will be determined closer to the time of vesting.
TABLE 11: DEFERRED SHARES, DEFERRED SHARE RIGHTS, OPTIONS AND PERFORMANCE RIGHTS GRANTED AS REMUNERATION DURING 2011
Name
Type of Equity
Number
granted
Grant date
Vesting date
Date of
option/right
expiry
Option
exercise price
$
Equity
fair value3
$
CEO and Current Disclosed Executives
M Smith
P Chronican
S Elliott
D Hisco
G Hodges
P Marriott
C Page
A Thursby
STI deferred shares1
STI deferred shares1
LTI performance rights2
STI deferred shares1
STI deferred shares1
LTI performance rights2
STI deferred shares1
STI deferred shares1
STI deferred options1
STI deferred options1
LTI performance rights2
STI deferred share rights1
STI deferred share rights1
LTI performance rights2
STI deferred shares1
STI deferred shares1
LTI performance rights2
STI deferred shares1
STI deferred shares1
LTI performance rights2
STI deferred shares1
STI deferred shares1
LTI deferred shares2
STI deferred shares1
STI deferred shares1
LTI performance rights2
47,448
47,448
253,164
12,653
12,652
54,347
12,126
12,125
69,238
69,238
45,986
8,480
8,903
33,444
9,911
9,911
41,806
9,911
9,911
41,806
11,809
11,809
17,924
24,251
24,251
45,986
12-Nov-10
12-Nov-10
17-Dec-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-11
12-Nov-12
17-Dec-13
12-Nov-11
12-Nov-12
12-Nov-13
12-Nov-11
12-Nov-12
12-Nov-11
12-Nov-12
12-Nov-13
12-Nov-11
12-Nov-12
12-Nov-13
12-Nov-11
12-Nov-12
12-Nov-13
12-Nov-11
12-Nov-12
12-Nov-13
12-Nov-11
12-Nov-12
12-Nov-13
12-Nov-11
12-Nov-12
12-Nov-13
–
–
16-Dec-14
–
–
11-Nov-15
–
–
11-Nov-15
11-Nov-15
11-Nov-15
11-Nov-15
11-Nov-15
11-Nov-15
–
–
11-Nov-15
–
–
11-Nov-15
–
–
–
–
–
11-Nov-15
–
–
0.00
–
–
0.00
–
–
23.71
23.71
0.00
0.00
0.00
0.00
–
–
0.00
–
–
0.00
–
–
–
–
–
0.00
23.32
23.32
11.85
23.32
23.32
11.96
23.32
23.32
3.96
4.20
11.96
22.11
21.06
11.96
23.32
23.32
11.96
23.32
23.32
11.96
23.32
23.32
23.32
23.32
23.32
11.96
1 The CEO and Disclosed Executives had a proportion of their STI amounts deferred as equity. The Board determined the deferred amount for the CEO. Refer to Table 9 for further details of the
mandatory deferral arrangements for the Disclosed Executives and Table 12 for details of the valuation methodology, inputs and fair value.
2 The 2010 LTI grants for the CEO and Disclosed Executives were delivered as performance rights excluding for the CRO which was delivered as deferred shares. Refer to section 2.5 and Table 10
for further details of the LTI grant and Table 12 for details of the valuation, inputs and fair value.
3 The maximum value at the time of the grant is determined by multiplying the number granted by the fair value of the equity instruments. The minimum value of the grants, if the applicable
conditions are not met at vesting date, is nil.
36
ANZ Annual Report 2011
2.11. EQUITY VALUATIONS
ANZ engages two external experts (Mercer (Australia) Pty Ltd and PricewaterhouseCoopers) to independently value any required options,
deferred share rights and performance rights, taking into account factors including the performance conditions, share price volatility, life of
instrument, dividend yield and share price at grant date. These are then audited by KPMG and ANZ Global Internal Audit, and the higher of
the two values passing audit is then approved by the HR Committee as the allocation and/or expensing/disclosure value. The following table
provides details of the valuations of the various equity instruments issued during the year:
TABLE 12: EQUITY VALUATION INPUTS
Recipients
Type of Equity
Executives
Executives
Executives
Executives
Executives
CEO
STI deferred options
STI deferred options
STI deferred share rights
STI deferred share rights
LTI performance rights
LTI performance rights
Grant date
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
17-Dec-10
Equity
fair
value
($)
Share
closing price
at grant
($)
ANZ
expected
volatility
(%)
Equity
term
(years)
Vesting
period
(years)
Expected
life
(years)
Expected
dividend
yield
(%)
Risk free
interest rate
(%)
3.96
4.20
22.11
21.06
11.96
11.85
23.22
23.22
23.22
23.22
23.22
23.59
30
30
30
30
30
30
5
5
5
5
5
4
1
2
1
2
3
3
3
3.5
1
2
3
3
5.00
5.00
5.00
5.00
5.00
5.00
5.04
5.11
4.70
4.97
5.04
5.15
Remuneration Report
37
REMUNERATION REPORT – FULL (Audited) (continued)
2.12. EQUITY VESTED/EXERCISED/LAPSED DURING 2011
Details of the number and value of deferred shares, options, deferred share rights and performance rights granted to the CEO and Disclosed
Executives in prior years which vested, were exercised or which lapsed during the 2011 year are set out in the table below:
TABLE 13: EQUITY VESTED/EXERCISED/LAPSED DURING 2011
Vested
Lapsed
Exercised
Name
Type of Equity
Number
granted
Grant
date
First date
exercisable
Date
of expiry Number %
Value1
$ Number %
Value1
$ Number %
Vested and
exercisable
as at 30 Sep
2011
Value1
$
Unexer
-cisable
as at
30 Sep
2011
CEO and Current Disclosed Executives
M Smith2
Sign-on shares
STI deferred shares
LTI performance rights
110,011 19-Dec-07
2-Oct-10
46,053 13-Nov-09 13-Nov-10
– 110,011 100 2,589,494
46,053 100 1,074,274
–
258,620 19-Dec-07 19-Dec-10 19-Dec-11 258,620 100 6,117,268
P Chronican
S Elliott
D Hisco3
Other deferred shares
STI deferred shares
STI deferred options
STI deferred shares
Hurdled options
Hurdled options
Hurdled options
LTI performance rights
LTI performance rights
G Hodges4 STI deferred shares
Hurdled options
Hurdled options
STI deferred options
STI deferred share rights
LTI performance rights
P Marriott5 STI deferred shares
STI deferred shares
Hurdled options
Hurdled options
STI deferred options
LTI performance rights
STI deferred shares
C Page
A Thursby6 Other deferred shares
STI deferred shares
STI deferred shares
STI deferred options
LTI performance rights
–
–
–
–
–
–
–
5-Nov-03
11-Jun-09
5-Nov-04
24-Oct-06
30-Oct-07
5-Nov-07
25-Oct-09
31-Oct-10
7,237 13-Nov-09 13-Nov-10
–
7,530
11-Jun-11
1,096 13-Nov-09 13-Nov-10
–
5,307 13-Nov-09 13-Nov-10 12-Nov-14
5,866 13-Nov-09 13-Nov-10
–
11,217
4-Nov-10
5-Nov-06
10,759 11-May-04 11-May-07 10-May-11
4-Nov-11
10,530
24-Oct-11
16,302
30-Oct-12
25,462
–
24,591 11-May-04 11-May-07 10-May-11
5-Nov-07
4-Nov-11
60,000
31-Oct-10
30-Oct-13
33,869
31-Oct-10
30-Oct-13
5,663
30-Oct-12
31-Oct-10
57,870
–
3,637
31-Oct-10
–
7,127 13-Nov-09 13-Nov-10
69,263 11-May-04 11-May-07 10-May-11
5-Nov-07
4-Nov-11
67,600
30-Oct-13
31-Oct-10
24,192
30-Oct-12
57,870
31-Oct-10
–
15,351 13-Nov-09 13-Nov-10
–
62,735 28-Aug-08 28-Aug-11
–
12,369
31-Oct-10
26,316 13-Nov-09 13-Nov-10
–
30-Oct-13
31-Oct-10
82,254
30-Oct-12
31-Oct-10
46,296
5-Nov-04
31-Oct-08
31-Oct-08
30-Oct-07
31-Oct-08
5-Nov-04
31-Oct-08
30-Oct-07
31-Oct-08
30-Oct-07
31-Oct-08
–
5,400
7,530 100 162,464
25,566
1,096 100
2,796
5,307 100
5,866 100 136,836
–
–
–
–
–
–
4,064
9
948
–
–
–
634,134
25,462 100
7,237 100 168,817
–
–
23,149
9
261,641
33,869 100
141,038
5,663 100
57,870 100 1,441,258
3,637 100
90,580
7,127 100 166,251
–
–
26,081
9
24,192 100
186,886
57,870 100 1,441,258
15,351 100 358,091
62,735 100 1,249,537
12,369 100 308,051
26,316 100 613,871
82,254 100
635,420
46,296 100 1,153,007
–
6,084
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(110,011)
(46,053)
(258,620)
100 2,646,898
100 1,115,206
100 6,386,285
–
–
–
–
–
–
–
(11,217)
(10,759)
–
(16,302)
(25,462)
–
(24,591)
(19,200)
(33,869)
–
(57,870)
–
–
(69,263)
–
–
(57,870)
(15,351)
–
–
–
–
(46,296)
–
–
–
–
100
100
–
100
100
–
100
32
100
–
–
–
–
–
84,197
65,957
–
395,865
618,299
–
168,109
84,023
266,759
–
100 1,405,269
–
–
424,610
–
–
100 1,405,269
327,455
100
–
–
–
–
–
–
–
–
100 1,124,215
–
–
100
–
–
–
–
–
–
7,530
1,096
5,307
5,866
–
–
10,003
–
–
7,237
–
5,400
–
5,663
–
3,637
7,127
–
64,220
24,192
–
–
62,735
12,369
26,316
82,254
–
–
–
–
–
–
–
–
–
–
–
527
–
–
–
–
3,000
–
–
–
–
–
–
3,380
–
–
–
–
–
–
–
–
1 The value of shares and/or share rights and/or performance rights is based on the one day VWAP of the Company’s shares traded on the ASX on the date of vesting, lapsing or exercising,
multiplied by the number of shares and/or share rights and/or performance rights. The value of options is based on the difference between the one day VWAP and the exercise price, multiplied
by the number of options.
2 M Smith – The third tranche of 110,011 deferred shares granted to the CEO on his commencement vested on 2 October 2010 – refer to section 2.5 for further details. The value has been
determined based on the one day VWAP on 1 October 2010 of $23.5385 per share (as 2 October 2010 was a non-trading day). LTI performance rights granted 19 December 2007 were exercised
on 21 February 2011. One day VWAP on date of exercise was $24.6937.
3 D Hisco – Hurdled options granted 5 November 2003 were exercised on 3 November 2010. One day VWAP on date of exercise was $25.0562. The exercise price was $17.55. Hurdled options
granted 11 May 2004 were exercised on 22 February 2011. One day VWAP on date of exercise was $24.3504. The exercise price was $18.22. LTI performance rights granted 24 October 2006 and
30 October 2007 were exercised on 5 November 2010. One day VWAP on date of exercise was $24.2832.
4 G Hodges – Hurdled options granted 11 May 2004 were exercised on 3 November 2010. One day VWAP on date of exercise was $25.0562. The exercise price was $18.22. Balance as at 1 October
2010 was 27,600 for hurdled options granted 5 November 2004 and these were exercised on 3 November 2010. One day VWAP on date of exercise was $25.0562. The exercise price was $20.68.
STI deferred options granted 31 October 2008 were exercised on 3 November 2010. One day VWAP on date of exercise was $25.0562. The exercise price was $17.18. LTI performance rights granted
30 October 2007 were exercised on 5 November 2010. One day VWAP on date of exercise was $24.2832.
5 P Marriott – Hurdled options granted 11 May 2004 were exercised on 22 February 2011. One day VWAP on date of exercise was $24.3504. The exercise price was $18.22. LTI performance rights
granted 30 October 2007 were exercised on 5 November 2010. One day VWAP on date of exercise was $24.2832.
6 A Thursby – LTI performance rights granted 30 October 2007 were exercised on 5 November 2010. One day VWAP on date of exercise was $24.2832.
38
ANZ Annual Report 2011
2.13. SHAREHOLDINGS OF THE CEO AND DISCLOSED EXECUTIVES
The movement during the reporting period in shareholdings of the CEO and Disclosed Executives (held directly, indirectly and by related parties)
is provided below:
TABLE 14: CEO AND CURRENT DISCLOSED EXECUTIVES’ SHAREHOLDINGS (INCLUDING MOVEMENTS DURING THE 2011 YEAR)
Name
M Smith
P Chronican
S Elliott
D Hisco5
G Hodges
P Marriott
C Page
A Thursby
Type of shares
Deferred shares
Ordinary shares
Deferred shares
Ordinary shares
CPS2
Deferred shares
Deferred shares
Ordinary shares
Deferred shares
Ordinary shares
Deferred shares
Ordinary shares
CPS3
Deferred shares
Ordinary shares
CPS3
Deferred shares
Balance of shares
as at 1 Oct 20101
204,362
265,014
–
3,000
1,499
18,069
46,605
6,042
98,838
148,042
134,218
419,596
–
31,449
–
–
223,103
Shares granted
during the year
as remuneration2
94,896
–
25,305
–
–
24,251
–
–
19,822
–
19,822
–
–
41,542
–
–
48,502
Shares from
other changes
during the year3
(148,658)
414,684
746
3,000
–
1,857
759
2,981
1,521
(38,307)
2,032
60,456
5,000
(13,916)
12,129
2,500
6,625
Balance as at
30 Sep 20114
150,600
679,698
26,051
6,000
1,499
44,177
47,364
9,023
120,181
109,735
156,072
480,052
5,000
59,075
12,129
2,500
278,230
Balance as at date
of report sign-off
150,600
679,698
26,051
6,000
1,499
44,177
47,364
9,023
120,181
109,735
156,072
480,052
5,000
59,075
12,129
2,500
278,230
1 Balance of shares held at 1 October 2010 includes beneficially held shares (both direct and indirect) and shares held by related parties.
2 Details of shares granted as remuneration during 2011 are provided in Table 11.
3 Shares resulting from any other changes during the year include the net result of any shares purchased, or sold or any acquired under the Dividend Reinvestment Plan.
4 The following shares (included in the holdings above) were held on behalf of the CEO and Disclosed Executives (i.e. indirect beneficially held shares) as at 30 September 2011: M Smith – 150,600;
P Chronican – 26,051; S Elliott – 44,177; D Hisco – 52,364; G Hodges – 162,916; P Marriott – 156,072; C Page – 59,075; A Thursby – 278,230.
5 Commencing balance is based on holdings as at the date of commencement as a Key Management Personnel.
Remuneration Report
39
REMUNERATION REPORT – FULL (Audited) (continued)
The movement during the reporting period in options, deferred share rights and performance rights of the CEO and Disclosed Executives (held
directly, indirectly and by related parties) is provided below:
TABLE 15: CEO AND DISCLOSED EXECUTIVES’ OPTIONS, RIGHTS AND PERFORMANCE RIGHTS HOLDINGS (INCLUDING MOVEMENTS DURING
THE 2011 YEAR)
Name
Type of options/rights
Balance as at
1 Oct 20101
Granted during
the year as
remuneration2
Exercised
during
the year
Number changed,
forfeited or lapsed
during the year
Balance as at
30 Sep 2011
Vested and
exercisable as at
30 Sep 2011
Balance as at
date of report
sign-off
CEO and Current Disclosed Executives
M Smith
P Chronican
S Elliott
D Hisco3
G Hodges
P Marriott
C Page
A Thursby
Special options
LTI performance rights
LTI performance rights
STI deferred options
LTI performance rights
Hurdled options
LTI performance rights
STI deferred share rights
Hurdled options
STI deferred options
LTI performance rights
STI deferred share rights
Hurdled options
STI deferred options
LTI performance rights
Performance rights
STI deferred options
LTI performance rights
700,000
779,002
57,726
10,614
41,084
32,506
74,631
–
52,191
33,869
149,004
5,663
136,863
48,385
149,004
72,959
164,509
146,544
–
253,164
54,347
138,476
45,986
–
33,444
17,383
–
–
41,806
–
–
–
41,806
–
–
45,986
–
(258,620)
–
–
–
(21,976)
(41,764)
–
(43,791)
(33,869)
(57,870)
–
(69,263)
–
(57,870)
–
–
(46,296)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
700,000
773,546
112,073
149,090
87,070
10,530
66,311
17,383
8,400
–
132,940
5,663
67,600
48,385
132,940
72,959
164,509
146,234
–
–
–
5,307
–
10,003
–
–
5,400
–
–
5,663
64,220
48,385
–
–
164,509
–
700,000
773,546
112,073
149,090
87,070
10,530
66,311
17,383
8,400
–
132,940
5,663
67,600
48,385
132,940
72,959
164,509
146,234
1 Balance of options/rights held at 1 October 2010 include beneficially held options/rights (both direct and indirect) and options/rights held by related parties.
2 Details of options/rights granted as remuneration during 2011 are provided in Table 11.
3 Commencing balance is based on holdings as at the date of commencement.
2.14. LEGACY LTI PROGRAMS
There are a number of legacy LTI programs which are no longer off ered but which have existing participants. Details of these are shown in Table
16 below.
Option plans described below have the following features:
An exercise price that is set equal to the weighted average sale price of all fully paid ordinary shares in the Company sold on the ASX during
the one week prior to and including the date of grant;
A maximum life of seven years and an exercise period that commences three years after the date of grant, subject to performance hurdles
being met;
Options are re-tested monthly (if required) after the commencement of the exercise period;
Upon exercise, each option entitles the option-holder to one ordinary share;
In case of resignation or termination on notice or dismissal for misconduct: options are forfeited;
In case of redundancy: options are pro-rated and a grace period is provided in which to exercise the remaining options (with hurdles waived,
if applicable);
In case of retirement, death or total and permanent disablement: a grace period is provided in which to exercise all options (with hurdles
waived, if applicable); and
Performance hurdles, which are explained below for each type of option.
40
ANZ Annual Report 2011
TABLE 16: LEGACY LTI PLANS
Type of Equity
Details
Hurdled options
(Hurdled A) (granted
to Disclosed Executives
from November 2003
until May 2004)
Hurdled options
(Hurdled B) (granted
November 2004)
Until May 2004, hurdled options were granted to Disclosed Executives with the following performance hurdles
attached.
Half the options could only be exercised once ANZ’s TSR exceeds the percentage change in the S&P/ASX 200
Banks (Industry Group) Accumulation Index, measured over the same period (since issue) and calculated at the
last trading day of any month (once the exercise period has commenced); and
The other half of hurdled options could only be exercised once the ANZ TSR exceeds the percentage change in
the S&P/ASX 100 Accumulation Index, measured over the same period (since issue) and calculated as at the last
trading day of any month (once the exercise period has commenced).
The exercise periods concluded on 4 November 2010 and 10 May 2011.
In November 2004 hurdled options were granted with a relative TSR performance hurdle attached. The proportion
of options that become exercisable will depend upon the TSR achieved by ANZ relative to the companies in the
comparator group. Performance equal to the median TSR of the comparator group will result in half the options
becoming exercisable. Performance above median will result in further options becoming exercisable, increasing
on a straight-line basis until all of the options become exercisable where ANZ’s TSR is at or above the 75th percentile
in the comparator group. Where ANZ’s performance falls between two of the comparators, TSR is measured on a
pro rata basis.
The exercise period concludes on 4 November 2011.
Remuneration Report
41
REMUNERATION REPORT – FULL (Audited) (continued)
2.15. REMUNERATION PAID TO THE CEO AND DISCLOSED EXECUTIVES
Remuneration details of the CEO and Disclosed Executives for 2010 and 2011 are set out below in Table 17:
TABLE 17: CEO AND DISCLOSED EXECUTIVES REMUNERATION FOR 2011
Short-Term
Employee Benefi ts
Post-
Employment
Financial
Year
Cash
salary
$
Non monetary
benefi ts1
$
Total cash
incentive2,3
$
Total
$
Super
contributions4
$
Current CEO and Disclosed Executives
M Smith10
Chief Executive Offi cer
P Chronican11
Chief Executive Offi cer, Australia
S Elliott
Chief Executive Offi cer, Institutional
D Hisco11
Chief Executive Offi cer, New Zealand
G Hodges12
Deputy Chief Executive Offi cer
P Marriott
Chief Financial Offi cer
C Page
Chief Risk Offi cer
A Thursby
Chief Executive Offi cer, Asia Pacifi c,
Europe & America
Former Disclosed Executives
J Fagg11,12
Chief Executive Offi cer, New Zealand
Total of all Executive KMPs
Total of all Disclosed Executives13
2011
2010
2011
2010
2011
2010
2011
2011
2010
2011
2010
2011
2010
2011
2010
2010
2011
2010
2011
2010
3,150,000
3,000,000
1,191,030
985,758
963,303
917,431
960,000
917,431
917,431
915,830
912,431
1,009,174
1,009,174
1,050,000
1,000,000
782,000
10,156,768
9,524,225
10,156,768
9,524,225
105,515
5,500
5,744
301,124
10,191
12,334
357,283
24,350
17,309
5,774
7,595
7,375
60,565
7,375
23,570
105,359
523,607
533,356
523,607
533,356
1,750,000
2,500,000
900,000
800,000
604,000
1,350,000
902,400
700,000
670,000
820,000
670,000
850,000
760,000
900,000
1,350,000
538,200
7,426,400
8,638,200
7,426,400
8,638,200
5,005,515
5,505,500
2,096,774
2,086,882
1,577,494
2,279,765
2,219,683
1,641,781
1,604,740
1,741,604
1,590,026
1,866,549
1,829,739
1,957,375
2,373,570
1,425,559
18,106,775
18,695,781
18,106,775
18,695,781
–
–
107,339
89,092
86,697
82,569
–
82,569
82,569
82,569
82,569
90,826
90,826
–
–
–
450,000
427,625
450,000
427,625
1 Non-monetary benefits generally consists of company-funded benefits such as car parking
and taxation services. This item also includes costs met by the company in relation to
relocation, such as airfares and housing assistance and for the CEO, life insurance. The fringe
benefits tax payable on any benefits is also included in this item.
2 The total cash incentive relates to the cash component only, with the deferred equity
component to be amortised from the grant date. The relevant amortisation of the 2010 STI
deferred components are included in share-based payments above. The 2011 STI deferred
components will be amortised from the grant date in the 2012 Remuneration Report. The
cash incentive component was approved by the Board on 25 October 2011. 100% of the
cash incentive awarded for the 2010 and 2011 years vested to the Disclosed Executive in
the applicable financial year.
3 The possible range of STI payments is between 0 and 2.5 times target STI. The actual STI
received is dependent on ANZ, Division and individual performance (refer to Section 2.6.3
for more details). The 2011 STI awarded (cash and equity component) as a percentage of
target STI was: M Smith 105% (2010: 158%); P Chronican 103% (2010: 108%); S Elliott 80%
(2010: 208%); D Hisco 140%; G Hodges 100% (2010: 95%); P Marriott 120% (2010: 95%); C
Page 114% (2010: 100%); A Thursby 127% (2010: 208%); J Fagg (2010: 95%). Anyone who
received less than 100% of target forfeited the rest of their STI entitlement. The minimum
value is nil and the maximum value is what was actually paid.
4 As M Smith and A Thursby are holders of long stay visas, their fixed remuneration does not
include the 9% Superannuation Guarantee contribution, however they are able to elect
voluntary superannuation contributions. For all other Australian based Disclosed Executives,
the superannuation contribution reflects the 9% Superannuation Guarantee contribution
– individuals may elect to take this contribution as superannuation or a combination of
superannuation and cash.
5 Accrual relates to Retirement Allowance. As a result of being employed with ANZ prior to
November 1992, D Hisco and G Hodges are eligible to receive a Retirement Allowance on
retirement, retrenchment, death, or resignation for illness, incapacity or domestic reasons.
The Retirement Allowance is calculated as follows: three months of preserved notional salary
(which is 65% of Fixed Remuneration) plus an additional 3% of notional salary for each year
of fulltime service above 10 years, less the total accrual value of long service leave (including
taken and untaken).
6 In accordance with the requirements of AASB 2, the amortisation value includes a proportion
of the fair value (taking into account market-related vesting conditions) of all equity that had
not yet fully vested as at the commencement of the financial year. It is assumed that deferred
shares will vest after three years. Assumptions for options/rights are detailed in Table 12.
The fair value is determined at grant date and is allocated on a straight-line basis over the
relevant vesting period. The amount included as remuneration is not related to nor indicative
of the benefit (if any) that may ultimately be realised should the options/rights become
exercisable. For deferred shares, the fair value is the volume weighted average price of the
Company’s shares traded on the ASX on the day the shares were granted.
42
ANZ Annual Report 2011
Long-Term
Employee Benefi ts
Retirement
benefi t
accrued
during year5
$
Long service
leave
accrued
during
the year
$
Share-Based Payments6
Total amortisation value of
STI shares and
STI share rights
$
LTI shares
$
STI options
$
LTI options
$
–
–
–
–
–
–
54,804
45,668
19,788
16,535
16,998
18,630
2,103,407
1,369,343
390,271
–
389,245
32,589
–
–
–
–
–
–
–
–
–
–
386,466
34,421
4,107
14,613
316,321
127,644
–
4,278
4,278
–
–
–
–
–
–
15,222
15,222
15,222
15,222
16,744
23,197
18,326
15,222
409,844
265,995
407,040
244,833
577,532
456,441
1,121,512
894,418
–
8,385
4,278
8,385
4,278
12,975
171,717
162,671
171,717
162,671
274,377
5,715,172
3,537,996
5,715,172
3,537,996
–
–
–
–
122,803
–
–
–
–
250,447
–
250,447
–
4,092
57,446
2,923
41,033
–
–
9,938
139,512
–
403,419
272,412
403,419
272,412
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
LTI
Performance
rights
$
Other
equity
allocations7
$
Termination
benefi ts
$
Total
excluding
termination
benefi ts8
$
Grand Total
Remuneration 8,9
$
2,346,954
2,341,479
528,216
1,594,087
– 10,038,896
– 10,856,077
10,038,896
10,856,077
406,838
166,057
327,641
146,439
248,567
498,629
565,243
498,629
565,243
267,465
250,792
542,653
532,865
–
–
43,921
151,034
–
–
–
–
–
–
–
642,574
982,185
– 3,021,010
2,358,566
–
– 2,828,462
2,745,447
–
3,021,010
2,358,566
2,828,462
2,745,447
– 2,930,935
2,930,935
– 2,656,415
2,595,493
–
– 2,747,987
2,538,926
–
– 2,941,919
2,650,995
–
– 4,292,378
4,937,772
–
2,656,415
2,595,493
2,747,987
2,538,926
2,941,919
2,650,995
4,292,378
4,937,772
331,899
85,300
–
2,130,110
2,130,110
5,137,376
4,900,017
1,214,711
2,812,606
5,137,376
4,900,017
1,214,711
2,812,606
– 31,458,002
– 30,813,386
– 31,458,002
– 30,813,386
31,458,002
30,813,386
31,458,002
30,813,386
7 Amortisation of other equity allocations for M Smith relates to the sign-on award and the
special equity allocations which were approved by shareholders at the 2007 and 2008
Annual General Meetings respectively. Amortisation for S Elliott and A Thursby relates to
equity granted on commencement – refer to Table 19 for more details.
8 Remuneration amounts disclosed exclude insurance premiums paid by the consolidated
entity in respect of directors’ and officers’ liability insurance contracts which cover current
and former KMP of the controlled entities. The total premium, which cannot be disclosed
because of confidentiality requirements, has not been allocated to the individuals covered
by the insurance policy as, based on all available information, the directors believe that no
reasonable basis for such allocation exists.
9 The value of rights/options for each KMP as a percentage of Grand Total Remuneration is:
M Smith 29%; P Chronican 13%; S Elliott 25%; D Hisco 17%; G Hodges 19%; P Marriott 18%;
C Page 9%; A Thursby 13%.
13 For those Disclosed Executives who were disclosed in both 2010 and 2011, the following
are noted:
P Chronican – 2010 remuneration only reflected a partial year as P Chronican joined ANZ
in that year. Accordingly, year-on-year comparisons are not appropriate.
S Elliott – year-on-year total remuneration has remained fairly constant, however, the mix
has changed, largely driven by a decrease in cash STI in 2011 being offset by an increase in
the amortisation value of equity allocations for the same period.
G Hodges – fixed remuneration remains unchanged and year on year remuneration is similar.
P Marriott – slight uplift on year-on-year remuneration, driven by a combination of factors
including an increase in cash STI and the amortisation values of equity.
C Page – moderate uplift on year-on year remuneration, driven by a combination of factors
including an increase in cash STI and the amortisation values of equity.
A Thursby – a decrease year-on-year largely driven by a decrease in cash STI and a decrease
10 While the CEO is an Executive Director, he has been included in this table with the Disclosed
in the amortisation value of equity allocations.
Executives.
11 D Hisco was appointed to the CEO, New Zealand role on 13 October 2010 so payments
reflect amounts received for the partial service for the 2011 year. P Chronican commenced
on 30 November 2009 so payments reflect amounts received for the partial service for
the 2010 year. J Fagg stepped down on 1 September 2010 so actual payments have been
prorated based on time as KMP in the 2010 year.
12 2010 amortisation of STI deferred share rights for G Hodges and J Fagg, included in the
2010 Annual Report under performance rights, has been included with the amortisation
of STI shares in the table above.
D Hisco is disclosed only for the 2011 year during which time he moved from Australia
to take up the assignment of CEO – New Zealand hence the high value for non-monetary
benefits compared to peers.
Remuneration Report
43
REMUNERATION REPORT – FULL (Audited) (continued)
3. Contract Terms
3.1. CEO’S CONTRACT TERMS
The following table sets out details of the contract terms relating to the CEO. The contract terms are in line with industry practice (based on
external advice on Australian and international peer company benchmarks) and ASX Corporate Governance Principles.
TABLE 18: CONTRACT TERMS – CEO (M SMITH)
Length of contract
Mr Smith commenced as CEO and Executive Director of ANZ on 1 October 2007 and is on a rolling contract.
Notice periods
Mr Smith or ANZ may terminate the employment agreement by providing 12 months written notice.
Resignation
On resignation, all unvested STI deferred shares, all unexercised performance rights (or cash equivalent) and
all unvested and all vested unexercised options will be forfeited.
Termination on notice
by ANZ
If ANZ terminates Mr Smith’s employment, ANZ will give Mr Smith 12 months written notice. ANZ may elect
to pay in lieu all or part of the notice period based on Mr Smith’s fi xed remuneration.
On termination on notice by ANZ all unvested STI deferred shares will be released at the original vesting date
unless the Board determines otherwise; all performance rights (or cash equivalent) which have vested or vest
during the notice period will be retained and become exercisable; all performance rights (or cash equivalent)
which have not yet vested will be retained and will vest and become exercisable subject to the relevant time
and performance hurdles being satisfi ed. All unvested options will be forfeited.
Death or total and
permanent disablement
All unvested STI deferred shares will be released and all performance rights (or cash equivalent) and options
will vest.
Change of control
In the event of takeover, scheme of arrangement or other change of control event occurring, the performance
condition applying to the performance rights will be tested and the performance rights will vest based on the
extent the performance condition is satisfi ed. No pro rata reduction in vesting will occur based on the period
of time from the date of grant to the date of the change of control event occurring, and vesting will only be
determined by the extent to which the performance condition is satisfi ed.
Any performance rights which vest based on satisfaction of the performance condition will vest at a time (being
no later than the fi nal date on which the change of control event will occur) determined by the Board.
Any performance rights which do not vest will lapse with eff ect from the date of the change of control event
occurring, unless the Board determines otherwise.
Any unvested STI deferred shares will vest at a time (being no later than the fi nal date on which the change of
control event will occur) determined by the Board.
Termination for serious
misconduct
ANZ may immediately terminate Mr Smith’s employment at any time in the case of serious misconduct, and
Mr Smith will only be entitled to payment of fi xed remuneration up to the date of termination. Payment of
statutory entitlements of long service leave and annual leave applies in all events of separation.
On termination without notice by ANZ in the event of serious misconduct: All STI deferred shares remaining
in trust, performance rights (or cash equivalent) and options will be forfeited.
3.2 DISCLOSED EXECUTIVES’ CONTRACT TERMS
The following table sets out details of the contract terms relating to the Disclosed Executives. The contract terms for all Disclosed Executives
are similar, but do on occasion, vary to suit diff erent needs.
TABLE 19: CONTRACT TERMS – DISCLOSED EXECUTIVES
Length of contract
Rolling.
Notice periods
In order to terminate the employment arrangements, Disclosed Executives are required to provide the Company with
six months written notice. ANZ must provide Disclosed Executives with 12 months written notice.
Resignation
On resignation, unless the Board determines otherwise:
All unvested deferred shares are forfeited;
All unvested or vested but unexercised performance rights, options or deferred share rights are forfeited.
44
ANZ Annual Report 2011
Termination on notice
by ANZ
ANZ may terminate the Disclosed Executive’s employment by providing 12 months written notice or payment in
lieu of the notice period based on fi xed remuneration.
On termination on notice by ANZ, unless the Board determines otherwise:
All unvested deferred shares are forfeited at the time notice is given to the Disclosed Executive;
Only performance rights, options and deferred share rights that are vested may be exercised and all unvested
performance rights, options and deferred share rights are forfeited at the time notice is given to the Disclosed Executive.
There is discretion to pay STI on a pro-rata basis (depending on termination date, reason for termination and
subject to business performance).
Redundancy
If ANZ terminates employment for reasons of bona fi de redundancy, a severance payment will be made that is
equal to 12 months fi xed remuneration.
All STI deferred shares and STI deferred share rights are released. Options, performance rights, LTI deferred shares
and LTI deferred share rights are either released in full or on a pro-rata basis, at the discretion of the Board with
regard to the circumstances.
There is discretion to pay short-term incentives on a pro-rata basis (depending on termination date and subject
to business performance).
Death or total and
permanent disablement
On death or total and permanent disablement, options, shares, share rights and performance rights (performance
hurdle is waived) are released.
Termination for serious
misconduct
ANZ may immediately terminate the Disclosed Executive’s employment at any time in the case of serious
misconduct, and the employee will only be entitled to payment of fi xed remuneration up to the date of termination.
Other arrangements
Payment of statutory entitlements of long service leave and annual leave applies in all events of separation.
On termination without notice by ANZ in the event of serious misconduct any options, performance rights, deferred
shares and deferred share rights still held in trust will be forfeited.
P Chronican
As Mr Chronican joined ANZ in November 2009 he was not included in the LTI grants made to other Management
Board members in early November. Accordingly, a separate LTI grant was made in December providing
performance rights on the same terms and conditions as those provided to Management Board for 2009, apart
from the allocation value which varied to refl ect the diff erent values at the respective grant dates.
S Elliott
As part of Mr Elliott’s employment arrangement, he was granted deferred shares to a total value of $250,000.
The grant was made in June 2009 with one-half vesting after one year and the other half vesting after two years.
For the whole period that the shares remain in trust (including any period beyond vesting) they will be forfeited
for any serious misconduct.
A Thursby
As part of Mr Thursby’s employment arrangement, he was granted three separate tranches of deferred shares
to the value of $1 million per annum, subject to Board approval. The fi rst tranche was made in September 2007
and vested in September 2010, the second tranche was in August 2008 and vested in August 2011, and the third
tranche was in September 2009 and will vest in September 2012.
The shares are restricted and held in trust for three years from the date of allocation for the benefi cial interest
of Mr Thursby, during which period they will be forfeited if employment ceases for any reason other than
retrenchment, death or total and permanent disablement, and that for the whole period that the shares remain
in trust (including any further period) they will be forfeited for any serious misconduct.
Signed in accordance with a resolution of the Directors
John Morschel
Chairman
2 November 2011
Michael R P Smith
Director
Remuneration Report
45
Corporate Governance
The following statement sets out the governance framework the Board has adopted at ANZ as well as highlights of the
substantive work undertaken by the Board and its Committees during the fi nancial year.
2011 Key Areas of Focus and Achievements
Review of the management of ANZ’s businesses in the
aftermath of the global fi nancial crisis and continued volatility
in markets due to European sovereign debt issues, and a
weakened US economy. This included a signifi cant focus on the
performance of the Asia/Pacifi c economies and the impact of
changes in global currencies, particularly the high Australian
dollar.
Recognition of ANZ this year as a leading bank globally on the
Dow Jones Sustainability Index for the tenth year in succession
– the Board is pleased to note that ANZ has been able to
maintain this position. ANZ received a rating of 92/100 for
Corporate Governance as part of this assessment which
compares strongly to a global sector leading rating of 93/100
and a global sector average of 69/100.
Engagement of an independent external adviser to facilitate
the 2011 performance review of the Board, in accordance with
the Board’s stated policy.
Changes to the ASX Governance Principles were announced in
June 2010 and came into eff ect for ANZ’s fi nancial year beginning on
1 October 2011. ANZ has taken steps to early adopt these changes.
NEW ZEALAND
As an overseas listed issuer on the NZX, ANZ is deemed to comply
with the NZX Listing Rules provided that it remains listed on the
ASX, complies with the ASX Listing Rules and provides the NZX
with all the information and notices that it provides to the ASX.
The ASX Governance Principles may materially diff er from the NZX’s
corporate governance rules and the principles of the NZX’s Corporate
Governance Best Practice Code. More information about the
corporate governance rules and principles of the ASX can be found
at asx.com.au and, in respect of the NZX, at nzx.com.
ANZ has complied with all applicable governance principles in
New Zealand throughout the fi nancial year.
Oversight of strategic initiatives, including the super regional
and long term technology strategies.
Analysis of proposed new regulations, both local and global,
including Basel III and the implications for ANZ’s capital and
funding requirements.
Review of ANZ’s governance framework to ensure compliance
with the amendments to the ASX Corporate Governance
Council’s Corporate Governance Principles and Recommendations.
Approach to Governance
In relation to corporate governance, the Board seeks to:
embrace principles and practices it considers to be best
practice internationally;
be an ‘early adopter’, where appropriate, by complying before
a published law or recommendation takes eff ect; and
take an active role in discussions of corporate governance best
practice and associated regulation in Australia and overseas.
Compliance with Corporate Governance Codes
ANZ has equity securities listed on the Australian Securities Exchange
(ASX) and the New Zealand Stock Exchange (NZX), and debt securities
listed on these and other overseas Securities Exchanges. ANZ must
therefore comply (and has complied) with a range of listing and
corporate governance requirements from Australia and overseas.
AUSTRALIA
As a company listed on the ASX, ANZ is required to disclose how it has
applied the Recommendations contained within the ASX Corporate
Governance Council’s Corporate Governance Principles and
Recommendations (ASX Governance Principles) during the fi nancial
year, explaining any departures from them. ANZ complies with the
Recommendations set by the ASX Corporate Governance Council.
Full details of the location of the references in this statement
(and elsewhere in this Annual Report) which specifi cally set out
how ANZ applies each Recommendation of the ASX Governance
Principles are contained on anz.com >About us > Our company >
Corporate governance.
46
ANZ Annual Report 2011
OTHER JURISDICTIONS
ANZ also monitors best practice developments in corporate
governance across other relevant jurisdictions.
ANZ deregistered from the US Securities and Exchange Commission
(SEC) with eff ect from October 2007. Despite no longer being
required to comply with US corporate governance rules, ANZ’s
corporate governance practices continue to have regard to US
corporate governance regulations in relation to the independence of
Directors, the independence of the external auditor and the fi nancial
expertise of the Audit Committee, as described in this statement.
Website
Further details of ANZ’s governance framework are set out at
anz.com > About us > Our company > Corporate governance.
This section of ANZ’s website also contains copies of all the charters
and summaries of many of the documents and policies mentioned in
this statement, as well as summaries of other ANZ policies of interest
to shareholders and stakeholders. The website is regularly updated to
ensure it refl ects ANZ’s most recent corporate governance information.
Directors
The information below relates to the Directors in offi ce, and sets out their Board Committee memberships and other details, as at
30 September 2011.
Mr J P Morschel Chairman, Independent Non-Executive Director
DIPQS, FAICD
Former Directorships include
Non-executive Director since October 2004. Ex offi cio member
of all Board committees.
Skills, experience and expertise
Mr Morschel has a strong background in banking, fi nancial services
and property and brings the experience of being a Chairman and
Director of major Australian and international companies.
Current Directorships
Director: CapitaLand Limited (from 2010), Tenix Group Pty Limited
(from 1998) and Giff ord Communications Pty Limited (from 2000).
Mr M R P Smith, OBE Chief Executive Offi cer, Executive Director
BSC (HONS)
Chief Executive Offi cer since 1 October 2007.
Skills, experience and expertise
Mr Smith is an international banker with over 30 years experience
in banking operations in Asia, Australia and internationally.
Until June 2007, he was President and Chief Executive Offi cer, The
Hong Kong and Shanghai Banking Corporation Limited, Chairman,
Hang Seng Bank Limited, Global Head of Commercial Banking for the
HSBC Group and Chairman, HSBC Bank Malaysia Berhad. Previously,
Mr Smith was Chief Executive Offi cer of HSBC Argentina Holdings SA.
Mr Smith joined the HSBC Group in 1978 and during his international
career he has held a wide variety of roles in Commercial, Institutional
and Investment Banking, Planning and Strategy, Operations and
General Management.
Current Directorships
Director: ANZ National Bank Limited (from 2007), the Financial
Markets Foundation for Children (from 2008) and the Institute of
International Finance (from 2010).
Former Chairman: Rinker Group Limited (Chairman and Director
2003–2007), Leighton Holdings Limited (Chairman and Director
2001–2004) and CSR Limited (Director 1996–2003, Chairman 2001–2003).
Former Director: Singapore Telecommunications Limited (2001–2010),
Rio Tinto Plc (1998–2005), Rio Tinto Limited (1998–2005), Westpac
Banking Corporation (1993–2001), Lend Lease Corporation Limited
(1983–1995) and Tenix Pty Ltd (1998–2008).
Age: 68. Residence: Sydney, Australia.
Member: Chongqing Mayor’s International Economic Advisory
Council (from 2006), Australian Bankers’ Association Incorporated
(from 2007), Business Council of Australia (from 2007), Asia Business
Council (from 2008), Australian Government Financial Literacy
Advisory Board (from 2008) and Shanghai International Financial
Advisory Council (from 2009).
Fellow: The Hong Kong Management Association (from 2005).
Former Directorships include
Former Chairman: HSBC Bank Malaysia Berhad (2004–2007)
and Hang Seng Bank Limited (2005–2007).
Former CEO and Director: The Hong Kong and Shanghai Banking
Corporation Limited (2004–2007).
Former Director: HSBC Australia Limited (2004–2007), HSBC Finance
Corporation (2006–2007) and HSBC Bank (China) Company Limited
(2007).
Former Board Member: Visa International (Asia Pacifi c) Limited
(2005–2007).
Age 55. Residence: Melbourne, Australia.
Corporate Governance
47
CORPORATE GOVERNANCE (continued)
Dr G J Clark Independent Non-Executive Director, Chair of the Technology Committee
BSC (HONS), PHD, FAPS, FTSE
Current Directorships
Non-executive Director since February 2004. Member of the
Risk Committee and Human Resources Committee.
Chairman: KaComm Communications Pty Ltd (Director from 2006).
Member: The Royal Institution of Australia (from 2010).
Skills, experience and expertise
Former Directorships include
Dr Clark brings to the Board international business experience and
a distinguished career in micro-electronics, computing and
communications. He was previously Principal of Clark Capital Partners,
a US based fi rm that has advised internationally on technology and
the technology market place, and he has held senior executive positions
in IBM, News Corporation and Loral Space and Communications.
Former Chairman: GPM Classifi ed Directories (2007–2008).
Former Director: Eircom Holdings Ltd (formerly Babcock & Brown
Capital Limited) (2006–2009).
Former Principal: Clark Capital Partners (2003–2010).
Age: 68. Residence: Based in New York, United States of America
and also resides in Sydney, Australia.
Mr P A F Hay Independent Non-Executive Director, Chair of the Governance Committee
LLB (MELB), FAICD
Non-executive Director since November 2008. Member of the Audit
Committee and Human Resources Committee.
Skills, experience and expertise
Mr Hay has a strong background in company law and investment
banking advisory work, with a particular expertise in relation to
mergers and acquisitions. He has also had signifi cant involvement
in advising governments and government-owned enterprises.
Current Directorships
Chairman: Lazard Pty Ltd Advisory Board (from 2009).
Director: Alumina Limited (from 2002), Landcare Australia Limited
(from 2008), GUD Holdings Limited (from 2009), NBN Co Limited
(from 2009) and Myer Holdings Limited (from 2010).
Member: Takeovers Panel (from 2009).
Former Directorships include
Former Chief Executive Offi cer: Freehills (2000–2005).
Former Director: Pacifi ca Group Limited (1989–2008) and Lazard
Pty Ltd (2007–2009).
Age: 61. Residence: Melbourne, Australia.
Member: Governing Board of Lee Kuan Yew School of Public Policy
(from 2005) and Rolls Royce International Advisory Council (from 2007).
Consultant: Capital International Inc Advisory Board (from 2007).
Former Directorships include
Former Chairman: Republic Polytechnic (2002–2009).
Former Member: Merrill Lynch PacRim Advisory Council (2007–2010).
Former Chief Executive Offi cer: Singapore Telecommunications
Limited (1995–2007).
Age: 54. Residence: Singapore.
Mr Lee Hsien Yang Independent Non-Executive Director
MSC, BA
Non-executive Director since February 2009.
Member of the Technology Committee, Risk Committee and Human
Resources Committee.
Skills, experience and expertise
Mr Lee has considerable knowledge and operating experience in Asia.
He has degrees in engineering and management science, and brings
to the Board his international business and management experience
across a wide range of sectors including telecommunications, food
and beverages, properties, publishing and printing, fi nancial services,
education and civil aviation.
Current Directorships
Chairman: Fraser & Neave, Limited (from 2007) and Civil Aviation
Authority of Singapore (from 2009).
Director: Singapore Exchange Limited (from 2004), The Islamic Bank
of Asia Limited (from 2007) and Kwa Geok Choo Pte Ltd (from 1979).
48
ANZ Annual Report 2011
Mr I J Macfarlane, AC Independent Non-Executive Director, Chair of the Risk Committee
BEC (HONS), MEC, HON DSC (SYD), HON DSC (UNSW), HON DCOM (MELB), HON DLITT
(MACQ), HON LLD (MONASH)
Non-executive Director since February 2007. Member of the
Governance Committee and Audit Committee.
Skills, experience and expertise
During his 28 year career at the Reserve Bank of Australia including
a 10 year term as Governor, Mr Macfarlane made a signifi cant
contribution to economic policy in Australia and internationally.
He has a deep understanding of fi nancial markets as well as a long
involvement with Asia.
Current Directorships
Director: Woolworths Limited (from 2007), Leighton Holdings Limited
(from 2007) and the Lowy Institute for International Policy (from 2004).
Member: Council of International Advisors to the China Banking
Regulatory Commission (from 2009), International Advisory Board of
Goldman Sachs JB Were (from 2007) and International Advisory Board
of CHAMP Private Equity (from 2007).
Former Directorships include
Former Chairman: Payments System Board (1998–2006) and
Australian Council of Financial Regulators (1998–2006).
Former Governor: Reserve Bank of Australia (Member 1992–2006,
Chairman 1996–2006).
Age: 65. Residence: Sydney, Australia.
Mr D E Meiklejohn, AM Independent Non-Executive Director, Chair of the Audit Committee
BCOM, DIPED, FCPA, FAICD, FAIM
Current Directorships
Non-executive Director since October 2004. Member of the
Technology Committee and Risk Committee.
Skills, experience and expertise
Mr Meiklejohn has a strong background in fi nance and accounting.
He also brings to the Board his experience across a number of
directorships of major Australian companies spanning a range
of industries.
Chairman: Manningham Centre Association (from 2011).
Director: Coca Cola Amatil Limited (from 2005) and Mirrabooka
Investments Limited (from 2006).
Former Directorships include
Former Chairman: PaperlinX Limited (2000–2011).
Former Director and Chief Financial Offi cer: Amcor Limited (1985–2000).
Former President: Melbourne Cricket Club (Committee Member
1987–2011).
Age: 69. Residence: Melbourne, Australia.
Ms A M Watkins Independent Non-Executive Director, Chair of the Human Resources Committee
BCOM, FCA, F FIN, FAICD
Former Directorships include
Former CEO: Bennelong Group (2008–2010).
Former Director: Just Group Limited (2004–2008), Woolworths Limited
(2007–2010), and AICD National Board and Victorian Council (2009–2011).
Former Partner: McKinsey & Company (1996–1999).
Age: 48. Residence: Melbourne, Australia.
Non-executive Director since November 2008. Member of the
Audit Committee and Governance Committee.
Skills, experience and expertise
Ms Watkins is an experienced CEO and established director with
a grounding in fi nance and accounting. Her experience includes
retailing, agriculture, food manufacturing and fi nancial services, and
covers small to medium companies as well as large organisations.
Ms Watkins held senior executive roles with ANZ from 1999 to 2002.
Current Directorships
Chief Executive Offi cer: GrainCorp Limited (from 2010).
Member: The Nature Conservancy Australian Advisory Board
(from 2007) and the Takeovers Panel (from 2010).
Corporate Governance
49
CORPORATE GOVERNANCE (continued)
Corporate Governance Framework
CEO
BOARD OF DIRECTORS
PRINCIPAL BOARD COMMITTEES
Audit and Financial
Governance
Internal audit
External audit
Financial controls
AUDIT
COMMITTEE
GOVERNANCE
COMMITTEE
HUMAN RESOURCES
COMMITTEE
RISK
COMMITTEE
TECHNOLOGY
COMMITTEE
MANAGEMENT BOARD
KEY MANAGEMENT COMMITTEES
CORPORATE
RESPONSIBILITY
COMMITTEE
CREDIT &
MARKET RISK
COMMITTEE
GROUP ASSET
& LIABILITY
COMMITTEE
PROJECT INVESTMENT
REVIEW COMMITTEE
REPUTATION
RISK
COMMITTEE
TECHNOLOGY RISK
MANAGEMENT
COMMITTEE
CAPITAL
MANAGEMENT POLICY
COMMITTEE
OPERATING
RISK EXECUTIVE
COMMITTEE
CREDIT RATINGS
SYSTEM OVERSIGHT
COMMITTEE
50
ANZ Annual Report 2011
Board Meetings
The Board normally meets at least eight times each year, including
an off site meeting to review in detail the Group’s strategy.
Typically at Board meetings the agenda will include:
minutes of the previous meeting, and outstanding issues raised
by Directors at previous meetings;
the Chief Executive Offi cer’s report;
the Chief Financial Offi cer’s report;
reports on major projects and current business issues;
specifi c business proposals;
reports from Chairs of Committees which have met shortly prior to
the Board meeting on matters considered at those meetings; and
for review, the minutes of previous Committee meetings.
There are two private sessions held at the end of each Board meeting
which are each chaired by the Chairman of the Board.
The fi rst involves all Directors including the CEO, and the second
involves only the non-executive Directors.
The Chief Financial Offi cer, Group General Counsel and Company
Secretary are also present at all Board meetings. Members of senior
Management attend Board meetings when an issue under their area
of responsibility is being considered or as otherwise requested by
the Board.
CEO and Delegation to Management
The Board has delegated to the Chief Executive Offi cer, and
through the Chief Executive Offi cer to other senior Management,
the authority and responsibility for managing the everyday aff airs
of ANZ. The Board monitors Management and their performance
on behalf of shareholders.
The Group Discretions Policy details the comprehensive discretions
framework that applies within ANZ and to employees appointed to
operational roles or directorships of controlled entities and minority
interest entities.
The Group Discretions Policy is maintained by the Chief Financial
Offi cer and reviewed annually by the Audit Committee with the
outcome of this review reported to the Board.
Board Responsibility and Delegation of Authority
The Board is chaired by an independent Non-Executive Director.
The roles of the Chairman and Chief Executive Offi cer are separate,
and the Chief Executive Offi cer is the only executive Director on
the Board.
Role of the Chairman
The Chairman plays an important leadership role and is involved in:
chairing meetings of the Board and providing eff ective leadership
to it;
monitoring the performance of the Board and the mix of skills
and eff ectiveness of individual contributions;
being an ex offi cio member of all principal Board Committees;
maintaining ongoing dialogue with the Chief Executive Offi cer
and providing appropriate mentoring and guidance; and
being a respected ambassador for ANZ, including chairing
meetings of shareholders and dealing with key customer,
political and regulatory bodies.
Board Charter
The Board Charter sets out the Board’s purpose, powers,
and specifi c responsibilities.
The Board is responsible for:
charting the direction, strategies and fi nancial objectives for
ANZ, and monitoring the implementation of these strategies
and fi nancial objectives;
monitoring compliance with regulatory requirements, ethical
standards and external commitments, and the implementation
of related policies; and
appointing and reviewing the performance of the Chief Executive
Offi cer.
In addition to the above and any matters expressly required by
law to be approved by the Board, powers specifi cally reserved for
the Board include:
approval of ANZ’s Remuneration Policy, including various
remuneration matters as detailed in the Charter;
any matters in excess of any discretions delegated to Board
Committees or the Chief Executive Offi cer;
annual approval of the budget and strategic plan;
signifi cant changes to organisational structure; and
the acquisition, establishment, disposal or cessation
of any signifi cant business.
Under ANZ’s Constitution, the Board may delegate any of its
powers and responsibilities to Committees of the Board. The roles
of the principal Board Committees are set out on pages 56 to 58.
Corporate Governance
51
CORPORATE GOVERNANCE (continued)
At a senior management level, ANZ has a Management Board which
comprises the Chief Executive Offi cer and ANZ’s most senior executives.
As at 30 September 2011, the following senior executives, in addition
to the Chief Executive Offi cer, were members of the Management
Board: Graham Hodges – Deputy Chief Executive Offi cer; Peter
Marriott – Chief Financial Offi cer; Phil Chronican – Chief Executive
Offi cer, Australia; David Hisco – Chief Executive Offi cer, New Zealand;
Shayne Elliott – Chief Executive Offi cer, Institutional; Alex Thursby –
Chief Executive Offi cer, Asia Pacifi c, Europe and America; David
Cartwright – Chief Operating Offi cer; Susie Babani – Group Managing
Director, Human Resources; Chris Page – Chief Risk Offi cer; Joyce
Phillips – Group Managing Director, Strategy, M&A, Marketing and
Innovation; and Anne Weatherston – Chief Information Offi cer.
Following David Cartwright’s departure in October 2011, Alistair
Currie was appointed as Group Chief Operating Offi cer and joined
the Management Board.
Typically, a sub-group of Management Board meets every week
with all Management Board members meeting each month to
discuss business performance, review shared initiatives and build
collaboration and synergy across the Group.
Board Composition, Selection and Appointment
The Board strives to achieve a balance of skills, tenure, experience,
diversity, and perspective among its Directors. Details regarding each
Director in offi ce at the date of this Annual Report can be found on
pages 47 to 49.
The Governance Committee (see page 57) has been delegated
responsibility to review and make recommendations to the Board
regarding Board composition, and to assist in relation to the Director
nomination process.
The Governance Committee conducts an annual review of the size
and composition of the Board, to assess whether there is a need for
any new Non-Executive Director appointments. This review takes the
following factors into account:
relevant guidelines/legislative requirements in relation
to Board composition;
Board membership requirements as articulated in the
Board Charter; and
other considerations including ANZ’s strategic goals and the
importance of having appropriate Board balance and diversity.
The overarching guiding principle is that the Board’s composition
should refl ect balance in such matters as:
specialist skill representation relating to both functions (such as
accounting/fi nance, law and technology) and industry background
(such as banking/ fi nancial services, retail and professional services);
tenure;
Board experience (amongst the members of the Board, there
should be a signifi cant level of familiarity with formal board and
governance processes and a considerable period of time previously
spent working at senior level within one or more organisations of
signifi cant size);
age spread;
diversity in general (including gender diversity); and
geographic experience.
52
ANZ Annual Report 2011
Other matters for explicit consideration by the Committee are personal
qualities, communication capabilities, ability and commitment to
devote appropriate time to the task, the complementary nature of
the distinctive contribution each Director might make, professional
reputation and community standing.
Potential candidates for new Directors may be provided at any time
by a Board member to the Chair of the Governance Committee. The
Chair of the Governance Committee maintains a list of nominees to
assist the Board in the succession planning process.
Where there is a need for any new appointments, a formal assessment
of nominees will be conducted by the Governance Committee. In
assessing nominees, the Governance Committee has regard to the
principles set out above.
Professional intermediaries may be used from time to time where
deemed necessary and appropriate to assist in the process of
identifying and considering potential candidates for Board membership.
If found suitable, potential candidates are recommended to the
Board. The Chairman of the Board is responsible for approaching
potential candidates.
The Committee also reviews and recommends the process for
the election of the Chairman of the Board and reviews succession
planning for the Chairman of the Board, making recommendations
to the Board as appropriate.
APPOINTMENT DOCUMENTATION
Each new Non-Executive Director receives an appointment letter
accompanied by a:
Directors’ handbook – The handbook includes information on a
broad range of matters relating to the role of a Director, including
details of all applicable policies; and
Directors’ Deed – Each Director signs a Deed in a form approved
by shareholders at the 2005 Annual General Meeting which covers
a number of issues including indemnity, directors’ and offi cers’
liability insurance, the right to obtain independent advice and
requirements concerning confi dential information.
UNDERTAKING INDUCTION TRAINING
Every new Director takes part in a formal induction program which
involves the provision of information regarding ANZ’s values and
culture, the Group’s governance framework, the Non-Executive
Directors Code of Conduct and Ethics, Director related policies,
Board and Committee policies, processes and key issues, fi nancial
management and business operations. A briefi ng is also provided
by senior Management about matters concerning their areas
of responsibility.
MEETING SHARE QUALIFICATION
Non-Executive Directors are required to accumulate within fi ve years
of appointment, and thereafter maintain, a holding in ANZ shares
that is equivalent to at least 100% of a Non-Executive Director’s base
fee (and 200% of this fee in the case of the Chairman).
ELECTION AT NEXT ANNUAL GENERAL MEETING
Subject to the provisions of ANZ’s Constitution and the Corporations
Act 2001, the Board may appoint a person as a Non-Executive
Director of ANZ at any time but that person must retire and, if they
wish to continue in that role, must seek election by shareholders at
the next Annual General Meeting.
FIT AND PROPER
ANZ has an eff ective and robust framework in place to ensure that
individuals appointed to relevant senior positions within the Group
have the appropriate fi tness and propriety to properly discharge their
prudential responsibilities on appointment and during the course
of their appointment.
The framework, set out in ANZ’s Fit and Proper Policy, addresses
the requirements of APRA’s Fit and Proper Prudential Standard. It
involves assessments being carried out for each Director, relevant
senior executives and the lead partner of ANZ’s external auditor prior
to a new appointment being made. These assessments are carried out
against a benchmark of documented competencies which have been
prepared for each role, and also involve attestations being completed
by each individual, as well as the obtaining of evidence of material
qualifi cations and the carrying out of checks such as criminal record,
bankruptcy and regulatory disqualifi cation checks.
These assessments are reviewed thereafter on an annual basis.
The Governance Committee and the Board have responsibility for
assessing the fi tness and propriety of Non-Executive Directors. The
Human Resources Committee is responsible for assessing the fi tness
and propriety of the Chief Executive Offi cer and key senior executives.
The Audit Committee is responsible for assessing the fi tness and
propriety of the external auditor.
Fit and Proper assessments were successfully carried out in respect
of each Non-Executive Director, the Chief Executive Offi cer, key senior
executives and the external auditor during the 2011 fi nancial year.
INDEPENDENCE AND MATERIALITY
Under ANZ’s Board Charter, the Board must contain a majority of Non-
Executive Directors who satisfy ANZ’s criteria for independence.
The Board Charter sets out independence criteria in order to establish
whether a Non-Executive Director has a relationship with ANZ which
could (or could be perceived to) impede their decision-making.
All Non-Executive Directors are required to notify the Chairman
before accepting any new outside appointment. The Chairman will
review the proposed new appointment and will consider the issue on
an individual basis and, where applicable, also the issue of more than
one Director serving on the same outside board or other body. When
carrying out the review, the Chairman will consider whether the
proposed new appointment is likely to impair the Director’s ability
to devote the necessary time and focus to their role as an ANZ
Director and, where it will involve more than one ANZ Director
serving on an outside board or other entity, whether that would
create an unacceptable risk to the eff ective operation of the ANZ
Board. Non-Executive Directors are not to accept a new outside
appointment until confi rmed with the ANZ Chairman who will
consult the other Directors as the Chairman deems appropriate.
In the 2011 fi nancial year, the Governance Committee conducted
its annual review of the criteria for independence against the ASX
Governance Principles and APRA Prudential Standards, as well as
US director independence requirements.
ANZ’s criteria are more comprehensive than those set in many
jurisdictions including in particular criteria stipulated specifi cally for
Audit Committee members. The criteria and review process are both
set out in the Corporate Governance section of ANZ’s website.
In summary, a relationship with ANZ is regarded as material if a
reasonable person in the position of a Non-Executive Director of
ANZ would expect there to be a real and sensible possibility that
it would infl uence a Director’s mind in:
making decisions on matters likely to come regularly before
the Board or its Committees;
objectively assessing information and advice given
by Management;
setting policy for general application across ANZ; and
generally carrying out the performance of his or her role
as a Director.
During 2011, the Board reviewed each Non-Executive Director’s
independence and concluded that the independence criteria were
met by each Non-Executive Director.
Directors’ biographies on pages 47 to 49 and on anz.com highlight
their major associations outside ANZ.
CONFLICTS OF INTEREST
Over and above the issue of independence, each Director has a
continuing responsibility to determine whether he or she has
a potential or actual confl ict of interest in relation to any material
matter which comes before the Board. Such a situation may arise
from external associations, interests or personal relationships.
Under the Directors Disclosure of Interest Policy and Policy for
Handling Confl icts of Interest, a Director may not exercise any
infl uence over the Board if a potential confl ict of interest exists.
In such circumstances, unless a majority of other Directors who do
not have an interest in the matter resolve to the contrary, the Director
may not be present for Board deliberations on the subject, and may
not vote on any related Board resolutions. In addition, the Director
may not receive relevant Board papers. These matters, should they
occur, are recorded in the Board minutes.
INDEPENDENT ADVICE
In order to assist Directors in fulfi lling their responsibilities, each
Director has the right (with the prior approval of the Chairman)
to seek independent professional advice regarding his/her
responsibilities, at the expense of ANZ. In addition, the Board and
each Committee, at the expense of ANZ, may obtain whatever
professional advice it requires to assist in its work.
TENURE AND RETIREMENT
ANZ’s Constitution, consistent with the ASX Listing Rules, provides that
a Non-Executive Director must seek re-election by shareholders every
three years if they wish to continue in their role as a Non-Executive
Director.
In addition, ANZ’s Board Renewal and Performance Evaluation Policy
confi rms that Non-Executive Directors will retire once they have
served a maximum of three 3-year terms after fi rst being elected by
shareholders, unless invited by the Board to extend their tenure due
to special circumstances.
Corporate Governance
53
CORPORATE GOVERNANCE (continued)
CONTINUING EDUCATION
ANZ Directors take part in a range of training and continuing
education programs. In addition to a formal induction program
(see page 52), Directors also receive regular bulletins designed
to keep them abreast of matters relating to their duties and
responsibilities as Directors.
Each Committee also conducts its own continuing education sessions
from time to time as appropriate. Internal and/or external experts
are engaged to conduct all education sessions. Directors also receive
regular business briefi ngs at Board meetings. These briefi ngs are
intended to provide Directors with information on each area of
ANZ’s business, in particular regarding performance, key issues, risks
and strategies for growth. In addition, Directors have the opportunity
to participate in site visits from time to time.
The performance criteria also take into account the Director’s
contribution to:
charting the direction, strategy and fi nancial objectives of ANZ;
monitoring compliance with regulatory requirements and
ethical standards;
monitoring and assessing Management’s performance in achieving
strategies and budgets approved by the Board;
setting criteria for and evaluating the Chief Executive Offi cer’s
performance; and
the regular and continuing review of executive succession planning
and executive development activities.
The performance evaluation process is set out in ANZ’s Board
Renewal and Performance Evaluation Policy.
ACCESS TO DIRECTORS
NON-EXECUTIVE DIRECTORS
Management is able to consult Directors as required. Employees
have access to the Directors directly or through the Company
Secretary. Shareholders who wish to communicate with the
Directors may direct correspondence to a particular Director,
or to the Non-Executive Directors as a whole.
Role of Company Secretary
The Board is responsible for the appointment of ANZ’s Company
Secretaries. The Board has appointed three Company Secretaries.
The Group General Counsel provides legal advice to the Board
as and when required. He works closely with the Chair of the
Governance Committee to develop and maintain ANZ’s corporate
governance principles, and is responsible to the Board for the
Company Secretary’s Offi ce function.
The Company Secretary is responsible for the day-to-day operations
of the Company Secretary’s Offi ce including lodgements with relevant
Securities Exchanges and other regulators, the administration of Board
and Board Committee meetings (including preparation of meeting
minutes), the management of dividend payments and associated
share plans, the administration of the Group’s Australian subsidiaries
and oversight of the relationship with ANZ’s Share Registrar.
The Chief Financial Offi cer is also appointed as a Company Secretary.
Profi les of ANZ’s Company Secretaries can be found in the Directors’
Report on page 12.
Performance Evaluations
OVERVIEW
The framework used to assess the performance of Directors is
based on the expectation that they are performing their duties:
in the interests of shareholders;
in a manner that recognises the great importance that ANZ
places on the values of honesty, integrity, quality and trust;
in accordance with the duties and obligations imposed upon them
by ANZ’s Constitution, Non-Executive Directors Code of Conduct
and Ethics, and the law; and
having due regard to ANZ’s corporate responsibility objectives,
and the importance of ANZ’s relationships with all its stakeholders
and the communities and environments in which ANZ operates.
Performance evaluations of the Non-Executive Directors are
conducted in two ways:
Annual review – On an annual basis, or more frequently if appropriate,
the Chairman has a one-on-one meeting with each Non-Executive
Director specifi cally addressing the performance criteria including
compliance with the Non-Executive Directors Code of Conduct and
Ethics. To assist the eff ectiveness of these meetings, the Chairman
is provided with objective information about each Director (e.g.
number of meetings attended, Committee memberships, other
current directorships/roles etc) and a guide for discussion to ensure
consistency. When considering the Director’s meeting attendance
record during the previous year and also their other roles outside
ANZ, the Chairman reviews generally whether the Director has
suffi cient time to properly carry out their duties as an ANZ Director
and more specifi cally whether they are making a suffi cient time
commitment to the role both at and outside meetings. A report
on the outcome of these meetings is provided to the Governance
Committee and to the Board.
Re-election statement – when nominating for re-election,
Non-Executive Directors are given the opportunity to submit
a written or oral statement to the Board setting out their reasons
for seeking re-election. In the Non-Executive Director’s absence,
the Board evaluates the statement, has regard to the performance
criteria used in evaluating the performance of Non-Executive
Directors as referred to above, and also considers their capacity
to commit the necessary time to their role as a Director before
deciding whether to endorse the relevant Director’s re-election.
In connection with the latter aspect, consideration is given to the
time required to attend and prepare for regular scheduled Board
and Committee meetings (including the annual off -site meeting
to review the Group’s strategy) as well as the time required to
attend and prepare for ad hoc meetings should the need arise.
With respect to Ms Watkins (who is seeking re-election at the
2011 Annual General Meeting) and her executive role as the CEO
of GrainCorp Limited, the Board gave careful consideration at the
time of her GrainCorp appointment to her ability to commit the
necessary time to her role as an ANZ Director. This aspect is
reviewed again as part of the annual performance review process
each year (as referred to above) and the Board remains of the view
that Ms Watkins has, and is and will be able to continue committing,
the necessary time to properly carry out her role as an ANZ Director.
54
ANZ Annual Report 2011
CHAIRMAN OF THE BOARD
REVIEW PROCESSES UNDERTAKEN
An annual review of the performance of the Chairman of the Board
is facilitated by the Chair of the Governance Committee who seeks
input from each Director individually on the performance of the
Chairman of the Board against the competencies for the Chairman’s
role approved by the Board.
The Chair of the Governance Committee collates the input in order
to provide an overview report to the Governance Committee and to
the Board, as well as feedback to the Chairman of the Board.
THE BOARD
For the year ended 30 September 2011 the performance of the Board
was assessed using an independent external facilitator, who sought
input from each Director and certain members of senior Management
when carrying out the assessment.
The assessment was conducted in accordance with broad terms
of reference agreed by the Governance Committee, and included
a review of Board papers and decision processes for a range of key
decisions made over the previous year.
Based on the information and materials reviewed, the external
facilitator rated the Board’s practices as delivering superior
capabilities across all of the critical elements of board eff ectiveness.
The results of the assessment were discussed with the Chair of the
Governance Committee and were presented at a meeting of the
Governance Committee which was attended by all Directors.
It is expected that externally facilitated reviews of the Board will occur
approximately every three years. The review process in the intervening
years is conducted internally, and considers progress against any
recommendations implemented arising from the most recent externally
facilitated review, together with any new issues that may have arisen.
BOARD COMMITTEES
Each of the principal Board Committees conducts an annual
Committee performance self-assessment to review performance
using Guidelines approved by the Governance Committee. The
Guidelines set out that at a minimum, the self-assessments should
review and consider the following:
the scope of the Committee’s responsibilities and duties as
enshrined in its Charter;
the Committee’s performance against its Charter and annual
calendar of business;
the Committee’s performance against any goals or objectives
it set itself for the year under review;
major issues considered by the Committee during the year; and
the identifi cation of future topics for training/education of
the Committee.
The outcomes of the performance self-assessments, along with
plans and objectives for the new fi nancial year, are submitted to
the Governance Committee (and, in the case of the Governance
Committee, to the Board) for discussion and noting.
SENIOR MANAGEMENT
Details of how the performance evaluation process is undertaken
by the Board in respect of the Chief Executive Offi cer and other
key senior executives, including how fi nancial, customer,
operational and qualitative measures are assessed, are set out
in the Remuneration Report on pages 16 to 33.
Board, Director, Board Committee and relevant senior Management
evaluations in accordance with the above processes have been
undertaken in respect of the 2011 fi nancial year.
Board Committees
As set out on page 51 of this statement, the Board has the ability
under its Constitution to delegate its powers and responsibilities
to Committees of the Board. This allows the Board to spend additional
and more focused time on specifi c issues. The Board has fi ve principal
Board Committees: Audit Committee, Governance Committee, Human
Resources Committee, Risk Committee and Technology Committee.
MEMBERSHIP AND ATTENDANCE
Each of the principal Board Committees is comprised solely of
independent Non-Executive Directors, has its own Charter and has
the power to initiate any special investigations it deems necessary.
Membership criteria are based on each Director’s skills and
experience, as well as his/her ability to add value and commit time
to the Committee. Composition is reviewed annually by the Board.
The Chairman is an ex-offi cio member of each principal Board
Committee. The Chief Executive Offi cer is invited to attend Board
Committee meetings as appropriate. His presence is not automatic,
however, and he does not attend where his remuneration is
considered or discussed, nor does he attend the Non-Executive
Director private sessions of Committees. Non-Executive Directors
may attend any meeting of any Committee.
Each Board Committee may, within the scope of its responsibilities,
have unrestricted access to Management, employees and information
it considers relevant to the carrying out of its responsibilities under
its Charter.
Each Board Committee may require the attendance of any ANZ
offi cer or employee, or request the attendance of any external party,
at meetings as appropriate.
MEETINGS
The principal Board Committees plan their annual agendas following
a process approved by the Board. The offi ces of the executives
appointed to assist the Chair of each Board Committee liaise in order
to review the calendars of business prepared by each Committee and
identify any potential gaps and unnecessary overlaps between the
Committees. In advance of each Board Committee meeting,
the Committee Chair shall ensure that there is at least one planning
session with relevant internal and external stakeholders to ensure
that all emerging issues are captured in the agenda for the
forthcoming meeting as appropriate.
Minutes from Committee meetings are included in the papers to
the following Board meeting. In addition, Committee Chairs update
the Board regularly about matters relevant to the Committee’s role,
responsibilities, activities and matters considered, discussed and
resolved at Committee meetings. When there is a cross-Committee
item, the Committees will communicate with each other through
their Chairs.
Corporate Governance
55
CORPORATE GOVERNANCE (continued)
ANZ BOARD COMMITTEE MEMBERSHIPS – as at 30 September 2011
Audit
Governance
Human Resources
Risk
Mr D E Meiklejohn FE, C
Mr P A F Hay C
Ms A M Watkins C
Mr I J Macfarlane C
Technology
Dr G J Clark C
Mr P A F Hay
Mr I J Macfarlane
Mr I J Macfarlane
Ms A M Watkins
Dr G J Clark
Mr P A F Hay
Dr G J Clark
Mr Lee Hsien Yang
Mr Lee Hsien Yang
Mr D E Meiklejohn
Ms A M Watkins FE
Mr J P Morschel (ex offi cio)
Mr Lee Hsien Yang
Mr D E Meiklejohn
Mr J P Morschel (ex offi cio)
Mr J P Morschel (ex offi cio)
Mr J P Morschel (ex offi cio)
A review of the Audit Committee Charter was undertaken during
the year and a small number of changes were made, including to
confi rm that the Committee’s duties include reviewing any major
proposed outsourcing of the Global Internal Audit function and
also that there is some overlap in membership between the Risk
Committee and Audit Committee.
The Audit Committee meets with the external auditor and internal
auditor without Management being present. The Chair of the Audit
Committee meets separately and regularly with Global Internal Audit,
the external auditor and Management.
The Deputy Chief Financial Offi cer is the executive responsible
for assisting the Chair of the Committee in connection with the
administration and effi cient operation of the Committee.
Substantive areas of focus in the 2011 fi nancial year included:
Global Internal and External Audit – the Committee approved
the annual plans for Global Internal and External Audit and kept
progress against those plans under regular review. Adjustments
to the Global Internal Audit Plan were made during the year
to accommodate changes arising from high focus areas and
changing risk profi les, integration and project work or specifi c
Management requests;
Accounting and regulatory developments – reports on accounting
developments were provided to the Committee outlining relevant
changes and implications for ANZ;
Financial Reporting Governance Program – the Committee
monitored the fi nancial reporting process and the controls
in place to ensure the integrity of the fi nancial statements,
including refreshing the Financial Reporting Governance Program;
and
Whistleblowing – the Committee received reports on disclosures
made under ANZ’s Global Whistleblower Protection Policy.
Mr J P Morschel (ex offi cio)
C – Chair FE – Financial Expert
AUDIT COMMITTEE
The Audit Committee is responsible for reviewing:
ANZ’s fi nancial reporting principles and policies, controls
and procedures;
the eff ectiveness of ANZ’s internal control and risk management
framework;
the work of Global Internal Audit which reports directly and
solely to the Chair of the Audit Committee (refer to Global
Internal Audit on page 59 for more information);
the Audit Committees of signifi cant subsidiary companies;
prudential supervision procedures required by regulatory bodies
to the extent relating to fi nancial reporting;
the integrity of ANZ’s fi nancial statements, compliance with
related legal and regulatory requirements, and the independent
audit thereof; and
any due diligence procedures.
The Audit Committee is also responsible for:
the appointment, annual evaluation and oversight of the external
auditor, including reviewing their independence, fi tness and
propriety and qualifi cations;
compensation of the external auditor;
where appropriate, replacement of the external auditor; and
reviewing the performance and remuneration of the Group General
Manager, Global Internal Audit.
Under the Committee Charter, all members of the Audit Committee
must be appropriately fi nancially literate. Both Mr Meiklejohn
(Chair) and Ms Watkins were determined to be a ‘fi nancial expert’
during the 2011 fi nancial year under the defi nition set out in the
Audit Committee Charter. While the Board has determined that
Mr Meiklejohn and Ms Watkins each have the necessary attributes to
be a ‘fi nancial expert’ in accordance with the relevant requirements,
it is important to note that this does not give rise to Mr Meiklejohn
or Ms Watkins having responsibilities additional to those of other
members of the Audit Committee.
56
ANZ Annual Report 2011
GOVERNANCE COMMITTEE
The Governance Committee is responsible for:
identifying and recommending prospective Board members
and ensuring appropriate succession planning for the position
of Chairman (see page 52);
ensuring there is a robust and eff ective process for evaluating the
performance of the Board, Board Committees and non-executive
Directors (see pages 54 to 55);
monitoring the eff ectiveness of the Diversity Policy to the extent it
relates to Board diversity and reviewing and approving measurable
objectives for achieving gender diversity on the Board (see page 62);
ensuring an appropriate Board and Board Committee structure
is in place;
reviewing and approving the Charters for each Board Committee
except its own, which is reviewed and approved by the Board; and
reviewing the development of and approving corporate
governance policies and principles applicable to ANZ.
HUMAN RESOURCES COMMITTEE
The Human Resources Committee assists and makes recommendations
to the Board in relation to remuneration matters and senior executive
succession, including for the Chief Executive Offi cer. The Committee
also assists the Board by reviewing and approving certain policies,
as well as monitoring performance, with respect to health and safety
issues and diversity.
The Committee is responsible for reviewing and making
recommendations to the Board on:
remuneration matters relating to the Chief Executive Offi cer
(details in the Remuneration Report on pages 16 to 45);
remuneration matters, including incentive arrangements, for
other Board Appointees (other than the Group General Manager
Global Internal Audit);
the design of remuneration structures and signifi cant incentive
plans; and
the Group’s Remuneration Policy and remuneration strategy.
The Group General Counsel is the executive responsible for assisting
the Chair of the Committee in connection with the administration
and effi cient operation of the Committee.
In addition, the Committee considers and approves the appointment
of Board Appointees (other than the Group General Manager Global
Internal Audit) and senior executive succession plans.
Substantive areas of focus in the 2011 fi nancial year included:
New diversity requirements – the Committee reviewed ANZ’s
governance framework to ensure compliance with the amendments
to the ASX Governance Principles relating to diversity;
The Group Managing Director, Human Resources is the executive
responsible for assisting the Chair of the Committee in connection
with the administration and effi cient operation of the Committee.
Substantive areas of focus in the 2011 fi nancial year included:
Board governance framework – the Committee conducted its
Management roles and performance – the Committee reviewed
annual review of the Board’s governance framework and principles
including in relation to Board composition and size, Director
tenure, outside commitments, Board and Committee education,
nomination procedures and Director independence criteria;
Performance evaluation processes – the Committee reviewed
existing processes relating to the annual performance reviews
of the Board, Chairman of the Board, non-executive Directors
and Board Committees. An independent external facilitator was
engaged to facilitate the 2011 performance review of the Board;
Board and Committee performance evaluations – the Committee
reviewed the major themes arising from the annual Board
performance review process. The Committee also received annual
performance self-assessment reports from each of the other
principal Board Committees; and
Review and approval of Group policies – the Committee reviewed
and, where appropriate, approved amendments to existing
Group policies including the Continuous Disclosure Policy, Board
Renewal and Performance Evaluation Policy, Fit and Proper Policy
and the procedure relating to the approval of Non-Executive
Director outside appointments.
the performance of the Chief Executive Offi cer, the Chief Executive
Offi cer’s direct reports and other key roles, and the succession
plans in place for Management Board and business critical roles;
Regulatory changes – the Committee continued to closely
monitor regulatory developments and implications for ANZ
both in Australia and globally, and refi ned remuneration policy
and practice as required;
Fitness and propriety – the Committee completed fi t and proper
assessments for all existing and new Board Appointees; and
Remuneration – the Committee approved the grant of up to
$1,000 of shares to each eligible employee under the ANZ
Employee Share Acquisition Plan, conducted an annual review of
remuneration for Non-Executive Directors and also reviewed
the compensation structure for senior executives.
For more details on the activities of the Human Resources Committee,
please refer to the Remuneration Report on pages 16 to 45.
Corporate Governance
57
CORPORATE GOVERNANCE (continued)
RISK COMMITTEE
The Board is principally responsible for approving the Group’s risk
appetite and risk tolerance, related strategies and major policies,
for the oversight of policy compliance, and for the eff ectiveness
of the risk and compliance management framework that is in place.
The Risk Committee is delegated responsibility for overseeing,
monitoring and reviewing the Group’s risk management principles
and policies, strategies, processes and controls including credit,
market, liquidity, balance sheet, operational, compliance and other
reputational risk control frameworks, as well as the culture of the
organisation in connection with such matters.
The Committee is also authorised to approve credit transactions
and other related matters beyond the approval discretion of the
Chief Risk Offi cer.
The Chief Risk Offi cer is the executive responsible for assisting the
Chair of the Committee in connection with the administration and
effi cient operation of the Committee.
Substantive areas of focus in the 2011 fi nancial year included:
Economic environment – the Committee received updates
on the global economic environment, including the impact
of European sovereign debt issues, a weakened US economy
and a high Australian dollar;
Regulatory change – the Committee monitored proposed new
regulations, both local and global, including Basel III and proposed
Australian taxation changes;
External environment – the Committee received updates on the
impact of natural disasters in Australia, New Zealand and Japan; and
Business updates – the Committee received updates from
businesses across the Group.
A risk management and internal control system to manage material
business risks is in place, and Management reported to the Risk
Committee during the year as to the eff ectiveness of the management
of ANZ’s material business risks.
For further information on how ANZ manages its material fi nancial
risks, please see the disclosures in relation to AASB 7 ‘Financial
instruments: Disclosure’ in the notes to the fi nancial statements.
For further information on risk management governance and related
ANZ policies, please see the Corporate Governance section of anz.com
TECHNOLOGY COMMITTEE
The Technology Committee assists the Board in the eff ective
discharge of its responsibilities in relation to technology and
related operations. The Committee is responsible for making
recommendations to the Board on new projects in technology
above $100 million in value, investigating and reviewing security
issues relevant to ANZ’s technology, reviewing and approving
Management recommendations for long-term technology and
related operations planning, and the approval of policies, strategies
and control frameworks for the management of technology risk.
The Chief Information Offi cer is the executive responsible for
assisting the Chair of the Committee in connection with the
administration and effi cient operation of the Committee.
Substantive areas of focus in the 2011 fi nancial year included:
Review of new and existing major projects – the Committee
reviewed proposed new major projects and monitored the
progress of existing major projects;
Strategy – the Committee received reports on major strategic
initiatives, including the technology strategy, a revised
organisational structure and changes to further strengthen
the technology leadership team;
Security – updates were received on key information security
issues, and various tactical and strategic activities planned to
remediate or control them; and
Service and systems stability and performance – the Committee
received regular reports on operational performance, and actions
undertaken to improve service stability.
DIRECTORS’ MEETINGS
The number of Board meetings and meetings of Committees during the year the Director was eligible to attend, and the number of meetings
attended by each Director were:
Board
Audit
Committee
Governance
Committee
A
10
10
10
10
10
10
10
10
B
9
10
10
10
9
10
10
10
A
6
6
6
6
6
B
6
6
6
6
6
A
4
4
4
4
B
4
3
4
4
Human
Resources
Committee
A
5
5
5
5
5
B
5
5
5
5
5
Risk
Committee
Technology
Committee
Shares
Committee*
Committee
of the Board*
A
6
6
6
6
6
B
6
6
6
6
6
A
4
4
4
4
B
4
4
4
4
A
1
1
5
5
2
B
1
1
5
5
2
A
B
3
8
8
3
8
8
G J Clark
P A F Hay
Lee Hsien Yang
I J Macfarlane
D E Meiklejohn
J P Morschel
M R P Smith
A M Watkins
Column A – Indicates the number of meetings the Director was eligible to attend.
Column B – Indicates the number of meetings attended. The Chairman is an ex-officio member of the Risk, Audit, Human Resources, Governance and Technology Committees.
With respect to Committee meetings, the table above records attendance of Committee members. Any Director is entitled to attend these meetings and from time to time Directors attend meetings
of Committees of which they are not a member.
*The meetings of the Shares Committee and Committee of the Board as referred to in the table above include those conducted by written resolution. The Executive Committee did not meet
during the 2011 financial year.
58
ANZ Annual Report 2011
ADDITIONAL COMMITTEES
the external auditor should not function as part of Management
In addition to the fi ve principal Board Committees, the Board has
constituted an Executive Committee and a Shares Committee, each
consisting solely of Directors, to assist in carrying out specifi c tasks.
The Executive Committee has the full power of the Board and is
convened as necessary between regularly scheduled Board meetings
to deal with urgent matters. The Shares Committee has the power
to manage on behalf of the Board the issue of shares and options
(including under ANZ’s Employee Share Plan and Share Option Plan).
The Board also forms and delegates authority to ad-hoc Committees
of the Board as and when needed to carry out specifi c tasks.
Audit and Financial Governance
GLOBAL INTERNAL AUDIT
Global Internal Audit is a function independent of Management whose
role is to provide the Board of Directors and Management with an
eff ective and independent appraisal of the internal controls established
by Management. Operating under a Board approved Charter, the
Group General Manager, Global Internal Audit reports directly and
solely to the Chair of the Audit Committee, with a direct communication
line to the Chief Executive Offi cer and the external auditor.
The Global Internal Audit Plan is developed utilising a risk based
approach and is refreshed on a quarterly basis. The Audit Committee
approves the plan, the associated budget and any changes thereto.
All audit activities are conducted in accordance with ANZ policies
and values, as well as local and international auditing standards,
and the results thereof are reported to the Audit Committee,
Risk Committee and Management. These results infl uence the
performance assessment of business heads.
Furthermore, Global Internal Audit monitors the remediation of audit
issues and highlights the current status of any outstanding audits.
EXTERNAL AUDIT
The external auditor’s role is to provide an independent opinion that
ANZ’s fi nancial reports are true and fair and comply with applicable
regulations. The external auditor performs an independent audit in
accordance with Australian Auditing Standards. The Audit Committee
oversees ANZ’s Policy on Relationship with the External Auditor.
Under the Policy, the Audit Committee is responsible for the
appointment (subject to ratifi cation by shareholders) and also the
compensation, retention and oversight of the external auditor.
The Policy also stipulates that the Audit Committee:
pre-approves all audit and non-audit services on an engagement
by engagement basis or pursuant to specifi c pre-approval policies
adopted by the Committee;
regularly reviews the independence of the external auditor; and
evaluates the eff ectiveness of the external auditor.
The Policy also requires that all services provided by the external
auditor, including the non-audit services that may be provided by the
external auditor, must be in accordance with the following principles:
the external auditor should not have a mutual or confl icting
interest with ANZ;
the external auditor should not audit its own work;
or as an employee; and
the external auditor should not act as an advocate of ANZ.
The Policy, which sets out in detail the types of services the external
auditor may and may not provide, can be found on the Corporate
Governance section of anz.com
Details of the non-audit services provided by the external auditor,
KPMG, during the 2011 fi nancial year, including their dollar value,
together with the statement from the Board as to their satisfaction
with KPMG’s compliance with the related independence requirements
of the Corporations Act 2001, are set out in the Directors’ Report on
page 12. In addition, the auditor has provided an independence
declaration under Section 307C of the Corporations Act 2001.
ANZ requires a two year period before any former partner or employee
of the external auditor is appointed as a Director or senior executive of
ANZ. The lead partner of the external auditor is required to rotate off
the audit after fi ve years and cannot return for a further fi ve years.
Certain other senior audit staff are required to rotate off after a
maximum of seven years. Any appointments of ex-partners or
ex-employees of the external auditor as ANZ fi nance staff , at senior
manager level or higher, must be pre-approved by the Chair of the
Audit Committee.
As disclosed in previous Annual Reports, in 2004 the US SEC
commenced an inquiry into non-audit services provided by ANZ’s
auditor, KPMG. This matter has been resolved and there was no
adverse eff ect on ANZ.
FINANCIAL CONTROLS
The Audit Committee of the Board oversees ANZ’s fi nancial reporting
policies and controls, the integrity of ANZ’s fi nancial statements, the
relationship with the external auditor, the work of Global Internal Audit,
and the Audit Committees of various signifi cant subsidiary companies.
ANZ maintains a Financial Reporting Governance (FRG) Program
which evaluates the design and tests the operation of key fi nancial
reporting controls. In addition, half-yearly certifi cations are
completed by senior Management, including senior fi nance
executives. These certifi cations comprise representations and
questions about fi nancial results, disclosures, processes and controls
and are aligned with ANZ’s external obligations. This process is
independently evaluated by Global Internal Audit and tested by the
FRG Program.
Any issues arising from the evaluation and testing are reported to the
Audit Committee. This process assists the Chief Executive Offi cer and
Chief Financial Offi cer in making the certifi cations to the Board under
the Corporations Act and ASX Governance Principles as referred to in
the Directors’ Report on page 13.
Corporate Governance
59
CORPORATE GOVERNANCE (continued)
Ethical and Responsible Decision-making
CODES OF CONDUCT AND ETHICS
ANZ has two main Codes of Conduct and Ethics, the Employee
Code and the Non-Executive Directors Code. These Codes provide
employees and Directors with a practical set of guiding principles
to help them make decisions in their day to day work. Having two
Codes recognises the diff erent responsibilities that Directors have
under law but enshrines the same values and principles.
The Codes embody honesty, integrity, quality and trust, and
employees and Directors are required to demonstrate these
behaviours and comply with the Codes whenever they are
identifi ed as representatives of ANZ.
The principles underlying ANZ’s Codes of Conduct and Ethics are:
We act in ANZ’s best interests and value ANZ’s reputation;
We act with honesty and integrity;
We treat others with respect, value diff erence and maintain
a safe working environment;
We identify confl icts of interest and manage them responsibly;
We respect and maintain privacy and confi dentiality;
We do not make or receive improper payments, benefi ts or gains;
Within two months of starting work with ANZ, and thereafter on
an annual basis, all employees are required to complete a training
course that takes each employee through the eight Code principles
and a summary of their obligations under each of the policies in the
Conduct and Ethics Policy Framework. Employees are required to
declare that they have read, understand and have complied with the
principles of the Employee Code, including key relevant extracts of
the policies set out above.
To support the Employee Code of Conduct and Ethics, ANZ’s Global
Performance Improvement and Unacceptable Behaviour Policy sets
out the process to be followed to determine whether the Code has
been breached and the consequences that should be applied to
employees who are found to have breached the Code. Under the
ANZ Global Performance Management Framework, any breach of
the Code that leads to a consequence (such as a warning) will result
in an unacceptable risk/compliance/behaviour fl ag being given
at the time of the performance assessment. A fl ag must be taken
into account when determining an employee’s performance and
remuneration outcome and will almost always negatively impact
those outcomes for the fi nancial year in question.
Directors’ compliance with the Non-Executive Directors Code
continues to form part of their annual performance review.
We comply with the Codes, the law and ANZ’s policies and
SECURITIES TRADING
procedures; and
We immediately report any breaches of the Codes, the law
or ANZ policies and procedures.
The Codes are supported by the following detailed policies that
together form ANZ’s Conduct and Ethics Policy Framework:
ANZ Anti-Money Laundering and Counter-Terrorism
Financing Program;
ANZ Use of Systems, Equipment and Information Policy;
ANZ Global Fraud and Corruption Policy;
ANZ Group Expense Policy;
ANZ Equal Opportunity, Bullying and Harassment Policy;
ANZ Health and Safety Policy;
ANZ Global Employee Securities Trading and Confl ict
of Interest Policy;
ANZ Global Anti-Bribery Policy; and
ANZ Global Whistleblower Protection Policy.
In 2010 ANZ implemented values and ethics training sessions that
were run by ANZ leaders with their direct reports at manager level or
above. Following this rollout, leaders are now strongly encouraged to
run sessions for new direct reports and ensure they, in turn, brief their
teams where required on ANZ’s values and ethical decision making
within the team. The sessions are designed to build line manager
capability, equipping ANZ leaders and their teams with tools and
knowledge to make values-based, conscious and ethical business
decisions and create team behaviour standards that are in line with
the ANZ Values.
ANZ’s Global Employee Securities Trading and Confl ict of Interest
Policy prohibits trading in ANZ securities or the securities of other
companies by all employees and Directors who are aware of
unpublished price-sensitive information.
The Policy specifi cally prohibits restricted employees, their associates
and Directors trading in ANZ securities during ‘blackout periods’ as
defi ned in the Policy. The Policy also provides that certain types of
trading are excluded from the operation of the trading restrictions
under the Policy, and for exceptional circumstances in which
restricted employees and Directors may be permitted to trade during
a prohibited period, with prior written clearance.
Directors are required to obtain written approval from the Chairman
in advance of any trading in ANZ securities. The Chairman of the
Board is required to seek written approval from the Chair of the Audit
Committee. Senior Executives and other restricted employees are also
required to obtain written approval before they, or their associates,
trade in ANZ securities.
It is a condition of the grant of employee deferred shares and share
options and rights that no schemes are entered into by any employee
that specifi cally protect the value of such shares, options and rights
before the shares have vested or the options or rights have entered
their exercisable period. Any breach of this prohibition would
constitute a breach of the grant conditions and would result in the
forfeiture of the relevant shares, options or rights.
Directors and Management Board members are also prohibited from
providing ANZ securities as security in connection with any margin
loan or similar fi nancing arrangement under which they may be
subject to a margin call or loan to value ratio breach.
60
ANZ Annual Report 2011
WHISTLEBLOWER PROTECTION
The ANZ Global Whistleblower Protection Policy provides a
mechanism by which ANZ employees, contractors and consultants
may report serious issues on a confi dential basis, without fear of
victimisation or disadvantage.
Complaints may be made under the Policy to Managers, designated
Whistleblower Protection Offi cers, or via an independently managed
Whistleblower Protection hotline.
Commitment to Shareholders
Shareholders are the owners of ANZ and the approaches described
below are enshrined in ANZ’s Shareholder Charter, a copy of which
can be found on the Corporate Governance section of anz.com
COMMUNICATION
In order to make informed decisions about ANZ, and to communicate
views to ANZ, it is important for shareholders to have an
understanding of ANZ’s business operations and performance.
ANZ encourages shareholders to take an active interest in ANZ, and seeks
to provide shareholders with quality information in a timely fashion
through ANZ’s reporting of results, the Annual Report, the Shareholder
and Corporate Responsibility Review, announcements and briefi ngs to
the market, half yearly newsletters and via its dedicated shareholder
site on anz.com. ANZ strives for transparency in all its business practices,
and recognises the impact of quality disclosure on the trust and
confi dence of shareholders, the wider market and the community. To
this end, ANZ, outside of its scheduled result announcements, issued
additional Trading Updates to the market during the 2011 fi nancial year.
Should shareholders require any information, contact details for
ANZ and its Share Registrar are set out in ANZ’s Annual Report, the
Shareholder and Corporate Responsibility Review, the half yearly
shareholder newsletter, and the Shareholder Centre section of anz.com
MEETINGS
To allow as many shareholders as possible to have an opportunity
to attend shareholder meetings, ANZ rotates meetings around
capital cities and makes them available to be viewed online using
webcast technology.
Further details on meetings and presentations held throughout this
fi nancial year are available on anz.com > About us >Shareholder centre
> Presentations and Webcasts. Prior to the Annual General Meeting,
shareholders are provided the opportunity to submit any questions
they have for the Chairman or Chief Executive Offi cer to enable key
common themes to be considered.
The external auditor is present at ANZ Annual General Meetings
and available to answer shareholder questions on any matter that
concerns them in their capacity as auditor.
Directors are also required to attend the Annual General Meeting
each year, barring unusual circumstances, and be available afterwards
to meet with and answer questions of shareholders.
Shareholders have the right to vote on various resolutions related
to company matters. If shareholders are unable to attend a meeting
they can submit their proxies via post or electronically. Where votes
are taken on a poll, which is usual ANZ practice, shareholders are
able to cast their votes on a confi dential basis. ANZ appoints an
independent party to verify the results, normally KPMG, which are
reported as soon as possible to the ASX and posted on anz.com
Continuous Disclosure
ANZ’s practice is to release all price-sensitive information to the
ASX in a timely manner as required under the ASX Listing Rules and
then to all relevant overseas securities exchanges on which ANZ’s
securities are listed, and to the market and community generally
through ANZ’s media releases, website and other appropriate channels.
Through ANZ’s Continuous Disclosure Policy, ANZ demonstrates
its commitment to achieving best practice in terms of disclosure by
acting in accordance with the spirit, intention and purposes of the
applicable regulatory requirements and by looking beyond form to
substance. The Policy refl ects relevant obligations under applicable
securities exchange listing rules and legislation.
For disclosure purposes, price-sensitive information is information
that a reasonable person would expect to have a material eff ect on
the price or value of ANZ’s securities. Designated Disclosure Offi cers
have responsibility for reviewing proposed disclosures and making
decisions in relation to what information can be or should be
disclosed to the market. Each ANZ employee is required to inform
a Disclosure Offi cer regarding any potentially price-sensitive
information concerning ANZ as soon as they become aware of it.
A committee of senior executives (the Continuous Disclosure
Review Sub-Committee) also meets on a regular basis each quarter
to overview the eff ectiveness of ANZ’s systems and procedures
for achieving compliance with applicable regulatory requirements
in relation to the disclosure of price-sensitive information. This
Sub-Committee reports to the Governance Committee of the
Board on an annual basis.
Corporate Responsibility
ANZ aims to be a role model for responsible business growth
and business behaviour as it pursues its goal to become a super
regional bank.
ANZ’s corporate responsibility framework responds to the priorities
of customers, shareholders, employees, community groups,
regulators and governments across ANZ’s business. It emphasises
the role ANZ plays in society – helping to create prosperity and build
thriving communities while growing ANZ’s business responsibly.
The following fi ve priority areas guide ANZ’s corporate responsibility
investments, initiatives and decisions globally:
education and employment opportunities;
bridging urban and rural social and economic divides;
fi nancial capability;
responsible practices; and
urban sustainability.
The Corporate Responsibility Committee is chaired by the Chief
Executive Offi cer. The Committee provides strategic leadership on the
corporate responsibility agenda and monitors progress and results.
Each year, ANZ sets public targets and a business-wide program of
work to respond to the most material issues and opportunities for
its industry. This year ANZ achieved or made strong progress on over
90% of its public targets.
ANZ keeps interested stakeholders abreast of developments through
a monthly e-bulletin, and annual and interim corporate responsibility
reporting. Detailed information on ANZ’s approach and results is
available on anz.com> About us> Corporate Responsibility
Corporate Governance
61
CORPORATE GOVERNANCE (continued)
Diversity at ANZ
GENDER BALANCE AT ANZ
ANZ considers a gender-balanced, diverse and inclusive workforce,
where employee diff erences in areas like gender, age, culture, disability
and lifestyle choice are valued, a strategic asset for its business and
critical to achieving its super regional strategy. The ANZ Diversity
Council, established in 2004, is responsible for setting the strategic
direction and identifying focus areas in relation to diversity. It consists
of senior executives and is chaired by the Chief Executive Offi cer.
Gender balance is a key priority in this strategy and ANZ’s commitment
includes Management Board level accountability for year-on-year
improvements in gender balance, particularly across senior
Management ranks.
GENDER BALANCE AT BOARD, SENIOR EXECUTIVE AND
MANAGEMENT LEVELS
ANZ’s Board currently comprises eight Directors, and it is not the
Board’s current intention to make any new Board appointments to
increase the size of the Board, other than as a part of the succession
planning process referred to below.
The Board has one female Director, namely Ms Watkins, who joined
the Board in November 2008 as a Non-Executive Director. Ms Watkins
is Chair of the Human Resources Committee and a member of the
Audit Committee and Governance Committee.
The Board has a tenure policy which limits the period of service of a
Non-Executive Director to three 3-year terms after fi rst being elected by
shareholders. In accordance with this policy, the next scheduled Board
retirements will occur at the 2013 AGM when three Directors are due
to retire.
The Board’s objective is that the new Director appointments who will
replace the three retiring Directors will include at least one woman,
and it is expected that these new appointments will be made in the
period leading up to the 2013 AGM in order to provide an appropriate
transition. This objective is being eff ectively progressed.
ANZ has the highest proportion of women on its Management Board
of any Australian bank (25%). Three female CEOs lead key countries
in ANZ’s Asia Pacifi c growth markets of Vietnam, the Philippines and
Hong Kong. Women also lead major global businesses including Capital
Markets, Global Loans and Shared Services operations.
Annual gender targets have been set since 2004. ANZ’s goals for the
year ended 30 September 2011 and the results achieved are set out
in the table below. While we did not achieve our targets over all the
sub-categories, we improved our performance at senior Management
level, the key pipeline for future executives. With respect to the
total number of women across the organisation, the percentage fell
slightly from 56.9% to 55%. See ‘Future Goals’ below for ANZ’s 2012
measurable objectives for achieving gender diversity.
Group
Senior executives
Senior manager
Manager
Total women in management
Baseline
(30 Sept 2010)
30 September
2011 Target
30 September
2011 results
23.9%
27.6%
40.6%
38.4%
25.8%
29.3%
42.2%
40.0%
22.8%
28.5%
40.3%
38.2%
PROGRESSION AND DEVELOPMENT PRACTICES
ANZ aims to achieve gender balance in its key talent development
and learning programs.
This year ANZ invested signifi cantly in its core Leadership Pathway
programs which target entry level managers through to enterprise
leaders, and provide comprehensive training in the skills and
competencies required to lead at ANZ. 45% of participants in all
Leadership Pathway programs were female.
Across ANZ’s broader Leadership Talent Radar program, 38% of
participants were female. This percentage is similar to the current
representation in Management ranks, however achieving gender
balance in this program is a future priority.
Awareness and education programs to eliminate any unconscious bias
in ANZ’s policies, practice and workplace culture are underway. This year
approximately 800 of ANZ’s managers, including Management Board
and top 200 executives, globally participated in a learning program
to better understand the economic and business case for gender
balancing ANZ and how to best understand, inspire and capitalise
on the talents of both female and male employees in ANZ’s workforce.
Actions arising from these sessions include a commitment to early
career and succession planning to get more women into line roles
where they have access to the critical experiences required to be
eff ective senior leaders. ANZ is also encouraging and supporting its
senior male leaders to act as sponsors and advocates for talented
women to widen the available pool of female talent who will consider
working for ANZ.
PAY EQUITY
ANZ is committed to achieving pay equity for like roles across its
business. ANZ tracks its progress annually and publicly reports its
performance (see the 2011 Shareholder and Corporate Responsibility
Review, which is available at anz.com).
The gender pay diff erential between males and females (with
comparisons based on like-for-like job size) continues to be minimal,
and reductions in the gender diff erentials in fi xed pay were achieved.
A review of performance based compensation awarded in 2010
revealed no systemic gender bias in ANZ’s reward allocation,
with the proportion of women achieving ANZ’s two highest levels
of relative performance outcome (RPO), which determines bonus
levels, slightly higher than men. Six percent of females achieved
RPO 1 compared to 5% of males and 21% of females achieved
RPO 2 compared to 20% of males.
In addition, 57% of award recipients in ANZ’s annual CEO Recognition
Program were women.
FLEXIBLE ARRANGEMENTS AND PARENTAL LEAVE
ANZ off ers fl exible work arrangements, breaks from work and
support in special circumstances to help balance life priorities with
work and to manage careers. These include: compressed work weeks
(where employees work the usual number of hours in fewer days);
fl exible start and fi nish times; job sharing; telecommuting; part time
work arrangements; and lifestyle leave which off ers up to four weeks
unpaid leave for any purpose. See the 2011 Shareholder and
Corporate Responsibility Review for information on the number
of employees in fl exible work arrangements.
62
ANZ Annual Report 2011
A new childcare allowance introduced in 2011 provides Australian
parents returning to work with a $4,000 grant to help them transition
back to work after parental leave and superannuation is paid on all
forms of paid parental leave. Over 478 employees received this grant in
its fi rst year, and 94% of grant recipients remain ANZ employees today.
WORKPLACE CULTURE
ANZ is building a vibrant, diverse and inclusive culture as a critical
foundation for its super regional strategy. This year, in the annual
‘My Voice’ survey, 79% of all respondents supported the statements
that ‘ANZ is creating a work environment that is open and accepting
of individual diff erences’ and ‘My manager supports my eff orts to
balance my work and personal life’ – key indicators of the success
of ANZ’s diversity priorities.
SUPPORT FOR GENDER EQUALITY IN OUR COMMUNITIES
The Chairman and Chief Executive Offi cer support an external
business led program to mentor and advance more women into
Board positions.
The Chief Executive Offi cer, Mr Smith, is a member of the Male
Champions for Change program (MCC), through which CEOs and
Directors use their infl uence to ensure the issues of gender equality
and women’s representation in leadership are elevated onto the
national business agenda. Mr Smith is establishing a Melbourne
Chapter of MCC, which will advocate for more accessible, fl exible
and aff ordable childcare for parents while also championing ANZ’s
fi nancial capability programs, which are described below.
In 2011 ANZ was recognised as an Employer of Choice for Women
by the Australian Equal Opportunity in the Workplace Agency.
This followed similar achievements in the last year, including the
Workplace Work and Life award in New Zealand for fl exible work
practices and an IT Export award, recognising the high percentage
of women employed in ANZ’s Technology business in India.
Saver Plus, MoneyMinded, MoneyBusiness and Progress Loans, ANZ’s
fi nancial capability initiatives, include mostly female participants and
aim to encourage and support their economic empowerment, education
and broader inclusion in society. To date, ANZ’s long-term, multi-million
dollar investment in these programs has benefi ted tens of thousands
of women on low incomes and from disadvantaged communities.
FUTURE GOALS
ANZ has set the following global goals for gender balance and
diversity for 2012. The 2011 Shareholder and Corporate Responsibility
Review contains further information on these targets.
Public Gender Balance and Diversity Targets
Reach at least 40% representation of women in management, including
maintaining or increasing the proportion of women at all levels.
Achieve gender balance and greater cultural diversity in our key
recruitment, talent development and learning programs.
Provide 230 positions through our traineeships, graduate program
and permanent employment to people from disadvantaged
backgrounds, including Indigenous Australians, Maori, people with
disability and refugees; and support their advancement through
mentoring and cultural awareness programs amongst all employees.
Advance the role of women in society through engagement on
key public policy issues, including advocacy for more accessible,
aff ordable and fl exible childcare in Australia.
Develop and commence implementation of a global approach to
improving age diversity across our business.
Publicly report outcomes of ANZ's current Reconciliation Action Plan
and Diversity Action Plan.
Donations and Community Investment
ANZ has made a long term public commitment to invest in the
communities in which it operates and contributed around
$16.9 million in cash, time and in-kind services during the year
ended 30 September 2011. This does not include ‘foregone revenue’
such as the cost of providing low or fee free accounts to government
benefi t recipients.
Building fi nancial capability is a key element of ANZ’s Corporate
Responsibility framework, targeting especially those in disadvantaged
communities who are most at risk of fi nancial exclusion. For this
reason more than $3.5 million of this contribution was invested in
fi nancial literacy and inclusion programs such as MoneyMinded (and
its cultural adaptations in Australia, New Zealand and the Pacifi c),
Saver Plus and Progress loans (Australia). Saver Plus was successful
in gaining ongoing funding from the Australian Government to
continue operating in 60 sites around Australia, with the support of
partners Brotherhood of St Laurence, Berry Street, the Benevolent
Society, the Smith Family and other community agencies. Over 7,500
participants were involved in Saver Plus over the past two years, and
research shows that 87% of people continue to save the same
amount or more up to three years after completing the program.
ANZ off ers all staff at least one day of paid volunteer leave per
year to make a diff erence in their local communities. This year we
expanded our volunteering program in Asia and the Pacifi c through
a partnership with Australian Volunteers International where our
employees are volunteering their time and expertise to help build
the capacity of community organisations. In the past year, staff
volunteered more than 91,000 hours across our region.
ANZ also committed more than $3.7 million, including matching
of staff donations, to support the recovery and rebuilding of
communities in regions aff ected by natural disasters including
Australia, New Zealand and Japan.
Further details can be accessed at anz.com/cr
In addition, for the year to 30 September 2011, ANZ donated
$80,000 to the Liberal Party of Australia and $80,000 to the Australian
Labour Party.
Corporate Governance
63
Review of Operations
Principal Risks and Uncertainties
Five Year Summary
65
76
84
64
ANZ Annual Report 2011
Review of Operations
Chief Executive Offi cer’s Report
A MESSAGE FROM PETER MARRIOTT
A MESSAGE FROM MICHAEL SMITH
ANZ reported a profi t after tax of $5,355 million for the year ended 30 September 2011.
Income Statement ($m)
Net interest income
Other operating income
Operating income
Operating expenses
Profi t before credit impairment and income tax
Provision for credit impairment
Profi t before income tax
Income tax expense
Non-controlling interests
Profi t attributable to shareholders of the Company
Underlying profi t
2011
11,483
5,449
16,932
(8,023)
8,909
(1,237)
7,672
(2,309)
(8)
5,355
2010
10,869
4,823
15,692
(7,304)
8,388
(1,787)
6,601
(2,096)
(4)
4,501
Movt
6%
13%
8%
10%
6%
-31%
16%
10%
100%
19%
Profi t has been adjusted to exclude non-core items to arrive at underlying profi t, the result for the ongoing business activities of the Group. These
adjustments have been determined on a consistent basis with those made in prior periods. The adjustments made in arriving at underlying earnings
are included in statutory profi t, and are therefore subject to audit within the context of the Group statutory audit opinion. The principles set out in
the Australian Institute of Company Director’s (AICD) and the Financial Services Institute of Australasia’s (FINSIA) joint recommendations ‘Principles
for reporting of non-statutory profi t information’ have been adopted in determining underlying profi t. The external auditor has advised the Audit
Committee that the adjustments are based on the guidelines released by the AICD and FINSIA, and consistent with prior period adjustments.
Income Statement ($m)
Statutory profi t attributable to shareholders of the Company
Adjustments between statutory profi t and underlying profi t
Underlying profi t
Adjustments between statutory profi t and underlying profi t ($m)
New Zealand technology integration
Acquisition costs and valuation adjustments
Treasury shares adjustment
Tax on New Zealand conduits
Changes in New Zealand tax legislation
Economic hedging – fair value (gains)/losses
Revenue and net investment hedges losses/(gains)
NZ managed funds impacts
Non-continuing businesses
Credit intermediation trades
Other
Adjustments between statutory profi t and underlying profi t
2011
5,355
297
5,652
2011
86
126
(41)
–
(2)
117
51
(39)
(4)
3
297
2010
4,501
524
5,025
2010
–
480
32
(38)
36
146
(24)
(34)
(54)
(20)
524
Movt
19%
-43%
12%
Movt
n/a
-74%
large
-100%
large
-20%
large
15%
-93%
large
-43%
Review of Operations
65
REVIEW OF OPERATIONS (continued)
Pro forma
To enhance the understanding and comparability of fi nancial information between reporting periods, ‘pro forma’ information is presented
below. The pro forma adjustments are based on underlying profi t and assume the increase in ownership in OnePath Australia and
New Zealand acquisitions from 49% to 100% and the Landmark and RBS acquisitions took eff ect from 1 October 2009, eff ectively restating
the Group’s underlying profi t for the 2010 full year. This analysis provides the estimated growth rates of the ongoing business performance
of the Group including recent acquisitions. The pro forma results below are also adjusted to exclude the impact of exchange rate movements.
Pro forma
Underlying
Pro forma/underlying profi t by key line item
Net interest income
Other operating income1,2
Operating income
Operating expenses
Profi t before credit impairment and income tax
Provision for credit impairment1
Profi t before income tax
Income tax expense2
Non-controlling interests
2011
11,481
5,331
16,812
(7,718)
9,094
(1,211)
7,883
(2,222)
(9)
2010
10,869
5,105
15,974
(7,132)
8,842
(1,845)
6,997
(1,977)
(6)
Profi t attributable to shareholders of the Company
5,652
5,014
Movt
6%
4%
5%
8%
3%
-34%
13%
12%
50%
13%
2011
11,481
5,331
16,812
(7,718)
9,094
(1,211)
7,883
(2,222)
(9)
2010
10,862
4,920
15,782
(6,971)
8,811
(1,820)
6,991
(1,960)
(6)
5,652
5,025
Movt
6%
8%
7%
11%
3%
-33%
13%
13%
50%
12%
1 Credit valuation adjustments on defaulted or impaired exposures of $17 million are reclassified as provision for credit impairment (2010: $34 million).
2 Policyholder tax of $208 million (2010: $215 million) is netted off against the change in policyholder liabilities for underlying profit.
66
ANZ Annual Report 2011
ANZ reported a profi t attributable to shareholders of the Company of
$5,355 million for the year ended 30 September 2011, up $854 million
or 19% from $4,501 million for the year ended 30 September 2010.
Underlying profi t was up 12% to $5,652 million.
On a pro forma basis, profi t increased by $638 million or 13%.
Analysis of the business performance on a pro forma basis excluding
exchange rates by major income and expense categories follows:
Asia Pacifi c, Europe & America geography increased $14.1 billion
(30%): Driven mainly by deposit raising strategies in UK combined
with business expansion and RBS acquisition in Asia.
This was partly off set by a decrease in New Zealand geography of
$2.0 billion (4%) due to a decline in Commercial Paper issuance due
to reduced funding requirements. A further decrease of $7.3 billion
(2%) was due to foreign exchange rate movements.
Net interest margin2 decreased by 1 basis point to 2.46%. Excluding
the impact of the Global Markets business, the Group margin2
increased by 7 basis points. The main drivers of improved margin
performance excluding Global Markets were:
Improved asset margin (16 basis points) fl owing from pricing
decisions in retail and commercial businesses in Australia and
New Zealand, increase in fee income in Institutional and benefi t
from a change in the lending mix.
Funding & Asset mix changes (3 basis points) driven by lower
reliance on wholesale funding as growth in customer deposits
meets ongoing funding requirements.
This was partly off set by a higher cost of deposits (-8 basis points)
and higher funding costs (-3 basis points). Deposit costs were
higher due to the competitive pressures (-5 basis points), continued
customer migration to lower margin deposits (-2 basis points) and
lower returns from the replicating portfolio (-1 basis point). Higher
funding costs (-3 basis points) were mainly due to an increase in
wholesale funding costs.
Global Markets had a -8 basis points impact on the total Group
margin. This was driven by lower earnings from managing balance
sheet risk (-4 basis points), lower earnings from other lending and
investment activities (-2 basis points), higher funding costs associated
with unrealised gains on derivatives (-1 basis point) and the balance
sheet dilution impact (-1 basis point).
Net Interest Income
Net interest income increased 6% with higher margins (excluding
the impact of the Global Markets business), growth in average
interest earning assets and an increase in average deposits and
other borrowings.
Growth in average interest earning assets1 was $28.2 billion (6%).
Major movements include:
Australia geography increased $21.3 billion (7%): Mortgages
increased $15.5 billion (10%) driven by growth in net advances
refl ecting continuing customer demand for variable rate lending.
There was also growth in Global Markets due to an increase in
reverse repo balances and short term available-for-sale assets
in the Liquidity Portfolio and in Commercial Banking following
growth in customer lending.
Asia Pacifi c, Europe & America (APEA) geography increased $15.8
billion (33%): Hong Kong/Taiwan increased $5.8 billion (90%) due
to growth in net advances from the RBS business acquisition and
organic growth. Singapore increased $3.8 billion (38%) due to
an increase in trade loans, as well as the launch of the mortgage
lending business in Retail. China increased $2.2 billion (86%)
driven by higher domestic lending and investment of surplus
cash. Onshore lending business in India grew with the launch
of the India branch.
This was partly off set by a decrease of $8.4 billion (2%) due to
foreign exchange rate movements.
Growth in average deposits and other borrowings was $32.6 billion
(11%). Major movements include:
Australia geography increased $27.8 billion (14%): Banking
Products increased $8.6 billion (14%) due to uplift from core
customer deposits. Treasury increased $8.2 billion (20%) driven
by higher Certifi cates of Deposit due to change in funding mix
following the decision to stop re-discounting customer acceptances.
Markets & Transaction Banking increased $7.8 billion (16%) with
higher customer deposits in part refl ecting system growth.
1 Balance sheet growth and associated commentary is on a statutory (not pro forma) basis
and is not adjusted for the changes in exchange rates.
2 Net interest margin and associated commentaries are on a statutory (not pro forma) basis.
The acquisitions did not have a significant impact on net interest margin.
Review of Operations
67
Operating Expenses
Operating expenses grew 8% with cost growth primarily in Asia
Pacifi c, Europe & America, Institutional and Group Centre as a result
of ongoing investment in key strategic markets and infrastructure
and system enhancements to support future growth.
Asia Pacifi c, Europe & America cost growth was up 22% from the
build out of the franchise, largely in Institutional, and compared with
18% revenue growth. Institutional cost growth was up 17% mainly
due to the runrate impact of higher personnel costs from investment
to build out capabilities in Asia Pacifi c, Europe & America and
investment in cash management and foreign exchange capability
in the prior year. The Australia cost growth of 4% was largely due
to annual salary increases and a 2% increase in staff numbers.
New Zealand costs were down 2%, refl ecting productivity gains
from simplifying the business. Group Centre cost growth was up
28% largely from increased investment in our Chengdu and Manila
Hubs and increased technology investment.
Personnel expenses increased $445 million (10%) as a result
of annual salary increases and the continued build out of the
Institutional franchise in Asia Pacifi c, Europe & America. Infl ationary
increases in New Zealand were partly off set by a 2% reduction
in staff numbers from simplifying the business. Staff numbers
increased in Group Centre as a result of the build out of the
off shore Hubs and investment in technology.
Premises expenses increased $23 million (3%) refl ecting higher
staff numbers, infl ationary increases and an increased cost
associated with reducing our carbon footprint.
Computer expenses increased $157 million (18%) due to a
$51 million increase in depreciation and amortisation and an
increase in Computer contractors’ costs from our signifi cant
investment in technology.
Other expenses reduced $39 million (3%) due to a strong focus on
constraining discretionary costs, lower non-lending losses in 2011
and lower project related expenses which are off set by increases
in Personnel and Computer expenses.
REVIEW OF OPERATIONS (continued)
Other Operating Income
Other operating income increased 4% for the year ended
30 September 2011. Major movements include:
Fee income increased $29 million (1%): Transaction Banking
increased $66 million (17%) driven mainly by volume growth.
Deposits Australia decreased $26 million (10%) due to lower
exception fees and reduction in volumes.
Foreign exchange earnings increased $45 million (18%):
Transaction Banking increased $25 million (24%) driven by higher
volumes and pricing initiatives. Retail and Wealth Asia increased
$13 million driven by higher volumes.
Net income from wealth management increased $44 million (4%):
Wealth Australia increased $23 million (2%) driven by increased
capital investment earnings largely due to the recovery from the
impacts of the Global Financial Crisis. This was partially off set by a
reduction in funds management net income due to a combination
of margin squeeze and lower average funds under management.
New Zealand Wealth increased $18 million (14%) mainly driven by
an increase in insurance income from OnePath New Zealand.
Other income increased $25 million (5%) largely in Asia Pacifi c,
Europe & America (up $41 million) due to Retail & Wealth Asia
growing $25 million and our Partnerships business increasing
$16 million (4%). Retail & Wealth Asia increased $25 million mainly
due to a $19 million gain on sale of the Taiwan credit card portfolio.
The Partnerships business increased $16 million (4%) driven mainly
by equity accounted earnings increasing $88 million due to higher
earnings in Shanghai Rural Commercial Bank (SRCB) off set in part
by lower earnings in Bank of Tianjin (BoT) and Saigon Securities
Inc (SSI). This was further off set by the $35 million write-down of
the investment in Sacombank in 2011 principally due to a decline
in the Vietnamese currency compared to a separate $25 million
gain in 2010 reversing an earlier writedown of the investment in
SSI. Other impacts include a $19 million gain on sale of 20 Martin
Place in Sydney. This was partly off set by: a reduction of $14 million
(17%) in E*Trade driven mainly by lower brokerage income and
impairment of an investment in associate, a decrease of $9 million
(48%) in New Zealand mainly due to the de-consolidation of a
previously owned controlled entity, and a decline of $8 million in
Global Loans.
Global Markets income is aff ected by mix impacts between the
categories within other operating income and net interest income.
Global Markets income decreased $189 million or 11%. Trading and
balance sheet income within Global Markets businesses fell 36%
refl ecting the impact of a number of signifi cant global events that
have aff ected the stability of fi nancial markets. Despite the diffi cult
trading conditions Global Markets continues to diversify the product
and geographic mix of its revenue streams and client base. Markets
sales were up 22% and foreign exchange revenues increased 3% with
foreign exchange sales revenues now representing 52% of Global
Markets sales revenues (2010: 48%).
68
ANZ Annual Report 2011
Provision for Credit Impairment
Total credit impairment charge relating to lending assets,
commitments and debt securities classifi ed as available-for-sale
assets decreased by $550 million from September 2010 to
$1,237 million. The pro forma credit impairment charge decreased
by $634 million, driven by lower individual provision charges (down
$652 million) and partly off set by higher collective provision charges
(up $2 million). This refl ected a slowing in large single name
provisions, a stabilising loan portfolio and growth in low risk assets.
The pro forma individual provision charge decreased $652 million
over the year, due mainly to reductions in Institutional. The decrease
in Institutional of $589 million refl ects improved portfolio quality,
recoveries and a reduction in new impaired assets. The decreases
in New Zealand and Asia Pacifi c, Europe & America of $93 million
and $54 million respectively refl ect slowly improving economies in
New Zealand and Asia. Australia saw a $75 million increase refl ecting
the impact of the natural disasters, and weakness in the rural sector.
The pro forma collective provision charge increased by $2 million
during the year with increases in Australia, Institutional and Group
Centre off set by decreases in New Zealand and Asia Pacifi c, Europe
& America. The $38 million increase in Australia is primarily driven by
growth and an upward trend in delinquencies in the retail portfolio,
fl oods and writebacks in the prior year. The Asia Pacifi c, Europe &
America decrease refl ects underlying credit improvement off set
partially by growth driven by Asia. The Institutional division increase
of $89 million is mainly driven by growth in Global Loans. The
New Zealand reduction was driven by releases to the economic
cycle adjustment as a result of the earthquake impacted exposures
migrating to impaired, coupled with some improvement in credit
quality. Part of the fl ood provision release was used to fund an
additional central economic cycle adjustment of $40 million due
to ongoing global uncertainty.
Review of Operations
69
REVIEW OF OPERATIONS (continued)
Balance Sheet Summary
Assets
Liquid assets
Due from other fi nancial institutions
Trading and available-for-sale assets
Derivative fi nancial instruments
Net loans and advances including acceptances
Investments relating to insurance business
Other
Total Assets
Liabilities
Due to other fi nancial institutions
Customer deposits
Other deposits and other borrowings
Deposits and other borrowings
Derivative fi nancial instruments
Liability for acceptances
Bonds and notes
Insurance policy liabilities/external unitholder liabilities
Other
Total liabilities
Total equity
The Group’s balance sheet continued to strengthen during 2011
with increased capital ratios, a higher level of liquidity, an increased
proportion of funding from customer deposits and a reduction in
the proportion of impaired assets to gross loans and advances.
The Group’s Common Equity Tier-1 ratio increased 47 basis points
to 8.5% and the Tier 1 ratio increased 84 basis points to 10.9% well
above regulatory minima and suffi cient to comply with APRA’s
proposed implementation of Basel III capital reforms in Australia
at January 2013.
The level of prime and supplementary liquid asset holdings increased
from September 2010 by $16.5 billion to $91.3 billion at September
2011, suffi cient to cover the maturities of all short and long term
off shore wholesale debt securities.
During the year to September 2011 the total increase in customer
funding was $42.2 billion. The proportion of customer funding is now
61%, an increase of 3% from September 2010.
Gross impaired assets decreased 15% to $5.6 billion largely refl ecting
a 23% decreased in impaired loans. Net impaired assets as a % of net
advances decreased from 1.27% in 2010 to 0.98% in 2011.
Asset growth of $62.8 billion (12%) is principally driven by:
Net loans and advances including acceptances increased
$33.9 billion (9%) primarily driven by above system Australian
housing lending growth of $10.9 billion (7%) and Asia Pacifi c,
Europe & America growth of $11.7 billion (43%) across all
business lines.
Derivative fi nancial instruments increased $16.3 billion (43%)
mainly attributable to a depreciation in the Australian Dollar
against other currencies late in the second half of 2011 and
volatility in the foreign exchange and interest rate markets.
70
ANZ Annual Report 2011
2011
$m
2010
$m
24,899
8,824
58,338
54,118
397,307
29,859
21,143
594,488
23,012
296,754
71,975
368,729
50,088
970
56,551
32,536
24,648
556,534
37,954
18,945
5,481
54,257
37,821
363,392
32,171
19,636
531,703
21,610
256,875
53,508
310,383
37,217
11,495
59,714
34,429
22,700
497,548
34,155
Movt
31%
61%
8%
43%
9%
-7%
8%
12%
6%
16%
35%
19%
35%
-92%
-5%
-5%
9%
12%
11%
Trading & available-for-sale assets increased $4.1 billion (8%)
including a $6.0 billion reduction due to ANZ bill acceptances
no longer being rediscounted and classifi ed as trading securities.
Excluding this, the increase was $10.1 billion mainly driven by an
increase of $5.9 billion in investment in government securities
by Singapore and New Zealand and an increase of $4.1 billion in
Institutional Australia mainly due to increased commodity holdings
and government securities.
Liabilities growth of $59.0 billion (12%) is principally driven by:
Deposits and other borrowings increased $58.3 billion (19%)
due to growth in customer deposits of $39.9 billion (16%) in
Retail, Commercial and Institutional in Australia of $18.9 billion
(12%) as consumers and corporates deleverage and growth in
Asia Pacifi c, Europe & America of $18.2 billion (39%) driven by strong
momentum across the region. Other deposits and borrowings
increased $18.5 billion (35%) mainly due to an increase in certifi cate
of deposits issued in Australia following a switch in products used
for funding purposes from liability for acceptances to certifi cates
of deposits.
Australia
Income statement ($m)
Net interest income
Other external operating income
Operating income
Operating expenses
Profi t before credit impairment and income tax
Provision for credit impairment
Profi t before income tax
Income tax expense
Non-controlling interests
Profi t
Number of employees
Pro forma1
Underlying2
2011
5,821
2,358
8,179
(3,506)
4,673
(711)
3,962
(1,185)
–
2,777
2010
5,426
2,366
7,792
(3,361)
4,431
(598)
3,833
(1,116)
–
2,717
Movt
7%
0%
5%
4%
5%
19%
3%
6%
n/a
2%
2011
5,821
2,358
8,179
(3,506)
4,673
(711)
3,962
(1,185)
–
2,777
2010
5,384
2,222
7,606
(3,256)
4,350
(583)
3,767
(1,093)
–
2,674
17,768
17,348
Movt
8%
6%
8%
8%
7%
22%
5%
8%
n/a
4%
2%
1 These results have been presented on a pro forma, foreign exchange adjusted basis. For more information on the presentation of this information on this basis, refer to page 65.
2 Adjusted for non-core items that are not part of the normal ongoing operations of the Group including one-off gains and losses, gains and losses on the sale of businesses, non-continuing
businesses, timing differences on economic hedges, and acquisition related costs. Refer to page 66.
On a pro forma basis profi t increased 2%, with profi t before credit
impairment and income tax up 5%.
Operating expenses were up 4% largely due to infl ationary impacts,
annual salary increases, higher FTE levels and project related spend.
Net interest income increased 7% driven by strong growth in
both average deposits of 12% and average net loans and advances
including acceptances of 9%. Net interest margin decreased
2 basis points.
Growth in average net loans and advances was driven by above
system growth in Mortgages combined with double digit growth
in both the Business Banking and Small Business Banking portfolios.
Deposit growth was very strong, with solid contributions from both
the Retail and Commercial deposit portfolios.
Net interest margin declined 2 bps in the year as continued
competitive pricing on deposits and the impact of a shift in deposit
product mix towards higher priced term deposits and on-line
accounts more than off set any benefi t from asset repricing.
Other external operating income was fl at as the adverse impact of
removing exception fees and deferred establishment fees in Retail
was largely off set by volume driven increases.
Provision for credit impairment increased 19% in the year. South East
Queensland in particular struggled due to higher than national
average unemployment combined with adverse tourism impacts
from the strong Australian Dollar and the fl oods earlier in the year.
The individual provision increased 16% refl ecting the stress on
customers as a consequence of the deteriorating economic
conditions. The year on year increase of $38 million in the collective
provision charge was driven mainly by raising a fl ood provision in the
March 2011 half combined with volume growth, marginally off set by
some improvements in credit quality. Net impaired assets increased
from 0.26% to 0.29% of net advances.
Review of Operations
71
REVIEW OF OPERATIONS (continued)
Asia Pacifi c, Europe and America
Income statement ($m)
Net interest income
Other external operating income
Operating income
Operating expenses
Profi t before credit impairment and income tax
Provision for credit impairment
Profi t before income tax
Income tax expense
Non-controlling interests
Profi t
Number of employees
Pro forma1
Underlying2
2011
1,130
1,364
2,494
(1,488)
1,006
(110)
896
(166)
(9)
721
2010
1,010
1,103
2,113
(1,224)
889
(177)
712
(83)
(6)
623
Movt
12%
24%
18%
22%
13%
-38%
26%
100%
50%
16%
2011
1,130
1,364
2,494
(1,488)
1,006
(110)
896
(166)
(9)
721
2010
971
1,097
2,068
(1,142)
926
(154)
772
(90)
(6)
676
Movt
16%
24%
21%
30%
9%
-29%
16%
84%
50%
7%
10,650
10,332
3%
1 These results have been presented on a pro forma basis. For more information on the presentation of this information on this basis, refer to page 65.
2 Adjusted for non-core items that are not part of the normal ongoing operations of the Group including one-off gains and losses, gains and losses on the sale of businesses, non-continuing
businesses, timing differences on economic hedges, and acquisition related costs. Refer to page 66.
Provision charges for credit impairment decreased 38%. Individual
provision charges were 37% lower in 2011 due to higher recoveries
achieved mainly in the Retail businesses in Asia (in particular,
Taiwan). Collective provision charges were lower due to the upgrade
of a few large Institutional customers and the release arising from
active de-risking of the previously RBS-owned portfolios.
Net loans and advances increased 43% and customer deposits 39%
due to increases in Transaction Banking and Global Loans.
On a pro forma basis, profi t grew 16% with solid profi t growth by
both the Retail and Institutional businesses despite lower Global
Markets trading income in the September 2011 half. We completed
the acquisitions of the RBS businesses in the Philippines, Vietnam
and Hong Kong during the fi rst half of 2010. Asia Partnerships’ profi t
contribution held steady despite the impairment charge relating to
the carrying value of our investment in Saigon Thuong Tin Commercial
Joint-Stock Bank (Sacombank) in the fi rst half of 2011 and the
positive impact of the reversal of the Saigon Securities Incorporation
impairment charge in 2010.
Key factors aff ecting the result were:
Solid balance sheet growth contributed to net interest income
increasing 12% compared with 2010.
Other external operating income grew 24% primarily from higher
fees and other income by Global Markets, the gain from the sale of
credit cards loan portfolios in Taiwan, and increased earnings from
Asia Partnerships.
The 22% increase in operating expenses resulted from the
build-up of regional revenue generating staff and support
capabilities. Employees increased by 318 during 2011.
72
ANZ Annual Report 2011
Institutional
Income statement ($m)
Net interest income
Other external operating income
Operating income
Operating expenses
Profi t before credit impairment and income tax
Provision for credit impairment
Profi t before income tax
Income tax expense
Non-controlling interests
Profi t
Number of employees
Pro forma1
Underlying2
2011
3,092
1,814
4,906
(2,001)
2,905
(258)
2,647
(750)
(2)
1,895
2010
3,178
1,684
4,862
(1,717)
3,145
(742)
2,403
(670)
–
1,733
Movt
-3%
8%
1%
17%
-8%
-65%
10%
12%
n/a
9%
2011
3,092
1,814
4,906
(2,001)
2,905
(258)
2,647
(750)
(2)
1,895
2010
3,226
1,721
4,947
(1,748)
3,199
(741)
2,458
(680)
–
1,778
Movt
-4%
5%
-1%
14%
-9%
-65%
8%
10%
n/a
7%
6,448
6,180
4%
1 These results have been presented on a pro forma, foreign exchange adjusted basis. For more information on the presentation of this information on this basis, refer to page 65.
2 Adjusted for non-core items that are not part of the normal ongoing operations of the Group including one-off gains and losses, gains and losses on the sale of businesses, non-continuing
businesses, timing differences on economic hedges, and acquisition related costs. Refer to page 66.
Net interest margin (excluding Global Markets) was down 8 basis
points, partially due to a one-off interest write back in 2010 which
increased prior year net interest margin by 3 basis points as well as the
geographic mix eff ect with signifi cant increase in volumes in the lower
spread Asia region. Net loans and advances were up $12.4 billion, 16%,
with APEA growth of $10.5 billion (49%). Australian lending increased
$2.6 billion (5%) and the margins on our lending portfolios in Australia
and New Zealand were held relatively steady following repricing
completed in 2010.
Expenses increased 17% mainly due to the run rate impact of
investments made in building out APEA capabilities in the prior year
and in cash platforms to support the super regional strategy.
Credit impairment expense was down 65% refl ecting the improvement
in the quality of the book as well as the credit cycle.
Institutional’s goal is to build the best bank in the world for clients who
are dependent on trade and capital fl ows across the region, particularly
those in the natural resources, agribusiness and infrastructure sectors.
Aligned to this strategic ambition, our priority products are trade, cash
management, foreign exchange and commodities and capital markets.
Pro forma profi t increased 9%, a solid performance in diffi cult market
conditions, with the changing geographic distribution of profi t
refl ecting our super regional strategy. While overall pro forma global
revenue increased 1%, customer revenues were up 10% to $4.3
billion, but this was off set by lower trading and balance sheet
revenues which were down 36% refl ecting the diffi cult market
conditions. Customer revenues in our priority sectors of resources,
agribusiness and infrastructure grew around 18%. Over 1,300 new
relationships were acquired during the year.
APEA revenues grew 30% and represent 26% of global revenues
(2010: 20%). Partially off setting APEA revenue growth was a 7%
contraction in Australia, where trading conditions were particularly
diffi cult in the second half. Despite challenging economic conditions,
New Zealand performed well with revenue up 2% on 2010.
Within our priority product segments, Payments and Cash Management
(“PCM”) revenues grew 13% on the back of investment in our
“Transactive” cash management platforms. Customer deposits in PCM
were up 27% with particularly strong growth in Asia, up 68%. Trade
revenues were up 29% with 58% growth in Asia. Markets sales were
up 13% and foreign exchange (FX) revenues increased 22% with FX
sales revenues now representing 52% of total Global Markets sales
revenues (2010: 48%).
Review of Operations
73
REVIEW OF OPERATIONS (continued)
New Zealand
Income statement ($m)
Net interest income
Other external operating income
Operating income
Operating expenses
Profi t before credit impairment and income tax
Provision for credit impairment
Profi t before income tax
Income tax expense
Non-controlling interests
Profi t
Number of employees
Pro forma1
Underlying2
2011
1,693
466
2,159
(1,015)
1,144
(166)
978
(286)
–
692
2010
1,579
472
2,051
(1,035)
1,016
(395)
621
(172)
–
449
Movt
7%
-1%
5%
-2%
13%
-58%
57%
66%
n/a
54%
2011
1,693
466
2,159
(1,015)
1,144
(166)
978
(286)
–
692
2010
1,635
474
2,109
(1,057)
1,052
(409)
643
(180)
–
463
Movt
4%
-2%
2%
-4%
9%
-59%
52%
59%
n/a
49%
8,884
9,073
-2%
1 These results have been presented on a pro forma, foreign exchange adjusted basis. For more information on the presentation of this information on this basis, refer to page 65.
2 Adjusted for non-core items that are not part of the normal ongoing operations of the Group including one-off gains and losses, gains and losses on the sale of businesses, non-continuing
businesses, timing differences on economic hedges, and acquisition related costs. Refer to page 66.
Financial performance in the 2011 year was strongly ahead of that
in 2010, driven by a clear focus on simplifying the business, margin
management and lower credit provisioning, although the lack of
credit growth had a moderating impact.
On a pro forma basis, profi t for the 2011 year increased 54%, with the
result including a $229 million decrease in credit impairment charge.
Profi t before credit impairment and income tax increased 13%, driven
by revenue growth and supported by strong management of costs.
Our customer value proposition in New Zealand continues to be strong
across the businesses, with the Simplifi cation Program contributing
to a signifi cant uplift in Retail customer satisfaction during the year,
culminating in ANZ being awarded the Sunday Star-Times Canstar
Cannex Bank of the Year Award, with The National Bank second.
Key components of the pro forma result were:
Net interest income increased 7%. This growth refl ected the margin
benefi t from repricing of the fi xed rate lending book, and mix
benefi t from an increased proportion of variable rate lending
in the mortgage portfolio. Deposit margins, however, were reduced
in the competitive environment. Lending volumes increased 1%
and customer deposits increased 7%, both largely market-driven.
Other external operating income declined 1%, refl ecting lower
Retail fees driven by a full year’s impact from the fee restructure
implemented during 2010. This was partly off set by increased
income in Wealth from growth in the OnePath insurance and
KiwiSaver businesses, and increased investment funds under
management in Private Banking.
Operating expenses decreased 2%, refl ecting productivity
gains from simplifying the business, which more than off set
infl ationary impacts.
Provision for credit impairment charge decreased $229 million.
The individual provision charge was cyclically lower, down $93 million
on last year. The collective provision charge decreased $136 million,
largely refl ecting credit cycle adjustments booked in the 2010 year,
with part releases in 2011. The total loss rate (total provision charge
as a percentage of average net advances) for the 2011 year was
0.25%, down from 0.59% for the 2010 year.
74
ANZ Annual Report 2011
Group Centre
Income statement ($m)
Net interest income
Other external operating income
Operating income
Operating expenses
Profi t before credit impairment and income tax
Provision for credit impairment
Profi t before income tax
Income tax expense
Non-controlling interests
Profi t
Number of employees
Pro forma1
Underlying2
2011
381
(35)
346
(388)
(42)
(40)
(82)
46
–
(36)
2010
219
(48)
171
(302)
(131)
(10)
(141)
(23)
–
(164)
Movt
74%
-27%
large
28%
-68%
large
-42%
large
n/a
-78%
2011
381
(35)
346
(388)
(42)
(40)
(82)
46
–
(36)
2010
223
(87)
136
(302)
(166)
(10)
(176)
(11)
–
(187)
Movt
71%
-60%
large
28%
-75%
large
-53%
large
n/a
-81%
6,689
5,557
20%
1 These results have been presented on a pro forma, foreign exchange adjusted basis. For more information on the presentation of this information on this basis, refer to page 65.
2 Adjusted for non-core items that are not part of the normal ongoing operations of the Group including one-off gains and losses, gains and losses on the sale of businesses, non-continuing
businesses, timing differences on economic hedges, and acquisition related costs. Refer to page 66.
The pro forma loss of $36 million improved $128 million compared
to a loss of $164 million for the September 2010 full year largely
as a result of earnings on higher surplus capital. Signifi cant factors
infl uencing the result were:
Operating income improved $175 million largely due to higher
earnings on central capital combined with a lower funding cost
associated with lower debit tax balances, and profi t recognised on
the sale of the Martin Place headquarters in Sydney of $19 million.
There were off setting variances between net interest and other
income as a result of elimination entries associated with the
consolidation of OnePath Australia.
Operating expenses increased $86 million largely as a result of
increased project related technology expenditure and increased
investment in our Chengdu and Manila hubs.
Provision for credit impairment increased $30 million with $40 million
of fl ood provisions transferred to the Group Centre to provide for
emerging issues resulting from the global uncertainty.
Review of Operations
75
Principal Risks and Uncertainties
Associated with ANZ
Should the diffi cult economic conditions of these countries persist
or worsen, asset values in the housing, commercial or rural property
markets could decline, unemployment could rise and corporate and
personal incomes could suff er. Also, deterioration in global markets,
including equity, property and other asset markets, could impact
the Group’s customers and the security the Group holds against loans
and other credit exposures, which may impact its ability to recover
some loans and other credit exposures.
All or any of these negative economic and business impacts could
cause a reduction in demand for the Group’s products and services
and/or an increase in loan and other credit defaults and bad debts,
which could adversely aff ect the Group’s business, operations and
fi nancial condition.
The Group’s fi nancial performance could also be adversely aff ected
if it were unable to adapt cost structures, products, pricing or
activities in response to a drop in demand or lower than expected
revenues. Similarly, higher than expected costs (including credit
costs) could be incurred because of adverse changes in the economy,
general business conditions or the operating environment in the
countries in which it operates.
Other economic and fi nancial factors or events which may adversely
aff ect the Group’s performance and results, include, but are not
limited to, the level of and volatility in foreign exchange rates and
interest rates, changes in infl ation and money supply, fl uctuations
in both debt and equity capital markets, declining commodity prices
due to, for example, reduced demand in Asia, and decreasing
consumer and business confi dence.
Geopolitical instability, such as threats of, potential for, or actual
confl ict, occurring around the world, such as the ongoing confl icts
in the Middle East, may also adversely aff ect global fi nancial markets,
general economic and business conditions and the Group’s ability to
continue operating or trading in a country, which in turn may adversely
aff ect the Group’s business, operations and fi nancial condition.
Natural disasters such as (but not restricted to) cyclones, fl oods and
earthquakes, and the economic and fi nancial market implications
of such disasters on domestic and global conditions can adversely
impact the Group’s ability to continue operating or trading in the
country or countries directly or indirectly aff ected, which in turn
may adversely aff ect the Group’s business, operations and fi nancial
condition. For more specifi c risks in relation to earthquakes and
the recent Christchurch earthquake, see the risk factor entitled
‘The Group may be exposed to the impact of future climate change,
geological events, plant and animal diseases, and other extrinsic
events which may adversely aff ect its business, operations and
fi nancial condition’.
1. Introduction
The Group’s activities are subject to risks that can adversely impact
its business, operations and fi nancial condition. The risks and
uncertainties described below are not the only ones that the Group
may face. Additional risks and uncertainties that the Group is unaware
of, or that the Group currently deems to be immaterial, may also
become important factors that aff ect it. If any of the listed or unlisted
risks actually occur, the Group’s business, operations, fi nancial
condition, or reputation could be materially adversely aff ected, with
the result that the trading price of the Group’s equity or debt securities
could decline, and investors could lose all or part of their investment.
2. Changes in general business and economic
conditions, including disruption in regional or global
credit and capital markets, may adversely aff ect the
Group’s business, operations and fi nancial condition.
The Group’s fi nancial performance is primarily infl uenced by the
economic conditions and the level of business activity in the major
countries and regions in which it operates or trades, i.e. Australia,
New Zealand, the Asia Pacifi c region, Europe and the United States
of America. The Group’s business, operations, and fi nancial condition
can be negatively aff ected by changes to these economic and
business conditions.
The economic and business conditions that prevail in the Group’s
major operating and trading markets are aff ected by domestic and
international economic events, political events, natural disasters and
by movements and events that occur in global fi nancial markets.
The global fi nancial crisis (GFC) in 2008 and 2009 saw a sudden
and prolonged dislocation in credit and equity capital markets, a
contraction in global economic activity and the creation of many
challenges for fi nancial services institutions worldwide that still
persist in many regions. More recently, sovereign risk (particularly
in Europe) and its potential impact on fi nancial institutions in
Europe and globally has emerged as a signifi cant risk to the recovery
prospects of the global economy. The impact of the GFC and its
results (such as heightened sovereign risk) continues to aff ect global
economic activity and capital markets.
The economic eff ects of the GFC have been widespread and far-
reaching with unfavourable impacts on retail sales, personal and
business credit growth, housing credit, and business and consumer
confi dence. While some of these economic factors have since
improved, ongoing and lasting impacts from the GFC and subsequent
volatility in fi nancial markets and the more recent sovereign debt
crisis in Europe (and potential contagion from it) suggest ongoing
vulnerability and adjustment in these and other areas of consumer
and business behaviour.
The New Zealand economy is also vulnerable to more volatile
markets and deteriorating funding conditions. Economic conditions
in Australia, New Zealand, and some Asia Pacifi c countries remain
diffi cult, albeit less so than in many European countries and in the
United States of America (US).
76
ANZ Annual Report 2011
3. Changes in exchange rates may adversely aff ect the
Group’s business, operations and fi nancial condition
The recent appreciation in the Australian and New Zealand dollars
relative to other currencies has adversely aff ected, and could continue
to have an adverse eff ect on, certain portions of the Australian and
New Zealand economies, including agricultural exports, international
tourism, manufacturers, and import-competing producers. Similarly,
a depreciation in the Australian or New Zealand dollars relative to
other currencies would increase debt service obligations in Australia
or New Zealand dollar terms of unhedged exposures. Appreciation
of the Australian dollar against the New Zealand dollar, United States
dollar and other currencies has had a negative translation eff ect,
and future appreciation could have a greater negative impact, on the
Group’s results from its other non-Australian businesses, particularly
its New Zealand and Asian businesses which are largely based on
non-Australian dollar currencies. The Group has put in place hedges
to partially mitigate the impact of currency appreciation, but
notwithstanding this, any appreciation could have an adverse impact
upon the Group’s earnings.
4. Competition may adversely aff ect the Group’s
business, operations and fi nancial condition, especially
in Australia, New Zealand and the Asian markets in which
it operates
The markets in which the Group operates are highly competitive and
could become even more so, particularly in those segments that are
considered to provide higher growth prospects or are in greatest
demand, (for example, customer deposits). Factors that contribute to
competition risk include industry regulation, mergers and acquisitions,
changes in customers’ needs and preferences, entry of new participants,
development of new distribution and service methods, increased
diversifi cation of products by competitors, and regulatory changes in
the rules governing the operations of banks and non-bank competitors.
For example, changes in the fi nancial services sector in Australia and
New Zealand have made it possible for non-banks to off er products and
services traditionally provided by banks, such as automatic payment
systems, mortgages, and credit cards. In addition, banks organised in
jurisdictions outside Australia and New Zealand are subject to diff erent
levels of regulation and consequently some may have lower cost
structures. Increasing competition for customers could also potentially
lead to a compression in the Group’s net interest margins, or increased
advertising and related expenses to attract and retain customers.
Additionally, the Australian Government announced in late 2010 a
set of measures with the stated purpose of promoting a competitive
and sustainable banking system in Australia. Any regulatory or
behavioural change that occurs in response to this policy shift could
have the eff ect of limiting or reducing the Group’s revenue earned
from its banking products or operations. These regulatory changes
could also result in higher operating costs. A reduction or limitation
in revenue or an increase in operating costs could adversely aff ect
the Group’s profi tability.
The eff ect of competitive market conditions, especially in the Group’s
main markets, may lead to erosion in the Group’s market share or
margins, and adversely aff ect the Group’s business, operations, and
fi nancial condition.
5. Changes in monetary policies may adversely aff ect
the Group’s business, operations and fi nancial condition
Central monetary authorities (including the Reserve Bank of Australia
(RBA), the Reserve Bank of New Zealand (RBNZ), the US Federal
Reserve and the monetary authorities in Asian jurisdictions in which
we carry on business) set offi cial interest rates so as to aff ect the
demand for money and credit in their relevant jurisdictions. Their
policies can signifi cantly aff ect the Group’s cost of funds for lending
and investing and the return that the Group will earn on those loans
and investments. Both these factors impact the Group’s net interest
margin and can aff ect the value of fi nancial instruments it holds, such
as debt securities and hedging instruments. The policies of central
monetary authorities can also aff ect the Group’s borrowers,
potentially increasing the risk that they may fail to repay loans.
Changes in such policies are diffi cult to predict accurately.
6. Sovereign risk may destabilise global fi nancial markets
adversely aff ecting all participants, including the Group
Sovereign risk or the risk that foreign governments will default on
their debt obligations, increase borrowings as and when required
or be unable to refi nance their debts as they fall due, has emerged
as a risk to the recovery prospects of global economies. This risk is
particularly relevant to a number of European countries though it is
not limited to these places (and includes the United States). Should
one sovereign default, there could be a cascading eff ect to other
markets and countries, the consequences of which, while diffi cult
to predict, may be similar to or worse than that currently being
experienced or which was experienced during the GFC. Such an
event could destabilise global fi nancial markets adversely aff ecting
all participants, including the Group.
7. The withdrawal of the Australian Government
Guarantee Scheme for large deposits and wholesale
funding and the New Zealand Government Wholesale
Funding Guarantee Scheme may adversely impact the
Group’s access to funding and liquidity
In response to the GFC, a number of government-sponsored fi nancial
stabilisation packages (including guarantees of certain bank obligations)
were introduced around the world, including in Australia and New
Zealand. International capital markets and liquidity conditions improved
following the GFC and banks were able to raise non-government
guaranteed funds. Many such government-sponsored fi nancial
stabilisation packages were withdrawn or phased out, including in
Australia and New Zealand in relation to wholesale funding. More
recently, heightened sovereign risk and subsequent volatility in fi nancial
markets has re-emerged. There is no certainty that fi nancial conditions
will improve or that government-sponsored fi nancial stabilisation
packages would be re-introduced if conditions deteriorated.
Principal Risks and Uncertainties
77
PRINCIPAL RISKS AND UNCERTAINTIES (continued)
The absence of government-sponsored fi nancial stabilisation schemes
may result in stress on the global fi nancial system or regional fi nancial
systems, which could adversely impact the Group and its customers
and counterparties. Specifi cally, it could adversely aff ect the Group’s
ability to access sources of funding and lead to a decrease in the
Group’s liquidity position and increase in its funding costs, negatively
aff ecting Group’s business, operations and fi nancial condition.
8. The Group is exposed to liquidity and funding risk,
which may adversely aff ect its business, operations and
fi nancial condition
Liquidity risk is the risk that the Group is unable to meet its payment
obligations as they fall due, including repaying depositors or
maturing wholesale debt, or that the Group has insuffi cient capacity
to fund increases in assets. Liquidity risk is inherent in all banking
operations due to the timing mismatch between cash infl ows and
cash outfl ows.
Reduced liquidity could lead to an increase in the cost of the Group’s
borrowings and possibly constrain the volume of new lending, which
could adversely aff ect the Group’s profi tability. A signifi cant
deterioration in investor confi dence in the Group could materially
impact the Group’s cost of borrowing, and the Group’s ongoing
operations and funding.
The Group raises funding from a variety of sources including
customer deposits and wholesale funding in Australia and off shore
markets to ensure that it continues to meet its funding obligations
and to maintain or grow its business generally. The composition
of the Group’s funding is described in the section headed ‘Funding
composition’ on page 163 of this report. In times of systemic liquidity
stress, in the event of damage to market confi dence in the Group or
in the event that funding inside or outside Australia is not available or
constrained, the Group’s ability to access sources of funding and
liquidity may be constrained and it will be exposed to liquidity risk.
In any such cases, ANZ may be forced to seek alternative funding.
The availability of such alternative funding, and the terms on which
it may be available, will depend upon a variety of factors, including
prevailing market conditions and ANZ’s credit ratings. Even if
available, the cost of these alternatives may be more expensive or
on unfavourable terms.
Since the GFC, developments in the US mortgage industry and in the
US and European markets more generally, including recent European
sovereign debt concerns and the downgrade by Standard & Poor’s of
the US government’s long-term debt rating on 5 August 2011 have
adversely aff ected the liquidity in global capital markets including
an increase in funding costs. Future deterioration in these market
conditions may limit the Group’s ability to replace maturing liabilities
and access funding in a timely and cost-eff ective manner necessary
to fund and grow its business.
9. The Group is exposed to the risk that its credit ratings
could change, which could adversely aff ect its ability to
raise capital and wholesale funding
ANZ’s credit ratings have a signifi cant impact on both its access to,
and cost of, capital and wholesale funding. Credit ratings are not a
recommendation by the relevant rating agency to invest in securities
off ered by ANZ. Credit ratings may be withdrawn, subject to
qualifi ers, revised, or suspended by the relevant credit rating agency
at any time and the methodologies by which they are determined
may be revised. A downgrade or potential downgrade of ANZ’s credit
rating may reduce access to capital and wholesale debt markets,
potentially leading to an increase in funding costs, as well as aff ecting
the willingness of counterparties to transact with it. In addition, the
ratings of individual securities (including, but not limited to, Tier 1
Capital and Tier 2 Capital securities) issued by ANZ (and banks
globally) could be impacted from time to time by changes in the
ratings methodologies used by rating agencies. Ratings agencies
may revise their methodologies in response to legal or regulatory
changes or other market developments.
10. The Group may experience challenges in managing
its capital base, which could give rise to greater volatility
in capital ratios
The Group’s capital base is critical to the management of its
businesses and access to funding. The Group is required by regulators
including, but not limited to, APRA, RBNZ, the UK Financial Services
Authority, US regulators and various Asia Pacifi c jurisdictions where
the Group has operations, to maintain adequate regulatory capital.
Under current regulatory requirements, risk-weighted assets and
expected loan losses increase as a counterparty’s risk grade worsens.
These additional regulatory capital requirements compound any
reduction in capital resulting from increased provisions for loan losses
and lower profi ts in times of stress. As a result, greater volatility in
capital ratios may arise and may require the Group to raise additional
capital. There can be no certainty that any additional capital required
would be available or could be raised on reasonable terms.
Global and domestic regulators have released proposals, including
the Basel III proposals, to strengthen, among other things, the
liquidity and capital requirements of banks, funds management
entities, and insurance entities. These proposals, together with any
risks arising from any regulatory changes, are described below in
the risk factor entitled ‘Regulatory changes or a failure to comply
with regulatory standards, law or policies may adversely aff ect the
Group’s business, operations or fi nancial condition’.
Further details about the capital management regime aff ecting
the Group are contained in note 31 to the 2011 fi nancial statements.
78
ANZ Annual Report 2011
11. The Group is exposed to credit risk, which may
adversely aff ect its business, operations and fi nancial
condition
As a fi nancial institution, the Group is exposed to the risks associated
with extending credit to other parties. Less favourable business or
economic conditions, whether generally or in a specifi c industry sector
or geographic region, or natural disasters, could cause customers or
counterparties to fail to meet their obligations in accordance with
agreed terms. For example, our customers and counterparties in the
natural resources sector could be adversely impacted in the event of a
prolonged slowdown in the Chinese economy. Also, our customers and
counterparties in the tourism and manufacturing industries may have
been adversely impacted by the recent appreciation of the Australian
dollar relative to other currencies. The Group holds provisions for credit
impairment. The amount of these provisions is determined by assessing
the extent of impairment inherent within the current lending portfolio,
based on current information. This process, which is critical to the
Group’s fi nancial condition and results, requires diffi cult, subjective and
complex judgments, including forecasts of how current and future
economic conditions might impair the ability of borrowers to repay
their loans. However, if the information upon which the assessment
is made proves to be inaccurate or if the Group fails to analyse the
information correctly, the provisions made for credit impairment
may be insuffi cient, which could have a material adverse eff ect
on the Group’s business, operations and fi nancial condition.
In addition, in assessing whether to extend credit or enter into other
transactions with customers, the Group relies on information provided
by or on behalf of customers, including fi nancial statements and other
fi nancial information. The Group may also rely on representations of
customers as to the accuracy and completeness of that information
and, with respect to fi nancial statements, on reports of independent
auditors. The Group’s fi nancial performance could be negatively
impacted to the extent that it relies on information that is inaccurate
or materially misleading.
12. An increase in the failure of third parties to
honour their commitments in connection with the
Group’s trading, lending, derivatives and other activities
may adversely aff ect its business, operations and
fi nancial condition
The Group is exposed to the potential risk of credit-related losses
that can occur as a result of a counterparty being unable or unwilling
to honour its contractual obligations. As with any fi nancial services
organisation, the Group assumes counterparty risk in connection
with its lending, trading, derivatives and other businesses where
it relies on the ability of a third party to satisfy its fi nancial obligations
to the Group on a timely basis. The Group is also subject to the
risk that its rights against third parties may not be enforceable in
certain circumstances.
Credit exposure may also be increased by a number of factors
including deterioration in the fi nancial condition of the counterparty,
the value of assets the Group holds as collateral, and the market value
of the counterparty instruments and obligations it holds. Credit losses
can and have resulted in fi nancial services organisations realising
signifi cant losses and in some cases failing, altogether. Should
material unexpected credit losses occur to the Group’s credit
exposures, it could have an adverse eff ect on the Group’s business,
operations and fi nancial condition.
13. Weakening of the real estate markets in Australia,
New Zealand or other markets where it does business
may adversely aff ect the Group’s business, operations
and fi nancial condition
Residential, commercial and rural property lending, together with
property fi nance, including real estate development and investment
property fi nance, constitute important businesses to the Group.
Overall, the property market has been variable. Whilst there has
been some moderation in Australian house prices, with the RP
Data-Rismark house price index declining by 3.9% over the 12 month
period ending August 2011, this has not had a material impact on
the Group’s business, operations and fi nancial condition.
A decrease in property valuations in Australia, New Zealand or other
markets where it does business could decrease the amount of new
lending the Group is able to write and/or increase the losses that
the Group may experience from existing loans, which, in either case,
could materially and adversely impact the Group’s fi nancial condition
and results of operations. A signifi cant slowdown in the Australian
and New Zealand housing markets or in other markets where the
Group does business could adversely aff ect the Group’s business,
operations and fi nancial conditions.
14. The Group is exposed to market risk which
may adversely aff ect its business, operations and
fi nancial condition
The Group is subject to market risk, which is the risk to the Group’s
earnings arising from changes in interest rates, foreign exchange
rates, credit spreads, equity prices and indices, prices of commodities,
debt securities and other fi nancial contracts, including derivatives.
Losses arising from these risks may have a material adverse eff ect
on the Group. As the Group conducts business in several diff erent
currencies, its businesses may be aff ected by a change in currency
exchange rates. Additionally, as the Group’s annual and interim
reports are prepared and stated in Australian dollars, any appreciation
in the Australian dollar against other currencies in which the Group
earns revenues (particularly to the New Zealand dollar and US dollar)
may adversely aff ect the reported earnings.
The profi tability of the Group’s funds management and insurance
businesses is also aff ected by changes in investment markets and
weaknesses in global securities markets due to credit, liquidity or
other problems.
Principal Risks and Uncertainties
79
PRINCIPAL RISKS AND UNCERTAINTIES (continued)
15. The Group is exposed to the risks associated with
credit intermediation and fi nancial guarantors which
may adversely aff ect its business, operations and
fi nancial condition
The Group entered into a series of structured credit intermediation
trades from 2004 to 2007. The Group sold protection using credit
default swaps over these structures and then, to mitigate risk,
purchased protection via credit default swaps over the same structures
from eight US fi nancial guarantors. The underlying structures involve
credit default swaps (CDSs) over synthetic collateralised debt
obligations (CDOs), portfolios of external collateralised loan
obligations (CLOs) or specifi c bonds/fl oating rate notes (FRNs).
Being derivatives, both the sold protection and purchased protection
are marked-to-market. Prior to the commencement of the GFC,
movements in valuations of these positions were not signifi cant and
the credit valuation adjustment (CVA) charge on the protection
bought from the non-collateralised fi nancial guarantors was minimal.
During and after the GFC, the market value of the structured
credit transactions increased and the fi nancial guarantors were
downgraded. The combined impact of this was to increase the
CVA charge on the purchased protection from fi nancial guarantors.
Volatility in the market value and hence CVA will continue to persist
given the volatility in credit spreads and US dollar and Australian
dollar rates.
16. The Group is exposed to operational risk, which
may adversely aff ect its business, operations and
fi nancial condition
Operational risk is the risk of loss resulting from inadequate or failed
internal processes, people and systems, or from external events.
Operational risk includes legal risk and the risk of reputational loss,
environmental damage, and health and safety risks, but excludes
strategic risk.
Loss from operational risk can include fi nes, penalties, loss or theft
of funds or assets, legal costs, customer compensation, loss of
shareholder value, reputational loss, loss of life or injury to people,
and loss of property and / or information.
All operational risks carry at least a fi nancial consequence. Examples
of operational risk that the Group is exposed to include the losses
arising from internal fraud, external fraud, acts that are inconsistent
with employment, health or safety laws or agreements, failure to
meet professional customer and legal obligations, disruption of
business or system failures, failure to execute a transaction correctly
including but not limited to internal restructures, inadequate process
management and from failure caused by third parties.
Direct or indirect losses that occur as a result of operational failures,
breakdowns, omissions or unplanned events could adversely aff ect
the Group’s fi nancial results.
80
ANZ Annual Report 2011
17. Disruption of information technology systems
or failure to successfully implement new technology
systems could signifi cantly interrupt the Group’s
business which may adversely aff ect its business,
operations and fi nancial condition
The Group is highly dependent on information systems and
technology and there is a risk that these, or the services the
Group uses or is dependent upon, might fail.
Most of the Group’s daily operations are computer-based and
information technology systems are essential to maintaining eff ective
communications with customers. The exposure to systems risks
includes the complete or partial failure of information technology
systems or data centre infrastructure, the inadequacy of internal
and third-party information technology systems due to, among
other things, failure to keep pace with industry developments and
the capacity of the existing systems to eff ectively accommodate
growth and integrate existing and future acquisitions and alliances.
To manage these risks, the Group has disaster recovery and
information technology governance in place. However, any failure of
these systems could result in business interruption, loss of customers,
fi nancial compensation, damage to reputation and/or a weakening
of the Group’s competitive position, which could adversely impact
the Group’s business and have a material adverse eff ect on the
Group’s fi nancial condition and operations.
In addition, the Group must update and implement new information
technology systems, in part to assist it to satisfy regulatory demands,
ensure information security, enhance computer-based banking
services for the Group’s customers and integrate the various
segments of its business. The Group may not implement these
projects eff ectively or execute them effi ciently, which could lead to
increased project costs, delays in the ability to comply with regulatory
requirements, failure of the Group’s information security controls
or a decrease in the Group’s ability to service its customers.
18. The Group is exposed to risks associated with
information security, which may adversely aff ect its
fi nancial results and reputation
Information security means protecting information and information
systems from unauthorised access, use, disclosure, disruption,
modifi cation, perusal, inspection, recording or destruction. As a bank,
the Group handles a considerable amount of personal and confi dential
information about its customers and its own internal operations.
The Group employs a team of information security subject matter
experts who are responsible for the development and implementation
of the Group’s Information Security Policy. The Group is conscious that
threats to information security are continuously evolving and as such
the Group conducts regular internal and external reviews to ensure
new threats are identifi ed, evolving risks are mitigated, policies and
procedures are updated, and good practice is maintained. However,
there is a risk that information may be inadvertently or inappropriately
accessed or distributed or illegally accessed or stolen. Any unauthorised
use of confi dential information could potentially result in breaches
of privacy laws, regulatory sanctions, legal action, and claims for
compensation or erosion to the Group’s competitive market
position, which could adversely aff ect the Group’s fi nancial position
and reputation.
19. The Group is exposed to reputation risk, which
may adversely impact its business, operations and
fi nancial condition
Reputation risk may arise as a result of an external event or the
Group’s own actions, and adversely aff ect perceptions about the
Group held by the public (including the Group’s customers),
shareholders, investors, regulators or rating agencies. The impact
of a risk event on the Group’s reputation may exceed any direct
cost of the risk event itself and may adversely impact the Group’s
business, operations and fi nancial condition. Accordingly, damage
to the Group’s reputation may have wide-ranging impacts, including
adverse eff ects on the Group’s profi tability, capacity and cost of
sourcing funding, and availability of new business opportunities.
20. The unexpected loss of key staff or inadequate
management of human resources may adversely aff ect
the Group’s business, operations and fi nancial condition
The Group’s ability to attract and retain suitably qualifi ed and skilled
employees is an important factor in achieving its strategic objectives.
The Chief Executive Offi cer and the management team of the Chief
Executive Offi cer have skills and reputations that are critical to setting
the strategic direction, successful management and growth of the
Group, and whose unexpected loss due to resignation, retirement,
death or illness may adversely aff ect its operations and fi nancial
condition. In addition, the Group may in the future have diffi culty
attracting highly qualifi ed people to fi ll important roles, which could
adversely aff ect its business, operations and fi nancial condition.
21. The Group may be exposed to the impact of future
climate change, geological events, plant and animal
diseases, and other extrinsic events which may adversely
aff ect its business, operations and fi nancial condition
Scientifi c observations and climate modelling point to changes
in the global climate system that may see extreme weather events
increase in both frequency and severity. Among the possible eff ects
of climate change are the risks of severe storms, drought, fi res,
cyclones, hurricanes, fl oods and rising sea levels. Such events, and
others like them, pose the risk of inundation and damage to Group
property, and the houses and commercial assets of the Group’s
customers. In some cases, this impact may temporarily interrupt
or restrict the provision of some Group services, and also adversely
aff ect the Group’s collateral position in relation to credit facilities
extended to those customers.
While the future impact of climate change is diffi cult to predict
accurately, it should nevertheless be considered among the risks that
may adversely impact the Group’s business, operations and fi nancial
condition in the future.
In addition to climatic events, geological events and events related to
them, such as volcanic or seismic activity, tsunamis, or other extrinsic
events, such as plant and animal diseases or a fl u pandemic, can also
severely disrupt normal business activity and have a negative eff ect
on the Group’s business, operations and fi nancial condition.
In New Zealand, a number of major earthquakes have impacted
the Christchurch area since September 2010, causing widespread
property and infrastructure damage, and deaths. Whilst much of the
damage was covered by public (Earthquake Commission) and private
insurance, there will potentially be negative impacts on property
values and on future levels of insurance and reinsurance coverage
across New Zealand. Subsequent earthquakes in Christchurch or in
other populated areas may further adversely impact property values
and the ability to obtain insurance on properties used by ANZ to
secure loans. A reduction in value of New Zealand property as a
result of geological events such as earthquakes could increase
lending losses which may adversely aff ect ANZ’s business, operations
and fi nancial condition.
22. Regulatory changes or a failure to comply with
regulatory standards, law or policies may adversely aff ect
the Group’s business, operations or fi nancial condition
The Group is subject to laws, regulations, policies and codes of practice
in Australia, New Zealand and in the other countries (including but
not limited to the United Kingdom, the United States of America,
Hong Kong, Singapore, Japan, China and other countries within the
Asia Pacifi c region) in which it has operations, trades or raises funds
or in respect of which it has some other connection. In particular, the
Group’s banking, funds management and insurance activities are subject
to extensive regulation, mainly relating to its liquidity levels, capital,
solvency, provisioning, and insurance policy terms and conditions.
Regulations vary from country to country but generally are designed
to protect depositors, insured parties, customers with other banking
products, and the banking and insurance system as a whole.
The Australian Government and its agencies, including APRA,
the RBA and other fi nancial industry regulatory bodies including
the Australian Securities and Investments Commission (ASIC), have
supervisory oversight of the Group. The New Zealand Government
and its agencies, including the RBNZ, the Financial Markets Authority
and the Commerce Commission, have supervisory oversight of the
Group’s operations in New Zealand. To the extent that the Group has
operations, trades or raises funds in, or has some other connection
with, countries other than Australia or New Zealand, then such
activities may be subject to the laws of, and regulation by agencies
in, those countries. Such regulatory agencies include, by way of
example, the US Federal Reserve Board, the US Department of
Treasury, the US Offi ce of the Comptroller of the Currency, the US
Offi ce of Foreign Assets Control, the UK’s Financial Services Authority,
the Monetary Authority of Singapore, the Hong Kong Monetary
Authority, the China Banking Regulatory Commission, the Kanto
Local Finance Bureau of Japan, and other fi nancial regulatory bodies
in those countries and in other relevant countries. In addition, the
Group’s expansion and growth in the Asia Pacifi c region gives rise
to a requirement to comply with a number of diff erent legal and
regulatory regimes across that region.
Principal Risks and Uncertainties
81
PRINCIPAL RISKS AND UNCERTAINTIES (continued)
A failure to comply with any standards, laws, regulations or policies
in any of those jurisdictions could result in sanctions by these or other
regulatory agencies, the exercise of any discretionary powers that the
regulators hold or compensatory action by aff ected persons, which
may in turn cause substantial damage to the Group’s reputation.
To the extent that these regulatory requirements limit the Group’s
operations or fl exibility, they could adversely impact the Group’s
profi tability and prospects.
These regulatory and other governmental agencies (including revenue
and tax authorities) frequently review banking and tax laws, regulations,
codes of practice and policies. Changes to laws, regulations, codes of
practice or policies, including changes in interpretation or implementation
of laws, regulations, codes of practice or policies, could aff ect the Group
in substantial and unpredictable ways. These may include increasing
required levels of bank liquidity and capital adequacy, limiting the types
of fi nancial services and products the Group can off er, and/or increasing
the ability of non-banks to off er competing fi nancial services or
products, as well as changes to accounting standards, taxation laws
and prudential regulatory requirements.
As a result of the GFC, regulators have proposed various amendments
to fi nancial regulation that will aff ect the Group. APRA, the Basel
Committee on Banking Supervision (the ‘Basel Committee’) and
regulators in other jurisdictions where the Group has a presence have
released discussion papers and proposals in regard to strengthening
the resilience of the banking and insurance sectors, including
proposals to strengthen capital and liquidity requirements for the
banking sector. In addition, the US passed into law the Dodd-Frank
Wall Street Reform and Consumer Protection Act which signifi cantly
aff ects fi nancial institutions and fi nancial activities in the US.
Uncertainty remains as to the fi nal form that the proposed regulatory
changes will take in Australia, the US and other countries in which
the Group operate and any such changes could adversely aff ect the
Group’s business, operations and fi nancial condition. The changes
may lead the Group to, among other things, change its business mix,
incur additional costs as a result of increased management attention,
raise additional amounts of higher-quality capital (such as ordinary
shares) and hold signifi cant levels of additional liquid assets and
undertake additional long-term wholesale funding to replace
short-term wholesale funding to more closely match the Group’s
asset maturity profi le.
23. Unexpected changes to the Group’s license to
operate in any jurisdiction may adversely aff ect its
business, operations and fi nancial condition
The Group is licensed to operate in the various countries, states and
territories in which it operates. Unexpected changes in the conditions
of the licenses to operate by governments, administrations or
regulatory agencies which prohibit or restrict the Group from trading
in a manner that was previously permitted may adversely impact the
Group’s fi nancial results.
24. The Group is exposed to insurance risk, which
may adversely aff ect its business, operations and
fi nancial condition
Insurance risk is the risk of loss due to unexpected changes in current
and future insurance claim rates. In life insurance business, insurance
risk arises primarily through mortality (death) and morbidity (illness
and injury) risks being greater than expected and, in the case of
annuity business, should annuitants live longer than expected.
For general insurance business, insurance risk arises mainly through
weather-related incidents (including fl oods and bushfi res) and other
calamities, such as earthquakes, tsunamis and volcanic activities,
as well as adverse variability in home, contents, motor, travel and
other insurance claim amounts. For further details on climate and
geological events see also the risk factor entitled ‘The Group may be
exposed to the impact of future climate change, geological and other
extrinsic events which may adversely aff ect its business, operations
and fi nancial condition’. The Group has exposure to insurance risk
in both life insurance and general insurance business, which may
adversely aff ect its business, operations and fi nancial condition.
25. The Group may experience reductions in the
valuation of some of its assets, resulting in fair value
adjustments that may have a material adverse eff ect
on its earnings
Under Australian Accounting Standards, the Group recognises
at fair value:
fi nancial instruments classifi ed as ‘held-for-trading’ or ‘designated
as at fair value through profi t or loss’;
fi nancial assets classifi ed as ‘available-for-sale’;
derivatives; and
fi nancial assets backing insurance and investment liabilities.
Generally, in order to establish the fair value of these instruments,
the Group relies on quoted market prices or, where the market for
a fi nancial instrument is not suffi ciently active, fair values are based
on present value estimates or other accepted valuation techniques.
In certain circumstances, the data for individual fi nancial instruments
or classes of fi nancial instruments used by such estimates or
techniques may not be available or may become unavailable due to
changes in market conditions. In these circumstances, the fair value
is determined using data derived and extrapolated from market data,
and tested against historic transactions and observed market trends.
The valuation models incorporate the impact of factors that would
infl uence the fair value determined by a market participant. Principal
inputs used in the determination of the fair value of fi nancial
instruments based on valuation techniques include data inputs such
as statistical data on delinquency rates, foreclosure rates, actual
losses, counterparty credit spreads, recovery rates, implied default
probabilities, credit index tranche prices and correlation curves. These
assumptions, judgments and estimates need to be updated to refl ect
changing trends and market conditions. The resulting change in the
fair values of the fi nancial instruments could have a material adverse
eff ect on the Group’s earnings.
82
ANZ Annual Report 2011
26. Changes to accounting policies may adversely aff ect
the Group’s business, operations and fi nancial condition
The accounting policies and methods that the Group applies are
fundamental to how it records and reports its fi nancial position
and results of operations. Management must exercise judgment
in selecting and applying many of these accounting policies and
methods so that they not only comply with generally accepted
accounting principles but they also refl ect the most appropriate
manner in which to record and report on the fi nancial position
and results of operations. However, these accounting policies may
be applied inaccurately, resulting in a misstatement of fi nancial
position and results of operations.
In some cases, management must select an accounting policy
or method from two or more alternatives, any of which might
comply with generally accepted accounting principles and be
reasonable under the circumstances, yet might result in reporting
materially diff erent outcomes than would have been reported under
another alternative.
27. The Group may be exposed to the risk of impairment
to capitalised software, goodwill and other intangible
assets that may adversely aff ect its business, operations
and fi nancial condition
In certain circumstances the Group may be exposed to a reduction
in the value of intangible assets. At reporting date, the Group carried
goodwill principally related to its investments in New Zealand and
Australia, intangible assets principally relating to assets recognised
on acquisition of subsidiaries, and capitalised software balances.
The Group is required to assess the recoverability of the goodwill
balances on at least an annual basis. For this purpose the Group uses
either a discounted cash fl ow or a multiple of earnings calculation.
Changes in the assumptions upon which the calculation is based,
together with expected changes in future cash fl ows, could materially
impact this assessment, resulting in the potential write-off of a part
or all of the goodwill balances.
Capitalised software and other intangible assets are assessed for
indicators of impairment at least annually. In the event that an asset
is no longer in use, or that the cash fl ows generated by the asset
do not support the carrying value, an impairment may be recorded,
adversely impacting the Group’s fi nancial condition.
28. Litigation and contingent liabilities may
adversely aff ect the Group’s business, operations
and fi nancial condition
From time to time, the Group may be subject to material litigation,
regulatory actions, legal or arbitration proceedings and other
contingent liabilities which, if they crystallise, may adversely aff ect
the Group’s results. Details regarding the Group’s material contingent
liabilities as at 30 September 2011 are contained in note 44 to the
2011 fi nancial statements. There is a risk that these contingent
liabilities may be larger than anticipated or that additional litigation
or other contingent liabilities may arise.
29. The Group regularly considers acquisition and
divestment opportunities, and there is a risk that the
Group may undertake an acquisition or divestment that
could result in a material adverse eff ect on its business,
operations and fi nancial condition
The Group regularly examines a range of corporate opportunities,
including material acquisitions and disposals, with a view to
determining whether those opportunities will enhance the Group’s
fi nancial performance and position. Any corporate opportunity that
is pursued could, for a variety of reasons, turn out to have a material
adverse eff ect on the Group.
The successful implementation of the Group’s corporate strategy,
including its strategy to expand in the Asia Pacifi c region, will depend
on a range of factors including potential funding strategies, and
challenges associated with integrating and adding value to acquired
businesses, as well as new regulatory, market and other risks associated
with increasing operations outside Australia and New Zealand.
There can be no assurance that any acquisition would have the
anticipated positive results, including results relating to the total
cost of integration, the time required to complete the integration,
the amount of longer-term cost savings, the overall performance of
the combined entity, or an improved price for the Group’s securities.
Integration of an acquired business can be complex and costly,
sometimes including combining relevant accounting and data
processing systems, and management controls, as well as managing
relevant relationships with employees, clients, suppliers and other
business partners. Integration eff orts could divert management
attention and resources, which could adversely aff ect the Group’s
operations or results. Additionally, there can be no assurance that
customers, counterparties and vendors of newly acquired businesses
will remain as such post-acquisition, and the loss of customers,
counterparties and vendors could adversely aff ect the Group’s
operations or results.
Acquisitions and disposals may also result in business disruptions
that cause the Group to lose customers or cause customers to remove
their business from the Group to competing fi nancial institutions.
It is possible that the integration process related to acquisitions
could result in the disruption of the Group’s ongoing businesses or
inconsistencies in standards, controls, procedures and policies that
could adversely aff ect the Group’s ability to maintain relationships
with clients, customers, depositors and employees. The loss of key
employees in connection with an acquisition or disposal could
adversely aff ect the Group’s ability to conduct its business successfully.
The Group’s operating performance, risk profi le or capital structure
may also be aff ected by these corporate opportunities and there is
a risk that any of the Group’s credit ratings may be placed on credit
watch or downgraded if these opportunities are pursued.
Principal Risks and Uncertainties
83
Five Year Summary
Financial performance1
Net interest income
Other operating income
Operating expenses
Profi t before income tax, credit impairment and non-core items1
Provision for credit impairment
Income tax expense
Non-controlling interest
Underlying profi t1
Adjustments between statutory profi t and underlying profi t1
Profi t attributable to shareholders of the Company
Financial position
Assets2
Net assets
Tier 1 capital ratio3
Return on average ordinary equity4
Return on average assets4
Cost to income ratio1
Shareholder value – ordinary shares
Total return to shareholders (share price movement plus dividends)
Market capitalisation
Dividend
Franked portion
– interim
– fi nal
Share price
– high
– low
– 30 September
Share information
(per fully paid ordinary share)
Earnings per share
Dividend payout ratio
Net tangible assets per ordinary share5
No. of fully paid ordinary shares issued (millions)
Dividend Reinvestment Plan (DRP) issue price
– interim
– fi nal
Other information
Points of representation6
No. of employees (full time equivalents)
No. of shareholders7
2011
$m
2010
$m
2009
$m
2008
$m
2007
$m
11,481
5,331
(7,718)
9,094
(1,211)
(2,222)
(9)
5,652
(297)
5,355
594,488
37,954
10.9%
15.3%
1.0%
45.9%
-12.6%
51,319
140 cents
100%
100%
$25.96
$17.63
$19.52
208.2c
68.5%
$11.44
2,629.0
$21.69
–
1,381
48,938
442,943
10,862
4,920
(6,971)
8,811
(1,820)
(1,960)
(6)
5,025
(524)
4,501
531,703
34,155
10.1%
13.9%
0.9%
44.2%
9,890
4,477
(6,068)
8,299
(3,056)
(1,469)
(2)
3,772
(829)
2,943
476,987
32,429
10.6%
10.3%
0.6%
42.2%
7,855
4,440
(5,406)
6,889
(2,090)
(1,365)
(8)
3,426
(107)
3,319
470,293
26,552
7.7%
14.5%
0.8%
44.0%
7,302
3,720
(4,953)
6,069
(522)
(1,616)
(7)
3,924
256
4,180
392,773
22,048
6.7%
20.9%
1.2%
44.9%
1.9%
60,614
126 cents
100%
100%
40.3%
61,085
102 cents
100%
100%
-33.5%
38,263
136 cents
100%
100%
15.6%
55,382
136 cents
100%
100%
$26.23
$19.95
$23.68
178.9c
71.6%
$10.38
2,559.7
$21.32
$22.60
$24.99
$11.83
$24.39
131.0c
82.3%
$11.02
2,504.5
$15.16
$21.75
$31.74
$15.07
$18.75
$31.50
$25.75
$29.70
170.4c
82.6%
$10.72
2,040.7
$20.82
$13.58
224.1c
60.9%
$9.36
1,864.7
$29.29
$27.33
1,394
47,099
411,692
1,352
37,687
396,181
1,346
36,925
376,813
1,327
34,353
327,703
1 Adjusted for material items that are not part of the normal ongoing operations of the Group including one-off gains and losses, gains and losses on the sale of businesses, non-continuing business,
timing differences on economic hedges, and acquisition related costs. Prior to 2010 these were adjustments to arrive at cash profit in accordance with market convention.
2 In 2010, consolidated assets included assets from OnePath (formerly INGA), OnePath NZ (formerly ING NZ), Landmark and RBS acquired during the financial year.
3 Calculated in accordance with Australian Prudential Regulation Authority requirements effective at the relevant date. Basel II has been applied from 1 January 2008.
4 Excludes minority interest.
5 Equals shareholders’ equity less preference share capital, goodwill, software and other intangible assets divided by the number of ordinary shares.
6
7 Excludes employees whose only ANZ shares are held in trust under ANZ employee share schemes.
Includes branches, offices, representative offices and agencies.
84
ANZ Annual Report 2011
ANZ Annual Report 2011
Financial Statements
Income Statements
Statement of Comprehensive Income
Balance Sheet
Cash Flow Statement
Statement of changes in equity
Notes to the Financial Statements
1 Signifi cant Accounting Policies
2 Critical Estimates and Judgements Used
in Applying Accounting Policies
Income
3
4 Expenses
5 Compensation of Auditors
6 Current Income Tax Expense
7 Dividends
8 Earnings per Ordinary Share
9 Liquid Assets
10 Due from Other Financial Institutions
11 Trading Securities
12 Derivative Financial Instruments
13 Available-for-sale Assets
14 Net Loans and Advances
15 Impaired Financial Assets
16 Provision for Credit Impairment
17 Shares in Controlled Entities, Associates
and Joint Venture Entities
18 Tax Assets
19 Goodwill and Other Intangible Assets
20 Other Assets
21 Premises and Equipment
22 Deposits and Other Borrowings
23 Income Tax Liabilities
24 Payables and Other Liabilities
25 Provisions
Notes to the Financial Statements (continued)
26 Bonds and Notes
27 Loan Capital
28 Share Capital
29 Reserves and Retained Earnings
30 Non-Controlling Interests
31 Capital Management
32 Assets Charged as Security for Liabilities and
Collateral Accepted as Security for Assets
33 Financial Risk Management
34 Fair Value of Financial Assets and Financial Liabilities
35 Maturity Analysis of Assets and Liabilities
36 Segment Analysis
37 Notes to the Cash Flow Statements
38 Controlled Entities
39 Associates
40
41 Securitisations
42 Fiduciary Activities
43 Commitments
44 Credit Related Commitments, Guarantees,
Interests in Joint Venture Entities
Contingent Liabilities and Contingent Assets
45 Superannuation and Other Post Employment
Benefi t Schemes
46 Employee Share and Option Plans
47 Key Management Personnel Disclosures
48 Transactions with Other Related Parties
49 Life Insurance Business
50 Exchange Rates
51 Events since the End of the Financial Year
Directors’ Declaration
Independent Auditor’s Report
130
131
134
136
137
138
141
142
167
177
178
181
183
184
184
185
185
186
187
191
196
200
203
203
208
208
209
210
86
86
87
88
89
90
92
92
103
106
107
108
109
110
111
112
112
112
113
119
120
121
121
124
125
126
127
127
128
129
129
130
ANZ Annual Report 2011
Financial Highlights
85
85
Financial Statements
INCOME STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER
Interest income
Interest expense
Net interest income
Net funds management and insurance income
Other operating income
Share of joint venture profi t from OnePath
Share of associates’ profi t
Operating income
Operating expense
Profi t before credit impairment and income tax
Provision for credit impairment
Profi t before income tax
Income tax expense
Profi t for the period
Profi t attributable to non-controlling interests
Profi t attributable to shareholders of the Company
Earnings per ordinary share (cents)
Basic
Diluted
Dividend per ordinary share (cents)
The notes appearing on pages 92 to 208 form an integral part of these financial statements.
Consolidated
The Company
2011
$m
30,368
(18,885)
11,483
1,405
3,608
–
436
16,932
(8,023)
8,909
(1,237)
7,672
(2,309)
5,363
(8)
5,355
208.2
198.8
140
2010
$m
26,608
(15,739)
10,869
1,099
3,291
33
400
15,692
(7,304)
8,388
(1,787)
6,601
(2,096)
4,505
(4)
4,501
178.9
174.6
126
2011
$m
26,997
(18,486)
8,511
183
4,128
–
–
12,822
(6,256)
6,566
(994)
5,572
(1,421)
4,151
–
4,151
n/a
n/a
140
2010
$m
22,922
(14,677)
8,245
164
4,436
–
–
12,845
(5,636)
7,209
(1,369)
5,840
(1,412)
4,428
–
4,428
n/a
n/a
126
Note
3
4
3
3
3
3
4
16
6
8
8
7
86
ANZ Annual Report 2011
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER
Profi t for the period
Other comprehensive income
Foreign currency translation reserve
Exchange diff erences taken to equity
Available-for-sale assets
Valuation gain/(loss) taken to equity
(Gain)/loss transferred to the income statement
Cash fl ow hedges reserve
Valuation gain/(loss) taken to equity
Transferred to income statement for the period
Share of associates’ other comprehensive income1
Actuarial gain/(loss) on defi ned benefi t plans
Income tax on items transferred directly to/from equity
Foreign currency translation reserve
Available-for-sale reserve
Cash fl ow hedge reserve
Actuarial gain/(loss) on defi ned benefi ts plan
Other comprehensive income
Total comprehensive income for the period
Comprising:
Total comprehensive income
attributable to non-controlling interests
Total comprehensive income attributable
to shareholders of the company
Note
29
29
29
45
Consolidated
2011
$m
2010
$m
5,363
4,505
The Company
2011
$m
4,151
2010
$m
4,428
330
(1,006)
97
(337)
77
19
229
(9)
(15)
(15)
(5)
(35)
(63)
5
136
8
187
(54)
18
(6)
(10)
(38)
(36)
2
(10)
57
183
(12)
–
34
–
(17)
(51)
(10)
69
(23)
121
(69)
–
(26)
–
(23)
(16)
8
518
5,881
(799)
3,706
271
4,422
(296)
4,132
8
4
–
–
5,873
3,702
4,422
4,132
1 Share of associates other comprehensive income for 2011 comprises available-for-sale assets -$15 million (2010: $15 million), foreign currency translation reserve -$1 million (2010: -$1 million)
and cash flow hedge reserve $1 million (2010: $4 million).
The notes appearing on pages 92 to 208 form an integral part of these financial statements.
Financial Statements
87
BALANCE SHEET AS AT 30 SEPTEMBER
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
Assets
Liquid assets
Due from other fi nancial institutions
Trading securities1
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances1
Customer's liability for acceptances1
Due from controlled entities
Shares in controlled entities
Shares in associates
Current tax assets
Deferred tax assets
Goodwill and other intangible assets2
Investments backing policyholder liabilities
Other assets
Premises and equipment
Total assets
Liabilities
Due to other fi nancial institutions
Deposits and other borrowings
Derivative fi nancial instruments
Liability for acceptances1
Due to controlled entities
Current tax liabilities
Deferred tax liabilities
Policyholder liabilities
External unit holder liabilities (life insurance funds)
Payables and other liabilities
Provisions
Bonds and notes
Loan capital
Total liabilities
Net Assets
Shareholders’ equity
Ordinary share capital
Preference share capital
Reserves
Retained earnings
Share capital and reserves attributable to shareholders of the Company
Non-controlling interests
Total equity
Commitments
Contingent liabilities
Note
Consolidated
2011
$m
2010
$m
The Company
2011
$m
2010
$m
24,899
8,824
36,074
54,118
22,264
396,337
970
–
–
3,513
41
599
6,964
29,859
7,901
2,125
594,488
23,012
368,729
50,088
970
–
1,128
28
27,503
5,033
10,251
1,248
56,551
11,993
556,534
37,954
21,343
871
(2,095)
17,787
37,906
48
37,954
18,945
5,481
33,515
37,821
20,742
351,897
11,495
–
–
2,965
76
792
6,630
32,171
7,015
2,158
531,703
21,610
310,383
37,217
11,495
–
973
35
28,981
5,448
8,115
1,297
59,714
12,280
497,548
34,155
19,886
871
(2,587)
15,921
34,091
64
34,155
20,555
6,338
28,367
48,356
19,017
323,286
688
46,446
9,098
971
40
552
1,544
–
4,353
1,502
511,113
21,345
307,254
44,287
688
38,561
1,079
27
–
–
7,008
798
44,870
10,817
476,734
34,379
21,701
871
(544)
12,351
34,379
–
34,379
16,047
4,136
28,305
34,191
16,973
280,439
11,517
46,216
9,189
1,035
61
575
1,198
–
4,302
1,508
455,692
19,939
252,518
34,647
11,517
38,261
987
39
–
–
5,842
831
48,178
10,927
423,686
32,006
20,246
871
(777)
11,666
32,006
–
32,006
9
10
11
12
13
14
17
17
18
18
19
49
20
21
22
12
23
23
49
24
25
26
27
28
28
29
29
30
43
44
1
In 2011 the Group ceased re-discounting Commercial bill acceptances in its Australian operations. This has impacted balance sheet classifications as there is no intention to trade the commercial
bills as negotiable instruments, therefore they are classified as commercial bill loans initially recognised at fair value and subsequently measured at amortised cost:
September 2011 – Trading securities: $nil; Net loans and advances: $17,326 million; Customer’s liability for acceptances: $nil; Liability for acceptances $nil.
September 2010 – Trading securities: $6,035 million; Net loans and advances: $nil; Customer’s liability for acceptances: $11,150 million; Liability for acceptances: $11,150 million.
2 Excludes notional goodwill in equity accounted entities.
The notes appearing on pages 92 to 208 form an integral part of these financial statements.
88
ANZ Annual Report 2011
CASH FLOW STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER
Cash fl ows from operating activities
Interest received
Dividends received
Fee income received
Other income received
Interest paid
Personnel expenses paid
Premises expenses paid
Other operating expenses paid
Cash settled on derivatives
Income taxes paid
Australia
Overseas
Net cash fl ows from funds management and insurance business
Funds management income received
Insurance premium income received
Claims and policyholder liability payments
Investment income (paid)/received
Commission expense (paid)/received
Net cash fl ows from investments backing policy liabilities
Purchase of insurance assets
Proceeds from sale/maturity of insurance assets
Goods and services tax (paid)/received
(Increase)/decrease in operating assets:
Liquid assets – greater than three months
Due from other fi nancial institutions – greater than three months
Trading securities
Loans and advances
Net intra-group loans and advances
Increase/(decrease) in operating liabilities
Deposits and other borrowings
Due to other fi nancial institutions
Payables and other liabilities
Net cash provided by/(used in) operating activities
Cash fl ows from investing activities
Available-for-sale assets
Purchases
Proceeds from sale or maturity
Controlled entities and associates
Purchased (net of cash acquired)
Proceeds from sale (net of cash disposed)
Premises and equipment
Purchases
Proceeds from sale
Other assets
Net cash provided by/(used in) investing activities
Cash fl ows from fi nancing activities
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Dividends paid
Share capital issues
On market share purchases
Net cash provided by/(used in) by fi nancing activities
Net cash provided by/(used in) operating activities
Net cash provided by/(used in) investing activities
Net cash provided by/(used in) fi nancing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Eff ects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of period
The notes appearing on pages 92 to 208 form an integral part of these financial statements.
Consolidated
2011
$m
2010
$m
The Company
2011
$m
2010
$m
Note
30,260
84
2,471
1,408
(18,797)
(4,547)
(596)
(2,034)
(2,038)
(1,727)
(306)
870
4,988
(4,531)
(21)
(491)
(9,127)
10,182
50
1,593
(1,476)
(7,614)
(25,568)
–
43,834
1,350
584
18,801
26,362
54
2,177
1,230
(15,726)
(4,102)
(557)
(1,625)
(1,823)
(353)
(629)
665
6,144
(5,587)
536
(353)
(9,982)
10,021
33
2,184
(65)
(2,004)
(17,044)
–
14,726
55
(1,288)
3,049
26,934
974
2,850
897
(17,874)
(3,560)
(405)
(2,130)
(3,751)
(1,727)
(65)
101
33
–
–
49
–
–
14
1,106
(1,586)
(5,558)
(25,753)
336
42,542
1,415
835
15,677
22,708
1,184
2,117
996
(14,651)
(3,044)
(389)
(1,292)
(1,110)
(353)
(123)
85
28
–
–
51
–
–
9
815
(145)
(1,835)
(20,345)
(5,110)
20,862
1,329
(709)
1,078
(40,657)
39,518
(29,312)
25,244
(37,402)
35,409
(24,236)
20,955
(304)
74
(319)
6
(849)
(2,531)
50
15
(317)
24
(1,428)
(5,724)
(260)
36
(194)
–
(127)
(2,538)
2,310
113
(240)
–
(687)
(1,785)
12,213
(17,193)
21,756
(17,105)
10,600
(15,415)
17,401
(14,070)
1,341
(1,579)
(2,113)
43
(137)
(7,425)
18,801
(2,531)
(7,425)
8,845
20,610
566
30,021
1,976
(2,565)
(1,671)
37
(78)
2,350
3,049
(5,724)
2,350
(325)
21,511
(576)
20,610
1,341
(1,322)
(2,124)
43
(137)
(7,014)
15,677
(2,538)
(7,014)
6,125
16,934
592
23,651
1,976
(2,451)
(1,660)
37
(78)
1,155
1,078
(1,785)
1,155
448
16,850
(364)
16,934
Financial Statements
89
37(a)
37(c)
37(c)
37(b)
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
Consolidated
As at 1 October 2009
Profi t for the period
Other comprehensive income
Total comprehensive income for the period
Transactions with equity holders in
their capacity as equity holders:
Dividends paid
Dividend reinvestment plan
Other equity movements:
Group employee share acquisition scheme
Share based payments
Group share option scheme
Treasury shares OnePath Australia adjustment
Adjustments to opening retained earnings
on adoption of revised accounting
standard AASB 3R
Other changes
As at 30 September 2010
Profi t for the period
Other comprehensive income
Total comprehensive income for the period
Transactions with equity holders in
their capacity as equity holders:
Dividends paid
Dividend income on Treasury shares
held within the Group’s life insurance
statutory funds
Dividend reinvestment plan
Transactions with non-controlling interest
Other equity movements:
Group employee share acquisition scheme
Share based payments
Treasury shares OnePath Australia adjustment
Group share option scheme
Other changes
Ordinary
share capital
$m
Preference
shares
$m
19,151
871
–
–
–
–
1,007
51
–
37
(360)
–
–
–
–
–
–
–
–
–
–
–
–
–
Shareholders’
equity
attributable
to equity
holders of
the Bank
$m
32,364
4,501
(799)
3,702
Retained
earnings
$m
14,129
4,501
(4)
4,497
(2,678)
–
(2,678)
1,007
–
–
–
–
(39)
12
51
7
37
(360)
(39)
–
Reserves1
$m
(1,787)
–
(795)
(795)
–
–
–
7
–
–
–
(12)
19,886
871
(2,587)
15,921
34,091
–
528
528
5,355
(10)
5,345
5,355
518
5,873
–
(3,503)
(3,503)
–
–
(22)
–
(14)
–
–
–
23
–
–
–
–
–
–
1
23
1,367
(22)
45
(14)
2
43
1
–
–
–
–
–
–
–
–
–
–
–
–
–
1,367
–
45
–
2
43
–
As at 30 September 2011
21,343
871
(2,095)
17,787
37,906
The notes appearing on pages 92 to 208 form an integral part of these financial statements.
1 Further information on other comprehensive income is disclosed in note 29 to the financial statements.
Non-controlling
interests
$m
Total
shareholders’
equity
$m
65
32,429
4
–
4
–
–
–
–
–
–
–
(5)
64
8
–
8
–
–
–
(22)
–
–
–
–
(2)
48
4,505
(799)
3,706
(2,678)
1,007
51
7
37
(360)
(39)
(5)
34,155
5,363
518
5,881
(3,503)
23
1,367
(44)
45
(14)
2
43
(1)
37,954
90
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
The Company
As at 1 October 2009
Profi t for the period
Other comprehensive income
Total comprehensive income for the period
Transactions with equity holders in
their capacity as equity holders:
Dividends paid
Dividend reinvestment plan
Other equity movements:
Share based payments
Group share option scheme
Group employee share acquisition scheme
Adjustments to opening retained earnings
on adoption of revised accounting
standard AASB 3R
Other changes
As at 30 September 2010
Profi t for the period
Other comprehensive income
Total comprehensive income for the period
Transactions with equity holders in
their capacity as equity holders:
Dividends paid
Dividend reinvestment plan
Other equity movements:
Share based payments
Group share option scheme
Group employee share acquisition scheme
Other changes
Ordinary
share capital
$m
Preference
shares
$m
19,151
871
–
–
–
–
1,007
–
37
51
–
–
–
–
–
–
–
–
–
–
–
–
20,246
871
–
–
1,367
–
43
45
–
–
–
–
–
–
–
–
Reserves1
$m
(494)
–
(278)
(278)
–
–
7
–
–
–
(12)
(777)
247
247
–
–
(14)
–
–
–
Shareholders’
equity
attributable
to equity
holders of
the Bank
$m
29,478
4,428
(296)
4,132
Retained
earnings
$m
9,950
4,428
(18)
4,410
(2,667)
–
(2,667)
1,007
–
–
–
(39)
12
7
37
51
(39)
–
11,666
32,006
4,151
24
4,175
4,151
271
4,422
(3,491)
–
(3,491)
1,367
–
–
–
1
(14)
43
45
1
As at 30 September 2011
21,701
871
(544)
12,351
34,379
The notes appearing on pages 92 to 208 form an integral part of these financial statements.
1 Further information on other comprehensive income is disclosed in note 29 to the financial statements.
Non-controlling
interests
$m
Total
shareholders’
equity
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
29,478
4,428
(296)
4,132
(2,667)
1,007
7
37
51
(39)
–
32,006
4,151
271
4,422
(3,491)
1,367
(14)
43
45
1
34,379
Financial Statements
91
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1: Signifi cant Accounting Policies
The fi nancial report of Australia and New Zealand Banking Group
Limited (the Company) and its controlled entities (the Group) for
the year ended 30 September 2011 was authorised for issue in
accordance with the resolution of the Directors on 2 November, 2011.
The principal accounting policies adopted in the preparation of
the fi nancial report are set out below. These policies have been
consistently applied by all consolidated entities and to all periods
presented in the consolidated fi nancial report.
The Company is incorporated and domiciled in Australia. The address
of the Company’s registered offi ce is ANZ Centre, Level 9, 833 Collins
Street, Docklands, Victoria, Australia 3008.
A) BASIS OF PREPARATION
i) Statement of compliance
The fi nancial report of the Company and Group is a general
purpose fi nancial report which has been prepared in accordance
with the accounts provisions of the Banking Act 1959 (as amended),
Australian Accounting Standards (AASs), Australian Accounting
Standards Board (AASB) Interpretations, other authoritative
pronouncements of the AASB and the Corporations Act 2001.
International Financial Reporting Standards (IFRS) are Standards and
Interpretations adopted by the International Accounting Standards
Board (IASB). IFRS forms the basis of AASs and Interpretations issued
by the AASB. The Group’s application of AASs and Interpretations
ensures that the consolidated fi nancial report of the Group and the
fi nancial report of the Company comply with IFRS.
ii) Use of estimates and assumptions
The preparation of the fi nancial report requires the use of
management judgement, estimates and assumptions that aff ect
reported amounts and the application of policies. The estimates
and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable. Actual results
may diff er from these estimates. Discussion of the critical accounting
treatments, which include complex or subjective decisions or
assessments, are covered in note 2. Such estimates may require
review in future periods.
iii) Basis of measurement
The fi nancial information has been prepared in accordance with the
historical cost basis except that the following assets and liabilities
are stated at their fair value:
derivative fi nancial instruments, including in the case of fair
value hedging (refer note 1 (E)(ii)) the fair value of any applicable
underlying exposure;
fi nancial assets treated as available-for-sale;
fi nancial instruments held for trading; and
assets and liabilities designated at fair value through profi t
and loss.
In accordance with AASB 1038 Life Insurance Contracts, life insurance
liabilities are measured using the Margin on Services model.
In accordance with AASB 119 Employee Benefi ts, defi ned benefi t
obligations are measured using the Projected Unit Credit Method.
92
ANZ Annual Report 2011
iv) Changes in Accounting Policy and early adoptions
All new Accounting Standards and Interpretations applicable to
annual reporting periods beginning on or after 1 October 2010
have been applied to the Group eff ective from the required date
of application. The initial application of these Standards and
Interpretations has not had a material impact on the fi nancial
position or the fi nancial results of the Group.
There has been no other change in accounting policy during the year.
v) Rounding
The Parent entity is an entity of the kind referred to in Australian
Securities and Investments Commission class order 98/100 dated
10 July 1998 (as amended). Consequently, amounts in the fi nancial
report have been rounded to the nearest million dollars, except
where otherwise indicated.
vi) Comparatives
Certain amounts in the comparative information have been
reclassifi ed to conform with current period fi nancial statement
presentations. During the current year, this includes the
reclassifi cation of certain assets from Liquid Assets to Net Loans
and Advances following a review of the defi nition of the Liquid
Assets category and the reclassifi cation of certain customer deposit
liabilities from Deposits and other borrowings to Due from other
fi nancial institutions.
vii) Principles of consolidation
Subsidiaries
The fi nancial statements consolidate the fi nancial statements of the
Company and all its subsidiaries where it is determined that there is
a capacity to control.
Where subsidiaries 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.
Control means the power to govern, directly or indirectly, the
fi nancial and operating policies of an entity so as to obtain benefi ts
from its activities. All the facts of a particular situation are considered
when determining whether control exists. Control is usually present
when an entity has:
power over more than one-half of the voting rights of the
other entity; or
power to govern the fi nancial and operating policies of the
other entity; or
power to appoint or remove the majority of the members
of the board of directors or equivalent governing body; or
power to cast the majority of votes at meetings of the board
of directors or equivalent governing body of the entity.
In addition, potential voting rights that are presently exercisable
or convertible are taken into account in determining whether
control exists.
In relation to special purpose entities, control is deemed to exist
where:
in substance, the majority of the residual risks and rewards from
their activities accrue to the Group; or
in substance, the Group controls decision making powers so as to
obtain the majority of the risks and rewards from their activities.
Further detail on special purpose entities is provided in note 2(i).
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1: Signifi cant Accounting Policies (continued)
Associates and joint ventures
The Group adopts the equity method of accounting for associates
and the Group’s interest in joint venture entities.
When a foreign operation is disposed, exchange diff erences
are recognised in the income statement as part of the gain or
loss on sale.
The Group’s share of results of associates and joint venture entities
is included in the consolidated income statement. Shares in
associates and joint venture entities are carried in the consolidated
balance sheet at cost plus the Group’s share of post-acquisition
net assets. Interests in associates and joint ventures are reviewed
for any indication of impairment at least at each reporting
date. This impairment review uses a discounted cash fl ow (DCF)
methodology and other methodologies to determine the
reasonableness of the valuation, including the capitalisation
of earnings methodology (CEM).
In the Company’s fi nancial statements, investments in associates
and joint venture entities are carried at cost less accumulated
impairment losses.
viii) Foreign currency translation
Functional and presentation currency
Items included in the fi nancial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency).
The consolidated fi nancial statements are presented in Australian
dollars, which is the Company’s functional and presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions.
Monetary assets and liabilities resulting from foreign currency
transactions are subsequently translated at the spot rate at
reporting date.
Exchange diff erences arising on the settlement of monetary items
or on translating monetary items at rates diff erent to those at which
they were initially recognised or included in a previous fi nancial
report, are recognised in the income statement in the period in
which they arise.
Translation diff erences on non-monetary items, such as derivatives
measured at fair value through profi t or loss, are reported as part of
the fair value gain or loss on these items.
Translation diff erences on non-monetary items measured at fair
value through equity, such as equities classifi ed as available-for-sale
fi nancial assets, are included in the available-for-sale reserve in equity.
Foreign operations
The results and fi nancial position of all Group entities (none of
which has the currency of a hyperinfl ationary economy), that have a
functional currency diff erent from the Group’s presentation currency,
are translated into the Group’s presentation currency as follows:
assets and liabilities of each foreign operation are translated
at the rates of exchange ruling at balance date;
revenue and expenses of each foreign operation are translated
at the average exchange rate for the period, unless this average
is not a reasonable approximation of the rate prevailing on
transaction date, in which case revenue and expenses are
translated at the exchange rate ruling at transaction date; and
all resulting exchange diff erences are recognised in the foreign
currency translation reserve.
Goodwill arising on the acquisition of a foreign entity is treated
as an asset of the foreign entity and translated at the rate ruling
at balance date.
B) INCOME RECOGNITION
i) Interest income
Interest income is recognised as it accrues using the eff ective interest
rate method.
The eff ective interest rate method calculates the amortised cost of
a fi nancial asset or fi nancial liability and allocates the interest income
or interest expense over the expected life of the fi nancial asset or
fi nancial liability so as to achieve a constant yield on the fi nancial
asset or liability.
For assets subject to prepayment, expected life is determined on
the basis of the historical behaviour of the particular asset portfolio,
taking into account contractual obligations and prepayment
experience assessed on a regular basis.
ii) Fee and commission income
Fees and commissions received that are integral to the eff ective
interest rate of a fi nancial asset are recognised using the eff ective
interest method. For example, loan commitment fees, together
with related direct costs, are deferred and recognised as an
adjustment to the eff ective interest rate on a loan once drawn.
Commitment fees to originate a loan which is unlikely to be
drawn down are recognised as income as the service is provided.
Fees and commissions that relate to the execution of a signifi cant
act (for example, advisory or arrangement services, placement fees
and underwriting fees) are recognised when the signifi cant act has
been completed.
Fees charged for providing ongoing services (for example,
maintaining and administering existing facilities) are recognised
as income over the period the service is provided.
iii) Dividend income
Dividends are recognised as revenue when the right to receive
payment is established.
iv) Leasing income
Finance income on fi nance leases is recognised on a basis that refl ects
a constant periodic return on the net investment in the fi nance lease.
v) Gain or loss on sale of premises and equipment
The gain or loss on the disposal of premises and equipment
is determined as the diff erence between the carrying amount
of the assets at the time of disposal and the proceeds of disposal,
and is recognised as an item of other income in the year in which
the signifi cant risks and rewards of ownership are transferred to
the buyer.
Notes to the Financial Statements
93
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1: Signifi cant Accounting Policies (continued)
C) EXPENSE RECOGNITION
i) Interest expense
Interest expense on fi nancial liabilities measured at amortised
cost is recognised in the income statement as it accrues using
the eff ective interest rate method.
ii) Loan origination expenses
Certain loan origination expenses are an integral part of the eff ective
interest rate of a fi nancial asset measured at amortised cost. These
loan origination expenses include:
fees and commissions payable to brokers in respect of originating
lending business; and
other expenses of originating lending business, such as external
legal costs and valuation fees, provided these are direct and
incremental costs related to the issue of a fi nancial asset.
Such loan origination expenses are initially recognised as part
of the cost of acquiring the fi nancial asset and amortised as part
of the eff ective yield of the fi nancial asset over its expected life
using the eff ective interest rate method.
iii) Share-based compensation expense
The Group has various equity settled share-based compensation
plans. These are described in note 46 and comprise the ANZ
Employee Share Acquisition Plan and the ANZ Share Option Plan.
ANZ Employee Share Acquisition Plan
The fair value of ANZ ordinary shares granted under the Employee
Share Acquisition Plan is measured at grant date, using the one-day
volume weighted average market price of ANZ shares. The fair value
is expensed immediately when shares vest or on a straight-line basis
over the relevant vesting period.
ANZ Share Option Plan
The fair value of share options is measured at grant date, using an
option pricing model. The fair value is expensed on a straight-line
basis over the relevant vesting period. This is recognised as share-
based compensation expense with a corresponding increase
in the share options reserve.
The option pricing model takes into account the exercise price
of the option, the risk-free interest rate, the expected volatility
of ANZ’s ordinary share price and other factors. Market vesting
conditions are taken into account in estimating the fair value.
A performance right is a right to acquire a share at nil cost to the
employee subject to satisfactorily meeting time and/or performance
hurdles. Upon exercise, each performance right entitles the holder
to one ordinary share in ANZ. The fair value of performance rights
is determined at grant date using an option pricing model, taking
into account market conditions. The fair value is expensed over
the relevant vesting period. This is recognised as share-based
compensation expense with a corresponding increase in the share
options reserve.
Other adjustments
Subsequent to the grant of an equity-based award, the amount
recognised as an expense is reversed when an employee fails
to satisfy the minimum service period specifi ed in the award.
94
ANZ Annual Report 2011
iv) Lease payments
Leases entered into by the Group as lessee are predominantly
operating leases, and the operating lease payments are recognised
as an expense on a straight-line basis over the lease term.
D) INCOME TAX
i) Income tax expense
Income tax on earnings for the year comprises current and deferred
tax and is based on the applicable tax law in each jurisdiction. It is
recognised in the income statement as tax expense, except when it
relates to items credited directly to equity, in which case it is recorded
in equity, or where it arises from the initial accounting for a business
combination, in which case it is included in the determination
of goodwill.
ii) Current tax
Current tax is the expected tax payable on taxable income for the
year, based on tax rates (and tax laws) which are enacted at the
reporting date, including any adjustment for tax payable in previous
periods. Current tax for current and prior periods is recognised as
a liability (or asset) to the extent that it is unpaid (or refundable).
iii) Deferred tax
Deferred tax is accounted for using the comprehensive tax balance
sheet method. It is generated by temporary diff erences between
the carrying amounts of assets and liabilities for fi nancial reporting
purposes and their tax base.
Deferred tax assets, including those related to the tax eff ects of
income tax losses and credits available to be carried forward, are
recognised only to the extent that it is probable that future taxable
profi ts will be available against which the deductible temporary
diff erences or unused tax losses and credits can be utilised.
Deferred tax liabilities are recognised for all taxable temporary
diff erences, other than those relating to taxable temporary
diff erences arising from goodwill. They are also recognised for
taxable temporary diff erences arising on investments in controlled
entities, branches, associates and joint ventures, except where the
Group is able to control the reversal of the temporary diff erences
and it is probable that temporary diff erences will not reverse in
the foreseeable future. Deferred tax assets associated with these
interests are recognised only to the extent that it is probable that
the temporary diff erence will reverse in the foreseeable future and
there will be suffi cient taxable profi ts against which to utilise the
benefi ts of the temporary diff erence.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply to the period(s) when the asset and
liability giving rise to them are realised or settled, based on tax
rates (and tax laws) that have been enacted or substantively
enacted by the reporting date. The measurement refl ects the
tax consequences that would follow from the manner in which
the Group, at the reporting date, recovers or settles the carrying
amount of its assets and liabilities.
iv) Off setting
Current and deferred tax assets and liabilities are off set only to the
extent that they relate to income taxes imposed by the same taxation
authority, there is a legal right and intention to settle on a net basis
and it is allowed under the tax law of the relevant jurisdiction.
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1: Signifi cant Accounting Policies (continued)
E) ASSETS
Financial assets
i) Financial assets and liabilities at fair value through profi t or loss
Trading securities are fi nancial instruments acquired principally
for the purpose of selling in the short-term or which are a part of
a portfolio which is managed for short-term profi t-taking. Trading
securities are initially recognised and subsequently measured in
the balance sheet at their fair value.
Derivatives that are neither fi nancial guarantee contracts nor eff ective
hedging instruments are carried at fair value through profi t or loss.
Certain fi nancial assets and liabilities may be designated and measured
at fair value through profi t or loss where any of the following applies:
investments backing policy liabilities (refer note 1 (I)(viii));
life investment contract liabilities (refer note 1 (I)(i));
doing so eliminates or signifi cantly reduces a measurement
or recognition inconsistency that would otherwise arise from
measuring assets and liabilities, or recognising the gains or
losses thereon, on diff erent bases;
a group of fi nancial assets or fi nancial liabilities or both is managed
and its performance evaluated on a fair value basis; or
the fi nancial instrument contains an embedded derivative, unless
the embedded derivative does not signifi cantly modify the cash
fl ows or it is clear, with little or no analysis, that it would not be
separately recorded.
Changes in the fair value (gains or losses) of these fi nancial
instruments are recognised in the income statement in the period
in which they occur.
Purchases and sales of trading securities are recognised on trade date.
ii) Derivative fi nancial instruments
Derivative fi nancial instruments are contracts whose value is
derived from one or more underlying price, index or other variable.
They include swaps, forward rate agreements, futures, options and
combinations of these instruments.
Derivative fi nancial instruments are entered into for trading purposes
(including customer-related reasons), or for hedging purposes (where
the derivative instruments are used to hedge the Group’s exposures
to interest rate risk, currency risk, price risk, credit risk and other
exposures relating to non-trading positions).
Derivative fi nancial instruments are recognised initially at fair
value with gains or losses from subsequent measurement at fair
value being recognised in the income statement. Included in the
determination of the fair value of derivatives is a credit valuation
adjustment to refl ect the credit worthiness of the counterparty.
The valuation adjustment is infl uenced by the mark-to-market
of the derivative trades and by movement in credit spreads.
Where the derivative is eff ective as a hedging instrument and is
designated as such, the timing of the recognition of any resultant
gain or loss in the income statement is dependent on the hedging
designation. These hedging designations and associated accounting
are as follows:
Fair value hedge
Where the Group hedges the fair value of a recognised asset
or liability or fi rm commitment, changes in the fair value of the
derivative designated as a fair value hedge are recognised in the
income statement. Changes in the fair value of the hedged item
attributable to the hedged risk are refl ected in adjustments to the
carrying value of the hedged item, which are also recognised in
the income statement.
Hedge accounting is discontinued when the hedge instrument
expires or is sold, terminated, exercised or no longer qualifi es for
hedge accounting. The resulting adjustment to the carrying amount
of the hedged item arising from the hedged risk is amortised to the
income statement over the period to maturity of the hedged item.
If the hedged item is sold or repaid, the unamortised fair value
adjustment is recognised immediately in the income statement.
Cash fl ow hedge
The Group designates derivatives as cash fl ow hedges where
the instrument hedges the variability in cash fl ows of a recognised
asset or liability, a foreign exchange component of a fi rm
commitment or a highly probable forecast transaction. The eff ective
portion of changes in the fair value of derivatives qualifying and
designated as cash fl ow hedges is deferred to the hedging reserve,
which forms part of shareholders’ equity. Any ineff ective portion is
recognised immediately in the income statement. Amounts deferred
in equity are recognised in the income statement in the period
during which the hedged forecast transactions take place. When the
hedging instrument expires, is sold, terminated, or no longer qualifi es
for hedge accounting, the cumulative amount deferred in equity
remains in the hedging reserve, and is subsequently transferred to
the income statement when the hedged item is recognised in the
income statement.
When a forecast hedged transaction is no longer expected to
occur, the amount deferred in equity is recognised immediately
in the income statement.
Net investment hedge
Hedges of net investments in foreign operations are accounted for
similarly to cash fl ow hedges. The gain or loss from remeasuring the
fair value of the hedging instrument relating to the eff ective portion
of the hedge is deferred in the foreign currency translation reserve
in equity and the ineff ective portion is recognised immediately in
the income statement.
Derivatives that do not qualify for hedge accounting
All gains and losses from changes in the fair value of derivatives
that are not designated in a hedging relationship but are entered
into to manage the interest rate and foreign exchange risk of
funding instruments are recognised in the income statement. Under
certain circumstances, the component of the fair value change in
the derivative which relates to current period realised and accrued
interest is included in net interest income. The remainder of the fair
value movement is included in other income.
Set-off arrangements
Fair value gains/losses arising from trading derivatives are not
off set against fair value gains/losses on the balance sheet unless
a legal right of set-off exists and there is an intention to settle net.
For contracts subject to master netting agreements that create
a legal right of set-off for which only the net revaluation amount
is recognised in the income statement, net unrealised gains
on derivatives are recognised as part of other assets and net
unrealised losses are recognised as part of other liabilities.
Notes to the Financial Statements
95
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1: Signifi cant Accounting Policies (continued)
iii) Available-for-sale fi nancial assets
Available-for-sale fi nancial assets comprise non-derivative fi nancial
assets which the Group designates as available-for-sale but which
are not deemed to be held principally for trading purposes, and
include equity investments, certain loans and advances, and quoted
debt securities.
They are initially recognised at fair value plus transaction costs.
Subsequent gains or losses arising from changes in fair value are
included as a separate component of equity in the available-for-
sale revaluation reserve except for interest, dividends and foreign
exchange gains and losses on monetary assets, which are recognised
directly in the income statement. When the asset is sold, the
cumulative gain or loss relating to the asset is transferred to the
income statement.
Where there is objective evidence of impairment on an available-
for-sale fi nancial asset, the cumulative loss related to that asset is
removed from equity and recognised in the income statement, as an
impairment expense for debt instruments or as non-interest income
for equity instruments. If, in a subsequent period, the amount of
an impairment loss relating to an available-for-sale debt instrument
decreases and the decrease can be linked objectively to an event
occurring after the impairment event, the loss is reversed through
the income statement through the impairment expense line.
Purchases and sales of available-for-sale fi nancial assets are
recognised on trade date being the date on which the Group
commits to purchase or sell the asset.
iv) Net loans and advances
Net loans and advances are non-derivative fi nancial assets with fi xed
or determinable payments that are not quoted in an active market.
They arise when the Group provides money to a debtor with no
intention of trading the loans and advances. The loans and advances
are initially recognised at fair value plus transaction costs that are
directly attributable to the issue of the loan or advance. They are
subsequently measured at amortised cost using the eff ective interest
rate method (refer note 1 (B)(i)) unless specifi cally designated on
initial recognition at fair value through profi t or loss.
All loans are graded according to the level of credit risk.
Net loans and advances includes direct fi nance provided to
customers such as bank overdrafts, credit cards, term loans,
fi nance lease receivables and commercial bills.
Impairment of loans and advances
Loans and advances are reviewed at least at each reporting date
for impairment.
Credit impairment provisions are raised for exposures that are known
to be impaired. Exposures are impaired and impairment losses are
recorded if, and only if, there is objective evidence of impairment
as a result of one or more loss events that occurred after the initial
recognition of the loan and prior to the reporting date, and that loss
event, or events, has had an impact on the estimated future cash
fl ows of the individual loan or the collective portfolio of loans that
can be reliably estimated.
Impairment is assessed for assets that are individually signifi cant
(or on a portfolio basis for small value loans) and then on a collective
basis for those exposures not individually known to be impaired.
96
ANZ Annual Report 2011
Exposures that are assessed collectively are placed in pools of
similar assets with similar risk characteristics. The required provision
is estimated on the basis of historical loss experience for assets with
credit risk characteristics similar to those in the collective pool. The
historical loss experience is adjusted based on current observable
data such as changed economic conditions. The provision also takes
account of the impact of inherent risk of large concentrated losses
within the portfolio and an assessment of the economic cycle.
The estimated impairment losses are measured as the diff erence
between the asset’s carrying amount and the estimated future
cash fl ows discounted to their present value. As the discount
unwinds during the period between recognition of impairment
and recovery of the cash fl ow, it is recognised in interest income.
The process of estimating the amount and timing of cash fl ows
involves considerable management judgement. These judgements
are reviewed regularly to reduce any diff erences between loss
estimates and actual loss experience.
Impairment of capitalised acquisition expenses is assessed
through comparing the actual behaviour of the portfolio against
initial expected life assumptions.
The provision for impairment loss (individual and collective)
is deducted from loans and advances in the balance sheet
and the movement for the reporting period is refl ected in the
income statement.
When a loan is uncollectable, either partially or in full, it is written-off
against the related provision for loan impairment. Unsecured facilities
are normally written-off when they become 180 days past due or
earlier in the event of the customer’s bankruptcy or similar legal
release from the obligation.
However a certain level of recoveries is expected after the write-off ,
which is refl ected in the amount of the provision for credit losses. In
the case of secured facilities, remaining balances are written-off after
proceeds from the realisation of collateral have been received if there
is a shortfall.
Where impairment losses recognised in previous periods have
subsequently decreased or no longer exist, such impairment
losses are reversed in the income statement.
A provision is also raised for off -balance sheet items such as loan
commitments that are considered to be onerous.
v) Lease receivables
Contracts to lease assets and hire purchase agreements are classifi ed
as fi nance leases if they transfer substantially all the risks and rewards
of ownership of the asset to the customer or an unrelated third party.
All other lease contracts are classifi ed as operating leases.
vi) Repurchase agreements
Securities sold under repurchase agreements are retained in the
fi nancial statements where substantially all the risks and rewards
of ownership remain with the Group, and a counterparty liability
is disclosed under the classifi cations of due to other fi nancial
institutions or payables and other liabilities. The diff erence between
the sale price and the repurchase price is accrued over the life of the
repurchase agreement and charged to interest expense in the income
statement.
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1: Signifi cant Accounting Policies (continued)
Securities purchased under agreements to resell, where the Group
does not acquire the risks and rewards of ownership, are recorded as
receivables in liquid assets, net loans and advances, or due from other
fi nancial institutions, depending on the term of the agreement and
the counterparty. The security is not included in the balance sheet.
Interest income is accrued on the underlying loan amount.
x) Acquired portfolio of insurance and life investment business
Identifi able intangible assets in respect of acquired portfolios
of insurance and life investment business acquired in a business
combination are stated initially at fair value at acquisition date.
These are amortised over the period of expected benefi t of between
15 to 23 years.
Securities borrowed are not recognised in the balance sheet,
unless these are sold to third parties, at which point the obligation
to repurchase is recorded as a fi nancial liability at fair value with
fair value movements included in the income statement.
xi) Deferred acquisition costs
Refer to note 1(I)(vi).
vii) Derecognition
The Group enters into transactions where it transfers fi nancial
assets recognised on its balance sheet yet retains either all the risks
and rewards of the transferred assets or a portion of them. If all, or
substantially all, of the risks and rewards are retained, the transferred
assets are not derecognised from the balance sheet.
In transactions where substantially all the risks and rewards of
ownership of a fi nancial asset are neither retained nor transferred,
the Group derecognises the asset if control over the asset is lost.
In transfers where control over the asset is retained, the Group
continues to recognise the asset to the extent of its continuing
involvement, determined by the extent to which it is exposed
to changes in the value of the transferred asset. The rights and
obligations retained or created in the transfer are recognised
separately as assets and liabilities as appropriate.
Non-fi nancial assets
viii) Goodwill
Goodwill represents the excess of the purchase consideration
over the fair value of the identifi able net assets of a controlled
entity at the date of gaining control. Goodwill is recognised as
an asset and not amortised, but assessed for impairment at
least annually or more frequently if there is an indication that
the goodwill may be impaired. This involves using the DCF or
CEM methodology to determine the expected future benefi ts of
the cash-generating units to which the goodwill relates. Where the
assessment results in the goodwill balance exceeding the value of
expected future benefi ts, the diff erence is charged to the income
statement. Any impairment of goodwill is not subsequently reversed.
ix) Software and computer system costs
Includes costs incurred in acquiring and building software and
computer systems (‘software’).
Software is amortised using the straight-line method over its
expected useful life to the Group. The period of amortisation
is between 3 and 5 years, except for certain core infrastructure
projects where the useful life has been determined to be 7 years.
At each reporting date, software assets are reviewed for impairment.
If any such indication exists, the recoverable amount of the assets
are estimated and compared against the existing carrying value.
Where the existing carrying value exceeds the recoverable amount,
the diff erence is charged to the income statement.
Costs incurred in planning or evaluating software proposals, or in
maintaining systems after implementation, are not capitalised.
xii) Other intangible assets
Other intangible assets include management fee rights, distribution
relationships and distribution agreements where they are clearly
identifi able, can be reliably measured and where it is probable they
will lead to future economic benefi ts that the Group can control.
Where, based on historical observation, there is an expectation that,
for the foreseeable future, the level of investment in the funds will
not decline signifi cantly and the Group will continue to manage the
fund, the management fee right is assessed to have an indefi nite life
and is carried at cost less any impairment losses.
Other management fee rights, distribution relationships, distribution
agreements and licenses are amortised over the expected useful
lives to the Group using the straight line method. The period of
amortisation is as follows:
Management fee rights
Aligned advisor relationships
Distribution agreements
7 years
15 years
3 years
xiii) Premises and equipment
Assets other than freehold land are depreciated at rates based
upon their expected useful lives to the Group, using the straight-line
method. The depreciation rates used for each class of asset are:
Buildings
Building integrals
Furniture & equipment
Computer & offi ce equipment
1–1.5%
10%
10%
12.5%–33%
Leasehold improvements are amortised on a straight-line basis over
the shorter of their useful lives or remaining terms of the lease.
At each reporting date, the carrying amounts of premises and
equipment are reviewed for impairment. If any such indication exists,
the recoverable amount of the assets are estimated and compared
against the existing carrying value. Where the existing carrying value
exceeds the recoverable amount, the diff erence is charged to the
income statement. If it is not possible to estimate the recoverable
amount of an individual asset, the Group estimates the recoverable
amount of the cash generating unit to which the asset belongs.
A previously recognised impairment loss is reversed if there has been
a change in the estimates used to determine the recoverable amount.
xiv) Borrowing costs
Borrowing costs incurred for the construction of qualifying assets
(principally the offi ce building in the Docklands, Melbourne,
Australia) are capitalised into the cost of the qualifying asset during
the period of time that is required to complete and prepare the asset
for its intended use. The calculation of borrowing costs is based on an
internal measure of the costs associated with the borrowing of funds.
Notes to the Financial Statements
97
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1: Signifi cant Accounting Policies (continued)
F) LIABILITIES
Financial liabilities
i) Deposits and other borrowings
Deposits and other borrowings include certifi cates of deposit, interest
bearing deposits, debentures and other related interest bearing
fi nancial instruments. They are measured at amortised cost. The
interest expense is recognised using the eff ective interest rate method.
ii) Financial liabilities at fair value through profi t or loss
Refer to note 1(E)(i).
iii) Acceptances
The exposure arising from the acceptance of bills of exchange that
are sold into the market is recognised as a liability. An asset of equal
value is recognised to refl ect the off setting claim against the drawer
of the bill. Bill acceptances generate fee income that is recognised in
the income statement when earned.
iv) Bonds, notes and loan capital
Bonds, notes and loan capital are accounted for in the same way
as deposits and other borrowings, except for those bonds and
notes which are designated as at fair value through profi t or
loss on initial recognition, with fair value movements recorded
in the income statement.
v) Financial guarantee contracts
Financial guarantee contracts that require the issuer to make specifi ed
payments to reimburse the holder for a loss the holder incurs because
a specifi ed debtor fails to make payments when due, are initially
recognised in the fi nancial statements at fair value on the date the
guarantee was given; typically this is the premium received. Subsequent
to initial recognition, the Group’s liabilities under such guarantees
are measured at the higher of their amortised amount and the best
estimate of the expenditure required to settle any fi nancial obligation
arising at the balance sheet date. These estimates are determined based
on experience of similar transactions and the history of past losses.
vi) Derecognition
Financial liabilities are derecognised when the obligation specifi ed
in the contract is discharged, cancelled or expires.
Non-fi nancial liabilities
vii) Employee benefi ts
Leave benefi ts
The liability for long service leave is calculated and accrued for in
respect of all applicable employees (including on-costs) using an
actuarial valuation. The amounts expected to be paid in respect of
employees’ entitlements to annual leave are accrued at expected
salary rates including on-costs. Expected future payments for long
service leave are discounted using market yields at the reporting
date on national government bonds with terms to maturity that
match, as closely as possible, the estimated future cash outfl ows.
Defi ned contribution superannuation schemes
The Group operates a number of defi ned contribution schemes
and also contributes, according to local law, in the various countries
in which it operates, to government and other plans that have the
characteristics of defi ned contribution schemes.
The Group’s contributions to these schemes are recognised as an
expense in the income statement when incurred.
98
ANZ Annual Report 2011
Defi ned benefi t superannuation schemes
The Group operates a small number of defi ned benefi t schemes.
The liability and expense related to providing benefi ts to employees
under each defi ned benefi t scheme are calculated by independent
actuaries.
A defi ned benefi t liability is recognised to the extent that the present
value of the defi ned benefi t obligation of each scheme, calculated
using the Projected Unit Credit Method, is greater than the fair value
of each scheme’s assets. Where this calculation results in an asset of
the Group, a defi ned benefi t asset is recognised, which is capped
at the recoverable amount. In each subsequent reporting period,
ongoing movements in the defi ned benefi t liability or asset carrying
value is treated as follows:
the net movement relating to the current period’s service cost,
interest cost, expected return on scheme assets, past service
costs and other costs (such as the eff ects of any curtailments
and settlements) is recognised as an employee expense in the
income statement;
movements relating to actuarial gains and losses are recognised
directly in retained earnings; and
contributions made by the Group are recognised directly against
the net defi ned benefi t position.
viii) Provisions
The Group recognises provisions when there is a present obligation,
the future sacrifi ce of economic benefi ts is probable, and the amount
of the provision can be measured reliably.
The amount recognised is the best estimate of the consideration
required to settle the present obligation at reporting date, taking
into account the risks and uncertainties surrounding the obligation
at reporting date. Where a provision is measured using the cash fl ows
estimated to settle the present obligation, its carrying amount is the
present value of those cash fl ows.
G) EQUITY
i) Ordinary shares
Ordinary shares in the Company are recognised at the amount paid
per ordinary share net of directly attributable issue costs.
ii) Treasury shares
Shares in the Company which are purchased on-market by the ANZ
Employee Share Acquisition Plan or issued by the Company to the
ANZ Employee Share Acquisition Plan are classifi ed as treasury shares
(to the extent that they relate to unvested employee share-based
awards) and are deducted from Capital.
In addition, the life insurance business may also purchase and hold
shares in the Company to back policy liabilities in the life insurance
statutory funds. These shares are also classifi ed as treasury shares and
deducted from Capital. These assets, plus any corresponding income
statement fair value movement on the assets and dividend income,
are eliminated when the life statutory funds are consolidated into
the Group. The cost of the investment in the shares is deducted from
Capital. However, the corresponding life investment contract and
insurance contract liabilities, and related income statement changes
in the liabilities, remain upon consolidation.
Treasury shares are excluded from the weighted average number
of ordinary shares used in the earnings per share calculations.
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1: Signifi cant Accounting Policies (continued)
iii) Non-controlling interest
Non-controlling interests represent the share in the net assets
of subsidiaries attributable to equity interests not owned directly
or indirectly by the Company.
iv) Reserves
Foreign currency translation reserve
As indicated in note 1 (A)(viii), exchange diff erences arising on
translation of the assets and liabilities of all Group entities are
refl ected in the foreign currency translation reserve. Any off setting
gains or losses on hedging these balances, together with any tax
eff ect, are also refl ected in this reserve.
Available-for-sale revaluation reserve
This reserve includes changes in the fair value of available-for-
sale fi nancial assets, net of tax. These changes are transferred to
the income statement (in non-interest income) when the asset
is derecognised. Where the asset is impaired, the changes are
transferred to impairment expense in the income statement
for debt instruments and in the case of equity instruments to
other income.
Cash fl ow hedging reserve
This reserve includes the fair value gains and losses associated with
the eff ective portion of designated cash fl ow hedging instruments.
Share-based payment reserves
Share-based payment reserves include the share options reserve and
other equity reserves which arise on the recognition of share-based
compensation expense (see note 1 (C)(iii)).
H) PRESENTATION
i) Off setting of income and expenses
Income and expenses are not off set unless required or permitted
by an accounting standard. At the Group level, this generally arises
in the following circumstances:
where transaction costs form an integral part of the eff ective
interest rate of a fi nancial instrument which is measured at
amortised cost, these are off set against the interest income
generated by the fi nancial instrument; or
where gains and losses relating to fair value hedges are assessed
as being eff ective; or
where gains and losses arise from a group of similar transactions,
such as foreign exchange gains and losses.
ii) Off setting assets and liabilities
Assets and liabilities are off set and the net amount reported in
the balance sheet only where there is:
a current enforceable legal right to off set the asset and liability; and
an intention to settle on a net basis, or to realise the asset and
settle the liability simultaneously.
iii) Cash and cash equivalents
For cash fl ow statement presentation purposes, cash and cash
equivalents includes cash on hand, deposits held at call with other
fi nancial institutions, other short-term, highly liquid investments
with original terms to maturity of three months or less that are readily
convertible to cash and which are subject to an insignifi cant risk of
changes in value.
iv) Segment reporting
An operating segment is a component of the Group that engages
in business activities from which it may earn revenues and incur
expenses, whose operating results are regularly reviewed by the
Chief Executive Offi cer to make decisions about resources to be
allocated to the segment and assess its performance and for which
discrete information is available.
v) Goods and services tax
Income, expenses and assets are recognised net of the amount
of goods and services tax (GST), except where the amount of GST
incurred is not recoverable from the Australian Tax Offi ce (ATO).
In these circumstances the GST is recognised as part of the cost
of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST
included. The net amount of GST recoverable from or payable to the
ATO is included as an other asset or liability in the balance sheet.
Cash fl ows are included in the cash fl ow statement on a gross
basis. The GST components of cash fl ows arising from investing
and fi nancing activities which are recoverable from or payable
to the ATO are classifi ed as operating cash fl ows.
I) LIFE INSURANCE AND FUNDS MANAGEMENT BUSINESS
The Group conducts its life insurance and funds management
business (the Life Business) in Australia primarily through OnePath
Life Limited, which is registered under the Life Insurance Act 1995
(Life Act), amended by the Financial Sector Legislation Amendment
(Simplifying Regulation and Review) Act 2007 (SRR Act) and in New
Zealand through OnePath Life (NZ) Limited and OnePath Insurance
Services (NZ) Limited which are registered under the New Zealand Life
Insurance Act 1908.
The operations of the Life Business in Australia are conducted within
separate statutory funds as required by the Life Act. The assets of the
Life Business are allocated between policyholder and shareholder
funds in accordance with the requirements of the Life Act. Under
AASs, the fi nancial statements must include all assets, liabilities,
revenues, expenses and equity, irrespective of whether they are
designated as relating to shareholders or policyholders. Accordingly,
the consolidated fi nancial statements include both policyholder
(statutory) and shareholder’s funds.
(i) Policy liabilities
Policy liabilities include liabilities arising from life insurance contracts
and life investment contracts.
Life insurance contracts are insurance contracts regulated under
the Life Act and similar contracts issued by entities operating
outside Australia. An insurance contract is a contract under which
an insurer accepts signifi cant insurance risk from another party
(the policyholder) by agreeing to compensate the policyholder if a
specifi ed uncertain future event adversely aff ects the policyholder.
All contracts written by registered life insurers that do not meet the
defi nition of an insurance contract are referred to as life investment
contracts. Life investment contract business relates to funds
management products in which the Group issues a contract where
the resulting liability to policyholders is linked to the performance
and value of the assets that back those liabilities.
Notes to the Financial Statements
99
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1: Signifi cant Accounting Policies (continued)
Whilst the underlying assets are registered in the name of the life
insurer and the policyholder has no direct access to the specifi c
assets, the contractual arrangements are such that the policyholder
bears the risks and rewards of the fund’s investment performance
with the exception of guaranteed products where the policyholder
is guaranteed a minimum return or asset value. The Group derives
fee income from the administration of the underlying assets.
Life investment contracts that include a discretionary participation
feature (participating contracts) are accounted for as if they are life
insurance contracts under AASB 1038 Life Insurance Contracts.
Life insurance liabilities
Life insurance liabilities are determined using the ‘Margin on Services’
(MoS) model using a projection method or using an accumulation
method. Under the projection method, the liability is determined as
the net present value of the expected future cash fl ows, plus planned
margins of revenues over expenses relating to services yet to be
provided, discounted using a risk-free discount rate that refl ects
the nature, structure and term of the liabilities. Expected future
cash fl ows include premiums, expenses, redemptions and benefi t
payments, including bonuses.
An accumulation method is used where the policy liabilities
determined are not materially diff erent from those determined
under the projection method.
Profi ts from life insurance contracts are brought to account using
the MoS model in accordance with Actuarial Standard LPS 1.04
Valuation of Policy Liabilities (formerly AS 1.04) as issued by the
Australian Prudential Regulation Authority under the Life Act and
Professional Standard 3 Determination of Life Insurance Policy
Liabilities as issued by the New Zealand Society of Actuaries. Under
MoS, profi t is recognised as premiums are received and services
are provided to policyholders. When premiums are received but
the service has not been provided, the profi t is deferred. Losses are
expensed when identifi ed.
Costs associated with the acquisition of policies are recognised
over the life of the policy. Costs may only be deferred, however,
to the extent that a contract is expected to be profi table.
Participating contracts, defi ned as those contracts that entitle
the policyholder to participate in the performance and value of
certain assets in addition to the guaranteed benefi t, are entitled to
share in the profi ts that arise from participating business. This profi t
sharing is governed by the Life Act and the life insurance company’s
constitution. The profi t sharing entitlement is treated as an expense
in the consolidated fi nancial statements. Any benefi ts which remain
payable at the end of the reporting period are recognised as part
of life insurance liabilities.
Life investment contract liabilities
Life investment contracts involve both the origination of a fi nancial
instrument and the provision of investment management services.
The fi nancial instrument component of the life investment
contract liabilities is designated as at fair value through profi t or
loss. The management services component, including associated
acquisition costs, is recognised as revenue as services are performed.
See note 1 (I)(vi) for the deferral and amortisation of life investment
contract acquisition costs and entry fees.
100
ANZ Annual Report 2011
For investment-linked products, the life investment contract liability
is directly linked to the performance and value of the assets that
back them and is determined as the fair value of those assets after
tax. For fi xed income policies the liability is determined as the net
present value of expected cash fl ows subject to a minimum of
current surrender value.
(ii) External unit holder liabilities (life insurance funds)
The life insurance business includes controlling interests in trusts and
companies, and the total amounts of each underlying asset, liability,
revenue and expense of the controlled entities are recognised in the
Group’s consolidated fi nancial statements. When a controlled unit
trust is consolidated, the share of the unit holder liability attributable
to the Group is eliminated but amounts due to external unit holders
remain as liabilities in the Group’s consolidated balance sheet.
(iii) Claims
Claims are recognised when the liability to the policyholder under
the policy contract has been established or upon notifi cation of the
insured event depending on the type of claim. Claims are separated
into their expense and liability components.
Claims incurred in respect of life investment contracts represent
withdrawals and are recognised as a reduction in life investment
contract liabilities.
Claims incurred that relate to the provision of services and bearing
of insurance risks are treated as expenses and these are recognised
on an accruals basis once the liability to the policyholder has been
established under the terms of the contract.
(iv) Revenue
Life insurance premiums
Life insurance premiums earned by providing services and bearing
risks are treated as revenue. Life insurance deposit premiums
are recognised as an increase in policy liabilities. For annuity, risk
and traditional business, all premiums are recognised as revenue.
Premiums with no due date are recognised as revenue on a cash
received basis. Premiums with a regular due date are recognised as
revenue on an accruals basis. Unpaid premiums are only recognised
as revenue during the days of grace or where secured by the
surrender value of the policy and are included as ‘Other assets’ in
the balance sheet.
Life investment contract premiums
There is no premium revenue in respect of investment contracts.
Investment contract amounts received from policyholders in
respect of investment contracts comprise a deposit component
or origination fee and/or ongoing investment management fee or
amounts directly credited to investment contract liabilities.
Fees
Fees are charged to policyholders in connection with life insurance
and life investment contracts and are recognised when the service
has been provided. Entry fees from life investment contracts are
deferred and recognised over the average expected life of the
contracts. Deferred entry fees are presented within ‘Other liabilities’ in
the balance sheet.
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1: Signifi cant Accounting Policies (continued)
(v) Reinsurance contracts
Reinsurance premiums, commissions and claim settlements,
as well as the reinsurance element of insurance contract liabilities,
are accounted for on the same basis as the underlying direct
insurance contracts for which the reinsurance was purchased.
(vi) Policy acquisition costs
Life insurance contract acquisition costs
Policy acquisition costs are the fi xed and variable costs of acquiring
new business. The appointed actuary assesses the value and future
recoverability of these costs in determining policy liabilities. The net
profi t impact is presented in the income statement as a change in
policy liabilities. The deferral is determined as the actual costs are
incurred subject to an overall limit that future profi ts are anticipated
to cover these costs. Losses arising on acquisition are recognised
in the income statement in the year in which they occur. Amounts
which are deemed recoverable from future premiums or policy
charges are deferred and amortised over the life of the policy.
Life investment contract acquisition costs
Incremental acquisition costs, such as commissions, that are directly
attributable to securing a life investment contract are recognised
as an asset where they can be identifi ed separately and measured
reliably and if it is probable that they will be recovered. These deferred
acquisition costs are presented in the balance sheet as an intangible
asset and are amortised over the period that they will be recovered
from future policy charges.
Any impairment losses arising on deferred acquisition costs are
recognised in the income statement in the period in which they occur.
(vii) Basis of expense apportionment
All life investment contracts and insurance contracts are categorised
based on individual policy or products. Expenses for these products
are then allocated between acquisition, maintenance, investment
management and other expenses.
Expenses which are directly attributable to an individual policy or
product are allocated directly to a particular expense category, fund,
class of business and product line as appropriate. Where expenses are
not directly attributable to an individual policy or product, they are
appropriately apportioned based on detailed expense analysis having
regard to the objective in incurring that expense and the outcome
achieved. The apportionment has been made in accordance with
Actuarial Standard LPS 1.04 Valuation of Policy Liabilities (formerly
AS 1.04), issued by the Australian Prudential Regulation Authority,
and on an equitable basis to the diff erent classes of business in
accordance with Division 2 of Part 6 of the Life Act.
(viii) Investments backing policy liabilities
All investments backing policy liabilities are designated as at fair
value through profi t or loss. For OnePath Australia, all policy holder
assets, being those assets held within the statutory funds of the life
company that are not segregated and managed under a distinct
shareholder investment mandate are held to back life insurance and
life investment contract liabilities (collectively referred to as policy
liabilities). These investments are designated as at fair value through
profi t or loss.
J) OTHER
i) Contingent liabilities
Contingent liabilities acquired in a business combination are individually
measured at fair value at the acquisition date. At subsequent reporting
dates the value of such contingent liabilities is reassessed based on the
estimate of the expenditure required to settle the contingent liability.
Other contingent liabilities are not recognised in the balance sheet
but disclosed in note 44 unless it is considered remote that the Group
will be liable to settle the possible obligation.
ii) Earnings per share
The Group presents basic and diluted earnings per share (EPS) data
for its ordinary shares. Basic EPS is calculated by dividing the profi t
or loss attributable to ordinary shareholders of the Company by the
weighted average number of ordinary shares outstanding during
the period after eliminating treasury shares.
Diluted EPS is determined by adjusting the profi t or loss attributable
to ordinary shareholders and the weighted average number of
ordinary shares outstanding for the eff ect of dilutive ordinary shares.
Notes to the Financial Statements 101
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1: Signifi cant Accounting Policies (continued)
iii) Accounting Standards not early adopted
The following standards were available for early adoption, but have not been applied by the Company or Group in these fi nancial statements.
AASB standard
Possible impact on the Company and the Group’s fi nancial report in period of initial adoption
AASB 9 Financial
Instruments
AASB 10 Consolidated
Financial Statements
AASB 12 Disclosure of
Interests in Other Entities
This standard and its associated amending standard (AASB 2009-11) specifi es new recognition
and measurement requirements for fi nancial assets and fi nancial liabilities within the scope of
AASB 139 Financial Instruments: Recognition and Measurement. This standard represents the
fi rst phase of the project to replace AASB 139 and will result in fundamental changes in the
way that the Company and the Group accounts for fi nancial instruments.
The main changes from AASB 139 include:
all fi nancial assets, except for certain equity instruments, will be classifi ed into two categories:
– amortised cost, where they generate solely payments of interest and principal and the
business model is to collect contractual cash fl ows that represent principal and interest; or
– fair value through the income statement.
certain equity instruments not held for trading purposes will be classifi ed at fair value through the
income statement or fair value through other comprehensive income (OCI) with dividends
recognised in net income.
fi nancial assets which meet the requirements for classifi cation at amortised cost are permitted
to be measured at fair value if that eliminates or signifi cantly reduces an accounting mismatch.
fi nancial liabilities – gains and losses on own credit arising from fi nancial liabilities designated
at fair value through profi t or loss will be excluded from the income statement and instead
taken to OCI.
Future phases of the project to replace AASB 139 will cover impairment of fi nancial assets
measured at amortised cost and hedge accounting.
The Group is currently assessing the impact of this standard, as well as developments arising
from future phases of the project to replace AASB 139.
This standard provides a defi nition of ‘control’ based on whether the investor is exposed to, or has
rights to, the variable returns from its involvement with an investee and has the ability to aff ect
those returns through its power over the investee. The standard also provides guidance on
how the control principle is applied in certain situations, such as where potential voting rights
exist or where voting rights are not the dominant factor in determining whether control exists
(e.g. where relevant activities are directed through contractual means). An assessment of the
impact of this standard is being performed, however no material impact on the Group is expected.
This standard applies where an entity has an ‘interest in another entity’ (essentially, any
contractual or non-contractual interest that exposes an entity to the returns from the
performance of the other entity). Such interests include a subsidiary, joint arrangement,
associate or an unconsolidated structured entity. A range of disclosures is required which
assist users to evaluate the nature, extent and fi nancial eff ects and risks associated with an
entity’s interest in other entities. These disclosures replace and signifi cantly enhance those
in other standards applicable to subsidiaries, joint arrangements or associates and impose new
disclosures. As the amendments are only related to disclosure, no material impact on
the Group is expected.
Application date for the
Company and Group
1 October 20131
1 October 2013
1 October 2013
AASB 13 Fair Value
Measurement
This standard provides a single source of guidance on fair value measurement and requires
certain disclosures regarding fair value. This standard aims to improve the consistency and
reduce the complexity of fair value measurement. An assessment of the impact of this
standard is being made, however no material impact on the Group is expected.
1 October 2013
A number of other AASB standards are also available for early adoption, but have not been applied by the Company or Group in these fi nancial
statements. These standards involve amendments of a technical nature which are not expected to have a material impact on the Company or Group.
1 Mandatory effective date is currently being reviewed by the International Accounting Standards Board with the possible deferral to 1 October 2015.
102
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
2: Critical Estimates and Judgements Used in Applying Accounting Policies
The Group prepares its fi nancial report in accordance with policies which
are based on AASs, other authoritative accounting pronouncements
and Interpretations of the AASB and the Corporations Act 2001.
This involves the Group making estimates and assumptions that
aff ect the reported amounts within the fi nancial statements.
Estimates and judgements are continually evaluated and are based
on historical factors, including expectations of future events that
are believed to be reasonable under the circumstances. All material
changes to accounting policies and estimates and the application
of these policies and judgements are approved by the Audit
Committee of the Board.
A brief explanation of critical estimates and judgements and their
impact on the Group follows:
Critical accounting estimates and assumptions
Provisions for credit impairment
The accounting policy, as explained in note 1 (E)(iv), relating
to measuring the impairment of loans and advances, requires the
Group to assess impairment at least at each reporting date. The credit
provisions raised (individual and collective) represent management’s
best estimate of the losses incurred in the loan portfolio at balance
date based on experienced judgement.
The collective provision is estimated on the basis of historical loss
experience for assets with credit characteristics similar to those in
the collective pool. The historical loss experience is adjusted based on
current observable data and events and an assessment of the impact
of model risk. The provision also takes into account the impact of
large concentrated losses within the portfolio and the economic cycle.
The use of such judgements and reasonable estimates is considered
by management to be an essential part of the process and does not
impact on reliability.
Individual provisioning is applied when the full collectability of a loan
is identifi ed as being doubtful.
Individual and collective provisioning is calculated using discounted
expected future cash fl ows. The methodology and assumptions used
for estimating both the amount and timing of future cash fl ows are
revised regularly to reduce any diff erences between loss estimates
and actual loss experience.
Critical judgements in applying the entity’s accounting policies
i) Special purpose and off -balance sheet entities
The Group may invest in or establish special purpose entities (SPEs)
to enable it to undertake specifi c types of transactions. The main
types of these SPEs are securitisation vehicles, structured fi nance
entities, and entities used to sell credit protection.
Where the Group has established SPEs which are controlled by
the Group, they are consolidated in the Group’s fi nancial statements.
The Group does not consolidate SPEs that it does not control in
accordance with the Group’s policy outlined in note 1 (A)(vii). As it
can be complex to determine whether the Group has control of a
SPE, the Group makes judgements about its exposure to the risks
and rewards, as well as about its ability to make operational decisions
for the SPE in question.
The table below summarises the main types of SPEs with which the Group is involved, the reason for their establishment, and the control factors
associated with ANZ’s interest in them. Although there may be some indicators of control, ANZ does not bear the majority of residual risks and
rewards of the SPEs. Therefore they are not consolidated.
Type of SPE
Reason for establishment
Control factors
Securitisation vehicles
Securitisation is a fi nancing technique whereby assets
are transferred to an SPE which funds the purchase by
issuing securities. This enables ANZ (in the case where
transferred assets originate within ANZ) or customers
to increase diversity of funding sources.
Structured fi nance entities
These entities are set up to assist with the structuring
of client fi nancing. The resulting lending arrangements
are at arms length and ANZ typically has limited ongoing
involvement with the entity.
ANZ may manage these securitisation vehicles,
service assets in the vehicle or provide liquidity or
other support. ANZ retains the risks associated with
the provision of these services. For any SPE which is
not consolidated, credit and market risks associated
with the underlying assets are not retained or assumed
by ANZ except to the limited extent that ANZ provides
arm’s length services and facilities.
ANZ may manage these vehicles, hold minor amounts
of capital, provide fi nancing or derivatives.
Credit protection
The SPE in this category is created to allow ANZ to
purchase credit protection.
ANZ may manage this vehicle.
Notes to the Financial Statements 103
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
2: Critical Estimates and Judgements Used in Applying Accounting Policies (continued)
ii) Signifi cant associates
The carrying values of all signifi cant investments in associates (as
disclosed in note 39) are subject to an annual recoverable amount
test. This assessment involves ensuring that the investment’s fair
value less costs to sell or its value in use is greater than its carrying
amount. Judgement is applied when determining the assumptions
supporting these calculations.
The Group reviews its investments in associates against the following
impairment indicators:
actual fi nancial performance against budgeted fi nancial performance;
any material unfavourable operational factors and regulatory factors;
any material unfavourable economic outlook and market
competitive factors;
carrying value against available quoted market values (supported
by third-party broker valuations where available); and
carrying value against market capitalisation (for listed investments).
Where appropriate, additional potential impairment indicators are
reviewed which are more specifi c to the respective investment.
As at 30 September 2011, no impairment of associates was identifi ed
as a result of either the review of impairment indicators listed above or
the recoverable amount test.
iii) Available-for-sale fi nancial assets
The accounting policy for impairment of available-for-sale fi nancial
assets, as explained in note 1 (E)(iii), requires the Group to assess
whether there is objective evidence of impairment. This requires
judgement when considering whether such evidence exists and, if so,
in reliably determining the impact of such events on the estimated
cash fl ows of the asset. During the year ended 30 September 2011,
an impairment of $35 million (2010: $nil) was recognised in the
income statement in respect of Sacombank after assessing that
the decline in the market value of the investment was signifi cant
and prolonged.
iv) Financial instruments at fair value
A signifi cant portion of fi nancial instruments are carried on the
balance sheet at fair value.
The best evidence of fair value is a quoted price in an active market.
Accordingly, wherever possible, fair value is based on quoted market
prices for the fi nancial instrument.
In the event that there is no active market for the instrument, fair
value is based on present value estimates or other market accepted
valuation techniques. The valuation models incorporate the impact
of bid/ask spread, counterparty credit spreads and other factors that
would infl uence the fair value determined by a market participant.
The majority of valuation techniques employ only observable
market data. However, for certain fi nancial instruments, the fair value
cannot be determined with reference to current market transactions
or valuation techniques whose variables only include data from
observable markets.
In respect of the valuation component where market observable
data is not available, the fair value is determined using data derived
and extrapolated from market data and tested against historic
transactions and observed market trends. These valuations are
based upon assumptions established by application of professional
judgement to analyse the data available to support each assumption.
Changing the assumptions changes the resulting estimate of fair value.
The majority of outstanding derivative positions are transacted
over-the-counter and therefore need to be valued using valuation
techniques. Included in the determination of the fair value of derivatives
is a credit valuation adjustment to refl ect the credit worthiness of the
counterparty, representing the credit risk component of the overall
fair value movement on a particular derivative asset. The total valuation
adjustment is infl uenced by the mark-to-market of the derivative trades
and by the movement in the market cost of credit.
v) Goodwill and indefi nite life intangible assets
The carrying values of goodwill and intangible assets with indefi nite
lives are reviewed at each balance date and written-down to the
extent that they are no longer supported by probable future benefi ts.
Goodwill and intangible assets with indefi nite useful lives are
allocated to cash-generating units (CGUs) for the purpose of
impairment testing. In respect of goodwill, the CGUs are based
on the operating segments of the Group. During the year the
operating segments were changed from the major geographies
in which the Group operates to the major divisions through which
the Group operates. Goodwill has been reallocated accordingly.
Impairment testing of goodwill and indefi nite life intangibles is
performed annually or more frequently when there is an indication
that the asset may be impaired. Impairment testing is conducted
by comparing the recoverable amount of the CGU with the current
carrying amount of its net assets, including goodwill and intangibles as
applicable. Where the current carrying value is greater than recoverable
amount, a charge for impairment is recognised in the income statement.
The most signifi cant components of the Group’s goodwill balance
at 30 September 2011 relate to the New Zealand division which was
$1,720 million (Sep 2010: $1,653 million) and Australia division which
was $1,433 million (Sep 2010: $1,414 million).
The recoverable amount of the CGU to which each goodwill
component is allocated is estimated using a market multiple
approach as representative of the fair value less costs to sell of each
CGU. The price earnings multiples are based on observable multiples
in the respective markets in which the Group operates. The earnings
are based on the current forecast earnings of the divisions. Key
assumptions on which management has based its determination
of fair value less costs to sell include assumptions regarding market
multiples, costs to sell and forecast earnings. Changes in assumptions
upon which the valuation is based could materially impact the
assessment of the recoverable amount of each CGU.
As at 30 September 2011, results of the impairment testing performed
did not result in any material impairment being identifi ed.
104
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
2: Critical Estimates and Judgements Used in Applying Accounting Policies (continued)
vi) Intangible assets with fi nite useful lives
The carrying value of intangible assets with fi nite useful lives
are reviewed each balance date for any indication of impairment.
This assessment involves applying judgement and consideration
is given to both internal and external indicators of potential
impairment. The majority of the Group’s intangible assets with
a fi nite life is represented by capitalised software and intangible
assets purchased as part of the acquisition of OnePath Australia
Limited and OnePath (NZ) Limited.
As at 30 September 2011, the results of the impairment testing
performed did not result in any material impairment being identifi ed.
vii) Life insurance contract liabilities
Policy liabilities for life insurance contracts are computed using
statistical or mathematical methods, which are expected to give
approximately the same results as if an individual liability was
calculated for each contract. The computations are made by suitably
qualifi ed personnel on the basis of recognised actuarial methods,
with due regard to relevant actuarial principles and standards. The
methodology takes into account the risks and uncertainties of the
particular classes of life insurance business written. Deferred policy
acquisition costs are connected with the measurement basis of life
insurance liabilities and are equally sensitive to the factors that are
considered in the liability measurement.
The key factors that aff ect the estimation of these liabilities
and related assets are:
the cost of providing the benefi ts and administering these
insurance contracts;
mortality and morbidity experience on life insurance products,
including enhancements to policyholder benefi ts;
discontinuance experience, which aff ects the Company’s ability
to recover the cost of acquiring new business over the lives of the
contracts; and
the amounts credited to policyholders’ accounts compared to the
returns on invested assets through asset-liability management and
strategic and tactical asset allocation.
In addition, factors such as regulation, competition, interest rates, taxes
and general economic conditions aff ect the level of these liabilities.
The total value of policy liabilities for life insurance contracts have
been appropriately calculated in accordance with these principles.
viii) Taxation
Signifi cant judgement is required in determining provisions held in
respect of uncertain tax positions. The Group estimates its tax liabilities
based on its understanding of the relevant law in each of the countries
in which it operates.
Notes to the Financial Statements 105
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
3: Income
Interest income
Other fi nancial institutions
Trading securities
Available-for-sale assets
Loans and advances and acceptances
Other
Controlled entities
Total interest income
Interest income is analysed by types of fi nancial assets as follows
Financial assets not at fair value through profi t or loss
Trading securities
Financial assets designated at fair value through profi t or loss
i) Fee and commission income
Lending fees1
Non-lending fees and commissions
Controlled entities
Total fee and commission income
Fee and commission expense 2
Net fee and commission income
ii) Other income
Net foreign exchange earnings
Net gains from trading securities and derivatives3
Credit risk on derivatives
Fair value impairment for investment in OnePath Australia and OnePath NZ
Movements on fi nancial instruments measured at fair value through profi t or loss4
Dividends received from controlled entities5
Brokerage income
NZ managed funds impacts
Write-down of assets in non-continuing business
Write-back of investment in Saigon Securities Inc
Write-down of investment in Sacombank
Private equity and infrastructure earnings
Profi t on sale of property
Other
Total other income
Other operating income
iii) Net funds management and insurance income
Funds management income
Investment income
Insurance premium income
Commission income (expense)
Claims
Changes in policy liabilities
Elimination of treasury share gain
Total net funds management and insurance income
Total other operating income
Share of joint venture profi t from OnePath Australia and OnePath NZ
Share of associates’ profi t
Total share of joint venture and associates profi t
Total income6
Consolidated
2011
$m
2010
$m
The Company
2011
$m
2010
$m
221
1,481
570
27,614
482
30,368
–
30,368
28,872
1,481
15
30,368
652
2,053
2,705
–
2,705
(314)
2,391
817
295
21
–
(167)
–
61
61
(13)
–
(35)
26
24
127
1,217
3,608
868
(511)
1,184
(490)
(548)
854
48
1,405
5,013
–
436
436
35,817
185
1,525
535
23,950
413
26,608
–
26,608
25,066
1,525
17
26,608
634
1,967
2,601
–
2,601
(277)
2,324
747
319
35
(217)
(202)
–
70
4
(12)
25
–
43
2
153
967
3,291
730
1,165
847
(358)
(414)
(836)
(35)
1,099
4,390
33
400
433
31,431
168
1,166
481
22,716
298
24,829
2,168
26,997
25,822
1,166
9
26,997
583
1,511
2,094
651
2,745
(236)
2,509
528
280
19
–
(87)
941
–
–
(13)
–
(35)
26
–
(40)
1,619
4,128
101
–
33
49
–
–
–
183
4,311
–
–
–
31,308
159
1,249
404
19,228
211
21,251
1,671
22,922
21,662
1,249
11
22,922
574
1,435
2,009
424
2,433
(200)
2,233
458
366
39
–
(203)
1,490
–
–
(12)
25
–
43
–
(3)
2,203
4,436
85
–
28
51
–
–
–
164
4,600
–
–
–
27,522
1 Lending fees exclude fees treated as part of the effective yield calculation and included in interest income (refer note 1 B(ii)).
2
Includes interchange fees paid.
3 Does not include interest income.
4
Includes fair value movements (excluding realised and accrued interest) on derivatives entered into for management of interest rate and foreign exchange risk on funding instruments,
and not designated as accounting hedges, ineffective portions of cashflow hedges, and fair value movements in financial assets and liabilities designated at fair value.
The net gain on financial assets and liabilities designated at fair value was $107 million (2010: $251 million) for the Group and $104 million (2010: $253 million) for the Company.
5 Dividends received from controlled entities are subject to meeting applicable regulatory and corporate law requirements, including solvency requirements.
6 Total income includes external dividend income of $11 million (2010: $18 million) for the Group and $9 million (2010: $16 million) for the Company.
106
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
4: Expenses
Interest expense
Financial institutions
Deposits
Borrowing corporations’ debt
Commercial paper
Loan capital, bonds and notes
Other
Controlled entities
Total interest expense
Interest expense is analysed by types of fi nancial liabilities as follows:
Financial liabilities not at fair value through profi t or loss
Financial liabilities designated at fair value through profi t or loss
Operating expenses
i) Personnel
Employee entitlements and taxes
Salaries and wages
Superannuation costs – defi ned benefi t plans
– defi ned contribution plans
Equity-settled share-based payments
Temporary staff
Other
Total personnel expenses
ii) Premises
Amortisation of leasehold improvements
Depreciation of buildings and integrals
Rent
Utilities and other outgoings
Other
Total premises expenses
iii) Computer
Computer contractors
Data communication
Depreciation and amortisation1
Rentals and repairs
Software purchased
Software impairment2
Other
Total computer expenses
iv) Other
Advertising and public relations
Amortisation and impairment of other intangible assets (refer note 19)
Audit and other fees (refer note 5)
Depreciation of furniture and equipment (refer note 21)
Freight and cartage
Loss on sale and write-off of equipment
Non-lending losses, fraud and forgeries
Postage and stationery
Professional fees
Telephone
Travel
Other
Total other expenses
v) Restructuring3
Total operating expenses
Total expenses
Consolidated
2011
$m
2010
$m
The Company
2011
$m
2010
$m
526
12,661
101
489
4,828
280
18,885
–
18,885
18,521
364
18,885
306
2,971
13
287
166
250
743
4,736
49
40
387
165
44
685
143
125
348
120
250
20
35
1,041
235
122
18
97
65
4
53
130
274
75
208
132
326
9,784
135
499
4,171
824
15,739
–
15,739
15,355
384
15,739
259
2,639
14
253
140
215
730
4,250
42
37
365
160
35
639
120
94
297
100
214
17
24
866
252
95
15
91
62
11
67
130
349
68
196
179
485
10,900
–
378
4,018
217
15,998
2,488
18,486
18,233
253
18,486
238
2,332
7
249
145
192
581
3,744
30
20
251
114
38
453
117
83
266
91
181
7
7
752
139
8
10
81
51
2
27
88
235
38
150
455
279
8,081
–
287
3,419
781
12,847
1,830
14,677
14,504
173
14,677
184
1,885
9
201
119
165
575
3,138
28
17
240
117
33
435
81
59
248
74
150
12
3
627
151
3
8
75
48
3
40
92
307
38
142
495
1,413
148
8,023
26,908
1,515
34
7,304
23,043
1,284
23
6,256
24,742
1,402
34
5,636
20,313
1
Comprises software amortisation $249 million (2010: $207 million) (refer note 19) and computer depreciation $99 million (2010: $90 million) (refer note 21). The Company comprises software
amortisation $199 million (2010: $183 million) (refer note 19), and computer depreciation $67 million (2010: $65 million) (refer note 21).
2 $24 million of software impairment expense has been booked as restructuring expenses by the Group in 2011 (2010: $nil).
3
Includes $125 million relating to costs associated with adopting a single core banking system in New Zealand.
Notes to the Financial Statements 107
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
5: Compensation of Auditors
Consolidated
The Company
KPMG Australia1
Audit or review of fi nancial reports of the Company or Group entities
Audit-related services2
Non-audit services3
Overseas related practices of KPMG Australia
Audit or review of fi nancial reports of the Company or Group entities
Audit-related services2
Non-audit services3
2011
$’000
8,620
3,636
266
2010
$’000
7,916
2,280
80
12,522
10,276
4,522
808
69
5,399
4,119
539
92
4,750
2011
$’000
5,479
2,806
138
8,423
1,187
454
15
1,656
Total compensation of auditors
17,921
15,026
10,079
2010
$’000
5,053
1,595
80
6,728
1,040
400
20
1,460
8,188
Group policy allows KPMG Australia or any of its related practices to provide assurance and other audit-related services that, while outside the scope of the statutory audit, are consistent with the
role of external auditor. These include regulatory and prudential reviews requested by the Company’s regulators such as APRA. Any other services that are not audit or audit-related services are non-
audit services. Group Policy allows certain non-audit services to be provided such as accounting advice and the provision of training, where the service would not contravene auditor independence
requirements. KPMG Australia or any of its related practices may not provide services that are perceived to be in conflict with the role of auditor. These include consulting advice and subcontracting
of operational activities normally undertaken by management, and engagements where the auditor may ultimately be required to express an opinion on its own work.
1 Goods and services tax inclusive.
2 Comprises prudential and regulatory services of $3.578 million (2010: $2.123 million), comfort letters $0.446 million (2010: $0.521 million) and other $0.420 million (2010: $0.175 million).
3 Non-audit services comprises:
Consolidated
Collective provision review (on behalf of APRA)
Managed investment schemes distribution model review
Review script for script audit validation model and trust
voting analysis models
R&D claim review
Review output from counterparty credit risk review project
Presentations
Prudential standard impact assessment
Training courses
Accounting advice
Witness branch transfer of deposit boxes
Market Risk benchmarking review
Market Risk system capability review
Overseas branch registration regulatory assistance
Review of foreign exchange process in overseas branch
Non-audit services
2011
$’000
2010
$’000
101
81
46
40
20
18
11
9
5
4
–
–
–
–
–
–
–
–
–
–
–
–
82
–
50
30
2
8
Total
335
172
108
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
6: Current Income Tax Expense
Income tax recognised in the income statement
Tax expense/(income) comprises:
Consolidated
2011
$m
2010
$m
The Company
2011
$m
2010
$m
Current tax expense/(income)
Adjustments recognised in the current year in relation to the current tax of prior years
Deferred tax expense/(income) relating to the origination and reversal of
temporary diff erences
Total income tax expense charged in the income statement
2,364
3
(58)
2,309
2,153
(1)
(56)
2,096
1,624
3
(206)
1,421
1,542
(1)
(129)
1,412
Reconciliation of the prima facie income tax expense on pre-tax profi t
with the income tax expense charged in the Income statement
Profi t before income tax
Prima facie income tax expense at 30%
Tax eff ect of permanent diff erences:
Overseas tax rate diff erential
Rebateable and non-assessable dividends
Profi t from associates and joint venture entities
Fair value adjustment for OnePath Australia and OnePath NZ
New Zealand conduits
Mark-to-market (gains)/losses on fair valued investments related to associated entities
Write-down of investment in Sacombank
Write-back of investment in Saigon Securities Inc.
Impact of changes in New Zealand tax legislation
Off shore Banking Units
Foreign exchange translation of US hybrid loan capital
OnePath Australia – policyholder income and contributions tax
Non deductible RBS integration costs
Resolution of US tax matter
Withholding tax provision no longer required
Other
Income tax (over) provided in previous years
Total income tax expense charged in the income statement
Eff ective tax rate
Australia
Overseas
7,672
2,302
6,601
1,980
5,572
1,672
5,840
1,752
(29)
(5)
(131)
–
–
–
11
–
(2)
–
–
146
4
–
(35)
45
5
(5)
(130)
65
(38)
(2)
–
(7)
36
(7)
–
150
27
(31)
–
54
(18)
(282)
–
–
–
–
11
–
–
–
(2)
–
4
–
(35)
68
15
(447)
–
–
–
(2)
–
(7)
–
(7)
4
–
27
(31)
–
109
2,306
2,097
1,418
1,413
3
2,309
30.1%
1,847
462
(1)
2,096
31.8%
1,753
343
3
1,421
25.5%
1,322
99
(1)
1,412
24.2%
1,328
84
Tax consolidation
The Company and all its wholly owned Australian resident entities are part of a tax-consolidated group under Australian taxation law.
The Company is the head entity in the tax-consolidated group. Tax expense/income and deferred tax liabilities/assets arising from temporary
diff erences of the members of the tax-consolidated group are recognised in the separate fi nancial statements of the members of the
tax-consolidated group on a ‘group allocation’ basis. Current tax liabilities and assets of the tax consolidated group are recognised by the
Company (as head entity in the tax-consolidated group).
Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable
to or receivable by the Company and each member of the group in relation to the tax contribution amounts paid or payable between the
Company and the other members of the tax-consolidated group in accordance with the arrangement.
Members of the tax-consolidated group have also entered into a tax sharing agreement that provides for the allocation of income tax liabilities
between the entities should the head entity default on its income tax payment obligations.
Taxation of Financial Arrangements ‘TOFA’
The Group adopted the new tax regime for fi nancial arrangements (TOFA) in Australia eff ective from 1 October 2009. The regime aims to more
closely align the tax and accounting recognition and measurement of the fi nancial arrangements within scope and their related fl ows. Deferred
tax balances for fi nancial arrangements that existed on adoption at 1 October 2009 will reverse over a four year period.
Notes to the Financial Statements 109
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
7: Dividends
Ordinary dividends1
Interim dividend
Final dividend
Bonus option plan adjustment
Dividend on ordinary shares
1
Dividends are not accrued and are recorded when paid.
Consolidated
2011
$m
2010
$m
The Company
2011
$m
2010
$m
1,662
1,895
(66)
3,491
1,318
1,403
(54)
2,667
1,662
1,895
(66)
3,491
1,318
1,403
(54)
2,667
A fi nal dividend of 76 cents, fully franked, is proposed to be paid on 16 December 2011 on each eligible fully paid ordinary share
(2010: fi nal dividend of 74 cents, paid 17 December 2010, fully franked). The 2011 interim dividend of 64 cents, paid 1 July 2011, was fully
franked (2010: interim dividend of 52 cents, paid 1 July 2010, fully franked).
The tax rate applicable to the franking credits attached to the 2011 interim dividend and to be attached to the proposed 2011 fi nal dividend
is 30% (2010: 30%).
Dividends paid in cash or satisfi ed by the issue of shares under the Dividend Reinvestment Plan during the years ended 30 September 2011
and 2010 were as follows:
Paid in cash1
Satisfi ed by share issue2
Preference share dividend3
Euro trust securities4
Dividend on preference shares
Consolidated
The Company
2011
$m
2,124
1,367
3,491
2010
$m
1,660
1,007
2,667
Consolidated
2011
$m
12
12
2010
$m
11
11
2011
$m
2,124
1,367
3,491
2010
$m
1,660
1,007
2,667
The Company
2011
$m
2010
$m
–
–
–
–
Includes shares issued to participating shareholders under the dividend reinvestment plan.
1 Refers to cash paid to shareholders who did not elect to participate in the dividend reinvestment plan or the bonus option plan.
2
3 Dividends are not accrued and are recorded when paid.
4 Refer to note 28 for details.
Dividend franking account
The amount of franking credits available to the Company for the
subsequent fi nancial year is $363 million (2010: $397 million) after
adjusting for franking credits that will arise from the payment of
tax on Australian profi ts for the 2011 fi nancial year, $857 million of
franking credits which will be utilised in franking the proposed 2011
fi nal dividend and franking credits that may not be accessible by the
Company at present.
Restrictions which limit the payment of dividends
There are presently no signifi cant restrictions on the payment of
dividends from material controlled entities to the Company. Various
capital adequacy, liquidity, foreign currency controls, statutory reserve
and other prudential and legal requirements must be observed by
certain controlled entities and the impact of these requirements on
the payment of cash dividends is monitored.
There are presently no signifi cant restrictions on the payment of
dividends by the Company, although reductions in shareholders’
equity through the payment of cash dividends is monitored having
regard to the following:
There are regulatory and other legal requirements to maintain a
specifi ed capital adequacy ratio. Further, APRA has advised that
a bank under its supervision must consult with it before declaring
110
ANZ Annual Report 2011
a coupon payment or dividend on a Tier 1 or Upper Tier 2
instrument, if the bank proposes to pay coupons or dividends
on Tier 1 or Upper Tier 2 instruments which exceed its after tax
earnings or the level of current year profi ts (as defi ned by APRA
from time to time).
The Corporations Act 2001 (Cth) provides that the Company must
not pay a dividend on any instrument unless (i) it has suffi cient net
assets for the payment, (ii) the payment is fair and reasonable to the
Company’s shareholders as a whole, and (iii) the payment does not
materially prejudice the Company’s ability to pay its creditors.
The Company may not pay a dividend if to do so would result in the
Company becoming, or likely to become, insolvent or if APRA directs
not to do so.
If any dividend, interest or redemption payments or other distributions
are not paid on the scheduled payment date, or shares or other
qualifying Tier 1 securities are not issued on the applicable conversion
or redemption dates, on the Group’s Euro Trust Securities, US Trust
Securities, UK Stapled Securities or ANZ Convertible Preference
Shares in accordance with their terms, the Group may be restricted
from declaring or paying any dividends or other distributions on
Tier 1 securities including ANZ ordinary shares and preference
shares. This restriction is subject to a number of exceptions.
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
7: Dividends (continued)
Dividend Reinvestment Plan
During the year ended 30 September 2011, 31,506,936 ordinary
shares were issued at $22.60 per share and 30,178,811 ordinary shares
at $21.69 per share to participating shareholders under the dividend
reinvestment plan (2010: 22,970,973 ordinary shares at $21.75 per
share, and 23,779,667 ordinary shares at $21.32 per share). All eligible
shareholders can elect to participate in the dividend reinvestment plan.
For the 2011 fi nal dividend, a discount of 1.5% will be applied when
calculating the ‘Acquisition Price’ used in determining the number
of ordinary shares to be provided under the Dividend Reinvestment
Plan and Bonus Option Plan terms and conditions, and the ‘Pricing
Period’ under the Dividend Reinvestment Plan and Bonus Option Plan
terms and conditions will be the seven trading days commencing on
18 November 2011 (unless otherwise determined by the Directors
and announced on the ASX).
8: Earnings per Ordinary Share
Bonus Option Plan
The amount paid in dividends during the year has been reduced
as a result of certain eligible shareholders participating in the
bonus option plan and foregoing all or part of their right to
dividends. These shareholders were issued ordinary shares under
the Bonus Option Plan.
During the year ended 30 September 2011, 3,013,239 ordinary shares
were issued under the Bonus Option Plan (2010: 2,481,103 ordinary
shares). For the 2011 fi nal dividend, details of the discount that
will be applied when calculating the ‘Acquisition Price’ and of the
‘Pricing Period’, in respect of the Bonus Option Plan are set out above
in the section relating to the Dividend Reinvestment Plan.
Basic earnings per share (cents)
Earnings reconciliation ($millions)
Profi t for the period
Less: profi t attributable to non-controlling interests
Less: preference share dividend paid
Earnings used in calculating basic earnings per share
Weighted average number of ordinary shares (net of Treasury shares) (millions)
Diluted earnings per share (cents)
Earnings reconciliation ($millions)
Earnings used in calculating basic earnings per share
Add: US Trust Securities interest expense
Add: UK Stapled Securities interest expense
Add: ANZ Convertible Preference Shares interest expense
Earnings used in calculating diluted earnings per share
Weighted average number of ordinary shares (net of Treasury shares) (millions)
Used in calculating basic earnings per share
Add: weighted average number of options/rights potentially convertible to ordinary shares
weighted average number of convertible US Trust Securities
weighted average number of convertible UK Stapled Securities
weighted average number of ANZ Convertible Preference Shares
Used in calculating diluted earnings per share
Consolidated
2011
$m
208.2
5,363
8
12
2010
$m
178.9
4,505
4
11
5,343
2,565.9
4,490
2,509.3
198.8
5,343
28
46
168
5,585
2,565.9
4.5
41.6
38.9
158.7
2,809.6
174.6
4,490
35
51
134
4,710
2,509.3
4.8
37.2
32.8
112.9
2,697.0
The weighted average number of converted and lapsed options, weighted with reference to the date of conversion or lapse, and included in the
calculation of diluted earnings per share is approximately 1 million (2010: approximately 1 million).
Notes to the Financial Statements 111
Consolidated
The Company
2011
$m
2,805
12,769
3,377
5,948
24,899
23,400
1,499
24,899
2010
$m
2,793
4,473
4,152
7,527
18,945
15,748
3,197
18,945
2011
$m
958
11,539
2,149
5,909
20,555
19,072
1,483
20,555
2010
$m
1,082
3,825
3,613
7,527
16,047
13,342
2,705
16,047
Consolidated
The Company
2011
$m
6,621
2,203
8,824
2010
$m
4,862
619
5,481
2011
$m
4,579
1,759
6,338
2010
$m
3,592
544
4,136
Consolidated
The Company
2011
$m
115
31
146
4,505
13,448
–
17,975
35,928
36,074
2010
$m
–
48
48
3,649
8,182
6,035
15,601
33,467
33,515
2011
$m
115
31
146
4,505
8,764
–
14,952
28,221
28,367
2010
$m
–
26
26
3,647
5,195
6,035
13,402
28,279
28,305
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
9: Liquid Assets
Coins, notes and cash at bank
Money at call, bills receivable and remittances in transit
Other banks’ certifi cates of deposit
Securities purchased under agreements to resell in less than three months
Total liquid assets
Maturity analysis based on original term to maturity
Less than three months
More than three months
Total liquid assets
10: Due from Other Financial Institutions
Maturity analysis based on original term to maturity
Less than three months
More than three months
Total due from other fi nancial institutions
11: Trading Securities
Listed
Local, semi-government and other government securities
Other securities and equity securities
Unlisted
Commonwealth securities
Local, semi-government and other government securities
ANZ accepted bills1
Other securities and equity securities
Total trading securities
1
In 2011 the Group ceased re-discounting Commercial Bill acceptances.
112
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
12: Derivative Financial Instruments
Derivative fi nancial instruments are contracts whose value is derived
from one or more underlying variables or indices, require little or
no initial net investment and are settled at a future date. Derivatives
include contracts traded on registered exchanges and contracts
agreed between counterparties. The use of derivatives and their
sale to customers as risk management products is an integral part
of the Group’s trading and sales activities. Derivatives are also used
to manage the Group’s own exposure to fl uctuations in exchange and
interest rates as part of its asset and liability management activities.
Derivative fi nancial instruments are subject to market and credit risk
and these risks are managed in a consistent manner to risks arising on
other fi nancial instruments.
Balance sheet risk management
The Group designates balance sheet risk management derivatives
into hedging relationships in order to minimise income statement
volatility. This volatility is created by diff erences in the timing of
recognition of gains and losses between the derivative and the
hedged item. Hedge accounting is not applied to all balance sheet
risk management positions.
Gains or losses from the change in fair value of balance sheet
risk management derivatives that form part of an eff ective hedging
relationship are recognised in the income statement based on
the hedging relationship. Any ineff ectiveness is recognised in the
income statement as ‘other income’ in the period in which it occurs.
Types of derivative fi nancial instruments
The Group transacts principally in foreign exchange, interest rate,
commodity and credit derivative contracts. The principal types of
derivative contracts include swaps, forwards, futures and options
contracts and agreements, as detailed in the table below.
Derivatives, except for those that are specifi cally designated as
eff ective hedging instruments, are classifi ed as held for trading. The
held for trading classifi cation includes two categories of derivative
fi nancial instruments: those held as trading positions and those used
in the Group’s balance sheet risk management activities.
Trading positions
Trading positions consist of both sales to customers and market
making activities. Sales to customers include the structuring
and marketing of derivative products to customers which enable
them to manage their own risks. Market making activities consist
of derivatives entered into principally for the purpose of generating
profi ts from short-term fl uctuations in price or margins. Positions
may be traded actively or held over a period of time to benefi t
from expected changes in market rates.
Gains or losses, including any current period interest, from the change
in fair value of trading positions are recognised in the income statement
as ‘other income’ in the period in which they occur.
Gains or losses, excluding any current period interest, from the
change in fair value of balance sheet risk management positions that
are not designated into hedging relationships are recognised in the
income statement as ‘other income’ in the period in which they occur.
Current period interest is included in interest income and expense.
The tables on the following pages provide an overview of the
Group’s and the Company’s foreign exchange, interest rate,
commodity and credit derivatives. They include all trading and
balance sheet risk management contracts. Notional principal
amounts measure the amount of the underlying physical or fi nancial
commodity and represent the volume of outstanding transactions.
They are not a measure of the risk associated with a derivative. The
derivative instruments become favourable (assets) or unfavourable
(liabilities) as a result of fl uctuations in market rates relative to
their terms. The aggregate notional amount of derivative fi nancial
instruments on hand, the extent to which instruments are favourable
or unfavourable, and as a consequence the aggregate fair values of
derivative fi nancial assets and liabilities, can fl uctuate signifi cantly
from time to time. The fair values of derivative instruments held
and their notional principal amounts are set out below.
Notes to the Financial Statements 113
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
Trading
Fair value
Fair Value
Hedging
Cash fl ow
Total fair value
of derivatives
Net investment
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Notional
Principal
Amount
$m
328,740
223,074
886
57,053
60,182
10,657
15,536
812
1,318
–
(8,940)
(16,034)
(949)
–
(1,290)
–
289
–
–
–
289
–
(114)
–
–
–
(114)
669,935
28,323
(27,213)
25,916
1,885
(1,386)
–
–
155,215
1,478,261
86,253
43,926
40,221
34
22,621
1,029
611
–
(29)
(22,356)
(1,011)
–
(765)
1,803,876
24,295
(24,161)
–
1,525
–
–
–
1,525
–
(417)
–
–
–
(417)
8,976
15,641
24,617
8,475
14,867
23,342
47,959
609
781
1,390
–
24
24
–
(29)
(29)
(788)
(556)
(1,344)
1,414
(1,373)
–
(4,523)
5,202
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
893
3
–
–
897
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
(612)
(13)
–
–
(626)
–
–
–
–
–
–
–
–
1
12
–
–
–
13
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10,658
15,837
812
1,318
–
(8,940)
(16,148)
(949)
–
(1,290)
28,625
(27,327)
1,885
(1,386)
35
25,039
1,032
611
–
(30)
(23,385)
(1,024)
–
(765)
26,717
(25,204)
609
781
1,390
–
24
24
–
(29)
(29)
(788)
(556)
(1,344)
1,414
(1,373)
(4,523)
5,202
54,118
(50,088)
2,547,686
51,394
(48,931)
1,814
(531)
897
(626)
13
Consolidated at
30 September 2011
Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
Commodity contracts
Derivative contracts
Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold
Credit default swaps
Structured credit derivatives
purchased1
Other credit derivatives purchased
Total credit derivatives purchased
Structured credit derivatives sold
Other credit derivatives sold
Total credit derivatives sold
Collateral
Total
1
Inclusive of credit valuation adjustment.
114
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
Trading
Fair value
Fair Value
Hedging
Cash fl ow
Total fair value
of derivatives
Net investment
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Consolidated at
30 September 2010
Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
Commodity contracts
Derivative contracts
Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold
Credit default swaps
Structured credit derivatives
purchased1
Other credit derivatives purchased
Total credit derivatives purchased
Structured credit derivatives sold
Other credit derivatives sold
Total credit derivatives sold
Collateral
Total
1
Inclusive of credit valuation adjustment.
Notional
Principal
Amount
$m
244,322
210,038
739
7,594
12,701
475,394
5,616
10,843
93
323
–
(7,304)
(15,455)
(148)
–
(343)
16,875
(23,250)
–
375
–
–
–
375
–
(140)
–
–
–
(140)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20,995
1,381
(1,409)
–
–
108,534
1,159,637
148,600
37,497
32,292
17
16,984
1,576
268
–
(15)
(16,654)
(1,595)
–
(329)
1,486,560
18,845
(18,593)
–
1,535
–
–
–
1,535
–
(486)
–
–
–
(486)
1
507
8
–
–
516
–
(491)
(17)
–
–
(508)
10,213
14,326
24,539
8,697
11,500
20,197
44,736
449
111
560
–
112
112
672
–
(126)
(126)
(624)
(99)
(723)
(849)
–
(2,544)
8,018
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
164
–
–
–
166
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,027,685
35,229
(36,083)
1,910
(626)
516
(508)
166
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,618
11,382
93
323
–
(7,304)
(15,595)
(148)
–
(343)
17,416
(23,390)
1,381
(1,409)
18
19,026
1,584
268
–
(15)
(17,631)
(1,612)
–
(329)
20,896
(19,587)
449
111
560
–
112
112
672
–
(126)
(126)
(624)
(99)
(723)
(849)
(2,544)
8,018
37,821
(37,217)
Notes to the Financial Statements 115
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
The Company at
30 September 2011
Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
Commodity contracts
Derivative contracts
Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold
Notional
Principal
Amount
$m
326,868
196,031
886
57,706
60,790
9,748
14,758
812
1,299
–
(8,718)
(14,375)
(949)
–
(1,267)
–
286
–
–
–
286
–
(114)
–
–
–
(114)
642,281
26,617
(25,309)
25,874
1,881
(1,382)
–
–
98,700
1,125,305
65,610
41,321
37,238
24
17,889
1,015
598
–
(20)
(18,119)
(1,004)
–
(745)
1,368,174
19,526
(19,888)
–
1,304
–
–
–
1,304
–
(117)
–
–
–
(117)
Trading
Fair value
Fair Value
Hedging
Cash fl ow
Total fair value
of derivatives
Net investment
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
–
–
–
–
–
–
–
1
677
3
–
–
681
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
(557)
(6)
–
–
(564)
–
–
–
–
–
–
–
–
–
12
–
–
–
12
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,748
– 15,056
812
–
1,299
–
–
–
(8,718)
(14,489)
(949)
–
(1,267)
– 26,915
(25,423)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,881
(1,382)
25
19,870
1,018
598
–
(21)
(18,793)
(1,010)
–
(745)
21,511
(20,569)
609
781
1,390
–
24
24
–
(29)
(29)
(788)
(556)
(1,344)
1,414
(1,373)
(3,365)
48,356
4,460
(44,287)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,590
(231)
681
(564)
12
Credit default swaps
Structured credit derivatives
purchased1
Other credit derivatives purchased
Total credit derivatives purchased
Structured credit derivatives sold
Other credit derivatives sold
Total credit derivatives sold
Collateral
Total
1
Inclusive of credit valuation adjustment.
8,976
15,641
24,617
8,475
14,867
23,342
609
781
1,390
–
24
24
–
(29)
(29)
(788)
(556)
(1,344)
47,959
1,414
(1,373)
–
2,084,288
(3,365)
46,073
4,460
(43,492)
116
ANZ Annual Report 2011
Trading
Fair value
Fair Value
Hedging
Cash fl ow
Total fair value
of derivatives
Net investment
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
The Company at
30 September 2010
Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
Commodity contracts
Derivative contracts
Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold
Credit default swaps
Structured credit derivatives
purchased1
Other credit derivatives purchased
Total credit derivatives purchased
Structured credit derivatives sold
Other credit derivatives sold
Total credit derivatives sold
Notional
Principal
Amount
$m
276,490
202,757
739
7,435
12,909
5,747
11,780
93
319
–
(7,032)
(16,904)
(148)
–
(332)
–
373
–
–
–
373
–
(140)
–
–
–
(140)
500,330
17,939
(24,416)
20,969
1,381
(1,409)
–
–
80,014
943,720
124,457
37,247
30,428
13
12,509
1,574
258
–
(11)
(12,434)
(1,579)
–
(323)
1,215,866
14,354
(14,347)
–
1,233
–
–
–
1,233
–
(119)
–
–
–
(119)
10,213
14,321
24,534
8,697
11,500
20,197
44,731
449
111
560
–
112
112
672
–
(126)
(126)
(624)
(99)
(723)
(849)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
334
8
–
–
343
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(432)
(7)
–
–
(439)
–
–
–
–
–
–
–
–
164
–
–
–
164
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,747
12,317
93
319
–
(7,032)
(17,044)
(148)
–
(332)
18,476
(24,556)
1,381
(1,409)
14
14,076
1,582
258
–
(11)
(12,985)
(1,586)
–
(323)
15,930
(14,905)
449
111
560
–
112
112
672
–
(126)
(126)
(624)
(99)
(723)
(849)
(2,268)
34,191
7,072
(34,647)
Collateral
Total
–
1,781,896
(2,268)
32,078
7,072
(33,949)
–
1,606
–
(259)
–
343
–
(439)
–
164
1
Inclusive of credit valuation adjustment.
Notes to the Financial Statements 117
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
Hedging relationships
There are three types of hedging relationships: fair value hedges, cash fl ow hedges and hedges of a net investment in a foreign operation. Each
type of hedging has specifi c requirements when accounting for the fair value changes in the hedging relationship. For details on the accounting
treatment of each type of hedging relationship refer to note 1.
Fair value hedges
The risk being hedged in a fair value hedge is a change in the fair value of an asset or liability or unrecognised fi rm commitment that may
aff ect the income statement. Changes in fair value might arise through changes in interest rates or foreign exchange rates. The Group’s fair
value hedges principally consist of interest rate swaps and foreign currency swaps that are used to protect against changes in the fair value
of fi xed-rate long-term fi nancial instruments due to movements in market interest rates and exchange rates.
The application of fair value hedge accounting results in the fair value adjustment on the hedged item attributable to the hedged risk being
recognised in the income statement at the same time the hedging instrument impacts the income statement. If a hedging relationship is
terminated, the fair value adjustment to the hedged item continues to be recognised as part of the carrying amount of the item or group
of items and is amortised to the income statement as a part of the eff ective yield over the period to maturity. Where the hedged item is
derecognised from the Group’s balance sheet, the fair value adjustment is included in the income statement as ‘other income’ as a part of
the gain or loss on disposal.
Gain/(loss) arising from fair value hedges
Hedged item (attributable to the hedged risk only)
Hedging instrument
Consolidated
The Company
2011
$m
(15)
19
2010
$m
(662)
668
2011
$m
(43)
43
2010
$m
(291)
299
Cash fl ow hedges
The risk being hedged in a cash fl ow hedge is the potential variability in future cash fl ows that may aff ect the income statement. Variability
in the future cash fl ows may result from changes in interest rates or exchange rates aff ecting recognised fi nancial assets and liabilities and
highly probable forecast transactions. The Group’s cash fl ow hedges consist principally of interest rate swaps, forward rate agreements and
foreign currency swaps that are used to protect against exposures to variability in future cash fl ows on non-trading assets and liabilities which
bear interest at variable rates or which are expected to be refunded or reinvested in the future. The Group primarily applies cash fl ow hedge
accounting to its variable rate loan assets, variable rate liabilities and short-term re-issuances of fi xed rate customer and wholesale deposit
liabilities. The amounts and timing of future cash fl ows, representing both principal and interest fl ows, are projected for each portfolio
of fi nancial assets and liabilities on the basis of their forecast repricing profi le. This forms the basis for identifying gains and losses on the
eff ective portions of derivatives designated as cash fl ow hedges.
The eff ective portion of changes in the fair value of derivatives qualifying and designated as cash fl ow hedges is deferred to the hedging
reserve which forms part of shareholders’ equity. Amounts deferred in equity are recognised in the income statement in the period during
which the hedged forecast transactions take place. The ineff ective portion of a designated cashfl ow hedge relationship is recognised
immediately in the income statement. The schedule below shows the movements in the hedging reserve:
Balance at start of year
Items recorded in net interest income
Tax eff ect of items recorded in the income statement
Valuation gain taken to other comprehensive income
Tax eff ect of net gain on cash fl ow hedges
Closing balance
Consolidated
The Company
2011
$m
11
(9)
3
230
(66)
169
2010
$m
(90)
(54)
21
187
(53)
11
2011
$m
(73)
(12)
4
183
(55)
47
2010
$m
(109)
(69)
21
121
(37)
(73)
The table below shows the breakdown of the hedging reserve attributable to each type of cash fl ow hedging relationship:
Variable rate assets
Variable rate liabilities
Re-issuances of short-term fi xed rate liabilities
Total hedging reserve
118
ANZ Annual Report 2011
Consolidated
The Company
2011
$m
614
(188)
(257)
169
2010
$m
265
(106)
(148)
11
2011
$m
445
(163)
(235)
47
2010
$m
65
(70)
(68)
(73)
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
The mechanics of a cashfl ow hedge results in the gain (or loss) in the hedging reserve being released into the income statement at the same
time that the corresponding loss (or gain) attributable to the hedged item impacts the income statement. It will not necessarily be released to
the income statement uniformly over the period of the hedging relationship as the fair value of the derivative is driven by changes in market
rates over the term of the instrument. As market rates do not always move uniformly across all time periods, a change in market rates may drive
more value in one forecast period than another, which impacts when the hedging reserve balance is released to the income statement.
All underlying hedged cash fl ows are expected to be recognised in the income statement in the period in which they occur which is anticipated
to take place over the next 0 –10 years (2010: 0–10 years).
All gains and losses associated with the ineff ective portion of the hedging derivatives are recognised immediately as ‘other income’ in the
income statement. Ineff ectiveness recognised in the income statement in respect of cash fl ow hedges amounted to a $9 million loss for the
Group (2010: nil) and a $9 million loss for the Company (2010: $1 million loss).
Hedges of net investments in foreign operations
In a hedge of a net investment in a foreign operation, the risk being hedged is the exposure to exchange rate diff erences arising on consolidation
of foreign operations with a functional currency other than the Australian Dollar. Hedging is undertaken using foreign exchange derivative contracts
or by fi nancing with borrowings in the same currency as the foreign functional currency involved.
Ineff ectiveness arising from hedges of net investments in foreign operations and recognised as ‘other income’ in the income statement
amounted to $3 million gain (2010: $1 million gain).
13: Available-for-sale Assets
Listed
Other government securities
Other securities and equity investments
Total Listed
Unlisted
Local and semi-government securities
Other government securities
Other securities and equity investments
Loans and advances
Total unlisted
Total available-for-sale assets
Consolidated
The Company
2011
$m
2,223
3,065
5,288
4,219
7,517
4,885
355
16,976
22,264
2010
$m
3,501
2,040
5,541
3,621
5,217
5,908
455
15,201
20,742
2011
$m
1,755
2,791
4,546
2,946
6,657
4,513
355
14,471
19,017
2010
$m
3,127
1,715
4,842
3,552
3,705
4,419
455
12,131
16,973
An impairment loss of $78 million was recognised in the Income Statement (2010: $21 million). This includes impairment of $37 million (2010:
$21 million) on assets previously reclassifi ed from available-for-sale into loans and advances at amortised cost (refer note 16) and impairment
on Sacombank of $35 million.
In May 2011, the Group reclassifi ed syndicated loans of $236 million from available-for-sale into loans and advances measured at amortised cost
as it is now the Group’s intention to hold these assets for the foreseeable future. The available-for-sale reserve at that date was insignifi cant.
Available-for-sale by maturities at 30 September 2011
Local and semi government securities
Other government securities
Other securities and equity investments
Loans and advances
Total available-for-sale assets
Available-for-sale by maturities at 30 September 2010
Local and semi government securities
Other government securities
Other securities and equity investments
Loans and advances
Total available-for-sale assets
Less than
3 months
$m
3,397
7,471
2,491
–
13,359
Less than
3 months
$m
3,113
5,075
3,202
–
11,390
Between
3 and 12
months
$m
Between
1 and
5 years
$m
Between
5 and 10
years
$m
After
10 years
$m
No
maturity
specifi ed
$m
764
1,551
2,256
–
4,571
24
628
1,634
100
2,386
2
31
298
255
586
32
59
736
–
827
–
–
535
–
535
Between
3 and 12
months
$m
Between
1 and
5 years
$m
Between
5 and 10
years
$m
After
10 years
$m
No
maturity
specifi ed
$m
448
2,605
1,994
99
5,146
42
1,027
1,897
98
3,064
4
8
203
–
215
14
3
163
258
438
–
–
489
–
489
Total
fair
value
$m
4,219
9,740
7,950
355
22,264
Total
fair
value
$m
3,621
8,718
7,948
455
20,742
Notes to the Financial Statements 119
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
14: Net Loans and Advances
Overdrafts
Credit card outstandings
Term loans – housing
Term loans – non-housing
Hire purchase
Lease receivables
Commercial bills1
Other
Total gross loans and advances
Less: Provision for credit impairment (refer note 16)
Less: Unearned income
Add: Capitalised brokerage/mortgage origination fees
Net loans and advances
Lease receivables
a) Finance lease receivables
Gross fi nance lease receivables
Less than 1 year
1 to 5 years
Later than 5 years
Less: unearned future fi nance income on fi nance leases
Net investment in fi nance lease receivables
b) Operating lease receivables
Gross operating lease receivables
Less than 1 year
1 to 5 years
Later than 5 years
Total operating lease receivables
Net lease receivables
Present value of net investment in fi nance lease receivables
Less than 1 year
1 to 5 years
Later than 5 years
Hire purchase receivables
Less than 1 year
1 to 5 years
Later than 5 years
Consolidated
The Company
2011
$m
8,133
11,189
215,382
136,388
9,968
2,084
18,334
1,319
402,797
(4,873)
(2,216)
629
(6,460)
2010
$m
8,671
10,618
202,658
122,584
10,351
1,891
432
1,382
358,587
(5,028)
(2,262)
600
(6,690)
2011
$m
6,626
9,662
179,992
101,767
9,481
1,452
18,228
1,083
328,291
(3,646)
(1,961)
602
(5,005)
2010
$m
6,323
9,107
167,931
89,436
9,973
1,228
432
1,108
285,538
(3,659)
(2,006)
566
(5,099)
396,337
351,897
323,286
280,439
507
838
260
(84)
1,521
71
408
–
479
478
822
314
(107)
1,507
60
207
10
277
395
576
39
(59)
951
58
384
–
442
381
527
95
(83)
920
50
165
10
225
2,000
1,784
1,393
1,145
491
791
239
458
770
279
1,521
1,507
3,310
6,577
81
9,968
3,618
6,665
68
10,351
389
527
35
951
3,132
6,268
81
9,481
371
467
82
920
3,456
6,449
68
9,973
1
In 2011 the Group ceased re-discounting Commercial bill acceptances. This has impacted balance sheet classifications as there is no intention to trade the Commercial bills as negotiable instruments.
120
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
15: Impaired Financial Assets
Presented below is a summary of impaired fi nancial assets that are measured on the balance sheet at amortised cost. For these items,
impairment losses are recorded through the provision for credit impairment. This contrasts to fi nancial assets carried on the balance sheet
at fair value, for which any impairment loss is recognised as a component of the overall fair value.
Detailed information on impaired fi nancial assets is provided in note 33 Financial Risk Management.
Summary of impaired fi nancial assets
Impaired loans
Restructured items1
Non-performing commitments and contingencies
Gross impaired fi nancial assets
Individual provisions
Impaired loans
Non-performing commitments and contingencies
Net impaired fi nancial assets
Accruing loans past due 90 days or more2
These amounts are not classifi ed as impaired assets as they are either 90 days
or more past due and well secured, or are portfolio managed facilities that can
be held on an accrual basis for up to 180 days past due
Consolidated
The Company
2011
$m
4,650
700
231
5,581
(1,687)
(10)
3,884
2010
$m
6,075
141
345
6,561
(1,849)
(26)
4,686
2011
$m
3,037
684
211
3,932
(1,143)
(6)
2,783
2010
$m
4,287
134
321
4,742
(1,253)
(20)
3,469
1,834
1,555
1,510
1,229
1 Restructured items are facilities in which the original contractual terms have been modified for reasons related to the financial difficulties of the customer. Restructuring may consist of reduction
2
of interest, principal or other payments legally due, or an extension in maturity materially beyond those typically offered to new facilities with similar risk.
Includes unsecured credit card and personal loans 90 day past due accounts which are allowed by APRA to be retained on a performing basis for up to 180 days past due amounting to $137 million
(2010: $139 million) for the Group and $106 million (2010: $110 million) for the Company.
16: Provision for Credit Impairment
Provision movement analysis
New and increased provisions
Australia
New Zealand
Asia Pacifi c, Europe & America
Provision releases
Recoveries of amounts previously written off
Individual provision charge
Impairment on available-for-sale assets
Collective provision charge/(credit)
Charge to income statement
Consolidated
2011
$m
2010
$m
The Company
2011
$m
2010
$m
1,362
459
212
2,033
(613)
1,420
(227)
1,193
37
7
1,237
1,620
559
171
2,350
(437)
1,913
(143)
1,770
21
(4)
1,787
1,347
15
80
1,442
(402)
1,040
(203)
837
37
120
994
1,612
16
80
1,708
(254)
1,454
(111)
1,343
21
5
1,369
Notes to the Financial Statements 121
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
16: Provision for Credit Impairment (continued)
Movement in provision for credit impairment by fi nancial asset class
Consolidated
Collective provision
Balance at start of year
Adjustment for exchange rate fl uctuations
and transfers
Provision acquired
Charge/(credit) to income statement
Total collective provision
Individual provision
Balance at start of year
Charge/(credit) to income statement
Adjustment for exchange rate fl uctuations
and transfers
Provision acquired
Discount unwind
Bad debts written off
Recoveries of amounts previously written off
Total individual provision
Total provision for credit impairment
Liquid assets and due
from other fi nancial
institutions
2011
$m
2010
$m
Net loans and
advances
and acceptances
2011
$m
2010
$m
Other fi nancial assets
2011
$m
2010
$m
Credit related
commitments1
2011
$m
2010
$m
Total provisions
2011
$m
2010
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,577
2,552
13
–
14
(68)
97
(4)
2,604
2,577
1,849
1,209
1,512
1,758
8
–
(185)
(1,421)
227
1,687
4,291
(100)
394
(165)
(1,693)
143
1,849
4,426
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
576
448
3,153
3,000
3
–
(7)
572
26
(16)
–
–
–
–
–
10
582
(15)
143
–
576
16
–
7
(83)
240
(4)
3,176
3,153
14
12
1,875
1,193
1,526
1,770
–
–
–
–
–
26
602
8
–
(185)
(1,421)
227
1,697
4,873
(100)
394
(165)
(1,693)
143
1,875
5,028
1 Comprises undrawn facilities and customer contingent liabilities.
The table below contains a detailed analysis of the movements in individual provision for net loans and advances and acceptances.
Australia
APEA
Institutional
New Zealand
Other
Less:
Institutional
APEA
Net loans
and
advances
and
acceptances
Consolidated
Individual provision
Balance at start of year
Charge/(credit) to income statement
Provisions acquired/disposed
Adjustment for exchange rate fl uctuations
Discount unwind
Bad debts written off
Recoveries of amounts previously written off
Total individual provision
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
459
668
–
–
(26)
(615)
79
403
579
55
–
(22)
(640)
84
429
91
–
(4)
(3)
(159)
34
565
459
388
75
132
339
(59)
(5)
(73)
20
429
631
198
–
14
(98)
(383)
94
701
772
59
(54)
(97)
(780)
30
435
258
–
12
(61)
(263)
17
350
356
–
(30)
(46)
(211)
16
456
631
398
435
25
30
–
(8)
–
(24)
4
27
22
(24)
–
35
–
(3)
(5)
(130)
(36)
–
(6)
3
23
(1)
(39) 1,849 1,512
(57) 1,209 1,758
–
(59)
394
(100)
8
8
(165)
(185)
5
14 (1,421) (1,693)
143
227
(2)
25
(147)
(130) 1,687 1,849
Ratios (as a percentage of total gross loans, advances and acceptances)
Individual provision
Collective provision
Bad debts written off
Consolidated
2011
%
0.4
0.8
0.4
2010
%
0.5
0.9
0.5
122
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
16: Provision for Credit Impairment (continued)
Movement in provision for credit impairment by fi nancial asset class (continued)
The Company
Collective provision
Balance at start of year
Adjustment for exchange rate fl uctuations
and transfers
Provision acquired
Charge/(credit) to income statement
Total collective provision
Individual provision
Balance at start of year
Charge/(credit) to income statement
Adjustment for exchange rate fl uctuations
and transfers
Provision acquired
Discount unwind
Bad debts written off
Recoveries of amounts previously written off
Total individual provision
Total provision for credit impairment
Liquid assets and due
from other fi nancial
institutions
2011
$m
2010
$m
Net loans and
advances
and acceptances
2011
$m
2010
$m
Other fi nancial
assets
2011
$m
2010
$m
Credit related
commitments1
2011
$m
2010
$m
Total provisions
2011
$m
2010
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,950
1,886
(8)
–
100
(24)
84
4
2,042
1,950
1,253
851
1,050
1,336
(3)
–
(123)
(1,037)
203
1,144
3,186
(52)
333
(115)
(1,410)
111
1,253
3,203
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
436
352
2,386
2,238
(2)
–
20
(5)
88
1
(10)
–
120
(29)
172
5
454
436
2,496
2,386
20
(14)
12
7
1,273
837
1,062
1,343
–
–
–
–
–
6
460
1
–
–
–
–
20
456
(3)
–
(123)
(1,037)
203
1,150
3,646
(51)
333
(115)
(1,410)
111
1,273
3,659
1 Comprises undrawn facilities and customer contingent liabilities.
Ratios (as a percentage of total gross loans, advances and acceptances)
Individual provision
Collective provision
Bad debts written off
The Company
2011
%
0.4
0.8
0.3
2010
%
0.4
0.8
0.5
Notes to the Financial Statements 123
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
17: Shares in Controlled Entities and Associates
Total shares in controlled entities
Total shares in associates1 (refer note 39)
Total shares in controlled entities, associates and joint venture entities
Consolidated
The Company
2011
$m
–
3,513
3,513
2010
$m
–
2,965
2,965
2011
$m
9,098
971
2010
$m
9,189
1,035
10,069
10,224
1
Investments in associates are accounted for using the equity method of accounting by the Group and are carried at cost by the Company.
Disposal of controlled entities
There were no material controlled entities disposed of during the year ended 30 September 2011 or the year ended 30 September 2010.
Acquisition of controlled entities/businesses
There were no material entities acquired during the year ended 30 September 2011.
During the year ended 30 September 2010, the Group acquired the following entities/businesses:
OnePath Australia and OnePath New Zealand (formerly ING Australia and ING New Zealand (ING))
On 30 November 2009, the Group acquired the remaining 51% shareholding in the ANZ-ING joint ventures in Australia and New Zealand,
taking its ownership interest to 100%. The results for the year ended 30 September 2010 includes the fi nancial impact of full ownership since
30 November 2009. For the period 1 October 2009 to 30 November 2009 the investments were accounted for as joint ventures.
Landmark Financial Services (Landmark)
On 1 March 2010, the Group completed its acquisition of the Landmark fi nancial services business from the AWB Group. The fi nancial results
since acquisition are included in earnings from this date.
Selected Royal Bank of Scotland Group plc (RBS) businesses in Asia
During 2009, ANZ announced the acquisition of selected RBS businesses in Asia. The acquisitions were completed in the Philippines on
21 November 2009, Vietnam on 5 December 2009, Hong Kong on 20 March 2010, Taiwan on 17 April 2010, Singapore on 15 May 2010
and Indonesia on 12 June 2010. The fi nancial impacts of these acquisitions are included from these respective dates.
124
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
18: Tax Assets
Australia
Current tax asset
Deferred tax asset
New Zealand
Current tax asset
Deferred tax asset
Asia Pacifi c, Europe & America
Current tax asset
Deferred tax asset
Total current and deferred tax assets
Total current tax assets
Deferred tax assets recognised in profi t and loss
Collective provision for loans and advances
Individual provision for impaired loans and advances
Other provisions
Deferred fee income
Provision for employee entitlements
Policyholder tax assets1
Other
Deferred tax assets recognised directly in equity
Defi ned benefi ts obligation
Available-for-sale revaluation reserve
Cash fl ow hedges
Deferred tax assets recognised on acquisitions
Set-off of deferred tax assets pursuant to set-off provisions2
Net deferred tax assets
Unrecognised deferred tax assets
The following deferred tax assets will only be recognised if:
assessable income is derived of a nature and an amount suffi cient to enable the benefi t
to be realised
the conditions for deductibility imposed by tax legislation are complied with; and
no changes in tax legislation adversely aff ect the Group in realising the benefi t.
Unused realised tax losses (on revenue account)
Unrealised losses on investments3
Total unrecognised deferred tax assets
Consolidated
The Company
2011
$m
25
276
301
–
98
98
16
225
241
640
41
862
411
334
58
156
261
289
2010
$m
61
295
356
14
231
245
1
266
267
868
76
861
458
362
102
144
–
171
2011
$m
25
372
397
–
6
6
15
174
189
592
40
707
282
192
42
123
–
106
2010
$m
61
346
407
–
6
6
–
223
223
636
61
666
318
223
91
105
–
85
2,371
2,098
1,452
1,488
39
–
–
39
–
49
12
–
61
351
20
–
–
20
–
44
21
29
94
–
(1,811)
(1,718)
599
792
(920)
552
(1,007)
575
5
386
391
9
163
172
–
–
–
–
–
–
1 Comparatives for 2010 are included in the deferred tax assets recognised on acquisitions.
2 Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities within the same
taxable group.
3 The Group has unrecognised deferred tax assets arising from superannuation funds in OnePath Life Limited.
Notes to the Financial Statements 125
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
19: Goodwill and Other Intangible Assets
Goodwill
Gross carrying amount
Balances at start of the year
Additions through business combinations
Foreign currency exchange diff erences
Balance at end of year1
Software
Gross carrying amount
Balances at start of the year
Additions through business combinations
Additions from internal developments
Other additions
Foreign currency exchange diff erences
Impairment
Balance at end of year
Accumulated amortisation and impairment
Balances at start of the year
Amortisation expense
Foreign currency exchange diff erences
Impairment
Balance at end of year
Net book value
Balances at start of the year
Balance at end of year
Acquired portfolio of insurance and investment business
Gross carrying amount
Balances at start of the year
Additions through business combination
Foreign currency exchange diff erences
Balance at end of year
Accumulated amortisation and impairment
Balances at start of the year
Amortisation expense (refer note 4)
Foreign currency exchange diff erences
Balance at end of year
Net book value
Balances at start of the year
Balance at end of year
Other intangible assets
Gross carrying amount
Balance at start of the year
Additions through business combinations
Other additions
Foreign currency exchange diff erences
Impairment (refer note 4)
Derecognised on disposal
Balance at end of year
Accumulated amortisation and impairment
Balances at start of the year
Amortisation expense2 (refer note 4)
Balance at end of year
Net book value
Balances at start of the year
Balance at end of year
Goodwill, software and other intangible assets
Net book value
Balances at start of the year
Balance at end of year
Consolidated
2011
$m
2010
$m
The Company
2011
$m
2010
$m
4,086
(5)
82
4,163
2,258
–
591
54
6
(59)
2,850
1,041
249
3
(15)
1,278
1,217
1,572
1,177
–
2
1,179
77
89
–
166
2,999
1,292
(205)
4,086
1,760
60
498
34
(8)
(86)
2,258
911
207
(8)
(69)
1,041
849
1,217
–
1,179
(2)
1,177
–
78
(1)
77
1,100
1,013
–
1,100
261
30
5
2
(13)
(15)
270
34
20
54
227
216
65
181
19
(4)
–
–
261
17
17
34
48
227
102
(16)
1
87
2,019
–
517
32
–
(15)
2,553
960
199
–
(8)
1,151
1,059
1,402
–
–
–
–
–
–
–
–
–
–
48
26
–
–
–
–
74
11
8
19
37
55
–
108
(6)
102
1,573
–
435
31
(1)
(19)
2,019
784
183
–
(7)
960
789
1,059
–
–
–
–
–
–
–
–
–
–
48
–
–
–
–
–
48
8
3
11
40
37
6,630
6,964
3,896
6,630
1,198
1,544
829
1,198
1 Excludes notional goodwill in equity accounted entities.
2 Comprises brand names $1 million (2010: $3 million), aligned advisor relationships $4 million (2010: $2 million), distribution agreements and management fee rights $4 million (2010: $2 million),
credit card relationships $2 million (2010: $ nil) and other intangibles $9 million (2010: $10 million). The Company comprises distribution agreements and management fee rights $2 million
(2010: $nil), card relationships $2 million (2010: $nil) and other intangibles $4 million (2010: $3 million).
126
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
19: Goodwill and Other Intangible Assets (continued)
Goodwill allocated to cash–generating units
The goodwill balance above largely comprises the goodwill purchased on acquisition of NBNZ Holdings Limited in December 2003 (included in
the New Zealand division) and OnePath Australia Limited on 30 November 2009 (included in the Australia division). Discussion of the goodwill
and impairment testing for the cash generating unit containing this goodwill is included in note 2(v).
20: Other Assets
Accrued interest/prepaid discounts
Accrued commissions
Prepaid expenses
Insurance contract liabilities ceded (refer to note 49)
Outstanding premiums
Issued securities settlements
Operating leases residual value
Capitalised expenses
Regulatory deposits
Other
Total other assets
21: Premises and Equipment
Freehold and leasehold land and buildings
At cost
Depreciation
Leasehold improvements
At cost
Depreciation
Furniture and equipment
At cost
Depreciation
Computer equipment
At cost
Depreciation
Capital works in progress
At cost
Total premises and equipment
Consolidated
The Company
2011
$m
1,323
163
124
427
267
2,235
290
12
1,505
1,555
7,901
2010
$m
1,279
283
128
360
231
1,649
229
14
1,056
1,786
7,015
Consolidated
2011
$m
2010
$m
1,187
(251)
936
518
(325)
193
1,283
(742)
541
1,177
(853)
324
131
2,125
1,244
(235)
1,009
485
(288)
197
1,241
(674)
567
1,080
(763)
317
68
2,158
2011
$m
999
112
74
–
–
1,560
274
12
497
825
4,353
2010
$m
944
191
48
–
–
1,496
205
14
616
788
4,302
The Company
2011
$m
696
(71)
625
314
(212)
102
1,041
(570)
471
851
(628)
223
81
1,502
2010
$m
699
(53)
646
295
(185)
110
1,011
(513)
498
789
(565)
224
30
1,508
Notes to the Financial Statements 127
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
21: Premises and Equipment (continued)
Reconciliations of the carrying amounts for each class of premises and equipment are set out below:
Freehold and leasehold land and buildings
Carrying amount at beginning of year
Additions through business combinations
Additions1
Disposals
Depreciation
Foreign currency exchange diff erence
Carrying amount at end of year
Leasehold improvements
Carrying amount at beginning of year
Additions through business combinations
Additions1
Disposals
Amortisation
Foreign currency exchange diff erence
Carrying amount at end of year
Furniture and equipment
Carrying amount at beginning of year
Additions through business combinations
Additions1
Disposals
Depreciation
Foreign currency exchange diff erence
Carrying amount at end of year
Computer equipment
Carrying amount at beginning of year
Additions through business combinations
Additions1
Disposals
Depreciation
Foreign currency exchange diff erence
Carrying amount at end of year
Capital works in progress
Carrying amount at beginning of year
Net transfers/additions
Borrowing costs capitalised2
Carrying amount at end of year
Total premises and equipment
Includes transfers.
1
2 The capitalisation rate used to determine the amount of borrowing costs capitalised is 5.3% (2010: 5.1%).
22: Deposits and Other Borrowings
Certifi cates of deposit
Term deposits
Other deposits bearing interest and other borrowings
Deposits not bearing interest
Commercial paper
Borrowing corporations debt1
Total deposits and other borrowings
Consolidated
2011
$m
2010
$m
The Company
2011
$m
2010
$m
1,009
–
30
(68)
(40)
5
936
197
–
46
(2)
(49)
1
193
567
–
72
(3)
(97)
2
541
317
–
104
(1)
(99)
3
324
68
63
–
131
2,125
410
15
631
–
(37)
(10)
1,009
156
39
48
–
(42)
(4)
197
356
18
303
(12)
(91)
(7)
567
231
13
168
(1)
(90)
(4)
317
909
(844)
3
68
646
–
–
(1)
(20)
–
625
110
–
22
–
(30)
–
102
498
–
57
(2)
(81)
(1)
471
224
–
64
–
(67)
2
223
30
51
–
81
50
12
604
–
(17)
(3)
646
104
2
33
–
(28)
(1)
110
294
3
288
(11)
(75)
(1)
498
169
4
118
(1)
(65)
(1)
224
832
(805)
3
30
2,158
1,502
1,508
Consolidated
The Company
2011
$m
55,554
153,200
132,812
11,334
14,333
1,496
2010
$m
39,530
135,467
111,391
10,598
11,641
1,756
2011
$m
53,904
123,625
113,182
5,974
10,569
–
2010
$m
37,059
108,703
94,999
5,677
6,080
–
368,729
310,383
307,254
252,518
1
Included in this balance is debenture stock of $0.2 billion (2010: $0.5 billion) of Esanda Finance Corporation Limited (Esanda), together with accrued interest thereon, which are secured by a trust
deed and collateral debentures, giving floating charges upon the undertaking and all the assets of the entity of $0.6 billion (2010: $1.3 billion) other than land and buildings. All controlled entities
of Esanda have guaranteed the payment of principal, interest and other monies in relation to all debenture stock and unsecured notes issued by Esanda. The only loans pledged as collateral are
those in Esanda and its subsidiaries. Effective from 18 March 2009, Esanda ceased to write new debentures and since September 2009 stopped writing new loans.
In addition, this balance also includes NZD 1.5 billion (2010: NZD 1.4 billion) of secured debenture stock of the consolidated subsidiary UDC Finance Limited (UDC) and the accrued interest
thereon which are secured by a floating charge over all assets of UDC of NZD 2.0 billion (2010: NZD 2.1 billion).
128
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
23: Income Tax Liabilities
Australia
Current tax payable
Deferred tax liabilities
New Zealand
Current tax payable
Deferred tax liabilities
Asia Pacifi c, Europe & America
Current tax payable
Deferred tax liabilities
Total current and deferred income tax liability
Total current tax payable
Deferred tax liabilities recognised in profi t and loss
Acquired portfolio of insurance and investment business1
Insurance related deferred acquisition costs1
Lease fi nance
Treasury instruments
Capitalised expenses
Other
Deferred tax liabilities recognised directly in equity
Cash fl ow hedges
Foreign currency translation reserve
Available-for-sale revaluation reserve
Deferred tax liabilities recognised on acquisitions
Consolidated
The Company
2011
$m
1,007
–
1,007
3
–
3
118
28
146
1,156
1,128
303
79
229
317
76
699
2010
$m
905
–
905
–
–
–
68
35
103
1,008
973
–
–
204
452
117
621
1,703
1,394
65
39
32
136
–
2
37
–
39
320
2011
$m
1,007
–
1,007
16
–
16
56
27
83
1,106
1,079
–
–
90
319
79
435
923
22
–
2
24
–
2010
$m
923
–
923
–
–
–
64
39
103
1,026
987
–
–
90
454
118
384
1,046
–
–
–
–
–
Set-off of deferred tax liabilities pursuant to set-off provision2
(1,811)
(1,718)
Net deferred tax liability
Unrecognised deferred tax liabilities
The following deferred tax liabilities have not been bought to account as liabilities:
Other unrealised taxable temporary diff erences3
Total unrecognised deferred tax liabilities
28
126
126
35
90
90
(920)
27
(1,007)
39
17
17
29
29
1 Comparatives for 2010 are included in the deferred tax liabilities recognised on acquisitions.
2 Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities within the same
taxable group.
3 Represents additional potential foreign tax costs should all retained earnings in offshore branches and subsidiaries be repatriated.
24: Payables and Other Liabilities
Creditors
Accrued interest and unearned discounts
Defi ned benefi ts plan obligations
Accrued charges
Security settlements
Other liabilities
Total payables and other liabilities
Consolidated
The Company
2011
$m
896
2,735
148
1,413
2,026
3,033
10,251
2010
$m
1,114
2,611
186
1,511
710
1,983
8,115
2011
$m
308
2,212
82
1,127
1,219
2,060
7,008
2010
$m
394
2,090
167
1,160
635
1,396
5,842
Notes to the Financial Statements 129
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
25: Provisions
Employee entitlements1
Restructuring costs and surplus leased space2
Non-lending losses, frauds and forgeries
Other
Total provisions
Reconciliations of the carrying amounts of each class of provision, except for employee entitlements, are set out below:
Restructuring costs and surplus leased space2
Carrying amount at beginning of the year
Provisions made during the year
Payments made during the year
Transfer/(release) of provision
Carrying amount at the end of the year
Non-lending losses, frauds and forgeries
Carrying amount at beginning of the year
Additions through business combinations
Provisions made during the year
Payments made during the year
Transfer/(release) of provision
Carrying amount at the end of the year
Other provisions3
Carrying amount at beginning of the year
Additions through business combinations
Provisions made during the year
Payments made during the year
Transfer/(release) of provision
Carrying amount at the end of the year
Consolidated
2011
$m
119
148
(125)
(7)
135
188
–
53
(17)
(19)
205
493
–
176
(159)
(142)
368
2010
$m
144
34
(38)
(21)
119
169
20
31
(41)
9
188
412
115
184
(169)
(49)
493
Consolidated
The Company
2011
$m
540
135
205
368
2010
$m
497
119
188
493
1,248
1,297
2011
$m
418
78
149
153
798
2010
$m
358
100
153
220
831
The Company
2011
$m
2010
$m
100
23
(53)
8
78
153
–
27
(3)
(28)
149
220
–
81
(34)
(114)
153
124
24
(28)
(20)
100
146
–
14
(2)
(5)
153
154
–
125
(79)
20
220
1 The aggregate liability for employee entitlements largely comprises provisions for annual leave and long service leave.
2 Restructuring costs and surplus leased space provisions arise from exit activities related to material changes in the scope of business undertaken by the Group or the manner in which that
business is undertaken and includes termination benefits. Costs relating to on-going activities are not provided for. Provision is made when the Group is demonstrably committed, it is probable
that the costs will be incurred, though their timing is uncertain, and the costs can be reliably estimated.
3 Other provisions comprise various other provisions including loyalty programs, workers’ compensation, make-good provisions on leased premises and contingent liabilities recognised as part
of a business combination.
26: Bonds and Notes
Bonds and notes by currency
United States dollars
USD
Great British pounds
GBP
Australian dollars
AUD
New Zealand dollars
NZD
Japanese Yen
JPY
Euro
EUR
Hong Kong dollars
HKD
Swiss francs
CHF
Canadian dollars
CAD
Norwegian krone
NOK
Singapore dollars
SGD
Chinese Yuan
CNY
Total bonds and notes
130
ANZ Annual Report 2011
Consolidated
2011
$m
2010
$m
The Company
2011
$m
2010
$m
29,089
1,782
1,701
2,148
8,555
7,679
2,265
2,218
800
47
235
32
56,551
27,126
2,408
2,039
1,710
8,140
12,807
2,739
2,151
309
48
237
–
59,714
21,321
917
1,897
325
8,230
7,679
2,125
1,420
800
47
77
32
44,870
19,240
1,524
2,039
68
7,856
12,807
2,638
1,569
309
48
80
–
48,178
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
27: Loan Capital
Hybrid loan capital (subordinated)1
US Trust Securities
UK Stapled Securities
ANZ Convertible Preference Shares (ANZ CPS)2
ANZ CPS1
ANZ CPS2
ANZ CPS3
Perpetual subordinated notes
300m
USD
835m
NZD
fl oating rate notes
fi xed rate notes4
Subordinated notes1,5
GBP
USD
AUD
AUD
GBP
NZD
AUD
AUD
AUD
AUD
GBP
NZD
NZD
GBP
AUD
AUD
AUD
AUD
EUR
200m
250m
300m
300m
250m
350m
350m
350m
100m
100m
175m
250m
350m
400m
290m
310m
365m
500m
750m
fixed notes due 20156
fl oating rate notes due 20166
fixed notes due 20167
fl oating rate notes due 20166
fixed notes due 20167
fixed notes due 20168
fixed notes due 20176
fl oating rate notes due 20176
fixed notes due 20176
fl oating rate notes due 20176
fixed notes due 20176
fixed notes due 20178
fixed notes due 20178
fixed notes due 20187
fixed notes due 20177
fl oating rate notes due 20176
fl oating rate notes due 20186
fl oating rate notes due 20186
fixed notes due 2019
Total loan capital
Loan capital by currency
AUD
NZD
USD
GBP
EUR
Australian dollars
New Zealand dollars
United States dollars
Great British pounds
Euro
Interest Rate
%
5.36
6.54
BBSW + 2.503
BBSW + 3.103
BBSW + 3.103
LIBOR + 0.15
9.66
5.625
LIBOR + 0.21
6.25
BBSW + 0.22
4.75
7.16
6.50
BBSW + 0.24
7.30
BBSW + 0.40
6.375
7.60
8.23
4.75
7.75
BBSW + 0.75
BBSW + 1.20
BBSW + 2.05
5.125
Consolidated
The Company
2011
$m
835
720
1,075
1,954
1,322
5,906
308
656
964
–
257
–
–
–
–
342
347
100
100
292
195
275
638
289
310
359
500
1,119
5,123
2010
$m
862
734
1,072
1,949
–
4,617
310
636
946
329
258
297
290
420
262
314
347
100
100
312
190
266
680
259
310
357
500
1,126
6,717
2011
$m
768
720
1,075
1,954
1,322
5,839
308
–
308
–
257
–
–
–
–
350
350
100
100
292
–
–
638
289
310
365
500
1,119
4,670
11,993
12,280
10,817
6,698
1,126
1,400
1,650
1,119
5,895
1,354
1,430
2,475
1,126
6,715
–
1,333
1,650
1,119
2010
$m
772
734
1,072
1,949
–
4,527
310
–
310
329
258
300
300
420
–
350
350
100
100
312
–
–
680
290
310
365
500
1,126
6,090
10,927
5,986
–
1,340
2,475
1,126
1
Included within the carrying amount are, where appropriate, revaluations associated with fair value hedge accounting or an election to fair value the note through the income statement,
and capitalised borrowing costs.
2 Fully franked preference share dividends recognised as interest expense paid during the year ended 30 September 2011:
11,993
12,280
10,817
10,927
Consolidated
The Company
2011
$m
57
111
–
2010
$m
51
78
–
2011
$m
57
111
–
2010
$m
51
78
–
ANZ CPS1
ANZ CPS2a
ANZ CPS3b
a ANZ CPS2 were issued on 17 December 2009. The first dividend payment was made on 15 March 2010.
b ANZ CPS3 were issued on 28 September 2011. The first dividend payment is due on 1 March 2012.
3 Represents the interest rate grossed up for the franking credits paid or payable.
4 Fixed until the first call date, 18 April 2013, whereupon the rate resets to the five year swap rate +2.00% if not called and remains fixed until the next call date, 18 April 2018 whereupon,
if not called, reverts to floating rate at the three month FRA rate +3.00% and is callable on any interest payment date thereafter.
5 Loan capital balances held in subsidiary entities eliminated in consolidated accounts.
6 Callable five years prior to maturity.
7 Callable five years prior to maturity and reverts to floating rate if not called.
8 Callable five years prior to maturity. Should the bonds not be called, the coupon rate will be reset to the five year swap rate plus issue margin plus 0.50%.
Notes to the Financial Statements 131
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
27: Loan Capital (continued)
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. The loan capital, except for the
US Trust Securities, UK Stapled Securities and each of the ANZ CPS,
constitutes Tier 2 capital as defi ned by APRA for capital adequacy
purposes. The US Trust Securities constitute Innovative Residual
Tier 1 capital, as defi ned by APRA, for capital adequacy purposes.
The UK Stapled Securities and each of the ANZ CPS constitute
Non-innovative Residual Tier 1 capital, as defi ned by APRA, for
capital adequacy purposes.
US TRUST SECURITIES
On 27 November 2003, the Company issued 750,000 USD
non-cumulative Trust Securities (‘US Trust Securities’) at USD1,000
each pursuant to an off ering memorandum dated 19 November 2003
raising USD750 million. US Trust Securities comprise two fully paid
securities – an interest paying unsecured note (issued by Samson
Funding Limited, a wholly owned New Zealand subsidiary of the
Company) and a fully paid USD1,000 preference share (issued by
the Company), which are stapled together and issued as a US Trust
Security by ANZ Capital Trust II (the ‘Trust’). Investors have the
option to redeem the US Trust Security from the Trust and hold
the underlying stapled security.
The US Trust Securities were issued in global form and are registered
in the name of Cede & Co as the sole holder. The fully paid preference
shares and the unsecured notes that form part of the US Trust
Securities are registered in the name of The Bank of New York
(Delaware) (as trustee of ANZ Capital Trust II) as the sole holder.
Distributions on US Trust Securities are non-cumulative and are
payable half yearly in arrears at a fi xed rate of 5.36% (until redeemed
or converted into ANZ ordinary shares) and are funded by payments
received by the Trust on the underlying note. Distributions are subject
to certain payment tests (i.e. APRA requirements and distributable
profi ts being available). Distributions are expected to be payable on
15 June and 15 December of each year. Dividends are not payable on
the preference share while it is stapled to the note. If distributions are
not paid on the US Trust Securities, the Group may not pay dividends
or distributions, or return capital, on ANZ ordinary shares or any other
share capital or security ranking equal or junior to the preference
share component (subject to certain exceptions).
After 15 December 2013 and at any coupon date thereafter, ANZ has
the discretion to redeem the US Trust Securities for cash. If it does
not exercise this discretion, the investor is entitled to require ANZ to
exchange the US Trust Security into a number of ANZ ordinary shares
based on the formula in the off ering memorandum at a 5% discount.
At any time at the Company’s discretion or upon the occurrence of
certain other ‘conversion events’, such as the failure of the Trust to
pay in full a distribution within seven business days of the relevant
distribution payment date, the notes that are represented by the
US Trust Securities will be automatically assigned to a subsidiary
of the Company and the preference shares that are represented
by the US Trust Securities will be distributed to investors in
redemption of such US Trust Securities. The distributed preference
shares will immediately become dividend paying and holders will
receive non-cumulative dividends equivalent to the scheduled
payments in respect of the US Trust Securities. If the US Trust
Securities are not redeemed or bought back prior to the 15 December
2053, they will be converted into preference shares, which in turn will
be mandatorily converted into a variable number of ANZ ordinary
shares based upon the formula in the off ering memorandum.
132
ANZ Annual Report 2011
The preference shares forming part of the US Trust Securities rank
equally with each of the ANZ CPS and the preference shares issued
in connection with the UK Stapled Securities and Euro Trust Securities
in all respects.
The preference shares forming part of the US Trust Securities confer
voting rights in the Company in the following limited circumstances:
any proposal to reduce the Company’s share capital;
on a proposal that aff ects rights attached to the preference shares;
any resolution to approve the terms of a share buy-back agreement:
any proposal for the disposal of the whole of the Company’s
property, business and undertaking;
on any proposal to wind up the Company and any matter during
the Company’s winding up, and
on all matters on which the holders of ANZ ordinary shares are
entitled to vote during a special voting period. A “special voting
period” is a period from any dividend payment date where
preference shares dividends are not paid in full in respect of the
immediately preceding semi-annual dividend period or the 24th
business day after the failure of Samson Funding Limited to make
an interest payment in full on the notes that form part of the US
Trust Securities and the Company does not make the payment
pursuant to the relevant guarantee or pay an optional dividend
on the preference shares within a prescribed time period.
On a resolution or proposal on which a preference share holder is
entitled to vote, the holder has on a poll one vote per preference
share held.
If the US Trust Securities are converted into ANZ ordinary shares in
accordance with their terms of issue, the voting rights of the ANZ
ordinary shares will be as set out on page 220.
On winding up of the Company, the rights of US Trust Security
holders will be determined by the preference share component of
US Trust Security. These preference shares rank behind all depositors
and creditors, but ahead of ordinary shareholders.
UK STAPLED SECURITIES
On 15 June 2007, the Company issued 9,000 non-cumulative,
mandatory convertible stapled securities (‘UK Stapled Securities’)
at £50,000 each pursuant to a prospectus dated 12 June 2007 raising
£450 million. UK Stapled Securities comprise two fully paid securities
– an interest paying unsecured subordinated £50,000 note issued by
the Company through its New York Branch and a £50,000 preference
share issued by the Company, which are stapled together.
The fully paid preference shares and the subordinated notes issued
by the Company that constitute the UK Stapled Securities were
issued in global form and are registered in the name of BT Globenet
Nominees Limited as the sole holder.
Distributions on UK Stapled Securities are non-cumulative and
are payable half yearly in arrears at a fi xed rate of 6.54% (until
converted into ANZ ordinary shares or the rate is reset as provided
in the prospectus). Distributions are subject to certain payment
tests (including APRA requirements and distributable profi ts being
available). Distributions are expected to be payable on 15 June and
15 December of each year. Dividends are not payable on a preference
share while it is stapled to a note. If distributions are not paid on UK
Stapled Securities, the Group may not pay dividends or distributions,
or return capital, on ANZ ordinary shares or any other share capital or
security ranking equal or junior to the preference share component
(subject to certain exceptions).
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
27: Loan Capital (continued)
At any time at the Company’s discretion or upon the occurrence
of certain other events, such as the commencement of proceedings
for the winding up of the Company, the note component of the
UK Stapled Security will be assigned to the Company and the holder will
retain only the preference share component of the UK Stapled Security.
On 15 June 2012 (‘conversion date’), or an earlier date under
certain circumstances, UK Stapled Securities will mandatorily convert
into a variable number of ANZ ordinary shares determined in
accordance with the formula in the prospectus at a 5% discount.
The mandatory conversion to ANZ ordinary shares is however deferred
for fi ve years if the conversion tests set out in the prospectus are not met.
The preference shares forming part of the UK Stapled Securities
rank equally with each of the ANZ CPS and the preference shares
issued in connection with US Trust Securities and Euro Trust Securities.
The preference shares forming part of the UK Stapled Securities confer
voting rights in the Company in the following limited circumstances:
any proposal to reduce the Company’s share capital, other than a
resolution to approve a redemption;
on a proposal that aff ects rights attached to the preference shares;
any resolution to approve the terms of a share buy-back agreement,
other than a resolution to approve the redemption of preference
shares;
any proposal for the disposal of the whole of the Company’s
property, business and undertaking;
on any proposal to wind up the Company and any matter during
the Company’s winding-up; and
on all matters on which the holders of ANZ ordinary shares are
entitled to vote during a special voting period. A “special voting
period” is the period from the date preference share dividends are
not paid in full in respect of the immediately preceding semi-annual
dividend period or the date on which the Company’s New York
branch fails to make an interest payment in full on the subordinated
notes to the dates prescribed in the terms of issue.
On a resolution or proposal on which a preference share holder is
entitled to vote, the holder has on a show of hands one vote, and
on a poll one vote per preference share held.
If the UK Stapled Securities are converted into ANZ ordinary shares
in accordance with their terms of issue, the voting rights of the ANZ
ordinary shares will be as set out on page 220.
As noted above, in a winding up of the Company, the note component
of the UK Stapled Security will be assigned to the Company and the
holder will retain only the preference share component of the UK
Stapled Security. Accordingly, the rights of investors in UK Stapled
Securities in a winding up of the Company are the rights conferred
by the preference share component of UK Stapled Securities.
These preference shares rank behind all depositors and creditors,
but ahead of ordinary shareholders.
ANZ CONVERTIBLE PREFERENCE SHARES (ANZ CPS)
On 30 September 2008, the Company issued 10.8 million
convertible preference shares (‘ANZ CPS1’) at $100 each pursuant
to a prospectus dated 4 September 2008, raising $1,081 million
(excluding issue costs of $13 million: net raising of $1,068 million).
On 17 December 2009, the Company issued 19.7 million
convertible preference shares (‘ANZ CPS2’) at $100 each pursuant
to a prospectus dated 18 November 2009, raising $1,969 million
(excluding issue costs of $24 million: net raising of $1,945 million).
On 28 September 2011, the Company issued 13.4 million
convertible preference shares (‘ANZ CPS3’, together with ANZ CPS1
and ANZ CPS2 the ‘ANZ CPS’) at $100 each pursuant to a prospectus
dated 31 August 2011 raising $1,340 million (excluding issue costs
of $18 million; net raising of $1,322 million).
ANZ CPS are fully paid, preferred, non-cumulative, mandatorily
convertible preference shares. ANZ CPS are listed on the Australian
Stock Exchange.
Dividends on ANZ CPS are non-cumulative and are payable quarterly
in arrears in December, March, June and September (in the case of
ANZ CPS1 and ANZ CPS2) and semi-annually in arrears in March and
September (in the case of ANZ CPS3) in each year and will be franked
in line with the franking applied to ANZ ordinary shares. The dividends
will be based on a fl oating dividend rate equal to the aggregate of
the 90 day bank bill rate plus a 250 basis point margin (in the case of
ANZ CPS1) and a 310 basis point margin (in the case of ANZ CPS2)
and the 180 day bank bill rate plus 310 basis point margin (in the case
of ANZ CPS3), multiplied by one minus the Australian Company tax
rate. Quarterly or semi-annually (as applicable), the relevant 90 or 180
day bank bill rate is reset for the next dividend period. Should the
dividend not be fully franked, the terms of the security provide for a
cash gross up for the amount of the franking benefi t not provided.
Dividends are subject to the absolute discretion of the Board of
Directors of the Company and certain payment tests (including APRA
requirements and distributable profi ts being available). If dividends
are not paid on ANZ CPS, the Group may not pay dividends or
distributions, or return capital, on ANZ ordinary shares or (in the case
of ANZ CPS1 and ANZ CPS2 only) any other share capital or security
ranking equal or junior to the ANZ CPS for a specifi ed period (subject
to certain exceptions).
On 16 June 2014 (in the case of ANZ CPS1), 15 December 2016
(in the case of ANZ CPS2) or 1 September 2019 (in the case of ANZ
CPS3) (each a ‘conversion date’), or an earlier date under certain
circumstances, the relevant ANZ CPS will mandatorily convert into
a variable number of ANZ ordinary shares determined in accordance
with the formula in the relevant prospectus based on $100 divided
by the average market price of ordinary shares over a 20 day trading
period ending at the conversion date less a 2.5% discount (in the case
of ANZ CPS1) or 1.0% discount (in the case of ANZ CPS2 and ANZ CPS3).
The mandatory conversion to ANZ ordinary shares is however
deferred for a quarter (in the case of ANZ CPS1 and ANZ CPS2) and
semi-annually (in the case of ANZ CPS3) if the conversion tests set
out in the relevant prospectus are not met.
In respect of ANZ CPS3 only, if a common equity trigger event occurs
the ANZ CPS3 will immediately convert into ANZ ordinary shares on
the basis of the calculation set out above, but subject to a maximum
conversion number of 10.2407 ANZ ordinary shares per ANZ CPS3
and using a fi ve day trading period ending on the conversion date.
A common equity trigger event occurs if ANZ’s Common Equity Tier 1
capital ratio) is equal to or less than 5.125%.
Notes to the Financial Statements 133
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
27: Loan Capital (continued)
In respect of ANZ CPS3 only, on 1 September 2017 and each
subsequent semi annual Dividend Payment Date, subject to receiving
APRA’s prior approval and satisfying certain conditions, the Company
has the right to redeem or convert into ANZ ordinary shares all or
some ANZ CPS3 in its discretion. Conversion is on the same terms
as mandatory conversion on a conversion date.
The ANZ CPS rank equally with each other and the preference shares
issued in connection with US Trust Securities, UK Stapled Securities
and Euro Trust Securities. Except in limited circumstances, holders
of ANZ CPS do not have any right to vote in general meetings of
the Company. Refer to pages 221 to 223 for details of the voting
rights of ANZ CPS1, ANZ CPS2 and ANZ CPS3 respectively.
28: Share Capital
Numbers of issued shares
Ordinary shares each fully paid
Preference shares each fully paid
Total number of issued shares
If any of the ANZ CPS are converted into ANZ ordinary shares in
accordance with their terms of issue, the voting rights of the ANZ
ordinary shares will be as set out on page 220.
In a winding up of the Company, the ANZ CPS rank behind all
depositors and creditors, but ahead of ordinary shareholders.
The Company
2011
2,629,034,037
500,000
2,629,534,037
2010
2,559,662,425
500,000
2,560,162,425
ORDINARY SHARES
Ordinary shares have no par value and entitle holders to receive dividends payable to ordinary shareholders and to participate in the proceeds
available to ordinary shareholders on winding up of the Company in proportion to the number of fully paid ordinary shares held.
On a show of hands every holder of fully paid ordinary shares present at a meeting in person or by proxy is entitled to one vote, and upon
a poll one vote for each share held.
Numbers of issued shares
Balance at start of the year
Bonus option plan1
Dividend reinvestment plan1
ANZ employee share acquisition plan
ANZ share option plan2
Balance at end of year
Ordinary share capital
Balance at start of the year
Dividend reinvestment plan1
ANZ employee share acquisition plan2,3
OnePath Australia Treasury shares4
ANZ share option plan2
Balance at end of year
The Company
2011
2,559,662,425
3,013,239
61,685,747
2,340,296
2,332,330
2,629,034,037
2010
2,504,540,925
2,481,103
46,750,640
3,810,413
2,079,344
2,559,662,425
Consolidated
2011
$m
2010
$m
The Company
2011
$m
2010
$m
19,886
1,367
45
2
43
21,343
19,151
1,007
51
(360)
37
19,886
20,246
1,367
45
–
43
21,701
19,151
1,007
51
–
37
20,246
1 Refer to note 7 for details of plan.
2 Refer to note 46 for details of plan.
3
Includes on-market purchase of shares for settlement of amounts due under share-based compensation plans. In addition, 2,340,296 shares were issued during the year ended 30 September
2011 to the Group’s Employee Share Trust for settlement of amounts due under share-based compensation plans (2010: 3,810,413). As at 30 September 2011, there were 13,795,601 Treasury
shares outstanding (2010: 11,472,666).
4 ANZ acquired OnePath Australia Limited (OPA) on 30 November 2009. OPA treasury shares include shares held in statutory funds as assets backing policyholder liabilities. OPA Treasury shares
outstanding as at 30 September 2011 were 16,469,102 (2010: 16,710,967).
134
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
28: Share Capital (continued)
PREFERENCE SHARES
Euro Trust Securities
On 13 December 2004, the Company issued 500,000 Euro Floating
Rate Non-cumulative Trust Securities (‘Euro Trust Securities’) at
€1,000 each pursuant to the off ering circular dated 9 December 2004,
raising $871 million (at the spot rate at the date of issue, net of issue
costs). Euro Trust Securities comprise two fully paid securities – an
interest paying unsecured note (issued by ANZ Jackson Funding plc, a
United Kingdom subsidiary of the Company) and a fully paid, €1,000
preference share (issued by the Company), which are stapled together
and issued as a Euro Trust Security by ANZ Capital Trust III (the Trust).
Investors have the option to redeem the Euro Trust Security from the
Trust and hold the underlying stapled security.
The Euro Trust Securities were issued in global form and are registered
in the name of The Bank of New York Depositary (Nominees) Limited
as the sole holder. The fully paid preference shares and unsecured
notes that form part of the Euro Trust Securities are registered in the
name of The Bank of New York (as trustee for ANZ Capital Trust III) as
the sole holder.
Distributions on Euro Trust Securities are non-cumulative and are
payable quarterly in arrears and are funded by payments received
by the Trust on the underlying note and/or preference share. The
distribution is based upon a fl oating distribution rate equal to
the three month EURIBOR rate plus a 66 basis point margin up
until 15 December 2014, after which date the distribution rate is
the three month EURIBOR rate plus a 166 basis point margin. At
each payment date the three month EURIBOR rate is reset for the
next quarter. Distributions are subject to certain payment tests
(i.e. APRA requirements and distributable profi ts being available).
Distributions are expected to be payable on 15 March, 15 June,
15 September and 15 December of each year. Dividends are not
payable on the preference shares while they are stapled to the note,
except for the period after 15 December 2014 when the preference
share will pay 100 basis points to fund the increase in the margin.
If distributions are not paid on Euro Trust Securities, the Group may
not pay dividends or distributions, or return capital on ANZ ordinary
shares or any other share capital or security ranking equal or junior
to the preference share component (subject to certain exceptions).
At any time at ANZ’s discretion or upon the occurrence of certain
other ‘conversion events’, such as the failure of the Trust to pay
in full a distribution within seven business days of the relevant
distribution payment date or the business day prior to 15 December
2053, the notes that are represented by the relevant Euro Trust
Securities will be automatically assigned to a branch of the Company
and the fi xed number of preference shares that are represented by
the relevant Euro Trust Securities will be distributed to investors in
redemption of such Euro Trust Securities. The distributed preference
Preference share balance at start of year
– Euro Trust Securities
Preference share balance at end of year
– Euro Trust Securities
shares will immediately become dividend paying and holders
will receive non-cumulative dividends equivalent to the scheduled
payments in respect of the Euro Trust Securities for which the
preference shares were distributed.
The preference shares forming part of each Euro Trust Security rank
equally with each of the ANZ CPS and the preference shares issued
in connection with the US Trust Securities and UK Stapled Securities
in all respects.
The preference shares forming part of the Euro Trust Securities confer
voting rights in the Company in the following limited circumstances:
any proposal to reduce the Company’s share capital, other than
a resolution to approve a redemption or reduction of capital in
connection with the preference shares;
on a proposal that aff ects rights attached to the preference shares;
any resolution to approve the terms of a share buy-back agreement,
other than a resolution to approve a buy-back (other than an on
market buy-back) of preference shares;
any proposal for the disposal of the whole of the Company’s
property, business and undertaking;
on any proposal to wind up the Company and any matter during
the Company’s winding-up; and
on all matters on which the holders of ANZ ordinary shares are
entitled to vote during a special voting period. A “special voting
period” is a period from any dividend payment date where
preference share dividends are not paid in full in respect of the
immediately preceding quarterly dividend period or the 24th
business day after the failure of ANZ Jackson Funding plc to make
an interest payment in full on the notes that form part of the Euro
Trust Securities and the Company does not make the payment
pursuant to the relevant guarantee or pay an optional dividend
on the preference shares within a prescribed time period.
On a resolution or proposal on which a preference share holder is
entitled to vote, the holder has on a show of hands one vote, and
on a poll, one vote per preference share held.
On winding up of the Company, the rights of Euro Trust Security
holders will be determined by the preference share component
of the Euro Trust Security. These preference shares rank behind
all depositors and creditors, but ahead of ordinary shareholders.
The transaction costs arising on the issue of these instruments
were recognised directly in equity as a reduction to the proceeds
of the equity instruments to which the costs relate.
Euro Trust Securities qualify as Innovative Residual Tier 1 Capital
as defi ned by APRA.
Consolidated
The Company
2011
$m
871
871
2010
$m
871
871
2011
$m
871
871
2010
$m
871
871
Notes to the Financial Statements 135
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
29: Reserves and Retained Earnings
a) Foreign currency translation reserve
Balance at beginning of the year
Currency translation adjustments, net of hedges after tax
Total foreign currency translation reserve
b) Share option reserve1
Balance at beginning of the year
Share-based payments
Transfer of options/rights lapsed to retained earnings2
Total share option translation reserve
c) Available-for-sale revaluation reserve
Balance at beginning of the year
Valuation gain/(loss) recognised after tax
Cumulative (gain)/loss transferred to the income statement
Total available-for-sale revaluation reserve
d) Hedging reserve
Balance at beginning of the year
Gains/(loss) recognised after tax
Transfer (to)/from income statement
Total hedging reserve
e) Transactions with non-controlling interests reserve
Balance at beginning of the year
Transactions with non-controlling interests3
Total transactions with non-controlling interests reserve
Total reserves
Consolidated
2011
$m
2010
$m
(2,742)
324
(2,418)
(1,725)
(1,017)
(2,742)
64
(13)
(1)
50
80
30
16
126
11
164
(6)
169
–
(22)
(22)
69
7
(12)
64
(41)
112
9
80
(90)
138
(37)
11
–
–
–
The Company
2011
$m
(773)
97
(676)
64
(13)
(1)
50
5
(13)
43
35
(73)
128
(8)
47
–
–
–
2010
$m
(436)
(337)
(773)
69
7
(12)
64
(18)
45
(22)
5
(109)
84
(48)
(73)
–
–
–
(2,095)
(2,587)
(544)
(777)
1 Further information about share based payments to employees is disclosed in note 46.
2 The transfer of balances from the share option and capital reserves to retained earnings represent items of a distributable nature.
3 The premium in excess of the book value paid to acquire an additional interest in a controlled entity from the non controlling shareholder.
Retained earnings
Balance at beginning of the year
Profi t attributable to shareholders of the Company
Transfer of options/rights lapsed from share option reserve1,2
Actuarial gain/(loss) on defi ned benefi t plans after tax3
Adjustments to opening retained earnings on adoption
of revised accounting standard AASB 3R
Dividend income in Treasury shares
Ordinary share dividend paid
Preference share dividend paid
Retained earnings at end of year
Total reserves and retained earnings
Consolidated
2011
$m
2010
$m
The Company
2011
$m
2010
$m
15,921
5,355
1
(10)
–
23
(3,491)
(12)
17,787
15,692
14,129
4,501
12
(4)
(39)
–
(2,667)
(11)
15,921
13,334
11,666
4,151
1
24
–
–
(3,491)
–
12,351
11,807
9,950
4,428
12
(18)
(39)
–
(2,667)
–
11,666
10,889
1 Further information about share based payments to employees is disclosed in note 46 to the financial statements.
2 The transfer of balances from the share option, general and capital reserves to retained earnings represent items of a distributable nature.
3 ANZ has taken the option available under AASB 119 to recognise actuarial gains/losses on defined benefit superannuation plans directly in retained profits (refer note 1 F(vi) and note 45).
136
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
29: Reserves and Retained Earnings (continued)
a) Foreign currency translation reserve
The translation reserve comprises exchange diff erences, net of hedges, arising on translation of the fi nancial statements of foreign operations,
as described in note 1 A(viii). When a foreign operation is sold, attributable exchange diff erences are recognised in the income statement.
b) Share option reserve
The share option reserve arises on the grant of options, performance rights and deferred share rights to selected employees under the
ANZ share option plan. Amounts are transferred out of the reserve and into share capital when the equity investments are exercised. Refer
to note 1 C(iii).
c) Available-for-sale revaluation reserve
Changes in the fair value and exchange diff erences on the revaluation of available-for-sale fi nancial assets are taken to the available-for-sale
revaluation reserve. Where a revalued available-for-sale fi nancial asset is sold, that portion of the reserve which relates to that fi nancial asset,
is realised and recognised in the income statement. Where the available-for-sale fi nancial asset is impaired, that portion of the reserve which
relates to that asset is recognised in the income statement. Refer to note 1 E(iii).
d) Hedging reserve
The hedging reserve represents hedging gains and losses recognised on the eff ective portion of cashfl ow hedges. The cumulative deferred gain
or loss on the hedge is recognised in the income statement when the hedged transaction impacts the income statement. Refer to note 1 E(ii).
30: Non-controlling interests
Share capital
Retained profi t
Total non-controlling interests
Consolidated
2011
$m
43
5
48
2010
$m
36
28
64
Notes to the Financial Statements 137
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
31: Capital Management
ANZ pursues an active approach to capital management, which
is designed to protect the interests of depositors, creditors and
shareholders. This involves the on-going review and Board approval
of the level and composition of ANZ’s capital base, assessed against
the following key policy objectives:
Regulatory compliance such that capital levels exceed APRA’s,
ANZ’s primary prudential supervisor, minimum Prudential
Capital Ratios (PCRs) both at Level 1 (the Company and specifi ed
subsidiaries) and Level 2 (ANZ consolidated under Australian
prudential standards), along with US Federal Reserve’s minimum
Level 2 requirements under ANZ’s Foreign Holding Company
Licence in the United States of America.
Capital levels are aligned with the risks in the business and to
meet strategic and business development plans through ensuring
that available capital exceeds the level of Economic Capital
required to support the Ratings Agency ‘default frequency’
confi dence level for a ‘AA’ credit rating category bank. Economic
Capital is an internal estimate of capital levels required to support
risk and unexpected losses above a desired target solvency level;
Capital levels are commensurate with ANZ maintaining its preferred
‘AA’ credit rating category for senior long-term unsecured debt
given its risk appetite outlined in its strategic plan; and
An appropriate balance between maximising shareholder returns
and prudent capital management principles.
ANZ achieves these objectives through an Internal Capital Adequacy
Assessment Process (ICAAP) whereby ANZ conducts detailed strategic
and capital planning over a medium term time horizon.
Annually, ANZ conducts a detailed strategic planning process over
a three year time horizon, the outcomes of which are embodied in
the Strategic Plan. This process involves forecasting key economic
variables which Divisions use to determine key fi nancial data for
their existing business. New strategic initiatives to be undertaken
over the planning period and their fi nancial impact are then
determined. These processes are used for the following:
Review capital ratios, targets, and levels of diff erent classes of
capital against ANZ’s risk profi le and risk appetite outlined in the
Strategic Plan. ANZ’s capital targets refl ect the key policy objectives
above, and the desire to ensure that under specifi c stressed
economic scenarios that capital levels are suffi cient to remain
above both Economic Capital and PCR requirements.
Stress tests are performed under diff erent economic conditions
to ensure a comprehensive review of ANZ’s capital position both
before and after mitigating actions. The stress tests determine
the level of additional capital (i.e. the ‘capital buff er’ above Pillar 1
minimum capital) needed to absorb losses that may be experienced
during an economic downturn.
Stress testing is integral to strengthening the predictive approach
to risk management and is a key component in managing risks,
asset writing strategies and business strategies. It creates greater
understanding of the impacts on fi nancial performance through
modelling relationships and sensitivities between geographic,
industry and Division exposures under a range of macro economic
scenarios. ANZ has a dedicated stress testing team within Risk
Management that models and reports to management and
the Board’s Risk Committee on a range of scenarios and stress tests.
138
ANZ Annual Report 2011
Results are subsequently used to:
recalibrate ANZ’s management targets for minimum and operating
ranges for its respective classes of capital such that ANZ will remain
compliant with APRA’s PCRs and US Federal Reserve’s minimum
Tier 1 and Total Capital requirements; and
identify the level of organic capital generation and hence
determine current and future capital requirements for the
Company (Level 1) and the Group (Level 2).
From these processes, a Capital Plan is developed and approved
by the Board which identifi es the capital issuance requirements,
capital securities maturity profi le, and options around capital
products, timing and markets to execute the Capital Plan under
diff ering market and economic conditions.
The Capital Plan is maintained and updated through a monthly
review of forecast fi nancial performance, economic conditions
and development of business initiatives and strategies. The Board
and senior management are provided with monthly updates of ANZ’s
capital position. Any actions required to ensure ongoing prudent
capital management are submitted to the Board for approval.
Regulatory environment
ANZ’s regulatory capital calculation is governed by APRA’s Prudential
Standards which adopt a risk-based capital assessment framework
based on the Basel II capital measurement standards. This risk-based
approach requires eligible capital to be divided by total risk weighted
assets (RWAs), with the resultant ratio being used as a measure of a
bank’s capital adequacy. APRA determines PCRs for Tier 1 and Total
Capital, with capital as the numerator and RWAs as the denominator.
To ensure that Authorised Deposit-taking Institutions (ADIs) are
adequately capitalised on both a stand-alone and group basis, APRA
adopts a tiered approach to the measurement of an ADI’s capital
adequacy by assessing the ADIs fi nancial strength at three levels:
Level 1 – the ADI on a stand-alone basis (i.e. the Company and
approved subsidiaries which are consolidated to form the ADIs’
Extended Licensed Entity);
Level 2 – the consolidated banking group (i.e. the consolidated
fi nancial group less certain subsidiaries and associates excluded
under the prudential standards); and
Level 3 – the conglomerate group at the widest level.
ANZ is a Level 1 and Level 2 reporter, and measures capital adequacy
monthly on a Level 1 and Level 2 basis, and is not required to report
on a Level 3 basis.
Regulatory capital is divided into Tier 1, carrying the highest capital
elements, and Tier 2, which has lower capital elements, but still adds
to the overall strength of the ADI.
Tier 1 capital is comprised of ‘Fundamental’ capital, ‘Residual’ capital,
and Tier 1 deductions. Fundamental capital comprises shareholders’
equity adjusted for items which APRA does not allow as regulatory
capital or classifi es as lower forms of regulatory capital. Fundamental
capital includes the following signifi cant adjustments:
Residual Tier 1 capital instruments included within shareholders
equity are excluded;
Reserves exclude the Hedging reserve and Available-for-sale
revaluation reserve, and reserves of insurance and funds management
subsidiaries and associates excluded for Level 2 purposes;
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
31: Capital Management (continued)
Retained earnings excludes retained earnings of insurance and
funds management subsidiaries and associates excluded for Level 2
purposes, but includes capitalised deferred fees forming part of loan
yields that meet the criteria set out in the prudential standard; and
Following on from the December 2010 Basel Committee paper on
prudential capital reforms, on 6 September 2011 APRA released a
discussion paper detailing the implementation of their proposed
Basel III capital reforms in Australia.
The discussion paper adopts the Basel III reforms with increased
capital deductions from Common Equity Tier 1 capital, higher
capital targets with prescribed minimum capital buff ers; and tighter
requirements around Hybrid Tier 1 and Tier 2 securities. Based on
ANZ’s interpretation of the APRA discussion paper, coupled with the
higher risk weighting for counterparty credit risk proposed by the
December 2010 Basel Committee paper, ANZ’s ratios are well above
minima proposed by APRA at the January 2013 implementation date.
Basel Committee is still to release fi nal proposals for contingent
capital and measures to address systematic and inter-connected
risks – these are expected in 2012.
Current year net of tax earnings is net of any interim and special
dividends paid during the current year, and the expected fi nal
dividend payment, net of the expected dividend reinvestment
under the Dividend Reinvestment Plan and Bonus Option Plan, and
excludes profi ts of insurance and funds management subsidiaries
and associates excluded for Level 2 purposes.
Residual capital covers Non-innovative and Innovative Hybrid Tier 1
instruments with limits restricting the volume that can be counted
as Tier 1 capital.
Tier 1 capital deductions include amounts deducted solely from
Tier 1 capital. These deductions are mainly intangible assets being:
goodwill;
value in force as to acquired insurance/investment
business portfolios;
capitalised software;
capitalised brokerage and borrowing expenses;
net deferred tax assets.
Tier 1 deductions also include deductions taken 50% from Tier 1
and 50% from Tier 2, which mainly include the tangible component
of investment in other subsidiaries and investments in associates
regulated by APRA, or their overseas equivalent, and the amount of
Expected Losses (EL) in excess of Eligible Provisions for Loan Losses
(net of tax).
Tier 2 capital is comprised of Upper and Lower Tier 2 capital less
capital deductions taken 50% from Tier 2 capital. Upper Tier 2 capital
mainly comprises perpetual subordinated debt instruments, whilst
Lower Tier 2 capital includes dated subordinated debt instruments
which have a minimum term of fi ve years at issue date.
Total Capital is the sum of Tier 1 capital and Tier 2 capital.
In addition to the prudential capital oversight that APRA conducts
over the Company and the Group, the Company’s branch operations
and major banking subsidiary operations are overseen by local
regulators such as the Reserve Bank of New Zealand, the US Federal
Reserve, the UK Financial Services Authority, the Monetary Authority
of Singapore, the Hong Kong Monetary Authority, the China Banking
Regulatory Commission who may impose minimum capitalisation
rates on those operations.
Throughout the fi nancial year, the Company and the Group
maintained compliance with the minimum Tier 1 and Total Capital
ratios set by APRA and the US Federal Reserve as well as applicable
capitalisation rates set by regulators in countries where the Company
operates branches and subsidiaries.
Regulatory change
The Basel Committee on Banking Supervision has released a series
of consultation papers (Basel III) containing a number of proposals
to strengthen the global capital and liquidity framework to improve
the banking sector’s ability to absorb shocks arising from fi nancial
and economic stress.
Notes to the Financial Statements 139
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
31: Capital Management (continued)
The table below provides the composition of capital used for regulatory purposes and capital adequacy ratios.
Regulatory capital – qualifying capital
Tier 1
Shareholders' equity and non-controlling interests
Prudential adjustments to shareholders' equity
Fundamental Tier 1 capital
Deductions1
Common Equity Tier 1 capital
Non-innovative Tier 1 capital instruments
Innovative Tier 1 capital instruments
Tier 1 capital
Tier 2
Upper Tier 2 capital
Subordinated notes2
Deductions
Tier 2 capital
Total qualifying capital
Capital adequacy ratios
Common Equity Tier 1
Tier 1
Tier 2
Total
2011
$m
2010
$m
37,954
(3,479)
34,475
(10,611)
23,864
5,111
1,641
30,616
1,228
5,017
(3,071)
3,174
34,155
(2,840)
31,315
(10,057)
21,258
3,787
1,646
26,691
1,223
6,619
(3,026)
4,816
33,790
31,507
8.5%
10.9%
1.2%
12.1%
8.0%
10.1%
1.8%
11.9%
1
Includes goodwill (excluding OnePath Australia Limited and OnePath New Zealand Limited) of $2,968 million (2010: $2,910 million) and $2,071 million (2010: $2,043 million) intangible
component of investment in OnePath Australia Limited and OnePath New Zealand Limited.
2 For capital adequacy calculation, subordinated note issues are reduced by 20% of the original amount over the last four years to maturity and are limited to 50% of Tier 1 capital.
Regulatory environment – insurance and funds management business
Under APRA’s Prudential Standards, life insurance and funds management activities are de-consolidated for the purposes of calculating
capital adequacy and excluded from the risk based capital adequacy framework for the ANZ Level 2 Group. The intangible component of
the investment in these controlled entities is deducted from Tier 1 capital with the balance of the investment deducted 50% from Tier 1
and 50% from Tier 2 capital. Additionally any profi ts from these activities included in ANZ’s results are excluded from the determination of
Tier 1 capital to the extent they have not been remitted to the Level 2 Group.
ANZ’s life insurance business in Australia is regulated by APRA as a separate business. The Life Act (1995) includes a two tiered framework
for the calculation of regulatory capital requirements for life insurance companies – ‘solvency’ and ‘capital adequacy’. There are no regulatory
capital requirements for life insurance companies in New Zealand. ANZ determines the minimum capital requirements for its New Zealand life
insurance business according to the professional standard, ‘Solvency Reserving for Life Insurers’, issued by the New Zealand Society of Actuaries.
Fund managers in Australia are subject to ‘Responsible Entity’ regulation by the Australian Securities and Investment Commission (‘ASIC’).
The regulatory capital requirements vary depending on the type of Australian Financial Services Licence or Authorised Representatives’ Licence
held, but a requirement of up to $5 million of net tangible assets applies.
APRA supervises approved trustees of superannuation funds and requires them to also maintain net tangible assets of at least $5 million.
These requirements are not cumulative where an entity is both an approved trustee for superannuation purposes and a responsible entity.
ANZ’s insurance and funds management companies held assets in excess of regulatory capital requirements at 30 September 2011.
140
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
32: Assets Charged as Security for Liabilities and Collateral Accepted as Security for Assets
Assets charged as security for liabilities
The following assets are pledged as collateral:
Mandatory reserve deposits with local central banks in accordance with statutory requirements. These deposits are not available to fi nance
the Group’s day to day operations.
Securities provided as collateral for repurchase transactions. These transactions are governed by standard industry agreements.
Debenture undertakings covering the assets of Esanda Finance Corporation Limited (Esanda) and its subsidiaries and UDC Finance Limited
(UDC). The debenture stock of Esanda and its subsidiaries and UDC is secured by a trust deed and collateral debentures, giving fl oating
charges upon the undertaking of all the tangible assets of the entity, other than land and buildings. All controlled entities of Esanda and UDC
have guaranteed the payment of principal, interest and other monies in relation to all debenture stock and unsecured notes issued by Esanda
and UDC respectively. The only loans pledged are those in UDC and its subsidiaries.
Cash placed on deposit with a third party that is provided as collateral for a liability in a structured funding transaction. The funding
was raised through a subsidiary, and to achieve more favourable pricing terms, ANZ provided cash collateral, given by the Company.
Collateral provided to central banks.
Specifi ed housing loans provided as security for notes issued to investors by a securitisation special purpose vehicle.
The carrying amounts of assets pledged as security are as follows:
Regulatory deposits
Securities sold under arrangements to repurchase
Assets pledged as collateral under debenture undertakings
Cash deposited in structured funding transaction
Securitisation
Other
Consolidated
The Company
Carrying Amount
Related Liability
Carrying Amount
Related Liability
2011
$m
1,505
1,872
2,146
840
166
52
2010
$m
1,056
1,858
2,899
840
211
153
2011
$m
n/a
1,869
1,372
2,000
166
–
2010
$m
n/a
1,733
1,545
2,000
211
–
2011
$m
497
1,511
–
840
–
52
2010
$m
616
1,703
–
840
–
153
2011
$m
n/a
1,510
–
–
–
–
2010
$m
n/a
1,564
–
–
–
–
Collateral accepted as security for assets1
ANZ has received collateral as part of entering reverse repurchase agreements. These transactions are governed by standard industry agreements.
The fair value of collateral received and provided is as follows:
Collateral received on standard repurchase agreement2
Fair value of assets which can be sold
Amount of collateral that has been resold
1 Details of collateral agreements for derivatives are included in note 12.
2 Balance in 2011 includes $36 million where the underlying securities are equities.
Consolidated
The Company
2011
$m
2010
$m
2011
$m
2010
$m
7,238
4,125
7,867
1,307
6,451
3,341
7,665
1,122
Notes to the Financial Statements 141
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management
STRATEGY IN USING FINANCIAL INSTRUMENTS
Financial instruments are fundamental to the Group’s business,
constituting the core element of its operations. Accordingly, the risks
associated with fi nancial instruments are a signifi cant component
of the risks faced by the Group. Financial instruments create, modify
or reduce the credit, market (including traded or fair value risks and
non-traded or interest and foreign currency related risks) and liquidity
risks of the Group’s balance sheet. These risks, and the Group’s
objectives, policies and processes for managing and methods used
to measure such risks are outlined below.
CREDIT RISK
Credit risk is the risk of fi nancial loss resulting from the failure of
ANZ’s customers and counterparties to honour or perform fully the
terms of a loan or contract. The Group assumes credit risk in a wide
range of lending and other activities in diverse markets and in many
jurisdictions. Credit risks arise not only from traditional lending
to customers, but also from inter-bank, treasury, international trade
and capital market activities around the world.
The Group has an overall objective of sound growth for appropriate
returns. The credit risk principles of the Group are set by the Board
and are implemented and monitored within a tiered structure of
delegated authority designed to oversee multiple facets of credit
risk, including business writing strategies, credit policies/controls,
portfolio monitoring and risk concentrations.
CREDIT RISK MANAGEMENT OVERVIEW
The credit risk management framework ensures a consistent
approach is applied across the Group in measuring, monitoring
and managing the credit risk appetite set by the Board.
The Board is assisted and advised by the Board Risk Committee in
discharging its duty to oversee credit risk. The Board Risk Committee
sets the credit risk appetite, credit principles and credit strategies,
as well as approving credit transactions beyond the discretion of
executive management.
Responsibility for the management and oversight of the credit risk
framework (including the risk appetite) resides with the Credit and
Market Risk Committee (CMRC), which is an executive management
committee comprising senior risk, business and Group executives,
chaired by the Chief Risk Offi cer (CRO).
Central to the Group’s management of credit risk is the existence of
an independent credit risk management function that is staff ed by
risk specialists. Independence is achieved by having all credit risk staff
ultimately report to the CRO, including where they are embedded in
business units. The primary responsibility for prudent and profi table
management of credit risk assets and customer relationships rests
with the business units.
The authority to make credit decisions is delegated by the Board
to the CEO who in turn delegates authority to the CRO. The CRO
in turn delegates some of his credit discretion to individuals as
part of a ‘cascade’ of authority from senior to the most junior credit
offi cers. Individuals are required to complete appropriate ongoing
accreditation training in order to be granted and retain a credit
discretion. Credit discretions are reviewed on an annual basis,
and may be varied based on the holder’s performance.
142
ANZ Annual Report 2011
The Group has two main approaches to assessing credit risk arising
from transactions:
The larger and more complex credit transactions are assessed on
a judgemental credit basis. Rating models provide a consistent and
structured assessment, with judgement required around the use
of out-of-model factors. Credit approval for judgemental lending
is typically on a dual approval basis, jointly by the business writer
in the business unit and an independent credit offi cer.
Programmed credit assessment typically covers retail and some
small business lending, and refers to the automated assessment of
credit applications using a combination of scoring (application and
behavioural), policy rules and external credit reporting information.
Where an application does not meet the automated assessment
criteria it will be referred out for manual assessment, with assessors
considering the decision tool recommendation.
Central and divisional credit risk teams perform key roles in portfolio
management such as the development and validation of credit
risk measurement systems, loan asset quality reporting, stress
testing, and the development of credit policies. Credit policies and
procedures cover all aspects of the credit life cycle such as transaction
structuring, risk grading, initial approval, ongoing management and
problem debt management, as well as specialist policy topics.
The Group’s grading system is fundamental to the management of
credit risk, seeking to measure the probability of default (PD), the
exposure at default (EAD) and the loss in the event of default (LGD)
for all transactions.
From an operational perspective, the Group’s credit grading system
has two separate and distinct dimensions that:
Measure the PD, which is expressed by a 27-grade Customer Credit
Rating (CCR), refl ecting the ability to service and repay debt. Within
the programmed credit assessment sphere, the PD is typically
expressed as a score which maps back to the PD.
Measure the LGD, which is expressed by a Security Indicator
(SI) ranging from A to G. The SI is calculated by reference to the
percentage of loan covered by security which can be realised in
the event of default. The security-related SIs are supplemented with
a range of other SIs to cover situations where ANZ’s LGD research
indicates certain transaction characteristics have diff erent recovery
outcomes. Within the programmed credit assessment sphere,
exposures are grouped into large homogenous pools – and the
LGD is assigned at the pool level.
The development and regular validation of rating models is
undertaken by specialist central risk teams. The outputs from these
models drive many day-to-day credit decisions, such as origination,
pricing, approval levels, regulatory capital adequacy, economic
capital allocation and provisioning. The risk grading process includes
monitoring of model-generated results to ensure appropriate
judgement is exercised (such as overrides to take into account any
out-of-model factors).
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk arise when a number of customers are
engaged in similar business activities or activities within the same
geographic region, or when they have similar risk characteristics
that would cause their ability to meet contractual obligations to
be similarly aff ected by changes in economic or other conditions.
The Group monitors its portfolios, to identify and assess risk
concentrations. The Group’s strategy is to maintain well-diversifi ed
credit portfolios focused on achieving an acceptable risk-return
balance. Credit risk portfolios are actively monitored and frequently
reviewed to identify, assess and guard against unacceptable
risk concentrations. Concentration analysis will typically include
geography, industry, credit product and risk grade. The Group
also applies single customer counterparty limits to protect against
unacceptably large exposures to single name risk. These limits are
established based on a combination of factors including nature of
counterparty, probability of default and collateral provided.
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
COLLATERAL MANAGEMENT
Collateral is used to mitigate credit risk, as the secondary source
of repayment in case the counterparty cannot meet its contractual
repayment obligations.
ANZ credit principles specify to only lend when the counterparty
has the capacity and ability to repay, and the Group sets limits on
the acceptable level of credit risk. Acceptance of credit risk is fi rstly
based on the counterparty’s assessed capacity to meet contractual
obligations (such as the scheduled repayment of principal and interest).
In certain cases, such as where the customer risk profi le is considered
very sound or by the nature of the product (for instance, small limit
products such as credit cards), a transaction may not be supported by
collateral. For some products, the collateral provided is fundamental
to its structuring so is not strictly the secondary source of repayment.
For example, lending secured by trade receivables is typically repaid
by the collection of those receivables.
The most common types of collateral typically taken by ANZ include:
Security over residential, commercial, industrial or rural property;
Fixed and fl oating charges over business assets;
Security over specifi c plant and equipment;
Charges over listed shares, bonds or securities;
Charges over cash deposits; and
Guarantees and pledges.
Credit policy and procedures set out the acceptable types of
collateral, as well as a process by which additional instruments
and/or asset types can be considered for approval. ANZ’s credit risk
modelling areas use historical internal loss data and other relevant
external data to assist in determining the discount that each type
would be expected to incur in a forced sale. The discounted value
is used in the determination of the SI for LGD purposes.
In the event of customer default, any loan security is usually held as
mortgagee in possession while the Group is actively seeking to realise
it. Therefore the Group does not usually hold any real estate or other
assets acquired through the enforcement of security.
The Group generally uses Master Agreements with its counterparties
for derivatives activities. Generally, International Swaps and
Derivatives Association (ISDA) Master Agreements will be used. Under
the ISDA Master Agreement, if a default of a counterparty occurs, all
contracts with the counterparty are terminated. They are then settled
on a net basis at market levels current at the time of default.
In addition to the terms noted above, ANZ’s preferred practice is
to use a Credit Support Annex (CSA) to the ISDA Master Agreement.
Under a CSA, open derivative positions with the counterparty are
aggregated and cash collateral (or other forms of eligible collateral)
is exchanged daily. The collateral is provided by the counterparty
that is out of the money. Upon termination of the trade, payment
is required only for the fi nal daily mark-to-market movement rather
than the mark-to-market movement since inception.
Notes to the Financial Statements 143
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Concentrations of credit risk analysis
Composition of fi nancial instruments that give rise to credit risk by industry:
Consolidated
Australia
Agriculture, forestry
fi shing and mining
Business services
Construction
Entertainment, leisure
and tourism
Financial, investment
and insurance4
Government and
offi cial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
New Zealand
Agriculture, forestry
fi shing and mining
Business services
Construction
Entertainment, leisure
and tourism
Financial, investment
and insurance4
Government and
offi cial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
Liquid assets and due
from other fi nancial
institutions
Trading and
AFS1 assets
Derivatives
Loans and
advances and
acceptances5
Other
fi nancial
assets2
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
Credit related
commitments3
2011
$m
2010
$m
Total
2011
$m
2010
$m
–
23
8
–
8
47
2
–
–
2
2
–
37
5
21
46
259
89
147
278
139
67
95
12,143
5,384
5,156
11,571
5,207
4,592
289
6,151
5,463
176
78
75
89
164
74
65
7,309
2,556
3,448
6,216
2,669
3,978
19,887
8,132
8,836
18,135
8,069
8,753
77
2,942
2,402
9,460
8,277
1,262
2,622
16,427
16,906
36,047
25,759
7,921
7,537
115
108
7,082
6,724
68,854
59,656
4,217
240
–
1
8
10
242
43
6,054
30
4
–
–
6,826
68
–
3
5
3
158
2
15,311
358
–
40
85
59
2
1,411
14,159
346
–
89
132
80
8
3,776
184
664
–
795
173
461
383
1,066
184
566
218
8,252
133
7,196
– 191,052 175,888
22,643
8,422
4,853
5,526
8,517
24,108
9,295
5,533
5,826
8,285
586
160
289
392
413
9,744
33,697
35,605
40,546
28,939 289,324 267,548
36
–
–
–
–
–
–
–
1
1
–
–
84
15
3
33
96
15
2
30
14,023
898
732
14,538
590
764
880
841
2,394
1,337
2,751
2,383
7,864
5,361
728
1,370
184
–
–
–
–
–
12
28
5
41
–
23
78
4
41
–
2,652
1,565
4,913
8
–
–
2
45
–
43
7,762
4,248
15
–
–
2
16
–
159
451
155
–
25
33
83
17
305
241
93
–
46
53
114
15
256
1,136
2,015
43,574
5,855
1,222
1,247
925
1,456
1,089
2,365
42,463
5,798
1,100
1,370
931
1,188
6,825
9,068
6,322
74,691
74,407
1,101
3
120
2,771
350
135
80
84
120
4,196
79
5
4
5
682
6
11
247
33
7
7
5
10
2
102
2,495
321
119
69
78
121
235
8,214
35,929
8,267
3,630
2,972
4,938
7,673
198
9,070
21,502
20,168
17,348
17,848
36,155 229,752 214,538
31,279
33,561
12,300
13,326
8,031
9,115
11,412
11,475
19,049
18,598
7,637
3,462
2,737
5,250
6,220
3,795
95,195
92,718 469,012 438,349
108
4
6
1,404
320
536
1,097
86
503
15,620
1,242
1,275
15,876
696
1,275
6
252
378
1,170
1,255
181
1,153
898
15,572
11,530
8
18
316
43
8
10
7
10
725
803
1,513
6,482
652
583
463
873
1,659
610
1,460
5,828
869
705
383
976
1,382
7,493
3,702
50,303
6,565
1,847
1,845
1,832
3,501
6,201
3,992
48,607
6,779
1,946
1,897
1,970
2,995
16,693
15,175 111,967 105,019
1 Available-for-sale assets.
2 Mainly comprises trade dated assets and accrued interest.
3 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
4
5 Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.
Includes amounts due from other Group entities.
144
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):
Composition of fi nancial instruments that give rise to credit risk by industry (continued):
Consolidated
Asia Pacifi c, Europe
& America
Agriculture, forestry
fi shing and mining
Business services
Construction
Entertainment, leisure
and tourism
Financial, investment
and insurance4
Government and
offi cial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
Consolidated –
aggregate
Agriculture, forestry
fi shing and mining
Business services
Construction
Entertainment, leisure
and tourism
Financial, investment
and insurance4
Government and
offi cial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
Liquid assets and due
from other fi nancial
institutions
Trading and
AFS1 assets
Derivatives
Loans and
advances and
acceptances6
Other
fi nancial
assets2
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
Credit related
commitments3
2011
$m
2010
$m
Total
2011
$m
2010
$m
38
8
–
–
11
–
5
–
–
–
–
–
–
–
–
–
40
3
32
–
22
2
16
3
1,389
914
336
730
688
682
251
819
20,692
10,022
6,512
5,445
3,576
2,023
2,382
1,936
1,005
140
–
–
–
–
123
206
66
138
2
–
–
11
52
17
8,839
2
–
–
–
–
–
1,047
5,558
70
–
30
5
1
1
272
33
306
–
63
2
52
115
282
1
162
–
15
2
50
88
176
437
11,121
5,817
3,309
921
2,343
5,289
4,764
359
7,123
4,606
2,393
708
1,764
3,257
3,541
22,212
10,324
16,400
11,382
4,504
2,560
39,752
28,127
68
35
8
–
55
47
7
–
–
2
2
–
38
6
21
46
383
107
182
311
257
84
113
27,555
7,196
6,224
26,797
6,479
5,607
322
7,761
7,123
24,348
13,981
25,690
24,734
47,487
33,143
11,031
10,843
5,406
380
–
1
8
10
377
277
6,897
247
2
26
83
18
251
19
29,063
368
–
40
87
104
2
2,501
23,965
431
–
119
139
97
9
4,207
668
1,125
–
883
208
596
515
1,653
426
821
1,791
21,388
1,581
16,684
– 240,443 222,957
30,834
10,230
7,987
9,714
13,246
33,272
11,438
9,123
12,040
14,505
647
215
453
495
845
24
16
6
12
40
7
189
99
56
16
40
90
81
676
279
99
85
106
837
26
26
10
31
74
14
272
176
91
27
67
124
135
3,721
1,255
1,978
4,947
896
1,506
5,212
2,196
2,352
5,694
1,606
1,788
282
323
1,024
1,176
9,103
5,570
42,305
25,070
1,340
16,591
6,580
581
692
1,102
10,139
3,847
1,231
12,546
5,700
688
316
806
6,079
3,013
11,661
28,349
12,496
4,009
1,631
3,537
15,756
10,227
7,229
20,311
10,484
3,217
1,058
2,699
9,601
7,154
1,073
57,211
43,621 140,755
97,087
298
104
81
12,434
4,131
5,962
12,260
3,651
5,987
40,719
11,570
12,463
39,705
10,371
11,816
114
3,476
3,103
11,654
10,708
363
17,338
13,192 126,731
96,256
16
320
3,117
439
158
127
179
211
5,973
24
392
2,987
455
154
146
209
266
2,378
26,318
48,991
9,500
4,905
4,537
15,950
13,179
34,932
39,322
2,039
23,076
41,651
49,899
47,683 292,551 273,629
41,275
44,135
15,304
16,804
12,627
14,497
22,983
29,063
29,198
32,326
9,194
4,483
3,926
12,305
10,615
5,593 169,099 151,514 721,734 640,455
Gross Total
30,918
21,633
57,859
53,812
54,118
37,821 403,767 370,082
Individual provision for
credit impairment
Collective provision for
credit impairment
–
–
–
–
–
–
–
–
–
–
–
–
(1,687)
(1,849)
(2,604)
(2,577)
–
–
–
–
(10)
(26)
(1,697)
(1,875)
(572)
(576)
(3,176)
(3,153)
30,918
21,633
57,859
53,812
54,118
37,821 399,476 365,656
5,973
5,593 168,517 150,912 716,861 635,427
Unearned income
Capitalised brokerage/
mortgage origination
fees
–
–
–
–
–
–
–
–
–
–
–
(2,216)
(2,262)
–
629
600
–
–
–
–
–
–
–
(2,216)
(2,262)
–
629
600
30,918
21,633
57,859
53,812
54,118
37,821 397,889 363,994
5,973
5,593 168,517 150,912 715,274 633,765
Excluded from analysis
above5
2,805
2,793
479
445
–
–
–
–
–
–
–
–
3,284
3,238
33,723
24,426
58,338
54,257
54,118
37,821 397,889 363,994
5,973
5,593 168,517 150,912 718,558 637,003
1 Available-for-sale assets.
2 Mainly comprises trade dated assets and accrued interest.
3 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
4
5 Equity instruments and cash are excluded from maximum exposure amount.
6 Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.
Includes amounts due from other Group entities.
Notes to the Financial Statements 145
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):
Composition of fi nancial instruments that give rise to credit risk by industry (continued):
The Company
Australia
Agriculture, forestry
fi shing and mining
Business services
Construction
Entertainment, leisure
and tourism
Financial, investment
and insurance4
Government and
offi cial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
New Zealand
Agriculture, forestry
fi shing and mining
Business services
Construction
Entertainment, leisure
and tourism
Financial, investment
and insurance
Government and
offi cial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
Liquid assets and due
from other fi nancial
institutions
Trading and
AFS1 assets
Derivatives
Loans and
advances and
acceptances5
Other
fi nancial
assets2
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
Credit related
commitments3
2011
$m
2010
$m
Total
2011
$m
2010
$m
–
25
9
–
8
46
2
–
–
2
2
–
37
4
21
46
259
89
148
278
139
67
94
11,425
5,373
5,145
9,689
5,198
4,584
288
6,130
5,454
1,298
2,502
16,786
16,767
42,119
29,500
8,651
8,302
4,598
261
–
1
9
11
263
47
6,522
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,726
67
–
3
5
3
156
2
15,653
366
–
41
87
60
2
1,333
14,060
344
–
88
131
79
8
3,621
184
665
–
794
173
461
384
1,066
184
567
218
8,227
133
7,183
– 190,661 175,585
22,605
8,408
4,780
5,516
8,491
24,056
9,275
5,491
5,811
8,259
586
160
288
392
413
9,520
34,332
35,206
46,620
32,678 288,722 265,928
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
21
381
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
21
381
–
–
7,820
–
–
–
–
–
7,820
–
–
7,663
–
–
–
–
–
7,663
118
55
53
63
89
3
85
1,956
248
95
57
60
86
2,968
–
–
–
–
–
–
–
267
–
–
–
–
–
267
92
49
44
52
79
7,302
2,553
3,445
6,022
2,669
3,978
19,104
8,097
8,802
15,987
8,033
8,723
2,940
2,402
9,411
8,242
7,075
6,724
76,018
63,874
2
68
1,671
215
80
45
52
82
235
8,206
35,890
8,259
3,626
2,970
4,933
7,666
198
9,070
21,303
20,891
17,299
17,810
36,155 228,507 213,411
31,134
33,399
12,246
13,265
7,929
9,050
11,373
11,453
18,826
18,457
7,637
3,462
2,734
5,249
6,217
2,531
95,100
92,517 474,264 438,380
–
–
–
–
–
–
–
226
–
–
–
–
–
226
–
–
–
–
–
–
–
69
–
–
–
–
–
69
–
–
–
–
–
–
–
48
–
–
–
–
–
48
–
–
–
–
–
–
–
–
21
381
–
–
8,156
–
–
–
–
–
8,177
–
–
7,937
–
–
–
–
–
8,318
1 Available-for-sale assets.
2 Mainly comprises trade dated assets and accrued interest.
3 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
4
5 Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.
Includes amounts due from other Group entities.
146
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):
Composition of fi nancial instruments that give rise to credit risk by industry (continued):
The Company
Asia Pacifi c, Europe
& America
Agriculture, forestry
fi shing and mining
Business services
Construction
Entertainment, leisure
and tourism
Financial, investment
and insurance4
Government and
offi cial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
The Company –
aggregate
Agriculture, forestry
fi shing and mining
Business services
Construction
Entertainment, leisure
and tourism
Financial, investment
and insurance4
Government and
offi cial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
Liquid assets and due
from other fi nancial
institutions
Trading and
AFS1 assets
Derivatives
Loans and
advances and
acceptances6
Other
fi nancial
assets2
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
Credit related
commitments3
2011
$m
2010
$m
Total
2011
$m
2010
$m
34
7
–
–
11
–
1
–
–
–
–
–
–
–
–
–
15
1
12
–
10
1
7
1
817
604
176
558
429
486
114
644
18,056
9,306
5,601
5,031
1,362
897
2,035
1,711
899
122
–
–
–
–
110
185
56
134
2
–
–
11
44
17
6,305
2
–
–
–
–
–
766
4,388
67
–
29
5
1
1
170
12
116
–
24
1
20
44
108
–
71
–
6
1
22
38
78
362
9,544
4,465
3,111
596
1,760
4,471
3,938
305
6,388
3,258
2,413
480
1,462
2,860
2,914
19,413
9,582
12,674
9,692
1,715
1,132
32,437
23,464
34
32
9
–
19
46
3
–
–
2
2
–
37
4
21
46
274
90
160
278
149
68
101
12,242
5,977
5,321
10,118
5,684
4,698
289
6,688
6,098
13
10
3
9
36
6
154
72
50
10
28
72
63
526
131
65
56
72
16
18
4
24
68
12
242
123
91
18
55
108
110
889
3,032
1,071
1,829
4,466
837
1,448
3,911
1,693
2,020
4,932
1,342
1,574
258
284
825
953
8,291
5,242
35,381
22,255
1,259
14,682
5,587
534
527
982
9,166
2,989
1,186
11,668
4,856
663
247
715
5,666
2,304
8,843
24,620
10,124
3,719
1,134
2,790
13,863
8,049
5,947
18,570
8,239
3,202
751
2,266
8,717
5,593
50,207
39,582 116,972
84,341
108
67
48
10,334
3,624
5,274
10,488
3,506
5,426
23,015
9,790
10,822
20,919
9,375
10,297
76
3,198
2,686
10,236
9,195
19,354
11,808
22,386
21,798
43,502
30,778
10,686
10,013
125
147
15,366
11,966 111,420
86,510
5,497
383
–
1
9
11
373
232
6,782
201
2
3
5
14
200
19
21,959
368
–
41
87
60
2
2,099
18,448
411
–
117
136
80
9
3,791
196
781
–
818
174
481
428
1,174
184
638
580
17,771
438
13,571
– 202,946 186,506
25,018
8,888
6,242
8,376
11,405
27,167
9,871
7,251
10,282
12,197
592
161
310
430
491
9
239
2,295
298
105
85
132
149
3,761
14
310
2,020
306
98
100
160
192
1,494
22,888
41,546
8,793
4,153
3,952
14,099
10,655
27,250
29,734
1,384
20,738
35,869
42,430
41,059 246,787 229,587
34,336
37,118
12,997
14,399
10,195
11,840
20,090
25,316
24,419
26,506
8,300
3,709
3,449
10,915
8,521
3,646 145,376 132,147 599,413 531,039
Gross Total
25,935
19,102
47,006
44,898
48,356
34,191 328,979 297,055
Individual provision for
credit impairment
Collective provision for
credit impairment
–
–
–
–
–
–
–
–
–
–
–
–
(1,144)
(1,253)
(2,042)
(1,950)
–
–
–
–
(6)
(20)
(1,150)
(1,273)
(454)
(436)
(2,496)
(2,386)
25,935
19,102
47,006
44,898
48,356
34,191 325,793 293,852
3,761
3,646 144,916 131,691 595,767 527,380
Unearned income
Capitalised brokerage/
mortgage origination
fees
–
–
–
–
–
–
–
–
–
–
–
(1,961)
(2,007)
–
602
566
–
–
–
–
–
–
–
(1,961)
(2,007)
–
602
566
25,935
19,102
47,006
44,898
48,356
34,191 324,434 292,411
3,761
3,646 144,916 131,691 594,408 525,939
Excluded from analysis
above5
958
1,082
378
380
–
–
–
–
–
–
–
–
1,336
1,462
26,893
20,184
47,384
45,278
48,356
34,191
324,434 292,411
3,761
3,646 144,916 131,691 595,744 527,401
1 Available-for-sale assets.
2 Mainly comprises trade dated assets and accrued interest.
3 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
4
5 Equity instruments and cash are excluded from maximum exposure amount.
6 Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.
Includes amounts due from other Group entities.
Notes to the Financial Statements 147
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
CREDIT QUALITY
Maximum exposure to credit risk
For fi nancial assets recognised on the balance sheet, the maximum exposure to credit risk is the carrying amount. In certain circumstances,
there may be diff erences between the carrying amounts reported on the balance sheet and the amounts reported in the tables below.
Principally, these diff erences arise in respect of fi nancial assets that are subject to risks other than credit risk, such as equity investments
which are primarily subject to market risk, or bank notes and coins. For contingent exposures, the maximum exposure to credit risk is the
maximum amount the Group would have to pay if the instrument is called upon. For undrawn facilities, the maximum exposure to credit
risk is the full amount of the committed facilities.
The following tables present the maximum exposure to credit risk of on-balance sheet and off -balance sheet fi nancial assets before taking
account of any collateral held or other credit enhancements.
Consolidated
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances and acceptances
– Australia
– APEA
– New Zealand
– Institutional
– Less: Institutional APEA
Other fi nancial assets2
Undrawn facilities
Contingent facilities
Total
Reported
Excluded1
Maximum exposure
to credit risk
2011
$m
24,899
8,824
36,074
54,118
22,264
231,139
38,779
68,174
91,151
(31,936)
5,973
2010
$m
18,945
5,481
33,515
37,821
20,742
217,903
27,118
67,239
72,670
(21,538)
5,593
2011
$m
2,805
–
–
–
479
–
–
–
–
–
–
2010
$m
2,793
–
–
–
445
–
–
–
–
–
–
2011
$m
22,094
8,824
36,074
54,118
21,785
231,139
38,779
68,174
91,151
(31,936)
5,973
2010
$m
16,152
5,481
33,515
37,821
20,297
217,903
27,118
67,239
72,670
(21,538)
5,593
549,459
485,489
3,284
3,238
546,175
482,251
137,889
31,210
124,029
27,485
169,099
151,514
–
–
–
–
–
–
137,889
31,210
124,029
27,485
169,099
151,514
718,558
637,003
3,284
3,238
715,274
633,765
Includes bank notes and coins and cash at bank within liquid assets and equity instruments within available-for-sale financial assets.
1
2 Mainly comprises trade dated assets and accrued interest.
148
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Maximum exposure to credit risk (continued)
The Company
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances and acceptances
Other fi nancial assets2
Undrawn facilities
Contingent facilities
Total
Reported
Excluded1
Maximum exposure
to credit risk
2011
$m
20,555
6,338
28,367
48,356
19,017
323,974
3,761
2010
$m
16,047
4,136
28,305
34,191
16,973
291,956
3,646
2011
$m
958
–
–
–
378
–
–
450,368
395,254
1,336
117,107
28,269
106,403
25,744
145,376
132,147
–
–
–
2010
$m
1,082
–
–
–
380
–
–
1,462
–
–
–
2011
$m
19,597
6,338
28,367
48,356
18,639
323,974
3,761
2010
$m
14,964
4,136
28,305
34,191
16,593
291,957
3,646
449,033
393,792
117,107
28,269
106,403
25,744
145,376
132,147
595,744
527,401
1,336
1,462
594,408
525,939
Includes bank notes and coins and cash at bank within liquid assets and equity instruments within available-for-sale financial assets.
1
2 Mainly comprises trade dated assets and accrued interest.
Notes to the Financial Statements 149
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
DISTRIBUTION OF FINANCIAL ASSETS BY CREDIT QUALITY
The Group has a comprehensive rating system that is used to quantify credit risk. The use of masterscales ensures consistency across exposure
types at the Group, providing a consistent framework for reporting and analysis.
All customers with whom ANZ has a credit relationship including guarantors, are assigned a Customer Credit Rating (CCR) or score at origination
either by programmed credit assessment or by judgemental assessment. In addition, the CCR or score is reviewed on an ongoing basis to ensure
it accurately refl ects the credit risk of the customer and the prevailing economic conditions.
The Group’s risk grade profi le therefore changes dynamically through new lending, repayment and/or existing counterparty movements in
either risk or volume.
Restructured items
Restructured items are facilities in which the original contractual terms have been modifi ed for reasons related to the fi nancial diffi culties of
the customer. Restructuring may consist of reduction of interest, principal or other payments legally due, or an extension in maturity materially
beyond those typically off ered to new facilities with similar risk.
Consolidated
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances and acceptances
– Australia
– APEA
– New Zealand
– Institutional
– Less: Institutional APEA
Other fi nancial assets1
Credit related commitments2
The Company
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances and acceptances
Other fi nancial assets1
Credit related commitments2
Neither past
due nor
impaired
2011
$m
22,094
8,824
36,074
54,079
21,785
2010
$m
16,152
5,481
33,515
37,752
20,297
220,897 207,897
25,742
63,497
69,132
(21,217)
5,593
168,906 151,220
37,413
64,732
88,622
(31,557)
5,973
Past due but not
impaired
2011
$m
2010
$m
–
–
–
–
–
9,022
700
2,034
119
(24)
–
–
–
–
–
–
–
8,977
689
2,229
263
(15)
–
–
697,842
615,061
11,851
12,143
Restructured
Impaired
Total
2011
$m
2010
$m
2011
$m
2010
$m
–
–
–
1
–
–
–
16
683
–
–
–
700
–
–
–
18
–
–
–
7
116
–
–
–
141
–
–
–
38
–
1,220
666
1,392
1,727
(355)
–
193
4,881
2011
$m
22,094
8,824
36,074
54,118
21,785
2010
$m
16,152
5,481
33,515
37,821
20,297
–
–
–
51
–
1,029
687
1,506
3,159
(306)
–
294
231,139 217,903
27,118
67,239
72,670
(21,538)
5,593
169,099 151,514
38,779
68,174
91,151
(31,936)
5,973
6,420
715,274
633,765
Neither past
due nor
impaired
2011
$m
2010
$m
19,597
6,338
28,367
48,317
18,639
14,964
4,136
28,305
34,122
16,593
310,758 277,687
3,646
145,204 131,877
3,761
Past due but not
impaired
2011
$m
–
–
–
–
–
9,495
–
–
9,495
2010
$m
–
–
–
–
–
9,867
–
–
9,867
Restructured
Impaired
Total
2011
$m
–
–
–
1
–
683
–
–
684
2010
$m
–
–
–
18
–
116
–
–
134
2011
$m
–
–
–
38
–
3,038
–
172
3,248
2010
$m
2011
$m
2010
$m
–
–
–
51
–
4,287
–
14,964
19,597
4,136
6,338
28,305
28,367
34,191
48,356
16,593
18,639
291,957
323,974
3,646
3,761
270 145,376 132,147
4,608
594,408
525,939
1 Mainly comprises trade dated assets and accrued interest.
2 Comprises undrawn facilities and customer contingent liabilities.
580,981
511,330
150
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Credit quality of fi nancial assets neither past due nor impaired
The credit quality of fi nancial assets is managed by the Group using internal CCRs based on their current probability of default. The Group’s
masterscales are mapped to external rating agency scales, to enable wider comparisons.
Internal rating
Strong credit profi le
Customers that have demonstrated superior stability in their operating and fi nancial performance over the long-term,
and whose debt servicing capacity is not signifi cantly vulnerable to foreseeable events. This rating broadly corresponds
to ratings ‘Aaa’ to ‘Baa3’ and ‘AAA’ to ‘BBB–’ of Moody’s and Standard & Poor’s respectively.
Satisfactory risk
Customers that have consistently demonstrated sound operational and fi nancial stability over the medium to long-
term, even though some may be susceptible to cyclical trends or variability in earnings. This rating broadly corresponds
to ratings ‘Ba2’ to ‘Ba3’ and ‘BB’ to ‘BB–’ of Moody’s and Standard & Poor’s respectively.
Sub-standard but not
past due or impaired
Customers that have demonstrated some operational and fi nancial instability, with variability and uncertainty
in profi tability and liquidity projected to continue over the short and possibly medium term. This rating broadly
corresponds to ratings ‘B1’ to ‘Caa’ and ‘B+’ to ‘CCC’ of Moody’s and Standard & Poor’s respectively.
Consolidated
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances and acceptances
– Australia
– APEA
– New Zealand
– Institutional
– Less: Institutional APEA
Other fi nancial assets1
Credit related commitments2
The Company
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances and acceptances
Other fi nancial assets1
Credit related commitments2
1 Mainly comprises trade dated assets and accrued interest.
2 Comprises undrawn facilities and customer contingent liabilities.
Strong credit profi le
Satisfactory risk
2011
$m
21,484
7,617
35,528
51,928
20,081
2010
$m
15,606
4,880
32,466
36,464
19,026
2011
$m
552
980
546
1,461
1,664
2010
$m
468
424
1,017
775
1,271
Sub-standard
but not past
due or impaired
Total
2011
$m
58
227
–
690
40
2010
$m
78
177
32
513
–
2011
$m
22,094
8,824
36,074
54,079
21,785
2010
$m
16,152
5,481
33,515
37,752
20,297
164,417
26,136
39,590
65,433
(21,894)
5,412
136,248
153,391
14,731
36,094
45,050
(11,625)
5,125
123,083
46,367
9,201
20,802
19,038
(9,192)
431
29,759
45,148
9,227
22,069
19,988
(8,894)
385
24,544
10,113
2,076
4,340
4,151
(471)
130
2,899
9,358
1,784
5,334
4,094
(698)
83
220,897
37,413
64,732
88,622
(31,557)
5,973
3,593 168,906
207,897
25,742
63,497
69,132
(21,217)
5,593
151,220
551,980
474,291
121,609
116,422
24,253
24,348
697,842
615,061
Strong credit profi le
Satisfactory risk
2011
$m
2010
$m
19,085
5,596
28,017
46,418
18,336
228,068
3,307
119,913
14,566
3,914
27,274
33,127
16,264
198,050
3,315
109,788
2011
$m
473
738
350
1,226
263
67,548
346
23,598
2010
$m
340
214
999
532
329
65,885
275
19,724
Sub-standard
but not past
due or impaired
2011
$m
39
4
–
673
40
15,142
108
1,693
2010
$m
58
8
32
463
–
13,752
56
2,365
Total
2011
$m
2010
$m
19,597
6,338
28,367
48,317
18,639
310,758
3,761
145,204
14,964
4,136
28,305
34,122
16,593
277,687
3,646
131,877
468,740
406,298
94,542
88,298
17,699
16,734
580,981
511,330
Notes to the Financial Statements 151
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Ageing analysis of fi nancial assets that are past due but not impaired
Ageing analysis of past due loans is used by the Group to measure and manage emerging credit risks. Financial assets that are past due but not impaired
include those which are assessed, approved and managed on a portfolio basis within a centralised environment (for example credit cards and personal
loans) that can be held on a productive basis until they are 180 days past due, as well as those which are managed on an individual basis.
A large portion of retail credit exposures, such as residential mortgages, are generally well secured. That is, the value of associated security is suffi cient
to cover amounts outstanding.
As at 30 September 2011
Consolidated
As at 30 September 2010
Consolidated
1-5
days
$m
6-29
days
$m
30-59
days
$m
60-89
days
$m
>90
days
$m
Total
$m
1-5
days
$m
6-29
days
$m
30-59
days
$m
60-89
days
$m
>90
days
$m
Total
$m
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances and
acceptances:
– Australia
– APEA
– New Zealand
– Institutional
– Less: Institutional APEA
Other fi nancial assets
Credit related commitments1
–
–
–
–
–
2,132
–
867
29
–
–
–
3,028
–
–
–
–
–
–
–
–
–
–
3,451
516
557
36
(20)
–
–
1,280
–
275
30
(1)
–
–
4,540
1,584
–
–
–
–
–
639
115
93
20
(2)
–
–
865
–
–
–
–
–
–
–
–
–
–
1,520
69
242
4
(1)
–
–
9,022
700
2,034
119
(24)
–
–
1,834
11,851
–
–
–
–
–
1,799
–
739
8
–
–
–
2,546
–
–
–
–
–
–
–
–
–
–
4,115
483
788
110
(1)
–
–
5,495
1,274
–
340
55
–
–
–
1,669
–
–
–
–
–
587
123
124
44
–
–
–
878
–
–
–
–
–
–
–
–
–
–
1,202
83
238
46
(14)
–
–
8,977
689
2,229
263
(15)
–
–
1,555
12,143
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances and
acceptances
Other fi nancial assets
Credit related commitments1
The Company
The Company
1-5
days
$m
6-29
days
$m
30-59
days
$m
60-89
days
$m
>90
days
$m
Total
$m
1-5
days
$m
6-29
days
$m
30-59
days
$m
60-89
days
$m
>90
days
$m
Total
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,222
–
–
2,222
3,760
–
–
3,760
1,308
–
–
1,308
–
–
–
–
–
695
–
–
695
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,510
–
–
1,510
9,495
–
–
9,495
1,871
–
–
1,871
4,704
–
–
4,704
1,341
–
–
1,341
–
–
–
–
–
722
–
–
722
–
–
–
–
–
–
–
–
–
–
1,229
–
–
1,229
9,867
–
–
9,867
1 Comprises undrawn facilities and customer contingent liabilities.
152
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Estimated value of collateral for fi nancial assets that are past due but not impaired
Collateral provided as security is valued conservatively on a recoverable basis assuming an event of default, and such valuations are updated on
a regular basis with the frequency varying depending on the nature of the security. The adequacy of security valuations must also be considered
at each customer review. In order to calculate the Security Indicator (SI) for a transaction, the value of a collateral item is reduced by an extension
ratio which reduces its market value to a realisable value assuming a downturn scenario. Extension ratios have been determined based on analysis
of historical loss information.
For the purposes of this disclosure, where security is valued at more than the corresponding credit exposure, coverage is capped at the value
of the credit exposure.
Consolidated
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances and acceptances
– Australia
– APEA
– New Zealand
– Institutional
– Less: Institutional APEA
Other fi nancial assets1
Credit related commitments2
Cash
Real estate
Other
Total value of
collateral
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
Credit exposure
2011
$m
2010
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,310
174
1,223
46
–
–
–
6,346
193
1,586
94
–
–
–
1,717
173
448
25
(1)
–
–
1,771
234
241
119
(3)
–
–
8,027
347
1,671
71
(1)
–
–
8,117
427
1,827
213
(3)
–
–
9,022
700
2,034
119
(24)
–
–
8,977
689
2,229
263
(15)
–
–
Unsecured
portion
of credit
exposure
2011
$m
2010
$m
–
–
–
–
–
995
353
363
48
(23)
–
–
–
–
–
–
–
860
262
402
50
(12)
–
–
7,753
8,219
2,362
2,362
10,115
10,581
11,851
12,143
1,736
1,562
The Company
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances and acceptances
Other fi nancial assets1
Credit related commitments2
Cash
Real estate
Other
Total value of
collateral
Credit exposure
Unsecured
portion
of credit
exposure
2011
$m
2010
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2011
$m
–
–
–
–
–
6,709
–
–
2010
$m
–
–
–
–
–
6,875
–
–
2011
$m
–
–
–
–
–
1,672
–
–
2010
$m
–
–
–
–
–
1,894
–
–
2011
$m
–
–
–
–
–
8,381
–
–
2010
$m
–
–
–
–
–
8,769
–
–
2011
$m
–
–
–
–
–
9,495
–
–
2010
$m
–
–
–
–
–
9,867
–
–
2011
$m
–
–
–
–
–
1,114
–
–
2010
$m
–
–
–
–
–
1,098
–
–
6,709
6,875
1,672
1,894
8,381
8,769
9,495
9,867
1,114
1,098
1 Mainly comprises trade dated assets and accrued interest.
2 Comprises undrawn facilities and customer contingent liabilities.
Notes to the Financial Statements 153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Financial assets that are individually impaired
Consolidated
The Company
Impaired assets
2011
$m
2010
$m
–
–
–
35
–
2,592
–
180
–
–
–
51
–
3,837
–
260
2,807
4,148
–
–
–
–
–
1,392
–
13
–
–
–
–
–
1,551
–
24
1,405
1,575
–
–
–
3
–
666
–
–
669
–
–
–
38
–
4,650
–
193
–
–
–
–
–
687
–
10
697
–
–
–
51
–
6,075
–
294
Individual provision
balances
2011
$m
–
–
–
–
–
902
–
7
909
–
–
–
–
–
398
–
3
401
–
–
–
–
–
387
–
–
387
2010
$m
–
–
–
–
–
957
–
20
977
–
–
–
–
–
463
–
6
469
–
–
–
–
–
429
–
–
429
–
–
–
–
–
1,687
–
10
–
–
–
–
–
1,849
–
26
Impaired assets
2011
$m
2010
$m
–
–
–
35
–
2,430
–
172
–
–
–
51
–
3,696
–
260
2,637
4,007
–
–
–
–
–
52
–
–
52
–
–
–
3
–
556
–
–
559
–
–
–
38
–
3,038
–
172
–
–
–
–
–
33
–
–
33
–
–
–
–
–
558
–
10
568
–
–
–
51
–
4,287
–
270
Individual provision
balances
2011
$m
–
–
–
–
–
864
–
6
870
–
–
–
–
–
14
–
–
14
–
–
–
–
–
266
–
–
266
–
–
–
–
–
1,144
–
6
2010
$m
–
–
–
–
–
904
–
20
924
–
–
–
–
–
9
–
–
9
–
–
–
–
–
340
–
–
340
–
–
–
–
–
1,253
–
20
4,881
6,420
1,697
1,875
3,248
4,608
1,150
1,273
Australia
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances and acceptances
Other fi nancial assets1
Credit related commitments2
New Zealand
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances and acceptances
Other fi nancial assets1
Credit related commitments2
Asia Pacifi c, Europe & America
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances and acceptances
Other fi nancial assets1
Credit related commitments2
Aggregate
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances and acceptances
Other fi nancial assets1
Credit related commitments2
1 Mainly comprises trade dated trading assets and accrued interest.
2 Comprises undrawn facilities and customer contingent liabilities.
154
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Estimated value of collateral for fi nancial assets that are individually impaired
Consolidated
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances and
acceptances
– Australia
– APEA
– New Zealand
– Institutional
– Less: Institutional APEA
Other fi nancial assets1
Credit related commitments2
The Company
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances and
acceptances
Other fi nancial assets1
Credit related commitments2
Cash
Real estate
Other
Total value of
collateral
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
Credit exposure
2011
$m
2010
$m
Unsecured
portion of
credit exposure
2011
$m
2010
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
1
–
–
–
17
–
248
16
840
784
–
–
7
1,912
–
–
–
32
–
172
15
743
1,330
–
–
9
2,301
–
–
–
21
–
380
262
154
488
(209)
–
176
–
–
–
19
–
–
–
–
38
–
–
–
–
51
–
–
–
–
38
–
–
–
–
51
–
376
243
329
1,195
(177)
–
258
628
278
994
1,272
(209)
–
183
548
258
1,072
2,525
(177)
–
268
1,220
666
1,392
1,727
(355)
–
193
1,029
687
1,506
3,159
(306)
–
294
–
–
–
–
–
592
388
398
455
(146)
–
10
–
–
–
–
–
481
429
434
634
(129)
–
26
1,272
2,243
3,184
4,545
4,881
6,420
1,697
1,875
Cash
Real estate
Other
Total value of
collateral
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
2011
$m
2010
$m
Credit exposure
2011
$m
2010
$m
Unsecured
portion of
credit exposure
2011
$m
2010
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
1
–
–
–
17
–
–
–
–
32
–
1,086
–
3
1,541
–
6
1,106
1,579
–
–
–
21
–
808
–
163
992
–
–
–
19
–
–
–
–
38
–
–
–
–
51
–
–
–
–
38
–
–
–
–
51
–
–
–
–
–
–
–
–
–
–
–
1,493
–
243
1,894
–
166
3,034
–
250
3,038
–
172
4,287
–
270
1,144
–
6
1,253
–
20
1,755
2,098
3,335
3,248
4,608
1,150
1,273
1 Mainly comprises trade dated assets and accrued interest.
2 Comprises undrawn facilities and customer contingent liabilities.
Notes to the Financial Statements 155
The principal risk categories monitored are:
Currency risk is the potential loss arising from the decline in
the value of a fi nancial instrument due to changes in foreign
exchange rates or their implied volatilities.
Interest rate risk is the potential loss arising from the change
in the value of a fi nancial instrument due to changes in market
interest rates or their implied volatilities.
Credit spread risk is the potential loss arising from a change
in value of an instrument due to a movement of its margin
or spread relative to a benchmark.
Commodity risk is the potential loss arising from the decline in
the value of a fi nancial instrument due to changes in commodity
prices or their implied volatilities.
Equity risk is the potential loss arising from the decline in the
value of a fi nancial instrument due to changes in stock prices
or their implied volatilities.
b) Non-traded market risk (or balance sheet risk)
This comprises the management of non-traded interest rate risk,
liquidity, and the risk to the Australian dollar denominated value
of the Group’s capital and earnings as a result of foreign exchange
rate movements.
Some instruments do not fall into either category that also expose
ANZ to market risk. These include equity securities classifi ed as
available-for-sale fi nancial assets that predominantly comprise
long-term strategic investments.
Value at Risk (VaR) measure
A key measure of market risk is Value at Risk (VaR). VaR is a statistical
estimate of the possible daily loss and is based on historical market
movements.
ANZ measures VaR at a 97.5% and 99% confi dence interval. This
means that there is a 97.5% or 99% chance that the loss will not
exceed the VaR estimate on any given day.
The Group’s standard VaR approach for both traded and non-traded
risk is historical simulation. The Group calculates VaR using historical
changes in market rates, prices and volatilities over the previous
500 business days. Traded and non-traded VaR is calculated using
a one-day holding period.
It should be noted that because VaR is driven by actual historical
observations, it is not an estimate of the maximum loss that the
Group could experience from an extreme market event. As a result
of this limitation, the Group utilises a number of other risk measures
(e.g. stress testing) and risk sensitivity limits to measure and manage
market risk.
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
MARKET RISK
Market risk is the risk to the Group’s earnings arising from changes
in interest rates, currency exchange rates, credit spreads, or from
fl uctuations in bond, commodity or equity prices.
Market risk arises when changes in market rates, prices and
volatilities lead to a decline in the value of assets and liabilities,
including fi nancial derivatives. Market risk is generated through
both trading and banking book activities.
ANZ conducts trading operations in interest rates, foreign exchange,
commodities, securities and equities.
ANZ has a detailed risk management and control framework to support
its trading and balance sheet activities. The framework incorporates
a risk measurement approach to quantify the magnitude of market
risk within trading and balance sheet portfolios. This approach and
related analysis identifi es the range of possible outcomes that can
be expected over a given period of time, establishes the relative
likelihood of those outcomes and allocates an appropriate amount
of capital to support these activities.
Group-wide responsibility for the strategies and policies relating
to the management of market risk lies with the Board Risk
Committee. Responsibility for day to day management of both
market risks and compliance with market risk policy is delegated
by the Risk Committee to the Credit and Market Risk Committee
(‘CMRC’) and the Group Asset & Liability Committee (‘GALCO’).
The CMRC, chaired by the Chief Risk Offi cer, is responsible for the
oversight of market risk. All committees receive regular reporting on
the range of trading and balance sheet market risks that ANZ incurs.
Within overall strategies and policies, the control of market risk
at the Group level is the joint responsibility of Business Units and
Risk Management, with the delegation of market risk limits from
the Board and CMRC allocated to both Risk Management and the
Business Units.
The management of Risk Management is supported by a
comprehensive limit and policy framework to control the amount
of risk that the Group will accept. Market risk limits are allocated at
various levels and are reported and monitored by Market Risk on a
daily basis. The detailed limit framework allocates individual limits
to manage and control asset classes (e.g. interest rates, equities),
risk factors (e.g. interest rates, volatilities) and profi t and loss limits
(to monitor and manage the performance of the trading portfolios).
Market risk management and control responsibilities
To facilitate the management, measurement and reporting of market
risk, ANZ has grouped market risk into two broad categories:
a) Traded market risk
This is the risk of loss from changes in the value of fi nancial instruments
due to movements in price factors for both physical and derivative
trading positions. Trading positions arise from transactions where
ANZ acts as principal with customers, fi nancial exchanges or
interbank counterparties.
156
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Traded Market Risk
Below are the aggregate Value at Risk (VaR) exposures at 97.5% and 99% confi dence levels covering both physical and derivatives trading
positions for the Bank’s principal trading centres.
30 September 2011
30 September 2010
Consolidated
Value at risk at 97.5% confi dence
Foreign exchange
Interest rate
Credit
Commodity
Equities
Diversifi cation benefi t
Total VaR
Value at risk at 99% confi dence
Foreign exchange
Interest rate
Credit
Commodity
Equities
Diversifi cation benefi t
Total VaR
The Company
Value at risk at 97.5% confi dence
Foreign exchange
Interest rate
Credit
Commodity
Equities
Diversifi cation benefi t
Total VaR
Value at risk at 99% confi dence
Foreign exchange
Interest rate
Credit
Commodity
Equities
Diversifi cation benefi t
Total VaR
As at
$m
6.0
4.7
3.4
2.0
2.5
(10.4)
8.2
7.8
7.0
4.9
3.2
3.4
(14.6)
11.7
As at
$m
6.0
4.5
3.3
2.0
2.5
(10.2)
8.1
7.8
6.7
4.8
3.2
3.4
(14.4)
11.5
High for
year
$m
Low for
year
$m
Average for
year
$m
7.9
16.1
8.5
4.3
2.5
n/a
18.8
10.9
26.4
10.5
6.5
3.5
n/a
29.5
0.8
4.2
2.4
1.6
0.4
n/a
5.7
1.0
5.4
3.2
2.4
0.6
n/a
8.3
3.1
9.4
5.4
2.6
0.9
(10.3)
11.1
4.2
13.5
6.9
4.1
1.3
(14.2)
15.8
30 September 2011
High for
year
$m
Low for
year
$m
Average for
year
$m
7.9
15.8
8.5
4.3
2.5
n/a
18.6
10.9
26.3
10.5
6.5
3.5
n/a
29.3
0.8
4.0
2.4
1.6
0.4
n/a
5.5
1.0
5.0
3.2
2.4
0.6
n/a
8.1
3.1
9.1
5.4
2.6
0.9
(10.3)
10.8
4.2
13.2
6.9
4.1
1.3
(14.2)
15.5
As at
$m
2.6
11.2
3.0
2.1
0.5
(7.1)
12.3
3.6
19.3
3.9
3.6
0.8
(9.4)
21.8
As at
$m
2.6
11.0
2.9
2.1
0.5
(6.9)
12.2
3.5
19.0
3.8
3.6
0.8
(9.3)
21.4
High for
year
$m
Low for
year
$m
Average for
year
$m
7.8
24.9
4.9
3.7
0.8
n/a
24.9
10.4
57.4
7.0
5.4
1.2
n/a
71.4
0.8
9.2
1.7
1.1
0.2
n/a
10.0
1.3
15.2
2.1
2.4
0.5
n/a
15.0
2.0
17.2
3.1
2.3
0.4
(8.2)
16.8
3.1
30.5
4.4
3.6
0.8
(9.8)
32.6
30 September 2010
High for
year
$m
Low for
year
$m
Average for
year
$m
7.7
24.8
4.8
3.7
0.8
n/a
24.8
10.3
57.3
7.0
5.4
1.2
n/a
71.3
0.7
9.0
1.6
1.1
0.2
n/a
9.9
1.3
15.0
2.1
2.4
0.5
n/a
14.6
2.0
17.0
3.1
2.3
0.4
(8.1)
16.7
3.1
30.3
4.3
3.6
0.8
(9.7)
32.4
VaR is calculated separately for foreign exchange, interest rate, credit, commodity and equities and for the Group. The diversifi cation benefi t
refl ects the historical correlation between these products. Electricity commodities risk measurement remains under the standard approach for
regulatory purposes. Equities trading risk measurement moved to the internal model approach in May 2011.
To supplement the VaR methodology, ANZ applies a wide range of stress tests, both on individual portfolios and at a Group level. ANZ ‘s
stress-testing regime provides senior management with an assessment of the fi nancial impact of identifi ed extreme events on market risk
exposures of ANZ. Standard stress tests are applied on a daily basis and measure the potential loss arising from applying extreme market
movements to individual and groups of individual price factors. Extraordinary stress tests are applied monthly and measure the potential
loss arising as a result of scenarios generated from major fi nancial market events.
Notes to the Financial Statements 157
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Non-Traded Market Risk (Balance Sheet Risk)
The principal objectives of balance sheet management are to manage interest income sensitivity while maintaining acceptable levels of interest
rate and liquidity risk and to manage the market value of the Group’s capital. Liquidity risk is dealt with in the next section.
Interest rate risk
The objective of balance sheet interest rate risk management is to secure stable and optimal net interest income over both the short (next 12
months) and long-term. Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on the Group’s
future net interest income. This risk arises from two principal sources: mismatches between the repricing dates of interest bearing assets and
liabilities; and the investment of capital and other non-interest bearing liabilities in interest bearing assets. Interest rate risk is reported using
various techniques including: VaR and scenario analysis (to a 1% shock).
a) VaR non-traded interest rate risk
The repricing assumptions used to determine the VaR and 1% rate shock have been independently validated. Below are aggregate VaR fi gures
covering non-traded interest rate risk.
Consolidated
Value at risk at 97.5% confi dence
Australia
New Zealand
Asia Pacifi c, Europe & America
Diversifi cation benefi t
The Company
Value at risk at 97.5% confi dence
Australia
New Zealand
Asia Pacifi c, Europe & America
Diversifi cation benefi t
30 September 2011
30 September 2010
As at
$m
12.2
8.1
3.9
(9.7)
14.5
As at
$m
12.2
0.1
3.2
(3.7)
11.8
High for
year
$m
Low for
year
$m
Average for
year
$m
20.1
13.5
5.5
n/a
26.5
10.5
7.9
2.3
n/a
13.2
14.4
9.3
3.5
(8.0)
19.2
30 September 2011
High for
year
$m
Low for
year
$m
Average for
year
$m
20.1
0.3
5.4
n/a
20.9
10.5
0.0
1.7
n/a
10.1
14.4
0.1
3.0
(2.2)
15.3
As at
$m
18.2
13.8
4.3
(11.6)
24.7
As at
$m
18.2
0.1
4.2
(1.8)
20.7
High for
year
$m
Low for
year
$m
Average for
year
$m
27.3
13.8
8.9
n/a
39.6
18.0
7.8
4.3
n/a
24.7
22.0
11.1
5.9
(8.2)
30.8
30 September 2010
High for
year
$m
Low for
year
$m
Average for
year
$m
27.3
0.2
10.5
n/a
34.7
18.0
0.0
4.2
n/a
20.7
22.0
0.1
6.8
(2.6)
26.3
VaR is calculated separately for Australia, New Zealand and Asia Pacifi c, Europe and America Markets, as well as for the Group.
To supplement the VaR methodology, ANZ applies a wide range of stress tests, both on individual portfolios and at Group level. ANZ’s stress
testing regime provides senior management with an assessment of the fi nancial impact of identifi ed extreme events on market risk exposures
of ANZ.
b) Scenario Analysis – a 1% shock on the next 12 months’ net interest income
A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net interest income over the
succeeding 12 months. This is a standard risk measure which assumes the parallel shift is refl ected in all wholesale and customer rates.
The fi gures in the table below indicate the outcome of this risk measure for the current and previous fi nancial years – expressed as a percentage
of reported net interest income. The sign indicates the nature of the rate sensitivity with a positive number signifying that a rate increase is
positive for net interest income over the next 12 months.
Impact of 1% rate shock
As at 30 September
Maximum exposure
Minimum exposure
Average exposure (in absolute terms)
158
ANZ Annual Report 2011
Consolidated
The Company
2011
2010
2011
2010
1.36%
1.51%
0.50%
1.08%
1.09%
1.61%
0.60%
0.98%
1.53%
1.85%
0.54%
1.26%
1.12%
1.79%
0.63%
1.14%
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Interest rate risk (continued)
The extent of mismatching between the repricing characteristics and timing of interest bearing assets and liabilities at any point has
implications for future net interest income. On a global basis, the Group quantifi es the potential variation in future net interest income
as a result of these repricing mismatches.
The repricing gaps themselves are constructed based on contractual repricing information. However, for those assets and liabilities where the
contractual term to repricing is not considered to be refl ective of the actual interest rate sensitivity (for example, products priced at the Group’s
discretion), a profi le based on historically observed and/or anticipated rate sensitivity is used. This treatment excludes the eff ect of basis risk
between customer pricing and wholesale market pricing.
Equity securities classifi ed as available-for-sale
The portfolio of fi nancial assets, classifi ed as available-for-sale for measurement and fi nancial reporting purposes, also contains equity
investment holdings which predominantly comprise investments held for longer term strategic intentions. These equity investments are
also subject to market risk which is not captured by the VaR measures for traded and non-traded market risks. Regular reviews are performed
to substantiate valuation of the investments within the portfolio and the equity investments are regularly reviewed by management for
impairment. The fair value of the constituents of equity securities classifi ed as available-for-sale can fl uctuate considerably.
The table below outlines the composition of the equity holdings.
Visa Inc.
Sacombank
Energy Infrastructure Trust
Other equity holdings
Impact on equity of 10% variation in value
Consolidated
The Company
2011
$m
315
73
–
91
479
48
2010
$m
275
80
40
50
445
44
2011
$m
247
73
–
58
378
38
2010
$m
215
80
40
45
380
38
Foreign currency risk – structural exposures
The investment of capital in foreign operations, such as branches, subsidiaries or associates with functional currencies other than the
Australian dollar, exposes the Group to the risk of changes in foreign exchange rates.
The main operating (or functional) currencies of Group entities are the Australian dollar and the New Zealand dollar, with a number of
overseas undertakings operating in various other currencies. The Group presents its consolidated fi nancial statements in Australian dollars,
as the Australian dollar is the dominant currency. The Group’s consolidated balance sheet is therefore aff ected by exchange diff erences
between the Australian dollar and functional currencies of foreign operations. Variations in the value of these overseas operations arising
as a result of exchange diff erences are refl ected in the foreign currency translation reserve in equity.
The Group routinely monitors this risk and conducts hedging, where it is expected to add shareholder value, in accordance with approved
policies. The Group’s exposures to structural foreign currency risks are managed with the primary objective of ensuring, where practical,
that the consolidated Tier 1 capital ratio is neutral to the eff ect of changes in exchange rates.
Selective hedges were in place during the 2011 and 2010 fi nancial years. For details on the hedging instruments used and eff ectiveness
of hedges of net investments in foreign operations, refer to note 12 to these fi nancial statements. The Group’s economic hedges against
New Zealand Dollar and US Dollar revenue streams are included within ‘Trading’ at note 12.
LIQUIDITY RISK (Excludes Insurance and Funds Management)
Liquidity risk is the risk that the Group has insuffi cient capacity to fund increases in assets or is unable to meet its payment obligations as they
fall due, including repaying depositors or maturing wholesale debt. The timing mismatch of cashfl ows and the related liquidity risk is inherent
in all banking operations and is closely monitored by the Group.
The Group maintains a portfolio of liquid assets to manage potential stresses in funding sources. The minimum level of liquidity portfolio assets
to hold is based on a range of ANZ specifi c and general market liquidity stress scenarios such that potential cash fl ow obligations can be met
over the short to medium term.
The Group’s liquidity and funding risks are governed by a detailed policy framework which is approved by the Board of Directors. The core
objective of the framework is to ensure that the Group has suffi cient liquidity to meet obligations as they fall due, without incurring unacceptable
losses. In response to the impact of the global fi nancial crisis, the framework has been reviewed and updated.
Notes to the Financial Statements 159
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
LIQUIDITY RISK (Excludes Insurance and Funds Management)
ANZ has a low appetite for liquidity risk, as determined by the Board. Key principles of ANZ’s approach to liquidity risk management include:
Maintaining the ability to meet all payment obligations in the immediate term.
Ensuring that the Group has the ability to meet ‘survival horizons’ under a range of ANZ specifi c and general market liquidity stress
scenarios, at the site and Group-wide level, to meet cash fl ow obligations over the short to medium term.
Maintaining strength in the Group’s balance sheet structure to ensure long term resilience in the liquidity and funding risk profi le.
Limiting the potential earnings at risk implications associated with unexpected increases in funding costs or the liquidation of assets under stress.
Ensuring the liquidity management framework is compatible with local regulatory requirements.
Preparation of daily liquidity reports and scenario analysis, quantifying the Group’s positions.
Targeting a diversifi ed funding base, avoiding undue concentrations by investor type, maturity, market source and currency.
Holding a portfolio of high quality liquid assets to protect against adverse funding conditions and to support day-to-day operations.
Establishing detailed contingency plans to cover diff erent liquidity crisis events.
Management of liquidity and funding risks are overseen by the Group Asset and Liability Committee (GALCO).
Scenario modelling
A key component of the Group’s liquidity management framework is scenario modelling. APRA requires ADIs to assess liquidity under diff erent
scenarios, including the ‘going-concern’ and ‘name-crisis’.
‘Going-concern’: refl ects the normal behaviour of cash fl ows in the ordinary course of business. APRA requires that the Group must be able to
meet all commitments and obligations under a going concern scenario, within the ADI’s normal funding capacity (‘available to fund’ limit), over
at least the following 30 calendar days. In estimating the funding requirement, the Group models expected cashfl ows by reference to historical
behaviour and contractual maturity data.
‘Name-crisis’: refers to a potential name-specifi c liquidity crisis which models the behaviour of cash fl ows where there is a problem (real or
perceived) which may include, but is not limited to, operational issues, doubts about the solvency of the Group or adverse rating changes.
Under this scenario the Group may have signifi cant diffi culty rolling over or replacing funding. Under a name crisis, APRA requires the Group
to be cashfl ow positive over a fi ve business day period.
‘Survival horizons’: The Global fi nancial crisis has highlighted the importance of diff erentiating between stressed and normal market conditions
in a name-specifi c crisis, and the diff erent behaviour that off shore and domestic wholesale funding markets can exhibit during market stress
events. As a result, the Group has enhanced its liquidity risk scenario modelling to supplement APRA’s statutory requirements.
The Group has linked its liquidity risk appetite to defi ned liquidity ‘survival horizons’ (i.e. the time period under which ANZ must maintain a
positive cashfl ow position under a specifi c scenario or stress). Under these scenarios, customer and/or wholesale balance sheet asset/liability
fl ows are stressed. The following stressed scenarios are modelled:
Extreme Short Term Crisis Scenario (ESTC): A name-specifi c stress during a period of market stress.
Short Term Crisis Scenario (NSTC): A name-specifi c stress during a period of normal markets conditions.
Global Funding Market Disruption (GFMD): Stressed global wholesale funding markets leading to a closure of domestic and off shore markets.
Off shore Funding Market Disruption (OFMD): Stressed global wholesale funding markets leading to a closure of off shore markets only.
Each of ANZ’s operations is responsible for ensuring its compliance with all scenarios that are required to be modelled. Additionally, the Group
measures, monitors and manages all modelled liquidity scenarios on an aggregated Group-wide level.
Liquidity portfolio management
The Group holds a diversifi ed portfolio of cash and high-quality, highly-liquid securities that may be sold or pledged to provide same-day
liquidity. This portfolio helps protect the Group’s liquidity position by providing a source of cash in stressed conditions. All assets held in this
portfolio are securities eligible for repurchase under agreements with the applicable central bank (i.e. ‘repo’ eligible).
The sizing of the Group’s liquidity portfolio is based on the amount of liquidity required to meet day-to-day operational requirements and
potential name crisis or potential wholesale ‘funding stress’ requirements under each of the Group’s various stress scenarios.
At 30 September 2011, the volume of eligible securities available, post any repurchase (i.e. ‘repo’) discounts applied by the applicable central
bank, was $71.4 billion.
To further strengthen the Bank’s balance sheet, the Group continues to maintain strong coverage ratios of liquidity portfolio to maturing wholesale
off shore debt maturities. The current liquidity portfolio and other supplementary assets is suffi cient to cover all off shore debt maturities for both
long and short term debt.
The liquidity portfolio is well diversifi ed by counterparty, currency, and tenor. Under the liquidity policy framework securities purchased must
be of a similar or better credit quality to ANZ’s external long-term or short-term credit ratings and continue to be repo eligible.
160
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Supplementing its liquidity position, the Group holds:
additional central bank deposits with the US Federal Reserve and Bank of Japan of $10.3 billion;
secondary sources of liquidity including Australian Government securities, Australian State Government securities and gold of such as highly
liquid instruments in trading portfolios of $9.6 billion; and
additional cash and other securities to satisfy local country regulatory liquidity requirements.
These other assets are not included in the prime liquidity portfolio outlined below:
Eligible securities
Prime liquidity portfolio (market values1)
Australia
New Zealand
United States
United Kingdom
Asia
Internal Residential Mortgage Backed Securities (Australia)
Internal Residential Mortgage Backed Securities (New Zealand)
Total
Counterparty credit ratings
Long term counterparty/security credit rating2
AAA
AA+
AA
AA-
A+
A
Total
2011
$m
20,815
9,141
1,353
2,654
6,682
26,831
3,899
71,375
2010
$m
20,974
7,547
1,275
2,183
4,204
26,657
3,812
66,652
Market
Value
$m
52,651
10,046
7,311
887
312
168
71,375
1 Market value is post the repo discount applied by the applicable central bank.
2 Where available, based on Standard & Poor’s long-term credit ratings.
Liquidity crisis contingency planning
The Group maintains APRA-endorsed liquidity crisis contingency plans defi ning an approach for analysing and responding to a liquidity
threatening event at a country and Group-wide level. To align with the enhanced liquidity scenario analysis framework, crisis management
strategies are assessed against the Group’s crisis stress scenarios.
The framework is compliant with APRA’s key liquidity contingency crisis planning requirements and guidelines and includes:
the establishment of crisis severity/stress levels;
clearly assigned crisis roles and responsibilities;
early warning signals indicative of an approaching crisis, and mechanisms to monitor and report these signals;
crisis declaration assessment processes, and related escalation triggers set against early warning signals;
outlined action plans, and courses of action for altering asset and liability behaviour;
procedures for crisis management reporting, and making up cash-fl ow shortfalls;
guidelines determining the priority of customer relationships in the event of liquidity problems; and
assigned responsibilities for internal and external communications.
Notes to the Financial Statements 161
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Regulatory Change
Following the publication of earlier discussion papers relating to liquidity prudential requirements, APRA and the Basel Committee on banking
Supervision have both made further announcements on this topic. These proposals include enhancements to governance and other qualitative
requirements, including the requirement for a clear risk appetite statement on liquidity risk from the Board. Many of these aspects have been
integrated into ANZ’s liquidity management framework for some time. The proposed changes to the quantitative requirements, including
changes to scenario stress tests and structural liquidity metrics, are more signifi cant. While ANZ has an existing stress scenario framework and
structural liquidity risk metrics and limits in place, the requirements proposed are in general more onerous. These changes will impact the future
composition and size of ANZ’s liquidity portfolio as well as the size and composition of the Bank’s funding base. APRA is expected to release
details on the prudential changes shortly, with compliance against the new liquidity coverage ratio expected to commence in 2015.
Group funding
ANZ manages its funding profi le using a range of funding metrics and balance sheet disciplines. This approach is designed to ensure that an
appropriate proportion of the Group’s assets are funded by stable funding sources including core customer deposits, longer-dated wholesale
funding (with a remaining term exceeding one year) and equity. This includes targeting a diversifi ed funding base, avoiding undue concentrations
by investor type, maturity, market source and currency.
The Group’s global wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost effi ciency
against prudent duration while targeting diversifi cation by markets, investors, currencies, maturities and funding structures.
Funding plans and performance relative to those plans are reported regularly to senior management via the Group Asset and Liability Committee
(GALCO). These plans address customer balance sheet growth and changes in wholesale funding including, targeted funding volumes, markets,
investors, tenors and currencies for senior, subordinated and hybrid transactions. Plans are supplemented with a monthly forecasting process
which reviews the funding position in light of market conditions and balance sheet requirements. Funding plans are generated through the
three-year strategic planning process. Asset and deposit plans are submitted at the business segment level with the wholesale funding requirements
then derived at the geographic level. To the extent that asset growth exceeds funding generated from customer deposits, additional wholesale
funds are sourced.
Short-term wholesale funding requirements, with a contractual maturity of less than one year, are managed through Group Treasury and local
Markets operations. Long-term wholesale funding is managed and executed through Group Treasury operations in Australia and New Zealand.
Funding position 2011
Customer deposits and other funding liabilities increased by 16% to $308.2 billion and now represents 61% of all funding, an increase of
3% from September 2010. $18.0 billion of term wholesale debt (with a remaining term greater than one year), including $2.4 billion of pre-
funding executed during full year 2010, was issued during the 2011 fi nancial year. In addition, ANZ raised $1.34 billion in hybrid capital, taking
the total term debt and hybrid issuance for the 2011 fi nancial year to $19.4 billion. As at September 2011, term wholesale funding represented
12% of total funding, a decrease from 16% as at September 2010 (partly due to 2011 fi nancial year pre-funding completed during 2010
fi nancial year).
ANZ maintained access to all major global wholesale funding markets during 2011.
Over 70% of term funding requirements were completed during the fi rst half, before market conditions began to deteriorate. Benchmark
term debt issues were completed in AUD, USD, JPY, CHF, CAD and NZD.
All short-term wholesale funding needs were comfortably met, despite an increase in volatility in off shore markets and a general shortening
of tenor preference from US money market investors.
The weighted average tenor of new term debt issuance was 4.7 years (unchanged year-on-year).
The weighted average cost of new term debt issuance during 2011 declined marginally (4bps) relative to 2010. Average portfolio costs remain
substantially above pre-crisis levels and continue to increase as maturing term wholesale funding is replaced at higher spreads.
Over the past year strong customer deposit growth and stable term debt issuance has allowed ANZ to maintain a low reliance on short-term
wholesale funding markets. The proportion of total funding sourced from short-term wholesale funding markets was unchanged at 12%
between September 2010 and September 2011.
162
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
The following tables show the Group’s funding composition:
Funding composition
Customer deposits and other liabilities1
Australia
Asia Pacifi c, Europe & America
New Zealand
Total customer deposits
Other2
Total customer deposits and other liabilities (funding)
Wholesale funding
Bonds and notes
Loan capital
Certifi cates of deposit (wholesale)
Commercial paper
Liability for acceptances3
Due to other fi nancial institutions
Other wholesale borrowing4
Total wholesale funds
Shareholders’ equity (excluding preference shares)
Total funding
Total funding maturity
Short term wholesale funding
Long term wholesale funding
– Less than 1 year residual maturity
– Greater than 1 year residual maturity5
Total customer deposits and other liabilities (funding)
Shareholders’ equity and hybrid debt
Total funding and shareholders’ equity
Consolidated
2011
$m
2010
$m
183,216
64,828
48,710
296,754
11,450
164,795
46,610
45,470
256,875
9,113
308,204
265,988
56,551
11,993
55,554
14,333
970
23,012
(1,128)
59,714
12,280
39,530
11,641
11,495
21,610
2,140
161,285
158,410
37,083
33,284
506,572
457,682
12%
6%
12%
61%
9%
12%
6%
16%
58%
8%
100%
100%
Includes term deposits, other deposits excluding securitisation deposits and an adjustment to eliminate OnePath Australia investments in ANZ deposit products.
Includes interest accruals, payables and other liabilities, provisions and net tax provisions, excluding other liabilities in OnePath.
1
2
3 The decrease in liability for acceptances is due to a switch in products used for funding purpose.
4
5 Long term wholesale funding amounts are stated at original hedged exchange rates. Movements due to currency fluctuations in actual amounts borrowed are classified as short term
Includes net derivative balances, special purpose vehicles, other borrowings and preference share capital Euro hybrids.
wholesale funding.
Liquidity risk – Insurance and Funds Management
The Group’s insurance and fund management businesses, such as OnePath Australia Limited (formerly ING Australia Limited), also apply their
own liquidity and funding methods to address their specifi c needs.
As at 30 September 2011 a number of investment options in the life insurance statutory funds were suspended due to the prescribed limits on
their liquidity facilities being reached. These suspensions are not a consequence of any performance issue of the Life Company and do not aff ect
the Group’s future performance or distributions. The Net Market Value of suspended funds is $524 million (2010: $907 million).
Notes to the Financial Statements 163
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Contractual maturity analysis of the Group’s liabilities
The tables below analyse the Group’s and Company’s contractual liabilities, within relevant maturity groupings based on the earliest date on
which the Group or Company may be required to pay. The amounts represent principal and interest cash fl ows and hence may diff er compared
to the amounts reported on the balance sheet.
It should be noted that this is not how the Group manages its liquidity risk. The management of this risk is detailed above.
Contractual maturity analysis of fi nancial liabilities at 30 September 2011:
Consolidated at 30 September 2011
Due to other fi nancial institutions
Deposits and other borrowings
Certifi cates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt
Other borrowings
Liability for acceptances
Bonds and notes3
Loan capital3,4
Policy liabilities
External unit holder liabilities (life insurance funds)
Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)
– Funding
Receive leg (-ve is an infl ow)
Pay leg
– Other balance sheet management
Receive leg (-ve is an infl ow)
Pay leg
Consolidated at 30 September 2010
Due to other fi nancial institutions
Deposits and other borrowings
Certifi cates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt
Other borrowings
Liability for acceptances
Bonds and notes3
Loan capital3,4
Policy liabilities
External unit holder liabilities (life insurance funds)
Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)
– Funding
Receive leg (-ve is an infl ow)
Pay leg
– Other balance sheet management
Receive leg (-ve is an infl ow)
Pay leg
Less than
3 months1
$m
21,525
33,740
110,265
130,741
11,334
9,907
773
2,053
921
4,854
352
26,619
5,033
39,061
3 to 12
months
$m
1,427
5,949
42,039
–
–
4,433
487
–
49
11,777
2,211
–
–
–
1 to
5 years
$m
37
18,440
4,230
–
–
–
328
–
–
36,773
5,166
–
–
–
After
5 years
$m
49
–
38
–
–
–
–
–
–
6,997
5,273
–
–
–
No
maturity
specifi ed2
$m
Total
$m
–
23,038
–
–
–
–
–
–
–
–
–
964
884
–
–
58,129
156,572
130,741
11,334
14,340
1,588
2,053
970
60,401
13,966
27,503
5,033
39,061
(24,477)
25,202
(24,133)
26,749
(78,670)
81,837
(13,827)
14,970
(2,763)
2,785
(4,677)
4,835
(10,865)
10,910
(1,812)
1,746
–
–
–
–
(141,107)
148,758
(20,117)
20,276
Less than
3 months1
$m
20,119
15,919
95,714
109,279
10,598
6,266
797
2,141
11,265
5,506
341
28,002
5,448
17,830
3 to 12
months
$m
367
8,163
41,325
–
–
5,378
619
–
230
11,349
1,230
–
–
–
1 to
5 years
$m
56
17,821
3,084
–
–
–
544
–
–
40,080
7,955
–
–
–
After
5 years
$m
–
–
102
–
–
–
–
–
–
5,830
3,240
–
–
–
No
maturity
specifi ed2
$m
Total
$m
–
20,542
–
–
–
–
–
–
–
–
–
945
979
–
–
41,903
140,225
109,279
10,598
11,644
1,960
2,141
11,495
62,765
13,711
28,981
5,448
17,830
(30,149)
32,748
(27,419)
30,457
(87,059)
95,752
(13,911)
15,317
(2,511)
2,638
(5,161)
5,371
(11,091)
11,075
(1,276)
1,225
–
–
–
–
(158,538)
174,274
(20,039)
20,309
Includes at call instruments.
Includes perpetual investments brought in at face value only.
1
2
3 Any callable wholesale debt instruments have been included at their next call date.
4
5 The full mark-to-market of derivative liabilities held for trading purposes has been included in the ’less than 3 months’ category.
Includes instruments that may be settled in cash or in equity, at the option of the Company.
164
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
The Company at 30 September 2011
Due to other fi nancial institutions
Deposits and other borrowings
Certifi cates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt
Other borrowings
Liability for acceptances
Bonds and notes3
Loan capital3,4
Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)
– Funding
Receive leg (-ve is an infl ow)
Pay leg
– Other balance sheet management
Receive leg (-ve is an infl ow)
Pay leg
The Company at 30 September 2010
Due to other fi nancial institutions
Deposits and other borrowings
Certifi cates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt
Other borrowings
Liability for acceptances
Bonds and notes3
Loan capital3,4
Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)
– Funding
Receive leg (-ve is an infl ow)
Pay leg
– Other balance sheet management
Receive leg (-ve is an infl ow)
Pay leg
Less than
3 months1
$m
19,989
32,165
93,805
113,140
5,974
7,259
–
–
645
3,626
271
35,418
3 to 12
months
$m
1,344
5,867
30,048
–
–
3,317
–
–
42
9,596
2,175
–
1 to
5 years
$m
37
18,440
2,142
–
–
–
–
–
–
27,775
5,184
–
After
5 years
$m
–
–
39
–
–
–
–
–
–
6,736
4,803
–
(8,773)
10,122
(14,565)
16,550
(53,934)
57,263
(13,827)
14,970
(2,167)
2,109
(3,485)
3,539
(8,808)
8,759
(1,619)
1,547
No
maturity
specifi ed2
$m
Total
$m
–
21,370
–
–
–
–
–
–
–
–
–
308
–
–
–
–
–
56,472
126,034
113,140
5,974
10,576
–
–
687
47,733
12,741
35,418
(91,099)
98,905
(16,079)
15,954
Less than
3 months1
$m
18,469
13,558
83,541
95,001
5,677
2,941
–
121
11,287
5,128
328
17,998
3 to 12
months
$m
367
8,044
26,787
–
–
3,139
–
–
230
9,517
1,189
–
1 to
5 years
$m
34
17,818
1,878
–
–
–
–
–
–
29,686
7,347
–
After
5 years
$m
–
–
101
–
–
–
–
–
–
5,747
3,240
–
No
maturity
specifi ed2
$m
Total
$m
–
18,870
–
–
–
–
–
–
–
–
–
310
–
39,420
112,307
95,001
5,677
6,080
–
121
11,517
50,078
12,414
17,998
(18,851)
20,980
(18,240)
21,009
(56,764)
64,847
(13,911)
15,317
(1,901)
1,886
(3,926)
3,978
(9,161)
8,954
(1,205)
1,117
–
–
–
–
(107,766)
122,153
(16,193)
15,935
Includes at call instruments.
Includes perpetual investments brought in at face value only.
1
2
3 Any callable wholesale debt instruments have been included at their next call date.
4
5 The full mark-to-market of derivative liabilities held for trading purposes has been included in the ’less than 3 months’ category.
Includes instruments that may be settled in cash or in equity, at the option of the Company.
Notes to the Financial Statements 165
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
CREDIT RELATED CONTINGENCIES
Undrawn facilities and issued guarantees comprises the nominal principal amounts of commitments, contingencies and other undrawn
facilities and represents the maximum liquidity at risk position should all facilities extended be drawn.
The majority of undrawn facilities are subject to customers maintaining specifi c credit and other requirements or conditions. Many of
these facilities are expected to be partially used, whereas others may never be required to be drawn upon. As such, the total of the nominal
principal amounts is not necessarily representative of future liquidity risks or future cash requirements.
The tables below analyse the Group’s and Company’s undrawn facilities and issued guarantees into relevant maturity groupings based on the
earliest date on which ANZ may be required to pay.
30 September 2011
Undrawn facilities
Issued guarantees
30 September 2010
Undrawn facilities
Issued guarantees
Less than
1 year
$m
137,889
31,210
Consolidated
More than
1 year
$m
Total
$m
–
–
137,889
31,210
Less than
1 year
$m
117,107
28,269
The Company
More than
1 year
$m
Total
$m
–
–
117,107
28,269
Less than
1 year
$m
124,029
27,485
Consolidated
More than
1 year
$m
Total
$m
–
–
124,029
27,485
Less than
1 year
$m
106,403
25,745
The Company
More than
1 year
$m
Total
$m
–
–
106,403
25,745
LIFE INSURANCE RISK
Although not a signifi cant contributor to the Group’s balance sheet, the Group’s insurance businesses give rise to unique risks which are managed
separately from the Group’s banking businesses. The nature of these risks and the manner in which they are managed is set out in note 49.
OPERATIONAL RISK MANAGEMENT
Within ANZ, operational risk is defi ned as the risk of loss resulting from inadequate or failed internal processes, people and systems or from
external events. This defi nition includes legal risk, and the risk of reputational loss or damage arising from inadequate or failed internal
processes, people and systems, but excludes strategic risk.
The authority for operational risk oversight is delegated by the Board to the Board Risk Committee. The Operational Risk Executive Committee
(OREC) supports the Board Risk Committee in respect of operational risk oversight which includes compliance with regulatory obligations.
The key responsibilities of OREC include:
endorse ANZ’s Operational Risk Management and Measurement Framework for approval by the Risk Committee of the Board;
approve Operational Risk and Compliance policies;
approve ANZ’s Group Compliance Framework;
monitoring the state of operational risk management and instigating any necessary corrective actions;
review all material actual, potential or near miss risk events;
approve extreme rated risk treatment plans; and
monitor associated treatment plans.
166
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
Membership of OREC comprises senior executives and the committee is chaired by the Chief Risk Offi cer.
Business unit staff and line management have fi rst line accountability for the day-to-day management of operational risk. This includes
implementation of the operational risk framework and involvement in decision making processes concerning all material operational risk
matters. Divisional risk governance functions provide oversight of operational risk undertaken in the business units.
Divisional Risk Committees and Business Unit Risk Forums manage and maintain oversight of operational risks supported by thresholds for
escalation and monitoring. Group Operational Risk are responsible for exercising governance over operational risk through the management
of the operational risk framework, policy development, framework assurance, operational risk measurement and capital allocation, fraud
strategy and reporting of operational risk matters to executive committees.
ANZ’s Operational Risk Management and Measurement Framework outlines the approach to managing operational risk and specifi cally covers
the minimum requirements that divisions/business units must undertake in the management of operational risk. ANZ’s Operational Risk
Management and Measurement Framework is supported by specifi c policies and procedures with the eff ectiveness of the framework assessed
through a series of assurance reviews. This is supported by an independent review programme by Internal Audit.
The operational risk management process adopted by ANZ consists of a staged approach involving establishing the context, identifi cation,
analysis, assessment, treatment and monitoring of current, new and emerging operational risks.
In line with industry practice, ANZ obtains insurance cover from third party and captive providers to cover those operational risks where cost-
eff ective premiums can be obtained. In conducting their business, business units are advised to act as if uninsured and not to use insurance as a
guaranteed mitigation for operational risk. Business disruption is a critical risk to a bank’s ability to operate, so ANZ has comprehensive business
continuity, recovery and crisis management plans. The intention of the business continuity and recovery plans is to ensure critical business
functions can be maintained, or restored in a timely fashion, in the event of material disruptions arising from internal or external events.
Group Operational Risk is responsible for maintaining ANZ’s Advanced Measurement Approach (AMA) for operational risk regulatory capital
calculations. ANZ uses a scenario analysis based methodology to assess exposure to unexpected operational risk events and uses probability
distributions and monte carlo simulations to model, calculate and allocate its operational risk regulatory capital (ORRC). This methodology
incorporates the use of business risk profi les which consider the current business environment and internal control factors over a 12 month time
horizon along with external loss event data.
34: Fair value of fi nancial assets and fi nancial liabilities
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length
transaction. The determination of the fair value of fi nancial instruments is fundamental to the fi nancial reporting framework as all fi nancial
instruments are recognised initially at fair value and, with the exception of those fi nancial instruments carried at amortised cost, are remeasured
at fair value in subsequent periods.
The fair value of a fi nancial instrument on initial recognition is normally the transaction price, however, in certain circumstances the initial fair
value may be based on other observable current market transactions in the same instrument, without modifi cation or repackaging, or on a
valuation technique whose variables include only data from observable markets.
Subsequent to initial recognition, the fair value of fi nancial instruments measured at fair value is based on quoted market prices, where available.
In cases where quoted market prices are not available, fair value is determined using market accepted valuation techniques that employ
observable market data. In limited cases where observable market data is not available, the input is estimated based on other observable market
data, historical trends and other factors that may be relevant.
(i) Fair values of fi nancial assets and fi nancial liabilities
A signifi cant number of fi nancial instruments are carried at fair value in the balance sheet. Below is a comparison of the carrying amounts,
as reported on the balance sheet, and fair values of all fi nancial assets and liabilities. The fair value disclosure does not cover those instruments
that are not considered fi nancial instruments from an accounting perspective such as income tax and intangible assets. In management’s view,
the aggregate fair value amounts do not represent the underlying value of the Group.
In the tables below, fi nancial instruments have been allocated based on their accounting treatment. The signifi cant accounting policies in note 1
describe how the categories of fi nancial assets and fi nancial liabilities are measured and how income and expenses, including fair value gains
and losses, are recognised.
Financial asset classes have been allocated into the following groups: amortised cost; fi nancial assets at fair value through profi t or loss; derivatives
in eff ective hedging relationships; and available-for-sale fi nancial assets. Similarly, each class of fi nancial liability has been allocated into three groups:
amortised cost; derivatives in eff ective hedging relationships; and fi nancial liabilities at fair value through profi t and loss.
The fair values are based on relevant information available as at the respective balance sheet dates and have not been updated to refl ect
changes in market condition after the balance sheet date.
Notes to the Financial Statements 167
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL ASSETS
Consolidated 30 September 2011
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Investments backing policy liabilities
Other fi nancial assets
Consolidated 30 September 2010
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Investments backing policy liabilities
Other fi nancial assets
The Company 30 September 2011
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other fi nancial assets
At amortised
cost
At fair value through profi t or loss
Hedging
Available-for-
sale assets
Total
Total
Carrying amount
Fair value
Designated
on initial
recognition
$m
–
–
–
–
–
138
–
29,859
–
29,997
$m
24,899
8,824
–
–
–
396,199
970
–
6,485
437,377
Held for
trading
$m
–
–
36,074
51,394
–
–
–
–
–
87,468
Sub-total
$m
–
–
36,074
51,394
–
138
–
29,859
–
117,465
$m
–
–
–
2,724
–
–
–
–
–
2,724
$m
–
–
–
–
22,264
–
–
–
–
22,264
$m
24,899
8,824
36,074
54,118
22,264
396,337
970
29,859
6,485
579,830
$m
24,899
8,824
36,074
54,118
22,264
396,626
970
29,859
6,485
580,119
At amortised
cost
At fair value through profi t or loss
Hedging
Available-for-
sale assets
Total
Total
Carrying amount
Fair value
Designated
on initial
recognition
$m
–
–
–
–
–
192
–
32,171
–
32,363
$m
18,945
5,481
–
–
–
351,705
11,495
–
5,668
393,294
Held for
trading
$m
–
–
33,515
35,229
–
–
–
–
–
68,744
Sub-total
$m
–
–
33,515
35,229
–
192
–
32,171
–
101,107
$m
–
–
–
2,592
–
–
–
–
–
2,592
$m
–
–
–
–
20,742
–
–
–
–
20,742
$m
18,945
5,481
33,515
37,821
20,742
351,897
11,495
32,171
5,668
517,735
$m
18,945
5,481
33,515
37,821
20,742
351,963
11,495
32,171
5,668
517,801
At amortised
cost
At fair value through profi t or loss
Hedging
Available-for-
sale assets
Total
Total
Carrying amount
Fair value
Designated
on initial
recognition
$m
–
–
–
–
–
97
–
–
97
$m
20,555
6,338
–
–
323,189
688
3,463
354,233
Held for
trading
$m
–
–
28,367
46,085
–
–
–
–
74,452
Sub-total
$m
–
–
28,367
46,085
–
97
–
–
74,549
$m
–
–
–
2,271
–
–
–
–
2,271
$m
–
–
–
–
19,017
–
–
–
19,017
$m
20,555
6,338
28,367
48,356
19,017
323,286
688
3,463
450,070
$m
20,555
6,338
28,367
48,356
19,017
323,399
688
3,463
450,183
1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial assets within loans and advances. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.
168
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL ASSETS (continued)
The Company 30 September 2010
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other fi nancial assets
At amortised
cost
At fair value through profi t or loss
Hedging
Available-for-
sale assets
Total
Total
Carrying amount
Fair value
Designated
on initial
recognition
$m
–
–
–
–
–
139
–
–
139
$m
16,047
4,136
–
–
–
280,300
11,517
3,707
315,707
Held for
trading
$m
–
–
28,305
32,242
–
–
–
–
60,547
Sub-total
$m
–
–
28,305
32,242
–
139
–
–
60,686
$m
–
–
–
1,949
–
–
–
–
1,949
$m
–
–
–
–
16,973
–
–
–
16,973
$m
16,047
4,136
28,305
34,191
16,973
280,439
11,517
3,707
395,315
$m
16,047
4,136
28,305
34,191
16,973
280,520
11,517
3,707
395,396
1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial assets within loans and advances. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.
LIQUID ASSETS AND DUE FROM/TO OTHER
FINANCIAL INSTITUTIONS
The carrying values of these fi nancial instruments where there has
been no signifi cant change in credit risk is considered to approximate
their net fair values as they are short-term in nature, defi ned as those
which reprice or mature in 90 days or less, or are receivable on demand.
TRADING SECURITIES
Trading securities are carried at fair value. Fair value is based on
quoted market prices, broker or dealer price quotations, or modelled
valuations using prices for securities with similar credit risk, maturity
and yield characteristics.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative fi nancial instruments are carried at fair value. Exchange
traded derivative fi nancial instruments are valued using quoted
prices. Over-the-counter derivative fi nancial instruments are valued
using accepted valuation models (including discounted cash fl ow
models) based on current market yields for similar types of instruments
and the maturity of each instrument and an adjustment refl ecting the
credit worthiness of the counterparty.
AVAILABLE-FOR-SALE ASSETS
Available-for-sale assets are carried at fair value. Fair value is based
on quoted market prices or broker or dealer price quotations. If this
information is not available, fair value is estimated using quoted market
prices for securities with similar credit, maturity and yield characteristics,
or market accepted valuation models as appropriate (including
discounted cash fl ow models) based on current market yields for
similar types of instruments and the maturity of each instrument.
NET LOANS AND ADVANCES AND ACCEPTANCES
The carrying value of loans and advances and acceptances
includes deferred fees and expenses, and is net of provision for
credit impairment and unearned income.
Fair value has been determined through discounting future cash
fl ows. For fi xed rate loans and advances and acceptances, the
discount rate applied incorporates changes in wholesale market
rates, the Group’s cost of wholesale funding and movements in
customer margin. For fl oating rate loans, only changes in wholesale
market rates and the Group’s cost of wholesale funding are
incorporated in the discount rate. For variable rate loans where the
Group sets the applicable rate at its discretion, the fair value is set
equal to the carrying value.
INVESTMENTS BACKING POLICY LIABILITIES
Investments backing policy liabilities are carried at fair value. Fair
value is based on quoted market prices, broker or dealer price
quotations where available. Where substantial trading markets do
not exist for a specifi c fi nancial instrument modelled valuations are
used to estimate their approximate fair values.
OTHER FINANCIAL ASSETS
Included in this category are accrued interest and fees receivable.
The carrying values of accrued interest and fees receivable are
considered to approximate their net fair values as they are short-term
in nature or are receivable on demand.
Notes to the Financial Statements 169
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL LIABILITIES
Consolidated 30 September 2011
Due to other fi nancial institutions
Derivative fi nancial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Policy liabilities3
External unit holder liabilities (life insurance funds)
Payables and other liabilities
Consolidated 30 September 2010
Due to other fi nancial institutions
Derivative fi nancial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Policy liabilities3
External unit holder liabilities (life insurance funds)
Payables and other liabilities
The Company 30 September 2011
Due to other fi nancial institutions
Derivative fi nancial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities
At amortised
cost
At fair value through profi t or loss
Hedging
Total
Total
Carrying amount
Fair value
Designated
on initial
recognition
$m
–
–
3,764
–
7,992
638
26,619
5,033
–
44,046
$m
23,012
–
364,965
970
48,559
11,355
884
–
8,421
458,166
Held for
trading
$m
–
48,931
–
–
–
–
–
–
–
48,931
Sub-total
$m
–
48,931
3,764
–
7,992
638
26,619
5,033
–
92,977
$m
–
1,157
–
–
–
–
–
–
–
1,157
$m
23,012
50,088
368,729
970
56,551
11,993
27,503
5,033
8,421
552,300
$m
23,012
50,088
369,035
970
56,403
11,849
27,503
5,033
8,421
552,314
At amortised
cost
At fair value through profi t or loss
Hedging
Total
Total
Carrying amount
Fair value
Designated
on initial
recognition
$m
–
–
5,561
–
8,107
1,009
28,002
5,448
–
48,127
$m
21,610
–
304,822
11,495
51,607
11,271
979
–
7,462
409,246
Held for
trading
$m
–
36,083
–
–
–
–
–
–
–
36,083
Sub-total
$m
–
36,083
5,561
–
8,107
1,009
28,002
5,448
–
84,210
$m
–
1,134
–
–
–
–
–
–
–
1,134
$m
21,610
37,217
310,383
11,495
59,714
12,280
28,981
5,448
7,462
494,590
$m
21,610
37,217
310,464
11,495
59,970
12,119
28,981
5,448
7,462
494,766
At amortised
cost
At fair value through profi t or loss
Hedging
Total
Total
Carrying amount
Fair value
Designated
on initial
recognition
$m
–
–
–
–
7,992
638
–
8,630
$m
21,345
–
307,254
688
36,878
10,179
5,644
381,988
Held for
trading
$m
–
43,492
–
–
–
–
–
43,492
Sub-total
$m
–
43,492
–
–
7,992
638
–
52,122
$m
–
795
–
–
–
–
–
795
$m
21,345
44,287
307,254
688
44,870
10,817
5,644
434,905
$m
21,345
44,287
307,477
688
44,677
10,705
5,644
434,823
1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial liabilities within bonds and notes and loan capital. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.
Includes life insurance contract liabilities of $884 million (2010: $979) measured in accordance with AASB 1038 Life insurance contract liabilities and life investment contract liabilities of
3
$26,619 million (2010: $28,002) which have been designated at fair value through profit or loss in terms under AASB 139. None of the fair value is attributable to changes in the credit risk of the
life investment contract liabilities.
170
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL LIABILITIES (continued)
The Company 30 September 2010
Due to other fi nancial institutions
Derivative fi nancial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities
At amortised
cost
At fair value through profi t or loss
Hedging
Total
Total
Carrying amount
Fair value
Designated
on initial
recognition
$m
–
–
–
–
8,107
1,009
–
9,116
$m
19,939
–
252,518
11,517
40,071
9,918
5,502
339,465
Held for
trading
$m
–
33,949
–
–
–
–
–
33,949
Sub-total
$m
–
33,949
–
–
8,107
1,009
–
43,065
$m
–
698
–
–
–
–
–
698
$m
19,939
34,647
252,518
11,517
48,178
10,927
5,502
383,228
$m
19,939
34,647
252,545
11,517
48,407
10,804
5,502
383,361
1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial liabilities within bonds and notes and loan capital. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.
DEPOSITS AND OTHER BORROWINGS
For interest bearing fi xed maturity deposits and other borrowings
and acceptances with quoted market prices, market borrowing
rates of interest for debt with a similar maturity are used to discount
contractual cash fl ows. The fair value of a deposit liability without a
specifi ed maturity or at call is deemed to be the amount payable on
demand at the reporting date. The fair value is not adjusted for any
value expected to be derived from retaining the deposit for a future
period of time.
Certain deposits and other borrowings have been designated at
fair value through profi t or loss and are carried at fair value.
BONDS AND NOTES AND LOAN CAPITAL
The aggregate fair value of bonds and notes and loan capital is
calculated based on quoted market prices or observable inputs
where applicable. For those debt issues where quoted market prices
were not available, a discounted cash fl ow model using a yield
curve appropriate for the remaining term to maturity of the debt
instrument is used.
Certain bonds and notes and loan capital have been designated
at fair value through profi t or loss and are carried at fair value.
The fair value is based on a discounted cash fl ow model based
on current market yields for similar types of instruments and the
maturity of each instrument. The fair value includes the eff ects of the
appropriate credit spreads applicable to ANZ for that instrument.
EXTERNAL UNIT HOLDER LIABILITIES (LIFE INSURANCE FUNDS)
The carrying amount represents the external unit holder’s share
of net assets which are carried at fair value in the fund.
LIFE INVESTMENT CONTRACT LIABILITIES
Life investment contract liabilities are carried at fair value.
PAYABLES AND OTHER FINANCIAL LIABILITIES
This category includes accrued interest and fees payable for which
the carrying amount is considered to approximate the fair value.
COMMITMENTS AND CONTINGENCIES
Adjustments to fair value for commitments and contingencies
that are not fi nancial instruments recognised in the balance sheet,
are not included in this note.
(ii) Valuation methodology
A signifi cant number of fi nancial instruments are carried on balance
sheet at fair value.
The best evidence of fair value is a quoted price in an active market.
Accordingly, wherever possible fair value is based on the quoted
market price of the fi nancial instrument.
In the event that there is no quoted market price for the instrument,
fair value is based on present value estimates or other market accepted
valuation techniques. The valuation models incorporate the impact
of bid/ask spread, counterparty credit spreads and other factors that
would infl uence the fair value determined by a market participant.
The majority of valuation techniques employ only observable
market data. However, for certain fi nancial instruments the valuation
technique may employ some data (valuation inputs or components)
which is not readily observable in the current market. In these cases
valuation inputs (or components of the overall value) are derived
and extrapolated from other relevant market data and tested against
historic transactions and observed market trends. Valuations using one
or more non-observable data inputs require professional judgement.
ANZ has a control framework that ensures that the fair value is either
determined or validated by a function independent of the party that
undertakes the transaction.
Where quoted market prices are used, independent price
determination or validation is obtained. For fair values determined
using a valuation model, the control framework may include, as
applicable, independent development or validation of: (i) valuation
models; (ii) any inputs to those models; and (iii) any adjustments
required outside of the valuation model, and, where possible,
independent validation of model outputs.
Notes to the Financial Statements 171
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
34: Fair Value of Financial Assets and Financial Liabilities (continued)
The tables below provide an analysis of the methodology used for valuing fi nancial assets and fi nancial liabilities carried at fair value. The
fair value of the fi nancial instrument has been allocated in full to the category which most appropriately refl ects the determination of the fair
value. This allocation is based on the categorisation of the lowest level input into a valuation model or a valuation component that is signifi cant
to the reported fair value of the fi nancial instrument. The signifi cance of an input is assessed against the reported fair value of the fi nancial
instrument and considers various factors specifi c to the fi nancial instrument. The ‘quoted market price’ category includes fi nancial instruments
valued using quoted yields where available for specifi c debt securities.
The methods used in valuing diff erent classes of fi nancial assets or liabilities are described in section (i) on pages 167 to 171. There have
been no substantial changes in the valuation techniques applied to diff erent classes of fi nancial instruments since the previous year. The Group
continuously monitors the relevance of inputs used and calibrates its valuation models where there is evidence that changes are required
to ensure that the resulting valuations remain appropriate.
Consolidated
Financial assets
Trading securities
Derivative fi nancial instruments
Available-for-sale fi nancial assets
Investments backing policy liabilities
Loans and advances (designated at fair value)
Financial liabilities
Derivative fi nancial instruments
Deposits and other borrowings (designated
at fair value)
Bonds and notes (designated at fair value)
Policy liabilities
External unit holder liabilities (life insurance funds)
Loan capital (designated at fair value)
The Company
Financial assets
Trading securities
Derivative fi nancial instruments
Available-for-sale fi nancial assets
Loans and advances (designated at fair value)
Financial liabilities
Derivative fi nancial instruments
Bonds and notes (designated at fair value)
Loan capital (designated at fair value)
Valuation technique
Quoted market price
Using observable inputs
2011
$m
2010
$m
2011
$m
2010
$m
24,298
2,711
19,219
14,766
–
60,994
22,690
2,050
17,816
16,585
–
59,141
11,714
50,798
2,526
14,734
138
79,910
10,775
35,321
2,280
15,115
192
63,683
With signifi cant
non-observable inputs
2011
$m
62
609
519
359
–
2010
$m
50
450
646
471
–
Total
2011
$m
2010
$m
36,074
54,118
22,264
29,859
138
33,515
37,821
20,742
32,171
192
1,549
1,617
142,453
124,441
2,847
2,143
46,452
34,428
789
646
50,088
37,217
–
–
–
–
–
–
–
–
–
–
2,847
2,143
3,764
7,992
26,619
5,033
638
90,498
5,561
8,107
28,002
5,448
1,009
82,555
–
–
–
–
–
–
–
–
–
–
789
646
3,764
7,992
26,619
5,033
638
94,134
5,561
8,107
28,002
5,448
1,009
85,344
Valuation technique
Quoted market price
Using observable inputs
2011
$m
2010
$m
2011
$m
2010
$m
19,733
2,689
17,724
–
40,146
2,833
–
–
2,833
19,888
2,047
15,738
–
37,673
2,109
–
–
2,109
8,572
45,058
921
97
54,648
40,665
7,992
638
49,295
8,367
31,694
826
139
41,026
31,892
8,107
1,009
41,008
With signifi cant
non-observable inputs
2011
$m
62
609
372
–
1,043
789
–
–
789
2010
$m
50
450
409
–
909
646
–
–
646
Total
2011
$m
2010
$m
28,367
48,356
19,017
97
95,837
44,287
7,992
638
52,917
28,305
34,191
16,973
139
79,608
34,647
8,107
1,009
43,763
172
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
34: Fair Value of Financial Assets and Financial Liabilities (continued)
(iii) Additional information for fi nancial instruments carried at fair value where the valuation incorporates non-observable market data
CHANGES IN FAIR VALUE
The following table presents the composition of fi nancial instruments measured at fair value with signifi cant non-observable inputs.
Consolidated
Asset backed securities
Illiquid corporate bonds and loans
Structured credit products
Managed funds (suspended)
Alternative assets
Other derivatives
Total
The Company
Asset backed securities
Illiquid corporate bonds and loans
Structured credit products
Other derivatives
Total
Financial assets
Trading securities
Derivatives
Available-for-sale
Investments backing
policy liabilities
Financial
liabilities
Derivatives
2011
$m
2010
$m
62
–
–
–
–
–
62
62
–
–
–
62
50
–
–
–
–
–
50
50
–
–
–
50
2011
$m
–
–
605
–
–
4
609
–
–
605
4
609
2010
$m
–
–
445
–
–
5
450
–
–
445
5
450
2011
$m
5
514
–
–
–
–
519
–
372
–
–
372
2010
$m
–
555
91
–
–
–
646
–
409
–
–
409
2011
$m
–
–
110
159
90
–
359
n/a
n/a
n/a
n/a
n/a
2010
$m
–
–
110
266
95
–
471
n/a
n/a
n/a
n/a
n/a
2011
$m
–
–
(788)
–
–
(1)
(789)
–
–
(788)
(1)
(789)
2010
$m
–
–
(624)
–
–
(22)
(646)
–
–
(624)
(22)
(646)
Asset backed securities and illiquid corporate bonds comprise illiquid bonds where the eff ect on fair value of issuer credit cannot be directly
or indirectly observed in the market.
Structured credit products categorised in derivatives comprise the structured credit intermediation trades that the Group entered into from
2004 to 2007 whereby it sold protection using credit default swaps over certain structures, and mitigated risk by purchasing protection via credit
default swaps from US fi nancial guarantors over the same structures. These trades are valued using complex models with certain inputs relating
to the reference assets and derivative counterparties not being observable in the market.
Investments in structured credit products comprise collateralised debt and loan obligations where there is a lack of active trading and limited
observable market data.
Managed funds (suspended) are comprised of fi xed income and mortgage investments in managed funds that are illiquid and are not currently
redeemable.
Notes to the Financial Statements 173
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
34: Fair Value of Financial Assets and Financial Liabilities (continued)
The following table details movements in the balance of these fi nancial assets and liabilities. Derivatives are categorised on a portfolio basis
and classifi ed as either fi nancial assets or fi nancial liabilities based on whether the closing balance is an unrealised gain or loss. This could be
diff erent to the opening balance.
Consolidated
Opening balance
New purchases and issues1
Disposals/sales and cash settlements
Transfers:
Transfers into the category
Transfers out of the category
Fair value gain/(loss) recorded in the income statement
Fair value gain/(loss) recognised in other comprehensive income
Closing balance
The Company
Opening balance
New purchases and issues
Disposals/sales and cash settlements
Transfers:
Transfers into the category
Transfers out of the category
Fair value gain/(loss) recorded in the income statement
Fair value gain/(loss) recognised in other comprehensive income
Closing balance
Financial assets
Financial liabilities
Trading securities
Derivatives
Available-for-sale
Investments backing
policy liabilities
Derivatives
2011
$m
50
–
–
–
–
12
–
62
50
–
–
–
–
12
–
62
2010
$m
148
–
–
–
–
(98)
–
50
148
–
–
–
–
(98)
–
50
2011
$m
450
–
(18)
–
(3)
180
–
609
450
–
(18)
–
(3)
180
–
609
2010
$m
745
–
(16)
–
(35)
(244)
–
450
745
–
(16)
–
(35)
(244)
–
450
2011
$m
646
9
(139)
–
–
20
(17)
2010
$m
881
150
(383)
–
(26)
(5)
29
519
646
409
–
(7)
–
–
–
(30)
372
616
50
(231)
–
(26)
(7)
7
409
2011
$m
471
–
(92)
–
–
(20)
–
359
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2010
$m
–
526
(24)
–
–
(31)
–
471
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2011
$m
(646)
–
21
–
17
(181)
–
(789)
2010
$m
(1,054)
–
2
–
20
386
–
(646)
(646)
–
21
(1,054)
–
2
–
17
(181)
–
(789)
–
20
386
–
(646)
1
Included in new purchases and issues in 2010 are $482 million of investments backing policyholder liabilities and $100 million of available-for-sale financial assets acquired as part of the purchase
of the OnePath businesses in Australia and New Zealand.
174
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
34: Fair Value of Financial Assets and Financial Liabilities (continued)
SENSITIVITY TO DATA INPUTS
Where valuation techniques use assumptions due to signifi cant data inputs not being directly observed in the market place, changing these
assumptions changes the resultant estimate of fair value. The majority of transactions in this category are ‘back-to-back’ in nature where ANZ
either acts as a fi nancial intermediary or hedges market risks. Similarly, the performance of investments backing policyholder liabilities directly
impacts the associated life investment contracts they relate to. In these circumstances, changes in the assumptions generally have minimal
impact on the income statement and net assets of ANZ. An exception to this is the ‘back-to-back’ structured credit intermediation trades which
create signifi cant exposure to market risk and/or credit risk.
Principal inputs used in the determination of fair value of fi nancial instruments included in this group include counterparty credit spreads,
market-quoted CDS prices, recovery rates, default probabilities, correlation curves and other inputs, some of which may not be directly
observable in the market. For both the Group and the Company, the potential eff ect of changing prevailing assumptions to reasonably possible
alternative assumptions for valuing those fi nancial instruments could result in an increase of $46 million (2010: $45 million) or a decrease of
$30 million (2010: $30 million) in net derivative fi nancial instruments as at 30 September 2011. The ranges of reasonably possible alternative
assumptions are established by application of professional judgement and analysis of the data available to support each assumption.
DEFERRED FAIR VALUE GAINS AND LOSSES
Where the fair value of a fi nancial instrument is determined using non-observable data that has a signifi cant impact on the valuation
of the instrument, any diff erence between the transaction price and the amount determined based on the valuation technique arising
on initial recognition of the fi nancial instrument (day one gain or loss) is deferred on the balance sheet. Subsequently, the day one gain
or loss is recognised in the income statement only to the extent that it arises from a change in factors (including time) that a market
participant would consider in setting the price for the instrument.
The aggregate amount of day one gain/(loss) not recognised in the income statement on the initial recognition of the fi nancial instrument,
because the diff erence between the transaction price and the modelled valuation price was not fully supported by inputs that were observable,
amounted to $2 million (2010: $3 million) with $1 million (2010: $Nil) being recognised in the income statement during the year.
(iv) Additional information for fi nancial instruments designated at fair value through profi t or loss
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
The category loans and advances includes certain loans designated at fair value through profi t or loss in order to eliminate an accounting
mismatch which would arise if the asset were otherwise carried at amortised cost. This mismatch arises as the derivative fi nancial instruments,
which were acquired to mitigate interest rate risk of the loan and advances, are measured at fair value through profi t or loss. By designating the
economically hedged loans, the movements in the fair value attributable to changes in interest rate risk, will also be recognised in the income
statement in the same periods.
At balance date, the credit exposure of the Group on these assets was $138 million (2010: $192 million) and for the Company was $97 million
(2010: $139 million). For the Group and Company $84 million (2010: $85 million) was mitigated by collateral held.
The cumulative change in fair value attributable to change in credit risk was, for the Group, a reduction to the assets of $3 million (2010: $4 million).
For the Company the cumulative change to the assets was $nil (2010: $1 million reduction). The amount recognised in the income statement
attributable to changes in credit risk for the Group was a gain of $1 million (2010: $1 million gain) and for the Company a gain of $1 million
(2010: $nil).
The change in fair value of the designated fi nancial assets attributable to changes in credit risk has been calculated by determining the change
in credit rating and credit spread implicit in the loans and advances issued by entities with similar credit characteristics.
Notes to the Financial Statements 175
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
Parts of loan capital, bonds and notes and deposits and other borrowings have been designated as fi nancial liabilities at fair value through profi t
or loss in order to eliminate an accounting mismatch which would arise if the liabilities were otherwise carried at amortised cost. This mismatch
arises as the derivatives acquired to mitigate interest rate risk within the fi nancial liabilities are measured at fair value through profi t or loss.
Life investment contracts are designated at fair value through profi t or loss in accordance with AASB 1038.
The table below compares the carrying amount of fi nancial liabilities carried at full fair value, to the contractual amount payable at maturity
and fair value gains and losses recognised during the period on liabilities carried at full fair value that are attributable to changes in ANZ’s own
credit rating.
Consolidated
Carrying amount
Amount at which carrying value is greater/(less) than
amount payable at maturity
Cumulative change in liability value attributable to own
credit risk:
– opening cumulative (gain)/loss
– (gain)/loss recognised during the year
– closing cumulative (gain)/loss
Life investment
contract liabilities
Deposits and other
borrowings
Bonds and notes
Loan capital
2011
$m
2010
$m
26,619
28,002
2011
$m
3,764
2010
$m
5,561
2011
$m
7,992
2010
$m
8,107
–
–
–
–
(25)
–
–
–
–
–
–
–
(1)
8
(187)
–
–
–
(10)
141
131
76
(86)
(10)
2011
$m
638
3
(18)
14
(4)
2010
$m
1,009
27
(59)
41
(18)
The Company
Carrying amount
Amount at which carrying value is greater/(less) than
amount payable at maturity
Cumulative change in liability value attributable to own
credit risk:
– opening cumulative (gain)/loss
– (gain)/loss recognised during the year
– closing cumulative (gain)/loss
Deposits and other
borrowings
2011
$m
2010
$m
–
–
–
–
–
–
–
–
–
–
Bonds and notes
Loan capital
2011
$m
7,992
2010
$m
8,107
8
(187)
(10)
141
131
76
(86)
(10)
2011
$m
638
3
(18)
14
(4)
2010
$m
1,009
27
(59)
41
(18)
For each of loan capital, bonds and notes and deposits and other borrowings, the change in fair value attributable to changes in credit risk
has been determined as the amount of change in fair value that is not attributable to changes in market conditions that give rise to market
risks (benchmark interest rate and foreign exchange rates).
176
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
35: Maturity Analysis of Assets and Liabilities
The following is an analysis, by remaining contractual maturities at balance date, of selected asset and liability accounts and represents the
actual obligation date expected for the asset or liability to be recovered or settled within one year, and greater than one year.
Consolidated
Due from other fi nancial institutions
Available-for-sale assets
Net loans and advances
Investments backing policyholder liabilities
Customers’ liability for acceptances
Due to other fi nancial institutions
Deposits and other borrowings
Liability for acceptances
Bonds and notes
Policyholder liabilities
External unit holder liabilities (life insurance funds)
Loan capital
1
Includes items where no maturity is specified.
2011
2010
Due within
one year
$m
Greater than
one year1
$m
8,694
17,930
96,489
2,242
970
22,926
347,885
970
13,874
26,443
5,033
720
130
4,334
299,848
27,617
–
86
20,844
–
42,677
1,060
–
11,273
Total
$m
8,824
22,264
396,337
29,859
970
23,012
368,729
970
56,551
27,503
5,033
11,993
Due within
one year
$m
Greater than
one year1
$m
5,291
16,536
85,686
4,575
11,495
21,554
290,965
11,495
16,035
28,002
5,448
–
190
4,206
266,211
27,596
–
56
19,418
–
43,679
979
–
12,280
Total
$m
5,481
20,742
351,897
32,171
11,495
21,610
310,383
11,495
59,714
28,981
5,448
12,280
Notes to the Financial Statements 177
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
36: Segment Analysis
(i) Description of segments
The Group operates on a divisional structure with Australia, Asia Pacifi c, Europe & America (APEA), Institutional and New Zealand being the
major operating divisions. The Group manages its APEA Institutional business on a matrix structure i.e. the results for APEA Institutional are
included in both APEA and Institutional, consistent with how this business is internally managed. Accordingly, the divisional analysis on the
following pages refl ects this matrix reporting structure.
The segments and product and services categories as reported below are consistent with internal reporting provided to the chief operating
decision maker, being the Chief Executive Offi cer.
In order to more closely align with how operating results are regularly reviewed and assessed, the operating segments were changed from
geographical based segments used in the prior year to a divisional view. Comparative segment information has been restated accordingly.
The primary sources of external revenue across all divisions are interest, fee income and trading income. The Australian and New Zealand
divisions derive revenue from products and services from retail banking, commercial banking and wealth management in their respective
geographies. APEA derives revenue from retail banking, wealth products, institutional and commercial products and services. The Institutional
division derives revenue from transaction banking, market trading, treasury products and institutional lending. Corporate Centre provides
support to all divisions, including risk, fi nancial management, strategy and marketing, human resources and corporate aff airs.
(ii) Operating segments
Transactions between business units across segments within ANZ are conducted on an arms length basis.
Year ended 30 September 2011 ($m)
External interest income
External interest expense
Adjustment for intersegment interest
Net interest income
Other external operating income
Share of net profi t/(loss) of equity
accounted investments
Segment revenue
Other external expenses
Net intersegment expenses
Operating expenses
Profi t before income tax and provision
for credit impairment
Provision for credit impairment
Segment result before tax
Income tax expense
Non-controlling interests
Profi t after income tax attributed to
shareholders of the company
Non-cash expenses
Depreciation and amortisation
Equity-settled share based payment
expenses
Provision for credit impairment
Financial position
Goodwill
Shares in associates
Total external assets
Total external liabilities
Australia
17,429
(6,301)
(5,307)
5,821
2,360
(2)
8,179
(2,562)
(944)
(3,506)
4,673
(711)
3,962
(1,185)
–
APEA
1,791
(758)
97
1,130
943
421
2,494
(1,402)
(86)
(1,488)
1,006
(110)
896
(166)
(9)
Institutional
7,537
(3,397)
(1,048)
3,092
1,803
11
4,906
(1,446)
(555)
(2,001)
2,905
(258)
2,647
(750)
(2)
New
Zealand
4,577
(2,119)
(765)
1,693
466
–
2,159
(1,025)
10
(1,015)
1,144
(166)
978
(286)
–
2,777
721
1,895
692
(170)
(25)
(711)
(63)
(33)
(110)
(96)
(79)
(50)
(18)
(258)
(166)
Corporate
Centre
189
(6,826)
7,018
381
(36)
Less: APEA
Institutional
(1,159)
516
7
(636)
(636)
1
346
(1,764)
1,376
(388)
(42)
(40)
(82)
46
–
(36)
(171)
(30)
(40)
–
(1,272)
460
220
680
(592)
74
(518)
119
2
8
20
74
1,433
30
272,331
175,115
167
3,293
88,108
93,028
843
121
237,676
200,816
1,720
2
70,273
56,446
–
67
1,317
108,932
–
–
(75,217)
(77,803)
Other
items1
4
–
(2)
2
113
5
120
(284)
(21)
(305)
(185)
(26)
(211)
(87)
1
Group
Total
30,368
(18,885)
–
11,483
5,013
436
16,932
(8,023)
–
(8,023)
8,909
(1,237)
7,672
(2,309)
(8)
(101)
(1)
(26)
–
–
–
–
(643)
(166)
(1,237)
4,163
3,513
594,488
556,534
(397)
(297)
5,355
1
In evaluating the performance of the operating segments, certain items are removed from the operating segment results, where they are not considered integral to the ongoing performance of
the segment and are evaluated separately. These items are set out in part (iii) of this note.
178
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
36: Segment Analysis (continued)
Year ended 30 September 2010 ($m)
External interest income
External interest expense
Adjustment for intersegment interest
Net interest income
Other external operating income
Share of net profi t/(loss) of equity
accounted investments
Segment revenue
Other external expenses
Net intersegment expenses
Operating expenses
Profi t before income tax and provision
for credit impairment
Provision for credit impairment
Segment result before tax
Income tax expense
Non-controlling interests
Profi t after income tax attributed to
shareholders of the company
Non-cash expenses
Depreciation and amortisation
Equity-settled share based payment
expenses
Provision for credit impairment
Financial position
Goodwill
Shares in associates
Total external assets
Total external liabilities
Corporate
Centre
188
(5,562)
5,597
223
(88)
Less: APEA
Institutional
(927)
379
(29)
(577)
(507)
Australia
14,819
(4,781)
(4,654)
5,384
2,194
28
7,606
(2,361)
(895)
(3,256)
4,350
(583)
3,767
(1,093)
–
APEA
1,464
(603)
110
971
737
360
2,068
(1,101)
(41)
(1,142)
926
(154)
772
(90)
(6)
Institutional
6,192
(3,013)
47
3,226
1,718
3
4,947
(1,260)
(488)
(1,748)
3,199
(741)
2,458
(680)
–
New
Zealand
4,848
(2,159)
(1,054)
1,635
469
5
2,109
(1,067)
10
(1,057)
1,052
(409)
643
(180)
–
1
136
(1,571)
1,269
(302)
(166)
(10)
(176)
(11)
–
2,674
676
1,778
463
(187)
(148)
(51)
(25)
(583)
(30)
(154)
(76)
(60)
(741)
(50)
(161)
(16)
(409)
(27)
(10)
–
(1,084)
386
148
534
(550)
77
(473)
94
–
(379)
8
18
77
1,414
21
260,994
161,325
190
2,691
58,721
66,883
829
187
185,021
177,308
1,653
1
69,711
55,230
–
65
4,780
90,517
–
–
(47,524)
(53,715)
Other
items1
24
–
(17)
7
(133)
36
(90)
(330)
(3)
(333)
(423)
33
(390)
(136)
2
Group
Total
26,608
(15,739)
–
10,869
4,390
433
15,692
(7,304)
–
(7,304)
8,388
(1,787)
6,601
(2,096)
(4)
(524)
4,501
(86)
(564)
–
33
–
–
–
–
(140)
(1,787)
4,086
2,965
531,703
497,548
1
In evaluating the performance of the operating segments, certain items are removed from the operating segment results, where they are not considered integral to the ongoing performance of
the segment and are evaluated separately. These items are set out in part (iii) of this note.
(iii) Other items
The table below sets out the profi t after tax impact of other items.
Item
Related segment
New Zealand technology integration
Changes in New Zealand tax legislation
Acquisition costs and valuation adjustments
Treasury shares adjustment
Economic hedging – fair value losses
Revenue and net investment hedges
New Zealand managed fund impacts
Tax on New Zealand conduits
Non-continuing businesses
Total
New Zealand
New Zealand and Institutional
Australia, APEA, Institutional and New Zealand
Australia
Australia, APEA, Institutional and New Zealand
Corporate Centre
New Zealand
Institutional
Institutional
Profi t after tax
2011
$m
(86)
2
(126)
41
(117)
(51)
39
–
1
(297)
2010
$m
–
(36)
(480)
(32)
(146)
24
34
38
74
(524)
Notes to the Financial Statements 179
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
36: Segment Analysis (continued)
(iv) External segment revenue by products and services
The table below sets out revenue from external customers for groups of similar products and services.
Retail
Commercial
Wealth
Institutional
Partnerships
Other
Revenue
2011
$m
6,252
3,668
1,310
4,906
314
482
16,932
2010
$m
5,755
3,463
1,139
4,947
332
56
15,692
(v) Geographical information
The following table sets out revenue and non-current assets1 based on the geographical locations in which the Group operates.
Consolidated
Total external revenue
Non-current assets1
Australia
APEA
New Zealand
Total
2011
$m
11,904
260,004
2010
$m
11,124
231,357
2011
$m
2,426
22,401
2010
$m
2,004
14,234
2011
$m
2,602
49,524
2010
$m
2,564
52,612
2011
$m
16,932
331,929
2010
$m
15,692
298,203
1 Non-current assets referred to are assets that are expected to be recovered more than 12 months after balance date. They do not include financial instruments, deferred tax assets,
post-employment benefits assets or rights under insurance contracts.
180
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
37: Notes to the Cash Flow Statements (continued)
a) Reconciliation of net profi t after income tax to net cash provided by operating activities
Consolidated
2011
$m
2010
$m
The Company
2011
$m
2010
$m
Infl ows
(Outfl ows)
Infl ows
(Outfl ows)
Infl ows
(Outfl ows)
Infl ows
(Outfl ows)
Operating profi t after income tax attributable to shareholders of the Company
5,355
4,501
4,151
4,428
Adjustment to reconcile operating profi t after income tax
to net cash provided by/(used in) operating activities
Provision for credit impairment
Impairment on available for sale assets transferred to
profi t and loss
Credit risk on derivatives
Depreciation and amortisation
Profi t on sale of businesses
Provision for employee entitlements, restructuring and other provisions
Payments from provisions
(Profi t)/loss on sale of premises and equipment
(Profi t)/loss on sale of available-for-sale assets
Amortisation of discounts/premiums included in interest income
Share based payment expense
Change in policyholder liabilities
Net foreign exchange earnings
Net gains/losses on trading derivatives
Net derivatives/foreign exchange adjustment
Net (increase)/decrease in operating assets
Trading securities
Liquid assets greater than three months
Due from other banks greater than three months
Loans and advances
Net (decrease)/increase in investments backing policyholder liabilities
Net derivative fi nancial instruments
Net intra-group loans and advances
Interest receivable
Accrued income
Net tax assets
Net (decrease)/increase in operating liabilities
Deposits and other borrowings
Due to other fi nancial institutions
Payables and other liabilities
Interest payable
Accrued expenses
Other
Total adjustments
Net cash (used in)/provided by operating activities
1,237
1,787
994
1,369
72
(21)
645
(6)
648
(678)
(20)
(68)
(13)
167
(854)
(817)
346
675
(7,614)
1,593
(1,476)
(25,568)
1,319
(2,038)
–
(45)
80
277
43,834
1,350
584
124
21
(308)
13,446
18,801
21
(35)
560
–
461
(520)
8
(57)
(32)
143
836
(747)
95
658
(2,004)
2,184
(65)
(17,044)
(491)
(1,823)
–
(181)
(147)
1,114
14,726
55
(1,288)
163
363
(192)
(1,452)
3,049
72
(19)
403
–
345
(518)
7
(31)
6
167
–
(528)
19
1,237
(5,558)
1,106
(1,586)
(25,753)
–
(3,751)
336
(55)
82
(371)
42,542
1,415
835
119
23
(12)
11,526
15,677
21
39
372
–
326
(259)
–
(22)
2
143
–
(458)
(82)
518
(1,835)
815
(145)
(20,345)
–
(1,110)
(5,110)
(208)
(116)
936
20,862
1,329
(709)
308
324
(315)
(3,350)
1,078
Notes to the Financial Statements 181
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
37: Notes to the Cash Flow Statements (continued)
b) Reconciliation of cash and cash equivalents
Cash and cash equivalents include liquid assets and amounts due from other fi nancial institutions with an original term to maturity of less than
three months. Cash and cash equivalents at the end of the fi nancial year as shown in the statements of cash fl ows are reconciled to the related
items in the statements of fi nancial position as follows:
Liquid assets – less than three months
Due from other fi nancial institutions – less than three months
Cash and cash equivalents in the statement of cashfl ows
c) Acquisitions and disposals
Cash (infl ows)/outfl ows from acquisitions and investments (net of cash acquired)
Purchases of controlled entities
Investments in controlled entities
Purchases of interest in associates and joint ventures
Cash infl ows from disposals (net of cash disposed)
Disposals of controlled entities
Disposals of associates and joint ventures
d) Non-cash fi nancing and investing activities
Share capital issues
Dividends satisfi ed by share issue
Dividends satisfi ed by bonus share issue
e) Financing arrangements
Credit stand by arrangements
Standby lines
Other fi nancing arrangements
Over and other fi nancing arrangements
Total fi nance available
Consolidated
The Company
2011
$m
23,400
6,621
30,021
2010
$m
15,748
4,862
20,610
2011
$m
19,072
4,579
23,651
2010
$m
13,342
3,592
16,934
Consolidated
The Company
2011
$m
44
–
260
304
6
68
74
2010
$m
(55)
–
5
(50)
–
15
15
2011
$m
–
–
260
260
–
36
36
2010
$m
(3,009)
694
5
(2,310)
–
113
113
1,367
66
1,433
1,007
54
1,061
1,367
66
1,433
1,007
54
1,061
Consolidated
2011
2010
Available
$m
Unused
$m
Available
$m
Unused
$m
978
–
978
978
–
978
987
–
987
987
–
987
182
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
38: Controlled Entities
Ultimate parent of the Group
Australia and New Zealand Banking Group Limited
All controlled entities are 100% owned unless otherwise noted.
The material controlled entities of the Group are:
ANZ Bank (Lao) Limited1 (formerly ANZ Vientiane Commercial Bank Limited)
ANZ Bank (Vietnam) Limited1
ANZ Capel Court Limited
ANZ Capital Hedging Pty Ltd
ANZ Commodity Trading Pty Ltd
ANZ Cover Insurance Pty Ltd
ANZ Trustees Limited
ANZ Funds Pty Ltd
ANZ Bank (Europe) Limited1
ANZ Bank (Kiribati) Limited1, 4
ANZ Bank (Samoa) Limited1
ANZ Holdings (New Zealand) Limited1
ANZ National Bank Limited1
ANZ Investment Services (New Zealand) Limited1
ANZ National (Int’l) Limited1
OnePath Holdings (NZ) Limited1 (formerly ING (NZ) Holdings Limited)
OnePath Insurance Holdings (NZ) Limited1 (formerly ING Insurance Holdings Limited)
OnePath Life (NZ) Limited1 (formerly ING Life (NZ) Limited)
Private Nominees Limited1
UDC Finance Limited1
ANZ International (Hong Kong) Limited1
ANZ Asia Limited1
ANZ Bank (Vanuatu) Limited2
ANZ International Private Limited1
ANZ Singapore Limited1
ANZ Royal Bank (Cambodia) Limited1, 4
Votraint No. 1103 Pty Ltd
ANZ Lenders Mortgage Insurance Pty Ltd
ANZ Orchard Investments Pty Ltd
OnePath Australia Limited (formerly ING Australia Limited)
OnePath Life Limited (formerly ING Life Limited)
OnePath General Insurance Pty Limited (formerly ING General Insurance Pty Limited)
OnePath Funds Management Limited (formerly ING Funds Management Limited)
OnePath Custodians Limited (formerly ING Custodians Pty Limited)
Australia and New Zealand Banking Group (PNG) Limited1
Australia and New Zealand Bank (China) Company Limited1
Chongqing Liangping ANZ Rural Bank Company Limited1
Citizens Bancorp Inc
ANZ Guam Inc.3
Esanda Finance Corporation Limited
ETRADE Australia Limited
ETRADE Australia Securities Limited
LFD Limited
PT ANZ Panin Bank1, 4
Incorporated in
Nature of business
Australia
Banking
Laos
Vietnam
Australia
Australia
Australia
Australia
Australia
Australia
United Kingdom
Kiribati
Samoa
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Hong Kong
Hong Kong
Vanuatu
Singapore
Singapore
Cambodia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Papua New Guinea
China
China
Guam
Guam
Australia
Australia
Australia
Australia
Indonesia
Banking
Banking
Investment Banking
Hedging
Finance
Captive-Insurance
Trustee/Nominee
Holding Company
Banking
Banking
Banking
Holding Company
Banking
Funds Management
Finance
Holding Company
Holding Company
Insurance
Nominee
Finance
Holding Company
Banking
Banking
Holding Company
Merchant Banking
Banking
Investment
Mortgage Insurance
Holding Company
Holding Company
Insurance
Insurance
Funds Management
Trustee
Banking
Banking
Banking
Holding Company
Banking
General Finance
Holding Company
Online Stockbroking
Holding Company
Banking
1 Audited by overseas KPMG firms.
2 Audited by Hawkes Law.
3 Audited by Deloitte Guam. American Samoa Bank merged with ANZ Guam Inc during the year ended 30 September 2011.
4 Non-controlling interests hold ordinary shares or units in the controlled entities listed above as follows: ANZ Bank (Kiribati) Limited – 150,000 $1 ordinary shares (25%) (2010: 150,000 $1 ordinary
shares (25%)); PT ANZ Panin Bank – 16,500 IDR 1 million shares (1%) (2010: 7,500 IDR 1 million shares (15%)); ANZ Royal Bank (Cambodia) Limited – 319,500 USD100 ordinary shares (45%)
(2010: 319,500 USD100 ordinary shares (45%)). The increase in the Group’s interest in PT ANZ Panin Bank of 14% was the result of the Group electing to take up a proportionately larger issue of
shares in PT ANZ Panin Bank than the non-controlling interest holder.
Notes to the Financial Statements 183
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
39: Associates
Signifi cant associates of the Group are as follows:
AMMB Holdings Berhad
PT Bank Pan Indonesia
Date
became
an associate
Ownership
interest
held
May 2007
April 2001
24%
39%
Voting
interest
24%
39%
Shanghai Rural Commercial Bank1
September 2007
20%
20%
Bank of Tianjin2
Saigon Securities Inc.3
Diversifi ed Infrastructure Trust
Metrobank Card Corporation
Other associates
Total carrying value of associates
June 2006
July 2008
March 2008
October 2003
20%
18%
37%
40%
20%
18%
37%
40%
Incorporated
in
Malaysia
Indonesia
Peoples Republic
of China
Peoples Republic
of China
Vietnam
Australia
Philippines
Carrying
value
2011
$m
Carrying
value
2010
$m
Fair
value4
$m
Reporting
date
1,111
685
1,082 1,337
709
611
31 March
31 December
Principal
activity
Banking
Banking
952
384
115
82
44
140
499
n/a
31 December
Banking
n/a
605
114
n/a
31 December
31 December
30 September
31 December
Banking
Stockbroking
Investment
Cards Issuing
327
128
105
43
170
3,513
2,965
1 During the year ended 30 September 2011 the Group invested an additional RMB 1.65 billion ($255 million) in Shanghai Rural Commercial Bank (SRCB) as part of a major capital raising by SRCB.
2 The Group is participating in a rights issue which will maintain its existing 20% interest. The issuance is subject to local regulatory approval.
3 Significant influence was established via representation on the Board of Directors.
4 Applicable to those investments in associates where there are published price quotations.
5 A value-in-use estimation supports the carrying value of this investment.
Aggregated assets of signifi cant associates (100%)
Aggregated liabilities of signifi cant associates (100%)
Aggregated revenues of signifi cant associates (100%)
Results of associates
Share of associates profi t before income tax
Share of income tax expense
Share of associates net profi t – as disclosed by associates
Adjustments1
Share of associates net profi t accounted for using the equity method
2011
$m
131,297
119,664
6,898
2010
$m
116,107
106,589
5,812
Consolidated
2011
$m
476
(121)
355
81
436
2010
$m
435
(114)
321
79
400
1 The results differ from the published results of these entities due to the application of IFRS, Group Policies and acquisition adjustments.
40: Interests in Joint Venture Entities
On 30 November 2009, the Group acquired the remaining 51% shareholding in the ANZ-ING joint ventures in Australia and New Zealand, taking
its ownership interest to 100%. The year ended 30 September 2010 includes the fi nancial impact of full ownership since 30 November 2009.
For the period 1 October 2009 to 30 November 2009, the investments were accounted for as joint ventures.
Retained profi ts attributable to the joint venture entity
At the beginning of the year
At the end of the year
Movement in the carrying amount of the joint venture entity
Carrying amount at the commencement of the year
Share of net profi t
Transfer to shares in controlled entity
Adjustment for exchange fl uctuations
Carrying amount at the end of the year
Share of revenues, expenses and results
Revenues
Expenses
Profi t before income tax
Income tax (expense)/benefi t
Profi t after income tax
Net equity accounted profi t
184
ANZ Annual Report 2011
OnePath Australia
OnePath NZ
Consolidated
Total
2011
$m
n/a
n/a
–
–
–
–
–
–
–
–
–
–
–
2010
$m
483
n/a
1,649
28
(1,677)
–
–
87
(51)
36
(8)
28
28
2011
$m
n/a
n/a
–
–
–
–
–
–
–
–
–
–
–
2010
$m
68
n/a
204
5
(201)
(8)
–
16
(12)
4
1
5
5
2011
$m
n/a
n/a
–
–
–
–
–
–
–
–
–
–
–
2010
$m
551
n/a
1,853
33
(1,878)
(8)
–
103
(63)
40
(7)
33
33
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
41: Securitisations
The Group enters into transactions in the normal course of business by which it transfers fi nancial assets directly to third parties or to special
purpose entities. These transfers may give rise to the full or partial derecognition of those fi nancial assets.
Full derecognition occurs when the Group transfers its contractual right to receive cash fl ows from the fi nancial assets, or retains the right but
assumes an obligation to pass on the cash fl ows from the asset, and transfers substantially all the risks and rewards of ownership. These risks
include credit, interest rate, currency, prepayment and other price risks.
Partial derecognition occurs when the Group sells or otherwise transfers fi nancial assets in such a way that some but not substantially all of
the risks and rewards of ownership are transferred but control is retained. These fi nancial assets continue to be recognised on the balance
sheet to the extent of the Group’s continuing involvement.
The following table summarises the Group’s securitisation activities for Group-originated assets for the period. The securitisation activity relates
to an internal residential mortgage securitisation creating instruments eligible for repurchase arrangements with the Reserve Bank of Australia.
Carrying amount of assets securitised (sold) during the year
Net cash proceeds received
Retained interests
Gain/(loss) on securitisation/sale (pre-tax)
1 The balances are nil as the Company balances relate to transfers to an internal securitisation vehicle.
Consolidated1
2011
$m
2010
$m
–
–
–
–
–
–
–
–
The Company
2011
$m
6,275
–
(6,275)
–
2010
$m
7,001
–
(7,001)
–
Group-originated fi nancial assets that do not qualify for derecognition typically relate to loans that have been securitised under arrangements
by which the Group retains a continuing involvement in the transferred assets. Continuing involvement may entail: retaining the rights to future
cash fl ows arising from the assets after investors have received their contractual terms; providing subordinated interests; liquidity support;
continuing to service the underlying asset; and entering into derivative transactions with the securitisation vehicles. In such instances, the Group
continues to be exposed to risks associated with these transactions.
The table below sets out the balance of assets transferred by the Company to special purpose entities, that are consolidated by the Group,
that continue to be recognised by the Company because they do not qualify for derecognition.
Securitisation
Current carrying amount of assets recognised
Carrying amount of associated liabilities
1 The balances are nil as the Company balances relate to transfers to an internal securitisation vehicle.
42: Fiduciary Activities
The Group conducts various fi duciary activities as follows:
Consolidated1
The Company
2011
$m
–
–
2010
$m
–
–
2011
$m
31,280
31,280
2010
$m
30,582
30,582
Investment fi duciary activities for trusts
The Group conducts investment fi duciary activities for trusts, including deceased estates. These trusts have not been consolidated as the Group
does not have direct or indirect control.
Where the Company or its controlled entities incur liabilities in respect of these operations as trustee, where the primary obligation is incurred in
an agency capacity as trustee of the trust rather than on the Group’s own account, a right of indemnity exists against the assets of the applicable
funds or trusts. As these assets are suffi cient to cover the 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 fi nancial statements.
The aggregate amounts of funds concerned are as follows:
Trusteeships
2011
$m
3,418
2010
$m
3,434
Notes to the Financial Statements 185
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
42: Fiduciary Activities (continued)
Funds management activities
Funds management activities are conducted through Group controlled entities OnePath Australia Limited and OnePath Holdings (NZ) Limited and
certain other subsidiaries of the Group. Funds under management in these entities are included in these consolidated fi nancial statements where
they are controlled by the Group.
The aggregate funds under management which are not included in these consolidated fi nancial statements are as follows:
OnePath Australia Limited
OnePath Holdings (NZ) Limited
Other controlled entities – New Zealand
Other controlled entities – Australia
2011
$m
6,420
5,271
6,295
50
2010
$m
7,988
5,655
5,885
62
18,036
19,590
Custodian services activities
On 18 November 2010, the Transitional Service Agreement with JPMorgan Chase Bank, National Association concluded. At 30 September 2011,
ANZ Custodian Services has been formally decommissioned with a small number of residual assets (immaterial in value) in the name of
ANZ Nominees Limited remaining.
Consolidated
2011
$m
2010
$m
The Company
2011
$m
2010
$m
58
3
–
61
325
785
392
58
3
1
62
327
729
389
31
2
–
33
263
674
369
23
3
1
27
263
605
366
1,502
1,445
1,306
1,234
52
78
–
130
1,632
1,693
45
76
–
121
1,566
1,628
44
72
–
116
1,422
1,455
38
70
–
108
1,342
1,369
43: Commitments
Property
Capital expenditure
Contracts for outstanding capital expenditure
Not later than 1 year
Later than one year but not later than 5 years
Later than 5 years
Total capital expenditure commitments1
Lease rentals
Land and buildings
Not later than 1 year
Later than one year but not later than 5 years
Later than 5 years
Furniture and equipment
Not later than 1 year
Later than one year but not later than 5 years
Later than 5 years
Total lease rental commitments
Total commitments
1 Relates to premises and equipment.
186
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets
CREDIT RELATED COMMITMENTS GUARANTEES AND CONTINGENT LIABILITIES
Credit related commitments
Facilities provided
Undrawn facilities
Australia
New Zealand
Asia Pacifi c, Europe & America
Total
Consolidated
The Company
Contract
amount
2011
$m
Contract
amount
2010
$m
Contract
amount
2011
$m
Contract
amount
2010
$m
137,889
124,029
117,107
106,403
80,013
15,569
42,307
78,410
14,200
31,419
79,919
–
37,188
78,207
–
28,196
137,889
124,029
117,107
106,403
Guarantees and contingent liabilities
Details of the estimated maximum amount of guarantees and contingent liabilities that may become payable are disclosed on the following
pages. These guarantees and contingent liabilities relate to transactions that the Group has entered into as principal.
Documentary letters of credit involve the issue of letters of credit guaranteeing payment in favour of an exporter secured against an underlying
shipment of goods or backed by a confi rmatory letter of credit from another bank.
Performance related contingencies are liabilities that oblige the Group to make payments to a third party should the customer fail to fulfi l the
non-monetary terms of the contract.
To refl ect the risk associated with these transactions, they are subjected to the same credit origination, portfolio management and collateral
requirements for customers that apply for loans. The contract amount represents the maximum potential amount that could be lost if the
counterparty fails to meet its fi nancial obligations. As the facilities may expire without being drawn upon, the notional amounts do not
necessarily refl ect future cash requirements.
Financial guarantees
Standby letters of credit
Documentary letter of credit
Performance related contingencies
Other
Total
Australia
New Zealand
Asia Pacifi c, Europe & America
Total
Consolidated
The Company
Contract
amount
2011
$m
6,923
2,672
2,964
17,770
881
31,210
15,182
1,122
14,906
31,210
Contract
amount
2010
$m
6,313
1,991
2,498
16,103
580
27,485
14,309
975
12,201
27,485
Contract
amount
2011
$m
5,942
2,307
2,561
16,793
666
28,269
15,182
–
13,087
28,269
Contract
amount
2010
$m
5,981
1,867
2,276
15,176
445
25,745
14,309
–
11,436
25,745
Notes to the Financial Statements 187
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)
OTHER BANK RELATED CONTINGENT LIABILITIES
iii) Contingent tax liability
GENERAL
There are outstanding court proceedings, claims and possible claims
against the Group, the aggregate amount of which cannot readily
be quantifi ed. Appropriate legal advice has been obtained and,
in the light of such advice, provisions as deemed necessary have
been made. In some instances we have not disclosed the estimated
fi nancial impact as this may prejudice the interests of the Group.
i) Exception fees class action
In September 2010, litigation funder IMF (Australia) Ltd commenced
a class action against ANZ, which it said was on behalf of 27,000
ANZ customers (which may now be in excess of 30,000) and relating
to more than $50 million in exception fees charged to those
customers over the previous six years. The case is at an early stage.
ANZ is defending it. There is a risk that further claims could emerge.
ii) Securities Lending
There are ongoing developments concerning the events surrounding
ANZ’s securities lending business which may continue for some time.
There is a risk that further actions (court proceedings or regulatory
actions) may be commenced against various parties, including ANZ.
The potential impact or outcome of future claims (if any) cannot
presently be ascertained. ANZ would review and defend any claim,
as appropriate.
On 4 July 2008, ANZ appointed a receiver and manager to
Primebroker Securities Limited (Primebroker). On 31 August 2009,
an Associate Justice set aside some statutory demands served by the
receiver and said that, among other things, ANZ’s appointment of
the receiver to Primebroker was invalid. The receiver is appealing the
decision. ANZ has joined in the appeal.
Separately:
On 14 April 2010, the liquidator of Primebroker fi led an action
against ANZ, alleging (among other things) that a charge created
on 12 February 2008 is void against the liquidators. The action
initially claimed $98 million and was subsequently increased to
$177 million (plus interest and costs) from ANZ.
On 15 July 2010, Primebroker and some associated companies
brought an action against parties including ANZ, seeking
approximately $150 million and certain unquantifi ed amounts.
The allegations include misleading or deceptive conduct, wrongful
appointment of receivers, and failure to perform an alleged equity
investment agreement.
ANZ is defending these actions.
The Australian Taxation Offi ce (ATO) is reviewing the taxation
treatment of certain transactions, undertaken by the Group in
the course of normal business activities.
Risk reviews are also being undertaken by revenue authorities
in other jurisdictions, as part of normal revenue authority activity
in those countries.
The Group has assessed these and other taxation claims arising
in Australia and elsewhere, including seeking independent advice
where appropriate, and considers that it holds appropriate provisions.
iv) Interbank Deposit Agreement
ANZ has entered into an Interbank Deposit Agreement with the
major banks in the payment system. This agreement is a payment
system support facility certifi ed by the Australian Prudential
Regulation authority, where the terms are such that if any bank is
experiencing liquidity problems, the other participants are required
to deposit equal amounts of up to $2 billion for a period of 30 days.
At the end of 30 days the deposit holder has the option to repay the
deposit in cash all by way of assignment of mortgages to the value
of the deposit.
v) Clearing and settlement obligations
In accordance with the clearing and settlement arrangements set out:
in the Australian Payments Clearing Association Limited’s
Regulations for the Australian Paper Clearing System, the Bulk
Electronic Clearing System, the Consumer Electronic Clearing
System and the High Value Clearing System (HVCS), the Company
has a commitment to comply with rules which could result in a
bilateral exposure and loss in the event of a failure to settle by a
member institution; and
in the Austraclear System Regulations (Austraclear) and the CLS
Bank International Rules, the Company has a commitment to
participate in loss-sharing arrangements in the event of a failure
to settle by a member institution.
For HVCS and Austraclear, the obligation arises only in limited
circumstances.
188
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)
vi) Deed of Cross Guarantee in respect of certain controlled entities
Pursuant to class order 98/1418 (as amended) dated 13 August 1998, relief was granted to a number of wholly owned controlled entities
from the Corporations Act 2001 requirements for preparation, audit, and publication of individual fi nancial statements. The results of these
companies are included in the consolidated Group results. The entities to which relief was granted are:
ANZ Properties (Australia) Pty Ltd1
ANZ Capital Hedging Pty Ltd1
Alliance Holdings Pty Ltd1
1 Relief originally granted on 21 August 2001.
2 Relief originally granted on 13 August 2002.
3 Relief originally granted on 9 September 2003.
4 Relief originally granted on 2 September 2008.
5 Relief originally granted on 11 February 2009.
ANZ Orchard Investments Pty Ltd2
ANZ Securities (Holdings) Limited3
ANZ Commodity Trading Pty Ltd4
ANZ Funds Pty Ltd1
Votraint No. 1103 Pty Ltd2
ANZ Nominees Ltd5
It is a condition of the class order that the Company and each of the above controlled entities enter into a Deed of Cross Guarantee. A Deed
of Cross Guarantee under the class order was executed by them and lodged with the Australian Securities and Investments Commission. The
Deed of Cross Guarantee is dated 1 March 2006. The eff ect 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 Act 2001. If a winding up occurs,
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. The consolidated statement of comprehensive income and consolidated balance
sheet of the Company and its wholly owned controlled entities which have entered into the Deed of Cross Guarantee are:
Profi t before tax
Income tax expense
Profi t after income tax
Foreign exchange diff erences taken to equity, net of tax
Change in fair value of available-for-sale
fi nancial assets, net of tax
Change in fair value of cash fl ow hedges, net of tax
Actuarial gains/(loss) on defi ned benefi t plans, net of tax
Other comprehensive income, net of tax
Total comprehensive income
Retained profi ts at start of year
Profi t after income tax
Adjustments to opening retained earnings on adoption of
revised accounting standard AASB 3(R)
Ordinary share dividends provided for or paid
Transfer from reserves
Actuarial gains/(loss) on defi ned benefi t plans after tax
Retained profi ts at end of year
Assets
Liquid assets
Available-for-sale assets/investment securities
Net loans and advances
Other assets
Premises and equipment
Total assets
Liabilities
Deposits and other borrowings
Income tax liability
Payables and other liabilities
Provisions
Total liabilities
Net assets
Shareholders’ equity1
Consolidated
2011
$m
5,809
(1,476)
4,333
103
26
121
24
274
4,607
13,047
4,333
–
(3,491)
1
24
2010
$m
5,612
(1,449)
4,163
(391)
70
40
(18)
(299)
3,864
11,596
4,163
(39)
(2,667)
12
(18)
13,914
13,047
20,556
19,017
323,286
140,299
1,539
504,697
307,254
1,169
161,097
798
16,075
16,973
280,439
133,948
1,545
448,980
252,519
1,069
162,555
831
470,318
416,974
34,379
34,379
32,006
32,006
1 Shareholders’ equity excludes retained profits and reserves of controlled entities within the class order.
Notes to the Financial Statements 189
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)
vii) Sale of Grindlays businesses
On 31 July 2000, ANZ completed the sale to Standard Chartered
Bank (SCB) of ANZ Grindlays Bank Limited and the private banking
business of ANZ in the United Kingdom and Jersey, together with
ANZ Grindlays (Jersey) Holdings Limited and its subsidiaries,
for USD1.3 billion in cash. ANZ provided warranties and certain
indemnities relating to those businesses and, where it was
anticipated that payments would be likely under the warranties
or indemnities, made provisions to cover the anticipated liability.
The issues below have not impacted adversely the reported results.
All settlements, penalties and costs have been covered within the
provisions established at the time.
FERA
In 1991 certain amounts were transferred from non-convertible
Indian Rupee accounts maintained with Grindlays in India. These
transactions may not have complied with the provisions of the
Foreign Exchange Regulation Act, 1973. Grindlays, on its own
initiative, brought these transactions to the attention of the Reserve
Bank of India. The Indian authorities served notices on Grindlays
and certain of its offi cers in India and civil penalties have been
imposed which are the subject of appeals. Criminal prosecutions are
pending and will be defended. The amounts in issue are not material.
Tax Indemnity
ANZ provided an indemnity relating to tax liabilities of Grindlays
(and its subsidiaries) and the Jersey Sub-Group to the extent to
which such liabilities were not provided for in the Grindlays accounts
as at 31 July 2000. Claims have been made under this indemnity,
with no material impact on the Group expected.
CONTINGENT ASSETS
National Housing Bank
In 1992, Grindlays received a claim aggregating to approximately
Indian Rupees 5.06 billion from the National Housing Bank (NHB)
in India. The claim arose out of cheques drawn by NHB in favour of
Grindlays, the proceeds of which were credited to the account of
a Grindlays customer.
Grindlays won an arbitration award in March 1997, under which
NHB paid Grindlays an award of Indian Rupees 9.12 billion. NHB
subsequently won an appeal to the Special Court of Mumbai, after
which Grindlays fi led an appeal with the Supreme Court of India.
Grindlays paid the disputed money including interest into court.
Ultimately, the parties settled the matter and agreed to share the
monies paid into court which by then totalled Indian Rupees
16.45 billion (AUD 661 million at 19 January 2002 exchange rates),
with Grindlays receiving Indian Rupees 6.20 billion (AUD 248 million
at 19 January 2002 exchange rates) of the disputed monies.
ANZ in turn received a payment of USD124 million (USD equivalent
of the Indian Rupees received by Grindlays) from Standard Chartered
Bank under the terms of an indemnity given in connection with the
sale of Grindlays to Standard Chartered Bank.
ANZ recovered $114 million in 2006 from its insurers in respect
of the above.
In addition, ANZ is entitled to share with NHB in the proceeds of
any recovery from the estate of the customer whose account was
credited with the cheques drawn from NHB. However, the Indian
Taxation Department is claiming a statutory priority to all of the funds
available for distribution to creditors of that customer. The Special
Court passed an order in late 2007 scaling down the Income Taxation
Department’s priority, however, that order has been partially set
aside on appeal by the Supreme Court of India. The matter has been
remanded to the Special Court for deliberation on certain issues.
190
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
45: Superannuation and Other Post Employment Benefi t Schemes
Description of the Group’s post employment benefi t schemes
The Group has established a number of pension, superannuation and post retirement medical benefi t schemes throughout the world.
The Group may be 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 are:
Scheme
Scheme type
Country
Australia
ANZ Australian Staff
Superannuation Scheme1,2
Defi ned contribution scheme
Section C3 or
Defi ned contribution scheme
Section A or
Defi ned benefi t scheme
Pension Section4
Defi ned benefi t scheme5 or
Contribution levels
Employee/
participant
Employer
Optional8
Balance of cost10
Optional
9% of salary11
Nil
Nil
Balance of cost12
Balance of cost13
Defi ned contribution scheme
Minimum of
2.5% of salary
7.5% of salary14
Defi ned benefi t scheme6 or
5.0% of salary
Balance of cost15
Defi ned contribution scheme7
Minimum of
2.0% of salary
11.5% of salary16
Defi ned benefi t scheme7
5.0% of salary9
Balance of cost17
New Zealand
ANZ National Bank Staff Superannuation
Scheme (formerly ANZ Group (New Zealand)
Staff Superannuation Scheme)1,2
National Bank Staff
Superannuation Fund1,2
United Kingdom
ANZ UK Staff
Pension Scheme1
Balance of cost: the Group’s contribution is assessed by the actuary after taking account of members’ contributions and the value of the
schemes’ assets.
These schemes provide for pension benefits.
These schemes provide for lump sum benefits.
1
2
3 Closed to new members in 1997.
4 Closed to new members. Operates to make pension payments to retired members or their dependants.
5 Closed to new members on 31 March 1990. Operates to make pension payments to retired members of that section of the scheme or their dependants.
6 Closed to new members on 1 October 1991.
7 Closed to new members on 1 October 2004.
8 Optional but with minimum of 1% of salary.
9
10 As determined by the Trustee on the recommendation of the actuary – currently 9% (2010: 9%) of members’ salaries.
11 2010: 9% of salary.
12 As determined by the Trustee on the recommendation of the actuary – currently nil (2010: nil).
13 As recommended by the actuary – currently nil (2010: nil).
14 2010: 7.5% of salary.
15 As recommended by the actuary – currently 24.8% (2010: 24.8%) of members’ salaries and additional contributions of NZD 5 million p.a.
16 2010: 11.5% of salary.
17 As agreed by the Trustee and Group after taking the advice of the actuary – currently 26% (2010: 26%) of pensionable salaries and additional quarterly contributions of GBP 7.5 million
From 1 October 2003, all member contributions are at a rate of 5% of salary.
until December 2015.
Notes to the Financial Statements 191
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
45: Superannuation and Other Post Employment Benefi t Schemes (continued)
Funding and contribution information for the defi ned benefi t sections of the schemes
The funding and contribution information for the defi ned benefi t sections of the schemes as extracted from the schemes’ most recent fi nancial
reports is set out below.
In this fi nancial report, the net (liability)/asset arising from the defi ned benefi t obligation recognised in the balance sheet has been determined
in accordance with AASB 119 Employee Benefi ts. However, the excess or defi cit of the net market value of assets over accrued benefi ts
shown below has been determined in accordance with AAS 25 Financial Reporting by Superannuation Plans. The excess or defi cit for funding
purposes shown below diff ers from the net (liability)/asset in the balance sheet because AAS 25 prescribes a diff erent measurement date and
basis to those used for AASB 119 purposes.
2011 Schemes
ANZ Australian Staff Superannuation Scheme Pension Section1
ANZ UK Staff Pension Scheme1
ANZ UK Health Benefi ts Scheme4
ANZ National Bank Staff Superannuation Scheme2
National Bank Staff Superannuation Fund3
Other5,6
Total
Accrued
benefi ts*
$m
27
912
6
4
296
39
Net market
value of
assets held
by scheme
$m
Excess/(defi cit)
of net
market value
of assets over
accrued benefi ts
$m
17
727
–
4
282
29
(10)
(185)
(6)
–
(14)
(10)
(225)
1,284
1,059
* Determined in accordance with AAS 25 Financial Reporting by Superannuation Plans, which prescribes a different measurement date and basis to those applied in this financial report under
AASB 119 Employee Benefits. Under AASB 119, the discount rates used are based on prevailing government and corporate bond rates at the reporting date (30 September 2011), rather than
the expected return on scheme assets as at the most recent actuarial valuation date (set out below) as prescribed by AAS 25.
1 Amounts were measured at 31 December 2010.
2 Amounts were measured at 31 December 2010.
3 Amounts were measured at 31 March 2011.
4 Amounts were measured at 30 September 2011.
5 Amounts were measured at 30 September 2011.
6 Other includes the defined benefit arrangements in Japan, Philippines and Taiwan.
2010 Schemes
ANZ Australian Staff Superannuation Scheme Pension Section1
ANZ UK Staff Pension Scheme1
ANZ UK Health Benefi ts Scheme4
ANZ National Bank Staff Superannuation Scheme2
National Bank Staff Superannuation Fund3
Other5,6
Total
Net market
value of
assets held
by scheme
$m
Excess/(defi cit)
of net
market value
of assets over
accrued benefi ts
$m
20
662
–
5
261
25
973
(9)
(241)
(6)
–
(15)
(7)
(278)
Accrued
benefi ts*
$m
29
903
6
5
276
32
1,251
* Determined in accordance with AAS 25 Financial Reporting by Superannuation Plans, which prescribes a different measurement date and basis to those applied in this financial report under
AASB 119 Employee Benefits. Under AASB 119, the discount rates used are based on prevailing government and corporate bond rates at the reporting date (30 September 2010), rather than
the expected return on scheme assets as at the most recent actuarial valuation date (set out below) as prescribed by AAS 25.
1 Amounts were measured at 31 December 2009.
2 Amounts were measured at 31 December 2007.
3 Amounts were measured at 31 March 2010.
4 Amounts were measured at 30 September 2010.
5 Amounts were measured at 30 September 2007 and 30 September 2010 (as applicable).
6 Other includes the defined benefit arrangements in Japan, Philippines and Taiwan.
Employer contributions to the defi ned benefi t sections are based on recommendations by the schemes’ actuaries. Funding recommendations
are made by the actuaries based on assumptions of various matters such as future investment performance, interest rates, salary increases,
mortality rates and turnover levels. The funding methods adopted by the actuaries are intended to ensure that the benefi t entitlements of
employees are fully funded by the time they become payable.
The Group expects to make contributions of $58 million (2010: $60 million) to the defi ned benefi t sections of the schemes during the next
fi nancial year.
192
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
45: Superannuation and Other Post Employment Benefi t Schemes (continued)
The current contribution recommendations for the major defi ned sections of the schemes are described below.
ANZ Australian Staff Superannuation Scheme Pension Section
The Pension Section of the ANZ Australian Staff Superannuation Scheme is closed to new members. A full actuarial valuation, conducted by
consulting actuaries Russell Employee Benefi ts as at 31 December 2010, showed a defi cit of $10 million and the actuary recommended that the
Group make contributions to the Pension Section of $1.2 million p.a. for the three years to 31 December 2013. The next full actuarial valuation is
due to be conducted as at 31 December 2013.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return
Pension indexation rate
8% p.a.
3% p.a.
The Group has no present liability under the Scheme’s Trust Deed to commence contributions or fund the defi cit.
ANZ UK Staff Pension Scheme
An interim actuarial valuation, conducted by consulting actuaries Towers Watson, as at 31 December 2010 showed a defi cit of GBP 115 million
($185 million at 30 September 2011 exchange rates).
Following the actuarial valuation as at 31 December 2010, the Group agreed to make regular contributions at the rate of 26% of pensionable
salaries. These contributions are suffi cient to cover the cost of accruing benefi ts. To address the defi cit, the Group agreed to continue to pay
additional quarterly contributions of GBP 7.5 million. These contributions will be reviewed following the next actuarial valuation which is
scheduled to be undertaken as at 31 December 2012.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return on existing assets
– to 31 December 2018
– to 31 December 2033
Rate of investment return for determining ongoing contributions
Salary increases
Pension increases
In deferment increases
5.3% p.a.
4.0% p.a.
7.2% p.a.
5.3% p.a.
3.5% p.a.
2.8% p.a.
The Group has no present liability under the Scheme’s Trust Deed to fund the defi cit measured under AAS 25. A contingent liability may arise
in the event that the Scheme was wound up. If this were to happen, the Trustee would be able to pursue the Group for additional contributions
under the UK Employer Debt Regulations. The Group intends to continue the Scheme on an on-going basis.
National Bank Staff Superannuation Fund
A full actuarial valuation of the National Bank Staff Superannuation Fund, conducted by consulting actuaries AON Consulting NZ, as at
31 March 2011 showed a defi cit of NZD 18 million ($14 million at 30 September 2011 exchange rates). The actuary recommended that
the Group make contributions of 24.8% of salaries plus a lump sum contribution of NZD 5 million p.a. (net of employer superannuation
contribution tax) in respect of members of the defi ned benefi t section.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return (net of income tax)
Salary increases
Pension increases
5.5% p.a.
3.0% p.a.
2.5% p.a.
The Group has no present liability under the Fund’s Trust Deed to fund the defi cit measured under AAS 25. A contingent liability may arise in
the event that the Fund was wound up. Under the Fund’s Trust Deed, if the Fund were wound up, the Group is required to pay the Trustees of
the Fund an amount suffi cient to ensure members do not suff er a reduction in benefi ts to which they would otherwise be entitled. The Group
intends to continue the Fund on an on-going basis.
The basis of calculation under AASB119 is detailed in note 1 F(vii) and on page 98.
Notes to the Financial Statements 193
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
45: Superannuation and Other Post Employment Benefi t Schemes (continued)
The following tables summarise the components of the expense recognised in the income statement and the amounts recognised in the
balance sheet under AASB 119 for the defi ned benefi t sections of the schemes:
Amount recognised in income in respect of defi ned benefi t schemes
Current service cost
Interest cost
Expected return on assets
Adjustment for contributions tax
Total included in personnel expenses
Amounts recognised in the balance sheet in respect of defi ned benefi t schemes
Present value of funded defi ned benefi t obligation
Fair value of scheme assets
Net liability arising from defi ned benefi t obligation
Amounts recognised in the balance sheet
Payables and other liabilities
Net liability arising from defi ned benefi t obligation
Amounts recognised in equity in respect of defi ned benefi t schemes
Actuarial (gains)/losses incurred during the year and recognised directly in retained earnings
Cumulative actuarial (gains)/losses recognised directly in retained earnings
Consolidated
2011
$m
2010
$m
The Company
2011
$m
2010
$m
8
50
(47)
2
13
6
56
(50)
2
14
(1,033)
885
(148)
(1,059)
873
(186)
(148)
(148)
15
244
(186)
(186)
6
229
6
42
(41)
–
7
(857)
775
(82)
(82)
(82)
(34)
173
5
48
(44)
–
9
(928)
761
(167)
(167)
(167)
26
207
The Group has a legal liability to fund defi cits in the schemes, but no legal right to use any surplus in the schemes to further its own interests.
The Group has no present liability to settle defi cits with an immediate contribution. For more information about the Group’s legal liability to
fund defi cits, refer to the earlier description of the current contribution recommendations for the schemes.
Movements in the present value of the defi ned benefi t obligation in the relevant period
Opening defi ned benefi t obligation
Current service cost
Interest cost
Contributions from scheme participants
Actuarial (gains)/losses
Liabilities assumed in business combination
Exchange diff erence on foreign schemes
Benefi ts paid
Closing defi ned benefi t obligation
Movements in the fair value of the scheme assets in the relevant period
Opening fair value of scheme assets
Expected return on scheme assets
Actuarial gains/(losses)
Exchange diff erence on foreign schemes
Contributions from the employer
Contributions from scheme participants
Benefi ts paid
Assets acquired in business combination
Closing fair value of scheme assets1
Actual return on scheme assets
1,059
8
50
1
(10)
–
(18)
(57)
1,033
873
47
(25)
(13)
59
1
(57)
–
885
22
1,095
6
56
–
42
21
(103)
(58)
1,059
849
50
36
(83)
59
1
(58)
19
873
86
928
6
42
–
(55)
–
(22)
(42)
857
761
41
(21)
(17)
53
–
(42)
–
775
20
938
5
48
–
52
21
(92)
(44)
928
738
44
26
(75)
53
–
(44)
19
761
70
1 Scheme assets include the following financial instruments issued by the Group: cash and short-term debt instruments $1 million (September 2010: $1.6 million), fixed interest securities
$0.6 million (September 2010: $0.5 million) and equities nil (September 2010: nil).
Analysis of the scheme assets
Equities
Debt securities
Property
Other assets
Total assets
194
ANZ Annual Report 2011
Consolidated
Fair value of scheme
assets
The Company
Fair value of scheme
assets
2011
%
36
47
8
9
100
2010
%
39
39
8
14
100
2011
%
34
48
9
9
100
2010
%
37
39
9
15
100
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
45: Superannuation and Other Post Employment Benefi t Schemes (continued)
Key actuarial assumptions used (expressed as weighted averages)
Discount rate
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
ANZ UK Health Benefi ts Scheme
ANZ National Bank Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Expected rate of return on scheme assets
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
ANZ UK Health Benefi ts Scheme
ANZ National Bank Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Future salary increases
ANZ UK Staff Pension Scheme
National Bank Staff Superannuation Fund
Future pension increases
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
– In payment
– In deferment
ANZ National Bank Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Future medical cost trend – short-term
ANZ UK Health Benefi ts Scheme
Future medical cost trend – long-term
ANZ UK Health Benefi ts Scheme
2011
%
2010
%
4.25
5.40
5.40
4.40
4.40
8.00
5.30
n/a
4.50
5.50
4.90
3.00
2.75
3.10
2.10
2.50
2.50
4.50
6.50
5.00
5.00
5.00
6.00
6.00
8.00
5.60
n/a
4.50
5.50
5.00
3.00
2.50
3.20
2.70
2.50
2.50
4.50
4.00
To determine the expected returns of each of the asset classes held by the relevant scheme, the actuaries assessed historical return trends and market
expectations for the asset class returns applicable for the period over which the obligation is to be settled. The overall expected rate of return on
assets for each scheme was then determined as the weighted average of the expected returns for the classes of assets held by the relevant scheme.
Assumed medical cost trend rates do not have a material eff ect on the amounts recognised as income or included in the balance sheet.
Consolidated
The Company
2011
$m
2010
$m
2009
$m
2008
$m
2007
$m
2011
$m
2010
$m
2009
$m
2008
$m
2007
$m
History of experience adjustments
Defi ned benefi ts obligation
Fair value of scheme assets
Surplus/(defi cit)
Experience adjustments on scheme liabilities
Experience adjustments on scheme assets
(1,033)
885
(148)
(11)
(25)
(1,059)
873
(186)
(2)
36
(1,095)
849
(246)
7
(49)
(1,160)
1,006
(154)
12
(195)
(1,267)
1,199
(68)
9
6
(857)
775
(82)
(10)
(21)
(928)
761
(167)
1
26
(938)
738
(200)
7
(32)
(1,003)
871
(132)
8
(177)
(1,112)
1,037
(75)
10
12
Notes to the Financial Statements 195
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
46: Employee Share and Option Plans
ANZ operates a number of employee share and option schemes
under the ANZ Employee Share Acquisition Plan and the ANZ Share
Option Plan.
ANZ EMPLOYEE SHARE ACQUISITION PLAN
ANZ Employee Share Acquisition Plan (ESAP) schemes that existed
during the 2010 and 2011 years were the $1,000 Share Plan, the
Deferred Share Plan, the Restricted Share Plan and the Employee
Share Save Scheme (ESSS). Note the ESSS is an employee salary
sacrifi ce plan and is not captured as a share based payment expense.
$1,000 Share Plan
Each permanent employee (excluding senior executives) who has
had continuous service for one year is eligible to participate in the
$1,000 scheme enabling the grant of up to $1,000 of ANZ shares
in each fi nancial year, subject to approval of the Board. At a date
approved by the Board, the shares will be granted to all eligible
employees using the one week weighted average price of ANZ
shares traded on the ASX in the week leading up to and including
the date of grant.
In Australia and three overseas locations, ANZ ordinary shares
are granted to eligible employees for nil consideration and vest
immediately when granted, as there is no forfeiture provision. It is
a requirement, however, that shares are held in trust for three years
from the date of grant, after which time they may remain in trust,
be transferred to the employee’s name or sold. In general, dividends
received on the shares are automatically reinvested into the Dividend
Reinvestment Plan.
In New Zealand shares are granted to eligible employees upon
payment of NZD one cent per share.
From 2011, shares granted in New Zealand and the remaining
overseas locations under this plan vest subject to the satisfaction of
a three year service period, after which time they may remain in trust,
be transferred into the employee’s name or sold. Unvested shares are
forfeited in the event of resignation or dismissal for serious misconduct.
Dividends are received as cash.
During the 2011 year, 1,472,882 shares with an issue price of
$23.05 were granted under the plan to employees on 6 December
2010 (2010 year: 1,344,436 shares with an issue price of $22.06 were
granted on 7 December 2009).
Deferred Share Plan
A Short Term Incentive (STI) mandatory deferral program was
implemented from 2009, with equity deferral relating to half of all STI
amounts above a specifi ed threshold. Prior to 2011, deferred equity
could be taken as 100% shares or 50% shares and 50% options. From
2011, all deferred equity is taken as 100% shares. For Management
Board members, mandatory STI equity deferral commenced in 2008
(rather than 2009). Unvested STI deferred shares are forfeited on
resignation, termination on notice or dismissal for serious misconduct.
Selected employees may also be granted Long Term Incentive (LTI)
deferred shares which vest to the employee three years from the
date of grant. Ordinary shares granted under this LTI plan may be
held in trust beyond the deferral period. Unvested LTI deferred shares
are forfeited on resignation, termination on notice or dismissal for
serious misconduct.
STI deferred shares with a two year deferral period were historically
granted under a business unit specifi c incentive plan (primarily as a
retention tool), and may be held in trust beyond the deferral period.
The fi nal grant of these shares vested 2 November 2009.
196
ANZ Annual Report 2011
In exceptional circumstances, deferred shares are granted to
certain employees upon commencement with ANZ to compensate
for remuneration forgone from their previous employer. The vesting
period generally aligns with the remaining vesting period of
remuneration forgone, and therefore varies between grants. Retention
deferred shares may also be granted occasionally to high performing
employees who are regarded as a signifi cant retention risk to ANZ.
Unvested deferred shares are forfeited on resignation, termination
on notice or dismissal for serious misconduct.
The employee receives dividends on deferred shares while those
shares are held in trust (cash or dividend reinvestment plan).
The issue price for deferred shares is based on the volume weighted
average price of the shares traded on the ASX in the week leading up
to and including the date of grant.
During the 2011 year, 6,393,787 deferred shares with a weighted
average grant price of $23.55 were granted under the deferred share
plan (2010 year: 5,511,965 shares with a weighted average grant price
of $22.83 were granted).
Restricted Share Plan
Up until 2009 eligible employees were able to elect a pre-tax sacrifi ce
of part or their entire annual cash bonus for ANZ shares. The shares
were subject to a one year restriction period, however, they could be
held in trust beyond the restriction period. The shares are subject to
forfeiture on dismissal for serious misconduct. The shares are released
to the employee on termination for any other reason. The employee
receives all dividends on these restricted shares (cash or dividend
reinvestment plan). The issue price was based on the volume weighted
average price of the shares traded on the ASX in the week leading up
to and including the date of grant.
During the 2010 and 2011 fi nancial years, no shares were granted
under the restricted share plan. The vesting date of the fi nal grant of
shares granted under the restricted share plan was 31 October 2009.
Share Valuations
The fair value of shares granted in the 2011 year under the $1,000
share plan, the Deferred Share Plan and the Restricted Share Plan,
measured as at the date of grant of the shares, is $182.7 million based
on 7,866,669 shares at a volume weighted average price of $23.22
(2010 year: fair value of shares granted was $154.4 million based on
6,856,401 shares at a weighted average price of $22.52). The volume
weighted average share price of all ANZ shares sold on the ASX on
the date of grant is used to calculate the fair value of shares. No
dividends are incorporated into the measurement of the fair value
of shares.
ANZ SHARE OPTION PLAN
Selected employees may be granted options/rights, which entitle
them to acquire ordinary fully paid shares in ANZ at a price fi xed at
the time the options/rights are granted. Voting and dividend rights
will be attached to the ordinary shares allocated on exercise of the
options/rights.
Each option/right entitles the holder to one ordinary share subject
to the terms and conditions imposed on grant. The exercise price of
the options, determined in accordance with the rules of the plan, is
generally based on the weighted average price of the shares traded
on the ASX in the week leading up to and including the date of grant.
For rights, the exercise price is nil.
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
46: Employee Share and Option Plans (continued)
The option plan rules set out the entitlements a holder of options/
rights has prior to exercise in the event of a bonus issue, pro-rata
new issue or reorganisation of ANZ’s share capital. In summary:
if ANZ has issued bonus shares during the life of an option and
prior to the exercise of the option, then when the option is
exercised the option holder is also entitled to be issued such
number of bonus shares as the holder would have been entitled
to if the option holder had held the underlying shares at the time
of the bonus issue;
if ANZ makes a pro-rata off er of securities during the life of an
option and prior to the exercise of the option, the exercise price
of the option will be adjusted in the manner set out in the Listing
Rules; and
in respect of rights, if there is a bonus issue or reorganisation of
the Bank’s share capital, the number of rights or the number of
underlying shares may be adjusted so that there is no advantage
or disadvantage to the holder.
Holders otherwise have no other entitlements to participate in any
new issue of ANZ securities prior to exercise of their options/rights.
Holders also have no right to participate in a share issue of a body
corporate other than ANZ (e.g. a subsidiary).
ANZ Share Option Plan schemes expensed in the 2010 and 2011
years are as follows:
Current Option Plans
Performance Rights Plan (excluding CEO Performance Rights)
Performance rights are granted to selected employees as part of ANZ’s
LTI program. The fi rst grant of performance rights was in November
2005, and provides the right to acquire ANZ shares at nil cost, subject
to a three year vesting period and a Total Shareholder Return (TSR)
performance hurdle. The proportion of LTI performance rights that
become exercisable will depend upon the TSR achieved by ANZ
relative to a comparator group of major fi nancial services companies,
measured over the same period (since grant) and calculated at the
third anniversary of grant. An averaging calculation is used for TSR
over a 90 day period for start and end values in order to reduce the
impact of share price volatility. Performance equal to the median
TSR of the comparator group will result in half the performance rights
becoming exercisable. Vesting will increase on a straight-line basis
until all of the performance rights become exercisable where ANZ TSR
is at or above the 75th percentile of TSRs in the comparator group.
Where ANZ’s performance falls between two of the comparators, TSR
is measured on a pro-rata basis. The performance hurdle will only be
tested once at the end of the three year vesting period. If the
performance rights do not pass the hurdle on the testing date, or they
are not exercised by the end of the exercise period (fi ve years from the
date of grant), they will lapse.
The provisions that apply in the case of cessation of employment
are detailed in Section 3.2 Disclosed Executives’ Contract Terms in
the Remuneration Report (Audited), pages 44 to 45.
During the 2011 year, 466,133 performance rights (excluding CEO
performance rights) were granted (2010: 771,585).
CEO Performance Rights
At the 2010 Annual General Meeting shareholders approved an LTI
grant to the CEO equivalent to 100% of his 2010 TEC, being $3 million.
This equated to a total of 253,164 performance rights being allocated,
which will be subject to testing against a TSR hurdle after three years,
i.e. December 2013.
At the 2007 Annual General Meeting shareholders approved an
LTI grant consisting of three tranches of performance rights, each
to a maximum value of $3 million. The performance periods for each
tranche begin on the date of grant of 19 December 2007 and end
on the third, fourth and fi fth anniversaries respectively (i.e. only one
performance measurement for each tranche). Each tranche will only
be performance tested once at the end of the respective vesting dates.
The level of vesting for each tranche will be based on ANZ TSR
performance against a comparator group of companies consistent
with the performance rights plan. Each tranche has a one year exercise
period. The fi rst of these tranches was tested against a relative TSR
hurdle after three years, i.e. December 2010. As a result of the testing,
258,620 performance rights vested and were exercised during the year.
The provisions that apply in the case of cessation of employment
are detailed in Section 3.1 CEO’s Contract Terms in the Remuneration
Report (Audited), page 44.
CEO Options
At the 2008 Annual General Meeting, shareholders approved a
special grant to the CEO of 700,000 options, which were granted
on18 December 2008. These will be available for exercise on
18 December 2011, with the option exercise price $14.18 per share
determined at grant in line with the methodology described under
the ANZ Share Option Plan section of this note. Upon exercise, each
option entitles the CEO to one ordinary ANZ share. At grant the
options were independently valued with a fair value of $2.27 each,
i.e. a total value of $1.589 million.
The provisions that apply in the case of cessation of employment
are detailed in Section 3.1 CEO’s Contract Terms in the Remuneration
Report (Audited), page 44.
Deferred Options (no performance hurdles)
Under the STI deferral program half of all amounts above a specifi ed
threshold are provided as deferred equity. Previously deferred equity
could be taken as 100% shares or 50% shares and 50% options. From
2011, all deferred equity is taken as 100% shares (refer to Deferred
Share Plan section above).
During the 2011 year 395,564 deferred options (no performance
hurdles) were granted (2010: 210,495).
Deferred Share Rights (no performance hurdles)
Deferred share rights are granted instead of deferred shares to
accommodate off -shore taxation regulations. They provide the right
to acquire ANZ shares at nil cost after a specifi ed vesting period. The
fair value of rights is adjusted for the absence of dividends during the
restriction period. Treatment of rights in respect of cessation relates
to the purpose of the grant (refer to Deferred Share Plan and
Restricted Share Plan sections).
During the 2011 year 541,213 deferred share rights (no performance
hurdles) were granted (2010: 546,952).
Options, deferred share rights and performance rights on issue
As at 2 November 2011, there were 1,446 holders of 4,996,035 options
on issue, 625 holders of 1,167,512 deferred share rights on issue and
14 holders of 2,279,532 performance rights on issue.
Notes to the Financial Statements 197
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
46: Employee Share and Option Plans (continued)
Option Movements
Details of options/rights over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of 2011 and
movements during 2011 are set out below:
Weighted average exercise price
Opening balance
1 October 2010
Options/rights
granted
Options/rights
forfeited
Options/rights
expired
Options/rights
exercised
Closing balance
30 September 2011
11,539,878
$13.01
1,656,074
$5.66
(131,689)
$12.72
(160,071)
$20.34
(3,942,613)
$10.93
8,961,579
$12.44
The weighted average share price during the year ended 30 September 2011 was $22.35 (2010: $22.92).
The weighted average remaining contractual life of options/rights outstanding at 30 September 2011 was 2.1 years (2010: 2.2 years).
The weighted average exercise price of all exercisable options/rights outstanding at 30 September 2011 was $20.87 (2010: $19.43).
A total of 4,286,317 exercisable options/rights were outstanding at 30 September 2011 (2010: 6,551,277).
Details of options/rights over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of 2010 and
movements during 2010 are set out below:
Weighted average exercise price
Opening balance
1 October 2009
Options/rights
granted
Options/rights
forfeited
Options/rights
expired
Options/rights
exercised
Closing balance
30 September 2010
15,129,013
$14.80
1,529,032
$3.14
(657,491)
$12.30
(1,862,160)
$17.54
(2,598,516)
$14.57
11,539,878
$13.01
No options/rights over ordinary shares have been granted since the end of 2011 up to the signing of the Directors’ Report on 2 November 2011.
Details of shares issued as a result of the exercise of options/rights during 2011 are as follows:
Exercise price
$
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
No. of shares issued
12,481
185,723
10,421
9,623
1,662
15,420
648,296
6,089
119,251
17,351
22,633
258,620
82
33,459
83,197
65,687
12,696
78,422
5,095
13,152
Proceeds received
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Exercise price
$
0.00
0.00
0.00
0.00
17.55
17.55
18.22
18.22
20.68
20.68
20.68
23.49
17.18
17.18
17.18
17.18
17.18
17.18
22.80
No. of shares issued
3,118
5,347
2,439
19
440,251
69,106
829,957
270,465
2,908
127,788
202,802
74,259
101,861
36,096
129,283
3,081
1,587
35,456
7,430
Details of shares issued as a result of the exercise of options/rights during 2010 are as follows:
0
Exercise price
$
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
17.34
17.60
No. of shares issued
370,945
9,648
9,637
9,637
23,765
9,669
17,956
223
500
50,354
9,144
7,081
192,344
525,843
Proceeds received
$
–
–
–
–
–
–
–
–
–
–
–
–
3,335,245
9,254,837
Exercise price
$
17.55
17.55
18.22
18.22
18.22
20.68
20.68
20.68
23.49
17.18
17.18
17.18
17.18
17.18
No. of shares issued
361,901
68,724
167,611
6,842
121,873
8,513
146,883
188,105
33,059
74,580
117,384
24,192
7,853
34,250
198
ANZ Annual Report 2011
Proceeds received
$
–
–
–
–
7,726,405
1,212,810
15,121,817
4,927,872
60,137
2,642,656
4,193,945
1,744,344
1,749,972
620,129
2,221,082
52,932
27,265
609,134
169,404
Proceeds received
$
6,351,363
1,206,106
3,053,872
124,661
2,220,526
176,049
3,037,540
3,890,011
776,556
1,281,284
2,016,657
415,619
134,915
588,415
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
46: Employee Share and Option Plans (continued)
Details of shares as a result of the exercise of options/rights since the end of 2011 up to the signing of the Directors’ Report on 2 November 2011
are as follows:
Exercise price
$
0.00
0.00
0.00
0.00
0.00
No. of shares issued
2,888
1,472
525
63
59
Proceeds received
$
–
–
–
–
–
Exercise price
$
0.00
20.68
20.68
17.18
No. of shares issued
25,840
408,552
31,106
12,598
Proceeds received
$
–
8,448,855
643,272
216,434
In determining the fair value below, the standard market techniques for valuation including Monte Carlo and/or Black Scholes pricing models
were applied in accordance with the requirements of AASB2. The models take into account early exercise of vested equity, non-transferability
and market based performance hurdles (if any). The signifi cant assumptions used to measure the fair value of instruments granted during 2011
are contained in the table below:
Type of equity
STI deferred options
STI deferred share rights
LTI deferred share rights
LTI performance rights
Deferred share rights
Grant date
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
17-Dec-10
12-Nov-10
6-Dec-10
10-May-11
10-May-11
25-Jul-11
25-Jul-11
25-Jul-11
25-Jul-11
29-Aug-11
29-Aug-11
29-Aug-11
Number of
options/rights
197,786
197,778
83,125
87,273
323,757
466,133
253,164
3,988
3,130
8,329
1,625
2,799
3,115
1,055
1,119
3,149
17,037
1,712
Equity
fair
value
($)
3.96
4.20
22.11
21.06
20.06
11.96
11.85
20.06
20.10
21.97
20.92
20.10
18.96
19.90
18.78
19.05
17.96
16.93
Exercise
price
(5 day
VWAP)
($)
Share
closing
price at
grant
($)
ANZ
expected
volatility1
(%)
Equity
term
(years)
Vesting
period
(years)
Expected
life
(years)
Expected
dividend
yield
(%)
Risk free
interest
rate
(%)
23.71
23.71
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
23.22
23.22
23.22
23.22
23.22
23.22
23.59
23.22
23.27
23.07
23.07
21.31
21.31
21.31
21.31
20.21
20.21
20.21
30
30
30
30
30
30
30
30
30
25
25
25
25
25
25
n/a
n/a
n/a
5
5
5
5
5
5
4
5
3
2
3
2
3
2.2
3.2
2
3
4
1
2
1
2
3
3
3
3
3
1
2
1
2
1.2
2.2
1
2
3
3
3.5
1
2
3
3
3
3
3
1
2
1
2
1.2
2.2
1
2
3
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
6.00
6.00
6.00
6.00
5.90
5.90
5.90
5.04
5.11
4.70
4.97
5.04
5.04
5.15
5.04
4.94
4.96
5.02
4.41
4.34
4.41
4.34
n/a
n/a
n/a
The signifi cant assumptions used to measure the fair value of instruments granted during 2010 are contained in the table below:
Type of Equity
STI deferred options
STI deferred share rights
LTI deferred share rights
LTI performance rights
Deferred share rights
Grant date
13-Nov-09
13-Nov-09
13-Nov-09
13-Nov-09
13-Nov-09
24-Aug-10
13-Nov-09
24-Dec-09
17-Mar-10
17-Mar-10
21-Jan-10
20-Apr-10
20-Apr-10
20-Apr-10
25-Jun-10
25-Jun-10
25-Jun-10
Number of
options/rights
105,252
105,243
96,431
101,260
310,789
2,439
371,811
57,726
168,918
173,130
3,701
8,576
3,118
3,259
8,369
2,916
6,094
Equity
fair
value
($)
4.83
5.09
21.41
20.39
19.42
22.13
12.17
11.26
14.80
14.44
20.26
23.32
24.05
23.01
21.50
20.57
19.69
Exercise
price
(5 day
VWAP)
($)
Share
closing
price at
grant
($)
ANZ
expected
volatility1
(%)
Equity
term
(years)
Vesting
period
(years)
Expected
life
(years)
Expected
dividend
yield
(%)
Risk free
interest
rate
(%)
22.80
22.80
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
22.48
22.48
22.48
22.48
22.48
22.64
22.48
22.39
24.61
24.61
23.26
25.13
25.13
25.13
22.47
22.47
22.47
39
39
35
35
35
30
35
40
40
40
n/a
35
35
35
35
35
35
5
5
5
5
5
2.5
5
5
5
6
5
3.6
3
4
3
4
5
1
2
1
2
3
0.5
3
3
3
4
3
1.6
1
2
1
2
3
3
3.5
1
2
3
1.5
3
3
3
4
3
1.6
1
2
1
2
3
5.50
5.50
5.00
5.00
5.00
4.50
5.00
4.60
4.60
4.60
4.60
4.50
4.50
4.50
4.50
4.50
4.50
5.04
5.13
4.26
4.67
5.01
4.38
5.01
4.71
5.10
5.24
n/a
4.96
4.48
4.96
4.48
4.54
4.61
1 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options/rights. The measure of volatility used in the model is the
annualised standard deviation of the continuously compounded rates of return on the historical share price over a defined period of time preceding the date of grant. This historical average
annualised volatility is then used to estimate a reasonable expected volatility over the expected life of the options/rights.
Notes to the Financial Statements 199
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
47: Key Management Personnel Disclosures
SECTION A: KEY MANAGEMENT PERSONNEL COMPENSATION
Key management personnel (KMP) are employees of the ultimate parent entity, Australia and New Zealand Banking Group Limited or its
subsidiaries. The KMP compensation included in the personnel expenses is as follows:
Short term employee benefi ts
Post employment benefi ts
Long term employee benefi ts
Termination benefi ts
Share based payments
2011
$
18,106,775
450,000
180,102
–
12,721,125
31,458,002
2010
$
18,695,781
427,625
166,949
–
11,523,031
30,813,386
SECTION B: KEY MANAGEMENT PERSONNEL LOAN TRANSACTIONS
Loans made to directors of the Company and other key management personnel of the Group are made in the ordinary course of business
on an arms length commercial basis, including the term of the loan, security required and the interest rate.
Details of loans outstanding at the reporting date to directors of the Company and other key management personnel of the Group including
their related parties, where the individuals aggregate loan balance exceeded $100,000 at any time in the year, are as follows:
Directors
Executive Director 2011
M Smith
Executive Director 2010
M Smith
Non-executive Directors 2011
P Hay
A Watkins
Non-executive Directors 2010
P Hay
A Watkins
Other key management personnel 2011
G Hodges
A Thursby
C Page
D Hisco1
Other key management personnel 2010
J Fagg2
G Hodges
A Thursby
C Page
Opening balance
1 October
$
Closing balance
30 September
$
Interest paid and
payable in the
reporting period
$
Highest balance
in the reporting
period
$
6,840,953
18,380,409
1,510,088
18,403,779
–
6,840,953
592,896
6,840,953
1,125,000
3,490,211
1,125,000
3,289,964
8,018,058
1,596,910
559,471
2,000,000
4,117,937
10,415,975
1,890,097
1,750,932
661,793
3,320,081
1,125,000
3,490,211
5,202,380
2,984,500
511,605
2,000,000
–
8,018,058
1,596,910
559,471
63,607
237,748
65,023
250,694
441,857
248,615
6,624
140,564
240,024
552,875
110,871
22,798
1,131,263
3,490,388
1,131,263
3,490,211
8,753,988
4,581,410
559,471
2,000,000
4,625,136
10,530,669
1,890,097
1,760,616
Details regarding the aggregate of loans made, guaranteed or secured by any entity in the Group to each group of Directors and other
KMP, including their related parties, are as follows:
Directors
2011
2010
Other key management personnel
2011
2010
Opening balance
1 October
$
Closing balance
30 September
$
Interest paid and
payable in the
reporting period
$
Number in
Group at
30 September3
11,456,164
4,414,964
22,362,283
11,456,164
1,811,443
908,613
12,174,439
18,174,941
10,698,485
10,174,439
837,660
926,568
3
3
4
3
1 The opening balance represents the balance on appointment as a KMP on 13 October 2010.
2 The closing balance represents the balance on cessation as a KMP on 1 September 2010.
3 Number in the Group includes directors and other KMP with loan balances greater than $100,000 at any time during the year.
200
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
47: Key Management Personnel Disclosures (continued)
SECTION C: KEY MANAGEMENT PERSONNEL EQUITY INSTRUMENT HOLDINGS
i) Options, deferred share rights and performance rights
Details of options, deferred share rights and performance rights held directly, indirectly or benefi cially by each KMP, including their related
parties, are provided below:
Name
Type of options/rights
Executive Director 2011
M Smith
Executive Director 2010
M Smith
Special options
LTI performance rights
Special options
LTI performance rights
Other Key Management Personnel 2011
P Chronican
S Elliott
Other Key Management Personnel 2010
P Chronican
S Elliott
D Hisco1
G Hodges
P Marriott
C Page
A Thursby
J Fagg2
G Hodges
P Marriott
C Page
A Thursby
LTI performance rights
STI deferred options
LTI performance rights
Hurdled options
LTI performance rights
STI deferred share rights
Hurdled options
STI deferred options
LTI performance rights
STI deferred share rights
Hurdled options
STI deferred options
LTI performance rights
Performance rights
STI deferred options
LTI performance rights
LTI performance rights
STI deferred options
LTI performance rights
Hurdled options
Index-linked options
LTI performance rights
STI deferred share rights
Hurdled options
Index-linked options
STI deferred options
LTI performance rights
STI deferred share rights
Hurdled options
Index-linked options
STI deferred options
LTI performance rights
Performance rights
STI deferred options
LTI performance rights
Opening
balance at
1 October
Granted
during the
year as
remuneration
Exercised
during
the year
Resulting from
any other change
during the year
Closing
balance at
30 September
Vested and
exercisable at
30 September3
700,000
779,002
700,000
779,002
57,726
10,614
41,084
32,506
74,631
–
52,191
33,869
149,004
5,663
136,863
48,385
149,004
72,959
164,509
146,544
–
–
–
33,316
34,155
83,794
37,722
109,181
176,000
67,739
165,260
11,004
136,863
311,000
48,385
165,260
38,038
164,509
101,351
–
253,164
–
(258,620)
–
–
–
–
54,347
138,476
45,986
–
33,444
17,383
–
–
41,806
–
–
–
41,806
–
–
45,986
57,726
10,614
41,084
–
–
41,084
8,377
–
–
–
41,084
–
–
–
–
41,084
34,921
–
45,193
–
–
–
(21,976)
(41,764)
–
(43,791)
(33,869)
(57,870)
–
(69,263)
–
(57,870)
–
–
(46,296)
–
–
–
(22,946)
–
(26,084)
–
(56,990)
–
(33,870)
(44,461)
(5,341)
–
–
–
(44,461)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(34,155)
(7,556)
–
–
(176,000)
–
(12,879)
–
–
(311,000)
–
(12,879)
–
–
–
700,000
773,546
700,000
779,002
112,073
149,090
87,070
10,530
66,311
17,383
8,400
–
132,940
5,663
67,600
48,385
132,940
72,959
164,509
146,234
57,726
10,614
41,084
10,370
–
91,238
46,099
52,191
–
33,869
149,004
5,663
136,863
–
48,385
149,004
72,959
164,509
146,544
–
–
–
–
–
5,307
–
10,003
–
–
5,400
–
–
5,663
64,220
48,385
–
–
164,509
–
–
–
–
8,782
–
–
–
43,791
–
–
–
–
127,399
–
24,193
–
–
82,255
–
1 Opening balance is based on holdings at the date of appointment as a KMP on 13 October 2010.
2 Closing balance is based on holdings at the date of cessation as a KMP on 1 September 2010.
3 No options, deferred share rights or performance rights were vested and unexercisable at 30 September 2011 (2010: nil).
Notes to the Financial Statements 201
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
47: Key Management Personnel Disclosures (continued)
ii) Shares
Details of shares held directly, indirectly or benefi cially by each KMP, including their related parties, are provided below:
Name
Non-executive directors 2011
J Morschel
G Clark
P Hay1
H Lee
I Macfarlane
D Meiklejohn
A Watkins
Non-executive directors 2010
J Morschel
G Clark
P Hay1
H Lee
I Macfarlane
D Meiklejohn
A Watkins
C Goode2
J Ellis3
Executive director 2011
M Smith
Executive director 2010
M Smith
Other Key Management Personnel 2011
P Chronican
S Elliott
G Hodges
P Marriott
D Hisco4
C Page
A Thursby
Other Key Management Personnel 2010
P Chronican5
S Elliott
G Hodges
P Marriott
J Fagg6
C Page
A Thursby
Type
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
CPS2
CPS3
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
CPS2
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
CPS2
Ordinary
Ordinary
Ordinary
CPS3
Ordinary
Ordinary
CPS3
Ordinary
Ordinary
CPS2
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Opening
balance at
1 October
Shares granted
during the year
as remuneration
Received during
the year on
exercise of
options or rights
Resulting from
any other change
during the year
Closing balance
at 30 September7
15,902
15,479
9,043
9,654
13,616
500
–
16,198
19,461
12,902
13,521
7,006
1,575
12,616
–
16,198
19,461
773,251
154,343
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,000
–
2,600
105
4,000
–
1,000
–
–
3,000
1,958
2,037
8,079
1,000
500
–
–
18,473
75
18,902
15,479
11,643
9,759
17,616
500
1,000
16,198
19,461
15,902
15,479
9,043
9,654
13,616
500
16,198
19,461
791,724
154,418
469,376
94,896
258,620
7,406
830,298
375,025
92,105
–
2,246
469,376
3,000
1,499
18,069
246,880
553,814
–
52,647
31,449
–
223,103
–
1,499
15,060
282,054
534,350
47,144
–
167,824
25,305
–
24,251
19,822
19,822
–
–
41,542
–
48,502
–
–
2,192
14,473
14,254
–
30,701
52,631
–
–
–
135,530
127,133
–
63,740
–
–
46,296
–
–
–
140,662
44,461
49,030
–
–
3,746
–
1,857
(172,316)
(64,645)
5,000
(60,000)
(1,787)
2,500
(39,671)
3,000
–
817
(190,309)
(39,251)
(11,209)
748
2,648
32,051
1,499
44,177
229,916
636,124
5,000
56,387
71,204
2,500
278,230
3,000
1,499
18,069
246,880
553,814
84,965
31,449
223,103
1 Excludes shares of 19,855 (2010: 19,855) which are held indirectly where P Hay has no beneficial interest.
2 The closing balance represents the balance on cessation as a KMP on 28 February 2010.
3 The closing balance represents the balance on cessation as a KMP on 18 December 2009.
4 The opening balance is based on holdings at the date of appointment as a KMP on 13 October 2010.
5 The opening balance is based on holdings at the date of appointment as a KMP on 30 November 2009.
6 The closing balance represents the balance on cessation as a KMP on 1 September 2010.
7 The following shares (included in the holdings above) were held on behalf of KMP (i.e. indirect beneficially held shares) as at 30 September 2011:
J Morschel – 11,860 (2010: 8,860); G Clark – 15,479 (2010: 15,479); P Hay – 11,369 (2010: 8,785); H Lee – 1,759 (2010: 1,654); J Macfarlane – 19,116 (2010: 14,116);
D Meiklejohn – 13,698 (2010: 13,698); A Watkins – 18,419 (2010: 18,419); M Smith – 150,600 (2010: 204,362); P Chronican – 26,051 (2010: nil); S Elliott – 44,177 (2010: 18,069);
D Hisco – 52,364 (2010: n/a); G Hodges – 162,916 (2010: 141,573); P Marriott – 156,072 (2010: 134,218); C Page – 59,075 (2010: 31,449); A Thursby – 278,230 (2010: 223,103).
202
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
48: Transactions with Other Related Parties
Joint Venture entities
During 2010, the Group conducted transactions with joint venture entities on terms equivalent to those on an arm’s length basis. The Group no
longer has joint venture entities.
Amounts receivable from joint venture entities
Interest revenue
Interest expense
Commissions received from joint venture entities
Cost recovered from joint venture entities
Consolidated
2011
$000
–
–
–
–
–
2010
$000
–
1,542
16,171
24,136
1,494
Associates
During the course of the fi nancial year the Company and Group conducted transactions with associates on terms equivalent to those on an
arm’s length basis as shown below:
Amounts receivable from associates
Amounts payable to associates
Interest revenue
Interest payable
Other revenue
Dividend revenue
Cost recovered from associates
Consolidated
The Company
2011
$000
56,122
70,199
4,428
1,864
2,516
80,435
1,921
2010
$000
179,265
63,935
12,118
2,893
1,105
39,474
1,413
2011
$000
26,341
3,433
–
–
2,516
78,688
255
2010
$000
35,949
3,688
5,228
–
1,105
38,169
1,413
There have been no guarantees given or received. No outstanding amounts have been written down or recorded as allowances, as they are
considered fully collectible.
Subsidiaries
During the course of the fi nancial year subsidiaries conducted transactions with each other and joint ventures and associates on terms
equivalent to those on an arm’s length basis. They are fully eliminated on consolidation. As of 30 September 2011, all outstanding amounts
are considered fully collectible.
49: Life Insurance Business
The Group conducts its life insurance business through OnePath Life Limited, OnePath Life (NZ) Limited and OnePath Insurance Services (NZ)
Limited. This note is intended to provide disclosures in relation to the life businesses conducted through these controlled entities.
SOLVENCY POSITION OF LIFE INSURER
Australian life insurers are required to hold reserves in excess of policy liabilities to meet certain solvency requirements under the Life Act.
The life insurance business in New Zealand is not governed by the Life Act as these are foreign domiciled life insurance companies. These
companies are however required to meet similar solvency tests.
The summarised solvency information below in respect of solvency requirements under the Life Act has been extracted from the fi nancial
statements prepared by OnePath Life Limited. For detailed solvency information on a statutory fund basis, users of this annual fi nancial report
should refer to the separate fi nancial statements prepared by OnePath Life Limited.
Solvency requirements as at 30 September
represented by:
– minimum termination value
– other liabilities
– solvency reserve
Assets available for solvency reserves
Coverage of solvency reserves (times)
OnePath Life Limited
2011
$m
2010
$m
29,946
31,143
28,735
855
356
619
1.74
29,966
831
346
564
1.6
Notes to the Financial Statements 203
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
49: Life Insurance Business (continued)
LIFE INSURANCE BUSINESS PROFIT ANALYSIS
Net shareholder profi t after income tax1
Net shareholder profi t after income tax is represented by:
Emergence of planned profi t margins
Diff erence between actual and assumed experience
(Loss recognition)/reversal of previous losses on groups of related products
Investment earnings on retained profi ts and capital
Net policyholder profi t in statutory funds after income tax
Net policyholder profi t in statutory funds after income tax is represented by:
Emergence of planned profi ts
Investment earnings on retained profi ts
Life insurance
contracts
Life investment
contracts
Consolidated
2011
$m
251
173
–
(10)
88
12
11
1
2010
$m
148
126
(1)
(3)
26
4
2
2
2011
$m
126
136
(15)
–
5
–
–
–
2010
$m
119
91
5
–
23
–
–
–
2011
$m
377
309
(15)
(10)
93
12
11
1
2010
$m
267
217
4
(3)
49
4
2
2
1 The 2010 comparatives represent the 10 months following of the acquisition of OnePath Life Limited and OnePath Insurance Holdings (NZ) Limited.
INVESTMENTS RELATING TO INSURANCE BUSINESS
Equity securities
Debt securities
Investments in managed investment schemes
Derivative fi nancial assets
Other investments
Total investments backing policy liabilities designated at fair value through profi t or loss1
Consolidated
2011
$m
9,980
9,040
8,913
27
1,899
29,859
2010
$m
11,520
8,738
10,037
12
1,864
32,171
1 This includes $5,033 million (2010: $5,448 million) in respect of investments relating to external unitholders. In addition, the investment balance has been reduced by $3,106 million
(2010: $2,633 million) in respect of the elimination of intercompany balances, treasury shares and the re-allocation of policyholder tax balances.
Investments held in statutory funds can only be used to meet the liabilities and expenses of that fund, or to make profi t distributions when
solvency and capital adequacy requirements of the Life Act are met. Accordingly, with the exception of permitted profi t distributions, the
investments held in the statutory funds are not available for use by other parties of the Group.
204
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
49: Life Insurance Business (continued)
INSURANCE POLICY LIABILITIES
a) Policy liabilities
Life insurance contract liabilities
Best estimate liability
Value of future policy benefi ts
Value of future expenses
Value of future premium
Value of declared bonuses
Value of future profi ts
Policyholder bonus
Shareholder profi t margin
Business valued by non-projection method1
Total net life insurance contract liabilities
Unvested policyholder benefi ts
Liabilities ceded under reinsurance contracts2 (refer note 20)
Total life insurance contract liabilities
Life investment contract liabilities3,4
Total policy liabilities
Consolidated
2011
$m
2010
$m
6,059
1,736
(8,882)
11
34
1,454
3
415
42
427
884
4,037
1,333
(6,515)
3
51
1,035
631
575
44
360
979
26,619
27,503
28,002
28,981
1 Liabilities arising under group insurance products were measured using a non-projection method in 2010. In the current year these liabilities were measured using a Margin on Services model.
2 Liabilities ceded under insurance contracts are shown as ‘other assets’.
3 Designated at fair value through profit or loss.
4 Life investment contract liabilities that relate to the capital guaranteed element is $1,946 million (2010: $2,156 million). Life investment contract liabilities subject to investment performance
guarantees is $1,107 million (2010: $1,141 million).
b) Reconciliation of movements in policy liabilities
Life investment
contracts
Life insurance
contracts
2011
$m
2010
$m
2011
$m
2010
$m
Consolidated
2011
$m
2010
$m
Policy liabilities
Gross liability at acquisition/brought forward
Movements in policy liabilities refl ected in the income statement
Deposit premium recognised as a change in life investment contract liability
Fees recognised as a change in life investment contract liabilities
Withdrawal recognised as a change in other life investment contract liability
Gross policy liability closing balance
Liabilities ceded under reinsurance1
Balance at acquisition/brought forward
Increase in reinsurance asset
Closing balance
28,002
(759)
3,834
(471)
(3,987)
26,619
27,353
948
5,264
(345)
(5,218)
28,002
–
–
–
–
–
–
Total policy liability net of reinsurance asset
26,619
28,002
979
(95)
–
–
–
884
360
67
427
457
1,091
(112)
–
–
–
979
306
54
360
619
28,981
(854)
3,834
(471)
(3,987)
27,503
360
67
427
28,444
836
5,264
(345)
(5,218)
28,981
306
54
360
27,076
28,621
1 Liabilities ceded under insurance contracts are shown as ‘other assets’.
c) Sensitivity analysis – Life investment contract liability
Market risk arises on the Group’s life insurance business in respect of contracts where an element of the liability to the policyholder is guaranteed
by the Group. The value of the guarantee is impacted by changes in underlying asset values and interest rates. As at September 2011, a 10%
decline in equity markets would have decreased profi t by $26 million (2010: $23 million) and a 10% increase would have increased profi t by
$10 million (2010: $7 million). A 1% increase in interest rates at 30 September would have decreased profi t by $16 million (2010: $15 million) and
1% decrease would have increased profi t by $10 million (2010: $7 million).
Notes to the Financial Statements 205
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
49: Life Insurance Business (continued)
METHODS AND ASSUMPTIONS LIFE INSURANCE CONTRACTS
Signifi cant actuarial methods
The eff ective date of the actuarial report on policy liabilities (which includes insurance contract liabilities and life investment contract liabilities)
and solvency requirements is 30 September 2011.
In Australia, the actuarial report was prepared by Mr Nick Kulikov, FIAA, Appointed Actuary. The actuarial reports indicate Mr Kulikov is satisfi ed
as to the accuracy of the data upon which policy liabilities have been determined.
The amount of policy liabilities has been determined in accordance with methods and assumptions disclosed in this fi nancial report and the
requirements of the Life Act, which includes applicable standards of the Australian Prudential Regulation Authority (APRA).
Policy liabilities have been calculated in accordance with Prudential Standard LPS 1.04 Valuation of Policy Liabilities issued by the Australian
Prudential Regulation Authority (APRA) in accordance with the requirements of the Life Insurance Act (LIA). For life insurance contracts the
Standard requires the policy liabilities to be calculated in a way which allows for the systematic release of planned margins as services are
provided to policyholders.
The profi t carriers used to achieve the systematic release of planned margins are based on the product groups.
In New Zealand, the actuarial report was prepared by Mr Michael Bartram FIAA FNZSA, who is a fellow of the Institute of Actuaries of Australia
and a fellow of the New Zealand Society of Actuaries. The amount of policy liabilities has been determined in accordance with Professional Standard
3: Determination of Life Insurance Policy Liabilities of the New Zealand Society of Actuaries. The actuarial reports indicate that Mr Bartram is
satisfi ed as to the accuracy of the data upon which policy liabilities have been determined.
Critical assumptions
The valuation of the policy liabilities is dependant on a number of variables including interest rate, equity prices, future expenses, mortality,
morbidity and infl ation. The critical estimates and judgments used in determining the policy liability is set out note 2 (vii), page 105.
Sensitivity analysis – life insurance contracts
The Group conducts sensitivity analyses to quantify the exposure of the life insurance contracts to risk of changes in the key underlying variables
such as interest rate, equity prices, mortality, morbidity and infl ation. The valuations included in the reported results and the Group’s best
estimate of future performance is calculated using certain assumptions about these variables. The movement in any key variable will impact
the performance and net assets of the Group and as such represents a risk. The table below illustrates how changes in key assumptions would
impact the reported profi t, policy liabilities and equity at 30 September 2011.
Variable
Impact of movement in underlying variable
Market interest rates A change in market interest rates aff ects the value placed on
future cash fl ows. This changes profi t and shareholder equity.
Expense rate
Mortality rate
Morbidity rate
An increase in the level or infl ationary growth of expenses over
assumed levels will decrease profi t and shareholder equity.
Greater mortality rates would lead to higher levels of claims
occurring, increasing associated claims cost and therefore
reducing profi t and shareholder equity.
The cost of health-related claims depends on both the
incidence of policyholders becoming ill and the duration
which they remain ill. Higher than expected incidence and
duration would increase claim costs, reducing profi t and
shareholder equity.
Profi t/(loss)
net of
reinsurance
Insurance
contract
liabilities
net of
reinsurance
$m
42
(33)
2
(3)
(5)
(3)
2
(14)
$m
(49)
38
(2)
3
8
3
(2)
18
Change in
variable
% change
-1%
+1%
-10%
+10%
-10%
+10%
-10%
+10%
Equity
$m
42
(33)
2
(3)
(5)
(3)
2
(14)
206
ANZ Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
49: Life Insurance Business (continued)
LIFE INSURANCE RISK
Insurance risk is the risk of loss due to increases in policy benefi ts arising from variations in the incidence or severity of insured events.
Insurance risk exposure arises in insurance business as the risk that claims payments are greater than expected. In the life insurance business
this arises primarily through mortality (death) or morbidity (illness or injury) risks being greater than expected.
Insurance risks are controlled through the use of underwriting procedures and reinsurance arrangements. Controls are also maintained over
claims management practices to assist in the correct and timely payment of insurance claims. Regular monitoring of experience is conducted at
a suffi ciently detailed level in order to identify any deviation from expected claim levels.
Financial risks relating to the Group’s insurance business are generally monitored and controlled by selecting appropriate assets to back
insurance and life investment contract liabilities. Wherever possible within regulatory constraints, the Group segregates policyholders funds
from shareholders funds and sets investment mandates that are appropriate for each. The assets are regularly monitored by the OnePath
Investment Risk Management Committee to ensure that there are no material asset and liability mismatching issues and other risks such as
liquidity risk and credit risk are maintained within acceptable limits.
All fi nancial assets within the life insurance statutory funds directly support either the Group’s life insurance or life investment contracts. Market
risk arises for the Group on contracts where the liabilities to policyholders are guaranteed by the life company. The Group manages this risk
by the monthly monitoring and rebalancing of assets to policy liabilities. However, for some contracts the ability to match asset characteristics
with policy obligations is constrained by a number of factors including regulatory constraints, the lack of suitable investments as well as by the
nature of the policy liabilities themselves.
A market risk also arises from those life investment contracts where the benefi ts paid are directly impacted by the value of the underlying
assets. The Group is exposed to the risk of future decreased asset management fees as a result of a decline in assets under management and
operational risk associated with the possible failure to administer life investment contracts in accordance with the product terms and conditions.
Risk strategy
In compliance with contractual and regulatory requirements, a strategy is in place to monitor that the risks underwritten satisfy policyholders’
risk and reward objectives whilst not adversely aff ecting the Group’s ability to pay benefi ts and claims when due. The strategy involves the
identifi cation of risks by type, impact and likelihood, the implementation of processes and controls to mitigate the risks, and continuous
monitoring and improvement of the procedures in place to minimise the chance of an adverse compliance or operational risk event occurring.
Included in this strategy are the processes and controls over underwriting and product pricing. Capital management is also a key aspect of the
Group’s risk management strategy.
Allocation of capital
The Group’s insurance businesses are subject to regulatory capital requirements which prescribe the amount of capital to be held depending
on the contract liability.
Solvency margin requirements established by the Australian Prudential Regulation Authority (APRA) are in place to reinforce safeguards for
policyholders’ interest, which are primarily the ability to meet future claims payments in respect of existing policies.
Methods to limit or transfer insurance risk exposures
Reinsurance – All reinsurance treaties are analysed using a number of analytical modeling tools to assess the impact on the Group’s exposure
to risk with the objective of achieving the desired choice of type of reinsurance and retention levels.
Underwriting procedures – Strategic underwriting decisions are put into eff ect using the underwriting procedures detailed in the Group’s
underwriting manual. Such procedures include limits to delegated authorities and signing powers.
Claims management – Strict claims management procedures are in place to assist in the timely and correct payment of claims in accordance
with policy conditions.
Asset and liability management techniques – Assets are held by the Group in order to minimise the duration mismatch on policies with long
term fi xed payout patterns. Other assets are allocated to diff erent classes of business using a risk based approach.
Notes to the Financial Statements 207
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
50: 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:
Chinese Yuan
Euro
Great British Pound
Indian Rupee
Indonesian Rupiah
Malaysian Ringgit
New Zealand Dollar
Papua New Guinea Kina
United States Dollar
51: Events Since the End of the Financial Year
There have been no material events since the end of the fi nancial year.
2011
2010
Closing
Average
Closing
Average
6.2149
0.7194
0.6243
47.5992
8,573.0
3.1052
1.2727
2.1794
0.9731
6.7036
0.7353
0.6386
46.2575
8,985.7
3.1270
1.3051
2.5413
1.0251
6.4687
0.7111
0.6105
43.4142
8,625.3
2.9850
1.3139
2.5920
0.9668
6.1242
0.6632
0.5769
41.5085
8,279.6
2.9582
1.2603
2.4570
0.8990
208
ANZ Annual Report 2011
DIRECTORS’ DECLARATION
The Directors of Australia and New Zealand Banking Group Limited declare that:
a) in the Directors’ opinion, the fi nancial statements and notes of the Company and the consolidated entity have been prepared in accordance
with the Corporations Act 2001, including that they:
i) comply with applicable Australian Accounting Standards, (including the Australian Accounting Interpretations) and the Corporations
Regulations 2001; and
ii) give a true and fair view of the fi nancial position of the Company and of the consolidated entity as at 30 September 2011 and of their
performance as represented by the results of their operations and their cash fl ows, for the year ended on that date; and
iii) the fi nancial statements and notes of the Company and the consolidated entity comply with International Financial Reporting Standards
as described in note 1 (A)(i).
b) in the Directors’ opinion, the remuneration disclosures that are contained on pages 16 to 45 of the Remuneration Report comply with
the Corporations Act 2001; and
c) the Directors have received the declarations required by section 295A of the Corporations Act 2001; and
d) in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable; and
e) the Company and certain of its wholly owned controlled entities (listed in note 44) have executed a Deed of Cross Guarantee enabling
them to take advantage of the accounting and audit relief off ered by class order 98/1418 (as amended), issued by the Australian Securities
and Investments Commission. The nature of the Deed of Cross Guarantee is to guarantee to each creditor payment in full of any debt in
accordance with the terms of the Deed of Cross Guarantee. At the date of this declaration, there are reasonable grounds to believe that the
Company and its controlled entities which executed the Deed of Cross Guarantee are able, as an economic entity, to meet any obligations
or liabilities to which they are, or may become subject to, by virtue of the Deed of Cross Guarantee.
Signed in accordance with a resolution of the Directors.
John Morschel
Chairman
2 November 2011
Michael R P Smith
Director
Directors’ Declaration
209
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSTRALIA
AND NEW ZEALAND BANKING GROUP LIMITED
INDEPENDENCE
In conducting our audit, we have complied with the independence
requirements of the Corporations Act 2001.
AUDITOR’S OPINION
In our opinion:
(a) the fi nancial report of Australia and New Zealand Banking Group
Limited is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Company’s and the
Group’s fi nancial position as at 30 September 2011 and
of their performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the
Corporations Regulations 2001.
(b) the fi nancial report also complies with International Financial
Reporting Standards as disclosed in note 1(A)(i).
REPORT ON THE REMUNERATION REPORT
We have audited the remuneration report included in pages 22 to 45
of the directors’ report for the year ended 30 September 2011. The
directors of the Company are responsible for the preparation and
presentation of the remuneration report in accordance with Section
300A of the Corporations Act 2001. Our responsibility is to express
an opinion on the remuneration report, based on our audit conducted
in accordance with Australian Auditing Standards.
AUDITOR’S OPINION
In our opinion, the remuneration report of Australia and New Zealand
Banking Group Limited for the year ended 30 September 2011,
complies with Section 300A of the Corporations Act 2001.
KPMG
Melbourne
2 November 2011
Peter Nash
Partner
REPORT ON THE FINANCIAL REPORT
We have audited the accompanying fi nancial report of Australia and
New Zealand Banking Group Limited (the Company), which comprises
the balance sheets as at 30 September 2011, and income statements,
statements of comprehensive income, statements of changes in equity
and cash fl ow statements for the year ended on that date, notes 1 to
51 comprising a summary of signifi cant accounting policies and other
explanatory information and the directors’ declaration of the Company
and the Group comprising the Company and the entities it controlled
at the year’s end or from time to time during the fi nancial year.
DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL REPORT
The directors of the Company are responsible for the preparation
of the fi nancial report that gives a true and fair view in accordance
with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary
to enable the preparation of the fi nancial report that is free from
material misstatement whether due to fraud or error. In note 1(A)(i), the
directors also state, in accordance with Australian Accounting Standard
AASB 101 Presentation of Financial Statements, that the fi nancial
statements comply with International Financial Reporting Standards.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on the fi nancial report based
on our audit. We conducted our audit in accordance with Australian
Auditing Standards. These Auditing Standards require that we comply
with relevant ethical requirements relating to audit engagements and
plan and perform the audit to obtain reasonable assurance whether
the fi nancial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the fi nancial report. The
procedures selected depend on the auditor’s judgement, including
the assessment of the risks of material misstatement of the fi nancial
report, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity’s preparation
of the fi nancial report that gives a true and fair view in order to design
audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the eff ectiveness of
the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness
of accounting estimates made by the directors, as well as evaluating
the overall presentation of the fi nancial report.
We performed the procedures to assess whether in all material respects
the fi nancial report presents fairly, in accordance with the Corporations
Act 2001 and Australian Accounting Standards, a true and fair view
which is consistent with our understanding of the Company’s and the
Group’s fi nancial position and of their performance.
We believe that the audit evidence we have obtained is suffi cient and
appropriate to provide a basis for our audit opinion.
210
ANZ Annual Report 2011
Financial Information
Shareholder Information
Glossary of Financial Terms
Alphabetical Index
212
220
225
228
ANZ Annual Report 2011 211
Financial Highlights 211
Table 1
Table 2
Table 3
Table 4
Table 2
2011
$m
2010
$m
37,954
(3,479)
34,475
(10,611)
23,864
5,111
1,641
30,616
1,228
5,017
(3,071)
3,174
34,155
(2,840)
31,315
(10,057)
21,258
3,787
1,646
26,691
1,223
6,619
(3,026)
4,816
33,790
31,507
8.5%
10.9%
1.2%
12.1%
8.0%
10.1%
1.8%
11.9%
Table 5
279,964
264,242
FINANCIAL INFORMATION
1: Capital Adequacy
Qualifying capital
Regulatory capital – qualifying capital
Tier 1
Shareholders' equity and non-controlling interests
Prudential adjustments to shareholders' equity
Fundamental Tier 1 capital
Deductions
Common Equity Tier 1 capital
Non-innovative Tier 1 capital instruments
Innovative Tier 1 capital instruments
Tier 1 capital
Tier 2
Upper Tier 2 capital
Subordinated notes
Deductions
Tier 2 capital
Total qualifying capital
Capital adequacy ratios
Common Equity Tier 1
Tier 1
Tier 2
Total
Risk weighted assets
212
ANZ Annual Report 2011
1: Capital Adequacy (continued)
Table 1: Prudential adjustments to shareholders’ equity
Treasury shares attributable to OnePath policyholders
Reclassifi cation of preference share capital
Accumulated retained profi ts and reserves of insurance, funds management
and securitisation entities and associates
Deferred fee revenue including fees deferred as
part of loan yields
Hedging reserve
Available-for-sale reserve
Dividend not provided for
Accrual for Dividend Reinvestment Plans
Total
Table 2: Deductions from Tier 1 capital
Unamortised goodwill & other intangibles (excluding OnePath Australia and OnePath
New Zealand)
Intangible component of investment in OnePath Australia and OnePath New Zealand1
Capitalised software
Capitalised expenses including loan and lease origination fees,
capitalised securitisation establishment costs and costs associated
with debt raisings
Applicable deferred tax assets (excluding the component relating
to the general reserve for impairment of fi nancial assets)
Mark-to market impact of own credit spread
Sub-total
Deductions taken 50% from Tier 1 and 50% from Tier 2
Investment in ANZ insurance subsidiaries (excluding OnePath Australia and OnePath
New Zealand)
Investment in ANZ funds management subsidiaries
Investment in OnePath Australia and OnePath New Zealand
Investment in other Authorised Deposit Taking Institutions
and overseas equivalents
Expected losses in excess of eligible provisions (net of tax)
Investment in other commercial operations
Other deductions
Sub-total
Total
Table 3: Upper Tier 2 capital
Perpetual subordinated notes
General reserve for impairment of fi nancial assets net of
attributable deferred tax asset2
Total
2011
$m
358
(871)
(1,686)
414
(169)
(126)
(1,999)
600
(3,479)
(3,027)
(2,071)
(1,490)
(688)
(136)
(128)
(7,540)
50%
(200)
(29)
(906)
(1,151)
(475)
(2)
(308)
(3,071)
(10,611)
962
266
1,228
2010
$m
358
(871)
(1,312)
402
(11)
(80)
(1,895)
569
(2,840)
(2,952)
(2,043)
(1,127)
(655)
(235)
(19)
(7,031)
50%
(198)
(36)
(845)
(988)
(560)
(21)
(378)
(3,026)
(10,057)
943
280
1,223
Gross
(399)
(57)
(1,813)
(2,302)
(951)
(4)
(617)
(6,143)
Table 4: Subordinated notes3
For capital adequacy calculation purposes, subordinated note issues are reduced by 20% of the original amount over
the last four years to maturity and are limited to 50% of Tier 1 capital.
1 Calculation based on prudential requirements.
2 Under Basel II, this consists of the surplus general reserve for impairment of financial assets net of tax and/or the provisions attributable to the standardised portfolio.
3 The fair value adjustment is excluded for prudential purposes as the prudential standard only permits inclusion of cash received and makes no allowance for hedging.
Financial Information 213
FINANCIAL INFORMATION
1: Capital Adequacy (continued)
Table 5: Risk weighted assets
On balance sheet
Commitments
Contingents
Derivatives
Total credit risk
Market risk – Traded
Market risk – IRRBB
Operational risk
Total risk weighted assets
Table 6: Credit risk weighted assets by Basel asset class
Subject to Advanced IRB approach
Corporate
Sovereign
Bank
Residential mortgage
Qualifying revolving retail (credit cards)
Other retail
Credit risk weighted assets subject to Advanced IRB approach
2011
$m
183,039
43,041
9,536
13,212
248,828
3,046
8,439
19,651
279,964
106,120
4,365
9,456
41,041
7,468
19,240
187,690
2010
$m
173,035
39,835
10,084
10,563
233,517
5,652
7,690
17,383
264,242
101,940
2,720
6,135
38,708
7,205
17,899
174,607
Credit risk specialised lending exposures subject to slotting criteria
27,757
26,605
Subject to Standardised approach
Corporate
Residential mortgage
Qualifying revolving retail (credit cards)
Other retail
Credit risk weighted assets subject to Standardised approach
Credit risk weighted assets relating to securitisation exposures
Credit risk weighted assets relating to equity exposures
Other assets
Total credit risk weighted assets
22,484
845
2,344
1,650
27,323
1,136
1,399
3,523
20,560
567
2,279
1,396
24,802
2,091
1,577
3,835
248,828
233,517
214
ANZ Annual Report 2011
1: Capital Adequacy (continued)
Collective provision
Regulatory Expected Loss
Sept 2011
$m
Sept 2010
$m
Sept 2011
$m
Sept 2010
$m
Table 7: Collective provision and regulatory expected loss by region
Australia
Asia Pacifi c, Europe & America
Institutional
New Zealand
Group Centre
Less: Institutional Asia Pacifi c, Europe & America
Underlying collective provision and regulatory expected loss
Adjustments between statutory and underlying
Collective provision and regulatory expected loss
1,062
501
1,383
456
40
(269)
3,173
3
3,176
Table 8: Expected loss in excess of eligible provisions
Basel expected loss
Defaulted
Non-defaulted
Less: Qualifying collective provision after tax
Collective provision
Non-qualifying collective provision
Standardised collective provision
Deferred tax asset
Less: Qualifying individual provision after tax
Individual provision
Standardised individual provision
Collective provision on advanced defaulted
Gross deduction
50/50 deduction (refer table 2)
1,021
519
1,342
537
–
(270)
3,149
4
3,153
2011
$m
1,975
2,286
4,261
(3,176)
375
340
730
(1,731)
(1,697)
477
(359)
(1,579)
951
475
1,891
148
1,429
904
–
(127)
4,245
16
4,261
2010
$m
2,225
2,330
4,555
(3,153)
234
399
725
(1,795)
(1,875)
458
(224)
(1,641)
1,119
559
1,749
134
1,773
1,002
–
(121)
4,537
18
4,555
Movt
%
-11%
-2%
-6%
1%
60%
-15%
1%
-4%
-9%
4%
60%
-4%
-15%
-15%
The measurement of risk weighted assets is based on: a) a credit risk-based approach whereby risk weightings are applied to balance sheet
assets and to credit converted off -balance sheet exposures. Categories of risk weights are assigned based upon the nature of the counterparty
and the relative liquidity of the assets concerned; and b) the recognition of risk weighted assets attributable to market risk arising from trading
positions.
The Basel II Accord principles took eff ect from 1 January 2008. For calculation of minimum capital requirements under Pillar 1 (Capital
Requirements) of the Basel II Accord, ANZ has gained accreditation from APRA for use of Advanced Internal Ratings Based (AIRB) methodology
for credit risk weighted assets and Advanced Measurement Approach (AMA) for operational risk weighted asset equivalent.
Financial Information 215
FINANCIAL INFORMATION
2: Average Balance Sheet and Related Interest
Averages used in the following tables are predominantly daily averages. Interest income fi gures are presented on a tax-equivalent basis.
Impaired loans are included under the interest earning asset category, ‘loans and advances’. Intra-group interest earning assets and interest
bearing liabilities are treated as external assets and liabilities for the geographic segments.
Average
balance
$m
2,168
655
7,252
32,685
7,212
11,460
2011
Interest
$m
101
14
106
1,520
336
192
280,821
73,736
32,831
21,534
4,654
1,426
220
152
113
574
9
30,951
(583)
30,368
4,529
2,235
11,863
2,978
9,072
479,497
(12,050)
467,447
28,506
7,979
3,481
2,163
32,448
26,691
(3,046)
(973)
(877)
96,372
563,819
397,215
95,486
83,168
575,869
(12,050)
563,819
30.1%
Average
rate
%
Average
balance
$m
2010
Interest
$m
Average
rate
%
4.0
2.6
0.7
4.3
4.9
1.9
7.1
6.0
4.7
4.4
5.8
0.9
7.9
0.8
6.1
4.7
2.1
1.5
4.7
4.7
1.7
7.7
6.3
4.3
4.9
6.8
1.0
19.3
0.1
6.5
2,951
717
7,509
34,994
6,716
10,897
117
19
49
1,522
329
209
257,682
76,869
24,056
18,233
4,596
1,123
144
174
93
480
51
27,139
(531)
26,608
3,284
2,980
10,622
6,069
6,638
451,984
(12,707)
439,277
28,580
7,871
3,050
2,163
27,081
22,151
(3,049)
(1,114)
(676)
86,057
525,334
371,370
98,427
68,244
538,041
(12,707)
525,334
30.5%
Interest earning assets
Due from other fi nancial institutions
Australia
New Zealand
Asia Pacifi c, Europe & America
Trading and available-for-sale assets
Australia
New Zealand
Asia Pacifi c, Europe & America
Loans and advances and acceptances
Australia
New Zealand
Asia Pacifi c, Europe & America
Other assets
Australia
New Zealand
Asia Pacifi c, Europe & America
Intragroup assets
Australia
Asia Pacifi c, Europe & America
Intragroup elimination
Non-interest earning assets
Derivatives
Australia
New Zealand
Asia Pacifi c, Europe & America
Premises and equipment
Insurance assets
Other assets
Provisions for credit impairment
Australia
New Zealand
Asia Pacifi c, Europe & America
Total average assets
Total average assets
Australia
New Zealand
Asia Pacifi c, Europe & America
Intragroup elimination
% of total average assets attributable to overseas activities
216
ANZ Annual Report 2011
2: Average Balance Sheet and Related Interest (continued)
Interest bearing liabilities
Time deposits
Australia
New Zealand
Asia Pacifi c, Europe & America
Savings deposits
Australia
New Zealand
Asia Pacifi c, Europe & America
Other demand deposits
Australia
New Zealand
Asia Pacifi c, Europe & America
Due to other fi nancial institutions
Australia
New Zealand
Asia Pacifi c, Europe & America
Commercial paper
Australia
New Zealand
Borrowing corporations’ debt
Australia
New Zealand
Loan capital, bonds and notes
Australia
New Zealand
Asia Pacifi c, Europe & America
Other liabilities1
Australia
New Zealand
Asia Pacifi c, Europe & America
Intragroup liabilities
New Zealand
Intragroup elimination
1
Includes foreign exchange swap costs.
Average
balance
$m
2011
Interest
$m
Average
rate
%
Average
balance
$m
2010
Interest
$m
Average
rate
%
124,080
29,310
46,364
20,109
2,023
5,097
66,053
13,696
6,985
8,312
955
14,726
7,570
3,384
519
1,190
67,517
15,042
39
4,260
141
745
12,050
450,167
(12,050)
438,117
6,863
1,305
549
821
47
23
2,646
379
28
367
22
136
378
111
34
68
4,102
725
–
329
(77)
29
583
19,468
(583)
18,885
5.5
4.5
1.2
4.1
2.3
0.5
4.0
2.8
0.4
4.4
2.3
0.9
5.0
3.3
6.6
5.7
6.1
4.8
0.0
n/a
n/a
n/a
4.8
4.3
99,969
29,624
43,716
19,458
2,094
2,947
62,864
13,839
3,312
5,399
1,100
10,722
6,925
7,020
1,280
1,101
68,445
14,074
–
15,033
51
427
12,707
422,107
(12,707)
409,400
4,873
1,267
455
660
41
15
2,114
343
15
197
27
103
288
211
80
55
3,514
657
–
799
5
20
531
16,270
(531)
15,739
4.9
4.3
1.0
3.4
2.0
0.5
3.4
2.5
0.5
3.6
2.5
1.0
4.2
3.0
6.3
5.0
5.1
4.7
0.0
n/a
n/a
n/a
4.2
3.8
Financial Information 217
2011
Average
balance
$m
2010
Average
balance
$m
4,947
3,718
2,034
23,290
6,000
(775)
29,285
5,476
15,861
89,836
5,000
3,586
1,780
25,585
5,907
(1,830)
23,855
4,662
14,133
82,678
527,953
492,078
373,021
89,283
77,699
540,003
(12,050)
348,793
92,442
63,550
504,785
(12,707)
527,953
492,078
29.3%
29.1%
34,995
871
35,866
32,385
871
33,256
563,819
525,334
FINANCIAL INFORMATION
2: Average Balance Sheet and Related Interest (continued)
Non-interest bearing liabilities
Deposits
Australia
New Zealand
Asia Pacifi c, Europe & America
Derivative fi nancial instruments
Australia
New Zealand
Asia Pacifi c, Europe & America
Insurance liabilities
External unitholder liabilities
Other liabilities
Total average liabilities
Total average liabilities
Australia
New Zealand
Asia Pacifi c, Europe & America
Intragroup elimination
% of total average assets attributable to overseas activities
Total average shareholders’ equity
Ordinary share capital1
Preference share capital
Total average liabilities and shareholders’ equity
1
Includes reserves and retained earnings.
218
ANZ Annual Report 2011
3: Interest Spreads and Net Interest Average Margins
Net interest income
Australia
New Zealand
Asia Pacifi c, Europe & America
Average interest earning assets
Australia
New Zealand
Asia Pacifi c, Europe & America
less intragroup elimination
Gross earnings rate1
Australia
New Zealand
Asia Pacifi c, Europe & America
Group
Interest spread and net interest average margin may be analysed as follows:
Australia
Net interest spread
Interest attributable to net non-interest bearing items
Net interest margin – Australia
New Zealand
Net interest spread
Interest attributable to net non-interest bearing items
Net interest margin – New Zealand
Asia Pacifi c, Europe & America
Net interest spread
Interest attributable to net non-interest bearing items
Net interest margin – Asia Pacifi c, Europe & America
Group
Net interest spread
Interest attributable to net non-interest bearing items
Net interest margin
1 Average interest rate received on average interest earning assets. APEA markets includes intragroup assets.
2011
$m
2010
$m
8,409
1,993
1,081
7,971
1,981
917
11,483
10,869
323,181
83,838
72,478
(12,050)
304,980
87,282
59,722
(12,707)
467,447
439,277
%
%
7.41
6.15
2.55
6.50
2.20
0.40
2.60
2.08
0.30
2.38
1.51
(0.02)
1.49
2.19
0.27
2.46
6.72
5.86
2.55
6.06
2.23
0.38
2.61
2.02
0.25
2.27
1.56
(0.02)
1.54
2.21
0.26
2.47
Financial Information 219
Shareholder Information
Ordinary Shares
At 10 October 2011, the twenty largest holders of ordinary shares held 1,522,899,090 ordinary shares, equal to 57.93% of the total issued
ordinary capital.
Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
NATIONAL NOMINEES LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
CITICORP NOMINEES PTY LIMITED
COGENT NOMINEES PTY LIMITED
JP MORGAN NOMINEES AUSTRALIA LIMITED
RBC DEXIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED
AMP LIFE LIMITED
QUEENSLAND INVESTMENT CORPORATION
UBS WEALTH MANAGEMENT AUSTRALIA
NOMINEES PTY LTD
Total
Distribution of shareholdings
At 10 October 2011
Range of shares
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000
Total
At 10 October 2011:
Number of
shares
% of
shares
Name
467,156,528
355,961,863
347,499,738
97,828,934
49,104,214
17.77
13.54
13.22
3.72
1.87
38,099,783
28,463,355
1.45
1.08
24,512,112
0.93
24,206,102
13,069,092
12,238,042
0.92
0.50
0.46
12.
13.
14.
15.
16.
17.
18.
19.
20.
ANZEST PTY LTD
COGENT NOMINEES PTY LIMITED
AUSTRALIAN FOUNDATION INVESTMENT
COMPANY LIMITED
AUSTRALIAN REWARD INVESTMENT ALLIANCE
ARGO INVESTMENTS LIMITED
PERPETUAL TRUSTEE COMPANY LIMITED
ANZEST PTY LTD
TASMAN ASSET MANAGEMENT LTD
NAVIGATOR AUSTRALIA LTD
Number of
shares
% of
shares
11,472,251
8,540,532
0.44
0.32
7,774,021
0.30
7,401,221
7,362,600
7,318,117
5,623,667
4,898,884
0.28
0.28
0.28
0.21
0.19
4,368,034
0.17
1,522,899,090
57.93
Number of
holders
% of
holders
232,262
170,748
25,705
13,786
458
52.44
38.55
5.80
3.11
0.10
Number of
shares
97,323,288
384,522,709
177,891,072
279,674,274
1,689,627,699
% of
shares
3.70
14.62
6.77
10.64
64.27
442,959
100.00
2,629,039,042
100.00
there were no persons with a substantial shareholding in the Company;
the average size of holdings of ordinary shares was 5,935 (2010: 6,212) shares; and
there were 10,698 holdings (2010: 8,537 holdings) of less than a marketable parcel (less than $500 in value or 24 shares based on the market price of $21.00 per share),
which is less than 2.42% of the total holdings of ordinary shares.
Voting rights of ordinary shares
The Constitution provides for votes to be cast as follows:
i) on show of hands, 1 vote for each shareholder; and
ii) on a poll, 1 vote for each fully paid ordinary share.
A register of holders of ordinary shares is held at:
452 Johnston Street
Abbotsford
Victoria, Australia
(Telephone: +61 3 9415 4010)
220
ANZ Annual Report 2011
ANZ Convertible Preference Shares (ANZ CPS)
ANZ CPS1
On 30 September 2008 ANZ issued convertible preference shares (ANZ CPS1) which were off ered pursuant to a prospectus dated
4 September 2008.
At 10 October 2011, the twenty largest holders of ANZ CPS1 held 2,419,214 securities, equal to 22.38% of the total issued securities.
Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES
PTY LTD
UCA CASH MANAGEMENT FUND LTD
NAVIGATOR AUSTRALIA LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
QUESTOR FINANCIAL SERVICES LIMITED
NULIS NOMINEES (AUSTRALIA) LIMITED
HARMAN NOMINEES PTY LTD
NETWEALTH INVESTMENTS LIMITED
NATIONAL NOMINEES LIMITED
Number of
securities
% of
securities
443,528
4.10
239,791
239,419
234,245
209,691
179,251
118,276
101,696
95,169
2.22
2.21
2.17
1.94
1.66
1.09
0.94
0.88
82,740
0.77
Name
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
COGENT NOMINEES PTY LIMITED
RBC DEXIA INVESTOR SERVICES AUSTRALIA NOMINEES
PTY LIMITED
BALLARD BAY PTY LTD
JMB PTY LIMITED
SPINETTA PTY LTD
MUTUAL TRUST PTY LTD
CITICORP NOMINEES PTY LIMITED
KOLL PTY LTD
ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
Number of
securities
% of
securities
68,381
59,025
0.63
0.55
50,000
0.46
50,000
45,000
44,056
42,192
40,000
39,504
0.46
0.42
0.41
0.39
0.37
0.37
37,250
0.34
2,419,214
22.38
Total
Distribution of ANZ CPS1 holdings
At 10 October 2011
Range of securities
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000
Total
Number
of holders
% of
holders
Number of
securities
% of
securities
15,863
1,123
76
49
8
17,119
92.66
6.56
0.44
0.29
0.05
100.00
4,710,731
2,331,611
632,759
1,371,126
1,765,897
43.57
21.57
5.85
12.68
16.33
10,812,124
100.00
At 10 October 2011: There were 6 holdings (2010: nil) of less than a marketable parcel (less than $500 in value or 6 securities based on the market price of $99.6940 per security), which is less than
0.04% of the total holdings of ANZ CPS1.
Voting rights of ANZ CPS1
An ANZ CPS1 does not entitle its holder to vote at any general meeting of ANZ except in the following circumstances:
i) on any proposal to reduce ANZ’s share capital, other than a resolution to approve a Redemption of the ANZ CPS1;
ii) on a proposal that aff ects the rights attached to the ANZ CPS1;
iii) on any resolution to approve the terms of a buy-back agreement, other than a resolution to approve a Redemption of ANZ CPS1;
iv) on a proposal to wind up ANZ;
v) on a proposal for the disposal of the whole of ANZ’s property, business and undertaking;
vi) on any matter during a winding up of ANZ; and
vii) on any matter during a period in which a dividend remains unpaid.
On a resolution or proposal on which an ANZ CPS1 holder is entitled to vote, the ANZ CPS1 holder has:
i) on a show of hands, one vote; and
ii) on a poll, one vote for each ANZ CPS1 held.
A register of holders of ANZ CPS1 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia
(Telephone: +61 3 9415 4010)
Shareholder Information
221
SHAREHOLDER INFORMATION (continued)
ANZ CPS2
On 17 December 2009 ANZ issued convertible preference shares (ANZ CPS2) which were off ered pursuant to a prospectus dated
18 November 2009.
At 10 October 2011, the twenty largest holders of ANZ CPS2 held 3,342,569 securities, equal to 16.98% of the total issued securities.
Name
Number of
securities
% of
securities
Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES
PTY LTD
J P MORGAN NOMINEES AUSTRALIA LIMITED
NAVIGATOR AUSTRALIA LTD
QUESTOR FINANCIAL SERVICES LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
RBC DEXIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED
NULIS NOMINEES (AUSTRALIA) LIMITED
WINCHELADA PTY LIMITED
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD
688,666
3.50
11.
537,886
260,344
227,810
162,631
157,901
2.73
1.32
1.16
0.83
0.80
12.
13.
14.
15.
16.
151,001
0.77
17.
134,055
111,525
0.68
0.57
108,564
0.55
18.
19.
20.
NETWEALTH INVESTMENTS LIMITED
NATIONAL NOMINEES LIMITED
JMB PTY LIMITED
RONI HUBAY INVESTMENTS PTY LTD
RANDAZZO C & G DEVELOPMENTS PTY LTD
CITICORP NOMINEES PTY LIMITED
AVANTEOS INVESTMENTS LIMITED
AVANTEOS INVESTMENTS LIMITED
W MITCHELL INVESTMENTS PTY LTD
JP MORGAN NOMINEES AUSTRALIA LIMITED
Number of
securities
% of
securities
103,853
0.53
103,734
100,600
100,000
78,500
68,000
0.53
0.51
0.51
0.40
0.34
64,374
0.33
63,644
0.32
60,000
0.30
59,481
0.30
Total
Distribution of ANZ CPS2 holdings
At 10 October 2011
Range of securities
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000
Total
3,342,569
16.98
Number
of holders
% of
holders
Number of
securities
% of
securities
26,921
2,146
179
96
13
29,355
91.71
7.31
0.61
0.33
0.04
100.00
8,248,469
4,682,441
1,411,694
2,496,050
2,848,570
41.90
23.78
7.17
12.68
14.47
19,687,224
100.00
At 10 October 2011: There were 7 holdings (2010: 4 holdings) of less than a marketable parcel (less than $500 in value or 5 securities based on the market price of $101.11 per security), which is less
than 0.03% of the total holdings of ANZ CPS2.
Voting rights of ANZ CPS2
An ANZ CPS2 does not entitle its holder to vote at any general meeting of ANZ except in the following circumstances:
i) on any proposal to reduce ANZ’s share capital, other than a resolution to approve a Redemption of the ANZ CPS2;
ii) on a proposal that aff ects the rights attached to the ANZ CPS2;
iii) on any resolution to approve the terms of a buy-back agreement, other than a resolution to approve a Redemption of ANZ CPS2;
iv) on a proposal to wind up ANZ;
v) on a proposal for the disposal of the whole of ANZ’s property, business and undertaking;
vi) on any matter during a winding up of ANZ; and
vii) on any matter during a period in which a dividend remains unpaid.
On a resolution or proposal on which an ANZ CPS2 holder is entitled to vote, the ANZ CPS2 holder has:
i) on a show of hands, one vote; and
ii) on a poll, one vote for each ANZ CPS2 held.
A register of holders of ANZ CPS2 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia
(Telephone: +61 3 9415 4010)
222
ANZ Annual Report 2011
ANZ CPS3
On 28 September 2011 ANZ issued convertible preference shares (ANZ CPS3) which were off ered pursuant to a prospectus dated 31 August 2011.
At 10 October 2011, the twenty largest holders of ANZ CPS3 held 2,186,028 securities, equal to 16.31% of the total issued securities.
Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES
PTY LTD
CITICORP NOMINEES PTY LIMITED
RBC DEXIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED
RAKIO PTY LTD
RBC DEXIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED
QUESTOR FINANCIAL SERVICES LIMITED
DIMBULU PTY LTD
MICHAEL COPPEL VENTURES P/L
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
Number of
securities
% of
securities
487,454
3.64
281,120
206,020
200,000
121,180
2.10
1.54
1.49
0.90
115,055
0.86
85,000
80,000
0.64
0.60
73,700
0.55
Name
Number of
securities
% of
securities
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
JMB PTY LIMITED
EASTCOTE PTY LTD
MR TERRENCE E PEABODY + MRS MARY G PEABODY
RANDAZZO C&G DEVELOPMENTS PTY LTD
RBC DEXIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED
TANDOM PTY LTD
BTPS – WRAP SETTLEMENTS A/C
WENTHOR PTY LTD
NATIONAL NOMINEES LIMITED
MR RONALD MAURICE BUNKER
COGENT NOMINEES PTY LIMITED
70,000
50,000
50,000
50,000
50,000
50,000
46,790
45,000
44,709
40,000
40,000
0.52
0.37
0.37
0.37
0.37
0.37
0.35
0.34
0.33
0.30
0.30
Total
Distribution of ANZ CPS3 holdings
At 10 October 2011
Range of securities
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000
Total
2,186,028
16.31
Number
of holders
% of
holders
Number of
securities
% of
securities
16,585
1,453
95
90
6
18,229
90.98
7.97
0.52
0.50
0.03
100.00
5,339,963
3,453,638
808,426
2,387,144
1,410,829
39.85
25.77
6.03
17.82
10.53
13,400,000
100.00
At 10 October 2011: There were no holdings of less than a marketable parcel (less than $500 in value or 5 securities based on the market price of $100.05 per security).
Voting rights of ANZ CPS3
An ANZ CPS3 does not entitle its holder to vote at any general meeting of ANZ except in the following circumstances:
i) on any proposal to reduce ANZ’s share capital, other than a resolution to approve a Redemption of the ANZ CPS3;
ii) on a proposal that aff ects the rights attached to the ANZ CPS3;
iii) on any resolution to approve the terms of a buy-back agreement, other than a resolution to approve a Redemption of ANZ CPS3;
iv) on a proposal to wind up ANZ;
v) on a proposal for the disposal of the whole of ANZ’s property, business and undertaking;
vi) on any matter during a winding up of ANZ; and
vii) on any matter during a period in which a dividend remains unpaid.
On a resolution or proposal on which an ANZ CPS3 holder is entitled to vote, the ANZ CPS3 holder has:
i) on a show of hands, one vote; and
ii) on a poll, one vote for each ANZ CPS3 held.
A register of holders of ANZ CPS3 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia
(Telephone: +61 3 9415 4010)
Shareholder Information 223
American Depositary Receipts
The Group has American Depositary Receipts (ADRs) representing
American Depositary Shares (ADSs) that are traded on the over-the
counter (OTC) securities market on the Pink Sheets electronic
platform operated by Pink Sheets LLC in the United States under the
ticker symbol: ANZBY and the CUSIP number: 05258304.
With eff ect from 23 July 2008, the ADR ratio changed from one ADS
representing fi ve ANZ ordinary shares to one ADS representing one
ANZ ordinary share.
The Bank of New York Mellon Corporation (BNY Mellon) is the
Depositary for the Company’s ADR program in the United States.
Holders of the Company’s ADRs should deal directly with BNY Mellon
on all matters relating to their ADR holdings, by telephone on
1-888-269-2377 (for callers within the US), 1-201-680-6825 (for callers
outside the US) or by email to shrrelations@bnymellon.com.
SHAREHOLDER INFORMATION (continued)
Employee Shareholder Information
At the Annual General Meeting in January 1994, shareholders approved
an aggregate limit of 7% of all classes of shares and options, which
remain subject to the rules of a relevant incentive plan, being held
by employees and directors. At 30 September 2011 participants held
1.27% (2010: 1.27%) of the issued shares and options of ANZ under
the following incentive plans:
ANZ Employee Share Acquisition Plan;
ANZ Employee Share Save Scheme;
ANZ Share Option Plan;
ANZ Directors’ Share Plan; and
ANZ Directors’ Retirement Benefi t Plan.
Stock Exchange Listings
Australia and New Zealand Banking Group Limited’s ordinary shares
are listed on the Australian Securities Exchange and the New Zealand
Stock Exchange.
The Group’s other stock exchange listings include:
Australian Securities Exchange – ANZ Convertible Preference
Shares (ANZ CPS1, CPS2 and CPS3) [Australia and New Zealand
Banking Group Limited]; senior and subordinated debt [Australia
and New Zealand Banking Group Limited];
Channel Islands Stock Exchange – Senior debt [ANZ Jackson
Funding 2 Limited, ANZ Jackson Funding 3 Limited and ANZ
Jackson Funding 4 Limited]; subordinated debt [ANZ Jackson
Funding plc];
London Stock Exchange – Non-cumulative mandatory
convertible stapled securities (UK Stapled Securities) [Australia
and New Zealand Banking Group Limited]; senior and subordinated
debt [Australia and New Zealand Banking Group Limited]; senior
debt [ANZ National (Int’l) Limited];
Luxembourg Stock Exchange – Senior and subordinated debt
[Australia and New Zealand Banking Group Limited]; non-cumulative
Trust Securities (Euro Trust Securities) [ANZ Capital Trust III];
New Zealand Stock Exchange – Senior and subordinated debt and
perpetual callable subordinated notes [ANZ National Bank Limited];
and
Swiss Stock Exchange – Senior debt [Australia and New Zealand
Banking Group Limited and ANZ National (Int’l) Limited].
For more information on the US Trust Securities, Euro Trust Securities,
UK Stapled Securities and ANZ CPS please refer to notes 27 and 28 to
the Financial Statements.
224
ANZ Annual Report 2011
GLOSSARY
AAS – Australian Accounting Standards.
Australia
AASB – Australian Accounting Standards Board.
ADIs – Authorised Deposit-taking Institutions.
AFS – Available-for-sale assets.
AIFRS – Australian Equivalents to International Financial
Reporting Standards.
Alt-A – Alternative A-paper, US mortgages underwritten with lower
or alternative documentation than a full documentation mortgage
loan or with higher loan to valuation ratios than mortgages
guaranteed by US Government sponsored enterprises. Alt-A
mortgages have a stronger risk profi le than sub-prime mortgages.
APRA – Australian Prudential Regulation Authority.
Asia Pacifi c, Europe & America (APEA)
Asia Pacifi c, Europe & America division comprises Retail, Asia
Partnerships, Institutional, and Operations & Support which
includes the Central Support functions for the division.
Retail which provides retail and small business banking services to
customers in the Asia Pacifi c region and also includes investment
and insurance products and services for Asia Pacifi c customers.
Asia Partnerships which is a portfolio of strategic partnerships
in Asia. This includes investments in Indonesia with PT Bank Pan
Indonesia, in the Philippines with Metrobank Cards Corporation,
in China with Bank of Tianjin and Shanghai Rural Commercial
Bank, in Malaysia with AMMB Holdings Berhad and in Vietnam
with Saigon Thuong Tin Commercial Joint-Stock (Sacombank)
and Saigon Securities Incorporation.
Operations & Support which includes the central support
functions for the division.
Institutional Asia Pacifi c, Europe & America matrix reports to
the APEA and Institutional divisions and is also referred to in the
paragraph below entitled ‘Institutional’.
During the September 2010 full year, ANZ acquired selected Royal
Bank of Scotland Group plc businesses in Asia. The acquisition
of the businesses in Philippines, Vietnam and Hong Kong were
completed during the March 2010 half, and the acquisition of
the businesses in Taiwan, Singapore and Indonesia during the
September 2010 half. The acquisition impacts the Retail and
Institutional segments.
Australia division comprises Retail, Commercial and Wealth segments,
and Operations and Support which includes the central support
functions for the division.
Retail
– Retail Distribution operates the Australian branch network,
Australian call centre, specialist businesses (including specialist
mortgage sales staff , mortgage broking and franchisees, direct
channels (Mortgage Direct and One Direct)) and distribution
services including the ANZ Affl uent proposition.
– Retail Products is responsible for delivering a range of products
including mortgages, cards, unsecured lending, transaction
banking, savings and deposits:
– Mortgages provide housing fi nance to consumers in
Australia for both owner occupied and investment purposes.
– Cards and Unsecured Lending provides consumer credit
cards, ePayment products, personal loans and ATM facilities
in Australia.
– Deposits provide transaction banking and savings products,
such as term deposits and cash management accounts.
Commercial
– Esanda provides motor vehicle and equipment fi nance, and
investment products.
– Regional Commercial Banking provides a full range of
banking services to personal customers and to small business
and agribusiness customers in rural and regional Australia,
and includes the recent acquisition of loans and deposits from
Landmark Financial Services.
– Business Banking provides a full range of banking services,
including risk management, to metropolitan based small
to medium sized business clients with a turnover of up to
A$50 million.
– Small Business Banking provides a full range of banking
services for metropolitan-based small businesses in Australia
with lending up to A$550,000.
Wealth
– ANZ Private & Other Wealth specialises in assisting high net
worth individuals and families to manage, grow and preserve
their family assets. The businesses within ANZ Private & Other
Wealth include Private Bank, ANZ Trustees, E*Trade, Investment
Lending and Other Wealth.
– OnePath Consolidated was formerly the INGA JV entity between
ANZ and the ING Groep and is now a wholly owned subsidiary
of ANZ. OnePath Consolidated operates as part of ANZ’s
wealth business. It provides a comprehensive range of wealth and
insurance products available through fi nancial advisers or direct
to customers. OnePath Consolidated includes ANZ Financial
Planning and ANZ General Insurance.
Glossary
225
GLOSSARY (continued)
Collective provision is the provision for credit losses that are inherent
in the portfolio but not able to be individually identifi ed; presently
unidentifi ed impaired assets. A collective provision may only be
recognised when a loss event has already occurred. Losses expected
as a result of future events, no matter how likely, are not recognised.
Credit equivalent represents the calculation of on-balance sheet
equivalents for market related items.
Customer deposits represent term deposits, other deposits bearing
interest, deposits not bearing interest and borrowing corporations
debt excluding securitisation deposits.
GSO and Corporate Centre is ANZ’s core division responsible for the
delivery of ANZ’s information technology solutions and infrastructure,
and for ANZ’s back offi ce operations in India, and for the provision
of shared services including property, sourcing, accounts payable,
environmental sustainability and human resources.
IFRS – International Financial Reporting Standards.
Impaired assets are those fi nancial assets where doubt exists as
to whether the full contractual amount will be received in a timely
manner, or where concessional terms have been provided because of
the fi nancial diffi culties of the customer. Financial assets are impaired
if there is objective evidence of impairment as a result of a loss event
that occurred prior to the reporting date, and that loss event has had
impact, which can be reliably estimated, on the expected future cash
fl ows of the individual asset or portfolio of assets.
Impaired commitments and contingencies comprises undrawn
facilities and contingent facilities where the customer’s status is
defi ned as impaired.
Impaired loans comprises drawn facilities where the customer’s
status is defi ned as impaired.
Transaction Banking provides working capital solutions including
deposit products, cash transaction banking management, trade
fi nance, international payments, and clearing services principally
to institutional and corporate customers.
Global Markets provides risk management services to corporate
and institutional clients globally in relation to foreign exchange,
interest rates, credit, commodities, debt capital markets, wealth
solutions and equity derivatives. Markets provides origination,
underwriting, structuring and risk management services, advice
and sale of credit and derivative products globally. Markets also
manages the Group’s interest rate risk position and liquidity
portfolio.
Global Loans provides term loans, working capital facilities and
specialist loan structuring. It provides specialist credit analysis,
structuring, execution and ongoing monitoring of strategically
signifi cant customer transactions, including project and
structured fi nance, debt structuring and acquisition fi nance,
loan product structuring and management, structured asset
and export fi nance.
Relationship and infrastructure includes client relationship
management teams for global institutional and fi nancial
institution and corporate customers in Australia and
Asia, corporate advisory and central support functions.
The relationship management costs are allocated to the
product lines.
Liquid assets are cash and cash equivalent assets. Cash equivalent
assets are highly liquid investments with short periods to maturity,
are readily convertible to cash at ANZ’s option and are subject to an
insignifi cant risk of changes in value.
Net advances include gross loans and advances and acceptances
and capitalised brokerage/mortgage origination fees, less unearned
income and allowance for credit impairment.
Income includes external interest income and other external
operating income.
Net interest average margin is net interest income as a percentage
of average interest earning assets.
Individual provision charge is the amount of expected credit
losses on those fi nancial instruments assessed for impairment
on an individual basis (as opposed to on a collective basis).
It takes into account expected cash fl ow over the lives of those
fi nancial instruments.
Institutional
Institutional provides global fi nancial services to government,
corporate and institutional clients with a focus on solutions
for clients with complex fi nancial needs, based on a deep
understanding of their businesses and industries, with particular
expertise in natural resources, agriculture and infrastructure.
Institutional delivers transaction banking, specialised and
relationship lending and markets solutions in Australia, New
Zealand, Asia Pacifi c, Europe and America.
Net interest spread is the average interest rate received on interest
earning assets less the average interest rate paid on interest bearing
liabilities. Non-assessable interest income is grossed up to the
equivalent before tax amount for the purpose of these calculations.
Net non-interest bearing items, which are referred to in the
analysis of interest spread and net interest average margin, includes
shareholders’ equity, impairment of loans and advances, deposits
not bearing interest and other liabilities not bearing interest, off set
by premises and equipment and other non-interest earning assets.
Non-performing loans are included within interest bearing loans,
advances and bills discounted.
Net tangible assets equals share capital and reserves attributable
to shareholders of the Group less preference share capital and
unamortised intangible assets (including goodwill and software).
226
ANZ Annual Report 2011
New Zealand
New Zealand comprises Retail, Commercial and Wealth segments,
and Operations and Support which includes the central support
functions (including Treasury funding).
Retail
– Provides a full range of banking services to personal customers
under the ANZ and National Bank brands in New Zealand.
Commercial
– Commercial & Agri incorporates the ANZ and National Bank
brands and provides fi nancial solutions through a relationship
management model for medium-sized businesses, including
agri-business, with a turnover of up to NZ$150 million. Asset
Finance (including motor vehicle and equipment fi nance),
operating leases and investment products are provided under
the UDC brand.
– Business Banking provides a full range of banking services
to small enterprises, typically with turnover of less than NZ$5
million.
Wealth
– Private Banking includes private banking operations under
the ANZ and National Bank brands.
– OnePath New Zealand (formerly ING NZ) manufactures and
distributes investment and insurance products and provides
related advice. It was formerly a joint venture between
ANZ and ING whereby ANZ owned 49% of OnePath NZ
and received proportional equity accounted earnings. ANZ
acquired the remaining 51% interest to take full ownership
during the 2010 fi nancial year.
Non-core items are disclosed separately in the income statement
to remove volatility from the underlying business result, and include
signifi cant items, and non-core income arising from the use of
derivatives in economic hedges on fair value through profi t and loss.
Operating expenses exclude the provision for impairment of loans
and advances charge.
Operating income includes net interest and other operating income.
Overseas includes the results of all operations outside Australia,
except if New Zealand is separately shown.
Overseas Markets (also known as Asia Pacifi c, Europe & America)
includes all operations outside of Australia and New Zealand.
Return on asset ratio include net intra group assets.
Repo discount is a discount applicable on the repurchase by a central
bank of an eligible security pursuant to a repurchase agreement.
Restructured items comprise of facilities in which the original
contractual terms have been modifi ed for reasons related to the
fi nancial diffi culties of the customer. Restructuring may consists of
reduction of interest, principal or other payments legally due or an
extension in maturity materially beyond those typically off ered to
new facilities with similar risk.
Revenue includes net interest income and other operating income.
Segment result represents profi t before income tax expense.
Segment revenue includes net interest income and other
operating income.
Signifi cant items are items that have a substantial impact on profi t
after tax, or the earnings used in the earnings per share calculation.
Signifi cant items also do not arise in the normal course of business
and are infrequent in nature. Divestments are typically defi ned as
signifi cant items.
Sub-prime represents mortgages granted to borrowers with a poor
or limited credit history. Sub-prime loans carry higher interest rates
to compensate for potential losses from default.
Sub-standard assets are customers that have demonstrated some
operational and fi nancial instability, with variablility and uncertainty
in profi tability and liquidity projected to continue over the short and
possibly medium term.
Total advances include gross loans and advances and acceptances
less unearned income (for both as at and average volumes). Loans
and advances classifi ed as available-for-sale are excluded from
total advances.
Underlying profi t represents the directors’ assessment of the
profi t for the ongoing business activities of the Group, and is based
on guidelines published by the Australian Institute of Company
Directors (AICD) and the Financial Services Institute of Australasia
(FINSIA). ANZ applies this guidance by adjusting statutory profi t for
non-core items that are not part of the normal ongoing operations
of the Group including one-off gains and losses, gains and losses
on the sale of businesses, non-continuing businesses, timing
diff erences on economic hedges, and acquisition related costs. The
adjustments made in arriving at underlying earnings are included
in statutory profi t, and are therefore subject to audit within the
context of the Group statutory audit opinion. The external auditor
has informed the Audit Committee that the adjustments are
based on the guidelines released by the AICD and FINSIA, and
consistent with prior periods.
Glossary
227
ALPHABETICAL INDEX
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
Assets Charged as Security for Liabilities and
Collateral Accepted as Security for Assets
Associates
Available-for-sale Assets
Average Balance Sheet and Related Interest
Balance Sheet
Bonds and Notes
Capital Adequacy
Capital Management
Cash Flow Statement
Chairman’s Report
Chief Executive Offi cer’s Report
Commitments
Compensation of Auditors
Controlled Entities
Corporate Governance Statement
Credit Related Commitments, Guarantees,
Contingent Liabilities and Contingent Assets
Critical Estimates and Judgements Used
in Applying Accounting Policies
Current Income Tax Expense
Deposits and Other Borrowings
Derivative Financial Instruments
Directors’ Declaration
Directors’ Report
Dividends
Due from Other Financial Institutions
Earnings per Ordinary Share
Employee Share and Option Plans
Events Since the End of the Financial Year
Exchange Rates
Expenses
Fair Value of Financial Assets and Financial Liabilities
Fiduciary Activities
Financial Information
Financial Statements
Financial Risk Management
Five Year Summary
Glossary
Goodwill and Other Intangible Assets
Impaired Financial Assets
Income Statements
Income Tax Liabilities
Income
Independent Auditor’s Report
Interest Spreads and Net Interest Average Margins
Interests in Joint Venture Entities
Key Management Personnel Disclosures
Life Insurance Business
Liquid Assets
Loan Capital
Maturity Analysis of Assets and Liabilities
Net Loans and Advances
Non-controlling Interests
Notes to the Cash Flow Statements
Notes to the Financial Statements
Other Assets
Payables and Other Liabilities
Premises and Equipment
Provision for Credit Impairment
Provisions
Remuneration Report
Reserves and Retained Earnings
Review of Operations
Securitisations
Segment Analysis
Share Capital
Shareholder Information
Shares in Controlled Entities and Associates
Signifi cant Accounting Policies
Statement of Changes in Equity
Statement of Comprehensive Income
Superannuation and Other Post Employment
Benefi t Schemes
Tax Assets
Trading Securities
Transactions with Other Related Parties
141
184
119
216
88
130
212
138
89
6
8
186
108
183
46
187
103
109
128
113
209
10
110
112
111
196
208
208
107
167
185
212
86
142
84
225
126
121
86
129
106
210
217
184
200
203
112
131
177
120
137
181
92
127
129
127
121
130
15
136
65
185
178
134
220
124
92
90
87
191
125
112
203
228
ANZ Annual Report 2011
HANDY CONTACTS
SHARE REGISTRAR
OUR INTERNATIONAL PRESENCE
Australia
New Zealand
Asia – Cambodia, China, Hong Kong,
India, Indonesia, Japan, Korea, Laos,
Malaysia, the Philippines, Singapore,
Taiwan, Thailand, Vietnam
Pacifi c – American Samoa,
Cook Islands, East Timor, Fiji,
Guam, Kiribati, New Caledonia,
Papua New Guinea, Samoa,
Solomon Islands, Tonga, Vanuatu
Europe
Middle East
United Kingdom
United States of America
INVESTOR RELATIONS
AUSTRALIA
Level 9, 833 Collins Street
Docklands VIC 3008 Australia
Telephone +61 3 8654 7682
Facsimile +61 3 8654 9977
Email: investor.relations@anz.com
Website: shareholder.anz.com
Group General Manager Investor
Relations: Jill Craig
REGISTERED OFFICE
ANZ Centre Melbourne
Level 9, 833 Collins Street
Docklands VIC 3008 Australia
Telephone +61 3 9273 5555
Facsimile +61 3 8542 5252
Company Secretary:
John Priestley
CORPORATE AFFAIRS /
CORPORATE RESPONSIBILITY
Level 9, 833 Collins Street
Docklands VIC 3008 Australia
Telephone +61 3 8654 3276
Facsimile +61 3 8654 9911
Group General Manager
Corporate Aff airs: Gerard Brown
Computershare Investor Services Pty Ltd
GPO Box 2975 Melbourne
VIC 3001 Australia
Telephone 1800 11 33 99 (Within Australia)
+61 3 9415 4010 (International Callers)
Facsimile +61 3 9473 2500
anzshareregistry@computershare.com.au
NEW ZEALAND
Private Bag 92119 Auckland 1142
New Zealand
Telephone 0800 174 007
Facsimile +64 9 488 8787
UNITED KINGDOM
The Pavilions
Bridgwater Road Bristol BS99 6ZZ
United Kingdom
Telephone +44 870 702 0000
Facsimile +44 870 703 6101
UNITED STATES
The Bank of New York Mellon Corporation
Shareowner Services
BNY Mellon Shareowner Services
P.O. Box 358516
Pittsburgh, PA 15252-8516
Callers outside USA: +1-201-680-6825
Callers within USA: 1-888-269-2377
IMPORTANT DATES FOR SHAREHOLDERS*
DATE
2 MAY 2012
10 MAY 2012
16 MAY 2012
2 JULY 2012
25 OCTOBER 2012
8 NOVEMBER 2012
14 NOVEMBER 2012
19 DECEMBER 2012
19 DECEMBER 2012
EVENT
Interim Results Announcement
Interim Dividend Ex-Date
Interim Dividend Record Date
Interim Dividend Payment Date
Annual Results Announcement
Final Dividend Ex-Date
Final Dividend Record Date
Final Dividend Payment Date
Annual General Meeting
* If there are any changes to these dates, the Australian Securities Exchange
will be notifi ed accordingly.
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anz.com
Australia and New Zealand Banking Group Limited
ABN 11 005 357 522