2012
ANNUAL REPORT
RIGHT PLACE RIGHT TIME
OUR SUPER REGIONAL STRATEGY PUTS ANZ IN THE
RIGHT PLACE AT THE
RIGHT TIME
OUR PEOPLE AND UNIQUE STRATEGY ARE
THE KEYS TO OUR SUCCESS
ANZ IS EXECUTING A FOCUSED STRATEGY TO BUILD THE BEST CONNECTED,
MOST RESPECTED BANK ACROSS THE ASIA PACIFIC REGION.
WHO WE ARE AND HOW WE OPERATE
ANZ’s history of expansion and growth stretches over 175 years. We have a strong franchise in Retail,
Commercial and Institutional banking in our home markets of Australia and New Zealand and we have
been operating in Asia Pacifi c for more than 30 years.
Today, ANZ operates in 32 markets globally. We are the third largest bank in Australia, the largest
banking group in New Zealand and the Pacifi c, and among the top 20 banks in the world.
d
n
k
n
n
a
Visio n
The best con n ecte d a
most respecte d b
across our re gio
V
I
n
A
t
a
e
c
l
u
e
s
&
c
g
o
u
r
i
t
n
t
a
E
x
c
e
C
y
b
•
ilit
lle
n
olla
y • R
B
c
e
e
h
b
oration
espect
aviours
P
ur
Responsible gro
for our custo
people a
m
w
t
h
p
o
n
e
r
d c
s, s
o
a
n
d
s
e
h
m
a
p
m
r
r
e
o
u
h
s
n
o
p
i
t
i
l
d
e
r
e
e
i
s
t
r
s
y
,
PROGRESS
g People Progress
n d Promise
H
e l p in
B r a
OUR SUPER
REGIONAL STRATEGY
» Strengthening our business in
Australia, New Zealand and the
Pacifi c, while establishing a signifi cant
presence in key markets in Asia.
» Building connectivity to support
customers who are operating
increasingly within and across
our region.
» Providing our customers with the
right fi nancial solutions and insights
to help them progress.
» Growing and strengthening the bank
by diversifying our earnings.
ANZ ANNUAL REPORT 2012
1
2
ANZ ANNUAL REPORT 2012
CONTENTS
Section 1
Financial Highlights
Chairman’s Report
Chief Executive Offi cer’s Report
Directors’ Report
Remuneration Report
Corporate Governance
Section 2
Review of Operating Results
Principal Risks and Uncertainties
Five Year Summary
5
6
7
8
13
36
55
62
70
Section 3
Financial Statements
Notes to the Financial Statements
Directors’ Declaration and
Responsibility Statement
Independent Auditor’s Report
Section 4
Supplementary Information
Shareholder Information
Glossary of Financial Terms
Alphabetical Index
72
78
193
194
196
207
213
216
CONTENTS
3
SECTION 1
Financial Highlights
Chairman’s Report
Chief Executive Offi cer’s Report
Directors’ Report
Remuneration Report
Corporate Governance
5
6
7
8
13
36
4
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 assets3
Net interest margin3
Net interest margin (excluding Global Markets)3
Underlying profi t per average FTE ($)1,4
Effi ciency ratios
Operating expenses to operating income
Operating expenses to average assets3
Operating expenses to operating income (underlying)1
Operating expenses to average assets (underlying)1,3
Credit impairment provisioning
Collective provision charge/(release) ($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
Interim – 100% franked (cents)
Final – 100% franked (cents)
Total dividend (cents)
Ordinary share dividend payout ratio5
Underlying ordinary share dividend payout ratio1,5
Preference share dividend ($m)
Dividend paid6
ANZ ANNUAL REPORT 2012
2012
2011
5,661
6,011
5,355
5,652
14.6%
15.6%15.6%
0.90%
2.31%
2.71%
122,681
15.3%
16.2%16.2%
0.94%
2.42%
2.80%
116,546
48.1%
1.36%
45.6%45.6%
1.28%1.28%
(379
)
1,577
1,198
0.38%
0.29%
66
79
145
69.3%
65.3%
47.4%
1.40%
45.9%45.9%
1.35%1.35%
7
1,230
1,237
0.32%
0.32%
64
76
140
68.6%
65.0%
11
12
1 Profit has been adjusted for certain 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 years. The adjustments made in arriving at
underlying profit are included in statutory profit which is 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, and the presentation
thereof, are based on the guidelines released by the Australian Institute of Company
Directors (AICD) and the Financial Services Institute of Australasia (FINSIA), and have been
determined on a consistent basis with those made in prior years. Refer to page 204 to 206
for analysis of the adjustments between statutory profit and underlying profit.
2 Average ordinary shareholders’ equity excludes non-controlling interests and preference shares.
3 Comparative information has been restated to reflect the impact of the current period
reporting treatment of derivative related collateral posted/received and the associated
interest income/expense. Refer to note 1 of the financial statement for further details.
4 Comparative amounts have changed reflecting an amendment to FTE to align to the current
year methodology.
5 The 2012 dividend payout ratio is calculated using the March 2012 interim and the proposed
September 2012 final dividend. The 2011 dividend payout ratio is calculated using the
March 2011 interim and September 2011 final dividend.
6 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 A STRONG FINANCIAL RESULT IN 2012 AND MADE CONTINUED PROGRESS WITH ITS
SUPER REGIONAL STRATEGY.
I am pleased to report that ANZ’s statutory profi t after tax for the
year ended 30 September 2012 was $5.7 billion, up 6%. This good
performance refl ected continued progress with our super regional
strategy which saw growth across our key businesses in Australia,
New Zealand and Asia Pacifi c, together with renewed focus on
cost management.
The fi nal dividend of 79 cents per share brings the total dividend
for the year to 145 cents per share fully franked, an increase of 4%.
Our capital position remains strong, placing ANZ among the world’s
best capitalised banks and we remain one of only a small number
of banks globally which have maintained a AA rating from all three
credit ratings agencies.
Super Regional Strategy
Over the past fi ve years we have had a consistent focus on
creating the region’s best connected and most respected bank.
2012 has been another year of achievement. In Asia, we continued
to invest. For example, in our subsidiary bank in China we increased
capital to support growth. Greater China, including Hong Kong and
Taiwan, is now ANZ’s largest market outside Australia and New
Zealand. We also opened our fi rst Malaysian branch in Labuan.
In Australia and New Zealand, our largest markets, we also continued
to invest in customer service and innovation, and in leveraging
connectivity with our international network. This is increasingly a source
of diff erentiation, particularly in Commercial and Institutional banking.
At the same time, we have increased our focus on simplifying the
bank and on containing cost growth. Alistair Currie was appointed to
the role of Group Chief Operating Offi cer to deliver a more integrated
approach to technology, shared services and operations. In New
Zealand, we made signifi cant progress with our simplifi cation
program, including our migration to one banking and technology
platform, a decision to move to a single brand.
Customers, our People and the Community
Since the onset of the global fi nancial crisis, the reputation of banks
throughout the world has been challenged. Although Australian
banks have remained strong throughout this period, we have also
had to face up to community concerns about our industry and
increase our eff orts with customers and with the wider community.
As we made structural changes to our business in 2012 to adjust to
the more diffi cult operating environment, our leading position on
retail customer satisfaction slipped in Australia but has since regained
momentum. Although we have maintained strong customer
satisfaction in New Zealand, management refocused their eff orts on
improving satisfaction in Australia. There was early recognition of our
1 Money magazine Bank of the Year and Home Lender of the Year. AFR Capital Business
Bank of the Year 2012. Top 5 Corporate Bank, Greenwich Associates Survey 2012.
6
progress with ANZ receiving awards1 as Bank of the Year, Mortgage
Lender of the Year and Business Bank of the Year in 2012.
We were also pleased to be recognised for our long-term
commitment to building the money management skills and savings
of disadvantaged groups, receiving two major awards at the
MoneySmart Week Awards in Australia.
Throughout 2012, we have continued to equip our people for
high performance, continuing to support them to make ethically,
socially and environmentally responsible decisions while promoting
their wellbeing.
We have linked ANZ’s super regional strategy to our corporate
responsibility framework and continued to work with stakeholders
to guide our activities. This includes reviewing and improving our
responsible lending practices which have been built into our
training programs.
ANZ was ranked the most sustainable bank globally in the 2012
Dow Jones Sustainability Index.
Outlook
The global economy is softening as we enter our 2013 fi nancial year
with many European economies contracting and the United States
continuing to recover slowly.
Although China’s economy is also in a managed slow-down we expect
it will continue to grow at 7–8% in 2013. This will see Asia remain the
best performing region in the world. In Australia and New Zealand
consumer and business confi dence remains weak and growth during
2013 is expected to be around 2.7% and 2.5% respectively.
Although the year ahead looks challenging with headwinds in a
number of areas, ANZ’s unique strategy and the momentum we have
in adapting to the new environment means for banks we are well
placed to deliver value to our shareholders, our customers and
the community.
Finally, on behalf of shareholders, I would like to acknowledge the
commitment and dedication of our management team and of all our
48,000 staff who have worked so hard in 2012. My thanks also go to
my fellow Directors for their commitment and support during the year.
JOHN MORSCHEL
CHAIRMAN
ANZ ANNUAL REPORT 2012
CHIEF EXECUTIVE OFFICER’S REPORT
A MESSAGE FROM MICHAEL SMITH
OUR 2012 RESULTS HIGHLIGHT THAT AFTER FIVE YEARS ANZ’S SUPER REGIONAL STRATEGY IS DELIVERING
AND HAS GROWING MOMENTUM.
ANZ has delivered another good performance1 in 2012 through
a consistent focus on delivering our super regional strategy by
strengthening our domestic businesses in Australia, New Zealand
and the Pacifi c while driving signifi cant growth in Asia.
Revenue grew 5% with market share gains across key segments
and geographies. We continued to invest in our strategy and future
growth with costs up by 4%, but at the same time we have increased
our focus on productivity which saw cost growth trend lower
during the year.
Our focus on costs resulted in signifi cant change across ANZ which
impacted many of our staff and so I am pleased to report that
employee engagement remained steady at 70%. Our aim remains
to reach global best-in-class standards through a bank-wide
commitment to customer service and to ensure ANZ is a great
place to work.
Divisional Performance
In the Australia Division we produced a solid result with profi t up
4% benefi ting from market share gains, tighter management of
margins and a strong productivity focus. Retail lending grew 7%
while average deposits grew at 12%. Commercial also performed
well, with average growth in customer numbers and continued
leverage of our regional capabilities.
Profi t grew 3% in the International and Institutional Banking
Division. The division continues to grow and diversify its earnings
by geography, product and customer with 43% of revenue and 54%
deposits now derived from outside Australia and New Zealand.
This includes signifi cant growth in many of our priority segments
based on the connectivity of our international network, although
this was off set by softer demand for loans and signifi cant margin
contraction in Australia.
New Zealand delivered a good performance with profi t up 12%.
Business simplifi cation showed benefi ts with improved fi nancial
results based on productivity improvements and market share
growth in key segments. We also announced we would move to
one brand in New Zealand – the ANZ brand, and in late October
2012 we reached a signifi cant milestone when we moved to
a single technology platform.
Profi t from the newly-formed Global Wealth and Private Banking
Division was fl at, in line with market conditions, however we saw
improving performance trends during the year, particularly in
insurance and investment earnings, and through productivity gains.
Credit quality was stable with ANZ’s provision charge of $1.25 billion
broadly in line with 2011 and the Group’s provision coverage
remains strong.
Our Strategy and the Environment for Banking
While ANZ delivered a good performance in 2012, just as important
has been our strategic progress.
Five years ago, we articulated an ambition to create value for our
shareholders, our customers and the wider community by becoming
a super regional bank – a bank of global quality with regional focus.
This included an aspiration to source 20% of our revenues from
outside Australia and New Zealand.
I am pleased to report, despite having endured the global fi nancial
crisis, our network in Asia Pacifi c, Europe and America contributed
21% of Group revenue in 2012.
To deliver this outcome, the scale of transformation has been
signifi cant involving a systematic and coordinated program of action
in every area of the bank. In our separate Shareholder Review we
have provided a fi ve-year progress report showing how we have
strengthened ANZ in our key domestic markets in Australia and
New Zealand while building a much bigger business in the growth
markets of Asia Pacifi c.
While we have made signifi cant progress, the journey is not over.
We have set new aspirations which will see further growth, particularly
in Asia, while also adapting the bank to the post-fi nancial-crisis world.
We believe the lower growth business environment that we have
seen following the fi nancial crisis will be with us for the foreseeable
future. We have been actively responding to these fast-changing and
challenging conditions in diff erent markets by driving both growth
and productivity.
Our 2012 results highlight that after fi ve years, ANZ’s super regional
strategy has growing momentum. ANZ has moved from being a
largely domestic bank to an integrated and growing, regionally
focused international bank that is increasingly delivering
diff erentiated value and performance.
MICHAEL SMITH
CHIEF EXECUTIVE OFFICER
1 All figures on an underlying basis unless noted otherwise.
CHAIRMAN’S REPORT AND CHIEF EXECUTIVE OFFICER’S REPORT
7
DIRECTORS’ REPORT
THE DIRECTORS PRESENT THEIR REPORT TOGETHER WITH THE FINANCIAL STATEMENTS 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 2012 AND THE INDEPENDENT AUDITOR’S
REPORT THEREON. THE INFORMATION IS PROVIDED IN CONFORMITY WITH THE CORPORATIONS ACT 2001.
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 Operating Results on pages 55 to
61 of this Annual Report.
Dividends
The Directors propose that a fully franked fi nal dividend of 79 cents
per fully paid ordinary share will be paid on 19 December 2012.
The proposed payment amounts to approximately $2,149 million.
During the fi nancial year, the following fully franked dividends were
paid on fully paid ordinary shares:
Type
Cents
per share
Amount before bonus
option plan adjustment
option plan adjustment
option plan adjustment
$m
$m
Date of
payment
Final 2011
Interim 2012
76
66
2,002
1,769
16 December 2011
2 July 2012
The proposed fi nal dividend of 79 cents together with the interim
dividend of 66 cents brings total dividends in relation to the year
ended 30 September 2012 to 145 cents fully franked.
Further details of dividends provided for or paid during the year
ended 30 September 2012 on ANZ’s ordinary and preference
shares are set out in notes 7, 29 and 30 to the fi nancial statements.
Review of Operations
A 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
Operating Results of this Annual Report.
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,
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.
The Group operates on a divisional structure with Australia,
International and Institutional Banking, New Zealand and Global
Wealth and Private Banking being the major operating divisions.
At 30 September 2012, the Group had 1,337 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 $5,661 million, an increase of 6% over the
prior year.
Operating income growth of $779 million or 5% was primarily
driven by higher net interest income following a 10% increase in
average interest earning assets, partially off set by an 11 basis point
decline in net interest margin. Operating expenses increased
$496 million or 6%, impacted by a software impairment charge
of $274 million and an increase in restructuring expenses of
$126 million.
Provision for credit impairment decreased by $39 million or 3%
with improvements across the Australia and New Zealand divisions.
Balance sheet growth was strong with total assets increasing by
$37.9 billion (6%) and total liabilities increasing by $34.6 billion (6%).
Movements within the major components include:
Net loans and advances increased by $30.5 billion (8%) primarily
driven by above system housing lending growth of $12.2 billion
(7%) in the Australia division and growth of $10.4 billion (11%) in
International and Institutional Banking, mainly in Global Loans and
Transaction Banking.
Growth in customer deposits of $31.1 billion (10%) was
concentrated in the second half, and refl ected growth in Australia
of $13.8 billion (11%), growth in International and Institutional
Banking of $13.0 billion (10%) driven by strong momentum in Asia
Pacifi c, Europe and America (APEA) and strong customer deposit
growth in New Zealand of $3.7 billion (10%) driven by Retail and
Small Business Banking.
Further details are contained on pages 55 to 61 of this Annual Report.
8
ANZ ANNUAL REPORT 2012
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. 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 eight 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 37 to 40 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
37 to 49 of this Annual Report. No Directors retired during the 2012
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 2012
fi nancial year are listed on pages 37 to 40.
Events Since the End of the Financial Year
There were no signifi cant events from 30 September 2012 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 Report 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 reports 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 completed
its fi rst fi ve-year assessment cycle through submission of its fi nal
report in December 2011. It has now commenced the second
fi ve-year cycle of the program and is required to submit an updated
assessment plan by December 2012 that assesses cost-eff ective
opportunities across 90% of its usage. 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, 2011 and 2012.
DIRECTORS’ REPORT
9
DIRECTORS’ REPORT (continued)
Company Secretaries’ Qualifi cations
and Experience
Currently there are two people appointed as Company Secretaries
of the Company. Details of their roles are contained on page 44.
Their qualifi cations and experience are as follows:
Bob Santamaria, BCom, LLB (Hons)
Group General Counsel.
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.
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 Stakeholder Engagement Model for Relationship
with the External Auditor (which incorporates requirements of
the Corporations Act 2001) states that the external auditor may
not provide services that are perceived to impair or impact the
independence of the external auditor or be in confl ict with the
role of the external auditor. These include consulting advice and
sub-contracting of operational activities normally undertaken by
management, and engagements where the external auditor may
ultimately be required to express an opinion on their own work.
Specifi cally the Stakeholder Engagement Model:
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 a limited number of authorised senior members
of management) 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.
Further details about the Stakeholder Engagement Model can be
found in the Corporate Governance Statement on page 49.
The Audit Committee has reviewed a summary of non-audit services
provided by the external auditor for 2012, and has confi rmed that
the provision of non-audit services for 2012 is consistent with the
Stakeholder Engagement Model and compatible with the general
standard of independence for external auditors imposed by the
Corporations Act 2001. This has been formally advised by the
Audit Committee to the Board of Directors.
10
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 (US);
and
complied with domestic policies and regulations, together with
the regulatory requirements of the US Securities and Exchange
Commission (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 2012 are
as follows:
Non-audit services
Review of Wealth internal capital adequacy
assessment process
Benchmarking review of Wealth IT data
centre transfer
Review application of new Australian consumer
cards legislation
Regulatory benchmarking review (Taiwan)
Review of accounts in relation to potential
divestment
Accounting advice
Assist with Taiwanese brokerage license
application
Group collective provision review (on behalf
of APRA)
Wealth managed investment schemes distribution
model review
Review of Wealth scrip for scrip audit validation
model and trust voting analysis models
Wealth R&D claim review
Review output from Group counterparty credit
risk review project
Presentations
Solomon Islands prudential standard impact
assessment
Training courses in China
Witness branch transfer of deposit boxes
in Singapore
Amount paid/payable
Amount paid/payable
Amount paid/payable
$’000’s
$’000’s
2012
2011
83
75
50
49
35
28
11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
–
101
81
46
40
20
18
11
9
4
Total
331
335
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 $4.313 million
(2011: $4.444 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 2012 is compatible with the general
standard of independence for external auditors imposed by the
Corporations Act 2001.
ANZ ANNUAL REPORT 2012
Directors and Offi cers who were previously Partners
of the Auditor
Mr Marriott, the Company’s Chief Financial Offi cer up to 31 May
2012, 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, the Company has paid premiums
for insurance 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
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
11
DIRECTORS’ REPORT (continued)
Key Management Personnel and Employee Share
and Option Plans
Details of equity holdings of Non-Executive Directors, the Chief
Executive Offi cer and Disclosed Executives during the 2012 fi nancial
year and as at the date of this report are detailed in note 46 of the
fi nancial statements.
Details of options/rights issued over shares granted to the
Chief Executive Offi cer and Disclosed Executives during the
2012 fi nancial year and 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 45
of the 2012 fi nancial statements.
Details of shares issued as a result of the exercise during the 2012
fi nancial year of options/rights granted to employees are detailed
in note 45 of the 2012 fi nancial statements.
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 45 of the 2012 fi nancial statements. 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 2012.
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 2012, 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.
Andrew Yates
Partner
Melbourne
5 November 2012
KPMG
12
REMUNERATION REPORT
Contents
1 Basis of Preparation
2 Key Management Personnel
3 Role of the Board in Remuneration
4 HR Committee Activities
5 Remuneration Strategy and Objectives
6 The Composition of Remuneration at ANZ
6.1 Fixed Remuneration
6.2 Variable Remuneration
6.2.1 Short Term Incentives
6.2.2 Long Term Incentives
6.3 Other Remuneration Elements
7 Linking Remuneration to Balanced
Scorecard Performance
7.1 ANZ Performance
7.2 STI – Performance and Outcomes
8 2012 Remuneration
8.1 Non-Executive Directors (NEDs)
8.2 Chief Executive Offi cer (CEO)
8.3 Disclosed Executives
8.4 Remuneration Tables –
CEO and Disclosed Executives
Non Statutory Remuneration Table
Statutory Remuneration Table
8.5 STI – Performance and STI Correlation
9 Equity
9.1 Equity Valuations
9.2 Legacy LTI Program
14
14
15
15
16
16
18
18
18
19
20
21
21
22
23
23
25
27
30
30
32
34
34
34
35
ANZ ANNUAL REPORT 2012
REMUNERATION REPORT
13
REMUNERATION REPORT (continued)
1. Basis of Preparation
This Directors’ Remuneration Report has been prepared in accordance
with section 300A of the Corporations Act 2001 for the Company
and the consolidated entity for 2011 and 2012. Information in Table 6:
Non Statutory Remuneration has been prepared in accordance with
the presentation basis set out in Section 8.4. The information provided
in this Remuneration Report has been audited as required by section
308(3C) of the Corporations Act 2001, unless indicated otherwise,
and forms part of the Directors’ Report.
The Directors’ Remuneration Report is designed to provide shareholders
with an understanding of ANZ’s remuneration policies and the link
between our remuneration approach and ANZ’s performance, in
particular regarding Key Management Personnel (KMP) as defi ned
under the Corporations Act 2001. Individual outcomes are provided
for ANZ’s Non-Executive Directors (NEDs), the Chief Executive Offi cer
(CEO) and Disclosed Executives (current and former).
The Disclosed Executives are defi ned as those direct reports to
the CEO with key responsibility for the strategic direction and
management of a major revenue generating Division or who control
material revenue and expenses that fall within the defi nition of KMP
of the Company and of the Group.
2. Key Management Personnel (KMP)
The KMP disclosed in this year’s report are detailed in Table 1. A
number of movements occurred during 2012 which are summarised
as follows:
TABLE 1: KEY MANAGEMENT PERSONNEL
Name
Position
Non-Executive Directors (NEDs)
NEDs
Eff ective 1 April 2012, Ms Paula Dwyer was appointed as a NED.
DISCLOSED EXECUTIVES
In November 2011 ANZ announced the retirement of Mr Chris
Page, Chief Risk Offi cer (CRO), eff ective 16 December 2011, and
confi rmed the promotion of Mr Nigel Williams into the role of
CRO immediately following Mr Page’s departure.
In February 2012 ANZ announced a number of senior management
and organisational changes to accelerate its super regional strategy,
support its growth and transformation, and strengthen succession
planning within its senior leadership group. Eff ective 1 March 2012:
– Mr Shayne Elliott was promoted from CEO Institutional to Chief
Financial Offi cer (CFO) (CFO designate from 1 March until 31 May
2012), succeeding Mr Peter Marriott who concluded in the role
on 31 May 2012. Mr Elliott also took on responsibility for Group
Strategy and Mergers and Acquisitions (M&A).
– Mr Alex Thursby was promoted from CEO Asia Pacifi c, Europe
and America to CEO International and Institutional Banking which
is focused on ANZ’s largest multi-national clients globally and
the growth and transformation of ANZ’s international franchise.
– Ms Joyce Phillips was promoted from Group Managing Director
Strategy, M&A, Marketing and Innovation to a new role of CEO
Global Wealth and Private Banking with responsibility for Wealth
Management and Private Banking globally. Ms Phillips retained
responsibility for Marketing, Innovation and Digital.
J Morschel
Chairman – Appointed Chairman March 2010 (Director October 2004)
G Clark
P Dwyer
P Hay
H Lee
I Macfarlane
D Meiklejohn
A Watkins
Director – Appointed February 2004
Director – Appointed 1 April 2012
Director – Appointed November 2008
Director – Appointed February 2009
Director – Appointed February 2007
Director – Appointed October 2004
Director – Appointed November 2008
Chief Executive Offi cer (CEO)
M Smith
CEO
Disclosed Executives – Current
P Chronican
S Elliott
D Hisco
G Hodges
J Phillips
A Thursby
N Williams
Chief Executive Offi cer, Australia
Chief Financial Offi cer – appointed 1 June 2012; Chief Financial Offi cer Designate from
1 March until 31 May 2012
Chief Executive Offi cer, New Zealand – appointed 13 October 2010
Deputy Chief Executive Offi cer
CEO Global Wealth and Private Banking – appointed 1 March 2012
Chief Executive Offi cer, International & Institutional Banking – appointed 1 March 2012
Chief Risk Offi cer – appointed 17 December 2011
Disclosed Executives – Former
P Marriott
C Page
14
Former Chief Financial Offi cer – concluded in role 31 May 2012, ceased employment 31 August 2012
Former Chief Risk Offi cer – retired 16 December 2011
Term as KMP
in 2012
Full Year
Full Year
Part Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Part Year
Full Year
Part Year
Part Year
Part Year
ANZ ANNUAL REPORT 2012
3. Role of the Board in Remuneration
The Board Human Resources (HR) Committee is a Committee
of the Board. The Board HR Committee is responsible for:
reviewing and making recommendations to the Board in relation
to remuneration governance, director and senior executive
remuneration and senior executive succession;
specifi cally making 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.
More details about the role of the HR Committee can be found on
the ANZ website1.
The link between remuneration and risk is considered a key
requirement by the Board, with Committee membership structured
to ensure overlap of representation across the Board HR Committee
and Board Risk Committee, with two Non Executive Directors
currently on both committees.
Throughout the year the HR Committee and management received
information from external providers (Ernst & Young, Freehills,
Mercer (Australia) Pty Ltd, Hay Group and PricewaterhouseCoopers).
This information related to remuneration market data and analysis,
market practice on the structure and design of incentive programs
(both short and long term), legislative requirements and
interpretation of governance and regulatory requirements both
in Australia and globally.
1 Go to anz.com, about us, our company, corporate governance, HR Committee Charter
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 provide recommendations to
the Board, taking into consideration information from external
providers. The Board’s decisions were made independently using
the information provided and having careful regard to ANZ’s strategic
objectives and Remuneration Policy and principles.
4. HR Committee Activities
During 2012, the HR Committee met on fi ve occasions, with
remuneration matters a standing agenda item on each occasion.
The HR Committee has a strong focus on the relationship between
business performance, risk management and remuneration, with
the following key activities occurring during the year:
annual review of the eff ectiveness of the Remuneration Policy;
adjustment of the Short Term Incentive (STI) mandatory deferral
threshold downward from $200,000 to $100,000. Refer to page 19
for more detail on STI mandatory deferral;
review of terms and conditions of key senior executive
appointments and terminations;
engagement with APRA on remuneration compliance and
application of the APRA Remuneration Standard;
involvement of the Risk function in remuneration regulatory and
compliance related activities; and
monitoring of domestic and international regulatory and
compliance matters relating to remuneration governance.
REMUNERATION REPORT
15
REMUNERATION REPORT (continued)
5. Remuneration Strategy and Objectives
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, which is applied
globally across ANZ:
creating and enhancing value for all ANZ stakeholders;
emphasis on ‘at risk’ components of total rewards to increase
alignment with shareholders and encourage behaviour that
supports both the long term fi nancial soundness and the risk
management framework of ANZ, and to deliver superior long
term total shareholder returns;
REMUNERATION OBJECTIVES
diff erentiated rewards in line with ANZ’s culture of rewarding for
outperformance and demonstration of values led behaviours; and
provide a competitive reward proposition to attract, motivate
and retain the highest quality individuals in order to deliver ANZ’s
business and growth strategies.
The key aspects of ANZ’s remuneration strategy for the CEO and
Disclosed Executives are set out below:
Shareholder
value creation
Emphasis on ‘at risk’
components
Reward diff erentiation to
drive outperformance and
values led behaviours
Attract, motivate
and retain talent
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 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,
which considers short term performance
and contribution towards longer term
objectives, and also the demonstration
of values led behaviours.
LTI targets are linked to relative
Total Shareholder Return (TSR)
over the longer term.
Cash
Delivered as:
Part cash and part equity,
with the equity deferred
for 1 and 2 years.
Deferred equity remains
at risk until vesting.
Equity deferred for 3 years.
Deferred equity remains
at risk until vesting.
This is tested once
at vesting date.
6. The Composition of Remuneration at ANZ
The Board aims to fi nd a balance between:
fi xed and at-risk remuneration;
short term and long term incentives; and
amounts paid in cash and deferred equity.
16
Refer Figure 1 for an overview of the target remuneration mix for the
CEO and Disclosed Executives.
ANZ ANNUAL REPORT 2012
FIGURE 1: ANNUAL TOTAL REWARD MIX PERCENTAGE (% BASED ON ‘AT TARGET’ LEVELS OF PERFORMANCE)
Target Reward Mix
Deferred
Equity
50%
At risk
67%
Cash
50%
Fixed
33%
LTI
33%
STI deferred
16.5%
STI cash
16.5%
Fixed
remuneration
33%
Deferred
Equity
40%
At risk
63%
Cash
60%
Fixed
37%
LTI
19%
STI deferred
21%
STI cash
23%
Fixed
remuneration
37%
CEO
Disclosed Executives
The CEO’s target remuneration mix is equally weighted between
fi xed remuneration, STI and LTI, with approximately half of total target
remuneration payable in cash in the current year and half allocated
as equity and deferred over one, two or three years. The deferred
remuneration remains at risk until vesting date.
The target remuneration mix for Disclosed Executives is weighted
between fi xed remuneration (37%), STI (44%) and LTI (19%), with
approximately 60% of total target remuneration payable in cash in
the current year and 40% allocated as equity and deferred over one,
two or three years. The deferred remuneration remains at risk until
vesting date. The Board has adopted this mix as the most eff ective
reward mechanism to drive strong performance and value for the
shareholder in both the short and longer term. In line with that,
the STI balanced scorecard contains a combination of short and
long term objectives. See page 22.
The following diagram demonstrates the time horizon associated
with STI and LTI awards.
1 Oct 2011
30 Sept 2012
Oct 2012
Nov 2012
Dec 2012
Nov 2013
Nov 2014
Nov/Dec 2015
Annual
Performance
and
Remuneration
Review
STI
LTI
Performance and
Measurement Period
STI outcomes
determined and
approved by
the Board
Deferred STI
allocated as
equity
Cash STI paid
1 Year
50% of
deferred STI
vests (subject
to Board
discretion)
1 Year
50% of
deferred STI
vests (subject
to Board
discretion)
LTI outcomes
determined and
approved by
the Board
Deferred LTI
allocated
as equity
(performance
rights) to
Disclosed
Executives#
CEO grant of
LTI (subject to
shareholder
approval)
3 Years
LTI vests
(subject to
Board discretion
and meeting
performance
hurdle)
#CRO allocated deferred share rights
The reward structure for the CEO and Disclosed Executives is as
detailed below. The only exception is the CRO whose remuneration
arrangements have been structured diff erently to preserve the
independence of this role and to minimise any confl icts of interest
in carrying out the risk control function across the organisation.
The CRO’s role has a greater weighting on fi xed remuneration with
more limited STI leverage for individual performance and none
(either positive or negative) for Group performance. LTI is delivered as
unhurdled deferred share rights, with a three year time based hurdle,
and is therefore not subject to meeting a TSR performance hurdle.
REMUNERATION REPORT
17
REMUNERATION REPORT (continued)
6.1 FIXED REMUNERATION
The fi xed remuneration amount is expressed as a total dollar amount
which can be taken as cash salary, superannuation contributions,
and other nominated benefi ts.
ANZ positions fi xed remuneration for the CEO and Disclosed
Executives against the relevant fi nancial services market (referencing
both domestic and international fi nancial services companies) and
takes into consideration role responsibilities, performance,
qualifi cations, experience and location. The fi nancial services market
is considered the most relevant comparator as this is the key pool
for sourcing talent and where key talent may be lost.
6.2 VARIABLE REMUNERATION
Variable remuneration forms a signifi cant part of the CEO’s and
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.
6.2.1 SHORT TERM INCENTIVES (STI)
The STI provides an annual opportunity for an incentive award. It is
assessed against Group, Divisional and individual objectives based
on a balanced scorecard of measures and positive demonstration of
values led behaviours. Many of the measures relate to contribution
towards medium to longer term performance outcomes aligned to
ANZ’s strategic objectives as well as annual goals. For the CEO and
Disclosed Executives, the weighting of measures in the balanced
scorecard will vary to refl ect the responsibilities of each role.
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 coupled with demonstration of values led behaviours.
ANZ’s Employee Reward Scheme (ANZERS) structure and pool is reviewed by the HR Committee and approved by
the Board. The size of the overall pool is based on an assessment of the balanced scorecard of measures of the Group.
This pool is then distributed between the diff erent Divisions based on their relative performance against a balanced
scorecard of quantitative and qualitative measures.
Performance targets
In order to focus on achieving individual, Divisional and Group performance objectives a mix of quantitative and
qualitative short, medium and long term measures are assessed. Examples of these are given below and further detail
is provided on page 22, Section 7.2, STI – Performance and Outcomes:
Finance – profi t, capital and liquidity, return on equity, core funding ratio and cost to income ratio;
Customer – customer satisfaction and market share;
Shareholder returns – total shareholder returns and credit rating;
People – employee engagement, leadership and diversity;
Connectivity – growth in Asia Pacifi c, Europe and America; and
Process/risk – risk management, audit and compliance measures/standards.
Targets are set considering prior year performance, industry standards and ANZ’s strategic agenda. Many of the
measures also focus on targets which are set for the current year in the context of progress towards longer term goals.
The specifi c targets and features relating to all these measures have not been provided in detail due to their
commercial sensitivity.
The validation of performance and achievements against these objectives for:
the CEO involve an independent review and endorsement by the CRO and CFO, followed by review and
endorsement by the HR Committee with fi nal outcomes approved by the Board; and
Disclosed Executives involve a review at the end of the year by the CEO, 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 Board reviews performance outcomes against target for each metric, combined with a judgmental assessment
of the prioritisation and impact of each outcome relative to overall business performance for both the short and
longer term.
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.
Rewarding performance The 2012 target STI award level for the CEO represents one third of total target remuneration and for Disclosed
Executives approximately 44% of their total target remuneration. The maximum STI opportunity for top performers is
up to 250% of the target whereas weaker performers receive a signifi cantly reduced or no incentive payment at all.
18
ANZ ANNUAL REPORT 2012
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 aligns the interests of the CEO and
Disclosed Executives to shareholders to drive continued performance over the longer term.
For the fi nancial year ending September 2012, the mandatory deferral threshold for STI payments was reduced from
$200,000 to $100,000 (subject to a minimum deferral amount of $25,000) with:
the fi rst $100,000 of STI paid in cash;
50% of STI above $100,000 paid in cash;
25% of STI above $100,000 deferred in ANZ equity for one year; and
25% of STI above $100,000 deferred in ANZ equity for two years.
The deferred component of bonuses paid in relation to the 2012 year is delivered as ANZ deferred shares or deferred
share rights. Where deferred share rights are granted, for grants made after 1 November 2012 at the Board’s discretion,
any portion of the award which vests may be satisfi ed by a cash equivalent payment rather than shares.
As the incentive amount has already been earned, there are no further performance measures attached to the shares
or share rights, however, they do remain at risk and subject to clawback until the vesting date.
6.2.2 LONG TERM INCENTIVES (LTI)
The LTI provides an annual opportunity for an equity award deferred
for three years that aligns a signifi cant portion of overall
remuneration to shareholder value over the longer term.
LTI awards remain at risk and subject to clawback until vesting and
must meet or exceed a relative TSR performance hurdle (excluding
the CRO who is allocated deferred share rights).
LTI ARRANGEMENTS
Type of equity awarded LTI is delivered to the CEO and Disclosed Executives as 100% 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 and Disclosed Executives to one ordinary share.
The future value of the grant may range from zero to an undefi ned amount depending on performance against the
hurdle and the share price at the time of exercise.
For grants made after 1 November 2012, at the Board’s discretion, any portion of the award which vests may be
satisfi ed by a cash equivalent payment rather than shares.
Performance rights awarded to the CEO and Disclosed Executives will be tested against the performance hurdle at
the end of three years. A three year time based hurdle provides a reasonable period to align reward with shareholder
return and also acts as a vehicle to retain the CEO and Disclosed Executives. If the performance rights do not achieve
the required performance hurdle they are forfeited at that time.
Time restrictions
Performance hurdle
The performance rights granted to the CEO and Disclosed Executives have a single long term performance measure.
The performance rights are designed to reward the CEO and Disclosed Executives if the Group’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 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. The level of performance required
for each level of vesting, and the percentage of vesting associated with each level of performance, are set out below.
The performance rights lapse if the performance condition is not met. There is no re-testing.
If the TSR of ANZ:
The percentage of performance rights which will vest is:
Does not reach the 50th percentile of the TSR
of the Comparator Group
0%
Reaches or exceeds the 50th percentile of the TSR
of the Comparator Group but does not reach the
75th percentile
Reaches or exceeds the 75th percentile of the TSR
of the Comparator Group
50%, plus 2% for every one percentile increase above the
50th percentile
100%
REMUNERATION REPORT
19
REMUNERATION REPORT (continued)
Comparator group
The ANZ comparator group currently consists of the following nine companies:
AMP Limited
ASX Limited
National Australia Bank Limited
QBE Insurance Group Limited
Commonwealth Bank of Australia Limited
Suncorp-Metway Limited
Insurance Australia Group Limited
Westpac Banking Corporation
Macquarie Group Limited
These companies represent domestic fi nancial services companies and are considered by the Board as the most
appropriate comparator for ANZ at this time, given the majority of our business is generated in Australia and
New Zealand.
Size of LTI grants
Refer to Section 8.2, Chief Executive Offi cer (CEO) for details on the CEO’s LTI arrangements.
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 19% of total target 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 9.1, Equity Valuations 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 2011 allocation value:
LTI award value (communicated value)
approved allocation value per performance right
(independently valued by external advisors)
number of performance rights allocated ($500,000/$9.03)
$500,000
$9.03
55,370
LTI ARRANGEMENTS FOR THE CRO
Deferred share rights
The CRO is the only Disclosed Executive to receive LTI deferred share rights.
Deferred share rights 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 share rights to be allocated is based on an independent
valuation, as detailed in Section 9.1, Equity Valuations.
For grants made after 1 November 2012, at the Board’s discretion, any portion of the award which vests may be
satisfi ed by a cash equivalent payment rather than shares.
6.3 OTHER REMUNERATION ELEMENTS
CLAWBACK
The Board has on-going and absolute discretion to adjust performance-
based components of remuneration (including previously deferred
equity or cash) 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/cash,
the deferred equity/cash was not justifi ed.
Prior to any scheduled release of deferred equity/cash, the Board
considers whether any downward adjustment should be made.
HEDGING AND MARGIN LENDING PROHIBITION
As specifi ed in the Trading in ANZ Securities Policy and in accordance
with the Corporations Act 2001, 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, by an individual or their
associated persons, 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 which maybe subject to a margin call or loan to value
ratio breach.
To monitor adherence to this policy, ANZ’s CEO and Disclosed Executives
are required to sign an annual declaration stating that they and their
associated persons have not entered into (and are not currently
involved in) any schemes to protect the value of their interests in any
ANZ securities. Based on the 2012 declarations, ANZ can advise that
the CEO and Disclosed Executives are fully compliant with this policy.
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;
shareholdings for this purpose include all vested and allocated (but
unvested) equity which is not subject to performance hurdles; and
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.
20
ANZ ANNUAL REPORT 2012
CESSATION OF EMPLOYMENT PROVISIONS
CONDITIONS OF GRANT
The provisions that apply for STI and LTI awards in the case
of cessation of employment are detailed in Sections 8.2 CEO’s
Contract Terms and 8.3 Disclosed Executives’ Contract Terms.
The conditions under which STI (deferred shares and deferred share
rights) and LTI (performance rights and deferred share rights) are granted
are approved by the Board in accordance with the rules of the ANZ
Employee Share Acquisition Plan and/or the ANZ Share Option Plan.
7. Linking Remuneration to Balanced Scorecard Performance
7.1 ANZ PERFORMANCE
TABLE 2: ANZ’S FINANCIAL PERFORMANCE 2008 – 2012
Statutory profi t ($m)
Underlying profi t1 (Unaudited)
Underlying return on equity (ROE) (%)
Underlying earnings per share (EPS)
Share price at 30 September ($)
Total dividend (cents per share)
Total shareholder return (12 month %)
2012
5,661
6,011
15.6%
225.3
24.75
145
35.4
2011
5,355
5,652
16.2%
218.4
19.52
140
(12.6)
2010
4,501
5,025
15.5%
198.7
23.68
126
1.9
2009
2,943
3,772
13.3%
168.3
24.39
102
40.3
2008
3,319
3,426
15.1%
175.9
18.75
136
(33.5)
1 Profit has been adjusted for 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 which is 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, and the
presentation thereof, are based on the guidelines released by the Australian Institute
of Company Directors (AICD) and the Financial Services Institute of Australasia (FINSIA).
Further details on underlying profit are provided on page 55.
Figure 2 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 2008 to 2012
measurement period. ANZ’s TSR performance has well exceeded the
upper quartile TSR of the LTI comparator group during 2012.
FIGURE 2: ANZ 5-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN PERFORMANCE
120
110
100
90
80
70
60
50
e
g
a
t
n
e
c
r
e
P
Upper Quartile TSR
Median TSR
Fin Index TSR
ANZ TSR
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
2
1
r
a
M
2
1
p
e
S
Performance period
REMUNERATION REPORT
21
REMUNERATION REPORT (continued)
7.2 STI – PERFORMANCE AND OUTCOMES
ANZ uses a balanced scorecard to measure performance in relation
to the Group’s main incentive programs. 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 annual priorities.
In 2012, the Human Resources Committee refi ned the balanced
scorecard to align it to the Group’s key strategic priorities, resulting
in six categories containing a range of measures. Each of the six
categories are broadly equal in weight. These measures were agreed
at the beginning of the fi nancial year.
The Board has assessed the Bank’s overall 2012 performance as solid
across the range of balanced score card measures. Overall spend
approved by the Board for the main short-term incentive pools was at
below target levels with a range of underlying outcomes for business
units and individuals, in line with ANZ’s objectives of diff erentiating
reward based on performance.
The following table provides examples of some of the key measures
used in 2012 for assessing performance for the purpose of determining
short term incentive pools. The list provides examples of some of
the measures under each of the balanced scorecard categories.
Category
Measure
Outcome1
Finance
Profi t
Capital and Liquidity
On Target:
A record underlying profi t after tax of $6,011m, up 6% on the prior year. The total dividend for 2012
was $1.45 per share up 4%. Economic profi t2 of $2,539 million was up 1% on 2011 and was impacted
by continuing regulatory requirements to hold higher capital levels and by the impact of lower interest
rates on capital earnings.
Building long term shareholder value requires a resilient balance sheet. In the current economic
environment, measures for Capital, Liquidity and Funding are regarded as particularly important.
At balance date the Group’s Tier 1 Capital Ratio was 10.8% and Liquid Assets held were well in excess
of regulatory requirements.
The Bank is currently carrying $17 billion more in capital than pre the Global Financial Crisis (with
$11 billion being balance sheet strengthening and $6 billion to support growth).
Return on Equity
Underlying ROE is measured against longer-term targets and while 2012 was slightly lower than 2011,
this was as a result of the requirement to build our capital ratios in a lower interest environment.
Core Funding Ratio
(CFR)
Over the year, ANZ has maintained its CFR at comfortable levels.
Cost to Income Ratio Overall business growth was good and in line with strategic objectives. Productivity improved with
the cost to income ratio reduced 20bps year on year and 110bps half on half based on signifi cant cost
reduction programs across the bank.
Customer
Slightly below Target:
Customer satisfaction
(based on external
survey outcomes)
ANZ tracks customer satisfaction across its businesses as part of a group of indicators of longer term
performance trends. ANZ aims to achieve top quartile customer satisfaction scores in each business
based on external surveys.
In 2012 top quartile scores were achieved in Australia in the Corporate and Institutional segments
and in the Institutional segment in New Zealand. Asia scores improved signifi cantly and New Zealand
Retail scores remained steady.
However, in Australia Retail the initial reaction to changes to our mortgage pricing methodology
contributed to a decline in scores although they have started to return to a competitive level and
there was no impact to customer acquisition, retention or market share.
Shareholder
returns
Out Performed:
Total Shareholder
return (TSR)
ANZ aims to outperform peers both in terms of fi nancial strength and earnings performance. TSR in
2012 was very strong at 35.4% placing us in the top quartile of Australian peers (comparator group).
Maintain Strong
Credit Rating
The maintenance of a strong credit rating is fundamental to the ongoing stability of the Group and
there have been no changes to the Group’s rating during the period.
22
ANZ ANNUAL REPORT 2012
Category
Measure
Outcome1
People
Employee
engagement
On Target:
An engaged workforce is regarded as an important driver of long term performance. Despite diffi cult
business conditions and signifi cant bank-wide changes over the year, employee engagement remained
steady at 70% in 2012.
Senior leaders
as role models
Strong score improvements were seen in key areas like ‘Inspirational Leadership’ with various programs
and activities re-energising the approach and focus on values-led leadership.
Workforce Diversity
ANZ is focused on increasing the diversity of its workforce and targeted an increase in women in
management; however results at senior levels remained fl at year on year.
Connectivity
On Target:
Growth in Asia Pacifi c,
Europe and America
ANZ aspires to be the most respected bank in the Asia Pacifi c region using super regional connectivity
to better meet the needs of customers which are increasingly linked to regional capital, trade and wealth
fl ows. One important measure of the success of the super regional strategy is the growth in total Network
revenues (revenue arising from having a meaningful business in Asia Pacifi c, Europe and America
regardless of whether the revenue is subsequently booked within the region or in Australia or New
Zealand). Network revenues reached 21% of Group revenue in 2012. This signifi cantly diff erentiates
ANZ against its Australian peer group.
Process/ Risk
On Target:
Number of
outstanding
internal audit items
ANZ Global Internal Audit conducts an ongoing and rigorous review process to identify weaknesses in
procedures and compliance with policies. In 2012 there was a low, stable number of outstanding items.
Risk Culture
During 2012 there was a continued strengthening of the risk culture across ANZ.
1 Software impairment charges of $274 million have been taken into account in assessing performance against measures.
2 Economic profit is an unaudited risk adjusted profit measure determined by adjusting underlying profit for economic credit costs, the benefit of imputation credits and the cost of capital.
8. 2012 Remuneration
8.1 NON EXECUTIVE DIRECTORS (NEDs)
Principles underpinning the remuneration policy for NEDs.
Principle
Comment
Aggregate Board and Committee
fees are within the maximum
annual aggregate limit approved
by shareholders
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. Retirement benefi ts accrued as at September 2005 are not included within this limit.
Shareholder approval will be sought at the 2012 Annual General Meeting for an increase to the NED
fee pool from $3.5 million to $4 million, the fi rst increase to the pool since 2008. Refer to the 2012
Notice of Meeting for more detail.
Fees are set by reference to
key considerations
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 attached to the role of NEDs;
the time commitment expected of the NEDs on Group and Company matters; and
reference to fees paid to NEDs of comparable companies.
ANZ compares NED fees to a comparator group of Australian listed companies with a similar size market
capitalisation, with particular focus on the major fi nancial services institutions. This is considered an
appropriate group, given similarity in size, nature of work and time commitment required by NEDs.
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.
The remuneration structure
preserves independence whilst
aligning interests of NEDs
and shareholders
REMUNERATION REPORT
23
REMUNERATION REPORT (continued)
Components of NED Remuneration
NEDs receive a fee for being a Director of the Board, and additional
fees for either chairing or being a member of a Board Committee.
The Chairman of the Board does not receive additional fees for service
on a Board Committee.
The Board agreed not to increase the individual NED fees for 2012.
For details of remuneration paid to NEDs for the years 2011 and 2012,
refer to Table 3.
Elements
Details
Board/Committee fees
per annum – 2012
Board Chairman Fee
Board NED Base Fee
$775,000
$210,000
Post – employment Benefi ts
Committee Fees
Committee Chair
Committee Member
Audit
Governance
Human Resources
Risk
Technology
$65,000
$35,000
$55,000
$57,000
$35,000
$32,500
$15,000
$25,000
$30,000
$15,000
Superannuation contributions are made at a rate of 9% of base fee (but only up to the Government’s
prescribed maximum contributions limit) which satisfi es the Company’s statutory superannuation
contributions. Contributions 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, have been carried forward or will be transferred to the NED when they retire from the ANZ Board
(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
Shareholdings of NEDs
The movement in shareholdings during the reporting period
(held directly, indirectly and by related parties) is provided in Notes
to the Financial Statements – note 46 on page 184.
The NED shareholding 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.
All NEDs have met or, if less than fi ve years appointment, are on track
to meet their minimum shareholding guidelines requirement.
NED Statutory Remuneration
Remuneration details of NEDs for 2011 and 2012 are set out in Table 3.
There was no increase in NED fees throughout the year. Overall, there
is an increase in total NED remuneration year on year due to the
commencement of Ms Dwyer in April 2012 and the prescribed
increase in Superannuation Guarantee Contributions.
24
ANZ ANNUAL REPORT 2012
TABLE 3: NED REMUNERATION FOR 2012 AND 2011
Short-Term NED Benefi ts
Post-Employment
Financial
Year
Fees1
$
Non
monetary
monetary
monetary
benefi ts
benefi ts
$
Super
contributions
$
remuneration2,3
Total
$
Non-Executive Directors (NEDs)
J Morschel
G Clark
P Dwyer4
P Hay
H Lee
I Macfarlane
D Meiklejohn5
A Watkins
Total of all Non-Executive Directors
2012
2011
2012
2011
2012
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
775,000
775,000
300,000
300,000
136,250
302,500
302,500
280,000
280,000
314,500
314,500
320,000
320,000
312,500
312,500
2,740,750
2,604,500
–
–
–
–
–
–
–
–
–
–
–
1,322
186
–
–
1,322
186
15,949
15,343
15,949
15,343
8,061
15,949
15,343
15,949
15,343
15,949
15,343
15,949
15,343
15,949
15,343
119,704
107,401
790,949
790,343
315,949
315,343
144,311
318,449
317,843
295,949
295,343
330,449
329,843
337,271
335,529
328,449
327,843
2,861,776
2,712,087
1 Fees is the sum of Board fees and Committee fees, as included in the Annual Report.
2 Long-term benefits and share-based payments are not applicable for the Non-Executive
Directors. There were no termination benefits for the Non-Executive Directors in either 2011
or 2012.
3 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.
4 P Dwyer commenced as a Non-Executive Director on 1 April 2012 so remuneration reflects
amounts received for the partial service for the 2012 year.
5 For D Meiklejohn, non monetary benefits relate to the provision of office space.
8.2 CHIEF EXECUTIVE OFFICER (CEO)
Actual remuneration provided to the CEO in 2012 is detailed below,
with remuneration tables provided on pages 30 to 33.
Fixed pay: The CEO’s fi xed remuneration remains unchanged at
$3.15 million (with his only increase since commencement being
two years ago, eff ective 1 October 2010).
Short Term Incentive (STI): The CEO has a target STI opportunity
of $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 performed above/below his targets, the
Board may exercise its discretion to increase/decrease the STI beyond
his target payment.
The Board approved the CEO’s 2012 balanced scorecard objectives
at the start of the year and then assessed his performance against
these objectives at the end of the year. The CEO’s STI payment for
2012 was then determined having regard to his delivery against these
objectives including ANZ’s productivity performance and focus on
capital effi ciency, his demonstration of values led behaviours, as well
as progress achieved in relation to ANZ’s long term strategic goals.
The STI payment for 2012 will be $3.7 million with $1.9 million paid
in cash and the balance ($1.8 million) awarded as deferred shares,
half deferred for one year and half for two years.
Long Term Incentive (LTI): Three tranches of performance rights
were granted to the CEO in December 2007, covering his fi rst three
years in the role. Two tranches have now vested. The second tranche
was tested on 19 December 2011 and as a result of the testing 100%
(259,740) of the performance rights vested. There is no re-testing
of these grants.
At the 2011 Annual General Meeting shareholders approved an
LTI grant to the CEO equivalent to 100% of his 2011 fi xed pay, being
$3.15 million. This equated to 326,424 performance rights being
granted, at an allocation value of $9.65 per right, deferred for three
years and subject to testing against a relative TSR hurdle.
For 2012, it is proposed to grant $3.15 million (100% of Fixed Pay) LTI,
subject to shareholder approval at the 2012 Annual General Meeting,
to be delivered as performance rights which will be subject to testing
against the relative TSR hurdle after three years, i.e. December 2015.
Special Equity Allocation: At the 2008 Annual General Meeting,
shareholders approved a grant of 700,000 options to the CEO at an
exercise price of $14.18 and with a vesting date of 18 December 2011.
The amortised value of these options has been disclosed as part of
Mr Smith’s remuneration since 2009. At vesting, the one day volume
weighted average price (VWAP) was $20.9407 per share. No options
have been granted subsequently.
REMUNERATION REPORT
25
REMUNERATION REPORT (continued)
CEO Equity
Details of deferred shares, options and performance rights granted to
the CEO during the 2012 year and in prior years which vested,
were exercised/sold or which lapsed/were forfeited during the 2012
year are set out in Table 4 below.
TABLE 4: CEO EQUITY GRANTED, VESTED, EXERCISED/SOLD AND LAPSED/FORFEITED
Vested
Lapsed/Forfeited
Exercised/Sold
Name
Type of equity
Number
granted1
Grant
date
First date
exercisable
Date
of expiry Number %
Value2
$ Number %
Value2
$ Number %
Vested and
exercisable
as at 30 Sep
2012
Value2
$
Unexer
-cisable
as at
30 Sep
2012
CEO
M Smith
STI deferred shares
STI deferred shares
STI deferred shares3
STI deferred shares3
Special options4
46,052
47,448
36,730
36,729
700,000
–
13-Nov-09 13-Nov-11
–
12-Nov-10 12-Nov-11
–
14-Nov-11 14-Nov-12
14-Nov-11 14-Nov-13
–
18-Dec-08 18-Dec-11 17-Dec-13
46,052 100 953,640
47,448 100 982,548
–
–
–
–
700,000 100 4,732,490
–
–
LTI performance rights
259,740
LTI performance rights5 326,424
19-Dec-07 19-Dec-11 18-Dec-12
16-Dec-11 17-Dec-14 16-Dec-16
259,740 100 5,370,176
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(46,052)
(47,448)
–
–
(260,000)
(440,000)
(259,740)
–
100
100
–
–
961,916
991,075
–
–
37 2,022,904
63 4,624,356
100 5,359,579
–
–
–
–
–
–
–
–
36,730
36,729
–
–
–
–
– 326,424
1 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. Options/rights granted include
those granted as remuneration to the CEO. No options/rights have been granted since the
end of 2012 up to the signing of the Director’s Report on 5 November 2012.
2 The value of shares and/or performance rights is based on the one day VWAP of the
Company’s shares traded on the ASX on the date of vesting, lapsing/forfeiture or exercising,
multiplied by the number of shares 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.
3 The CEO had a proportion of his STI amount deferred as equity. The Board determined the
deferred amount for the CEO. Refer to Table 9 for details of the valuation methodology,
inputs and fair value.
4 Of the 700,000 special options granted 18 December 2008, 260,000 were exercised on
21 February 2012. One day VWAP on date of exercise was $21.9604. The remaining 440,000
special options were exercised on 20 August 2012. One day VWAP on date of exercise was
$24.6899. The exercise price was $14.18. LTI performance rights granted 19 December 2007
were exercised on 22 December 2011. One day VWAP on date of exercise was $20.6344.
5 The 2011 LTI grant for the CEO was delivered as performance rights. Refer to section CEO LTI
for further details of the LTI grant and Table 8 for details of the valuation, inputs and fair value.
The movement during the reporting period in shareholdings, options and performance rights of the CEO (held directly, indirectly and by related
parties) is provided in Notes to the Financial Statements – note 46 on page 184.
CEO’s Contract Terms
The following 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.
Length of contract
Mr Smith commenced as CEO and Executive Director of ANZ on 1 October 2007 and is on a permanent contract,
which is an ongoing employment contract until notice is given by either party.
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
ANZ may terminate Mr Smith’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 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
On death or total and permanent disablement, all unvested STI deferred shares, all performance rights (or cash
equivalent) and all options will vest.
26
ANZ ANNUAL REPORT 2012
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.
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.
Statutory Entitlements
Payment of statutory entitlements of long service leave and annual leave applies in all events of separation.
8.3 DISCLOSED EXECUTIVES
Actual remuneration provided to the Disclosed Executives in 2012
is summarised below, with remuneration tables provided on pages
30 to 33.
Fixed pay: During 2012, fi xed pay for Disclosed Executives remained
unchanged except where individuals were promoted to roles to
refl ect increased responsibilities. The annual review of ANZ’s fi xed
remuneration levels for Disclosed Executives identifi ed they were
generally competitively positioned within the market and there
were no increases to fi xed pay.
During the year, two Disclosed Executives from 2011 (Mr Thursby
and Mr Elliott) were promoted into new roles. At this time, the
Board undertook a review of their remuneration arrangements
against the relevant fi nancial services market for roles of similar
size and accountability. The Board made the decision to adjust
fi xed remuneration levels for both individuals at the time of their
promotion to refl ect their expanded roles.
Short Term Incentive (STI): All incentives actually paid in the 2012
fi nancial year related to performance from the 2011 fi nancial year,
and all deferred components are subject to the Board’s discretion
to reduce or adjust to zero before vesting.
For the 2012 year, the Board took into consideration overall Company
performance against the balanced scorecard of measures, along with
individual performance against set objectives. Overall, the total
amount of STI payments to Disclosed Executives for the 2012 year
(which are paid in the 2013 fi nancial year) has increased from 2011,
refl ecting the improvement in company performance, the focus on
productivity and capital effi ciency, and progress towards the
achievement of longer term targets, demonstrating the link
between performance and variable reward outcomes.
The range in payments to individuals was broad, and for the fi ve
Executives disclosed in both 2012 and 2011, two received the same
amount, one received a minimal increase and two received more
signifi cant year on year increases.
Long Term Incentive (LTI): LTI performance rights granted to
Disclosed Executives during the 2012 fi nancial year were allocated
in November 2011. Subject to meeting the relative TSR performance
hurdle, these performance rights will vest in November 2014.
The LTI grants made in October 2008 were tested against the
TSR performance of the comparator group in October 2011. ANZ’s
TSR performance was ranked the highest, and hence above the
75th percentile of the comparator group. Accordingly, 100% of
the performance rights vested in October 2011.
For the 2012 year, the Board elected to grant LTI awards to Disclosed
Executives on average above target, refl ecting the importance of
focusing Disclosed Executives on the achievement of longer term
strategic objectives and alignment with shareholders interests, and
recognising the capabilities of these individuals and the need to
retain their expertise over the longer term.
Disclosed Executives Equity
Details of deferred shares, options and performance rights granted
to the Disclosed Executives during the 2012 year and granted to the
Disclosed Executives in prior years which vested, were exercised/sold
or which lapsed/were forfeited during the 2012 year are set out in
Table 5 following.
The movement in shareholdings, options and performance rights
of the Disclosed Executives (held directly, indirectly and by related
parties) during the reporting period is provided in Notes to the
Financial Statements – note 46 on page 184.
REMUNERATION REPORT
27
REMUNERATION REPORT (continued)
TABLE 5: DISCLOSED EXECUTIVES EQUITY GRANTED,
VESTED, EXERCISED/SOLD AND LAPSED/FORFEITED
Number
granted1
Grant
date
First date
exercisable
Date
of expiry Number %
Value2
$ Number %
Value2
$ Number %
Vested and
exercisable
as at 30 Sep
20123
Value2
$
Unexer
-cisable
as at
30 Sep
2012
Vested
Lapsed/Forfeited
Exercised/Sold
5,866 13-Nov-09 13-Nov-10
5,866 13-Nov-09 13-Nov-11
23,282 31-Oct-08 31-Oct-11
5-Nov-07
5-Nov-04
10,530
–
12,653 12-Nov-10 12-Nov-11
–
16,588 14-Nov-11 14-Nov-12
16,587 14-Nov-11 14-Nov-13
–
71,982 14-Nov-11 14-Nov-14 14-Nov-16
–
11-Jun-09 11-Jun-10
7,530
–
7,530
11-Jun-09 11-Jun-11
–
1,096 13-Nov-09 13-Nov-10
–
1,096 13-Nov-09 13-Nov-11
–
12,126 12-Nov-10 12-Nov-11
–
9,573 14-Nov-11 14-Nov-12
9,573 14-Nov-11 14-Nov-13
–
5,307 13-Nov-09 13-Nov-11 12-Nov-14
69,238 12-Nov-10 12-Nov-11 11-Nov-15
71,982 14-Nov-11 14-Nov-14 14-Nov-16
–
–
–
4-Nov-11
8,480 12-Nov-10 12-Nov-11 11-Nov-15
19,072 14-Nov-11 14-Nov-12 14-Nov-14
20,318 14-Nov-11 14-Nov-13 14-Nov-15
55,370 14-Nov-11 14-Nov-14 14-Nov-16
–
7,236 13-Nov-09 13-Nov-11
–
9,911 12-Nov-10 12-Nov-11
–
11,848 14-Nov-11 14-Nov-12
–
11,848 14-Nov-11 14-Nov-13
4-Nov-11
5-Nov-07
5-Nov-04
60,000
50,050 31-Oct-08 31-Oct-11 30-Oct-13
55,370 14-Nov-11 14-Nov-14 14-Nov-16
–
–
–
62,735 28-Aug-08 28-Aug-11
–
43,610 22-Sep-09 22-Sep-12
–
26,315 13-Nov-09 13-Nov-11
–
24,251 12-Nov-10 12-Nov-11
–
16,588 14-Nov-11 14-Nov-12
16,587 14-Nov-11 14-Nov-13
–
55,055 31-Oct-08 31-Oct-11 30-Oct-13
77,519 14-Nov-11 14-Nov-14 14-Nov-16
–
–
–
–
–
–
12,653 100 262,017
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
22,696
1,096 100
12,126 100 251,104
–
–
–
–
–
–
–
5,307 100
–
69,238 100
–
–
–
–
–
–
121,473
5,866 100
508,199
23,282 100
–
–
–
175,603
8,480 100
–
–
–
–
–
–
–
–
–
7,236 100 149,842
205,236
9,911 100
–
–
–
–
–
–
–
–
–
50,050 100 1,092,491
–
–
–
–
–
–
43,610 100 1,081,040
26,315 100 544,928
24,251 100 502,187
–
–
–
–
55,055 100 1,201,741
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(527)
–
–
–
–
–
–
–
–
(3,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
–
–
–
–
–
–
–
–
5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
363
–
–
–
–
–
–
–
–
2,067
–
–
–
–
–
–
–
–
–
–
–
–
5,962 24-Oct-01 24-Oct-02
5,963 24-Oct-01 24-Oct-04
5,476 24-Apr-02 24-Apr-03
5,475 24-Apr-02 24-Apr-05
7,127 13-Nov-09 13-Nov-11
9,911 12-Nov-10 12-Nov-11
14,692 14-Nov-11 14-Nov-12
14,691 14-Nov-11 14-Nov-13
5,700 24-Oct-01 24-Oct-04
5,500 24-Apr-02 24-Apr-05
5-Nov-07
–
–
–
–
–
–
–
–
–
–
67,600
4-Nov-11
24,193 31-Oct-08 31-Oct-09 30-Oct-13
24,192 31-Oct-08 31-Oct-10 30-Oct-13
50,050 31-Oct-08 31-Oct-11 30-Oct-13
41,084 13-Nov-09 31-Aug-12
3-Dec-12
41,806 12-Nov-10 12-Nov-13 11-Nov-15
55,370 14-Nov-11 14-Nov-14 14-Nov-16
5-Nov-04
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,127 100 147,585
–
9,911 100 205,236
–
–
–
–
–
–
–
–
–
–
–
–
(3,380)
–
–
–
–
–
–
–
–
–
50,050 100 1,092,491
(2,774)
951,345
93
38,310
–
–
–
(8,583)
– (29,908)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
–
–
–
7
–
–
–
–
–
–
–
–
–
–
2,329
–
–
–
68,886
21 213,140
54 742,699
11,809 12-Nov-10 12-Nov-11
15,403 14-Nov-11 14-Nov-12
15,402 14-Nov-11 14-Nov-13
–
–
–
–
15,350 100 317,866
11,809 100 244,540
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
266,275
(12,653) 100
–
–
–
–
–
–
–
–
–
163,384
(7,530) 100
163,384
(7,530) 100
23,781
(1,096) 100
23,781
(1,096) 100
263,106
(12,126) 100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
126,516
(5,866) 100
126,516
(5,866) 100
–
–
–
(10,003)
3,134
95
(8,480) 100 177,127
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,692
9
(5,400)
(50,050) 100 1,092,822
–
–
–
–
(62,735) 100 1,369,794
–
–
–
549,657
(26,315) 100
506,545
(24,251) 100
–
–
–
–
–
–
(55,055) 100 1,155,786
–
–
–
–
–
–
–
–
124,532
(5,962) 100
124,553
(5,963) 100
128,649
(5,476) 100
128,625
(5,475) 100
–
–
–
–
–
–
–
–
–
–
–
–
119,059
(5,700) 100
129,213
(5,500) 100
20,120
(64,220)
95
118,284
(24,193) 100
(24,192) 100
118,280
(50,050) 100 1,031,115
–
–
–
–
–
–
–
–
–
(15,350) 100
315,375
(11,809) 100
242,623
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,307
69,238
–
–
–
23,282
–
–
–
–
–
7,236
9,911
–
–
–
–
–
–
–
43,610
–
–
–
–
–
–
–
–
–
–
–
7,127
9,911
–
–
–
–
–
–
–
–
38,310
–
–
–
–
–
–
38,038 31-Oct-08 31-Oct-11 30-Oct-13
34,921 13-Nov-09 16-Dec-11 16-Mar-12
38,038 100
69
24,250
–
830,293
507,812 (10,671)
–
–
31 223,458
(38,038) 100 794,523
–
–
–
–
24,250
–
16,588
16,587
71,982
–
–
–
–
–
9,573
9,573
–
–
71,982
–
–
–
–
–
19,072
20,318
55,370
–
–
11,848
11,848
–
–
55,370
–
–
–
–
–
16,588
16,587
–
77,519
–
–
–
–
–
–
–
14,692
14,691
–
–
–
–
–
–
–
33,223
25,462
–
–
15,403
15,402
–
–
Name
Type of equity
Current Disclosed Executives
P Chronican STI deferred shares
S Elliott
D Hisco 4
STI deferred shares11
STI deferred shares11
LTI performance rights12
Other deferred shares
Other deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares11
STI deferred shares11
STI deferred options
STI deferred options
LTI performance rights12
STI deferred shares
STI deferred shares
LTI deferred shares
Hurdled options
STI deferred share rights
STI deferred share rights11
STI deferred share rights11
LTI performance rights12
G Hodges5 STI deferred shares
STI deferred shares
STI deferred shares11
STI deferred shares11
Hurdled options
LTI performance rights
LTI performance rights12
–
J Phillips6
A Thursby7 Other deferred shares
Other deferred shares
STI deferred shares
STI deferred shares
STI deferred shares11
STI deferred shares11
LTI performance rights
LTI performance rights12
N Williams8 –
Former Disclosed Executives
P Marriott9 STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares11
STI deferred shares11
LTI deferred shares
LTI deferred shares
Hurdled options
STI deferred options
STI deferred options
LTI performance rights
LTI performance rights
LTI performance rights
LTI performance rights12
STI deferred shares
STI deferred shares11
STI deferred shares11
LTI performance rights
LTI performance rights
28
C Page10
STI deferred shares
15,350 13-Nov-09 13-Nov-11
ANZ ANNUAL REPORT 2012
1 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. Options/rights granted include
those granted as remuneration to the five highest paid executives in the Company and
the Group (being the five highest paid, relevant Group and Company executives who
participate in making decisions that affect the whole, or a substantial part, of the business
of the Company or who have the capacity to significantly affect the Company’s financial
standing). No options/rights have been granted since the end of 2012 up to the signing of
the Director’s Report on 5 November 2012.
2 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.
3 For KMP who ceased employment during 2012, the number of equity instruments “Vested
and exercisable” are as at their date of cessation.
4 D Hisco – Hurdled options granted 5 November 2004 were exercised on 4 November 2011.
One day VWAP on date of exercise was $20.9933. The exercise price was $20.68. STI deferred
share rights granted 12 November 2010 were exercised on 14 November 2011. One day
VWAP on date of exercise was $20.8876.
5 G Hodges – Hurdled options granted 5 November 2004 were exercised on 4 November
2011. One day VWAP on date of exercise was $20.9933. The exercise price was $20.68. LTI
performance rights granted 31 October 2008 were exercised on 9 November 2011. One day
VWAP on date of exercise was $21.8346.
6 J Phillips – was appointed to the CEO Global Wealth & Private Banking role on 1 March 2012
and no equity transactions were applicable for the period.
7 A Thursby – LTI performance rights granted 31 October 2008 were exercised on 4 November
2011. One day VWAP on date of exercise was $20.9933.
8 N Williams – was appointed to the Chief Risk Officer role on 17 December 2011 and no
equity transactions were applicable for the period.
9 P Marriott – ceased employment 31 August 2012 so equity transactions are to that date.
Transactions include those that transpired prior to cessation and those that were forfeited
on cessation. Hurdled options granted 5 November 2004 were exercised on 4 November
2011. One day VWAP on date of exercise was $20.9933. The exercise price was $20.68. STI
deferred options granted 31 October 2008 were exercised on 11 May 2012. One day VWAP
on date of exercise was $22.0692. The exercise price was $17.18. LTI performance rights
granted 31 October 2008 were exercised on 10 November 2011. One day VWAP on date of
exercise was $20.6017.
10 C Page – retired 16 December 2011 so equity transactions are to that date. Transactions
include those that transpired prior to cessation and those that were forfeited on cessation.
Treatment of equity on retirement is in line with treatment of equity on redundancy. LTI
performance rights granted 31 October 2008 were exercised on 14 November 2011. One day
VWAP on date of exercise was $20.8876. Due to cessation, 11,452 LTI deferred shares granted
12 November 2010 were forfeited and processed by Computershare on 20 December 2011.
11 The Disclosed Executives had a proportion of their STI amount deferred as equity. In 2012 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. Refer to the STI arrangements section for further details of the mandatory
deferral arrangements for the Disclosed Executives and Tables 8 and 9 for details of the
valuation methodology, inputs and fair value.
12 The 2011 LTI grants for Disclosed Executives were delivered as performance rights excluding
for the CRO. Refer to section 6.2.2 LTI Arrangements for further details and Table 8 for details
of the valuation, inputs and fair value.
Disclosed Executives’ Contract Terms
The following 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.
Length of contract
Disclosed Executives are on a permanent contract, which is an ongoing employment contract until notice is given
by either party.
Notice periods
Resignation
Termination on
notice by ANZ
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.
On resignation, unless the Board determines otherwise, all unvested deferred shares, all unvested or vested but
unexercised performance rights, all options and all deferred share rights are forfeited.
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, performance rights, options and deferred share rights are forfeited at the time notice
is given to the Disclosed Executive; and
only performance rights, options and deferred share rights that are vested may be exercised.
Redundancy
If ANZ terminates employment for reasons of 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 remain subject to clawback and are released at the original
vesting date. 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.
Death or total and
permanent disablement
On death or total and permanent disablement all unvested STI deferred shares, all deferred share rights, performance
rights and all options will vest.
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.
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.
Statutory Entitlements
Payment of statutory entitlements of long service leave and annual leave applies in all events of separation.
Other arrangements
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 2009. Accordingly, a separate LTI grant was made in December 2009 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.
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 granted in September 2007 and vested
in September 2010, the second tranche was granted in August 2008 and vested in August 2011, and the third tranche
was granted in September 2009 and vested in September 2012.
REMUNERATION REPORT
29
REMUNERATION REPORT (continued)
8.4 REMUNERATION TABLES – CEO AND DISCLOSED EXECUTIVES
Table 6: Non Statutory Remuneration, has been prepared to provide
shareholders with a view of remuneration structure and how
remuneration was paid or communicated to the CEO and Disclosed
Executives for 2011 and 2012. The Board believes presenting
information in this way provides the shareholder with increased
clarity and transparency of the CEO and Disclosed Executives’
remuneration, clearly showing the amounts awarded for each
remuneration component (fi xed remuneration, STI and LTI) within
Individuals included in table
Fixed remuneration
Non monetary benefi ts
Long service leave
Non
Statutory
Statutory
Statutory
Table
Table
CEO and
Current Disclosed Executives
Total of cash salary and
superannuation contributions
(pro rated for period
of year as a KMP)
Non monetary benefi ts
which typically consists
of company-funded benefi ts
and fringe benefi ts tax
payable on these benefi ts
Not included
Statutory
Statutory
Statutory
Table
Table
CEO, Current and
Former Disclosed Executives
Cash salary and superannuation
contributions, when totalled
the value is the same as above
As above
Long service leave
accrued during the year
(pro rated for period
of year as a KMP)
1 Subject to Shareholder approval for the CEO
TABLE 6: NON STATUTORY REMUNERATION
Fixed
STI
LTI
Total Remuneration
CEO and Current Disclosed Executives
M Smith2
Chief Executive Offi cer
P Chronican3
Chief Executive Offi cer, Australia
S Elliott4
Chief Financial Offi cer
D Hisco5
Chief Executive Offi cer, New Zealand
G Hodges6
Deputy Chief Executive Offi cer
J Phillips7
CEO Global Wealth & Private Banking
A Thursby8
Chief Executive Offi cer, International & Institutional Banking
N Williams9
Chief Risk Offi cer
Financial
Year
Remuneration1
$
Non monetary
benefi ts
$
Cash
$
Deferred as
equity
$
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2012
2011
2012
3,150,000
3,150,000
1,300,000
1,300,000
1,187,000
1,050,000
1,000,000
960,000
1,000,000
1,000,000
580,000
1,187,000
1,050,000
790,000
121,900
105,515
7,590
5,744
40,853
10,191
309,757
357,283
13,789
24,350
5,500
7,590
7,375
32,675
1,900,000
1,750,000
850,000
900,000
1,100,000
604,000
900,000
902,400
650,000
700,000
377,000
1,100,000
900,000
533,250
1,800,000
1,550,000
750,000
700,000
1,000,000
404,000
800,000
710,400
550,000
500,000
319,000
1,000,000
700,000
454,250
1 Fixed remuneration was unchanged for Disclosed Executives, other than those promoted
during the year whose remuneration was increased to reflect expanded responsibilities.
2 M Smith – The 2012 LTI relates to the LTI grant that is proposed for 2012, subject to approval
by shareholders at the 2012 Annual General Meeting. The 2011 LTI relates to the LTI grant
approved by shareholders at the 2011 Annual General Meeting. Non monetary benefits
include car parking, life insurance and taxation services. In 2012 equity to the value of
$1,936,189 vested in respect of previously disclosed deferred STI granted in 2009 and 2010.
Also, equity to the value of $5,370,176 vested in respect of previously disclosed deferred LTI
granted in 2007, as approved by shareholders. In addition, equity to the value of $4,732,490
vested in respect of previously disclosed Special Options granted in 2008, as approved
by shareholders.
3 P Chronican – Non monetary benefits include car parking expenses. In 2012 equity to the
value of $262,017 vested in respect of previously disclosed deferred STI granted in 2010.
4 S Elliott – Fixed remuneration represents what was paid during the year (an increase to
$1,250,000 occurred at date of promotion, 1 March 2012 – this figure has been referenced
to calculate STI as a % of target and maximum opportunity). Non monetary benefits include
car parking and taxation services/expenses. In 2012 equity to the value of $273,800 vested
in respect of previously disclosed deferred STI granted in 2009 and 2010.
5 D Hisco – Commenced in role on 13 October 2010 so 2011 remuneration reflects amounts
received for the partial service for the 2011 year. Non monetary benefits include relocation
expenses such as housing assistance, and car parking and taxation services expenses.
30
ANZ ANNUAL REPORT 2012
the fi nancial year. Details of prior year awards which may have vested
in 2011 and 2012 are provided in the footnotes.
The information provided in Table 6 is non statutory information
and diff ers from the information provided in Table 7: Statutory
Remuneration on page 32, which has been prepared in accordance
with Australian Accounting Standards. A description of the diff erence
between the two tables is provided below:
Retirement benefi ts
STI
LTI
Other equity allocations
Not included
STI awarded in Nov 2012
for the 2012 fi nancial year –
expressed as a cash value plus
a deferred equity grant value
Communicated value of
LTI granted in Nov/Dec1 2012
Nil, as nothing awared
in 2011 or 2012
The equity fair value multiplied
by the number of instruments granted
equals the STI/LTI deferred equity dollar value
Retirement benefi t accrued
during the year. This relates
to a retirement allowance
available to individuals
employed prior to Nov 1992
Includes cash STI (Nov 2012 element
only) and amortised STI for deferred
equity from prior year awards
Amortised LTI values relate to LTI
awards made in Nov 2008 and 2009,
and Nov/Dec 2010 and 2011
Amortised values for equity
awards made in prior years,
excluding STI and LTI awards
Amortised STI values relate
to STI awards made in Nov 2009,
2010 and 2011
Equity is equally amortised over the vesting period of the award.
Refer to footnote 6 of the Statutory Table for details of how amortised values are calculated
Fixed
STI
Total
$
As % of target
%
As % of maximum
opportunity
%
LTI
Total (deferred as
equity)
$
Total Remuneration
Received
$
Deferred as equity
$
Total
$
3,700,000
3,300,000
1,600,000
1,600,000
2,100,000
1,008,000
1,700,000
1,612,800
1,200,000
1,200,000
696,000
2,100,000
1,600,000
987,500
117%
105%
103%
103%
140%
80%
142%
140%
100%
100%
100%
140%
127%
104%
47%
42%
41%
41%
56%
32%
57%
56%
40%
40%
40%
56%
51%
42%
3,150,000
3,150,000
650,000
650,000
1,200,000
650,000
500,000
480,000
500,000
500,000
290,000
1,200,000
700,000
474,000
5,171,900
5,005,515
2,157,590
2,205,744
2,327,853
1,664,191
2,209,757
2,219,683
1,663,789
1,724,350
962,500
2,294,590
1,957,375
1,355,925
4,950,000
4,700,000
1,400,000
1,350,000
2,200,000
1,054,000
1,300,000
1,190,400
1,050,000
1,000,000
609,000
2,200,000
1,400,000
928,250
10,121,900
9,705,515
3,557,590
3,555,744
4,527,853
2,718,191
3,509,757
3,410,083
2,713,789
2,724,350
1,571,500
4,494,590
3,357,375
2,284,175
In 2012 equity to the value of $297,076 vested in respect of deferred STI granted in 2009 and
2010. In addition, equity to the value of $508,199 vested in respect of deferred LTI granted
in 2008.
6 G Hodges – Non monetary benefits include car parking and taxation services. In 2012 equity
to the value of $355,078 vested in respect of previously disclosed deferred STI granted in
2009 and 2010. In addition, equity to the value of $1,092,491 vested in respect of previously
disclosed deferred LTI granted in 2008.
7 J Phillips – Commenced in role 1 March 2012 so remuneration (fixed, STI and LTI) reflects
amounts received for the partial service for the 2012 year. Non monetary benefits include
taxation services.
8 A Thursby – Fixed remuneration represents what was paid during the year (an increase to
$1,250,000 occurred at date of promotion, 1 March 2012 – this figure has been referenced to
calculate STI as a % of target and maximum opportunity). Non monetary benefits include car
parking expenses. In 2012 equity to the value of $1,047,116 vested in respect of previously
disclosed deferred STI granted in 2009 and 2010 and equity to the value of $1,201,741
vested in respect of previously disclosed deferred LTI granted in 2008. In addition, equity to
the value of $1,081,040 vested in respect of previously disclosed equity granted in 2009 in
connection with his commencement with ANZ.
9 N Williams – Commenced in role 17 December 2011 so remuneration (fixed, STI and LTI)
reflects amounts received for the partial service for the 2012 year. Non monetary benefits
include relocation, car parking and taxation services expenses.
REMUNERATION REPORT
31
REMUNERATION REPORT (continued)
TABLE 7: STATUTORY REMUNERATION – CEO AND DISCLOSED EXECUTIVE REMUNERATION FOR 2012 AND 2011
Short-Term Employee Benefi ts
Post-Employment
Share-Based Payments6
Long-Term
Employee
Benefi ts
Financial
Year
Cash salary
$
Non monetary
1
benefi ts
$
Total cash
incentive
$
2,3
Super
4
contributions
$
Retirement
benefi t accrued
5
during year
$
CEO and Current Disclosed Executives
M Smith10
Chief Executive Offi cer
P Chronican
Chief Executive Offi cer, Australia
S Elliott
Chief Financial Offi cer
D Hisco11, 12
Chief Executive Offi cer, New Zealand
G Hodges12
Deputy Chief Executive Offi cer
J Phillips11
CEO Global Wealth & Private Banking
A Thursby
Chief Executive Offi cer International
& Institutional Banking
N Williams11
Chief Risk Offi cer
Former Disclosed Executives
P Marriott11
Former Chief Financial Offi cer
C Page11
Former Chief Risk Offi cer
Total of all Executive KMPs13
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2012
2011
2012
2012
2011
2012
2011
2012
2011
3,150,000
3,150,000
1,192,661
1,191,030
1,088,991
963,303
1,000,000
960,000
917,431
917,431
532,110
1,187,000
1,050,000
121,900
105,515
7,590
5,744
40,853
10,191
309,757
357,283
13,789
24,350
5,500
1,900,000
1,750,000
850,000
900,000
1,100,000
604,000
900,000
902,400
650,000
700,000
377,000
7,590
7,375
1,100,000
900,000
–
–
107,339
107,339
98,009
86,697
–
–
82,569
82,569
47,890
–
–
–
–
–
–
–
–
4,237
4,107
4,237
4,278
–
–
–
724,771
32,675
533,250
65,229
20,477
886,239
915,830
211,927
1,009,174
10,891,130
10,156,768
20,229
5,774
14,257
7,375
574,140
523,607
412,500
820,000
–
850,000
7,822,750
7,426,400
79,761
82,569
19,073
90,826
499,870
450,000
–
–
–
–
28,951
8,385
1 Non monetary benefits generally consist 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 housing assistance, gifts received on leaving ANZ for former Disclosed
Executives, 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 2011
STI deferred components are included in share-based payments. The 2012 STI deferred
components will be amortised from the grant date in the 2013 Remuneration Report. The
cash incentive component was approved by the Board on 23 October 2012. 100% of the
cash incentive awarded for the 2011 and 2012 years vested to the Disclosed Executive in
the applicable financial year.
3 The possible range of STI is between 0 and 2.5 times target STI. The actual STI received is
dependent on ANZ, Division and individual performance (refer to Section 6.2.1 for more
details). The 2012 STI awarded (cash and equity component) as a percentage of target STI
was: M Smith 117% (2011: 105%); P Chronican 103% (2011: 103%); S Elliott 140% (2011:
80%); D Hisco 142% (2011: 140%); G Hodges 100% (2011: 100%); J Phillips 100%; A Thursby
140% (2011: 127%); N Williams 104%; P Marriott 86% – prorated to date ceased in role, 31
May 2012 (2011: 120%); C Page (2011: 114%). 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, G Hodges and N Williams 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 8. 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.
7 Amortisation of other equity allocations for M Smith relates to the special equity allocation
which was approved by shareholders at the 2008 Annual General Meeting. Amortisation for
S Elliott and A Thursby relates to equity granted on commencement.
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.
32
ANZ ANNUAL REPORT 2012
Short-Term Employee Benefi ts
Post-Employment
Long-Term
Employee
Benefi ts
Share-Based Payments6
Total amortisation value of
STI
LTI
Other equity allocations7
Long service
leave accrued
during the year
$
Shares
$
Options and
Rights
$
48,079
54,804
19,842
19,788
22,985
16,998
15,263
14,613
15,263
15,222
10,710
1,750,829
2,103,407
637,349
390,271
438,387
389,245
7,788
78,245
477,366
406,248
225,957
–
–
–
–
178,342
386,466
602,172
238,076
–
7,688
–
Shares
$
Rights
$
–
–
–
–
–
–
10,958
127,644
–
–
–
2,590,496
2,346,954
623,306
406,838
540,049
327,641
412,856
248,567
493,164
498,629
258,774
Shares
$
–
–
–
–
–
43,921
–
–
–
–
–
26,625
18,326
838,469
1,121,512
–
9,938
–
–
586,415
542,653
329,842
642,574
120,504
494,744
–
373,958
9,198
–
Options
$
Termination
benefi ts
$
Grand total
remuneration
$
8,9
113,189
528,216
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,674,493
10,038,896
3,438,087
3,021,010
3,507,616
2,828,462
3,263,031
2,930,935
2,653,819
2,656,415
1,457,941
4,075,941
4,292,378
2,374,806
–
15,222
–
16,744
279,271
171,717
778,868
407,040
849,289
577,532
6,499,046
5,473,500
–
2,923
–
–
780,514
645,091
–
–
27,986
122,803
412,902
250,447
646,594
498,629
39,377
267,465
6,200,229
5,137,376
–
–
–
–
329,842
686,495
–
–
–
–
113,189
528,216
1,154,384
–
16,842
–
1,171,226
–
3,978,575
2,747,987
1,178,751
2,941,919
35,603,060
31,458,002
9 The disclosed amortised value of rights/options for each KMP as a percentage of Grand Total
Remuneration is: M Smith 28%; P Chronican 18%; S Elliott 20%; D Hisco 31%; G Hodges 19%;
J Phillips 18%; A Thursby 14%; N Williams 0.5%; P Marriott 16%; C Page 3%.
13 For those Disclosed Executives who were disclosed in both 2011 and 2012, the following
are noted:
– P Chronican – moderate uplift on year-on-year remuneration, driven by an increase
10 While the CEO is an Executive Director, he has been included in this table with the
in the amortised value of equity.
Disclosed Executives.
11 D Hisco was appointed to the CEO, New Zealand role on 13 October 2010 so remuneration
reflects amounts received for the partial service for the 2011 year. J Phillips was appointed
to the CEO, Global Wealth & Private Banking role on 1 March 2012 so remuneration reflects
amounts received for the partial service for the 2012 year. N Williams was appointed to the
Chief Risk Officer role on 17 December 2011 so remuneration reflects amounts received for
the partial service for the 2012 year. P Marriott ceased employment 31 August 2012 and
remuneration is to this date; the STI has been pro-rated to date ceased in role, 31 May 2012.
C Page retired 16 December 2011 and remuneration is to this date.
12 2011 amortisation of STI shares and STI share rights for G Hodges and D Hisco, included in
the 2011 Annual Report under STI shares and share rights, has been included separately
with the amortisation of STI shares and STI options and rights in the table above.
– S Elliott – uplift on year-on-year remuneration, driven by a combination of factors
including increases in fixed remuneration on promotion, non monetary benefits and
cash STI.
– D Hisco – 2011 remuneration only reflected a partial year as he moved from Australia
to take up the assignment of CEO, New Zealand in that year. Uplift on year-on-year
remuneration due to an increase in the amortised value of equity.
– G Hodges – fixed remuneration remains unchanged and year on year remuneration
is similar.
– A Thursby – a decrease year-on-year overall, despite an increase in fixed remuneration
and cash STI, due to a decrease in the amortised value of equity.
– P Marriott – 2012 remuneration only reflected a partial year as he concluded in the
Chief Financial Officer role 31 May 2012 and ceased employment 31 August 2012.
Uplift on year-on-year remuneration with a decrease in partial year cash STI, an increase
in amortised value of equity and the receipt of termination benefits (of which nearly
half were statutory leave entitlements).
– C Page – 2012 remuneration only reflected a partial year as he retired and therefore
concluded in the Chief Risk Officer role 16 December 2011. Only in role partial year
(2.5 months), accordingly year-on-year comparisons are not appropriate.
J Phillips and N Williams are disclosed only for part of the 2012 year from commencement
in KMP roles.
REMUNERATION REPORT
33
REMUNERATION REPORT (continued)
8.5 STI – PERFORMANCE AND STI CORRELATION
ANZ has had another successful year with performance assessed
by the Board as largely being solid and on target across the full range
of quantitative and qualitative measures. Metrics associated with
shareholder returns have outperformed overall, metrics associated
with fi nance, connectivity and people have been on target overall,
and customer satisfaction was assessed as slightly below target
overall. The Board has given full consideration to the performance of
the Group and the Disclosed Executives in determining their rewards.
For 2012 the average STI for the CEO and Disclosed Executives
was 117% of target compared to 110% of target for the prior year.
This increase (7%) broadly aligns with the year on year increase
in underlying profi t (6%).
Figure 3 illustrates the relationship between the average actual
STI (cash and deferred equity components) 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.
FIGURE 3: ANZ – UNDERLYING PROFIT1
(UNAUDITED) & AVERAGE
STI ($ MILLION)
5,652
6,011
5,025
3,772
3,426
Underlying Profi t
STI as % of Target
76%
106%
137%
110%
117%
2008
2009
2010
2011
2012
1 Profit has been adjusted for 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 which is 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, and the presentation thereof, are based on the guidelines
released by the Australian Institute of Company Directors (AICD) and the Financial Services Institute of Australasia (FINSIA). Further details on underlying profit are provided on page 55.
9. Equity
All shares underpinning equity awards may be purchased on market, or be newly issued shares or a combination of both. For the 2011 equity
granted to the CEO and Disclosed Executives, all STI deferred shares were purchased on market and for LTI performance rights, the approach
to satisfy awards will be determined closer to the time of vesting.
9.1 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 valuations are then audited by KPMG and ANZ Global Internal Audit. The higher
of the two valuations is then approved by the HR Committee as the allocation and/or expensing/disclosure value (referencing the higher
valuation results in fewer instruments being granted). The following table provides details of the valuations of the various equity instruments
issued during the year:
TABLE 8: EQUITY VALUATION INPUTS – OPTIONS/RIGHTS
Recipients
Type of equity
Grant date
Executives
Executives
Executives
CEO
STI deferred share rights 14-Nov-11
STI deferred share rights 14-Nov-11
LTI performance rights 14-Nov-11
LTI performance rights 16-Dec-11
Exercise
price
price
price
$
$
0.00
0.00
0.00
0.00
Equity
Equity
Equity
fair
fair
value
$
Share
closing price
at grant
at grant
at grant
$
$
ANZ
expected
volatility
%
Equity
term
(years)
Vesting
period
(years)
Expected
life
(years)
Expected
dividend
yield
%
Risk free
interest
rate
%
19.40
18.21
9.03
9.65
20.66
20.66
20.66
20.93
25
25
25
25
3
4
5
5
1
2
3
3
1
2
3
3
6.50
6.50
6.50
7.00
3.70
3.65
3.53
3.06
TABLE 9: EQUITY VALUATION INPUTS – DEFERRED SHARES
Recipients
CEO and Executives
CEO and Executives
Type of equity
STI deferred shares
STI deferred shares
Grant date
14-Nov-11
14-Nov-11
Equity fair
Equity fair
Equity fair
1
value
value
$
20.89
20.89
Share
closing price
at grant
at grant
at grant
$
$
20.66
20.66
Vesting period
(years)
1
2
1 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.
34
ANZ ANNUAL REPORT 2012
9.2 LEGACY LTI PROGRAM
Following are details relating to a legacy LTI program which is no longer off ered but which has existing participants.
Type of Equity
Details
Hurdled options (Hurdled B)
(granted November 2004)
Plan Features
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 concluded on 4 November 2011.
an exercise price 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); and
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).
Signed in accordance with a resolution of the Directors.
John Morschel
Chairman
5 November 2012
Michael R P Smith
Director
REMUNERATION REPORT
35
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 FINANCIAL YEAR.
2012 Key Areas of Focus and Achievements
Oversight of strategic initiatives, including ANZ’s growth in
Oversight of strategic initiatives, including ANZ’s growth in
the Asia Pacifi c region and the challenges facing the banking
industry in the Australian and New Zealand domestic
environments.
Continued careful monitoring of increasing regulatory
Continued careful monitoring of increasing regulatory
requirements in relation to capital and funding, and
of the management of ANZ’s businesses in that
changing environment.
Review of the impacts arising from the continuing volatility
Review of the impacts arising from the continuing volatility
and uncertainties in global markets (including Europe in
particular) and the implications for ANZ, including both the
potential risks and opportunities.
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 confi rms
it has followed the Recommendations of the ASX Corporate
Governance Council during the reporting period.
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.
36
Completion of a performance review of the Board by an
Completion of a performance review of the Board by an
independent external assessor who presented the outcomes
to Directors in October 2011.
Appointment of Ms Dwyer as a new Non-Executive
Appointment of Ms Dwyer as a new Non-Executive
Director as part of a managed succession plan having regard
to the scheduled retirement of three Non-Executive Directors
in late 2013.
Recognition of ANZ as the leading bank globally on the Dow
Recognition of ANZ as the leading bank globally on the Dow
Jones Sustainability Index. ANZ has sustained a high level of
performance on this Index for eleven years in succession. This
year ANZ received a rating of 95/100 for Corporate Governance
as part of the assessment – this represents the global sector
leading score compared to a global sector average of 71/100.
Changes to the ASX Governance Principles came into eff ect for
ANZ’s fi nancial year beginning on 1 October 2011. ANZ has taken
steps to comply with these changed requirements.
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.
OTHER JURISDICTIONS
ANZ also monitors best practice developments in corporate
governance across other relevant jurisdictions.
ANZ deregistered from the US Securities Exchange Commission (SEC)
with eff ect from October 2007. Despite no longer being required
to comply with United States of America (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.
ANZ ANNUAL REPORT 2012
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 2012.
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 Board/
Board Committee 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.
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
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).
Director: CapitaLand Limited (from 2010), Tenix Group Pty Limited
(from 2008) and Giff ord Communications Pty Limited (from 2000).
Age: 69. Residence: Sydney, Australia.
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 Hongkong 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
Chairman: Australian Bankers’ Association Incorporated (from 2011,
Member from 2007).
Director: ANZ Bank New Zealand Limited (from 2007), the
Financial Markets Foundation for Children (from 2008), Financial
Literacy Australia Limited (from 2012), the International Monetary
Conference (from 2012) and the Institute of International Finance
(from 2010).
Member: Chongqing Mayor’s International Economic Advisory
Council (from 2006), 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 Hongkong 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 56. Residence: Melbourne, Australia.
CORPORATE GOVERNANCE
37
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.
Skills, experience and expertise
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.
Chairman: KaComm Communications Pty Ltd (from 2006) and
CUDOS Advisory Board (from 2011).
Member: The Royal Institution of Australia (from 2010).
Former Directorships include
Former Director: Eircom Holdings Ltd (formerly Babcock & Brown
Capital Limited) (2006–2009).
Former Principal: Clark Capital Partners (2003–2010).
Age: 69. Residence: Based in New York, United States of America and
also resides in Sydney, Australia.
Ms P J Dwyer Independent Non-Executive Director
BCOM, FCA, F FIN, FAICD
Non-Executive Director since April 2012. Member of the Audit
Committee and Risk Committee.
Skills, experience and expertise
Ms Dwyer is an established non-executive director with extensive
experience in fi nancial services and a strong accounting background,
and has previously held executive roles in the investment
management, corporate fi nance and accounting industries.
Current Directorships
Chairman: Tabcorp Holdings Limited (from 2011, Director from 2005).
Deputy Chairman: Baker IDI Heart and Diabetes Institute (from 2005).
Director: Leighton Holdings Limited (from 2012) and Lion Pty Ltd
(from 2012).
Member: Australian Government Takeovers Panel (from 2008).
Former Directorships include
Former Director: Suncorp Group Limited (2007-2012), Foster’s Group
Limited (2011), Astro Japan Property Group Limited (2005-2011),
Healthscope Limited (2010) and CCI Investment Management Limited
(1999-2011).
Age: 52. Residence: Melbourne, 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) and Myer Holdings
Limited (from 2010).
Member: Australian Government Takeovers Panel (from 2009).
Former Directorships include
Former Chief Executive Offi cer: Freehills (2000–2005).
Former Director: NBN Co Limited (2009–2012), Myer Pty Limited
(2010-2011) and Lazard Pty Ltd (2007–2009).
Age: 62. Residence: Melbourne, Australia.
38
ANZ ANNUAL REPORT 2012
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 a background in engineering 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, civil
aviation and land transport.
Current Directorships
Pte Ltd (from 2012, Director from 2009) and Civil Aviation Authority
of Singapore (from 2009).
Director: Singapore Exchange Limited (from 2004) and Kwa Geok
Choo Pte Ltd (from 1979).
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).
Chairman: Fraser & Neave, Limited (from 2007), The Islamic Bank of
Asia Limited (from 2012, Director from 2007), Asia Pacifi c Investments
Age: 55. Residence: Singapore.
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: 66. 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 Board of Governance
(from 2011).
Director: Coca Cola Amatil Limited (from 2005) and Mirrabooka
Investments Limited (from 2006).
Former Directorships include
Former Chairman: PaperlinX Limited (1999–2011).
Former Director and Chief Financial Offi cer: Amcor Limited (1985–2000).
Former President: Melbourne Cricket Club (2007–2011).
Age: 70. Residence: Melbourne, Australia.
CORPORATE GOVERNANCE
39
CORPORATE GOVERNANCE (continued)
Ms A M Watkins Independent Non-Executive Director, Chair of the Human Resources Committee
BCOM, FCA, F FIN, FAICD
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 strategy, fi nance and accounting. Her industry
experience includes retailing, agriculture, food processing and
fi nancial services. Ms Watkins held senior executive roles with
ANZ from 1999 to 2002.
Current Directorships
Chief Executive Offi cer and Managing Director: GrainCorp Limited
(from 2010).
Corporate Governance Framework
Chairman: Allied Mills Australia Pty Limited (from 2010).
Member: Australian Government Takeovers Panel (from 2010).
Former Directorships include
Former CEO: Bennelong Group (2008–2010).
Former Director: Woolworths Limited (2007–2010) and AICD National
Board and Victorian Council (2009–2011).
Former Member: The Nature Conservancy Australian Advisory
Board (2007-2011).
Age: 49. Residence: Melbourne, Australia.
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 &
DIVERSITY COMMITTEE
CREDIT &
MARKET RISK
COMMITTEE
GROUP ASSET
& LIABILITY
COMMITTEE
GLOBAL MARKETS
PRODUCT
COMMITTEE
REPUTATION
RISK
COMMITTEE
TECHNOLOGY RISK
MANAGEMENT
COMMITTEE
CAPITAL
MANAGEMENT POLICY
COMMITTEE
OPERATING
RISK EXECUTIVE
COMMITTEE
CREDIT RATINGS
SYSTEM OVERSIGHT
COMMITTEE
40
ANZ ANNUAL REPORT 2012
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.
Board Meetings
The Board normally meets at least eight times each year, including
a 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
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
by Directors at previous meetings;
the Chief Executive Offi cer’s report;
the Chief Financial Offi cer’s report;
to it;
reports on major projects and current business issues;
monitoring the performance of the Board and the mix of skills
specifi c business proposals;
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 46 to 48.
The Charters of the Board and each of its principal Committees
are set out on anz.com in the Corporate Governance section.
reports from Chairs of Committees which have met shortly prior to
the Board meeting on matters considered at those meetings; and
the minutes of previous Committee meetings for review.
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.
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 2012, the following Senior Management,
in addition to the Chief Executive Offi cer, were members of the
Management Board: Graham Hodges – Deputy Chief Executive Offi cer;
Shayne Elliott – Chief Financial Offi cer; Phil Chronican – Chief
Executive Offi cer, Australia; David Hisco – Chief Executive Offi cer,
New Zealand; Joyce Phillips – Chief Executive Offi cer, Global Wealth
and Private Banking and Group Managing Director, Marketing,
Innovation and Digital; Alex Thursby – Chief Executive Offi cer,
International & Institutional Banking; Susie Babani – Group Managing
Director, Human Resources; Alistair Currie – Group Chief Operating
Offi cer; Anne Weatherston – Chief Information Offi cer; and Nigel
Williams – Chief Risk Offi cer.
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.
CORPORATE GOVERNANCE
41
CORPORATE GOVERNANCE (continued)
Board Composition, Selection and Appointment
The Board strives to achieve an appropriate mix of skills, tenure,
experience and diversity among its Directors. Details regarding each
Director in offi ce at the date of this Annual Report can be found
on pages 37 to 40.
The Governance Committee (see page 46) 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 diversity within the Board
including in relation to matters such as skills, tenure, experience,
age and gender.
The overarching guiding principle is that the Board’s composition
should refl ect an appropriate mix having regard to the following
matters:
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.
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.
42
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. Briefi ngs are 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).
NON-EXECUTIVE DIRECTOR REMUNERATION
Details of the structure of the Non-Executive Directors’ remuneration
(which is clearly distinguished from the structure of the remuneration
of the Chief Executive Offi cer and other senior executives) is set
out in the Remuneration Report on pages 23 to 25.
The ANZ Directors’ Retirement Scheme was closed eff ective
30 September 2005. Accrued entitlements were fi xed on that date
for Non-Executive Directors in offi ce at the time who had the option
to convert those entitlements into ANZ shares. Such entitlements,
either in ANZ shares or cash, will be carried forward and transferred
to the Non-Executive Director when they retire (including interest
accrued at the 30 day bank bill rate for cash entitlements). Only
three current Non-Executive Directors have entitlements under the
Scheme, namely Messrs Morschel and Meiklejohn and Dr Clark.
Further details are set out in the Remuneration Report.
ANZ ANNUAL REPORT 2012
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.
ANZ’s criteria are more comprehensive than those set in many
jurisdictions including in particular the additional criteria stipulated
specifi cally for Audit Committee members in the Audit Committee
Charter. Further details of the criteria and review process are set
out in the Corporate Governance section of ANZ’s website.
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 has primary responsibility for
assessing the fi tness and propriety of the Chief Executive Offi cer
and key senior executives, and the Audit Committee carries out
assessments of 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 2012 fi nancial year.
DIRECTOR INDEPENDENCE
Under ANZ’s Board Charter, the Board must include a majority of
Non-Executive Directors who satisfy ANZ’s criteria for independence.
The Board Charter sets out criteria that are considered in order
to determine whether a Non-Executive Director is to be regarded
as independent.
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 Chairman who will consult the
other Directors as the Chairman deems appropriate.
In the 2012 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.
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 2012, 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 37 to 40 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 Protocol and Procedures
for Handling Confl icts of Interest, a Director may not exercise any
infl uence over the Board if an actual or 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
Protocol 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
43
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 42), 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.
ACCESS IN RELATION TO 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.
Directors have unrestricted access to Management and, in addition
to the regular presentations made by Management to Board and
Board Committee meetings, Directors may seek briefi ngs or other
additional information from Management on specifi c matters
where appropriate. The Company Secretary also provides advice
and support to the Directors as required.
Role of Company Secretary
The Board is responsible for the appointment of ANZ’s Company
Secretaries. The Board has appointed two 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 former Chief Financial Offi cer (Peter Marriott) was also
a Company Secretary of ANZ during the year, until he ceased
in this role at the end of May 2012. Profi les of ANZ’s Company
Secretaries in offi ce as at 30 September 2012 can be found in
the Directors’ Report on page 10.
44
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, ANZ’s 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.
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 Protocol.
NON-EXECUTIVE DIRECTORS
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; and
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.
ANZ ANNUAL REPORT 2012
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 assessor, 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
assessor 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 in October 2011 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 with
respect to the intervening years (including the year ended 30
September 2012) is conducted internally based on input sought
from each Director and also members of the Management Board,
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 Committee’s performance having regard to its role and
responsibilities as set out in its Charter;
whether the Committee’s Charter is fi t for purpose, or whether
any changes are required; and
the identifi cation of future topics for training/education of
the Committee.
The outcomes of the performance self-assessments are reported
to the Governance Committee (or to the Board, if there are any
material issues relating to the Governance Committee) 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 Management, including how fi nancial, customer, operational
and qualitative measures are assessed, are set out in the
Remuneration Report on pages 15 to 23.
Board, Director, Board Committee and relevant Senior Management
evaluations in accordance with the above processes have been
undertaken in respect of the 2012 fi nancial year.
Board Committees
As set out on page 41 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 (a minimum of three is
required), 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. Board Committee composition is reviewed annually.
The Chairman is an ex-offi cio member of each principal Board
Committee but does not chair any of the Committees. 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
unless invited. 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
Prior to the commencement of each year, each principal Board
Committee prepares a calendar of business which details the items
to be included on the agenda for each scheduled Committee meeting
in the coming year. In addition, any training/education topics that
have been identifi ed as part of the Committee’s annual performance
self-assessment process are also included in the calendar. In advance
of each Board Committee meeting, at least one planning session
is held by the Committee Chair with relevant internal and external
stakeholders to ensure that all emerging issues are also captured
in the agenda for the forthcoming meeting as appropriate.
Minutes from Committee meetings are included in the papers for
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
45
CORPORATE GOVERNANCE (continued)
ANZ BOARD COMMITTEE MEMBERSHIPS – as at 30 September 2012
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
Ms P J Dwyer FE
Mr P A F Hay
Mr I J Macfarlane
Ms A M Watkins
Dr G J Clark
Mr P A F Hay
Dr G J Clark
Ms P J Dwyer
Technology
Dr G J Clark C
Mr Lee Hsien Yang
Mr D E Meiklejohn
Mr I J Macfarlane
Mr J P Morschel (ex offi cio)
Mr Lee Hsien Yang
Mr Lee Hsien Yang
Mr J P Morschel (ex offi cio)
Ms A M Watkins FE
Mr J P Morschel (ex offi cio)
C – Chair FE – Financial Expert
AUDIT COMMITTEE
Mr J P Morschel (ex offi cio)
Mr D E Meiklejohn
Mr J P Morschel (ex offi cio)
The Audit Committee is responsible for reviewing:
ANZ’s fi nancial reporting principles and policies, controls
and procedures;
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.
the eff ectiveness of ANZ’s internal control and risk management
Substantive areas of focus in the 2012 fi nancial year included:
framework;
the work of Global Internal Audit which reports directly to the
Chair of the Audit Committee (refer to Global Internal Audit on
page 49 for more information);
the activities of the audit committees of key 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 and the independent
audit thereof, compliance with related legal and regulatory
requirements; 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 deemed appropriate, replacement of the external auditor;
and
reviewing the performance and remuneration of the Group
General Manager, Global Internal Audit and making
recommendations to the Board as appropriate.
Under the Committee Charter, all members of the Audit Committee
must be appropriately fi nancially literate. Mr Meiklejohn (Chair),
Ms Dwyer and Ms Watkins were determined to be ‘fi nancial experts’
during the 2012 fi nancial year under the defi nition set out in the
Audit Committee Charter. While the Board determined that
Mr Meiklejohn, Ms Dwyer 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, Ms Dwyer or Ms Watkins having responsibilities
additional to those of other members of the Audit Committee.
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 changing circumstances, risk profi les and business
unit requests;
Accounting and regulatory developments – reports on
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; and
Whistleblowing – the Committee received and reviewed
information on disclosures made under ANZ’s Global Whistleblower
Protection Policy.
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 42);
ensuring there is a robust and eff ective process for evaluating
the performance of the Board, Board Committees and Non-
Executive Directors (see pages 44 to 45);
monitoring the eff ectiveness of the Gender Balance and 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 42);
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;
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.
reviewing the development of and approving corporate
governance policies and principles applicable to ANZ; and
approving corporate responsibility objectives for ANZ, and
reviewing progress in achieving them.
46
ANZ ANNUAL REPORT 2012
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.
Substantive areas of focus in the 2012 fi nancial year included:
Board succession planning – the Committee monitored the
process in place to identify potential candidates to replace the
three Non-Executive Directors who are scheduled to retire in late
2013 (including the succession planning process for the Chairman
of the Board). Ms Dwyer was appointed as a new Non-Executive
Director with eff ect from 1 April 2012;
New diversity requirements – the Committee approved a
measurable objective in relation to gender diversity at Board
level and reviewed progress against that objective;
Board governance framework – the Committee conducted its
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;
Board and Committee performance evaluations – the Committee
reviewed the report from the independent external assessor
who was engaged to facilitate the 2011 performance review
of the Board, as well as the outcomes of the annual performance
self-assessments conducted in relation to 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 Protocol, Fit and Proper Policy, and
Trading in ANZ Securities Policy.
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 (excluding Board
diversity which is monitored by the Governance Committee).
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 25 to 27);
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.
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, and monitors
the eff ectiveness of ANZ’s health, safety and diversity programs.
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 2012 fi nancial year included:
Management roles and performance – the Committee reviewed
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 closely monitored regulatory
developments and the implications for ANZ both in Australia and
globally;
Fitness and propriety – the Committee completed fi t and proper
assessments for all existing and new Board Appointees;
Remuneration – the Committee conducted an annual review
of remuneration for Non-Executive Directors and also reviewed
the compensation structure for the Chief Executive Offi cer and
Senior Management. The Committee also agreed with the Board
the contractual arrangements for a number of senior appointments
and departures at Board Appointee level;
Remuneration Policy – the Committee reviewed ANZ’s
Remuneration Policy to ensure it remains appropriate for
its intended purpose; and
Health, Safety and Diversity – the Committee received reports on
health and safety performance and related initiatives, and reviewed
ANZ’s diversity strategy and performance towards stated targets.
For more details on the activities of the Human Resources Committee,
please refer to the Remuneration Report on pages 14 to 35.
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 purpose of the Risk Committee is to assist the Board in the
eff ective discharge of its responsibilities for business, market, credit,
equity and other investment, fi nancial, operational, liquidity and
reputational risk management and for the oversight of the
management of ANZ’s compliance obligations.
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.
CORPORATE GOVERNANCE
47
CORPORATE GOVERNANCE (continued)
Substantive areas of focus in the 2012 fi nancial year included:
TECHNOLOGY COMMITTEE
Regulatory change – the Committee monitored proposed new
regulations, both local and global, including in particular in relation
to capital and liquidity requirements for banks;
Credit portfolios – the Committee received regular updates
on the quality of ANZ’s credit portfolios and the status of the
more signifi cant exposures;
Market, Funding and Liquidity Risk – the Committee received
regular updates on the Group’s exposures and responses to
changes in market conditions;
Operational Risk and Compliance – the Committee received regular
updates on the Group’s approach and policy implementation in
response to market developments; and
Business updates – the Committee received updates from
businesses across the Group.
A risk management and internal control system to manage ANZ’s
material business risks is in place, and Management reported to
the Board during the year as to the eff ectiveness of the management
of ANZ’s material business risks. In addition, the Board received
assurance from the Chief Executive Offi cer and the Chief Financial
Offi cer that the declaration provided in accordance with section 295A
of the Corporations Act is founded on a sound system of risk
management and internal control and that the system is operating
eff ectively in all material respects in relation to fi nancial reporting risks.
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 material technology investments, investigating and
reviewing security issues relevant to ANZ’s technology processes and
systems, 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 2012 fi nancial year included:
Operational performance and major projects – the Committee
reviewed reports on operational performance (including service
and systems stability and performance) and monitored the
progress of major projects;
Strategy – the Committee received updates on the progress
of ANZ’s long-term strategy and reviewed the priorities set for
2012/13;
Investment – the Committee reviewed Management’s
progress in delivering the business investment agenda; and
Information Security – the Committee monitored the continuing
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.
process of improving information security capability to
address constantly evolving security threats and increasing
regulatory requirements.
For further information on risk management governance and
ANZ’s approach in relation to risk oversight and the management
of material business risks, please see the Corporate Governance
section of anz.com.
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
Human
Resources
Committee
Risk
Committee
Technology
Committee
Executive
Committee1
Shares
Committee1
Committee
of the Board1
G J Clark
P J Dwyer
P A F Hay
Lee Hsien Yang
I J Macfarlane
D E Meiklejohn
J P Morschel
M R P Smith
A M Watkins
A
9
4
9
9
9
9
9
9
9
B
9
4
9
9
9
9
9
9
9
A
2
6
6
6
6
6
B
2
6
5
6
6
6
A
B
4
4
4
4
4
4
4
4
A
5
5
5
5
5
B
5
5
5
5
5
A
8
4
8
8
8
8
B
8
4
8
8
8
8
A
3
3
3
3
B
3
3
3
3
A
1
1
1
1
1
1
1
1
B
1
1
1
1
1
1
1
1
A
B
1
1
1
1
1
1
1
1
1
1
A
1
1
1
1
5
5
3
2
B
1
1
1
1
5
5
3
2
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 Audit, Governance, Human Resources, Risk 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.
1 The meetings of the Executive Committee, Shares Committee and Committee of the Board as referred to in the table above include those conducted by written resolution.
48
ANZ ANNUAL REPORT 2012
ADDITIONAL COMMITTEES
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 and Management with an eff ective
and independent appraisal of the internal controls established by
Management. Operating under a Board approved Charter, the
reporting line for the outcomes of work conducted by Global Internal
Audit is direct 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 Stakeholder Engagement Model for
Relationship with the External Auditor. Under the Stakeholder
Engagement Model, 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 Stakeholder Engagement Model 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 Stakeholder Engagement Model 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;
the external auditor should not function as part of Management or
as an employee; and
the external auditor should not act as an advocate of ANZ.
The Stakeholder Engagement Model, 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 2012 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 10. 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.
FINANCIAL CONTROLS
The Audit Committee 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 operational eff ectiveness 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 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 11.
CORPORATE GOVERNANCE
49
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.
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.
The principles underlying ANZ’s Codes of Conduct and Ethics are:
We act in ANZ’s best interests and value ANZ’s reputation;
Directors’ compliance with the Non-Executive Directors Code
continues to form part of their annual performance review.
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;
We comply with the Codes, the law and ANZ’s policies and
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 Expenses 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.
Leaders are 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 carefully
considered, values-based and ethical business decisions and to create
team behaviour standards that are in line with the ANZ Values.
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.
SECURITIES TRADING
The Trading in ANZ Securities Policy prohibits trading in ANZ
securities by all employees and Directors who are aware of
unpublished price-sensitive information.
The Policy specifi cally prohibits certain ‘restricted persons’ (which
includes ANZ Directors, senior executives and their associates) from
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 where trading may be
permitted during a prohibited period with prior written clearance.
ANZ Directors are required to obtain written approval from the
Chairman in advance before they or their associates trade 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 persons are also required to obtain written
approval before they, or their associates, trade in ANZ securities.
The Policy also prohibits employees from hedging interests that have
been granted under any ANZ employee equity plan that are either
unvested or subject to a holding lock. Any breach of this prohibition
would result in the forfeiture of the relevant shares, options or rights.
ANZ 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.
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.
50
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 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 investor market and the
community. To this end, ANZ, outside of its scheduled results
announcements, issued additional Trading Updates to the market
during the 2012 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 2012 Shareholder 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 > My shareholding > 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. Shareholders are encouraged to attend and
participate in meetings but, 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.
ANZ ANNUAL REPORT 2012
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 behaviour, corporate
responsibility investments, initiatives and decisions globally:
responsible practices;
education and employment;
fi nancial inclusion and capability;
bridging urban and rural social and economic divides; and
urban sustainability.
The Corporate Responsibility and Diversity 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
ANZ as a bank and with regard to the wider industry. This year ANZ
achieved or made strong progress on 90% of its public targets,
which are reported in more detail in ANZ’s 2012 Shareholder Review
and specialist Corporate Responsibility reporting online.
ANZ keeps interested stakeholders abreast of developments through
a monthly e-bulletin, and annual and interim corporate responsibility
reporting. ANZ reports on issues that are material to its business and
refl ect its stakeholders’ stated interests. ANZ follows the guidelines
of the Global Reporting Initiative for its full online Corporate
Responsibility reporting. Detailed information on ANZ’s approach and
results is available on anz.com> About us> Corporate Responsibility.
CORPORATE GOVERNANCE
51
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 sexual orientation are valued, a strategic asset for its business
and critical to achieving its super regional strategy. The ANZ
Corporate Responsibility and Diversity Committee, 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 executives, as well as other management positions.
GENDER BALANCE AT BOARD, SENIOR EXECUTIVE
AND MANAGEMENT LEVELS
ANZ’s Board currently comprises nine 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 two female Directors (22% of the Board), namely Ms
Watkins and Ms Dwyer who joined the Board in November 2008 and
April 2012 respectively as Non-Executive Directors. Ms Watkins is
Chair of the Human Resources Committee and a member of the Audit
Committee and Governance Committee. Ms Dwyer is a member of
the Audit Committee, Risk Committee and Human Resources
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, three
Non-Executive Directors are scheduled to retire at the 2013 AGM.
The Board’s objective is that the new Director appointments who
will replace the retiring Directors will include at least one woman.
This objective is being eff ectively progressed with Ms Dwyer being
the fi rst of these three new appointments. It is expected the
remaining two appointments will be made in the period leading
up to the 2013 AGM in order to provide an appropriate transition.
ANZ has the highest proportion of women on its Management Board
of any Australian bank at 27%. There are female leaders of at least
three of ANZ’s major global businesses including Global Wealth and
Private Banking, Global Loans and Transaction Banking and Global
Relationship Banking. Women also lead key countries in the capacity
of CEO or Country Manager in ANZ’s Asia Pacifi c growth markets
of Hong Kong, American Samoa, Malaysia, Philippines and Thailand.
Annual gender targets have been set since 2004. ANZ’s goals for
the year ended 30 September 2012 and the results achieved are set
out in the table following. While ANZ did not achieve targets over all
the sub-categories, performance improved at the Senior Executive
level. With respect to the total number of women across the
organisation, the percentage fell slightly from 55% to 54.5%.
See ‘Future Goals’ below for ANZ’s 2013 measurable objectives
for achieving gender diversity.
52
Group
Senior executives
Senior manager
Manager
Total women in management
Baseline
(30 Sept 2011)
30 September
2012 Target
30 September
2012 results
22.8%
28.5%
40.3%
38.2%
24.0%
31.5%
42.0%
40.0%
23.9%
28.1%
39.6%
37.8%
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. 46% of participants in all
Leadership Pathway programs were female.
The total of all current Generalist Bankers and Graduate cohorts from
2012 comprises 44% and 45% female participation respectively; and
62% and 46% people from an Asian or Pacifi c cultural background
respectively. The graduate intake for 2013 will comprise 53% women
(up from 48% in 2011) and 43% people from an Asian or Pacifi c
cultural background.
ANZ introduced a new Building Enterprise Talent approach in 2012.
This process targets executive employees, and of the 2012
participants, 40% are female and 12% are from an Asian or Pacifi c
cultural background. This percentage meets the target representation
of females in management positions. Achieving further gender
balance and cultural diversity in this program is an ongoing priority.
ANZ launched a new program “Accelerating Banking Experiences for
Women”. The program has been sponsored by the CEO Australia
Division and is designed to give more of ANZ’s talented women the
opportunity to develop broad based banking careers at ANZ.
Awareness and education programs to eliminate any unconscious
bias in ANZ’s policies, practice and workplace culture are underway.
ANZ is a key partner in Melbourne Business School’s Gender Equality
Project. Through this partnership signifi cant research has been
completed on gender equality along with ANZ investing in the
development and launch of 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.
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 2012 Shareholder 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.
Every year ANZ conducts a review of performance-based
compensation to ensure there is no systemic gender bias in its
reward allocation. In 2012, the proportion of women achieving
ANZ’s two highest levels of relative performance outcome (RPO),
which determines bonus levels, was equal to men. 5% of females and
males achieved RPO 1 and 17% of females and males achieved RPO 2.
In addition, 57% of award recipients in ANZ’s prestigious annual CEO
Recognition Program were women.
ANZ ANNUAL REPORT 2012
FLEXIBLE ARRANGEMENTS AND PARENTAL LEAVE
FUTURE GOALS
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 formal and informal arrangements,
such as 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 2012 Shareholder Review for information on the number
of employees in fl exible work arrangements.
ANZ provides equal paid parental leave to males and females in
Australia along with a lumpsum childcare allowance to help the
transition back to work after parental leave. Superannuation is also
paid on all forms of paid parental leave.
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 employee survey, 79% of all respondents supported the
statement that ‘ANZ is creating a work environment that is open and
accepting of individual diff erences’ and 80% of respondents agreed
that ‘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 ANZ Chairman is actively involved in the Australian Institute of
Company Directors Chairman’s Mentoring Program to advance more
women into Board positions.
The Chief Executive Offi cer is a member of the Male Champions of
Change program (MCC), through which CEOs and Directors use their
infl uence to ensure that the issues of gender equality and women’s
representation in leadership are elevated onto the national business
agenda.
In 2012 ANZ was recognised as an Employer of Choice for Women
by the Australian Equal Opportunity in the Workplace Agency for
the eighth time. This followed similar achievements in the last year,
including the Australian Human Resources Institute (AHRI) Indigenous
Employment Award and the AHRI Disability Employment Award.
Also in 2012, ANZ was recognised as the Banking sector leader in the
Dow Jones Sustainability Index for eff ective labour practices and its
strong focus on diversity – with particular mention made of ANZ’s full
public disclosure of workforce diversity and the high retention of
females in management positions. ANZ’s best in class performance is
refl ected in the last Dow Jones Sustainability Index report,
highlighting the value placed on performance-linked gender
diversity targets, low gender pay diff erential and the organisation’s
public reporting of progress in achieving a gender equal workforce.
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. ANZ was awarded an
‘Outstanding’ award for two of the four categories, in the inaugural
MoneySmart Week Awards. The awards recognised two ANZ
initiatives that have greatly contributed to fi nancial wellbeing in
Australia over the past ten years: the ANZ Survey of Adult Financial
Literacy in Australia and some Pacifi c and Asian countries, which won
within the research category, and ANZ’s Saver Plus Program which
received an award for the ‘Community’ category. ANZ’s long term,
multi-million dollar investment in these programs continues to
benefi t tens of thousands of women on low incomes and from
disadvantaged communities.
ANZ has set the following global goals for gender balance and
diversity for 2013. The 2012 Shareholder Review contains further
information on these targets.
Public Gender Balance and Diversity Targets
Improve employee engagement to at least 73%, with a long term target
of 83%.
Improve perceptions of “values-based leadership” amongst our
employees to at least 70%, with a long term target of 80%.
Achieve a 1% increase in the representation of women in
management in 2013, with a medium term goal of 40% and a long
term target of 45% representation.
Achieve gender balance and greater cultural diversity in our key
recruitment, talent development and learning programs
Play a leadership role in advancing women in society and improving
cultural diversity in business through high profi le business,
government and community partnerships.
Provide 230 positions to people from traditionally excluded groups
and disadvantaged backgrounds through our traineeships, graduate
program and permanent employment.
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 Disability 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 $14.9 million
in cash, time and in-kind services during the year ended 30 September
2012. This does not include ‘forgone 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 Saver Plus,
MoneyMinded and MoneyBusiness. MoneyMinded is the most widely
used fi nancial literacy program in Australia and in 2011-12 was
adapted for use in India, Indonesia, Vietnam, the Solomon Islands,
Timor-Leste and Vanuatu, taking to 13 the number of countries where
MoneyMinded is delivered.
ANZ off ers all staff at least one day of paid volunteer leave per
year to make a diff erence in their local communities. Where possible
activities have been aligned with ANZ’s corporate responsibility focus
areas of fi nancial inclusion and capability, education and employment
opportunities and bridging urban and rural social and economic
divides. In the past year, ANZ staff volunteered almost 87,000 hours.
A number of staff contribute to non-profi t organisations through
workplace giving, which ANZ matches.
Further details can be accessed at anz.com/cr.
In addition, for the year to 30 September 2012, ANZ donated
$80,000 to the Liberal Party of Australia and $80,000 to the
Australian Labor Party.
CORPORATE GOVERNANCE
53
SECTION 2
Review of Operating Results
Principal Risks and Uncertainties
Five Year Summary
55
62
70
54
REVIEW OF OPERATING RESULTS
A MESSAGE FROM SHAYNE ELLIOTT, CHIEF FINANCIAL OFFICER
ANZ reported a profi t after tax of $5,661 million for the year ended 30 September 2012.
Income Statement
Net interest income1
Other operating income1
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
2012
$m
12,110
5,601
17,711
(8,519)
9,192
(1,198)
7,994
(2,327)
(6)
5,661
2011
$m
11,500
5,432
16,932
(8,023)
8,909
(1,237)
7,672
(2,309)
(8)
5,355
Movt
5%
3%
5%
6%
3%
-3%
4%
1%
-25%
6%
1 Comparative information has been changed. Refer to note 1 of the financial statements for further details.
NON-IFRS INFORMATION
The Group provides an additional measure of performance which is prepared on a basis other than in accordance with the accounting
standards; namely underlying profi t. The guidance provided in Australian Securities and Investments Commission Regulatory Guide 230 has
been followed when presenting this information.
UNDERLYING PROFIT
Profi t has been adjusted for certain non-core items to arrive at underlying profi t, the result for the ongoing business activities of the Group.
These adjustments have been determined on a consistent basis with those made in prior years. The adjustments made in arriving at underlying
profi t are included in statutory profi t, which is subject to audit within the context of the Group audit opinion. Underlying profi t is not audited,
however, the external auditor has informed the Audit Committee that the adjustments, and the presentation thereof, are based on the
guidelines released by the Australian Institute of Company Directors (AICD) and the Financial Services Institute of Australasia (FINSIA), and
have been determined on a consistent basis with those made in prior years.
Statutory profi t attributable to shareholders of the Company
Adjustments between statutory profi t and underlying profi t
Underlying profi t
Adjustments between statutory profi t and underlying profi t ($m)
Gain on sale of Visa shares
New Zealand Simplifi cation programme
Acquisition related adjustments
Treasury shares adjustment
Changes in New Zealand tax legislation
Economic hedging – fair value (gains)/losses
Revenue and net investment hedges (gains)/losses
Capitalised software impairment
NZ managed funds impacts
Non continuing businesses
Non continuing businesses
Total adjustments between statutory profi t and underlying profi t
Refer pages 204 to 206 for analysis of the adjustments between statutory profi t and underlying profi t.
2012
$m
5,661
350
6,011
2012
(224)
105
41
96
–
229
(53)
220
1
(65)
350
2011
$m
5,355
297
5,652
2011
–
86
126
(41)
(2)
117
51
–
(39)
(1)
297
Movt
6%
18%
6%
Movt
n/a
22%
-67%
large
-100%
96%
large
n/a
large
large
large
18%
REVIEW OF OPERATING RESULTS
55
REVIEW OF OPERATING RESULTS (continued)
Income Statement
Net interest income1
Other operating income1
Operating income
Operating expenses
Profi t before credit impairment and income tax
Provision for credit impairment
Provision for credit impairment
Profi t before income tax
Income tax expense
Non-controlling interests
Underlying profi t
Underlying profi t
2012
$m
12,111
5,468
17,579
(8,022)
9,557
(1,246)
(1,246)
8,311
(2,294)
(6)
6,011
6,011
2011
$m
11,498
5,314
16,812
(7,718)
9,094
(1,211)
(1,211)
7,883
(2,222)
(9)
5,652
5,652
Movt
5%
3%
5%
4%
5%
3%
5%
3%
-33%
6%
1 Comparative information has been changed. Refer to note 1 of the financial statements for further details.
Analysis of the business performance by major income and expense, and by Division, is on an underlying basis.
Net Interest Income
Net Interest income increased 5% with growth in average interest
earning assets partially off set by a decline in the net interest margin.
Growth in average interest earning assets (+$49.2 billion or 10%).
Major movements include:
Australia division increased $16.3 billion (7%): Mortgages increased
$13.0 billion (8%) and Commercial increased $3.1 billion (6.9%),
primarily in Business Banking; and
International and Institutional Banking increased $32.3 billion
(18%): Global Markets increased $16.6 billion (19%) due to growth
in liquid assets, trading and investment securities, combined with
a $7.6 billion (2%) growth in Global Loans and a $6.3 billion (50%)
uplift in trade fi nance lending in Transaction Banking.
Growth in average deposits and other borrowings was $45.3 billion
(13%). Major movements include:
Australia division increased $13.9 billion (12%): refl ecting increased
customer deposits in Retail from higher volumes on Progress,
Online and Business Premium Saver products and term deposits,
along with growth in deposits in Commercial;
International and Institutional Banking increased $15.8 billion
(12%) mainly due to increased customer deposits within the
APEA region; and
Group Centre increased $11.3 billion (25%) refl ecting increased
wholesale funding raised during the year.
Net interest margin decreased by 11 basis points to 2.31%. Excluding
the impact of the Global Markets business, the Group margin
decreased by 9 basis points. The main drivers of margin performance,
including Global Markets, were:
funding and asset mix changes (+1 bps): reduced the reliance
on more expensive wholesale funding due to increased customer
deposits, partially off set by unfavourable asset mix with higher
growth in lower margin products (for example Trade Loans);
funding costs (-8 bps): increased wholesale funding costs and lower
returns on capital due to declining interest rate environment in
Australia and New Zealand;
deposit costs (-10 bps): refl ecting strong competition for retail
and commercial deposits, predominantly in Australia; and
assets (+6 bps): primarily benefi ts of re-pricing mortgages in
Australia, partially off set by margin compression in Global Loans.
Other Operating Income
Other Operating Income increased 3%. Major movements include:
fee income (excluding Global Markets) increased $35 million
(2%): Transaction Banking increased $34 million driven
by volume growth;
foreign exchange earnings (excluding Global Markets) decreased
$17 million (-6%): Group Centre decreased $43 million mainly due to
lower realised revenue hedge gains. Transaction Banking increased
$15 million driven by higher volumes and Consumer Cards and
Unsecured Lending increased $6 million driven by pricing
initiatives and increased travel card volumes.
56
ANZ ANNUAL REPORT 2012
net income from Wealth Management increased $3 million (0%):
Global Wealth and Private Banking increased $43 million primarily
due to the impact of interest and infl ation rates on insurance and
annuity reserves, higher advice income and higher income from
Asian operations, partially off set by lower funds management
income. Retail Asia Pacifi c increased $11 million mainly due to
improved performance in Taiwan, Indonesia and Singapore. Group
Centre decreased $53 million due to an increase in the elimination
on consolidation of OnePath investments in ANZ products;
share of associates’ profi t decreased $20 million (-5%): Shanghai
Rural Commercial Bank (SRCB) decreased $63 million mainly as a
result of one-off adjustments included in the prior year and higher
provision charges in 2012. Panin Bank increased $18 million mainly
due to underlying business growth. Bank of Tianjin (BoT) increased
$18 million as a result of underlying business growth;
Operating Expenses
Operating expense growth was contained at 4%, with Australia
and New Zealand delivering solid cost outcomes (2% growth year
on year), driven primarily by cost savings from productivity initiatives
and greater utilisation of our hub resources. This was partially off set
by International and Institutional Banking and Group Centre due
to higher amortisation charges, restructuring costs and increased
technology investments.
Movement by expense category was:
personnel expenses increased $87 million (2%) as a result of
annual salary increases and the continued build out of our regional
capability, partly off set by a 4% reduction in staff numbers;
premises expenses increased $35 million (5%) refl ecting rent
increases and our regional expansion;
other income (excluding Global Markets) decreased $16 million
computer expenses increased $84 million (8%) due to
(-11%): Group Centre decreased $21 million due to the
profi t on sale of 20 Martin Place (Sydney) in 2011. Global Wealth
and Private Banking decreased $19 million mainly driven
by adverse investor sentiment and the uncertain economic
environment which negatively impacted on E*Trade brokerage
volumes. Global Institutional decreased $10 million due
to mark-to-market movements on credit default swap bought
protection. Asia Partnerships increased $20 million refl ecting
a $10 million gain on sale of Sacombank and $10 million dilution
gain relating to the Bank of Tianjin investment. Global Loans
increased $11 million mainly due to a gain on restructuring
a transaction. Mortgages increased $9 million mainly due to
the gain on sale of the Origin business; and
Global Markets income increased through both other operating
income and net interest income categories. Total Global Markets
income increased $241 million (14%) with Foreign Exchange up
$109 million (17%) and Fixed Income up $153 million (25%), with
increasing contribution coming from APEA. Sales continues to be
the primary revenue driver, now representing over 60% of income.
Trading and Balance Sheet results experienced strong growth
with more stable markets and tightening credit spreads.
increased depreciation and amortisation from increased
investment in technology; and
restructuring expenses increased $103 million as a result of
productivity initiatives being undertaken across the Group.
Provision for Credit Impairment
Total credit impairment charge relating to lending assets,
commitments, impaired derivative exposures and debt securities
classifi ed as available-for-sale assets increased by $35 million from
September 2011 to $1,246 million.
The individual provision charge increased $426 million over the year,
due mainly to an increase in International and Institutional Banking,
refl ecting an increase in provisions for a few legacy loans and lower
levels of recoveries and writebacks than in 2011, partially off set by
a decrease in New Zealand division.
The collective provision charge reduced by $391 million during the
year, due mainly to a release in International and Institutional Banking
of $300 million driven by a reduction in the concentration risk
provision associated with a few legacy exposures and an improved
risk profi le across most portfolios in 2012, partially off set by
underlying growth across the portfolio. A release in New Zealand
division of $45 million was driven by economic cycle releases and
an improving risk portfolio, partially off set by portfolio growth.
REVIEW OF OPERATING RESULTS
57
REVIEW OF OPERATING RESULTS (continued)
Balance Sheet Summary1
Assets
Liquid assets
Due from other fi nancial institutions
Trading and available-for-sale assets
Derivative fi nancial instruments
Net loans and advances
Regulatory deposits
Investments backing policy liabilities
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
Bonds and notes
Policy liabilities/external unit holder liabilities
Other
Total Liabilities
Total equity
2012
$m
2011
$m
36,578
17,103
61,164
48,929
427,823
1,478
29,895
19,157
642,127
30,538
327,876
69,247
397,123
52,639
63,098
33,486
24,023
600,907
41,220
25,627
13,298
58,338
58,641
397,307
1,505
29,859
19,638
604,213
27,535
296,754
71,975
368,729
55,290
56,551
32,536
25,618
566,259
37,954
Movt
43%
29%
5%
-17%
8%
-2%
0%
-2%
6%
11%
10%
-4%
8%
-5%
12%
3%
-6%
6%
9%
1 Certain comparative amounts have changed. Refer to note 1 of the Financial Statements for details.
The Group’s balance sheet continued to strengthen during 2012
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 30 basis points
to 8.8% based upon the APRA Basel II standards, with underlying
earnings and capital initiatives (including divestments) outweighing
dividends, incremental risk weighted assets and deductions.
The level of prime and supplementary liquid asset holdings increased
from September 2011 by $23.1 billion to $114.6 billion at September
2012, suffi cient to cover the maturities of all short and long term
off shore wholesale debt securities.
During the year to September 2012 the total increase in customer
funding was $29.5 billion. The proportion of customer funding stands
at 61%.
Gross impaired assets decreased 7% to $5.2 billion driven by a
reduction in impaired loans and a reduction in the restructured items,
partially off set by an increase in non-performing commitments and
contingencies. Net impaired assets as a % of net advances decreased
from 0.98% in 2011 to 0.80% in 2012.
Asset growth of $37.9 billion (6%) was principally driven by:
net loans and advances increased $30.5 billion (8%) primarily
driven by a $16.2 billion (7%) increase in the Australia division
from above system growth in Mortgages (8%) and growth in
Business Banking (11%) and International and Institutional Banking
increased $10.4 billion (11%) with strong growth across all business
lines in the APEA geography.
Liabilities growth of $34.6 billion (6%) is principally driven by:
deposits and other borrowings increased $28.4 billion (8%) due
to growth in customer deposits of $31.1 billion (10%), driven by
$13.8 billion (11%) in Australia and $12.9 billion from Institutional
and International Banking, with solid growth from new retail
savings products and greater penetration in APEA region
respectively.
58
Australia
Income statement
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
Profi t
Number of employees
ANZ ANNUAL REPORT 2012
2012
$m
5,924
1,194
7,118
(2,893)
4,225
(666)
3,559
(1,067)
2011
$m
5,782
1,185
6,967
(2,836)
4,131
(719)
3,412
(1,022)
2,492
2,390
13,982
14,635
Movt
2%
1%
2%
2%
2%
-7%
4%
4%
4%
-4%
Profi t increased 4%, with profi t before credit impairment and income
tax up 2%.
Key factors aff ecting the result were:
net interest income increased 2% as a result of strong growth in
average net loans and advances of 7%, partially off set by a decline
in net interest margin of 12 basis points;
growth in average net loans and advances of 7% was driven by
above system growth in Mortgages of 8% and growth in Business
Banking of 11%. Asset growth was largely self-funded with average
deposit growth of 12% in the year coming primarily from
savings products.
net interest margin declined 12 basis points over the year as a
result of deposit pricing pressures and higher wholesale funding
costs partly off set by benefi ts from asset pricing and disciplined
margin management;
operating expenses increased 2% due to higher restructuring
costs and annual salary increases, partially off set by the benefi ts
from productivity initiatives (reducing average FTE) procurement
saves and lower discretionary spending throughout the year; and
provision for credit impairment decreased 7% refl ecting lower
collective provisions due to the release of surplus fl ood provisions
partly off set by an increase in individual provisions due to a large
provision raised for a merchant facility and the impact of softer
economic conditions.
International and Institutional Banking
Income statement
Net interest income1
Other operating income1
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 employees2
2012
$m
3,842
2,750
6,592
(2,933)
3,659
(427)
3,232
(854)
(6)
2,372
2011
$m
3,667
2,523
6,190
(2,757)
3,433
(293)
3,140
(830)
(9)
2,301
Movt
5%
9%
6%
6%
7%
46%
3%
3%
-33%
3%
16,049
16,527
-3%
1 Comparative information has been changed. Refer to note 1 of the financial statement for further details.
2 Comparative information has changed to align to the current year methodology.
Profi t increased 3%, with strong growth in Global Markets and
Transaction Banking partially off set by by higher individual provision
charges in the Global Loans business.
other operating income increased 9% mainly from increases in
Global Institutional in APEA (in particular, Transaction Banking and
Global Markets);
Key factors aff ecting the result were:
net interest income increased 5%. Solid growth in APEA accounted
for most of the overall increases in customer deposits (up 10%)
and net loans and advances (up 11%). However, net interest margin
(excluding Global Markets) declined 40 basis points refl ecting
the higher funding costs, margin compression in the competitive
environment in Australia and the impact of the change in lending
mix tilted towards Asia where margins are lower;
operating expenses were up 6%, driven by higher amortisation
charges and restructuring costs with continued re-investment in
the business, partially off set by cost savings from productivity gains
and greater utilisation of our hub resources; and
Provision charges for credit impairment were 46% higher, driven
by individual provision charges on a few legacy Global Institutional
loans in Australia, partially off set by collective provision releases
from associated concentration risk provisions.
REVIEW OF OPERATING RESULTS
59
REVIEW OF OPERATING RESULTS (continued)
New Zealand
Income statement
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
Profi t
Number of employees
2012
$m
1,772
325
2,097
(921)
1,176
(148)
1,028
(285)
743
2011
$m
1,701
316
2,017
(906)
1,111
(166)
945
(283)
662
Movt
4%
3%
4%
2%
6%
-11%
9%
1%
12%
7,841
8,195
-4%
Profi t increased by 12% driven by strong balance sheet growth,
improved margins, lower provisions and the benefi t of a lower
tax rate.
Key factors aff ecting the result were:
lending volumes increased 4%, driven primarily by strong growth
in mortgages;
strong customer deposits growth 10%, driven by Retail and Small
Business Banking, resulted in an improvement in the funding mix
year on year;
net interest margin improved by 10 basis points, driven by a
favorable lending mix, a reduction in unproductive balances
and lower mortgage break costs;
productivity initiatives enabled costs to be held fl at during the
year, resulting in the cost to income ratio falling 100bps to 43.9%.
provisioning was 11% lower over the year, refl ecting an
improvement in the quality of the loan book and improved
recovery rates;
The individual provision loss rate is down 9 basis points to 0.29%
and net impaired assets fell 23% to represent 1.11% of net
advances; and
tax benefi t of NZD26 million from the reduction in the corporate
tax rate from 30% to 28% during the year.
Global Wealth and Private Banking
Income statement
Net interest income
Other operating income
Net funds management and insurance 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
Profi t
Number of employees1
2012
$m
123
172
1,183
1,478
(857)
621
(4)
617
(166)
451
2011
$m
135
191
1,159
1,485
(853)
632
8
640
(183)
457
2,109
2,183
Movt
-9%
-10%
2%
0%
0%
-2%
large
-4%
-9%
-1%
-3%
1 Comparative information has changed to align to the current year methodology.
Profi t was 1% lower driven by adverse investor sentiment and
subdued market returns negatively impacting volumes and resulting
in lower net interest and other operating income.
Key factors aff ecting the result were:
net interest income and other operating income declined by 9%
and 10% respectively as a result of challenging market conditions
in 2012;
net funds management and insurance income increased by 2%
mainly due to higher capital investment earnings as a result of the
positive impact of interest and infl ation rates on insurance and
annuity reserves; and
fl at operating expenses were mainly driven by the investment
in growth initiatives, off setting benefi ts realised from business
simplifi cation initiatives.
60
ANZ ANNUAL REPORT 2012
2012
$m
450
(156)
294
(418)
(124)
(1)
(125)
78
(47)
2011
$m
213
(60)
153
(366)
(213)
(41)
(254)
96
(158)
Movt
large
large
92%
14%
-42%
-98%
-51%
-19%
-70%
5,919
5,981
-1%
operating expenses increased $52 million largely as a result
of increased investment in technology infrastructure; and
provision for credit impairment reduced $40 million due to a
centrally held provision made in 2011 for emerging issues resulting
from global uncertainty.
Global Technology, Services and Operations1
Income statement
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
Profi t
Number of employees2
Includes Group Centre and shareholder functions.
1
2 Comparative information has changed to align to the current year methodology.
The underlying loss of $47 million was $111 million lower than the
prior year, with higher income and lower credit impairment charges,
partially off set by higher expense.
Key factors aff ecting the result were:
operating income improved $141 million largely due to higher
earnings on centrally held capital partly off set by lower realised
revenue hedge profi ts in 2012 and the 2011 benefi t from the sale
of Martin Place;
REVIEW OF OPERATING RESULTS
61
PRINCIPAL RISKS AND UNCERTAINTIES
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 and 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 and natural disasters,
and by movements and events that occur in global fi nancial markets.
The global fi nancial crisis 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 growth prospects
of the global economy. The impact of the global fi nancial crisis and its
aftermath (such as heightened sovereign risk) continue to aff ect
global economic activity, confi dence and capital markets.
The economic eff ects of the global fi nancial crisis and the more
recent European sovereign debt crisis have been widespread and
far-reaching with unfavourable ongoing impacts on retail spending,
personal and business credit growth, housing credit, and business
and consumer confi dence. While some of these economic factors
have since improved, lasting impacts from the global fi nancial crisis
and subsequent volatility in fi nancial markets and the more recent
European sovereign debt crisis (and potential contagion from it)
suggest ongoing vulnerability and potential adjustment of consumer
and business behaviour.
The sovereign debt crisis could have serious implications for
the European Union and the euro which, depending on the
circumstances in which they take place, could adversely impact
the Group’s business operations and fi nancial condition. 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 for
many businesses, albeit less so than in many European countries
and in the United States of America.
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, currency 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 and
funding 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, especially North Asia/
China, 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 unrest
and 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 earthquakes, 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”.
62
ANZ ANNUAL REPORT 2012
3. Changes in exchange rates may adversely aff ect
the Group’s business, operations and fi nancial condition
The previous appreciation in and continuing high level of the value
of 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 some agricultural exports, tourism, manufacturing, retailing
subject to internet competition, and import-competing producers.
Recently, commodity prices have fallen and the Australian and New
Zealand dollars have remained high, removing some of the traditional
“natural hedge” the currencies have played for commodity producers
and the broader economy. A depreciation in the Australian or New
Zealand dollars relative to other currencies would increase the debt
service obligations in Australia or New Zealand dollar terms of
unhedged exposures. Appreciation of the Australian dollar against
the New Zealand, United States dollar and other currencies has a
negative earnings 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
revenues. The Group has put in place hedges to partially mitigate the
impact of currency appreciation, but notwithstanding this there can
be no assurance that the Group’s hedges will be suffi cient or eff ective,
and any further 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 countries and
segments that are considered to provide higher growth prospects or
are in greatest demand (for example, customer deposits or the Asian
region). 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 payments 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 and products, 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) and the Reserve Bank of New Zealand (RBNZ),
the US Federal Reserve and the monetary authorities in Asian
jurisdictions in which ANZ carries out business) set offi cial interest
rates so as to aff ect the demand for money and credit in their relevant
jurisdictions (in some Asian jurisdictions currency policy is used to
infl uence general business conditions and the demand for money
and credit). These 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 the 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.
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 or nationalise
participants in their economy, has emerged as a risk to the recovery
prospects of many economies. This risk is particularly relevant to
a number of European countries though it is not limited to these
places and includes the US. 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 those currently being experienced or which were
experienced during the global fi nancial crisis. Such an event could
destabilise global fi nancial markets adversely aff ecting all
participants, including the Group.
PRINCIPAL RISKS AND UNCERTAINTIES
63
PRINCIPAL RISKS AND UNCERTAINTIES (continued)
7. 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. 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 of 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 on 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.
Future deterioration in 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.
8. 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
to 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, certain 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 also revise their methodologies in response
to legal or regulatory changes or other market developments.
9. 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, United States of America regulators and regulators in
various Asia Pacifi c jurisdictions (such as KKMA, MAS) 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 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.
The Group’s capital ratios may be aff ected by a number of factors,
such as lower earnings (including lower dividends from its
deconsolidated subsidiaries including insurance and funds
management businesses and associates), increased asset growth,
changes in the value of the Australian dollar against other currencies
in which the Group operates (particularly the New Zealand dollar and
U.S. dollar) which impacts risk weighted assets or the foreign currency
translation reserve and changes in business strategy (including
acquisitions and investments or an increase in capital intensive
businesses).
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”.
10. 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 agriculture,
tourism and manufacturing industries may have been adversely
impacted by the sustained strength of the Australian and New
Zealand 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,
64
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.
11. An increase in the failure of third parties to
honor 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 economy,
including a sustained high level unemployment, a deterioration
of the fi nancial condition of the Group’s counterparties, 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 they could have a materially adverse
eff ect on the Group’s business, operations and fi nancial condition.
12. 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.
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 it does
business could adversely aff ect the Group’s business, operations and
fi nancial conditions.
ANZ ANNUAL REPORT 2012
13. 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, 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 U.S. 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.
14. 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 U.S. 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 global
fi nancial crisis, 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 global fi nancial crisis, 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 USD/AUD rates.
Credit valuation adjustments are included as part of the Group’s profi t
and loss statement, and accordingly, increases in the CVA charge or
volatility in that charge could adversely aff ect the Group’s profi tability.
PRINCIPAL RISKS AND UNCERTAINTIES
65
PRINCIPAL RISKS AND UNCERTAINTIES (continued)
15. 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.
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.
Loss from operational risk events could adversely aff ect the Group’s
fi nancial results. Such losses can include fi nes, penalties, loss or
theft of funds or assets, legal costs, customer compensation, loss
of shareholder value, reputation loss, loss of life or injury to people,
and loss of property and/or information.
Operational risk is typically classifi ed into risk event type categories
to measure and compare risks on a consistent basis. Examples
of operational risk events according to category are as follows:
Internal Fraud: Risk that fraudulent acts are planned, initiated
or executed by employees (permanent, temporary or contractors)
from inside ANZ e.g. Rogue Trader.
External Fraud: Fraudulent acts or attempts which originate
from outside ANZ e.g. valueless cheques, counterfeit credit
cards, loan applications in false names, stolen identity etc.
Employment Practices & Workplace Safety: Employee relations,
diversity and discrimination, and health and safety risks to
ANZ employees.
Clients, Products & Business Practices: Risk of market manipulation,
product defects, incorrect advice, money laundering, misuse of
customer information etc.
Business Disruption (including Systems Failures): Risk that
ANZ’s banking operating systems are disrupted or fail. At ANZ,
technology risks are key Operational Risks which fall under
this category.
Damage to Physical Assets: Risk that a natural disaster, terrorist
or vandalism attack damages ANZ’s buildings or property.
Execution, Delivery & Process Management: Risk that ANZ
experiences losses as a result of data entry errors, accounting
errors, vendor, supplier or outsource provider errors, or failed
mandatory reporting.
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.
16. 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, including because of
unauthorised access or use.
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,
prevent unauthorised access and integrate existing and future
acquisitions and alliances.
To manage these risks, the Group has disaster recovery and
information technology governance practices and security 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 has an ongoing need to 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.
17. 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 also uses third parties to process and manage
information on its behalf. 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.
66
ANZ ANNUAL REPORT 2012
18. The Group is exposed to reputation risk, which
may adversely impact its business, operations and
fi nancial condition
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.
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.
19. 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 reputation 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.
20. 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
ANZ is exposed to climate related events (including climate change).
These events may include severe storms, drought, fi res, cyclones,
hurricanes, fl oods and rising sea levels. The impact of these events
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 customers.
ANZ may also be exposed to other events such as geological events
(volcanic or seismic activity, tsunamis); plant and animal diseases or
a fl u pandemic. These may severely disrupt normal business activity
and have a negative eff ect on the Group’s business, operations and
fi nancial condition. The most recent example of this would be the
major earthquakes in Christchurch New Zealand. Whilst much of
the widespread property damage was covered by public (Earthquake
Commission) and private insurance, there will potentially be negative
impacts on property (and hence security) values and on future
levels of insurance and reinsurance coverage across New Zealand.
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 the Group’s business, operations and
fi nancial condition.
21. 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, 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. Some
of the jurisdictions in which the Group operates do not permit local
deposits to be used to fund operations outside of that jurisdiction.
In the event the Group experiences reduced liquidity, these deposits
may not be available to fund the operations of the Group.
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), and
the Australian Competition and Consumer Commission (ACCC), 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 U.S. Federal Reserve Board, the U.S. Department of
Treasury, the U.S. Offi ce of the Comptroller of the Currency, the U.S.
Offi ce of Foreign Assets Control, the UK 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.
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.
PRINCIPAL RISKS AND UNCERTAINTIES
67
PRINCIPAL RISKS AND UNCERTAINTIES (continued)
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 and may even confl ict with each other. 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 global fi nancial crisis, 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 in some
instances draft regulations 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 U.S. has 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 U.S.
Uncertainty remains as to the fi nal form that the proposed regulatory
changes will take in Australia, New Zealand, the U.S. and other
countries in which the Group operates 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) or retain capital (through lower
dividends), 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.
22. 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. 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
operations and subsequent fi nancial results.
23. 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 events,
plant and animal diseases, 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.
24. 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”; and
derivatives.
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.
68
25. 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.
26. 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. As at 30 September 2012, 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 (including Acquired
portfolio of insurance and investment business and deferred
acquisition costs) 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.
27. 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. The Group’s material contingent liabilities are
described in note 43 of the 2012 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.
ANZ ANNUAL REPORT 2012
28. The Group regularly considers acquisition and
divestment opportunities, and there is a risk that
ANZ 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 of 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, customers, counterparties,
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 employees, customers, counterparties, suppliers and
other business partners of newly acquired businesses will remain
as such post-acquisition, and the loss of employees, customers,
counterparties, suppliers and other business partners 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 employees, customers, counterparties, suppliers and other
business partners, which 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
69
FIVE YEAR SUMMARY
Underlying fi nancial performance1
Net interest income2
Other operating income2
Operating expenses
Profi t before credit impairment and income tax
Provision for credit impairment
Income tax expense
Non-controlling interests
Underlying profi t1
Adjustments between statutory profi t and underlying profi t1
Profi t attributable to shareholders of the Company
Financial position
Assets2,3
Net assets
Tier 1 capital ratio4
Return on average ordinary equity5
Return on average assets2
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
– closing
Share information
(per fully paid ordinary share)
Earnings per share
Dividend payout ratio
Net tangible assets per ordinary share6
No. of fully paid ordinary shares issued (millions)
Dividend Reinvestment Plan (DRP) issue price
– interim
– fi nal
Other information
Points of representation7
No. of employees (full time equivalents)8
No. of shareholders9
2012
$m
2011
$m
2010
$m
2009
$m
2008
$m
12,111
5,468
(8,022)
9,557
(1,246)
(2,294)
(6)
6,011
(350)
5,661
642,127
41,220
10.8%
14.6%
0.9%
45.6%
35.4%
67,255
145 cents
100%
100%
11,498
5,314
(7,718)
9,094
(1,211)
(2,222)
(9)
5,652
(297)
5,355
604,213
37,954
10.9%
15.3%
0.9%
45.9%
-12.6%
51,319
140 cents
100%
100%
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%
1.9%
60,614
126 cents
100%
100%
40.3%
61,085
102 cents
100%
100%
-33.5%
38,263
136 cents
100%
100%
$25.12
$20.26
$24.75
$25.96
$17.63
$19.52
$26.23
$19.95
$23.68
$24.99
$11.83
$24.39
$31.74
$15.07
$18.75
213.4c
69.3%
$12.22
2,717.4
$20.44
–
1,337
48,239
438,958
208.2c
68.6%
$11.44
2,629.0
$21.69
$19.09
1,381
50,297
442,943
178.9c
71.6%
$10.38
2,559.7
$21.32
$22.60
1,394
47,099
411,692
131.0c
82.3%
$11.02
2,504.5
$15.16
$21.75
1,352
37,687
396,181
170.4c
82.6%
$10.72
2,040.7
$20.82
$13.58
1,346
36,925
376,813
1 Profit has been adjusted for certain 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 years. The adjustments made in arriving at
underlying profit are included in statutory profit which is 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, and the presentation
thereof, are based on the guidelines released by the Australian Institute of Company
Directors (AICD) and the Financial Services Institute of Australasia (FINSIA), and have been
determined on a consistent basis with those made in prior years. Refer to page 204 to 206
for analysis of the adjustments between statutory profit and underlying profit.
2 The 2011 comparative information has been restated to reflect the impact of the current
period reporting treatment of derivative related collateral posted/received and the associated
interest income/expense. Refer to note 1 of the financial statement for further details.
The 2008 to 2010 comparative information has not been restated.
3 In 2010, consolidated assets included assets from ANZ Wealth Australia (formerly OnePath
Australia), OnePath NZ (formerly ING NZ), Landmark and RBS acquired during the
financial year.
4 Calculated in accordance with APRA requirements effective at the relevant date. Basel II
has been applied from 1 January 2008.
5 Average ordinary equity excludes non-controlling interests and preference shares.
6 Equals shareholders’ equity less preference share capital, goodwill, software and other
intangible assets divided by the number of ordinary shares.
Includes branches, offices, representative offices and agencies.
7
8 Comparative amounts have changed reflecting an amendment to FTE to align to the
current year methodology (2011: FTE increased by 1,359).
9 Excludes employees whose only ANZ shares are held in trust under ANZ employee
share schemes.
70
SECTION 3
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
3
Income
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 and Associates
18 Tax Assets
19 Goodwill and Other Intangible Assets
20 Other Assets
21 Premises and Equipment
22 Due to Other Financial Institutions
23 Deposits and Other Borrowings
24 Income Tax Liabilities
72
72
73
74
75
76
78
78
90
92
93
94
95
96
97
98
98
98
99
105
106
107
107
109
110
111
112
112
114
114
115
ANZ ANNUAL REPORT 2012
115
116
116
117
120
122
123
Notes to the Financial Statements (continued)
25 Payables and Other Liabilities
26 Provisions
27 Bonds and Notes
28 Loan Capital
29 Share Capital
30 Reserves and Retained Earnings
31 Capital Management
32 Assets Charged as Security for Liabilities and
Collateral Accepted as Security for Assets
127
33 Financial Risk Management
128
34 Fair Value of Financial Assets and Financial Liabilities 152
161
35 Maturity Analysis of Assets and Liabilities
162
36 Segment Analysis
165
37 Notes to the Cash Flow Statements
167
38 Controlled Entities
168
39 Associates
169
40 Securitisations and Covered Bonds
170
41 Fiduciary Activities
42 Commitments
170
43 Credit Related Commitments, Guarantees,
Contingent Liabilities and Contingent Assets
44 Superannuation and Other Post Employment
Benefi t Schemes
45 Employee Share and Option Plans
46 Key Management Personnel Disclosures
47 Transactions with Other Related Parties
48 Life Insurance Business
49 Exchange Rates
50 Events since the End of the Financial Year
Directors’ Declaration and Responsibility Statement
Independent Auditor’s Report
171
175
180
184
188
188
192
192
193
194
SECTION 3
71
FINANCIAL STATEMENTS
INCOME STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER
Interest income
Interest expense
Net interest income
Other operating income
Net funds management and insurance income
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 year
Comprising:
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 78 to 192 form an integral part of these financial statements.
Consolidated
The Company
2012
$m
30,538
(18,428)
12,110
4,003
1,203
395
17,711
(8,519)
9,192
(1,198)
7,994
(2,327)
5,667
(6)
5,661
213.4
205.6
145
2011
$m
30,443
(18,943)
11,500
3,591
1,405
436
16,932
(8,023)
8,909
(1,237)
7,672
(2,309)
5,363
(8)
5,355
208.2
198.8
140
2012
$m
27,340
(18,372)
8,968
5,015
207
–
14,190
(6,715)
7,475
(985)
6,490
(1,615)
4,875
–
4,875
n/a
n/a
145
2011
$m
27,070
(18,542)
8,528
4,111
183
–
12,822
(6,256)
6,566
(994)
5,572
(1,421)
4,151
–
4,151
n/a
n/a
140
Note
3
4
3
3
3
4
16
6
8
8
7
72
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER
ANZ ANNUAL REPORT 2012
Profi t for the year
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 net of tax
Total comprehensive income for the year
Comprising total comprehensive income attributable to:
Non-controlling interests
Shareholders of the Company
Note
Consolidated
The Company
2012
$m
5,667
2011
$m
5,363
2012
$m
4,875
2011
$m
4,151
30
(416)
330
(174)
97
30
30
44
259
(246)
43
17
(31)
(54)
(1)
(17)
(17)
10
(453)
5,214
3
5,211
77
19
229
(9)
(15)
(15)
(5)
(35)
(63)
5
518
5,881
8
5,873
153
(171)
32
27
–
(35)
–
4
(17)
6
(175)
4,700
–
4,700
(10)
57
183
(12)
–
34
–
(17)
(51)
(10)
271
4,422
–
4,422
1 Share of associates’ other comprehensive income for 2012 comprises available-for-sale assets $(28) million (2011: $(15) million), foreign currency translation reserve $1 million (2011: $(1) million)
and cash flow hedge reserve $(4) million (2011: $1 million).
The notes appearing on pages 78 to 192 form an integral part of these financial statements.
FINANCIAL STATEMENTS
73
BALANCE SHEET AS AT 30 SEPTEMBER
Assets
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances
Regulatory deposits
Due from controlled entities
Shares in controlled entities
Shares in associates
Current tax assets
Deferred tax assets
Goodwill and other intangible assets
Investments backing policy liabilities
Other assets
Premises and equipment
Total assets
Liabilities
Due to other fi nancial institutions
Deposits and other borrowings
Derivative fi nancial instruments
Due to controlled entities
Current tax liabilities
Deferred tax liabilities
Policy 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
The notes appearing on pages 78 to 192 form an integral part of these financial statements.
Note
Consolidated
2012
$m
2011
$m
The Company
2012
$m
2011
$m
36,578
17,103
40,602
48,929
20,562
427,823
1,478
–
–
3,520
33
785
7,082
29,895
5,623
2,114
642,127
30,538
397,123
52,639
–
781
18
29,537
3,949
10,109
1,201
63,098
11,914
600,907
41,220
25,627
13,298
36,074
58,641
22,264
397,307
1,505
–
–
3,513
41
599
6,964
29,859
6,396
2,125
604,213
27,535
368,729
55,290
–
1,128
28
27,503
5,033
11,221
1,248
56,551
11,993
566,259
37,954
32,782
14,167
30,490
43,266
17,841
350,060
514
63,660
11,516
897
13
768
1,752
–
3,747
1,534
573,007
28,394
333,536
46,047
57,729
726
12
–
–
7,554
745
49,975
11,246
535,964
37,043
21,283
10,070
28,367
51,720
19,017
323,974
497
46,446
9,098
971
40
552
1,544
–
3,856
1,502
518,937
24,709
307,254
48,747
38,561
1,079
27
–
–
7,696
798
44,870
10,817
484,558
34,379
23,070
871
(2,498)
19,728
41,171
49
41,220
21,343
871
(2,095)
17,787
37,906
48
37,954
23,350
871
(686)
13,508
37,043
–
37,043
21,701
871
(544)
12,351
34,379
–
34,379
9
10
11
12
13
14
17
17
18
18
19
48
20
21
22
23
12
24
24
48
25
26
27
28
29
29
30
30
29
43
43
74
CASH FLOW STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER
ANZ ANNUAL REPORT 2012
Cash fl ows from operating activities
Interest received
Interest paid
Dividends received
Other operating income received
Personnel expenses paid
Other operating expenses paid
Net cash (paid)/received on derivatives
Income taxes (paid)/received refunds received
Net cash fl ows from funds management & insurance business
Premiums, other income and life investment deposits received
Investment income and policy deposits received/(paid)
Claims and policy liability payments
Commission expense paid
Commission expense paid
Cash fl ows from operating activities before changes in
operating assets and liabilities:
Changes in operating assets and liabilities arising from
cash fl ow movements:
(Increase)/decrease in operating assets:
Liquid assets
Due from other fi nancial institutions
Trading Securities
Loans and advances
Net intragroup loans and advances
Net cash fl ows from investments backing policy liabilities
Purchase of insurance assets
Proceeds from sale/maturity of insurance assets
Increase/(decrease) in operating liabilities:
Deposits and other borrowings
Due to other fi nancial institutions
Payables and other liabilities
Payables and other liabilities
Changes in operating assets and liabilities arising from
cash fl ow movements:
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
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 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
Eff ects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of period
The notes appearing on pages 78 to 192 form an integral part of these financial statements.
Consolidated
The Company
Infl ows
(Outfl ows)
2012
$m
Infl ows
(Outfl ows)
2011
$m
Infl ows
(Outfl ows)
2012
$m
Infl ows
(Outfl ows)
2011
$m
Note
30,421
(18,827)
80
2,698
(4,773)
(3,062)
4,734
(2,835)
5,955
78
(4,428)
(439)
30,310
(18,797)
84
3,879
(4,547)
(2,630)
(2,038)
(2,033)
5,858
(21)
(4,531)
(491)
27,255
(18,742)
1,437
2,613
(3,718)
(2,736)
3,687
(2,454)
150
–
–
58
26,948
(17,874)
974
3,747
(3,560)
(2,535)
(3,751)
(1,792)
134
–
–
49
9,602
5,043
7,550
2,340
435
(4,256)
(4,589)
(32,748)
–
(7,949)
7,866
33,662
4,184
209
(3,186)
6,416
1,593
(1,476)
(7,614)
(25,568)
–
(9,127)
10,182
43,834
1,350
584
13,758
18,801
419
(3,886)
(2,275)
(28,592)
(283)
–
–
30,834
4,836
441
1,494
9,044
1,106
(1,586)
(5,558)
(25,753)
336
–
–
42,542
1,415
835
13,337
15,677
(30,441)
31,200
(40,657)
39,518
(28,558)
28,839
(37,402)
35,409
(1)
18
(319)
20
(702)
(225)
(304)
74
(319)
6
(849)
(2,531)
(327)
36
(264)
–
(473)
(747)
(260)
36
(194)
–
(127)
(2,538)
24,352
(15,662)
12,213
(17,193)
19,442
(12,038)
10,600
(15,415)
2,724
(2,593)
(2,219)
60
(55)
6,607
6,416
(225)
6,607
12,798
30,021
(1,369)
41,450
1,341
(1,579)
(2,113)
43
(137)
(7,425)
18,801
(2,531)
(7,425)
8,845
20,610
566
30,021
2,502
(2,121)
(2,230)
60
(55)
5,560
9,044
(747)
5,560
13,857
23,651
(1,240)
36,268
1,341
(1,322)
(2,124)
43
(137)
(7,014)
15,677
(2,538)
(7,014)
6,125
16,934
592
23,651
FINANCIAL STATEMENTS
75
37(a)
37(b)
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER
Consolidated
As at 1 October 2010
Profi t for the year
Other comprehensive income
Total comprehensive income for the year
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 interests
Other equity movements:
ANZ employee share acquisition scheme
Share-based payments/(exercises)
Treasury shares OnePath Australia adjustment
ANZ employee share option scheme
Other changes
As at 30 September 2011
Profi t for the year
Other comprehensive income
Total comprehensive income for the year
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 interests
Other equity movements:
ANZ employee share acquisition plan
Share-based payments/(exercises)
Treasury shares OnePath Australia adjustment
ANZ employee share option plan
Other changes
Ordinary
Ordinary
Ordinary
share capital
share capital
share capital
share capital
$m
$m
Preference
shares
$m
19,886
871
–
–
–
–
–
1,367
–
45
–
2
43
–
–
–
–
–
–
–
–
–
–
–
–
–
Shareholders’
equity
equity
equity
attributable
attributable
to equity
to equity
to equity
holders of
holders of
the Bank
$m
34,091
5,355
518
5,873
Retained
earnings
earnings
earnings
$m
$m
15,921
5,355
(10)
5,345
Reserves1
$m
(2,587)
–
528
528
–
(3,503)
(3,503)
–
–
(22)
–
(14)
–
–
–
23
–
–
–
–
–
–
1
23
1,367
(22)
45
(14)
2
43
1
21,343
871
(2,095)
17,787
37,906
–
(406)
(406)
5,661
(44)
5,617
5,661
(450)
5,211
Non-controlling
interests
$m
Total
shareholders’
equity
equity
equity
$m
$m
64
34,155
8
–
8
–
–
–
(22)
–
–
–
–
(2)
48
6
(3)
3
5,363
518
5,881
(3,503)
23
1,367
(44)
45
(14)
2
43
(1)
37,954
5,667
(453)
5,214
–
–
–
–
–
1,461
–
128
–
78
60
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3,702)
(3,702)
(2)
(3,704)
–
–
(1)
–
6
–
–
(2)
24
–
–
–
–
–
–
2
24
1,461
(1)
128
6
78
60
–
–
–
–
–
–
–
–
–
24
1,461
(1)
128
6
78
60
–
As at 30 September 2012
23,070
871
(2,498)
19,728
41,171
49
41,220
1 Further information on other comprehensive income is disclosed in note 30 to the financial statements.
The notes appearing on pages 78 to 192 form an integral part of these financial statements.
76
The Company
As at 1 October 2010
Profi t for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with equity holders in
their capacity as equity holders:
Dividends paid
Dividend reinvestment plan
Other equity movements:
Share-based payments/(exercises)
ANZ employee share option scheme
ANZ employee share acquisition scheme
Other changes
As at 30 September 2011
Profi t for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with equity holders in
their capacity as equity holders:
Dividends paid
Dividend reinvestment plan
Other equity movements:
Share-based payments/(exercises)
ANZ employee share option plan
ANZ employee share acquisition plan
Other changes
Ordinary
Ordinary
Ordinary
share capital
share capital
share capital
share capital
$m
$m
Preference
shares
$m
20,246
871
–
–
–
–
1,367
–
43
45
–
–
–
–
–
–
–
–
–
–
21,701
871
–
–
–
–
1,461
–
60
128
–
–
–
–
–
–
–
–
–
–
Shareholders’
equity
equity
equity
attributable
attributable
to equity
to equity
to equity
holders of
holders of
the Bank
$m
32,006
4,151
271
4,422
Retained
earnings
earnings
earnings
$m
$m
11,666
4,151
24
4,175
Reserves1
$m
(777)
–
247
247
–
–
(14)
–
–
–
(544)
–
(146)
(146)
–
–
6
–
–
(2)
(3,491)
–
(3,491)
1,367
–
–
–
1
(14)
43
45
1
12,351
34,379
4,875
(29)
4,846
4,875
(175)
4,700
(3,691)
–
(3,691)
1,461
–
–
–
2
6
60
128
–
ANZ ANNUAL REPORT 2012
Non-controlling
interests
$m
Total
shareholders’
equity
equity
equity
$m
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
32,006
4,151
271
4,422
(3,491)
1,367
(14)
43
45
1
34,379
4,875
(175)
4,700
(3,691)
1,461
6
60
128
–
As at 30 September 2012
23,350
871
(686)
13,508
37,043
–
37,043
1 Further information on other comprehensive income is disclosed in note 30 to the financial statements.
The notes appearing on pages 78 to 192 form an integral part of these financial statements.
FINANCIAL STATEMENTS
77
NOTES TO THE FINANCIAL STATEMENTS
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 2011
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
statements have been rounded to the nearest million dollars, except
where otherwise indicated.
vi) Principles of consolidation
Subsidiaries
The consolidated fi nancial statements of the Group comprise the
fi nancial statements of the Company and all its subsidiaries where
it is determined that there is a capacity to control.
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(iii).
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.
In the Company’s fi nancial statements investments in subsidiaries
are carried at cost less accumulated impairment losses.
1: Signifi cant Accounting Policies
The fi nancial statements of Australia and New Zealand Banking
Group Limited (the Company) and its controlled entities (the Group)
for the year ended 30 September 2012 was authorised for issue in
accordance with the resolution of the Directors on 5 November, 2012.
The principal accounting policies adopted in the preparation of
these fi nancial statements are set out below. These policies have
been consistently applied by the Company and all consolidated
entities and to all years presented in these fi nancial statements.
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.
The Company and Group are for-profi t entities.
A) BASIS OF PREPARATION
i) Statement of compliance
The fi nancial statements of the Company and Group are general
purpose fi nancial statements which have been prepared in accordance
with the accounts provisions of the Banking Act 1959 (as amended),
Australian Accounting Standards (AASs) and the Australian
Accounting Interpretations issued by the Australian Accounting
Standards Board (AASB), 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 fi nancial statements of the Company and Group
comply with IFRS.
ii) Use of estimates and assumptions
The preparation of these fi nancial statements requires the use of
management judgement, estimates and assumptions that aff ect
reported amounts and the application of accounting 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 and judgements are reviewed on an ongoing basis.
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
derivative fi nancial instruments, including in the case of fair value
hedging (refer note 1 (E)(ii)) the fair value adjustment on the
underlying hedged exposure;
available-for-sale fi nancial assets;
available-for-sale fi nancial assets;
fi nancial instruments held for trading; and
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.
78
1: Signifi cant Accounting Policies (continued)
Associates
The Group applies the equity method of accounting for associates.
The Group’s share of results of associates is included in the
consolidated income statement. Shares in associates are carried
in the consolidated balance sheet at cost plus the Group’s share
of post-acquisition net assets less any impairment. Interests in
associates 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
are carried at cost less accumulated impairment losses.
vii) 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 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.
Translation to presentation currency
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 are translated at the rates of exchange ruling
at balance date;
revenue and expenses 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.
ANZ ANNUAL REPORT 2012
When a foreign operation is disposed, exchange diff erences
are recognised in the income statement as part of the gain or
loss on sale.
Goodwill arising on the acquisition of a foreign operation is treated
as an asset of the foreign operation 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. This is 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 origination fees, together
with related direct costs, are deferred and recognised as an
adjustment to the eff ective interest rate on a loan once drawn.
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 assets
The gain or loss on the disposal of assets is determined as the
diff erence between the carrying amount of the asset at the time of
disposal and the proceeds of disposal. This is recognised as an item of
other income in the year in which the signifi cant risks and rewards of
ownership transfer to the buyer.
NOTES TO THE FINANCIAL STATEMENTS
79
NOTES TO THE FINANCIAL STATEMENTS (continued)
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 that 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 and certain customer
incentive payments 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 45 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-based performance 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.
However, the expense is not reversed where the award does not
vest due to the failure to meet a market-based performance condition.
80
iv) Lease payments
Leases entered into by the Group as lessee are predominantly
operating leases. 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, and associates, 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.
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:
the asset represents investments backing policy liabilities (refer note
the asset represents investments backing policy liabilities (refer note
1 (I)(viii));
it is a life investment contract liability (refer note 1 (I)(i));
it is a life investment contract liability (refer note 1 (I)(i));
doing so eliminates or signifi cantly reduces a measurement
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:
ANZ ANNUAL REPORT 2012
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 in 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.
NOTES TO THE FINANCIAL STATEMENTS
81
NOTES TO THE FINANCIAL STATEMENTS (continued)
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 from the
available-for-sale revaluation reserve 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 other 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.
82
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-related 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. A counterparty liability is
recognised and classifi ed as 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.
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, or due from other fi nancial institutions.
The security is not included in the balance sheet. Interest income is
accrued on the underlying loan amount.
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.
vii) Derecognition
The Group enters into transactions where it transfers fi nancial assets
recognised on its balance sheet yet retains either all or a portion of
the risks and rewards of the transferred assets. 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
(CGU) to which the goodwill relates. Where the goodwill balance
exceeds the assessed 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
Software and computer system costs include 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 major core infrastructure
projects where the useful life has been determined to be 7 or
10 years.
At each reporting date, software assets are reviewed for impairment
indicators. 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.
ANZ ANNUAL REPORT 2012
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.
xi) Deferred acquisition costs
Refer to note 1(I)(vi).
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
1.5%
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
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
83
NOTES TO THE FINANCIAL STATEMENTS (continued)
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. Deposits and other borrowings not designated
at fair value through profi t or loss on initial recognition 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.
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.
84
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 changes in the liabilities
recognised in the income statement, remain upon consolidation.
Treasury shares are excluded from the weighted average number
of ordinary shares used in the earnings per share calculations.
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)(vii), 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 other operating 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 and other short-term highly liquid investments
with terms to maturity of three months from the date of acquisition
or less that are readily convertible to known amounts of cash and
which are subject to an insignifi cant risk of changes in value.
ANZ ANNUAL REPORT 2012
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. Changes in the internal
organisational structure of the Group can cause the composition
of the Group’s reportable segments to change. Where this occurs
corresponding segment information for the previous fi nancial year
is changed, unless the information is not available and the cost to
develop it would be excessive.
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 shareholders’ 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
85
NOTES TO THE FINANCIAL STATEMENTS (continued)
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 APRA
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.
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 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 life investment contracts.
Amounts received from policyholders in respect of life investment
contracts are recognised as an investment contract liability where
the receipt is in the nature of a deposit.
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.
86
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.
ANZ ANNUAL REPORT 2012
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 43 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
87
NOTES TO THE FINANCIAL STATEMENTS (continued)
1: Signifi cant Accounting Policies (continued)
iii) Comparatives
Certain amounts in the comparative information have been
reclassifi ed to conform with current period fi nancial statement
presentations. Below is an overview of material adjustments
for comparatives:
“Customer liability for acceptances” and “liability for acceptances”
previously shown on the face of the balance sheet have been
included in “net loans and advances” and “payables and other
liabilities” respectively. The comparative balances of $970 million for
the Group and $688 million for the Company have been reclassifi ed
accordingly;
“Regulatory deposits” previously included in “other assets” has been
shown as a separate item on the face of the balance sheet with the
comparative balances reclassifi ed accordingly;
“Securities purchased under agreement to resell” previously
presented as “Due from other fi nancial institutions” was reclassifi ed
to “Liquid assets” to ensure consistent classifi cation across the
Group. The comparative balances of $728 million for the Group and
Company have been reclassifi ed accordingly;
September 2011 undrawn facilities have been restated by $2,646
million using the revised methodology for undrawn overdrafts that
was implemented during 2012; and
the reporting treatment of collateral received on derivative asset
positions and collateral posted on derivative liability positions has
changed to better refl ect the nature of the asset/liabilities and
to be consistent with market practice. The table below sets out
the consequential changes to previously reported balance sheet
classifi cations, with no impact on net assets.
The income statement presentation of interest paid/received on
collateral balances has changed to align with the revised balance
sheet classifi cation. Comparative information has been reclassifi ed
and the net interest earned on collateral of $17 million for the
Group and $17 million for the Company previously shown as “other
income” has been presented on a gross basis as “interest income”
($75 million for the Group and $73 million for the Company) and
“interest expense” ($58 million for the Group and $56 million for
the Company).
Consolidated
Liquid assets1
Due from other fi nancial institutions1
Derivative fi nancial instruments
Total assets
Due to other fi nancial institutions
Derivative fi nancial instruments
Total liabilities
Previously
Previously
Previously
reported
reported
reported
reported
$m
$m
24,899
8,824
54,118
594,488
23,012
50,088
556,534
Sep 11
Change
Change
Change
$m
$m
728
4,474
4,523
9,725
4,523
5,202
9,725
Currently
Currently
Currently
reported
reported
reported
reported
$m
$m
25,627
13,298
58,641
604,213
27,535
55,290
566,259
1 “Due from other financial institutions” at 30 September 2011 was also reduced by the reclassification of $728 million of “securities purchased under agreements to resell” to “liquid assets”.
The Company
Liquid assets1
Due from other fi nancial institutions1
Derivative fi nancial instruments
Total assets
Due to other fi nancial institutions
Derivative fi nancial instruments
Total liabilities
Previously
Previously
Previously
reported
reported
reported
reported
$m
$m
20,555
6,338
48,356
511,113
21,345
44,287
476,734
Sep 11
Change
Change
Change
$m
$m
728
3,732
3,364
7,824
3,364
4,460
7,824
Currently
Currently
Currently
reported
reported
reported
reported
$m
$m
21,283
10,070
51,720
518,937
24,709
48,747
484,558
1 “Due from other financial institutions” at 30 September 2011 was also reduced by the reclassification of $728 million of “securities purchased under agreements to resell” to “liquid assets”.
88
ANZ ANNUAL REPORT 2012
1: Signifi cant Accounting Policies (continued)
iv) 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 specifi es new recognition and measurement requirements for fi nancial assets
and fi nancial liabilities previously addressed by 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;
equity instruments not held for trading purposes will be classifi ed at fair value through the income
statement except for certain instruments which may be classifi ed at 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; and
fi nancial liabilities – gains and losses attributable to own credit arising from fi nancial liabilities
designated at fair value through profi t or loss will be 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.
This standard replaces the guidance on control and consolidation in AASB 127 Consolidated
and Financial Statements and Interpretation 112 Consolidation – Special Purpose Entities.
The standard provides a single 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.
The assessment of the impact of this standard is well progressed and is not expected to have
any material impact on the net assets or earnings of the Group.
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, there will be no material impact
on the Group.
Mandatory application
date for the Company
and Group
1 October 2015
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. The Group is currently assessing the impact
of this standard.
1 October 2013
AASB 119 Employee
Benefi ts
Amendments to this standard will result in changes to the recognition and measurement
of defi ned benefi t pension expense and termination benefi ts, as well as disclosures for all
employee benefi ts. The amendments are not expected to have a material impact on the Group.
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 relate to standards that have limited application to the Company or Group.
NOTES TO THE FINANCIAL STATEMENTS
89
NOTES TO THE FINANCIAL STATEMENTS (continued)
2: Critical Estimates and Judgements Used in Applying Accounting Policies
The preparation of the fi nancial statements of the Company and
Group involves making estimates and judgements that aff ect the
reported amounts within the fi nancial statements. The 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 the critical estimates and judgements follows.
i) Provisions for credit impairment
The measurement of impairment of loans and advances requires
management’s best estimate of the losses incurred in the loan
portfolio at balance date.
Individual and collective provisioning involves the use of assumptions
for estimating the amount and timing of expected future cash fl ows.
These assumptions are regularly revised to reduce any diff erences
between loss estimates and actual loss experience.
The collective provision involves estimates regarding the 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
management’s assessment of 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.
ii) Impairment of non-lending assets
The carrying values of non-lending assets are subject to impairment
assessments at each reporting date. Judgement is required in
identifying the cash-generating units to which goodwill and other
assets are allocated for the purpose of impairment testing.
Where there is an indicator of impairment, the recoverable amount
of the asset is determined based on the higher of the asset’s fair
value less costs to sell and its value in use. Impairment is recognised
where the recoverable amount is less than the carrying value. This
assessment involves consideration of both internal and external
indicators of potential impairment. Where an indicator exists,
judgement is applied when determining the assumptions supporting
the recoverable amount calculations.
During the second half of the year, the results of the impairment
testing of software assets resulted in an impairment charge of
$273 million (before tax) being recognised (full year impairment,
$274 million before tax).
iii) Special purpose and off -balance sheet entities
The Group invests in or establishes special purpose entities (SPEs)
to enable it to undertake specifi c types of transactions such as
structured fi nance arrangements, covered bond issuances and
securitisations.
An SPE is consolidated where it is controlled by the Group in
accordance with the Group’s policy outlined in note 1 (A)(vi). 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 of the SPE, as well as about its ability to make
operational decisions regarding the SPE.
The main types of unconsolidated SPEs with which the Group is
involved are structured fi nance entities. These entities are set up to
assist with the structuring of client fi nancing. ANZ may manage these
vehicles, hold minor amounts of capital in these vehicles or provide
fi nancing or derivatives to these vehicles. Any resulting lending
arrangements with these SPEs are at arm’s length and ANZ typically
has limited ongoing involvement with the entity.
iv) Financial instruments at fair value
The Group’s fi nancial instruments measured at fair value are stated
in note 1 (A)(iii). In estimating fair value the Group uses, wherever
possible, quoted market prices in an active market 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 selection of appropriate valuation techniques, methodology
and inputs requires judgement. These are reviewed and updated as
market practice evolves.
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.
90
ANZ ANNUAL REPORT 2012
2: Critical Estimates and Judgements Used in Applying Accounting Policies (continued)
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) Provisions (other than loan impairment)
The Group holds provisions for various obligations including
employee entitlements, restructurings and litigation related claims.
The provision for long-service leave is supported by an independent
actuarial report and involves assumptions regarding employee
turnover, future salary growth rates and discount rates. Other
provisions involve judgements regarding the outcome of future
events including estimates of expenditure required to satisfy such
obligations.
vi) 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 class 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.
vii) Taxation
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
91
NOTES TO THE FINANCIAL STATEMENTS (continued)
3: Income
Interest income
Other fi nancial institutions
Trading securities
Available-for-sale assets
Loans and advances
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 intermediation trades
Movement 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-down of investment in Saigon Securities Inc
Gain on sale/(write-down) of investment in Sacombank
Private equity and infrastructure earnings
Profi t on sale of property
Gain on sale of Visa shares
Dilution gain on investment in Bank of Tianjin
Write-down of investment in subsidiaries and branches
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)/loss
Total net funds management and insurance income
Total other operating income
Share of associates’ profi t
Total income6,7
Consolidated
2012
$m
2011
$m
The Company
2012
$m
2011
$m
329
1,368
621
27,737
483
30,538
–
30,538
29,159
1,368
11
30,538
697
2,060
2,757
–
2,757
(345)
2,412
1,081
280
73
(327)
–
55
–
–
(31)
10
28
1
291
10
–
120
1,591
4,003
825
2,730
1,237
(438)
(598)
(2,449)
(104)
1,203
5,206
395
36,139
295
1,481
570
27,614
483
30,443
–
30,443
28,947
1,481
15
30,443
652
2,053
2,705
–
2,705
(314)
2,391
817
295
4
(167)
–
61
61
(13)
–
(35)
26
24
–
–
–
127
1,200
3,591
868
(511)
1,184
(490)
(548)
854
48
1,405
4,996
436
35,875
260
1,010
531
22,896
308
25,005
2,335
27,340
26,325
1,010
5
27,340
621
1,504
2,125
753
2,878
(265)
2,613
707
265
73
(284)
1,411
–
–
–
(31)
10
28
–
224
10
(34)
23
2,402
5,015
111
–
38
58
–
–
–
207
5,222
–
32,562
240
1,166
481
22,716
299
24,902
2,168
27,070
25,895
1,166
9
27,070
583
1,511
2,094
651
2,745
(236)
2,509
528
280
2
(87)
941
–
–
(13)
–
(35)
26
–
–
–
(39)
(1)
1,602
4,111
101
–
33
49
–
–
–
183
4,294
–
31,364
Includes interchange fees paid.
1 Lending fees exclude fees treated as part of the effective yield calculation and included in interest income (refer note 1 B(ii)).
2
3 Does not include interest income relating to trading securities.
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 (refer to note 12 for further discussion on Balance Sheet Management), ineffective portions of cash flow hedges, and fair value movements in financial
assets and liabilities designated at fair value. The net gain (loss) on financial assets and liabilities designated at fair value was $(171) million (2011: $219 million) for the Group and $(170) million
(2011: $223 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 $4 million (2011: $11 million) for the Group and $3 million (2011: $9 million) for the Company.
7 Comparative information has changed for certain income line items. Refer to note 1 for details of material changes.
92
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 (excl restructuring)
ii) Premises
Amortisation and depreciation of buildings and integrals (refer note 21)
Rent
Utilities and other outgoings
Other
Total premises expenses (excl restructuring)
iii) Computer
Computer contractors
Data communication
Depreciation and amortisation1
Rentals and repairs
Software purchased
Software impairment2
Other
iv) Other
Advertising and public relations
Audit fees 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, frauds and forgeries
Postage and stationery
Professional fees
Telephone
Travel and entertainment expenses
Amortisation and impairment of other intangible assets (refer note 19)
Other
Total other expenses (excl restructuring)
v) Restructuring3
Total operating expenses
Total expenses4
ANZ ANNUAL REPORT 2012
Consolidated
2012
$m
2011
$m
The Company
2012
$m
2011
$m
473
12,962
69
633
4,127
164
18,428
–
18,428
17,801
627
18,428
288
3,066
13
292
189
218
699
4,765
90
412
168
46
716
150
106
424
131
253
274
45
585
12,661
101
489
4,828
279
18,943
–
18,943
18,202
741
18,943
306
2,960
13
287
165
250
743
4,724
89
387
165
44
685
143
125
348
130
241
20
33
422
11,299
–
510
3,387
138
15,756
2,616
18,372
17,868
504
18,372
218
2,382
8
251
160
158
564
3,741
54
300
117
43
514
133
64
337
87
188
239
19
229
18
99
65
8
52
137
253
69
170
110
171
235
18
97
65
4
53
130
269
75
208
122
150
141
10
84
51
5
42
91
210
40
125
8
460
542
10,900
–
378
4,018
216
16,054
2,488
18,542
17,912
630
18,542
238
2,321
7
249
145
192
581
3,733
50
251
114
38
453
117
83
266
91
181
7
7
752
139
10
81
51
2
27
88
230
38
150
8
471
1,381
274
8,519
26,947
1,426
148
8,023
26,966
1,267
126
6,715
25,087
1,295
23
6,256
24,798
Total computer expenses (excl restructuring)
1,383
1,040
1,067
1
Comprises software amortisation $320 million (2011: $249 million) (refer note 19) and computer depreciation $104 million (2011: $99 million) (refer note 21). The Company comprises
software amortisation $268 million (2011: $199 million) (refer note 19) and computer depreciation $69 million (2011: $67 million) (refer note 21).
In 2011, $24 million of software impairment expense has been booked as restructuring expenses by the Group (2012: nil).
2
3 Consolidated includes $148 million (2011: $125 million) relating to costs associated with the New Zealand simplification program.
4 Comparative information has changed for certain expense line items. Refer to note 1 for details of material changes.
NOTES TO THE FINANCIAL STATEMENTS
93
NOTES TO THE FINANCIAL STATEMENTS (continued)
5: Compensation of Auditors
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
Consolidated
The Company
2012
$’000
8,752
3,147
236
2011
$’000
8,620
3,636
266
12,135
12,522
4,955
1,166
95
6,216
4,522
808
69
5,399
2012
$’000
5,614
2,216
160
7,990
1,483
571
60
2,114
2011
$’000
5,479
2,806
138
8,423
1,187
454
15
1,656
Total compensation of auditors
18,351
17,921
10,104
10,079
Inclusive of goods and services tax.
1
2 For the Group, comprises prudential and regulatory services of $3.067 million (2011: $3.578 million), comfort letters $0.930 million (2011: $0.446 million) and other $0.316 million
(2011: $0.420 million).
3 The nature of the non-audit services include training, reviews of compliance with legal and regulatory requirements, benchmarking reviews, accounting advice and project assurance.
Further details are provided in the Directors’ Report.
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 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 confl ict with the role of the external 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.
94
6: Current Income Tax Expense
Income tax recognised in the income statement
Tax expense/(income) comprises:
ANZ ANNUAL REPORT 2012
Consolidated
2012
$m
2011
$m
The Company
2012
$m
2011
$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
2,523
2
(198)
2,327
2,364
3
(58)
2,309
1,690
(3)
(72)
1,615
1,624
3
(206)
1,421
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
(Gain on sale)/write-down of investment in Sacombank
Write-down of investment in Saigon Securities Inc.
Off shore Banking Units
Foreign exchange translation of US hybrid loan capital
OnePath Australia – policyholder income and contributions tax
Tax provisions no longer required
Interest on Convertible Preference Shares
Adjustment between members of the Australian tax-consolidated group
Other
Income tax (over) provided in previous years
Total income tax expense charged in the income statement
Eff ective tax rate
Australia
Overseas
7,994
2,398
7,672
2,302
6,490
1,947
5,572
1,672
(48)
(4)
(118)
(3)
9
(12)
–
106
(70)
68
–
(1)
(29)
(5)
(131)
11
–
–
–
146
(43)
50
–
5
(9)
(423)
–
(3)
9
(12)
(16)
–
(60)
68
108
9
(18)
(282)
–
11
–
–
(2)
–
(40)
50
–
27
2,325
2,306
1,618
1,418
2
2,327
29.1%
1,823
504
3
2,309
30.1%
1,845
464
(3)
1,615
24.9%
1,511
104
3
1,421
25.5%
1,322
99
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
95
NOTES TO THE FINANCIAL STATEMENTS (continued)
7: Dividends
Ordinary share dividends2
Interim dividend
Final dividend
Bonus option plan adjustment
Dividend on ordinary shares
Consolidated1
2012
$m
2011
$m
The Company
2012
$m
2011
$m
1,769
2,002
(80)
3,691
1,662
1,895
(66)
3,491
1,769
2,002
(80)
3,691
1,662
1,895
(66)
3,491
1 Dividends paid to ordinary equity holders of the Company. Excludes dividends paid by subsidiaries of the Group to non-controlling equity holders (2012: $2 million; 2011: nil).
2 Dividends are not accrued and are recorded when paid.
A fi nal dividend of 79 cents, fully franked, is proposed to be paid on each eligible fully paid ordinary share on 19 December 2012
(2011: fi nal dividend of 76 cents, paid 16 December 2011, fully franked). The 2012 interim dividend of 66 cents, paid 2 July 2012, was fully
franked (2011: interim dividend of 64 cents, paid 1 July 2011, fully franked).
The tax rate applicable to the franking credits attached to the 2012 interim dividend and to be attached to the proposed 2012 fi nal dividend
is 30% (2011: 30%).
Dividends paid in cash or satisfi ed by the issue of shares under the Dividend Reinvestment Plan during the years ended 30 September 2012
and 2011 were as follows:
Paid in cash1
Satisfi ed by share issue2
Preference share dividend3
Euro Trust Securities4
Dividend on preference shares
Consolidated
The Company
2012
$m
2,230
1,461
3,691
2011
$m
2,124
1,367
3,491
Consolidated
2012
$m
11
11
2011
$m
12
12
2012
$m
2,230
1,461
3,691
2011
$m
2,124
1,367
3,491
The Company
2012
$m
2011
$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 29 for details.
Dividend franking account
The amount of franking credits available to the Company for the
subsequent fi nancial year is $386 million (2011: $363 million) after
adjusting for franking credits that will arise from the payment of
tax on Australian profi ts for the 2012 fi nancial year, $921 million
of franking credits which will be utilised in franking the proposed
2012 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
specifi ed capitalisations. Further, APRA has advised that a bank
under its supervision must consult with it before declaring
96
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
prudential 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 breaching
specifi ed capital adequacy ratios or if APRA so directs; and
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 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.
7: Dividends (continued)
Dividend Reinvestment Plan
During the year ended 30 September 2012, 39,662,663 ordinary
shares were issued at $19.09 per share and 34,448,302 ordinary shares
at $20.44 per share to participating shareholders under the Dividend
Reinvestment Plan (2011: 31,506,936 ordinary shares at $22.60
per share, and 30,178,811 ordinary shares at $21.69 per share).
All eligible shareholders can elect to participate in the Dividend
Reinvestment Plan.
For the 2012 fi nal dividend, no discount will be applied when
calculating the ‘Acquisition Price’ used in determining the number
of ordinary shares to be provided under the Dividend Reinvestment
Plan and Bonus Option Plan terms and conditions, and the ‘Pricing
Period’ under the Dividend Reinvestment Plan and Bonus Option Plan
terms and conditions will be the seven trading days commencing on
16 November 2012 (unless otherwise determined by the Directors
and announced on the ASX).
8: Earnings per Ordinary Share
Basic earnings per share (cents)
Earnings reconciliation ($millions)
Profi t for the year
Less: profi t attributable to minority interests
Less: preference share dividend paid
Earnings used in calculating basic earnings per share
Weighted average number of ordinary 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
ANZ ANNUAL REPORT 2012
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 2012, 4,090,494 ordinary shares
were issued under the Bonus Option Plan (2011: 3,013,239 ordinary
shares).
Consolidated
2012
$m
213.4
5,667
6
11
2011
$m
208.2
5,363
8
12
5,650
2,647.4
5,343
2,565.9
205.6
198.8
5,650
30
31
225
5,936
2,647.4
5.3
30.5
24.6
179.8
2,887.6
5,343
28
46
168
5,585
2,565.9
4.5
41.6
38.9
158.7
2,809.6
Weighted average number of ordinary 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 at current market prices
weighted average number of convertible UK Hybrid Securities
weighted average number of ANZ Convertible Preference Shares
Used in calculating diluted earnings per share
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 0.5 million (2011: approximately 1.5 million).
NOTES TO THE FINANCIAL STATEMENTS
97
NOTES TO THE FINANCIAL STATEMENTS (continued)
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
10: Due from Other Financial Institutions
Cash collateral
Other receivables from fi nancial institutions
Total due from other fi nancial institutions
11: Trading Securities
Commonwealth securities
Local, semi-government and other government securities
Other securities and equity securities
Total trading securities
Consolidated
The Company
2012
$m
3,056
21,112
2,257
10,153
36,578
2011
$m
2,805
12,769
3,377
6,676
25,627
2012
$m
1,010
19,792
2,177
9,803
32,782
2011
$m
958
11,539
2,149
6,637
21,283
Consolidated
The Company
2012
$m
6,878
10,225
17,103
2011
$m
5,202
8,096
2012
$m
5,875
8,292
2011
$m
4,460
5,610
13,298
14,167
10,070
Consolidated
The Company
2012
$m
2,168
14,332
24,102
40,602
2011
$m
4,505
13,563
18,006
36,074
2012
$m
2,073
7,468
20,949
30,490
2011
$m
4,505
8,879
14,983
28,367
98
ANZ ANNUAL REPORT 2012
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 foreign
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 manner consistent with the risks
arising on other fi nancial instruments.
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.
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 arise from both sales to customers and market
making activities. Sales to customers include the structuring
and marketing of derivative products which enable customers
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 prices 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.
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.
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 the
terms of the derivative. 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
99
NOTES TO THE FINANCIAL STATEMENTS (continued)
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 2012
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
purchased
Other credit derivatives purchased
Total credit derivatives purchased
Structured credit derivatives sold
Other credit derivatives sold
Total credit derivatives sold
Notional
Principal
Amount
$m
390,756
280,664
954
66,348
71,318
4,112
7,608
99
1,228
–
(5,336)
(11,681)
(134)
–
(1,091)
–
171
–
–
–
171
810,040
13,047
(18,242)
34,820
1,600
(1,803)
–
240,576
1,583,257
113,974
26,040
35,367
24
29,185
148
963
–
(23)
(29,035)
(138)
–
(1,116)
1,999,214
30,320
(30,312)
–
1,811
–
–
–
1,811
7,634
11,632
19,266
7,634
10,870
18,504
37,770
243
277
520
–
44
44
564
–
(62)
(62)
(346)
(122)
(468)
(530)
–
–
–
–
–
–
–
–
(4)
–
–
–
(4)
–
–
(788)
(30)
–
–
(818)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,288
9
–
–
1,297
–
(922)
(8)
–
–
(930)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
35
84
–
–
–
119
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,147
7,863
99
1,228
–
(5,336)
(11,685)
(134)
–
(1,091)
13,337
(18,246)
1,600
(1,803)
24
32,284
157
963
–
(23)
(30,745)
(176)
–
(1,116)
33,428
(32,060)
243
277
520
–
44
44
564
–
(62)
(62)
(346)
(122)
(468)
(530)
48,929
(52,639)
Total
2,881,844
45,531
(50,887)
1,982
(822)
1,297
(930)
119
100
ANZ ANNUAL REPORT 2012
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 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
purchased
Other credit derivatives purchased
Total credit derivatives purchased
Structured credit derivatives sold
Other credit derivatives sold
Total credit derivatives sold
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)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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)
58,641
(55,290)
Total1
2,547,686
55,917
(54,133)
1,814
(531)
897
(626)
13
1 Comparative information has been restated to reflect the impact of the current period reporting treatment of the derivative related collateral posted/received. Refer to note 1 for further details.
NOTES TO THE FINANCIAL STATEMENTS
101
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,921
7,764
99
1,224
–
(4,603)
(10,679)
(134)
–
(1,073)
13,008
(16,489)
1,595
(1,801)
22
26,960
155
962
–
(21)
(25,917)
(173)
–
(1,116)
28,099
(27,227)
243
277
520
–
44
44
–
(62)
(62)
(346)
(122)
(468)
564
43,266
(530)
(46,047)
NOTES TO THE FINANCIAL STATEMENTS (continued)
12: Derivative Financial Instruments (continued)
The Company at
The Company at
The Company at
30 September 2012
30 September 2012
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
390,283
236,951
840
65,803
70,877
3,921
7,511
99
1,224
–
(4,603)
(10,675)
(134)
–
(1,073)
–
169
–
–
–
169
764,754
12,755
(16,485)
34,288
1,595
(1,801)
–
204,539
1,247,578
90,176
26,173
35,822
22
24,240
146
962
–
(21)
(24,420)
(135)
–
(1,116)
1,604,288
25,370
(25,692)
–
1,624
–
–
–
1,624
Credit default swaps
Structured credit derivatives
purchased
Other credit derivatives purchased
Total credit derivatives purchased
Structured credit derivatives sold
Other credit derivatives sold
Total credit derivatives sold
7,634
11,632
19,266
7,634
10,870
18,504
243
277
520
–
44
44
–
(62)
(62)
(346)
(122)
(468)
–
–
–
–
–
–
–
(4)
–
–
–
(4)
–
–
(633)
(30)
–
–
(663)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,096
9
–
–
1,105
–
(864)
(8)
–
–
(872)
–
–
–
–
–
–
–
–
–
–
–
–
–
84
–
–
–
84
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
37,770
2,441,100
564
40,284
(530)
(44,508)
–
1,793
–
(667)
–
1,105
–
(872)
–
84
102
ANZ ANNUAL REPORT 2012
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
The Company at
The Company at
The Company at
30 September 2011
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
purchased
Other credit derivatives purchased
Total credit derivatives purchased
Structured credit derivatives sold
Other credit derivatives sold
Total credit derivatives 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
17,888
1,015
598
–
(20)
(18,119)
(1,004)
–
(745)
1,368,174
19,525
(19,888)
–
1,304
–
–
–
1,304
–
(117)
–
–
–
(117)
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)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
19,869
1,018
598
–
(21)
(18,793)
(1,010)
–
(745)
21,510
(20,569)
609
781
1,390
–
24
24
–
(29)
(29)
(788)
(556)
(1,344)
1,414
(1,373)
Total1
2,084,288
49,437
(47,952)
1,590
(231)
681
(564)
12
–
51,720
(48,747)
1 Comparative information has been restated to reflect the impact of the current period reporting treatment of the derivative related collateral posted/received. Refer to note 1 for further details.
NOTES TO THE FINANCIAL STATEMENTS
103
NOTES TO THE FINANCIAL STATEMENTS (continued)
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 consist principally of interest rate swaps
and cross currency swaps that are used to protect against changes
Gain/(loss) arising from fair value hedges
Hedged item
Hedging Instrument
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 cross 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
Opening
Item recorded in net interest income
Tax eff ect on items recorded in net interest income
Valuation gain taken to equity
Tax eff ect on net gain on cash fl ow hedges
Closing Balance
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.
Consolidated
The Company
2012
$m
91
(103)
2011
$m
(15)
19
2012
$m
63
(68)
2011
$m
(43)
43
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 cash fl ow hedge relationship
is recognised immediately in the income statement. The schedule
below shows the movements in the hedging reserve:
Consolidated
The Company
2012
$m
169
17
(5)
39
(12)
208
2011
$m
11
(9)
3
230
(66)
169
2012
$m
47
27
(8)
32
(9)
89
2011
$m
(73)
(12)
4
183
(55)
47
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
104
Consolidated
The Company
2012
$m
922
(330)
(384)
208
2011
$m
614
(188)
(257)
169
2012
$m
755
(307)
(359)
89
2011
$m
445
(163)
(235)
47
ANZ ANNUAL REPORT 2012
12: Derivative Financial Instruments (continued)
The mechanics of a cash fl 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 (2011: 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 $3 million
loss for the Group (2011: $9 million loss) and a $3 million loss for the
Company (2011: $9 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 applicable foreign functional currency.
Ineff ectiveness arising from hedges of net investments in foreign
operations and recognised as ‘other income’ in the income statement
amounted to nil (2011: $3 million gain).
13: Available-for-sale Assets
Listed
Other government securities
Other securities and equity securities
Total listed
Unlisted
Local and semi-government securities
Other government securities
Other securities and equity securities
Loans and advances1
Total unlisted
Total available-for-sale assets
Consolidated
The Company
2012
$m
756
3,664
4,420
7,311
5,323
3,508
–
16,142
20,562
2011
$m
2,223
3,065
5,288
4,219
7,517
4,885
355
16,976
22,264
2012
$m
313
3,569
3,882
6,131
4,871
2,957
–
13,959
17,841
2011
$m
1,755
2,791
4,546
2,946
6,657
4,513
355
14,471
19,017
1
In July 2012, the Group reclassified loans of $300 million (2011: $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 insignificant.
During the year a net gain of $281 million was recognised in the
income statement in respect of Available-for-sale assets for the Group
(2011: $18 million) and $206 million for the Company (2011: $20 million
net loss). This includes a gain on the sale of investments in Visa Inc.
and Sacombank of $301 million for the Group and $234 million for the
company. In 2011 an impairment loss of $35 million was recognised in
relation to the investment in Sacombank for both Group and Company.
In addition, a loss of $35 million (2011: $37 million) for both Group
and Company was recycled from equity (the Available-for-sale
revaluation reserve) into the income statement on the impairment
of assets previously reclassifi ed from available-for-sale into loans
and advances (refer note 16).
Available-for-sale by maturities at 30 September 2012
Local and semi-government securities
Other government securities
Other securities and equity securities
Loans and advances
Total available-for-sale assets
Available-for-sale by maturities at 30 September 2011
Local and semi-government securities
Other government securities
Other securities and equity securities
Loans and advances
Total available-for-sale assets
Less than
3 months
$m
1,325
4,896
421
–
6,642
Less than
3 months
$m
3,397
7,471
2,491
–
13,359
Between
3 and 12
months
$m
Between
1 and
5 years
5 years
5 years
$m
$m
Between
5 and 10
years
years
years
$m
$m
464
808
1,022
–
2,294
1,406
369
2,443
–
4,218
2,880
–
296
–
3,176
After
10 years
10 years
10 years
$m
$m
1,236
6
2,858
–
4,100
No
maturity
maturity
maturity
specifi ed
specifi ed
specifi ed
specifi ed
$m
$m
–
–
132
–
132
Between
3 and 12
months
$m
Between
1 and
5 years
5 years
5 years
$m
$m
Between
5 and 10
years
years
years
$m
$m
After
10 years
10 years
10 years
$m
$m
No
maturity
maturity
maturity
specifi ed
specifi ed
specifi ed
specifi ed
$m
$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
Total
fair
value
$m
7,311
6,079
7,172
–
20,562
Total
fair
value
$m
4,219
9,740
7,950
355
22,264
NOTES TO THE FINANCIAL STATEMENTS
105
NOTES TO THE FINANCIAL STATEMENTS (continued)
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
Add: Customer’s liability for acceptances2
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
2012
$m
8,014
10,741
230,706
150,499
10,385
1,885
19,469
861
432,560
(4,538)
(2,235)
797
1,239
(4,737)
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
970
(5,490)
2012
$m
6,598
9,222
192,912
114,247
9,767
1,363
19,342
243
353,694
(3,407)
(1,946)
707
1,012
(3,634)
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
688
(4,317)
427,823
397,307
350,060
323,974
438
647
286
(141)
1,230
76
374
64
514
507
838
260
(84)
1,521
71
408
–
479
226
507
129
(107)
755
71
366
64
501
395
576
39
(59)
951
58
384
–
442
1,744
2,000
1,256
1,393
409
586
235
491
791
239
1,230
1,521
3,412
6,927
46
10,385
3,310
6,577
81
9,968
210
467
78
755
3,200
6,521
46
9,767
389
527
35
951
3,132
6,268
81
9,481
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.
1
2 Previously customer liability for acceptances was presented as a separate balance on the face of the Balance Sheet; Net Loans and Advances comparatives have been restated accordingly.
106
ANZ ANNUAL REPORT 2012
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
2012
$m
4,364
525
307
5,196
2011
$m
4,650
700
231
5,581
2012
$m
3,146
377
287
3,810
2011
$m
3,038
684
211
3,933
(1,729)
(44)
3,423
(1,687)
(10)
3,884
(1,242)
(27)
2,541
(1,144)
(6)
2,783
1,713
1,834
1,455
1,510
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 $127 million
(2011: $137 million) for the Group and $104 million (2011: $106 million) for the Company.
16: Provision for Credit Impairment
Provision movement analysis
New and increased provisions
Australia
New Zealand
Asia Pacifi c, Europe & America
Write-backs
Recoveries of amounts previously written off
Individual provision charge
Impairment on available-for-sale assets
Collective provision charge/(credit) to income statement
Charge to income statement
Consolidated
2012
$m
2011
$m
The Company
2012
$m
2011
$m
1,730
376
187
2,293
(537)
1,756
(214)
1,542
35
(379)
1,198
1,362
459
212
2,033
(613)
1,420
(227)
1,193
37
7
1,237
1,628
16
154
1,798
(333)
1,465
(180)
1,285
35
(335)
985
1,347
15
80
1,442
(402)
1,040
(203)
837
37
120
994
NOTES TO THE FINANCIAL STATEMENTS
107
NOTES TO THE FINANCIAL STATEMENTS (continued)
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
Disposal
Charge/(credit) to income statement
Total collective provision
Individual provision
Balance at start of year
New and increased provisions
Write-backs
Adjustment for exchange rate fl uctuations
Discount unwind
Bad debts written off
Total individual provision
Total provision for credit impairment
Liquid assets and due
from other fi nancial
institutions
Net loans
and advances
Other fi nancial assets
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
Credit related
commitments1
2011
$m
2012
$m
Total provisions
2012
$m
2011
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,604
2,577
–
–
–
–
–
–
–
–
–
–
–
–
(21)
(4)
(343)
13
–
14
2,236
2,604
1,687
2,259
(537)
(34)
(143)
(1,503)
1,729
3,965
1,849
2,049
(613)
8
(185)
(1,421)
1,687
4,291
–
–
–
–
–
–
–
–
–
–
–
–
–
–
572
576
3,176
3,153
(7)
–
(36)
529
10
34
–
–
–
–
44
–
–
–
–
–
–
–
–
–
–
–
–
3
–
(7)
(28)
(4)
(379)
16
–
7
572
2,765
3,176
26
(16)
–
–
–
–
10
1,697
2,293
(537)
(34)
(143)
(1,503)
1,773
4,538
1,875
2,033
(613)
8
(185)
(1,421)
1,697
4,873
573
582
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.
International
and
Institutional
Banking
Australia
Global
Wealth
and Private
Banking
New Zealand
Other
Total
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
20
3
(4)
(1)
(1)
(5)
12
6
(36)
(3)
36
–
(3)
–
(1) 1,687 1,849
57 2,259 2,049
(613)
(537)
(34)
8
(185)
(143)
(24) (1,503) (1,421)
–
(25)
(1)
6 1,729 1,687
Consolidated
2012
%
0.41
0.64
0.35
2011
%
0.42
0.79
0.35
Consolidated
Individual provision
Balance at start of year
New and increased provisions
Write-backs
Adjustment for exchange rate fl uctuations
Discount unwind
Bad debts written off
561 447 709
925
1,002 940
(169)
(76)
(81)
(565)
(202)
–
(21)
(717)
(190)
–
(25)
(611)
947 399
595
(234)
18
(98)
(519)
436
359 454
(185)
(159)
16
5
(60)
(41)
(262)
(215)
12
9
(4)
1
–
(3)
Total individual provision
623 561 743
709 348
399
15
Ratios (as a percentage of total gross loans and advances)
Individual provision
Collective provision
Bad debts written off
108
ANZ ANNUAL REPORT 2012
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
Disposal
Change/(credit) to income statement
Total collective provision
Individual provision
Balance at start of year
New and increased provisions
Write-backs
Adjustment for exchange rate fl uctuations
Discount unwind
Bad debts written off
Total individual provision
Total provision for credit impairment
Liquid assets and due
from other fi nancial
institutions
Net loans
and advances
2012
$m
2011
$m
2012
$m
2011
$m
Other fi nancial
assets
2012
$m
2011
$m
Credit related
commitments1
2011
$m
2012
$m
Total provisions
2012
$m
2011
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,042
1,950
(8)
(4)
(302)
(8)
–
100
1,728
2,042
1,144
1,777
(333)
(45)
(91)
(1,210)
1,242
2,970
1,253
1,456
(402)
(3)
(123)
(1,037)
1,144
3,186
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
454
(11)
–
(33)
410
6
21
–
–
–
–
27
436
2,496
2,386
(2)
–
20
(19)
(4)
(335)
(10)
–
120
454
2,138
2,496
20
(14)
–
–
–
–
1,150
1,798
(333)
(45)
(91)
(1,210)
6
1,269
1,273
1,442
(402)
(3)
(123)
(1,037)
1,150
3,646
437
460
3,407
1 Comprises undrawn facilities and customer contingent liabilities.
Ratios (as a percentage of total gross loans and advances)
Individual provision
Collective provision
Bad debts written off
17: Shares in Controlled Entities and Associates
Total shares in controlled entities
Total shares in associates1 (refer note 39)
Total shares in controlled entities and associates
The Company
2012
%
0.36
0.61
0.34
2011
%
0.35
0.76
0.32
Consolidated
The Company
2012
$m
–
3,520
3,520
2011
$m
–
3,513
3,513
2012
$m
11,516
897
12,413
2011
$m
9,098
971
10,069
1
Investments in associates are accounted for using the equity method of accounting by the Group and are carried at cost by the Company.
Acquisition or disposal of controlled entities
There were no material controlled entities acquired or disposed of during the year ended 30 September 2012 or the year ended
30 September 2011.
NOTES TO THE FINANCIAL STATEMENTS
109
NOTES TO THE FINANCIAL STATEMENTS (continued)
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
Total deferred 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
Provision for employee entitlements
Policyholder tax assets
Other
Deferred tax assets recognised directly in equity
Defi ned benefi ts obligation
Available-for-sale revaluation reserve
Set-off of deferred tax assets pursuant to set-off provisions1
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 investments2
Total unrecognised deferred tax assets
Consolidated
The Company
2012
$m
13
520
533
20
73
93
–
192
192
818
33
785
732
454
310
154
269
349
2011
$m
25
276
301
–
98
98
16
225
241
640
41
599
862
411
334
156
261
347
2012
$m
13
610
623
–
6
6
–
152
152
781
13
768
578
333
188
119
–
156
2011
$m
25
372
397
–
6
6
15
174
189
592
40
552
707
282
192
123
–
148
2,268
2,371
1,374
1,452
37
–
37
39
–
39
(1,520)
(1,811)
785
599
14
5
19
(625)
768
20
–
20
(920)
552
5
205
210
5
386
391
–
–
–
–
–
–
1 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.
2 The Group has unrecognised deferred tax assets arising from superannuation funds in OnePath Life Limited.
110
19: Goodwill and Other Intangible Assets
Goodwill1
Balance at start of the year
Additions through business combinations
Reclassifi cation3
Impairment/write off expense
Foreign currency exchange diff erences
Balance at end of year
Software
Balance at start of the year
Software capitalised during the period
Amortisation expense
Impairment/write off expense
Foreign currency exchange diff erences
Balance at end of year
Cost
Accumulated amortisation
Accumulated impairment
Carrying amount
Acquired Portfolio of Insurance and Investment Business
Balance at start of the year
Amortisation expense
Foreign currency exchange diff erences
Balance at end of year
Cost
Accumulated amortisation
Carrying amount
Other intangible assets
Balance at start of the year
Additions through business combinations
Other additions
Reclassifi cation3
Amortisation expense2
Impairment expense
Derecognised on disposal
Foreign currency exchange diff erences
Balance at end of year
Cost
Accumulated amortisation
Accumulated impairment
Carrying amount
Total goodwill and other intangible assets
Net book value
Balance at start of the year
Balance at end of year
ANZ ANNUAL REPORT 2012
The Company
2012
$m
87
10
–
–
(5)
92
1,402
720
(268)
(239)
(2)
1,613
3,180
(1,372)
(195)
1,613
–
–
–
–
–
–
–
55
–
1
–
(8)
–
–
(1)
47
74
(27)
–
47
2011
$m
102
(16)
–
–
1
87
1,059
549
(199)
(7)
–
1,402
2,553
(1,146)
(5)
1,402
–
–
–
–
–
–
–
37
26
–
–
(8)
–
–
–
55
74
(19)
–
55
Consolidated
2012
$m
2011
$m
4,163
11
7
(1)
32
4,212
1,572
786
(320)
(274)
(2)
1,762
3,502
(1,537)
(203)
1,762
1,013
(85)
–
928
1,179
(251)
928
216
–
5
(7)
(24)
(1)
(8)
(1)
180
260
(76)
(4)
180
4,086
(5)
–
–
82
4,163
1,217
645
(249)
(44)
3
1,572
2,850
(1,273)
(5)
1,572
1,100
(89)
2
1,013
1,179
(166)
1,013
227
30
5
–
(20)
(13)
(15)
2
216
272
(53)
(3)
216
6,964
7,082
6,630
6,964
1,544
1,752
1,198
1,544
1 Excludes notional goodwill in equity accounted entities.
2 Comprises brand names $1 million (2011: $1 million), aligned advisor relationships $6 million (2011: $4 million), distribution agreements and management fee rights $8 million (2011: $4 million),
credit card relationships $2 million (2011: $2 million) and other intangibles $7 million (2011: $9 million). The Company comprises distribution agreements and management fee rights $2 million
(2011: $2 million), card relationships $2 million (2011: $2 million) and other intangibles $4 million (2011: $4 million).
3 Reclassification of $7 million from other intangible assets to goodwill.
NOTES TO THE FINANCIAL STATEMENTS
111
NOTES TO THE FINANCIAL STATEMENTS (continued)
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 ANZ Wealth Australia Limited (formerly OnePath Australia Limited) on 30 November 2009 (included in the Global
Wealth and Private Banking division).
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 cost to sell of each CGU. The price earnings multiples are based on observable multiples refl ecting the
businesses and markets in which each CGU operates. The earnings are based on the current forecast earnings of the divisions. The aggregate fair
value less cost to sell across the Group is compared to the Group’s market capitalisation to validate the conclusion that goodwill is not impaired.
Key assumptions on which management has based its determination of fair value less cost to sell include assumptions as to the market multiples
being refl ective of the segment’s businesses, cost to sell estimates and the ability to achieve 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 2012, the
impairment testing performed did not result in any material impairment being identifi ed.
Following a change to the organisational structure during the year, the operating segments changed from those reported previously and
goodwill has been reallocated accordingly.
20: Other Assets1
Accrued interest/prepaid discounts
Accrued commissions
Prepaid expenses
Insurance contract liabilities ceded (refer to note 48)
Outstanding premiums
Issued securities settlements
Operating leases residual value
Capitalised expenses
Other
Total other assets
Consolidated
The Company
2012
$m
1,433
144
232
509
273
1,481
331
21
1,199
5,623
2011
$m
1,323
163
169
427
267
2,235
290
12
1,510
6,396
2012
$m
1,087
100
96
–
–
1,349
321
21
773
3,747
2011
$m
999
112
74
–
–
1,560
274
12
825
3,856
1 Previously Regulatory deposits were included in Other Assets. In the current period these have been presented on the face of the Balance Sheet, and comparative information for Other Assets
has been restated accordingly.
21: Premises and Equipment
Freehold and leasehold land and buildings
At cost
Accumulated depreciation
Leasehold improvements
At cost
Accumulated amortisation
Furniture and equipment
At cost
Accumulated depreciation
Computer equipment
At cost
Accumulated depreciation
Capital works in progress
At cost
Total premises and equipment
112
Consolidated
2012
$m
2011
$m
1,207
(281)
926
548
(353)
195
1,327
(811)
516
1,244
(895)
349
128
2,114
1,187
(251)
936
518
(325)
193
1,283
(742)
541
1,177
(853)
324
131
2,125
The Company
2012
$m
696
(88)
608
373
(232)
141
1,084
(633)
451
923
(667)
256
78
1,534
2011
$m
696
(71)
625
314
(212)
102
1,041
(570)
471
851
(628)
223
81
1,502
ANZ ANNUAL REPORT 2012
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
Additions1
Disposals
Depreciation
Foreign currency exchange diff erence
Carrying amount at end of year
Leasehold improvements
Carrying amount at beginning of year
Additions1
Disposals
Amortisation
Foreign currency exchange diff erence
Carrying amount at end of year
Furniture and equipment
Carrying amount at beginning of year
Additions1
Disposals
Depreciation
Foreign currency exchange diff erence
Carrying amount at end of year
Computer equipment
Carrying amount at beginning of year
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
Carrying amount at end of year
Total premises and equipment
1
Includes transfers.
Consolidated
2012
$m
2011
$m
The Company
2012
$m
2011
$m
936
33
(6)
(35)
(2)
926
193
64
(5)
(55)
(2)
195
541
83
(8)
(99)
(1)
516
324
137
(6)
(104)
(2)
349
131
(3)
128
2,114
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
625
5
(2)
(19)
(1)
608
102
79
(3)
(35)
(2)
141
471
73
(7)
(84)
(2)
451
223
108
(5)
(69)
(1)
256
81
(3)
78
646
–
(1)
(20)
–
625
110
22
–
(30)
–
102
498
57
(2)
(81)
(1)
471
224
64
–
(67)
2
223
30
51
81
1,534
1,502
NOTES TO THE FINANCIAL STATEMENTS
113
NOTES TO THE FINANCIAL STATEMENTS (continued)
22: Due to Other Financial Institutions
Deposits from central banks
Cash collateral
Other
Total due to other fi nancial institutions
23: 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
The Company
2012
$m
13,185
2,531
14,822
30,538
2011
$m
8,789
4,524
14,222
27,535
2012
$m
13,026
2,326
13,042
28,394
2011
$m
8,750
3,365
12,594
24,709
Consolidated
The Company
2012
$m
56,838
172,313
142,753
11,782
12,164
1,273
2011
$m
55,554
153,200
132,812
11,334
14,333
1,496
2012
$m
55,326
141,042
122,794
6,556
7,818
–
2011
$m
53,904
123,625
113,182
5,974
10,569
–
397,123
368,729
333,536
307,254
1
Included in this balance is debenture stock of $0.1 billion (September 2011: $0.2 billion) of Esanda Finance Corporation Limited (Esanda), together with accrued interest thereon which is secured
by a trust deed and collateral debentures, giving floating charges upon the undertaking and all the assets of the entity $0.4 billion (September 2011: $0.6 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 (September 2011: NZD 1.5 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 NZD 2.1 billion (September 2011: NZD 2.0 billion).
114
24: 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
Total deferred income tax liabilities
Deferred tax liabilities recognised in profi t and loss
Acquired portfolio of insurance and investment business
Insurance related deferred acquisition costs
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
ANZ ANNUAL REPORT 2012
Consolidated
The Company
2012
$m
660
–
660
–
–
–
121
18
139
799
781
18
278
99
230
149
46
570
2011
$m
1,007
–
1,007
3
–
3
118
28
146
1,156
1,128
28
303
79
229
317
76
701
1,372
1,705
82
38
46
166
65
37
32
134
2012
$m
660
–
660
15
–
15
51
12
63
738
726
12
–
–
59
148
46
345
598
39
–
–
39
2011
$m
1,007
–
1,007
16
–
16
56
27
83
1,106
1,079
27
–
–
90
319
79
435
923
22
–
2
24
Set-off of deferred tax liabilities pursuant to set-off provision1
Net deferred tax liability
(1,520)
(1,811)
18
28
(625)
12
(920)
27
Unrecognised deferred tax liabilities
The following deferred tax liabilities have not been bought to account as liabilities:
Other unrealised taxable temporary diff erences2
Total unrecognised deferred tax liabilities
163
163
126
126
23
23
17
17
1 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.
2 Represents additional potential foreign tax costs should all retained earnings in offshore branches and subsidiaries be repatriated.
25: Payables and Other Liabilities
Creditors
Accrued interest and unearned discounts
Defi ned benefi ts plan obligations
Accrued expenses
Security settlements
Other Liabilities
Liability for acceptances1
Total payables and other liabilities
Consolidated
The Company
2012
$m
984
2,539
149
1,478
1,115
2,605
1,239
2011
$m
896
2,735
148
1,413
2,026
3,033
970
10,109
11,221
2012
$m
468
2,032
67
1,174
915
1,886
1,012
7,554
2011
$m
308
2,212
82
1,127
1,219
2,060
688
7,696
1 Previously customer liability for acceptances was presented as a separate balance on the face of the Balance Sheet; comparatives for Payables and Other Liabilities have been restated accordingly.
NOTES TO THE FINANCIAL STATEMENTS
115
NOTES TO THE FINANCIAL STATEMENTS (continued)
26: Provisions
Employee entitlements1
Restructuring costs and surplus leased space2
Non-lending losses, frauds and forgeries
Other
Consolidated
The Company
2012
$m
533
140
163
365
2011
$m
540
135
205
368
1,201
1,248
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
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
Provisions made during the year
Payments made during the year
Transfer/release of provision
Carrying amount at the end of the year
Consolidated
2012
$m
135
189
(157)
(27)
140
205
29
(16)
(55)
163
368
353
(305)
(51)
365
2011
$m
119
148
(125)
(7)
135
188
53
(17)
(19)
205
493
350
(333)
(142)
368
2012
$m
404
51
139
151
745
2011
$m
418
78
149
153
798
The Company
2012
$m
2011
$m
78
82
(86)
(23)
51
149
17
(6)
(21)
139
153
75
(30)
(47)
151
100
23
(53)
8
78
153
27
(3)
(28)
149
220
81
(34)
(114)
153
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 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.
27: Bonds and Notes
ANZ utilises a variety of established and fl exible funding programmes issuing medium term notes featuring either senior or subordinated debt status
(details of subordinated debt are presented in note 28: Loan Capital). All risks associated with originating term funding are closely managed. Refer to
description of ANZ risk management practices in note 33 Financial Risk Management in relation to market risks such as interest rate and foreign currency
risks, as well as liquidity risk.
The table below presents Bonds and Notes by currency of issue which broadly is representative of the investor base location.
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 dollar
CAD
Norwegian krone
NOK
Singapore dollars
SGD
CNH
Chinese yuan
Other
Total bonds and notes
116
Consolidated
2012
$m
2011
$m
The Company
2012
$m
2011
$m
27,035
2,114
6,054
2,531
9,532
9,109
1,422
3,253
857
557
265
179
190
63,098
29,089
1,782
1,701
2,148
8,555
7,679
2,265
2,218
800
47
235
32
–
56,551
20,718
1,725
5,691
392
9,167
7,256
1,310
1,823
857
557
110
179
190
49,975
21,321
917
1,897
325
8,230
7,679
2,125
1,420
800
47
77
32
–
44,870
28: Loan Capital
Hybrid loan capital (subordinated)
US Trust Securities
UK Stapled Securities1
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 notes3
Subordinated notes
USD
AUD
AUD
AUD
AUD
GBP
NZD
NZD
AUD
AUD
GBP
AUD
AUD
EUR
AUD
AUD
USD
250m
350m
350m
100m
100m
175m
250m
350m
290m
310m
400m
365m
500m
750m
500m
1,509m
750m
floating rate notes due 20164
fi xed rate notes due 20174
floating rate notes due 20174
fi xed rate notes due 20174
floating rate notes due 20174
fixed rate notes due 20174
fixed rate notes due 20175
fi xed rate notes due 20175
fi xed rate notes due 20175
floating rate notes due 20174
fixed rate notes due 20185
floating rate notes due 20184
floating rate notes due 20184
fixed rate notes due 2019
floating rate notes due 20224
fl oating rate notes due 20224
fixed rate notes due 20224
Total loan capital
Loan capital by currency
AUD
NZD
USD
GBP
EUR
Australian dollars
New Zealand dollars
United States dollars
Great British pounds
Euro
1 The UK stapled securities were bought back and cancelled on 15 June 2012.
2 Fully franked preference share dividends recognised as interest expense during the year ended 30 September 2012:
ANZ CPS1
ANZ CPS2
ANZ CPS3 (issued in September 2011)
Consolidated
The Company
2012
$m
53
105
67
2011
$m
57
111
–
2012
$m
53
105
67
2011
$m
57
111
–
3 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 a floating rate at the three month
FRA rate +3.00% and is callable on any interest payment date thereafter.
4 Callable five years prior to maturity.
5 Callable five years prior to maturity and reverts to floating rate if not called.
ANZ ANNUAL REPORT 2012
Consolidated
The Company
2012
$m
752
–
1,078
1,958
1,326
5,114
287
666
953
–
–
–
–
–
–
–
–
285
297
633
355
500
1,057
500
1,505
715
5,847
2011
$m
835
720
1,075
1,954
1,322
5,906
308
656
964
257
342
347
100
100
292
195
275
289
310
638
359
500
1,119
–
–
–
5,123
2012
$m
715
–
1,078
1,958
1,326
5,077
287
–
287
–
–
–
–
–
–
–
–
290
310
633
365
500
1,060
500
1,509
715
5,882
2011
$m
768
720
1,075
1,954
1,322
5,839
308
–
308
257
350
350
100
100
292
–
–
289
310
638
365
500
1,119
–
–
–
4,670
11,914
11,993
11,246
10,817
7,804
666
1,754
633
1,057
6,698
1,126
1,400
1,650
1,119
7,836
–
1,717
633
1,060
6,715
–
1,333
1,650
1,119
11,914
11,993
11,246
10,817
NOTES TO THE FINANCIAL STATEMENTS
117
NOTES TO THE FINANCIAL STATEMENTS (continued)
28: Loan Capital (continued)
Loan capital is subordinated in right of payment to the claims of
depositors and other creditors of the Company and its controlled
entities which have issued the notes. As defi ned by APRA for capital
adequacy purposes, the US Trust Securities currently constitute
Innovative Residual Tier 1 capital, whereas the UK Stapled Securities
constituted and each of the ANZ CPS currently constitute Non-
innovative Residual Tier 1 capital, all other subordinated notes
constitute Tier 2 capital. The loan capital outstanding on
31 December 2012 is expected to be eligible for transitional
Basel III treatment from 1 January 2013 as agreed with APRA.
US TRUST SECURITIES
On 27 November 2003, the Company issued 750,000 non-cumulative
Trust Securities (‘US Trust Securities’) at USD1,000 each raising
USD750 million. US Trust Securities comprise an interest paying
unsecured note and a preference share, which are stapled together
and issued by ANZ Capital Trust II (the ‘Trust’).
Dividends are not payable on the preference share while it is
stapled to the note. Distributions on US Trust Securities are non-
cumulative and are payable half yearly in arrears at a fi xed rate of
5.36%. Distributions are subject to certain payment tests (i.e. APRA
requirements and distributable profi ts being available) and are
expected to be payable on 15 June and 15 December of each year.
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).
On 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 exchange
the US Trust Security into a variable number of ANZ ordinary shares
at a 5% discount.
At any time at the Company’s discretion or upon the occurrence
of certain other ‘conversion events’, 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 on
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.
The preference share forming part of the US Trust Securities confers
protective voting rights that allow the holder to vote in the Company,
in limited circumstances, such as a capital reduction, Company
restructure involving a disposal of the whole of the Company’s
business and undertaking, proposals aff ecting rights attached to
the preference shares, and similar.
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. The preference shares forming part of the US
Trust Securities and rank equally with each of the ANZ CPS and the
preferences shares issued in connection with the Euro Trust Securities.
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 raising £450 million. UK Stapled Securities comprised
an interest paying unsecured subordinated £50,000 note and
a £50,000 preference share, which were stapled together.
Dividends were not payable on a preference share while it was
stapled to a note. Distributions on UK Stapled Securities were non-
cumulative and were payable half yearly in arrears at a fi xed rate of
6.54%. Distributions were subject to certain payment tests (including
APRA requirements and distributable profi ts being available).
Distributions were payable on 15 June and 15 December of each
year. If distributions were not paid on UK Stapled Securities, the
Group may not pay dividends or distributions, or returning 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).
The preference shares forming part of the UK Stapled Securities
ranked equally with each of the ANZ CPS and the preference shares
issued in connection with US Trust Securities and Euro Trust Securities.
On 15 June 2012 the UK Stapled Securities were bought back and
cancelled by ANZ.
118
ANZ ANNUAL REPORT 2012
28: Loan Capital (continued)
ANZ CONVERTIBLE PREFERENCE SHARES (ANZ CPS)
On 30 September 2008, the Company issued 10.8 million
convertible preference shares (‘ANZ CPS1’) at $100 each, raising
$1,081 million before issue costs.
On 17 December 2009, the Company issued 19.7 million
convertible preference shares (‘ANZ CPS2’) at $100 each, raising
$1,969 million before issue costs.
On 28 September 2011, the Company issued 13.4 million
convertible preference shares (‘ANZ CPS3’) at $100 each raising
$1,340 million before issue costs.
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 rate equal to the aggregate
of the 90 day bank bill rate plus a 250 basis point margin (ANZ CPS1)
and a 310 basis point margin (ANZ CPS2) and the 180 day bank
bill rate plus 310 basis point margin (ANZ CPS3), multiplied by one
minus the Australian Company tax rate. Should the dividend not be
fully franked, the terms of the securities 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 (ANZ CPS1), 15 December 2016 (ANZ CPS2) or
1 September 2019 (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
based on the average market price of ordinary shares less a 2.5%
discount (ANZ CPS1) or 1.0% discount (ANZ CPS2 and ANZ CPS3).
The mandatory conversion to ANZ ordinary shares is however
deferred for a specifi ed period if the conversion tests 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,
subject to a maximum conversion number of 10.2407 ANZ ordinary
shares per ANZ CPS3. A common equity capital trigger event occurs if
ANZ’s Common Equity Tier 1 capital ratio is equal to or less
than 5.125%.
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 at its discretion 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 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.
NOTES TO THE FINANCIAL STATEMENTS
119
NOTES TO THE FINANCIAL STATEMENTS (continued)
29: Share Capital
Numbers of issued shares
Ordinary shares each fully paid
Preference shares each fully paid
Total number of issued shares
The Company
2012
2,717,356,961
500,000
2,717,856,961
2011
2,629,034,037
500,000
2,629,534,037
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 plan2
ANZ share option plan2
ANZ share option plan
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
ANZ share option plan
Balance at end of year
NON-CONTROLLING INTERESTS
Share capital
Retained profi t
Total non-controlling interests
The Company
2012
2,629,034,037
4,090,494
74,110,965
6,983,162
3,138,303
2,717,356,961
2011
2,559,662,425
3,013,239
61,685,747
2,340,296
2,332,330
2,629,034,037
Consolidated
2012
$m
2011
$m
The Company
2012
$m
2011
$m
21,343
1,461
128
78
60
23,070
19,886
1,367
45
2
43
21,343
21,701
1,461
128
–
60
23,350
20,246
1,367
45
–
43
21,701
Consolidated
2012
$m
40
9
49
2011
$m
43
5
48
1 Refer to note 7 for details of plan.
2 Refer to note 45 for details of plan.
3
Includes on-market purchase of shares for settlement of amounts due under share-based compensation plans. In addition, 6,983,162 shares were issued during the year ended 30 September
2012 to the Group’s Employee Share Trust for settlement of amounts due under share-based compensation plans (2011: 2,340,296). As at 30 September 2012, there were 15,673,505 Treasury
Shares outstanding (2011: 13,795,601).
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 2012 were 13,081,042 (2011: 16,469,102).
120
ANZ ANNUAL REPORT 2012
29: 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, raising $871 million net of issue costs. Euro Trust Securities
comprise an interest paying unsecured note and a €1,000 preference
share, 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.
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 in addition to the
distributions on the note. Distributions on Euro Trust Securities are
non-cumulative and are payable quarterly in arrears. The distributions
are based upon a fl oating 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. 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’, the notes that are represented
by the relevant Euro Trust Securities will be automatically assigned
to a branch of the Company and the 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 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.
The preference share forming part of the Euro Trust Securities confers
protective voting rights that allow the holder to vote in the Company,
in limited circumstances, such as a capital reduction, Company
restructure involving a disposal of the whole of the Company’s
business and undertaking, proposals aff ecting rights attached to
the preference shares, and similar.
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 preference shares forming each part of each Euro Trust Security
rank equally with each of the ANZ CPS and the preferences shares
issued in connection with the US Trust Securities.
Euro Trust Securities currently qualify as Innovative Residual Tier 1
Capital as defi ned by APRA, for capital adequacy purposes and are
expected to be eligible for transitional Basel III treatment from
1 January 2013 as agreed with APRA.
Preference share balance at start of year
– Euro Trust Securities
Preference share balance at end of year
– Euro Trust Securities
Consolidated
The Company
2012
$m
871
871
2011
$m
871
871
2012
$m
871
871
2011
$m
871
871
NOTES TO THE FINANCIAL STATEMENTS
121
NOTES TO THE FINANCIAL STATEMENTS (continued)
30: 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/(exercises)
Transfer of options/rights lapsed to retained earnings2
Total share option 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
2012
$m
2011
$m
(2,418)
(413)
(2,831)
(2,742)
324
(2,418)
50
6
(2)
54
126
193
(225)
94
169
27
12
208
(22)
(1)
(23)
64
(13)
(1)
50
80
30
16
126
11
164
(6)
169
–
(22)
(22)
The Company
2012
$m
(676)
(174)
(850)
50
6
(2)
54
35
110
(124)
21
47
23
19
89
–
–
–
2011
$m
(773)
97
(676)
64
(13)
(1)
50
5
(13)
43
35
(73)
128
(8)
47
–
–
–
(2,498)
(2,095)
(686)
(544)
1 Further information about share-based payments to employees is disclosed in note 45.
2 The transfer of balances from the share option reserve to retained earnings represents 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
Dividend income on Treasury shares
Ordinary share dividends paid
Preference share dividends paid
Retained earnings at end of year
Total reserves and retained earnings
Consolidated
2012
$m
2011
$m
The Company
2012
$m
2011
$m
17,787
5,661
2
(44)
24
(3,691)
(11)
19,728
17,230
15,921
5,355
1
(10)
23
(3,491)
(12)
17,787
15,692
12,351
4,875
2
(29)
–
(3,691)
–
13,508
12,822
11,666
4,151
1
24
–
(3,491)
–
12,351
11,807
1 Further information about share-based payments to employees is disclosed in note 45.
2 The transfer of balances from the share option reserve to retained earnings represents 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(vii) and note 44).
122
ANZ ANNUAL REPORT 2012
30: Reserves and Retained Earnings (continued)
31: Capital Management
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(vii). 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 cash fl 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).
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.
NOTES TO THE FINANCIAL STATEMENTS
123
NOTES TO THE FINANCIAL STATEMENTS (continued)
31: Capital Management (continued)
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 have suffi cient capital to
remain above both Economic Capital and Prudential Capital Ratio
(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’) needed
to absorb losses that may be experienced during an
economic downturn; and
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 Divisional 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.
Results are subsequently used to:
recalibrate ANZ’s management targets for minimum and operating
recalibrate ANZ’s management targets for minimum and operating
ranges for its respective classes of capital such that ANZ will have
suffi cient capital to remain above both Economic Capital and PCR
requirements; and
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 an
Authorised Deposit-taking Institution’s (ADIs) capital adequacy. APRA
determines PCRs for Tier 1 and Total Capital, with capital as the
numerator and RWAs as the denominator.
To ensure that 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
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
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’
Residual Tier 1 capital instruments included within shareholders’
identify the level of organic capital generation and hence
equity are excluded;
determine current and future capital issuance requirements for
Level 1 and 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.
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;
Retained earnings excludes retained earnings of insurance and
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
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.
124
ANZ ANNUAL REPORT 2012
31: Capital Management (continued)
Residual capital covers Non-innovative and Innovative Tier 1 capital
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;
goodwill;
value in force as to acquired insurance/investment
value in force as to acquired insurance/investment
business portfolios;
capitalised software;
capitalised software;
capitalised brokerage and borrowing expenses; and
capitalised brokerage and borrowing expenses; and
net deferred tax assets.
Tier 1 deductions also include deductions taken 50% from Tier 1
and 50% from Tier 2, which mainly include the investments in
associates regulated by APRA, or their overseas equivalent, the
tangible component of investments in insurance and funds
management subsidiaries excluded for Level 2 purposes 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 and 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 applicable) 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.
Following on from the December 2010 Basel Committee paper on
prudential capital reforms, APRA released its new prudential capital
standards in September 2012 detailing the implementation of the
majority of Basel III capital reforms in Australia. APRA is adopting the
Basel III reforms with increased capital deductions from Common
Equity Tier 1 (CET1) capital, an increase in capitalisation rates
(including prescribed minimum capital buff ers), tighter requirements
around new Tier 1 and Tier 2 securities and transitional arrangements
for existing Tier 1 and Tier 2 securities that do not conform to the
new regulations.
Based upon the APRA Basel III standards, ANZ would have reported
a CET1 capital ratio of 8.0% as at 30 September 2012.
ANZ is well placed to meet APRA’s early adoption of the Basel III
capital reforms on 1 January 2013, and the implementation of the
capital conservation measures, including the capital conservation
buff er, on 1 January 2016.
APRA is still to fi nalise capital standards on the Basel III reforms
dealing with the improvements in capital disclosures, leverage ratio,
counterparty credit risk, contingent capital and measures to address
systematic and inter-connected risks.
Level 3 Conglomerates (Level 3)
APRA has announced that it will proceed with implementing
Level 3 Conglomerates Prudential Standards in 2014, with an
update to the March 2010 discussion paper expected in early 2013.
The standards will regulate a bancassurance group such as ANZ
as a single economic entity with minimum capital requirements
and additional reporting on risk exposure levels. Based on APRA’s
March 2010 Discussion Paper, ANZ is not expecting any material
impact on its operations.
NOTES TO THE FINANCIAL STATEMENTS
125
NOTES TO THE FINANCIAL STATEMENTS (continued)
31: Capital Management (continued)
The table below provides the composition of Basel II capital used for regulatory purposes and capital adequacy ratios.
Regulatory capital – qualifying capital
Tier 1
Shareholders’ equity and minority interests
Prudential adjustments to shareholders' equity
Fundamental 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
2012
$m
2011
$m
41,220
(3,857)
37,363
(10,839)
26,524
4,390
1,587
32,501
1,185
5,702
(2,814)
4,073
37,954
(3,479)
34,475
(10,611)
23,864
5,111
1,641
30,616
1,228
5,017
(3,071)
3,174
36,574
33,790
8.8%
10.8%
1.4%
12.2%
8.5%
10.9%
1.2%
12.1%
1
Includes goodwill (excluding ANZ Wealth Australia Limited (formerly OnePath Australia Limited) and OnePath New Zealand Limited) of $3,008 million (2011: $2,968 million) and $2,074 million
(2011: $2,071 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’. Life insurance companies
in New Zealand are required to meet minimum capital requirements as determined by the Insurance (Prudential Supervision) Act 2010 and
professional standards of 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 2012.
126
ANZ ANNUAL REPORT 2012
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 undertakings and all the tangible assets of the entity, other than land and buildings (of Esanda only). 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 as collateral are those in Esanda, UDC and their subsidiaries.
Cash placed on deposit with a third party that was 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 residential mortgages provided as security for notes and bonds issued to investors as part of our securitisation and covered
bond programs.
The carrying amounts of assets pledged as security are as follows1:
Regulatory deposits
Securities sold under arrangements to repurchase
Assets pledged as collateral under debenture undertakings
Cash deposited in structured funding transaction
Securitisation
Covered bonds2
Other
Consolidated
The Company
Carrying Amount
Related Liability
Carrying Amount
Related Liability
2012
$m
1,478
536
2,073
–
–
15,276
165
2011
$m
1,505
1,872
2,146
840
166
–
52
2012
$m
n/a
528
1,274
–
–
11,162
58
2011
$m
n/a
1,869
1,372
2,000
166
–
42
2012
$m
514
289
–
–
–
11,304
164
2011
$m
497
1,511
–
840
–
–
52
2012
$m
n/a
286
–
–
–
8,798
58
2011
$m
n/a
1,510
–
–
–
–
42
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 sold or repledged is as follows:
Collateral received on standard repurchase agreement3
Fair value of assets which can be sold or repledged
Amount of collateral that has been resold or repledged
Consolidated
The Company
2012
$m
2011
$m
2012
$m
2011
$m
10,007
3,246
7,238
4,125
9,661
2,903
6,451
3,341
1 The value of cash collateral for derivatives is included in notes 10 and 22. The terms and conditions of the collateral agreements are included in the standard Credit Support Annex that forms
part of the International Swaps and Derivatives Association Master Agreement.
2 The related liability for Covered Bonds represents the Covered Bonds issued by entities in the Group to external investors.
3 Balance in 2012 includes $143 million where the underlying securities are equities (2011: $36 million).
NOTES TO THE FINANCIAL STATEMENTS
127
NOTES TO THE FINANCIAL STATEMENTS (continued)
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.
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 must be suitably skilled and accredited 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.
The Group has two main approaches to assessing credit risk arising
from transactions:
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 have been 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 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 and requirements. Credit
policies and requirements 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 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 and credit strategies, as well as approving
credit transactions beyond the discretion of executive management.
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.
Responsibility for the oversight and control 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 and customer relationships rests with the
business units.
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 CCR 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.
128
ANZ ANNUAL REPORT 2012
33: Financial Risk Management (continued)
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).
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:
Charges over cash deposits.
Security over real estate including residential, commercial, industrial
or rural property.
Other security includes charges over business assets, security over
specifi c plant and equipment, charges over listed shares, bonds or
securities and guarantees and pledges.
Credit policy and requirements 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 approach uses 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. This 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.
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
129
NOTES TO THE FINANCIAL STATEMENTS (continued)
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
Electricity, gas and
water supply
Entertainment, leisure
and tourism
Financial, investment
and insurance5
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
Electricity, gas and
water supply
Entertainment, leisure
and tourism
Financial, investment
and insurance5
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
advances2
Other
fi nancial
assets3
Credit related
commitments4
Total
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
101
11
23
–
28
10
6
–
4
–
2
2
83
65
109
264
91
150
12,666
5,490
5,121
12,143
5,384
5,156
154
68
66
176
78
75
8,136
3,003
3,650
7,106
2,485
3,352
21,146
8,637
8,973
19,689
8,068
8,745
–
–
162
458
928
593
3,316
2,309
–
–
2,245
2,795
6,651
6,155
40
–
2
–
264
283
7,075
6,151
78
89
2,370
2,860
9,829
9,383
9,131
5,771
18,853
16,427
30,680
36,710
8,986
7,921
101
115
4,051
6,885
71,802
73,829
32
63
–
345
35
5
264
14
907
292
–
1
10
12
295
41
16,642
53
–
24
122
104
6
280
15,311
358
–
40
85
59
2
953
281
906
–
1,007
194
669
207
705
187
676
484
8,124
218
8,252
– 202,710 191,052
24,108
9,295
5,533
5,826
5,976
25,006
9,397
6,413
6,429
8,675
810
176
469
390
493
10,064
7,367
36,258
33,697
36,098
41,292 309,892 289,324
3
105
2,428
307
118
70
74
105
3,677
3
120
2,771
350
135
80
84
120
312
7,646
34,525
8,681
4,074
3,208
5,739
5,012
228
7,986
16,854
17,754
17,684
16,897
34,931 239,663 228,754
33,346
35,370
13,230
13,940
9,042
10,469
11,398
12,719
12,248
14,791
8,037
3,529
2,889
4,801
4,665
4,196
92,652
92,549 488,641 468,425
19
10
–
30
4
–
–
–
–
–
–
–
59
9
2
84
15
3
14,555
1,154
812
14,023
898
732
75
6
4
79
5
4
1,491
428
491
1,404
320
536
16,199
1,607
1,309
15,620
1,242
1,275
10
17
23
18
463
305
748
697
4
5
1,251
746
2,499
1,788
–
–
–
–
33
33
1,232
3,137
2,950
2,751
6,880
9,023
283
34
–
5
22
20
43
–
184
–
–
–
–
–
12
11
1,678
3,395
6,843
5
–
–
5
40
–
26
9,892
4,913
8
–
–
2
45
–
25
322
78
–
32
34
74
17
18
451
155
–
25
33
83
17
–
931
400
1,063
2,327
45,304
6,056
1,416
1,322
954
689
880
728
1,136
2,015
43,574
5,855
1,222
1,247
925
759
7,762
8,021
10,227
77,731
74,691
5
59
5
12
234
31
7
7
5
4
458
5
306
252
1,275
1,170
682
6
11
247
33
7
7
5
5
832
1,153
12,353
17,474
855
1,632
6,973
899
807
462
1,055
415
803
1,513
6,482
652
583
463
873
913
9,371
4,088
52,511
7,023
2,291
1,925
2,074
1,152
7,493
3,702
50,303
6,565
1,847
1,845
1,832
1,713
1,101
17,897
16,693 115,677 113,869
1 Available-for-sale assets.
2 Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.
3 Mainly comprises trade dated assets and accrued interest.
4 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
5
Includes amounts due from other Group entities.
130
ANZ ANNUAL REPORT 2012
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):
Liquid assets and due
from other fi nancial
institutions
Trading and
AFS1 assets
Derivatives
Loans and
advances2
Other
fi nancial
assets3
Credit related
commitments4,5
Total
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
Consolidated
Asia Pacifi c, Europe
& America
Agriculture, forestry
fi shing and mining
Business services
Construction
Electricity, gas and
water supply
Entertainment, leisure
and tourism
Financial, investment
and insurance6
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
Electricity, gas and
water supply
Entertainment, leisure
and tourism
Financial, investment
and insurance6
Government and
offi cial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
7
1
1
–
–
43
9
–
7
–
–
–
–
–
–
–
48
2
10
63
5
51
1,590
492
457
1,389
914
336
36
24
9
24
16
6
4,002
2,155
2,662
3,721
1,255
1,978
5,683
2,674
3,139
5,240
2,199
2,371
29
10
127
244
1,603
1,952
–
–
1,687
1,861
3,446
4,074
–
–
5
–
825
730
38,629
24,687
8,442
6,512
3,992
5,654
6,686
2,382
29
11
–
–
1
3
74
127
104
160
–
–
–
–
140
208
5,525
220
–
–
13
1
4
709
8,839
2
–
–
–
–
–
1,037
8
269
–
111
22
78
86
52
52
281
484 11,404
6,469
3,312
934
2,416
7,315
2,392
–
100
3
82
182
202
437
11,121
5,817
3,309
921
2,343
5,289
2,812
18
59
10
279
147
83
24
59
133
120
12
258
282
1,106
1,024
40
6,836
9,103 64,644
48,378
7
1,059
189 18,804
6,444
99
1,349
56
690
16
40
1,211
90 13,171
2,861
81
1,340
6,912
16,591 30,987
6,580 13,060
4,855
1,684
3,768
10,139 20,783
6,261
581
692
1,102
1,986
10,779
28,547
12,496
4,046
1,632
3,567
15,840
6,326
38,883
25,358 14,943
16,400
4,810
7,122 46,176
39,752
1,001
676 63,189
57,211 169,002 146,519
127
22
24
73
41
10
6
–
4
–
2
2
190
76
121
411 28,811
7,136
111
6,390
204
27,555
7,196
6,224
265
98
79
279 13,629
5,586
6,803
99
85
12,231 43,028
4,060 12,918
5,866 13,421
40,549
11,509
12,391
10
24
214
486
1,518
1,142
5,667
4,958
4
5
5,183
5,402 12,596
12,017
40
–
2
–
302
316
8,831
7,761
101
106
2,934
3,394 12,210
11,577
48,992
33,595 30,245
25,690 41,552
51,387 16,072
11,031
219
837 11,719
17,141 148,799 139,681
344
108
–
350
58
28
381
141
1,195 29,010
278
–
24
140
145
10
1,015
452
–
1
10
12
447
260
29,063
368
–
40
87
104
2
2,015
611
1,253
–
1,150
250
821
310
775
690
1,828
1,315 21,855
1,791
21,388
– 254,483 240,443
33,272
11,438
9,123
12,040
9,547
935 34,374
212 11,747
634 10,151
589 14,698
695 11,756
18
396
2,809
421
149
136
212
229
16
2,226
320 28,082
3,117 47,942
439 10,929
5,571
158
127
4,881
179 19,965
8,288
206
35,126
2,371 34,037
26,090 51,972
49,933
47,993 305,234 291,553
43,957
16,709
14,454
29,070
20,287
9,270 47,248
4,804 17,915
4,454 16,162
15,813 35,576
7,564 22,204
Gross Total
50,625
36,120 61,093
57,859 48,929
58,641 433,799 403,767
5,136
5,973 173,738 166,453 773,320 728,813
Individual provision for
credit impairment
Collective provision for
credit impairment
–
–
–
–
–
–
–
–
–
–
–
–
(1,729)
(1,687)
(2,236)
(2,604)
–
–
–
–
(44)
(10)
(1,773)
(1,697)
(529)
(572)
(2,765)
(3,176)
50,625
36,120 61,093
57,859
48,929
58,641 429,834 399,476
5,136
5,973 173,165 165,871 768,782 723,940
Unearned income
Capitalised brokerage/
mortgage origination
fees
–
–
–
–
–
–
–
–
–
–
–
(2,235)
(2,216)
–
797
629
–
–
–
–
–
–
–
(2,235)
(2,216)
–
797
629
50,625
36,120 61,093
57,859 48,929
58,641 428,396 397,889
5,136
5,973 173,165 165,871 767,344 722,353
Excluded from analysis
above7
3,056
2,805
71
479
–
–
–
–
–
–
–
–
3,127
3,284
53,681
38,925 61,164
58,338 48,929
58,641 428,396 397,889
5,136
5,973 173,165 165,871 770,471 725,637
1 Available-for-sale assets.
2 Excludes individual and collective provisions for credit impairment held in respect of credit
related commitments.
3 Mainly comprises trade dated assets and accrued interest.
4 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
5 September 2011 undrawn facilities have been restated by $2,646 million using the revised
methodology for undrawn overdrafts that was implemented during 2012.
Includes amounts due from other Group entities.
6
7 Equity instruments and cash are excluded from maximum exposure amount.
NOTES TO THE FINANCIAL STATEMENTS
131
NOTES TO THE FINANCIAL STATEMENTS (continued)
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
Electricity, gas and
water supply
Entertainment, leisure
and tourism
Financial, investment
and insurance5
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
Electricity, gas and
water supply
Entertainment, leisure
and tourism
Financial, investment
and insurance5
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
advances2
Other
fi nancial
assets3
Credit related
commitments4
Total
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
101
11
23
–
40
–
30
11
–
–
6
–
4
–
2
2
83
65
109
263 12,295
5,451
5,084
90
150
11,425
5,373
5,145
103
48
46
118
55
53
6,362
2,354
2,860
7,099 18,950
7,929
2,482
8,126
3,349
18,905
8,032
8,710
56
359
928
591
3,292
2,304
–
–
–
2,793
4,276
6,047
2
–
264
282
7,021
6,130
9,169
5,815 19,224
16,786 35,149
42,794 10,299
8,651
32
63
–
345
35
5
264
14
1,280 16,642
53
–
24
122
104
6
280
314
–
1
11
13
316
45
15,653
366
–
41
87
60
2
974
281
906
–
1,007
194
669
207
705
481
8,059
187
676
218
8,227
– 201,254 190,661
24,056
9,275
5,491
5,811
5,955
807 24,826
9,329
176
6,358
468
6,383
390
8,665
492
55
78
3
74
1,710
217
83
50
52
75
63
1,857
2,858
9,239
9,333
89 23,885
6,878 97,804
81,013
3
85
244
5,991
1,956 27,056
6,828
3,192
2,513
4,497
4,996
248
95
57
60
86
228 17,683
7,978 15,146
17,569
17,646
34,892 230,020 227,509
33,182
13,169
8,976
11,375
12,212
8,029 33,247
3,525 12,955
2,887
9,699
4,796 11,409
4,660 14,735
10,102
7,836 36,523
34,332 40,567
47,366 308,797 288,722
2,594
2,968 92,635
92,454 491,218 473,678
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10
21
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,518
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,820
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
82
–
–
–
–
–
82
–
–
–
–
–
–
–
–
69
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10
21
–
–
7,600
–
–
–
–
–
–
–
7,889
–
–
–
–
–
7,910
–
10
21
7,518
7,820
69
7,610
1 Available-for-sale assets.
2 Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.
3 Mainly comprises trade dated assets and accrued interest.
4 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
5
Includes amounts due from other Group entities.
132
ANZ ANNUAL REPORT 2012
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):
Liquid assets and due
from other fi nancial
institutions
Trading and
AFS1 assets
Derivatives
Loans and
advances2
Other
fi nancial
assets3
Credit related
commitments4
Total
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
The Company
Asia Pacifi c, Europe
& America
Agriculture, forestry
fi shing and mining
Business services
Construction
Electricity, gas and
water supply
Entertainment, leisure
and tourism
Financial, investment
and insurance5
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
Electricity, gas and
water supply
Entertainment, leisure
and tourism
Financial, investment
and insurance5
Government and
offi cial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
2
–
–
–
–
40
8
–
–
–
–
6
27
–
–
–
–
–
–
–
69
149
1,493
1,742
–
3
–
598
558
25
1
5
38
3
30
988
422
296
817
604
176
18
14
4
13
10
3
3,655
2,040
2,560
3,032
1,071
1,829
4,688
2,477
2,865
3,940
1,696
2,038
35,720
22,035
6,671
5,601
2,269
3,440
6,466
2,035
25
3
–
–
1
3
46
37
2
142
–
–
–
–
128
198
4,332
204
–
–
–
1
–
507
6,305
2
–
–
–
–
–
766
5
113
–
79
11
40
41
28
30
293
–
61
3
51
111
124
255
9,149
5,300
2,938
563
1,940
6,117
1,866
362
9,544
4,465
3,111
596
1,760
4,471
2,196
35,837
22,559
11,742
12,674
2,689
4,333
38,391
32,437
103
11
23
40
38
11
6
–
4
–
2
2
108
66
114
301
93
180
13,283
5,873
5,380
12,242
5,977
5,321
–
9
–
1,542
1,589
3,439
180
258
793
825
36
6,731
8,291
57,906
41,438
6
154
72
50
10
28
72
63
526
1,053
16,021
5,672
1,165
454
1,191
11,780
2,861
1,259
14,682
5,587
534
527
982
9,166
1,447
5,678
25,697
11,070
4,250
1,043
3,213
18,082
5,384
7,964
24,817
10,124
3,756
1,136
2,821
13,948
4,794
55,363
50,207 144,735 122,736
131
65
56
10,017
4,394
5,420
10,131
3,553
5,178
23,638
10,406
10,991
22,845
9,728
10,748
12
49
8
207
98
68
14
38
98
85
713
121
62
50
–
6
83
359
997
740
4,785
4,046
–
–
–
4,335
5,865
9,486
40
–
2
–
267
282
7,619
6,688
67
72
2,037
3,116
10,032
10,158
44,889
27,850
25,895
22,387
37,428
46,255
16,765
10,686
127
125
30,616
15,169 155,720 122,472
57
66
–
345
36
8
310
51
1,282
456
–
1
11
13
444
243
20,974
257
–
24
122
105
6
787
21,958
368
–
41
87
60
2
1,740
286
1,019
–
1,086
205
709
248
733
217
969
736
17,208
580
17,771
– 214,072 202,946
27,167
9,871
7,251
10,282
8,151
27,764
9,892
8,298
12,500
10,531
868
179
519
501
616
11
281
1,808
285
97
88
150
160
3,307
9
239
2,028
298
105
85
132
149
1,297
22,012
32,810
7,993
3,646
3,704
16,277
7,857
25,533
23,361
1,487
22,660
42,463
40,843
40,548 248,690 245,522
36,938
37,497
14,305
13,998
11,797
12,912
25,323
29,491
17,006
20,119
8,563
4,052
3,869
13,962
6,107
3,494 148,080 142,730 643,563 604,324
Gross Total
45,939
30,395
48,265
47,006
43,266
51,720 354,706 328,979
Individual provision for
credit impairment
Collective provision for
credit impairment
–
–
–
–
–
–
–
–
–
–
–
–
(1,242)
(1,144)
(1,728)
(2,042)
–
–
–
–
(27)
(6)
(1,269)
(1,150)
(410)
(454)
(2,138)
(2,496)
45,939
30,395
48,265
47,006
43,266
51,720 351,736 325,793
3,307
3,494 147,643 142,270 640,156 600,678
Unearned income
Capitalised brokerage/
mortgage origination
fees
–
–
–
–
–
–
–
–
–
–
–
(1,946)
(1,961)
–
707
602
–
–
–
–
–
–
–
(1,946)
(1,961)
–
707
602
45,939
30,395
48,265
47,006
43,266
51,720 350,497 324,434
3,307
3,494 147,643 142,270 638,917 599,319
Excluded from analysis
above6
1,010
958
66
378
–
–
–
–
–
–
–
–
1,076
1,336
46,949
31,353
48,331
47,384
43,266
51,720
350,497 324,434
3,307
3,494 147,643 142,270 639,993 600,655
1 Available-for-sale assets.
2 Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.
3 Mainly comprises trade dated assets and accrued interest.
4 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
5
6 Equity instruments and cash are excluded from maximum exposure amount.
Includes amounts due from other Group entities.
NOTES TO THE FINANCIAL STATEMENTS
133
NOTES TO THE FINANCIAL STATEMENTS (continued)
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
– Australia
– International and Institutional Banking
– New Zealand
– Global Wealth and Private Banking
Other fi nancial assets2
Undrawn facilities
Contingent facilities
Total
Reported
Excluded1
Maximum exposure
to credit risk
2012
$m
36,578
17,103
40,602
48,929
20,562
244,684
107,636
70,142
5,361
5,136
2011
$m
25,627
13,298
36,074
58,641
22,264
228,507
96,497
67,166
5,137
5,973
2012
$m
3,056
–
–
–
71
–
–
–
–
–
2011
$m
2,805
–
–
–
479
–
–
–
–
–
2012
$m
33,522
17,103
40,602
48,929
20,491
244,684
107,636
70,142
5,361
5,136
2011
$m
22,822
13,298
36,074
58,641
21,785
228,507
96,497
67,166
5,137
5,973
596,733
559,184
3,127
3,284 593,606
555,900
141,355
32,383
135,243
31,210
173,738
166,453
–
–
–
–
–
141,355
32,383
135,243
31,210
– 173,738
166,453
770,471
725,637
3,127
3,284 767,344
722,353
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.
134
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
Other fi nancial assets2
Undrawn facilities
Contingent facilities
Total
ANZ ANNUAL REPORT 2012
Reported
Excluded1
Maximum exposure
to credit risk
2012
$m
32,782
14,167
30,490
43,266
17,841
350,060
3,307
2011
$m
21,283
10,070
28,367
51,720
19,017
323,974
3,494
491,913
457,925
118,461
29,619
114,461
28,269
148,080
142,730
2012
$m
1,010
–
–
–
66
–
–
1,076
–
–
–
2011
$m
958
–
–
–
378
–
–
2012
$m
31,772
14,167
30,490
43,266
17,775
350,060
3,307
2011
$m
20,325
10,070
28,367
51,720
18,639
323,974
3,494
1,336
490,837
456,589
–
–
–
118,461
29,619
114,461
28,269
148,080
142,730
639,993
600,655
1,076
1,336
638,917
599,319
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
135
NOTES TO THE FINANCIAL STATEMENTS (continued)
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 expansion 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
– Australia
– International and Institutional Banking
– New Zealand
– Global Wealth and Private Banking
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
Other fi nancial assets1
Credit related commitments2
Neither past
due nor
impaired
2012
$m
33,522
17,103
40,602
48,784
20,491
2011
$m
22,822
13,298
36,074
58,602
21,785
–
–
–
–
–
–
–
–
–
–
235,392
105,428
67,495
5,241
5,136
173,591
218,861
93,787
64,148
4,998
5,973
166,270
8,538
635
1,863
99
–
–
9,007
712
2,014
118
–
–
752,785
706,618
11,135
11,851
Past due but not
impaired
Restructured
Net
Impaired
Total
2012
$m
2011
$m
2012
$m
2011
$m
–
–
–
29
–
–
349
148
–
–
–
526
–
–
–
1
–
–
683
16
–
–
–
700
2012
$m
–
–
–
116
–
754
1,224
636
21
–
147
2,898
2011
$m
–
–
–
38
–
2012
$m
33,522
17,103
40,602
48,929
20,491
2011
$m
22,822
13,298
36,074
58,641
21,785
639
1,315
988
21
–
183
244,684
107,636
70,142
5,361
5,136
173,738
228,507
96,497
67,166
5,137
5,973
166,453
3,184
767,344
722,353
Neither past
due nor
impaired
2012
$m
2011
$m
31,772
14,167
30,490
43,122
17,775
338,717
3,307
147,935
20,325
10,070
28,367
51,681
18,639
311,902
3,494
142,563
627,285
587,041
Past due but not
impaired
Restructured
Net
Impaired
Total
2012
$m
–
–
–
–
–
9,091
–
–
9,091
2011
$m
–
–
–
–
–
9,495
–
–
9,495
2012
$m
–
–
–
29
–
348
–
–
377
2011
$m
–
–
–
1
–
683
–
–
684
2012
$m
–
–
–
115
–
1,904
–
145
2,164
2011
$m
2012
$m
2011
$m
–
–
–
38
–
1,894
–
31,772
14,167
30,490
43,266
17,775
350,060
3,307
167 148,080
20,325
10,070
28,367
51,720
18,639
323,974
3,494
142,730
2,099
638,917
599,319
1 Mainly comprises trade dated assets and accrued interest.
2 Comprises undrawn facilities and customer contingent liabilities.
136
ANZ ANNUAL REPORT 2012
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
– Australia
– International and Institutional Banking
– New Zealand
– Global Wealth and Private Banking
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
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
2012
$m
32,790
16,296
40,503
46,577
19,065
2011
$m
22,212
12,091
35,528
56,451
20,081
175,758
78,599
43,406
2,464
4,742
142,037
163,338
70,301
39,376
2,354
5,412
133,612
2012
$m
664
792
99
1,962
1,420
48,861
23,234
21,262
2,701
334
29,535
2011
$m
552
980
546
1,461
1,664
45,421
17,814
20,474
2,507
431
29,759
Sub-standard
but not past
due or impaired
2012
$m
68
15
–
245
6
2011
$m
58
227
–
690
40
Total
2012
$m
33,522
17,103
40,602
48,784
20,491
2011
$m
22,822
13,298
36,074
58,602
21,785
10,773
3,595
2,827
76
60
2,019
10,102
5,672
4,298
137
130
2,899
235,392
105,428
67,495
5,241
5,136
173,591
218,861
93,787
64,148
4,998
5,973
166,270
602,237
560,756
130,864
121,609
19,684
24,253
752,785
706,618
Strong credit profi le
Satisfactory risk
2012
$m
2011
$m
31,107
13,806
30,460
41,090
17,707
253,522
3,032
125,774
19,813
9,328
28,017
49,782
18,336
229,212
3,040
117,272
2012
$m
609
357
30
1,837
62
71,334
230
20,500
2011
$m
473
738
350
1,226
263
67,548
346
23,598
Sub-standard
but not past
due or impaired
2012
$m
56
4
–
195
6
13,861
45
1,661
2011
$m
39
4
–
673
40
15,142
108
1,693
Total
2012
$m
2011
$m
31,772
14,167
30,490
43,122
17,775
338,717
3,307
147,935
20,325
10,070
28,367
51,681
18,639
311,902
3,494
142,563
516,498
474,800
94,959
94,542
15,828
17,699
627,285
587,041
NOTES TO THE FINANCIAL STATEMENTS
137
NOTES TO THE FINANCIAL STATEMENTS (continued)
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.
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances:
– Australia
– International and Institutional
Banking
– New Zealand
– Global Wealth and Private
Banking
Other fi nancial assets
Credit related commitments1
2012
Consolidated
2011
Consolidated
1-5
days
days
days
$m
$m
6-29
days
days
days
$m
$m
30-59
days
days
days
$m
$m
60-89
days
days
days
$m
$m
>90
days
days
days
$m
$m
Total
$m
1-5
days
days
days
$m
$m
6-29
days
days
days
$m
$m
30-59
days
days
days
$m
$m
60-89
days
days
days
$m
$m
>90
days
days
days
$m
$m
Total
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,454
3,812
1,262
561
1,449
8,538
2,123
3,446
1,280
639
1,519
9,007
46
772
13
–
–
420
619
75
–
–
5
208
3
–
–
80
84
8
–
–
84
180
635
1,863
29
858
458
550
29
274
124
92
72
240
712
2,014
–
–
–
99
–
–
18
–
–
86
–
–
1
–
–
10
–
–
3
–
–
118
–
–
2,285
4,926
1,478
733
1,713
11,135
3,028
4,540
1,584
865
1,834
11,851
The Company
The Company
1-5
days
days
days
$m
$m
–
–
–
–
–
2,222
–
–
2,222
6-29
days
days
days
$m
$m
–
–
–
–
–
3,760
–
–
3,760
30-59
days
days
days
$m
$m
–
–
–
–
–
1,308
–
–
1,308
60-89
days
days
days
$m
$m
–
–
–
–
–
695
–
–
695
>90
days
days
days
$m
$m
–
–
–
–
–
1,510
–
–
1,510
Total
$m
–
–
–
–
–
9,495
–
–
9,495
1-5
days
days
days
$m
$m
6-29
days
days
days
$m
$m
30-59
days
days
days
$m
$m
60-89
days
days
days
$m
$m
>90
days
days
days
$m
$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
Other fi nancial assets
Credit related commitments1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,544 4,197 1,289
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
606 1,455 9,091
–
–
–
–
–
–
1 Comprises undrawn facilities and customer contingent liabilities.
1,544
4,197
1,289
606
1,455
9,091
138
33: Financial Risk Management (continued)
Estimated value of collateral for all fi nancial assets
Consolidated
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances
– Australia
– International and Institutional Banking
– New Zealand
– Global Wealth and Private Banking
Other fi nancial assets2
Credit related commitments3
The Company
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances
Other fi nancial assets2
Credit related commitments3
ANZ ANNUAL REPORT 2012
Financial eff ect
of collateral1
Maximum
exposure to
credit risk
Unsecured
portion of
credit exposure
2012
$m
9,103
–
705
2,531
210
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
7,716 33,522 22,822 24,419 15,106
– 17,103 13,298 17,103 13,298
644 40,602 36,074 39,897 35,430
48,929 58,641 46,398 54,117
421 20,491 21,785 20,281 21,364
4,524
220,067 205,423 244,684 228,507 24,617 23,084
44,958 38,237 107,636 96,497 62,678 58,260
3,356
66,047 63,810 70,142 67,166
166
5,137
4,768
5,973
35,604 30,369 173,738 166,453 138,134 136,084
4,095
273
3,873
5,361
5,136
4,971
1,205
5,088
1,263
385,576 357,320 767,344 722,353 381,768 365,033
Financial eff ect
of collateral1
Maximum
exposure to
credit risk
Unsecured
portion of
credit exposure
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
8,619
–
346
2,326
102
6,846 31,772 20,325 23,153 13,479
– 14,167 10,070 14,167 10,070
385 30,490 28,367 30,144 27,982
3,365 43,266 51,720 40,940 48,355
267 17,775 18,639 17,673 18,372
270,895 251,011 350,060 323,974 79,165 72,963
2,702
29,744 23,946 148,080 142,730 118,336 118,784
1,008
3,494
3,307
2,299
792
1 Represents the security held against the exposure, limited to the maximum exposure to the secured credit risk.
2 Mainly comprises trade dated assets and accrued interest.
3 Comprises undrawn facilities and customer contingent liabilities.
313,040 286,612 638,917 599,319 325,877 312,707
NOTES TO THE FINANCIAL STATEMENTS
139
NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)
Financial assets that are individually impaired
Consolidated
The Company
Australia
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances
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
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
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
Other fi nancial assets1
Credit related commitments2
Individual provision
balances
Impaired assets
Individual provision
balances
Impaired assets
2012
$m
2011
$m
–
–
–
111
–
2,838
–
173
–
–
–
35
–
2,592
–
180
2012
$m
–
–
–
–
–
1,100
–
27
3,122
2,807
1,127
–
–
–
–
–
991
–
18
–
–
–
–
–
1,392
–
13
1,009
1,405
–
–
–
5
–
535
–
–
540
–
–
–
116
–
4,364
–
191
–
–
–
3
–
666
–
–
669
–
–
–
38
–
4,650
–
193
–
–
–
–
–
351
–
17
368
–
–
–
–
–
277
–
–
277
–
–
–
–
–
1,729
–
44
2011
$m
–
–
–
–
–
902
–
7
909
–
–
–
–
–
398
–
3
401
–
–
–
–
–
387
–
–
387
–
–
–
–
–
1,687
–
10
2012
$m
2011
$m
2012
$m
–
–
–
111
–
2,664
–
172
–
–
–
35
–
2,430
–
173
–
–
–
–
–
1,009
–
27
2,947
2,638
1,036
–
–
–
–
–
31
–
–
31
–
–
–
4
–
451
–
–
455
–
–
–
115
–
3,146
–
172
–
–
–
–
–
52
–
–
52
–
–
–
3
–
556
–
–
559
–
–
–
38
–
3,038
–
173
–
–
–
–
–
9
–
–
9
–
–
–
–
–
224
–
–
224
–
–
–
–
–
1,242
–
27
2011
$m
–
–
–
–
–
864
–
6
870
–
–
–
–
–
14
–
–
14
–
–
–
–
–
266
–
–
266
–
–
–
–
–
1,144
–
6
1 Mainly comprises trade dated trading assets and accrued interest.
2 Comprises undrawn facilities and customer contingent liabilities.
4,671
4,881
1,773
1,697
3,433
3,249
1,269
1,150
140
33: Financial Risk Management (continued)
MARKET RISK (Excludes Insurance and Funds Management
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.
ANZ ANNUAL REPORT 2012
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.
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 99% confi dence interval. This means that
there is a 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
141
NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)
Traded Market Risk
Below are the aggregate Value at Risk (VaR) exposures at a 99% confi dence level covering both physical and derivatives trading positions for the
Bank’s principal trading centres.
30 September 2012
30 September 2011
Consolidated
Value at risk at 99% confi dence
Foreign exchange
Interest rate
Credit
Commodity
Equity
Diversifi cation benefi t
The Company
Value at risk at 99% confi dence
Foreign exchange
Interest rate
Credit
Commodity
Equity
Diversifi cation benefi t
As at
$m
3.5
4.5
4.0
1.8
1.2
(6.9)
8.1
As at
$m
3.5
4.0
4.0
1.8
1.2
(6.7)
7.8
High for
year
year
year
$m
$m
Low for
year
year
year
$m
$m
Average for
year
year
year
$m
$m
10.0
8.1
7.5
4.8
4.0
n/a
13.6
3.5
2.8
2.6
1.5
0.7
n/a
5.7
5.9
5.4
4.7
3.3
1.6
(11.6)
9.3
30 September 2012
High for
year
year
year
$m
$m
Low for
year
year
year
$m
$m
Average for
year
year
year
$m
$m
9.9
7.5
7.5
4.8
4.0
n/a
13.3
3.5
2.3
2.6
1.5
0.7
n/a
5.4
5.9
4.6
4.6
3.3
1.6
(11.1)
8.9
As at
$m
7.8
7.0
4.9
3.2
3.4
(14.6)
11.7
As at
$m
7.8
6.7
4.8
3.2
3.4
(14.4)
11.5
High for
year
year
year
$m
$m
Low for
year
year
year
$m
$m
Average for
year
year
year
$m
$m
10.9
26.4
10.5
6.5
3.5
n/a
29.5
1.0
5.4
3.2
2.4
0.6
n/a
8.3
4.2
13.5
6.9
4.1
1.3
(14.2)
15.8
30 September 2011
High for
year
year
year
$m
$m
Low for
year
year
year
$m
$m
Average for
year
year
year
$m
$m
10.9
26.3
10.5
6.5
3.5
n/a
29.3
1.0
5.0
3.2
2.4
0.6
n/a
8.1
4.2
13.2
6.9
4.1
1.3
(14.2)
15.5
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 is measured under the standard approach for regulatory
purposes.
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.
142
ANZ ANNUAL REPORT 2012
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 99% confi dence
Australia
New Zealand
Asia Pacifi c, Europe & America
Diversifi cation benefi t
The Company
Value at risk at 99% confi dence
Australia
New Zealand
Asia Pacifi c, Europe & America
Diversifi cation benefi t
2012
2011
As at
$m
25.9
11.2
5.5
(14.9)
27.7
As at
$m
25.9
0.1
4.5
(3.8)
26.7
High for
year
year
year
$m
$m
Low for
year
year
year
$m
$m
Average for
year
year
year
$m
$m
28.5
14.6
6.0
n/a
29.4
13.7
10.3
4.5
n/a
15.7
20.4
12.3
5.2
(15.3)
22.6
2012
High for
year
year
year
$m
$m
Low for
year
year
year
$m
$m
Average for
year
year
year
$m
$m
28.5
0.2
5.1
n/a
28.9
13.7
0.1
3.9
n/a
12.9
20.4
0.1
4.5
(4.7)
20.3
As at
$m
15.3
9.7
4.8
(10.8)
19.0
As at
$m
15.3
0.1
3.9
(3.6)
15.7
High for
year
year
year
$m
$m
Low for
year
year
year
$m
$m
Average for
year
year
year
$m
$m
28.0
18.9
7.2
n/a
32.8
13.2
9.7
2.8
n/a
16.4
19.7
12.2
4.6
(12.2)
24.3
2011
High for
year
year
year
$m
$m
Low for
year
year
year
$m
$m
Average for
year
year
year
$m
$m
28.0
0.7
6.5
n/a
27.4
13.2
0.1
2.0
n/a
14.0
19.7
0.2
3.8
(3.1)
20.6
VaR is calculated separately for the Australia, New Zealand and APEA geographies, 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 period end
Maximum exposure
Minimum exposure
Average exposure (in absolute terms)
Consolidated
The Company
2012
$m
2011
$m
2012
$m
2011
$m
1.55%
2.45%
1.26%
1.95%
1.36%
1.51%
0.50%
1.08%
1.92%
2.99%
1.47%
2.36%
1.53%
1.85%
0.54%
1.26%
NOTES TO THE FINANCIAL STATEMENTS
143
NOTES TO THE FINANCIAL STATEMENTS (continued)
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.1
Sacombank 1
Other equity holdings
Impact on equity of 10% variation in value
1 Disposed during 2012.
Consolidated
The Company
2012
$m
–
–
71
71
7
2011
$m
315
73
91
479
48
2012
$m
–
–
66
66
7
2011
$m
247
73
58
378
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, the New Zealand dollar and the US 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 capital ratios are neutral to the eff ect of changes in exchange rates.
Selective hedges were in place during the 2012 and 2011 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 derivatives’ at note 12.
LIQUIDITY RISK (Excludes Insurance and Funds Management)
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. The timing mismatch of cash fl 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 set of principles which are approved by the ANZ Board. The core objective of the
overall 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. The following key components underpin
the overall framework:
144
ANZ ANNUAL REPORT 2012
33: Financial Risk Management (continued)
LIQUIDITY RISK (Excludes Insurance and Funds Management)
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; and
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 ADIs normal funding capacity (‘available to fund’ limit), over
at least the following 30 calendar days. In estimating the funding requirement, the Group models expected cash fl 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 cash fl 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 cash fl 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.
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.
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.
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, we measure,
monitor and manage all modelled liquidity scenarios on an aggregated Group-wide level.
Liquidity portfolio management
The Group holds a diversifi ed portfolio of cash and high credit quality securities that may be sold or pledged to provide same-day liquidity.
This portfolio helps protect the Group’s liquidity position by providing cash in a severely stressed environment. All assets held in the prime
portfolio are securities eligible for repurchase under agreements with the applicable central bank (i.e. ‘repo eligible’).
The liquidity portfolio is well diversifi ed by counterparty, currency and tenor. Under the liquidity policy framework, securities purchased for
ANZ’s liquidity portfolio 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.
NOTES TO THE FINANCIAL STATEMENTS
145
NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)
Supplementing the prime liquid asset portfolio, the Group holds additional liquidity:
central bank deposits with the US Federal Reserve, Bank of England, Bank of Japan and European Central Bank of $18.0 billion;
central bank deposits with the US Federal Reserve, Bank of England, Bank of Japan and European Central Bank of $18.0 billion;
Australian Commonwealth and State Government securities and gold of $12.6 billion; and
Australian Commonwealth and State Government securities and gold of $12.6 billion; and
cash and other securities to satisfy local country regulatory liquidity requirements which are not included in the liquid assets below:
Eligible securities
Prime liquidity portfolio (market values1)
Australia
New Zealand
United States
United Kingdom
Singapore
Hong Kong
Japan
Prime Liquidity Portfolio (excluding Internal RMBS)
Internal RMBS (Australia)
Internal RMBS (New Zealand)
Total Prime Portfolio
Other Eligible Securities including gold and cash on deposit with central banks
Total
1 Market value is post the repo discount applied by the applicable central bank
2012
$m
24,050
10,990
1,367
3,260
4,491
608
1,340
46,106
34,871
2,981
83,958
30,605
114,563
2011
$m
20,815
9,141
1,353
2,654
6,409
273
–
40,645
26,831
3,899
71,375
20,130
91,505
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.
146
ANZ ANNUAL REPORT 2012
33: Financial Risk Management (continued)
Regulatory Change
The Basel III Liquidity proposals remain subject to fi nalisation from both the Basel Committee and APRA. The proposed changes include the
introduction of two new liquidity ratios to measure liquidity risk (the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR)).
A component of the liquidity required under the proposed standards will likely be met via the previously announced Committed Liquidity
Facility from the Reserve Bank of Australian (RBA), however the size and availability of the facility is not yet agreed with APRA and the RBA. While
ANZ has an existing stress scenario framework and structural liquidity risk metrics and limits in place, the requirements proposed are in general
more challenging. These changes may impact the future composition and size of ANZ’s liquidity portfolio, the size and composition of the Bank’s
funding base and consequently could aff ect future profi tability. APRA is proposing to release further details on its requirements during the fi rst
quarter of 2013 following an anticipated release of further information from the Basel Committee on Banking Supervision early in 2013. APRA
currently proposes to implement the LCR on 1 January 2015 and the NSFR on 1 January 2018 in line with the Basel Committee’s timetable for
liquidity risk.
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.
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.
Funding plans and performance relative to those plans are reported regularly to senior management via the 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 to-date 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 2012
ANZ targets a diversifi ed funding base, avoiding undue concentrations by investor type, maturity, market source and currency. Diversifi cation
was further enhanced during the year with the introduction of a covered bond funding programme.
As at September 2012, the composition of the Group’s funding profi le was:
Term wholesale funding with a remaining maturity of more than one year of $68.4 billion (12% of total funding)
Term wholesale funding with a remaining maturity of more than one year of $68.4 billion (12% of total funding)
Term wholesale funding with a remaining maturity of one year or less of $25.4 billion (5% of total funding)
Term wholesale funding with a remaining maturity of one year or less of $25.4 billion (5% of total funding)
Short-term wholesale funding (including central bank deposits) of $78.9 billion (14% of total funding)
Short-term wholesale funding (including central bank deposits) of $78.9 billion (14% of total funding)
Shareholders’ equity and hybrids of $46.3 billion (8% of total funding)
$25.8 billion of term wholesale debt (with a remaining term greater than one year as at 30 September 2012) was issued during the September
2012 fi nancial year, of which $4.5 billion is pre-funding for the September 2013 fi nancial year.
ANZ maintained access to all major global wholesale funding markets during 2012:
Benchmark term debt issues were completed in AUD, USD, EUR, JPY, CHF, GBP, CNH and NZD.
Benchmark term debt issues were completed in AUD, USD, EUR, JPY, CHF, GBP, CNH and NZD.
All short-term wholesale funding needs were met.
All short-term wholesale funding needs were met.
The weighted average tenor of new term debt issuance remained relatively fl at at 4.6 years (4.7yrs in 2011).
The weighted average tenor of new term debt issuance remained relatively fl at at 4.6 years (4.7yrs in 2011).
The weighted average cost of new term debt issuance increased further in 2012 as a result of volatility in global markets. Conditions improved
The weighted average cost of new term debt issuance increased further in 2012 as a result of volatility in global markets. Conditions improved
towards the end of the year, however average portfolio costs remain substantially above pre-crisis levels and continue to increase as maturing
term wholesale funding is replaced at higher spreads.
NOTES TO THE FINANCIAL STATEMENTS
147
NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)
The following tables show the Group’s funding composition:
Funding composition
Customer deposits and other liabilities1
Australia
International & Institutional Banking
New Zealand
Global Wealth & Private Banking
Group Centre
Group Centre
Total customer deposits
Other2
Total customer deposits and other liabilities (funding)
Wholesale funding4,5
Bonds and notes6
Loan capital
Certifi cates of deposit (wholesale)
Commercial paper
Due to other fi nancial institutions
Other wholesale borrowings3
Total wholesale funding
Shareholders’ equity
Total funding maturity
Short term wholesale funding (excl Central Banks)
Central Bank Deposits
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
2012
$m
2011
$m
140,798
142,662
39,622
9,449
(4,655)
327,876
126,969
129,683
35,938
8,129
(3,965)
296,754
9,841
11,450
337,717
308,204
62,693
11,914
56,838
12,164
30,538
4,585
56,551
11,993
55,554
14,333
27,535
(450)
178,732
165,516
40,349
37,083
11%
3%
5%
12%
61%
8%
11%
2%
6%
12%
60%
9%
100%
100%
Includes term deposits, other deposits and an adjustment to the Group Centre to eliminate OnePath Australia investments in ANZ deposit products.
1
2. Includes interest accruals, payables and other liabilities, provisions and net tax provisions, excluding other liabilities in OnePath.
3. Includes net derivative balances, special purpose vehicles, other borrowings and preference share capital Euro hybrids.
4. 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
wholesale funding.
5. Liability for acceptances have been removed as they do not provide net funding.
6. Excludes term debt issued externally by OnePath.
Liquidity risk – Insurance and Funds Management
The Group’s insurance and fund management businesses, such as ANZ Wealth Australia Limited (formerly OnePath Australia Limited), also apply
their own liquidity and funding methods to address their specifi c needs.
As at 30 September 2012 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 $282 million (2011: $524 million).
148
ANZ ANNUAL REPORT 2012
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:
Consolidated at 30 September 2012
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 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
Less than
3 months1
$m
29,345
30,058
126,137
142,527
11,782
7,373
353
246
1,239
5,708
722
28,763
3,949
39,725
3 to 12
months
$m
1,177
13,462
43,676
–
–
4,795
715
–
–
11,133
2,028
–
–
–
1 to
5 years
5 years
5 years
$m
$m
36
15,072
5,918
–
–
–
269
–
–
41,813
7,768
–
–
–
After
5 years
5 years
5 years
$m
$m
–
–
108
–
–
–
–
–
–
8,770
2,552
–
–
–
No
maturity
maturity
maturity
specifi ed
specifi ed
specifi ed
specifi ed
$m
$m
2
Total
$m
–
30,558
–
–
–
–
–
–
–
–
–
953
774
–
–
58,592
175,839
142,527
11,782
12,168
1,337
246
1,239
67,424
14,023
29,537
3,949
39,725
(23,932)
25,714
(35,200)
36,402
(69,846)
75,419
(18,033)
19,073
(5,570)
5,593
(6,471)
6,663
(11,254)
11,009
(3,475)
3,263
–
–
–
–
(147,011)
156,608
(26,770)
26,528
Less than
3 months1
$m
26,049
33,740
110,265
130,741
11,334
9,907
773
2,053
921
4,854
352
26,619
5,033
44,263
3 to 12
months
$m
1,427
5,949
42,039
–
–
4,433
487
–
49
11,777
2,211
–
–
–
1 to
5 years
5 years
5 years
$m
$m
37
18,440
4,230
–
–
–
328
–
–
36,773
5,166
–
–
–
After
5 years
5 years
5 years
$m
$m
49
–
38
–
–
–
–
–
–
6,997
5,273
–
–
–
No
maturity
maturity
maturity
specifi ed
specifi ed
specifi ed
specifi ed
$m
$m
2
Total
$m
–
27,562
–
–
–
–
–
–
–
–
–
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
44,263
(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
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
149
NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)
The Company at 30 September 2012
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
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 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
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
27,198
28,685
109,924
122,614
6,556
5,272
197
1,012
3,883
669
36,070
3 to 12
months
$m
1,173
13,322
30,023
–
–
2,549
–
–
8,841
2,010
–
1 to
5 years
5 years
5 years
$m
$m
36
15,072
3,587
–
–
–
–
–
33,466
7,803
–
After
5 years
5 years
5 years
$m
$m
–
–
106
–
–
–
–
–
7,047
2,552
–
(16,166)
17,511
(21,771)
23,142
(53,558)
57,983
(15,506)
16,523
(5,028)
4,992
(4,816)
4,962
(9,030)
8,703
(3,197)
2,988
Less than
3 months1
$m
23,353
32,165
93,805
113,140
5,974
7,259
–
645
3,626
271
39,878
3 to 12
months
$m
1,344
5,867
30,048
–
–
3,317
–
42
9,596
2,175
–
1 to
5 years
5 years
5 years
$m
$m
37
18,440
2,142
–
–
–
–
–
27,775
5,183
–
After
5 years
5 years
5 years
$m
$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
maturity
maturity
specifi ed
specifi ed
specifi ed
specifi ed
$m
$m
2
Total
$m
–
28,407
–
–
–
–
–
–
–
–
287
–
57,079
143,640
122,614
6,556
7,821
197
1,012
53,237
13,321
36,070
–
–
–
–
(107,001)
115,159
(22,071)
21,645
No
maturity
maturity
maturity
specifi ed
specifi ed
specifi ed
specifi ed
$m
$m
2
Total
$m
–
24,734
–
–
–
–
–
–
–
–
308
–
–
–
–
–
56,472
126,034
113,140
5,974
10,576
–
687
47,733
12,741
39,878
(91,099)
98,905
(16,079)
15,954
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.
150
ANZ ANNUAL REPORT 2012
33: Financial Risk Management (continued)
CREDIT RELATED CONTINGENCIES
Undrawn facilities and issued guarantees comprise 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 2012
Undrawn facilities
Issued guarantees
30 September 2011
Undrawn facilities1
Issued guarantees
Less than
1 year
1 year
1 year
$m
$m
141,355
32,383
Less than
1 year
1 year
1 year
$m
$m
135,243
31,210
Consolidated
More than
1 year
1 year
1 year
$m
$m
Total
$m
–
–
141,355
32,383
Consolidated
More than
1 year
1 year
1 year
$m
$m
Total
$m
–
–
135,243
31,210
Less than
1 year
1 year
1 year
$m
$m
118,461
29,619
Less than
1 year
1 year
1 year
$m
$m
114,461
28,269
The Company
More than
1 year
1 year
1 year
$m
$m
Total
$m
–
–
118,461
29,619
The Company
More than
1 year
1 year
1 year
$m
$m
Total
$m
–
–
114,461
28,269
1 September 2011 undrawn facilities have been restated by $2,646 million using the revised methodology for undrawn overdrafts that was implemented during 2012.
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 48.
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
approve extreme rated risk treatment plans; and
monitor associated treatment plans.
NOTES TO THE FINANCIAL STATEMENTS
151
NOTES TO THE FINANCIAL STATEMENTS (continued)
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.
152
ANZ ANNUAL REPORT 2012
34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL ASSETS
Consolidated 30 September 2012
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments1
Available-for-sale assets
Loans and advances2
Investments backing policy liabilities
Other fi nancial 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
Investments backing policy liabilities
Other fi nancial assets
The Company 30 September 2012
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments1
Available-for-sale assets
Loans and advances2
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
recognition
recognition
$m
$m
–
–
–
–
–
104
29,895
–
29,999
$m
36,578
17,103
–
–
–
427,719
–
5,794
487,194
Held for
trading
trading
trading
$m
$m
–
–
40,602
45,531
–
–
–
–
86,133
Sub-total
$m
–
–
40,602
45,531
–
104
29,895
–
116,132
$m
–
–
–
3,398
–
–
–
–
3,398
$m
–
–
–
–
20,562
–
–
–
20,562
$m
36,578
17,103
40,602
48,929
20,562
427,823
29,895
5,794
627,286
$m
36,578
17,103
40,602
48,929
20,562
428,483
29,895
5,794
627,946
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
recognition
recognition
$m
$m
–
–
–
–
–
138
29,859
–
29,997
$m
25,627
13,298
–
–
–
397,169
–
6,485
442,579
Held for
trading
trading
trading
$m
$m
–
–
36,074
55,917
–
–
–
–
91,991
Sub-total
$m
–
–
36,074
55,917
–
138
29,859
–
121,988
$m
–
–
–
2,724
–
–
–
–
2,724
$m
–
–
–
–
22,264
–
–
–
22,264
$m
25,627
13,298
36,074
58,641
22,264
397,307
29,859
6,485
589,555
$m
25,627
13,298
36,074
58,641
22,264
397,596
29,859
6,485
589,844
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
recognition
recognition
$m
$m
–
–
–
–
–
65
–
65
$m
32,782
14,167
–
–
–
349,995
3,473
400,417
Held for
trading
trading
trading
$m
$m
–
–
30,490
40,284
–
–
–
70,774
Sub-total
$m
–
–
30,490
40,284
–
65
–
70,839
$m
–
–
–
2,982
–
–
–
2,982
$m
–
–
–
–
17,841
–
–
17,841
$m
32,782
14,167
30,490
43,266
17,841
350,060
3,473
492,079
$m
32,782
14,167
30,490
43,266
17,841
350,572
3,473
492,591
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.
NOTES TO THE FINANCIAL STATEMENTS
153
NOTES TO THE FINANCIAL STATEMENTS (continued)
34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL ASSETS (continued)
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
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
recognition
recognition
$m
$m
–
–
–
–
–
97
–
97
$m
21,283
10,070
–
–
–
323,877
3,463
358,693
Held for
trading
trading
trading
$m
$m
–
–
28,367
49,437
–
–
–
77,804
Sub-total
$m
–
–
28,367
49,437
–
97
–
77,901
$m
–
–
–
2,283
–
–
–
2,283
$m
–
–
–
–
19,017
–
–
19,017
$m
21,283
10,070
28,367
51,720
19,017
323,974
3,463
457,894
$m
21,283
10,070
28,367
51,720
19,017
324,087
3,463
458,007
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
The carrying value of loans and advances 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, the discount rate applied
incorporates changes in wholesale market rates, the Group’s cost of
wholesale funding and the 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.
154
ANZ ANNUAL REPORT 2012
34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL LIABILITIES
Consolidated 30 September 2012
Due to other fi nancial institutions
Derivative fi nancial instruments1
Deposits and other borrowings
Bonds and notes2
Loan capital2
Policy liabilities3
External unit holder liabilities (life insurance funds)
Payables and other liabilities
Consolidated 30 September 2011
Due to other fi nancial institutions
Derivative fi nancial instruments1
Deposits and other borrowings
Bonds and notes2
Loan capital2
Policy liabilities3
External unit holder liabilities (life insurance funds)
Payables and other liabilities
The Company 30 September 2012
Due to other fi nancial institutions
Derivative fi nancial instruments1
Deposits and other borrowings
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
recognition
recognition
$m
$m
–
–
4,346
6,465
633
28,763
3,949
–
44,156
$m
30,538
–
392,777
56,633
11,281
774
–
8,095
500,098
Held for
trading
trading
trading
$m
$m
–
50,887
–
–
–
–
–
–
50,887
Sub-total
$m
–
50,887
4,346
6,465
633
28,763
3,949
–
95,043
$m
–
1,752
–
–
–
–
–
–
1,752
$m
30,538
52,639
397,123
63,098
11,914
29,537
3,949
8,095
596,893
$m
30,538
52,639
397,571
63,780
11,869
29,537
3,949
8,095
597,978
At amortised
cost
At fair value through profi t or loss
Hedging
Total
Total
Carrying amount
Fair value
Designated
on initial
recognition
recognition
recognition
$m
$m
–
–
3,764
7,992
638
26,619
5,033
–
44,046
$m
27,535
–
364,965
48,559
11,355
884
–
9,391
462,689
Held for
trading
trading
trading
$m
$m
–
54,133
–
–
–
–
–
–
54,133
Sub-total
$m
–
54,133
3,764
7,992
638
26,619
5,033
–
98,179
$m
–
1,157
–
–
–
–
–
–
1,157
$m
27,535
55,290
368,729
56,551
11,993
27,503
5,033
9,391
562,025
$m
27,535
55,290
369,035
56,403
11,849
27,503
5,033
9,391
562,039
At amortised
cost
At fair value through profi t or loss
Hedging
Total
Total
Carrying amount
Fair value
Designated
on initial
recognition
recognition
recognition
$m
$m
–
–
–
6,465
633
–
7,098
$m
28,394
–
333,536
43,510
10,613
5,821
421,874
Held for
trading
trading
trading
$m
$m
–
44,508
–
–
–
–
44,508
Sub-total
$m
–
44,508
–
6,465
633
–
51,606
$m
–
1,539
–
–
–
–
1,539
$m
28,394
46,047
333,536
49,975
11,246
5,821
475,019
$m
28,394
46,047
333,917
50,476
11,230
5,821
475,885
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.
3
Includes life insurance contract liabilities of $774 million (2011: $884 million) measured in accordance with AASB 1038 Life insurance contract liabilities and life investment contract liabilities of
$28,763 million (2011: $26,619 million) 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.
NOTES TO THE FINANCIAL STATEMENTS
155
NOTES TO THE FINANCIAL STATEMENTS (continued)
34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL LIABILITIES (continued)
The Company 30 September 2011
Due to other fi nancial institutions
Derivative fi nancial instruments1
Deposits and other borrowings
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
recognition
recognition
$m
$m
–
–
–
7,992
638
–
8,630
$m
24,709
–
307,254
36,878
10,179
6,332
385,352
Held for
trading
trading
trading
$m
$m
–
47,952
–
–
–
–
47,952
Sub-total
$m
–
47,952
–
7,992
638
–
56,582
$m
–
795
–
–
–
–
795
$m
24,709
48,747
307,254
44,870
10,817
6,332
442,729
$m
24,709
48,747
307,477
44,677
10,705
6,332
442,647
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.
POLICY 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 spreads, 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.
156
ANZ ANNUAL REPORT 2012
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 in a fair value hierarchy 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 allocation into the fair value hierarchy is determined as follows:
Level 1 – Financial instruments that have been valued by reference to unadjusted quoted prices in active markets for identical fi nancial assets
or liabilities. This category includes fi nancial instruments valued using quoted yields where available for specifi c debt securities.
Level 2 – Financial instruments that have been valued through valuation techniques incorporating inputs other than quoted prices within
Level 1 that are observable for the fi nancial asset or liability, either directly or indirectly.
Level 3 – Financial instruments that have been valued using valuation techniques which incorporate signifi cant inputs for the fi nancial asset
or liability that are not based on observable market data (unobservable inputs).
The methods used in valuing diff erent classes of fi nancial assets or liabilities are described in section (i) on pages 152 to 156. 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.
Valuation techniques
Consolidated
Financial assets
Trading securities1
Derivative fi nancial instruments
Available-for-sale fi nancial assets
Investment 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)
Life investment contract liabilities
External unit holder liabilities (life insurance funds)
Loan capital (designated at fair value)
Quoted market price
(Level 1)
Using observable inputs
(Level 2)
2012
$m
2011
$m
2012
$m
2011
$m
33,105
678
16,098
14,968
–
64,849
30,598
2,711
19,219
14,766
–
67,294
7,496
47,916
4,433
14,614
104
74,563
5,414
55,321
2,526
14,734
138
78,133
With signifi cant
non-observable inputs
(Level 3)
2012
$m
1
335
31
313
–
680
2011
$m
62
609
519
359
–
Total
2012
$m
2011
$m
40,602
48,929
20,562
29,895
104
36,074
58,641
22,264
29,859
138
1,549
140,092
146,976
750
2,847
51,414
51,654
475
789
52,639
55,290
–
–
–
–
–
–
–
–
–
–
4,346
6,465
28,763
3,949
633
95,570
3,764
7,992
26,619
5,033
638
95,700
–
–
–
–
–
–
–
–
–
–
475
789
4,346
6,465
28,763
3,949
633
96,795
3,764
7,992
26,619
5,033
638
99,336
Total
750
2,847
1 $6.3 billion (Company: $6.3 billion) of Trading securities which were categorised as level 2 in 2011 have been restated to level 1 in 2011 since they are valued using quoted yields.
The Company
Financial assets
Trading securities1
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)
Quoted market price
(Level 1)
Using observable inputs
(Level 2)
With signifi cant
non-observable inputs
(Level 3)
Valuation techniques
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
26,855
676
14,901
–
42,432
746
–
–
746
26,033
2,689
17,724
–
46,446
2,833
–
–
2,833
3,634
42,255
2,914
65
48,868
44,826
6,465
633
51,924
2,272
48,422
921
97
51,712
45,125
7,992
638
53,755
1
335
26
–
362
475
–
–
475
2011
$m
62
609
372
–
1,043
789
–
–
789
Total
2012
$m
2011
$m
30,490
43,266
17,841
65
91,662
46,047
6,465
633
53,145
28,367
51,720
19,017
97
99,201
48,747
7,992
638
57,377
1 $6.3 billion (Company: $6.3 billion) of Trading securities which were categorised as level 2 in 2011 have been restated to level 1 in 2011 since they are valued using quoted yields.
NOTES TO THE FINANCIAL STATEMENTS
157
NOTES TO THE FINANCIAL STATEMENTS (continued)
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
Structured credit products
Managed funds (suspended)
Alternative assets
Other derivatives
Total
The Company
Asset backed securities
Illiquid corporate bonds
Structured credit products
Alternative assets
Other derivatives
Total
Financial assets
Trading securities
Derivatives
Available-for-sale
Investments backing
policy liabilities
Financial
liabilities
Derivatives
2012
$m
2011
$m
1
–
–
–
–
–
1
1
–
–
–
–
1
62
–
–
–
–
–
62
62
–
–
–
–
62
2012
$m
–
–
243
–
–
92
335
–
–
243
–
92
335
2011
$m
–
–
605
–
–
4
609
–
–
605
–
4
609
2012
$m
2
9
–
–
20
–
31
–
6
–
20
–
26
2011
$m
5
514
–
–
–
–
519
–
372
–
–
–
372
2012
$m
–
–
94
133
86
–
313
n/a
n/a
n/a
n/a
n/a
n/a
2011
$m
–
–
110
159
90
–
359
n/a
n/a
n/a
n/a
n/a
n/a
2012
$m
–
–
(346)
–
–
(129)
(475)
–
–
(346)
–
(129)
(475)
2011
$m
–
–
(788)
–
–
(1)
(789)
–
–
(788)
–
(1)
(789)
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.
Structured credit products catergorised in investments backing policy liabilities 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.
Alternative assets are largely comprised of various investments in unlisted equity securities. No active market exists for these securities and the
valuation model incorporates signifi cant unobservable inputs.
Other derivatives predominantly comprise interest rate swaptions containing multi-callable features. Modelling uncertainties and complexities
are inherent in the valuation model which result in a signifi cant range of possible valuation outcomes for these fi nancial assets and liabilities.
158
ANZ ANNUAL REPORT 2012
34: Fair Value of Financial Assets and Financial Liabilities (continued)
The following table details movements in the balance of level 3 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 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 equity
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 equity
Closing balance
Financial assets
Financial liabilities
Trading securities
Derivatives
Available-for-sale
2012
$m
2011
$m
62
–
(60)
–
–
–
(1)
–
1
62
–
(60)
–
–
–
(1)
–
1
50
–
–
–
–
–
12
–
62
50
–
–
–
–
–
12
–
62
2012
$m
609
5
–
–
84
(4)
(359)
–
335
609
5
–
–
84
(4)
(359)
–
335
2011
$m
450
–
(18)
–
–
(3)
180
–
609
450
–
(18)
–
–
(3)
180
–
609
2012
$m
519
–
–
–
24
(508)
(4)
–
31
372
–
–
–
20
(366)
–
–
26
2011
$m
646
9
(139)
–
–
–
20
(17)
519
409
–
(7)
–
–
–
–
(30)
372
Investments backing
policy liabilities
2012
$m
2011
$m
359
29
(79)
–
–
–
4
–
313
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
471
–
(92)
–
–
–
(20)
–
359
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Derivatives
2012
$m
(789)
(1)
–
–
(128)
1
442
–
(475)
(789)
(1)
–
–
(128)
1
442
–
(475)
2011
$m
(646)
–
21
–
–
17
(181)
–
(789)
(646)
–
21
–
–
17
(181)
–
(789)
Transfers out of level 3 relate principally to certain assets where the credit spread component has become observable during the year or where
assets have been reclassifi ed and are no longer measured at fair value.
Transfers into level 3 predominantly comprise interest rate swaptions containing multi-callable features. Market conditions prevalent in the
current fi nancial year have generated modelling uncertainties and complexities in their valuation, resulting in a signifi cant range of possible
valuation outcomes for these exposures. Transfers-in are assumed to occur at the time these instruments were deemed to be level 3. Transfers-
out are assumed to occur at the beginning of the reporting period.
NOTES TO THE FINANCIAL STATEMENTS
159
NOTES TO THE FINANCIAL STATEMENTS (continued)
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 $27 million (2011: $46 million) or a decrease of
$18 million (2011: $30 million) in net derivative fi nancial instruments as at 30 September 2012. 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 $4 million (2011: $2 million). $3 million (2011: $nil) in unrecognised gains was added during the year with $1 million
(2011: $1 million) being recognised in the income statement during the year through the amortisation process.
(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 $104 million (2011: $138 million) and for the Company was $65 million
(2011: $97 million). For the Group and Company $66 million (2011: $84 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 $4 million (2011: $3 million).
For the Company the cumulative change to the assets was $nil (2011: $nil). The amount recognised in the income statement attributable to
changes in credit risk for the Group was a loss of $1 million (2011: $1 million gain) and for the Company $nil (2011: $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.
160
ANZ ANNUAL REPORT 2012
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 increase/(decrease)
– increase/(decrease) recognised during the year
– closing cumulative increase/(decrease)
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 increase/(decrease)
– increase/(decrease) recognised during the year
– closing cumulative increase/(decrease)
Life investment
contract liabilities
and external
unitholder liabilities
Deposits and other
borrowings
Bonds and notes
Loan capital
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
2011
$m
32,712
31,652
4,346
3,764
6,465
7,992
–
–
–
–
–
–
–
–
(3)
–
–
–
–
–
–
–
(123)
8
(151)
91
(60)
(10)
(141)
(151)
2012
$m
633
(12)
(32)
28
(4)
2011
$m
638
3
(18)
(14)
(32)
Bonds and notes
Loan capital
2012
$m
6,465
(123)
2011
$m
7,992
8
(151)
91
(60)
(10)
(141)
(151)
2012
$m
633
(12)
(32)
28
(4)
2011
$m
638
3
(18)
(14)
(32)
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).
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 policy liabilities
Due to other fi nancial institutions
Deposits and other borrowings
Bonds and notes
Policy liabilities
External unit holder liabilities (life insurance funds)
Loan capital
1
Includes items where no maturity is specified.
2012
2011
Due within
one year
one year
one year
$m
$m
Greater than
one year1
one year
one year
$m
$m
17,037
8,936
101,577
3,938
30,502
377,113
15,005
28,763
3,949
–
66
11,626
326,246
25,957
36
20,010
48,093
774
–
11,914
Total
$m
17,103
20,562
427,823
29,895
30,538
397,123
63,098
29,537
3,949
11,914
Due within
one year
one year
one year
$m
$m
Greater than
one year1
one year
one year
$m
$m
13,168
17,930
97,459
2,242
27,449
347,885
13,874
26,619
5,033
720
130
4,334
299,848
27,617
86
20,844
42,677
884
–
11,273
Total
$m
13,298
22,264
397,307
29,859
27,535
368,729
56,551
27,503
5,033
11,993
NOTES TO THE FINANCIAL STATEMENTS
161
NOTES TO THE FINANCIAL STATEMENTS (continued)
36: Segment Analysis
(i) Description of segments
The Group operates on a divisional structure with Australia, International and Institutional Banking (IIB), New Zealand and Global Wealth
and Private Banking being the major operating divisions. The IIB and Global Wealth and Private Banking divisions are co-ordinated globally.
The segments and product and services categories as reported below are consistent with internal reporting provided to the chief operating
decision maker, being the Chief Executive Offi cer.
In order to support the Group’s super regional strategy and give focus to the Group’s areas of growth and opportunity, the divisional segments
were changed from those used in the prior year. This involved the combination of the former APEA and Institutional divisions into one division,
IIB, and the creation of a new division, Global Wealth and Private Banking. Comparative information has been restated accordingly.
The primary sources of external revenue across all divisions are interest, fee income and trading income. The Australia and New Zealand
divisions derive revenue from products and services from retail banking and commercial banking. IIB derives its revenue from retail banking,
and institutional and commercial products and services. Global Wealth and Private Banking derives revenue from wealth products and private
banking. Group Centre provides support to all divisions, including risk management, fi nancial management, strategy and marketing,
human resources and corporate aff airs.
(ii) Operating segments
Transactions between business units across segments within ANZ are conducted on an arms length basis.
Year ended 30 September 2012 ($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
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
Segment result before tax
Income tax expense
Non-controlling interests
Profi t after income tax attributed to
shareholders of the company
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
International
and
Institutional
Banking
8,631
(3,327)
(1,462)
3,842
2,351
New
Zealand
4,285
(1,857)
(656)
1,772
325
Global Wealth
and Private
Banking
325
(416)
214
123
1,355
399
6,592
(2,543)
(390)
(2,933)
3,659
(427)
3,232
(854)
(6)
(196)
(106)
(427)
–
2,097
(948)
27
(921)
1,176
(148)
1,028
(285)
–
743
(55)
(16)
(148)
–
1,478
(744)
(113)
(857)
621
(4)
617
(166)
–
451
(39)
(12)
(4)
2,492
2,372
Australia
17,175
(6,463)
(4,788)
5,924
1,196
(2)
7,118
(2,045)
(848)
(2,893)
4,225
(666)
3,559
(1,067)
–
(114)
(26)
(666)
–
6
247,531
154,666
1,014
3,426
276,306
231,966
1,604
2
71,816
57,842
1,594
9
45,351
46,251
–
68
1,232
110,209
Group
Centre
119
(6,365)
6,696
450
(157)
1
294
(1,771)
1,353
(418)
(124)
(1)
(125)
78
–
Other
items1
3
–
(4)
(1)
136
(3)
132
(467)
(30)
(497)
(365)
48
(317)
(33)
–
Group
Total
30,538
(18,428)
–
12,110
5,206
395
17,711
(8,518)
(1)
(8,519)
9,192
(1,198)
7,994
(2,327)
(6)
(47)
(350)
5,661
(206)
(29)
(1)
(3)
–
48
–
9
(109)
(27)
(613)
(189)
(1,198)
4,212
3,520
642,127
600,907
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 (refer pages 204 to 206 for further analysis).
162
36: Segment Analysis (continued)
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
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
Segment result before tax
Income tax expense
Non-controlling interests
Profi t after income tax attributed to
shareholders of the company
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
International
and
Institutional
Banking
8,194
(3,631)
(896)
3,667
2,092
New
Zealand
4,513
(1,948)
(864)
1,701
316
Global Wealth
and Private
Banking
345
(342)
132
135
1,350
–
1,485
(746)
(107)
(853)
632
8
640
(183)
–
431
6,190
(2,402)
(355)
(2,757)
3,433
(293)
3,140
(830)
(9)
(148)
(90)
(293)
–
2,017
(929)
23
(906)
1,111
(166)
945
(283)
–
662
(49)
(16)
(166)
(47)
(2)
8
(175)
(35)
(41)
1,009
3,376
259,397
223,420
1,579
2
69,072
53,039
1,575
21
43,970
43,456
–
67
593
108,137
Australia
17,197
(6,197)
(5,218)
5,782
1,187
(2)
6,967
(1,995)
(841)
(2,836)
4,131
(719)
3,412
(1,022)
–
(114)
(22)
(719)
–
9
231,113
138,168
2,390
2,301
457
(158)
(297)
5,355
ANZ ANNUAL REPORT 2012
Group
Centre
189
(6,826)
6,850
213
(61)
1
153
(1,667)
1,301
(366)
(213)
(41)
(254)
96
–
Other
items1
5
1
(4)
2
112
6
120
(284)
(21)
(305)
(185)
(26)
(211)
(87)
1
Group
Total
30,443
(18,943)
–
11,500
4,996
436
16,932
(8,023)
–
(8,023)
8,909
(1,237)
7,672
(2,309)
(8)
(1)
–
(26)
–
38
68
39
(534)
(165)
(1,237)
4,163
3,513
604,213
566,259
Profi t after tax
2012
$m
224
(105)
(41)
(96)
–
(229)
53
(220)
(1)
65
(350)
2011
$m
–
(86)
(126)
41
2
(117)
(51)
–
39
1
(297)
1
In evaluating the performance of the operating segments, the results are adjusted for certain non-core items 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 (refer pages 205 to 206 for further analysis).
(iii) Other items
The table below sets out the profi t after tax impact of other items.
Item
Related segment
Gain on sale of Visa shares
New Zealand Simplifi cation programme
Acquisition related adjustments
Treasury shares adjustment
Changes in New Zealand tax legislation
Economic hedging – fair value (gains)/losses
Revenue and net investment hedges (gains)/losses Group Centre
Capitalised software impairment
New Zealand managed funds impacts
Non continuing businesses
Total
New Zealand and Group Centre
New Zealand
Global Wealth and Private Banking and IIB
Global Wealth and Private Banking
New Zealand and IIB
IIB
Australia, IIB, Global Wealth and Private Banking, and Group Centre
New Zealand
IIB
NOTES TO THE FINANCIAL STATEMENTS
163
NOTES TO THE FINANCIAL STATEMENTS (continued)
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
2012
$m
6,312
3,786
1,478
5,320
328
487
17,711
2011
$m
6,112
3,700
1,485
4,961
327
347
16,932
(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
2012
$m
2011
$m
12,117
288,171
11,904
260,004
APEA
New Zealand
Total
2012
$m
2,801
21,162
2011
$m
2,425
22,401
2012
$m
2,793
54,562
2011
$m
2,603
49,524
2012
$m
2011
$m
17,711
363,895
16,932
331,929
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.
164
ANZ ANNUAL REPORT 2012
37: Notes to the Cash Flow Statements
a) Reconciliation of net profi t after income tax to net cash provided by/(used in) operating activities
Operating profi t after income tax attributable to shareholders of the Company
5,661
5,355
4,875
4,151
Consolidated
The Company
Infl ows
(Outfl ows)
2012
$m
Infl ows
(Outfl ows)
2011
$m
Infl ows
(Outfl ows)
2012
$m
Infl ows
(Outfl ows)
2011
$m
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 intermediation trades
Depreciation and amortisation
(Profi t)/Loss 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 payments expense
Change in policy liabilities
Net derivatives/foreign exchange adjustment
Net (increase)/decrease in operating assets
Trading securities
Liquid assets
Due from other banks
Loans and advances
Investments backing policy 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 provided by/(used in) operating activities
1,198
44
(73)
723
(4)
798
(845)
23
(225)
(7)
189
2,449
(1,093)
(4,589)
435
(4,256)
(32,748)
(2,569)
4,734
–
(110)
25
(525)
33,662
4,184
209
(399)
(455)
(20)
755
6,416
1,237
72
(4)
645
(6)
822
(852)
(20)
(68)
(13)
167
(854)
187
(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
985
35
(73)
483
(20)
373
(426)
17
(164)
3
189
–
(1,230)
(2,275)
419
(3,886)
(28,592)
–
3,687
(283)
(88)
4
(839)
30,834
4,836
441
(179)
(368)
286
4,169
9,044
994
72
(2)
403
–
345
(518)
7
(31)
6
167
–
711
(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
NOTES TO THE FINANCIAL STATEMENTS
165
NOTES TO THE FINANCIAL STATEMENTS (continued)
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, from the date of acquisition. 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
Due from other fi nancial institutions
Cash and cash equivalents in the statement of cash fl ows
c) Acquisitions and disposals
Cash (infl ows)/outfl ows from acquisitions and investments (net of cash acquired)
Purchases of controlled entities and businesses
Investments in controlled entities
Purchases of interest in associates
Cash infl ows from disposals (net of cash disposed)
Disposals of controlled entities
Disposals of associates
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
2012
$m
35,583
5,867
41,450
2011
$m
24,129
5,892
30,021
2012
$m
31,787
4,481
36,268
2011
$m
19,801
3,850
23,651
Consolidated
The Company
2012
$m
11
–
–
11
–
18
18
2011
$m
44
–
260
304
6
68
74
2012
$m
10
327
–
337
–
36
36
2011
$m
–
–
260
260
–
36
36
1,461
80
1,541
1,367
66
1,433
1,461
80
1,541
1,367
66
1,433
Consolidated
2012
2011
Available
$m
Unused
$m
Available
$m
Unused
$m
–
–
–
–
–
–
978
–
978
978
–
978
166
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
ANZ Bank (Vietnam) Limited1
ANZ Capel Court Limited
ANZ Capital Hedging Pty Ltd
ANZ Commodity Trading Pty Ltd
ANZcover Insurance Pty Ltd
ANZ Trustees Limited
ANZ Funds Pty Ltd
ANZ Bank (Europe) Limited1
ANZ Bank (Kiribati) Limited1,2
ANZ Bank (Samoa) Limited1
ANZ Holdings (New Zealand) Limited1
ANZ Bank New Zealand Limited1 (formerly ANZ National Bank Limited3)
ANZ Investment Services (New Zealand) Limited1
ANZ New Zealand (Int’l) Limited1 (formerly ANZ National (Int’l) Limited3)
OnePath Holdings (NZ) Limited1
OnePath Insurance Holdings (NZ) Limited1
OnePath Life (NZ) Limited1
Private Nominees Limited1
UDC Finance Limited1
ANZ International (Hong Kong) Limited1
ANZ Asia Limited1
ANZ Bank (Vanuatu) Limited4
ANZ International Private Limited1
ANZ Singapore Limited1
ANZ Royal Bank (Cambodia) Limited1,2
Votraint No. 1103 Pty Ltd
ANZ Lenders Mortgage Insurance Pty Ltd
ANZ Orchard Investments Pty Ltd
ANZ Wealth Australia Limited (formerly OnePath Australia Limited)
OnePath Life Limited
OnePath General Insurance Pty Limited
OnePath Funds Management Limited
OnePath Custodians 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.5
Esanda Finance Corporation Limited
ETRADE Australia Limited
ETRADE Australia Securities Limited
LFD Pty Ltd
PT Bank ANZ Indonesia (formerly PT ANZ Panin Bank)1,2
ANZ ANNUAL REPORT 2012
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 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%) (2011: 150,000 $1 ordinary
shares (25%)); PT Bank ANZ Indonesia – 16,500 IDR 1 million shares (1%) (2011: 16,500 IDR 1 million shares (1%)); ANZ Royal Bank (Cambodia) Limited – 319,500 USD100 ordinary shares (45%)
(2011: 319,500 USD100 ordinary shares (45%)).
3 Name changes occurred on 29 October 2012.
4 Audited by Hawkes Law.
5 Audited by Deloitte Guam.
NOTES TO THE FINANCIAL STATEMENTS
167
NOTES TO THE FINANCIAL STATEMENTS (continued)
39: Associates
Signifi cant associates of the Group are as follows:
AMMB Holdings Berhad
PT Bank Pan Indonesia2
Date
became
an associate
Ownership
interest
held
May 2007
April 2001
24%
39%
Voting
interest
24%
39%
Shanghai Rural Commercial Bank3
September 2007
20%
20%
Bank of Tianjin4
Saigon Securities Inc.2,5
Diversifi ed Infrastructure Trust
Metrobank Card Corporation
Other associates
Total carrying value of associates
June 2006
July 2008
March 2008
October 2003
18%
18%
37%
40%
18%
18%
37%
40%
Incorporated
in
Malaysia
Indonesia
Peoples Republic
of China
Peoples Republic
of China
Vietnam
Australia
Philippines
Carrying
Carrying
Carrying
value
value
2012
$m
Carrying
Carrying
Carrying
value
value
2011
$m
Fair
value1
$m
Reporting
date
1,143
668
1,111 1,421
644
685
31 March
31 December
Principal
activity
Banking
Banking
959
448
74
81
50
97
952
n/a
31 December
Banking
n/a
46
118
n/a
31 December
31 December
30 September
31 December
Banking
Stockbroking
Investment
Cards Issuing
384
115
82
44
140
3,520
3,513
1 Applicable to those investments in associates where there are published price quotations. Fair value is based on a price per share and does not include any adjustments for holding size.
2 A value-in-use estimation supports the carrying value of this investment.
3 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.
In the current year the Group elected not to participate in the rights issue of Bank of Tianjin. Consequently, the Group’s ownership interest has reduced from 20% to 18%. The Group maintains
4
significant influence via the representation on the Board of Directors. A net dilution gain of $10 million was recognised as a result of the dilution of the Group’s ownership interest.
5 Significant influence was established via representation on the Board of Directors.
Aggregated assets of signifi cant associates (100%)
Aggregated liabilities of signifi cant associates (100%)
Aggregated revenues of signifi cant associates (100%)
Aggregated profi ts 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
Adjustments
Share of associates net profi t accounted for using the equity method
1 The results differ from the published results of these entities due to the application of IFRS, Group Policies and acquisition adjustments.
2012
$m
140,610
128,245
8,244
1,761
2011
$m
131,297
119,664
6,898
1,465
Consolidated
2012
$m
542
(135)
407
(12)
395
2011
$m
476
(121)
355
81
436
168
ANZ ANNUAL REPORT 2012
40: Securitisations and Covered Bonds
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.
Group-originated fi nancial assets that do not qualify for derecognition typically relate to loans that have been transferred 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.
Securitisations
Net loans and advances include residential mortgages securitised under the Group’s securitisation programs which are assigned to bankruptcy
remote special purpose entities (SPEs) to provide security for obligations payable on the notes issued by the SPEs. This includes mortgages that
are held for potential repurchase agreement (REPO) with central banks. The noteholders have full recourse to the pool of residential mortgages
which have been securitised. The Company cannot otherwise pledge or dispose of the transferred assets.
As holder of the securitised notes the Company retains the credit risk associated with the securitised mortgages. In addition, the Company
is entitled to any residual income of the SPEs and, where the SPEs include interest rate and foreign currency derivatives that have not been
externalised, the interest rate and foreign currency risk are held in the Company. The Company is therefore deemed to have retained the majority
of the risks and rewards of the residential mortgages and as such continues to recognise the mortgages as fi nancial assets. The obligations to
repay this amount to the SPE is recognised as a fi nancial liability of the Company. As the Group has control over the SPEs activities, they are
consolidated by the Group.
Covered bonds
During the fi nancial year ended 30 September 2012, the Group established two global covered bond programs. Net loans and advances include
residential mortgages assigned to bankruptcy remote SPEs associated with these covered bond programs to provide security for the obligations
payable on the covered bonds issued by the Group. The covered bond holders have dual recourse to the issuer and the covered pool assets.
The Company cannot otherwise pledge or dispose of the transferred assets, however, it may repurchase and substitute assets as long as the
required cover is maintained.
The Company, as issuer of the covered bonds, is required to maintain the cover pool at a level suffi cient to cover the bond obligations. Therefore,
the majority of the credit risk associated with the underlying mortgages within the cover pool is retained by the Company. In addition, the
Company is entitled to any residual income of the covered bond SPEs and where the SPEs include interest rate and foreign currency derivatives
that have not been externalised, the interest rate and foreign currency risk are held in the Company. The Company is therefore deemed to have
retained the majority of the risks and rewards of the residential mortgages and as such continues to recognise the mortgages as fi nancial assets.
The obligation to repay this amount to the SPE is recognised as a fi nancial liability of the Company. As the Group has control over the SPE’s
activities, they are consolidated by the Group. The external covered bonds issued are included within the Bonds and Notes.
The table below sets out the balance of assets transferred by the Company to special purpose entities (consolidated by the Group) that continue
to be recognised by the Company because they do not qualify for derecognition, along with the associated liabilities.
Securitisations2
Current carrying amount of assets recognised
Carrying amount of associated liabilities
Covered bonds
Current carrying amount of assets recognised
Carrying amount of associated liabilities3
Consolidated1
2012
$m
2011
$m
The Company
2012
$m
2011
$m
–
–
–
–
–
–
–
–
41,789
41,789
31,280
31,280
11,304
8,798
–
–
1 The balances are nil as the Company balances relate to transfers to internal special purpose vehicles. The total covered bonds issued by the Group to external investors at 30 September 2012
was $11,162 million, secured by $15,276 million of specified residential mortgages.
2 The securisation noteholders have recourse only to the pool of residential mortgages which have been securitised. The carrying value of securitised assets and the associated liabilities
approximate their fair value value.
3 The associated liability represents the Covered Bonds issued by the Company to external investors. As a result of over collateralisation held in the covered bond SPE, the Company’s liability
to the covered bond SPE is $11,304 million (2011: $nil).
NOTES TO THE FINANCIAL STATEMENTS
169
NOTES TO THE FINANCIAL STATEMENTS (continued)
41: Fiduciary Activities
The Group conducts various fi duciary activities as follows:
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
2012
$m
3,958
2011
$m
3,418
Funds management activities
Funds management activities are conducted through Group controlled entities ANZ Wealth Australia Limited (formerly 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:
2012
$m
7,079
5,845
6,673
22
2011
$m
6,420
5,271
6,295
50
19,619
18,036
Consolidated
2012
$m
2011
$m
The Company
2012
$m
2011
$m
78
78
1,561
177
1,738
400
887
451
61
61
1,502
130
1,632
377
863
392
70
70
1,313
161
1,474
330
767
377
51
51
1,306
116
1,422
307
746
369
1,738
1,632
1,474
1,422
ANZ Wealth Australia Limited
OnePath Holdings (NZ) Limited
Other controlled entities – New Zealand
Other controlled entities – Australia
42: Commitments
Property
Capital expenditure
Contracts for outstanding capital expenditure
Total capital expenditure commitments1
Lease rentals
Land and buildings
Furniture and equipment
Total lease rental commitments
Not later than 1 year
Later than one year but not later than 5 years
Later than 5 years
Total lease rental commitments
1 Relates to premises and equipment.
170
ANZ ANNUAL REPORT 2012
43: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets
CREDIT RELATED COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES
Credit related commitments
Facilities provided
Undrawn facilities
Australia1
New Zealand
Asia Pacifi c, Europe & America
Total
Consolidated
The Company
Contract
amount
2012
$m
Contract
amount
2011
$m
Contract
amount
2012
$m
Contract
amount
2011
$m
141,355
135,243
118,461
114,461
77,137
16,822
47,396
77,367
15,569
42,307
77,119
–
41,342
77,273
–
37,188
141,355
135,243
118,461
114,461
1 September 2011 undrawn facilities have been restated by $2,646 million using the revised methodology for undrawn overdrafts that was implemented during 2012.
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
2012
$m
6,711
2,450
3,201
19,440
581
32,383
15,516
1,075
15,792
32,383
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
2012
$m
5,812
2,156
2,689
18,330
632
29,619
15,516
–
14,103
29,619
Contract
amount
2011
$m
5,942
2,307
2,561
16,793
666
28,269
15,182
–
13,087
28,269
NOTES TO THE FINANCIAL STATEMENTS
171
NOTES TO THE FINANCIAL STATEMENTS (continued)
43: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)
OTHER BANK RELATED CONTINGENT LIABILITIES
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. The action is claimed to be on behalf of
approximately 38,000 ANZ customers for more than $50 million in
exception fees claimed to have been charged to those customers.
The case is at an early stage. ANZ is defending it. There is a risk that
further claims could emerge.
ii) Security recovery actions
Various claims have been made or are anticipated, arising from
security recovery actions taken to resolve impaired assets over recent
years. ANZ will defend these claims and any future claims.
iii) Contingent tax liability
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 and audits 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 APRA, 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 or 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.
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 lodgement of individual fi nancial statements in Australia. 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 Ltd1,6
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 Limited5
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.
6 Removed by a Revocation Deed on 10 August 2012.
172
ANZ ANNUAL REPORT 2012
43: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)
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 or subsequent Assumption Deeds under the class order were 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 in any other case, 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
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 assets1
Available-for-sale assets/investment securities
Net loans and advances
Other assets1
Premises and equipment
Total assets
Liabilities
Deposits and other borrowings
Income tax liability
Payables and other liabilities1
Provisions
Total liabilities
Net assets
Shareholders’ equity2
1 Following the restatements set out in note 1 to the financial statements, comparative information in this note has been restated.
2 Shareholders’ equity excludes retained profits and reserves of controlled entities within the class order.
Consolidated
2012
$m
6,497
(1,549)
4,948
(275)
(15)
39
(28)
(279)
4,669
13,914
4,948
(3,691)
2
(28)
15,145
32,782
17,841
349,048
171,362
1,573
572,606
333,536
804
200,479
745
535,564
37,042
37,042
2011
$m
5,809
(1,476)
4,333
103
26
121
24
274
4,607
13,047
4,333
(3,491)
1
24
13,914
21,284
19,017
323,286
147,394
1,539
512,520
307,254
1,169
168,920
798
478,141
34,379
34,379
NOTES TO THE FINANCIAL STATEMENTS
173
NOTES TO THE FINANCIAL STATEMENTS (continued)
43: 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. Recovery is still being pursued.
174
ANZ ANNUAL REPORT 2012
44: 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% (2011: 9%) of members’ salaries.
11 2011: 9% of salary.
12 As determined by the Trustee on the recommendation of the actuary – $4.7 million p.a. (2011: $1.2 million p.a.).
13 As recommended by the actuary – currently nil (2011: nil).
14 2011: 7.5% of salary.
15 As recommended by the actuary – currently 24.8% (2011: 24.8%) of members’ salaries and additional contributions of NZD 5 million p.a.
16 2011: 11.5% of salary.
17 As agreed by the Trustee and Group after taking the advice of the actuary – currently 26% (2011: 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
175
NOTES TO THE FINANCIAL STATEMENTS (continued)
44: 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.
2012 Schemes
ANZ Australian Staff Superannuation Scheme Pension Section2
ANZ UK Staff Pension Scheme2
ANZ UK Health Benefi ts Scheme5
ANZ National Bank Staff Superannuation Scheme3
National Bank Staff Superannuation Fund4
Other6,7
Total
Net market
value of
assets held
by scheme
by scheme
by scheme
$m
$m
Excess/(defi cit)
of net
market value
of assets over
accrued benefi ts
$m
15
749
–
4
267
28
1,063
(11)
(279)
(7)
–
(27)
(10)
(334)
Accrued
benefi ts1
$m
26
1,028
7
4
294
38
1,397
1 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 2012), rather than
the expected return on scheme assets as at the most recent actuarial valuation date (set out below) as prescribed by AAS 25.
2 Amounts were measured at 31 December 2011.
3 Amounts were measured at 31 December 2010.
4 Amounts were measured at 31 March 2012.
5 Amounts were measured at 30 September 2012.
6 Amounts were measured at 30 September 2012.
7 Other includes the defined benefit arrangements in Japan, Philippines and Taiwan.
2011 Schemes
ANZ Australian Staff Superannuation Scheme Pension Section2
ANZ UK Staff Pension Scheme2
ANZ UK Health Benefi ts Scheme5
ANZ National Bank Staff Superannuation Scheme3
National Bank Staff Superannuation Fund4
Other6,7
Total
Accrued
benefi ts1
$m
27
912
6
4
296
39
Net market
value of
assets held
by scheme
by scheme
by scheme
$m
$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
1 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.
2 Amounts were measured at 31 December 2010.
3 Amounts were measured at 31 December 2010.
4 Amounts were measured at 31 March 2011.
5 Amounts were measured at 30 September 2011.
6 Amounts were measured at 30 September 2011.
7 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 $61 million (2011: $58 million) to the defi ned benefi t sections of the schemes during the next
fi nancial year.
176
ANZ ANNUAL REPORT 2012
44: 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. An interim actuarial valuation, conducted
by consulting actuaries Russell Employee Benefi ts as at 31 December 2011, showed a defi cit of $11 million and the actuary recommended
that the Group make contributions to the Pension Section of $4.7 million p.a. for the three years to 31 December 2014. 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
7.5% p.a.
2.75% 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 180 million
($279 million at 30 September 2012 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 for the interim actuarial valuation as at 31 December 2011:
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
4.1% p.a.
2.8% p.a.
6.7% p.a.
4.8% p.a.
3.0% p.a.
2.3% 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 2012 showed a defi cit of NZD 34 million ($27 million at 30 September 2012 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
5.0% 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).
NOTES TO THE FINANCIAL STATEMENTS
177
NOTES TO THE FINANCIAL STATEMENTS (continued)
44: 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
2012
$m
2011
$m
The Company
2012
$m
2011
$m
7
48
(44)
2
13
8
50
(47)
2
13
(1,109)
960
(149)
(1,033)
885
(148)
(149)
(149)
54
298
(148)
(148)
15
244
5
42
(39)
–
8
(913)
846
(67)
(67)
(67)
35
208
6
42
(41)
–
7
(857)
775
(82)
(82)
(82)
(34)
173
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.
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
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
Closing fair value of scheme assets1
Actual return on scheme assets
1,033
7
48
1
105
(24)
(61)
1,109
885
44
51
(21)
61
1
(61)
960
95
1,059
8
50
1
(10)
(18)
(57)
1,033
873
47
(25)
(13)
59
1
(57)
885
22
857
5
42
–
79
(25)
(45)
913
775
39
44
(22)
55
–
(45)
846
83
928
6
42
–
(55)
(22)
(42)
857
761
41
(21)
(17)
53
–
(42)
775
20
1 Scheme assets include the following financial instruments issued by the Group: cash and short-term debt instruments $1.4 million (September 2011: $1.0 million), fixed interest securities
$0.6 million (September 2011: $0.6 million) and equities nil (September 2011: nil).
Consolidated
Fair value of scheme
assets
The Company
Fair value of scheme
assets
2012
%
38
43
7
12
100
2011
%
36
47
8
9
100
2012
%
36
44
8
12
100
2011
%
34
48
9
9
100
Analysis of the scheme assets
Equities
Debt securities
Property
Other assets
Total assets
178
44: 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
ANZ ANNUAL REPORT 2012
2012
%
2.75
4.40
4.40
3.50
3.50
6.50
4.70
n/a
4.50
5.00
4.50
3.00
2.50
2.70
2.00
2.50
2.50
6.60
6.60
2011
%
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
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
2012
$m
2011
$m
2010
$m
2009
$m
2008
$m
2012
$m
2011
$m
2010
$m
2009
$m
2008
$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
(1,109)
960
(149)
1
51
(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)
(913)
846
(67)
2
45
(857)
775
(82)
(10)
(21)
(928)
761
(167)
1
26
(938)
738
(200)
7
(32)
(1,003)
871
(132)
8
(177)
NOTES TO THE FINANCIAL STATEMENTS
179
NOTES TO THE FINANCIAL STATEMENTS (continued)
45: 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 2011 and 2012 years were the Employee Share Off er
(previously known as the $1,000 Share Plan), the Deferred 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.
Employee Share Off er (previously known as the $1,000 Share Plan)
Each permanent employee (excluding senior executives) who has
had continuous service for one year is eligible to participate in the
Employee Share Off er 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 (Cook Islands, Kiribati
and Solomon Islands), 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. 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 either received as cash or reinvested into
the Dividend Reinvestment Plan.
During the 2012 year, 1,822,760 shares with an issue price of $20.21
were granted under the plan to employees on 5 December 2011
(2011 year: 1,472,882 shares with an issue price of $23.05 were
granted on 6 December 2010).
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. 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.
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).
Deferred share rights are granted instead of deferred shares to
accommodate off shore taxation regulations (refer to Deferred
Share Rights section).
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 2012 year, 7,001,566 deferred shares with a weighted
average grant price of $21.19 were granted under the deferred share
plan (2011 year: 6,393,787 shares with a weighted average grant price
of $23.55 were granted).
Share Valuations
The fair value of shares granted in the 2012 year under the Employee
Share Off er and the Deferred Share Plan, measured as at the date
of grant of the shares, is $185.4 million based on 8,824,326 shares
at a volume weighted average price of $21.01 (2011 year: fair value
of shares granted was $182.7 million based on 7,866,669 shares at
a weighted average price of $23.22). 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.
180
ANZ ANNUAL REPORT 2012
45: 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 ASX 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 2011 and 2012
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. Performance rights provide the right to acquire
ANZ shares at nil cost, subject to a three year vesting period and a
Total Shareholder Return (TSR) performance hurdle. Further details
in relation to performance rights are detailed in Section 6.2.2 Long
Term Incentives in the 2012 Remuneration Report.
The provisions that apply in the case of cessation of employment are
detailed in Section 8.3 Disclosed Executives in the 2012 Remuneration
Report, pages 27 to 29.
During the 2012 year, 586,925 performance rights (excluding CEO
performance rights) were granted (2011: 466,133).
CEO Performance Rights
At the 2011 Annual General Meeting shareholders approved an LTI
grant to the CEO equivalent to 100% of his 2011 Total Employment
Cost (TEC), being $3.15 million. This equated to a total of 326,424
performance rights being allocated, which will be subject to testing
against a TSR hurdle after three years, i.e. December 2014.
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). 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 second tranche
was tested in December 2011 against a relative TSR hurdle. As a result
of the testing, 259,740 performance rights vested and were exercised
during the year.
The provisions that apply in the case of cessation of employment
are detailed in Section 8.2 Chief Executive Offi cer in the 2012
Remuneration Report, pages 25 to 27.
CEO Options
At the 2008 Annual General Meeting, shareholders approved a special
grant to the CEO of 700,000 options, granted on 18 December 2008.
At grant the options were independently valued with a fair value of
$2.27 each (total value of $1.589 million) and an option exercise price
$14.18 per share. Upon exercise, each option entitles the CEO to one
ordinary ANZ share. The options vested on 18 December 2011 and
were exercised during the year.
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 2012 year no deferred options (no performance hurdles)
were granted (2011: 395,564).
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 section
above).
During the 2012 year 1,013,185 deferred share rights (no performance
hurdles) were granted (2011: 541,213).
Options, deferred share rights and performance rights on issue
options
holders of
holders of 1,175,199
As at 5 November 2012, there were 178 holders of 1,175,199
on issue, 840 holders of 1,649,971 deferred share rights on issue and
13 holders of 2,511,050 performance rights on issue.
Option Movements
Details of options/rights over unissued ANZ shares and their related
weighted average exercise prices as at the beginning and end of 2012
and movements during 2012 follow:
NOTES TO THE FINANCIAL STATEMENTS
181
NOTES TO THE FINANCIAL STATEMENTS (continued)
45: Employee Share and Option Plans (continued)
Weighted average exercise price
Opening balance
1 October 2011
Options/rights
granted
Options/rights
Options/rights
Options/rights
forfeited
forfeited
Options/rights
expired
Options/rights
exercised
Closing balance
30 September 2012
8,961,579
$12.44
1,926,534
$0.00
(192,972)
$9.63
(474,499)
$21.37
(4,279,351)
$14.18
5,941,291
$6.53
The weighted average closing share price during the year ended 30 September 2012 was $21.88 (2011: $22.35).
The weighted average remaining contractual life of options/rights outstanding at 30 September 2012 was 2.5 years (2011: 2.1 years).
The weighted average exercise price of all exercisable options/rights outstanding at 30 September 2012 was $20.93 (2011: $20.87).
A total of 1,629,751 exercisable options/rights were outstanding at 30 September 2012 (2011: 4,286,317).
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
Options/rights
Options/rights
forfeited
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
No options/rights over ordinary shares have been granted since the end of 2012 up to the signing of the Directors’ Report on 5 November 2012.
Details of shares issued as a result of the exercise of options/rights during 2012 are as follows:
Exercise price
Exercise price
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
3,486
13,491
19
59
63
249,166
3,945
1,224
17,474
78,287
20,677
8,576
3,259
1,860
2,916
10,741
65,994
3,658
8,329
3,149
Proceeds received
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Exercise price
Exercise price
Exercise price
$
$
0.00
0.00
0.00
0.00
0.00
14.18
17.18
17.18
17.18
17.18
17.18
17.18
20.68
20.68
22.80
22.80
22.80
22.80
23.49
Details of shares issued as a result of the exercise of options/rights during 2011 are as follows:
Exercise price
Exercise price
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
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
182
Exercise price
Exercise price
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
259,740
268,268
90,520
25,748
399
700,000
314,660
124,835
124,832
13,841
380
760
218,637
785,411
35,823
2,388
35,822
2,388
778,526
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
Proceeds received
$
–
–
–
–
–
9,926,000
5,405,859
2,144,665
2,144,614
237,788
6,528
13,057
4,521,413
16,242,299
816,764
54,446
816,742
54,446
18,287,576
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
ANZ ANNUAL REPORT 2012
45: Employee Share and Option Plans (continued)
Details of shares as a result of the exercise of options/rights since the end of 2012 up to the signing of the Directors’ Report on 5 November 2012
are as follows:
Exercise price
Exercise price
Exercise price
$
$
0.00
0.00
0.00
0.00
0.00
0.00
0.00
No. of shares issued
336
1,601
253
285
1,102
2,799
43
Proceeds received
$
–
–
–
–
–
–
–
Exercise price
Exercise price
Exercise price
$
$
23.49
17.18
17.18
17.18
22.80
22.80
23.71
No. of shares issued
477,006
6,529
82,255
1,233
8,792
8,791
10,000
Proceeds received
$
11,204,871
112,168
1,413,141
21,183
200,458
200,435
237,100
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 AASB 2 Share-based Payment. 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 2012 are contained in the table below:
Type of equity
STI deferred share rights
LTI deferred share rights
LTI deferred share rights
LTI performance rights
Deferred share rights
Equity
Equity
Equity
fair
fair
value
($)
Exercise
price
(5 day
VWAP)
($)
Share
closing
price at
grant
grant
grant
($)
($)
ANZ
expected
volatility1
(%)
Number of
options/rights
Equity
term
(years)
Vesting
period
(years)
Expected
life
(years)
Expected
dividend
yield
(%)
Risk free
interest
rate
(%)
51,241
143,711
153,099
21,968
510,804
586,925
326,424
11,524
13,989
12,081
12,269
13,211
788
839
3,295
3,301
2,172
10,610
11,455
7,491
12,822
5,928
10,587
20.66
19.40
18.21
17.10
17.10
9.03
9.65
19.09
18.80
18.21
17.93
17.42
20.73
19.46
20.73
19.21
17.63
21.91
21.43
20.62
20.12
19.31
18.89
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
0.00
0.00
0.00
20.66
20.66
20.66
20.66
20.66
20.66
20.93
20.66
20.66
20.66
20.66
21.05
22.08
22.08
21.56
21.56
21.56
22.82
22.82
22.82
22.82
22.82
22.82
25
25
25
25
25
25
25
25
25
25
25
n/a
n/a
n/a
25
25
n/a
25
25
25
25
25
25
2.4
3
4
5
5
5
5
3.3
3.5
4
4.3
3
3
4
2.8
3.7
4.8
2.7
3
3.6
4
4.7
5
0.4
1
2
3
3
3
3
1.3
1.5
2
2.3
3
1
2
0.8
1.7
2.8
0.7
1
1.6
2
2.7
3
0.4
1
2
3
3
3
3
1.3
1.5
2
2.3
3
1
2
0.8
1.7
2.8
0.7
1
1.6
2
2.7
3
6.50
6.50
6.50
6.50
6.50
6.50
7.00
6.50
6.50
6.50
6.50
6.30
6.30
6.30
5.20
6.90
7.50
6.50
6.50
6.50
6.50
6.50
6.50
4.48
3.70
3.65
3.53
3.53
3.53
3.06
3.70
3.65
3.65
3.65
n/a
n/a
n/a
2.70
2.41
2.31
3.43
2.40
2.28
2.28
2.17
2.17
Grant date
14-Nov-11
14-Nov-11
14-Nov-11
14-Nov-11
14-Nov-11
14-Nov-11
16-Dec-11
14-Nov-11
14-Nov-11
14-Nov-11
14-Nov-11
5-Dec-11
27–Feb–12
27–Feb–12
8–Jun–12
8–Jun–12
8–Jun–12
23–Jul–12
23–Jul–12
23–Jul–12
23–Jul–12
23–Jul–12
23–Jul–12
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 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
Equity
Equity
fair
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
grant
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
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
183
NOTES TO THE FINANCIAL STATEMENTS (continued)
46: Key Management Personnel Disclosures
SECTION A: KEY MANAGEMENT PERSONNEL COMPENSATION
The Key Management Personnel (KMP) compensation included in the personnel disclosure expenses is as follows:
Short-term benefi ts
Post-employment benefi ts
Long-term benefi ts
Termination benefi ts
Share-based payments
Non-
Executives
$
2,742,072
119,704
–
–
–
2,861,776
2012
Executives
$
19,288,020
528,821
279,271
1,171,226
14,335,722
35,603,060
Total
$
Non-
Executives
$
22,030,092 2,604,686
107,401
648,525
–
279,271
–
1,171,226
14,335,722
–
38,464,836 2,712,087
2011
Executives
$
18,106,775
458,385
171,717
–
12,721,125
31,458,002
Total
$
20,711,461
565,786
171,717
–
12,721,125
34,170,089
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 arm’s 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 2012
M Smith
Executive Director 2011
M Smith
Non–Executive Directors 2012
P Hay
A Watkins
Non–Executive Directors 2011
P Hay
A Watkins
Other key management personnel 2012
G Hodges
A Thursby
C Page1
D Hisco
S Elliott
N Williams2
Other key management personnel 2011
G Hodges
A Thursby
C Page
D Hisco3
Opening balance
1 October
$
Closing balance
30 September
30 September
30 September
$
$
Interest paid and
payable in the
payable in the
payable in the
reporting period
reporting period
reporting period
reporting period
$
$
Highest balance
in the reporting
period
period
period
$
$
18,380,409
1,000,000
81,957
18,380,409
6,840,953
18,380,409
1,510,088
18,403,779
661,793
3,320,081
1,125,000
3,490,211
5,202,380
2,984,500
511,605
2,000,000
–
729,218
8,018,058
1,596,910
559,471
2,000,000
–
3,600,000
661,793
3,320,081
5,150,773
2,859,500
739,500
2,000,000
3,200,000
–
5,202,380
2,984,500
511,605
2,000,000
12,746
233,540
63,607
237,748
311,475
161,276
5,115
84,031
79,362
22,115
441,857
248,615
6,624
140,564
674,539
3,600,146
1,131,263
3,490,388
5,671,775
2,984,500
739,777
2,000,000
3,900,000
864,755
8,753,988
4,581,410
559,471
2,000,000
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
2012
2011
Other key management personnel
2012
2011
Opening balance
1 October
$
Closing balance
30 September
30 September
30 September
$
$
Interest paid and
payable in the
payable in the
payable in the
reporting period
reporting period
reporting period
reporting period
$
$
Number in
Group at
30 September4
22,362,283
11,456,164
4,600,000
22,362,283
328,243
1,811,443
11,427,703
12,174,439
13,949,773
10,698,485
663,374
837,660
3
3
6
4
1 The closing balance represents the balance on cessation as a KMP on 16 December 2011.
2 The opening balance represents the balance on appointment as a KMP on 17 December 2011.
3 The opening balance represents the balance on appointment as a KMP on 13 October 2010.
4 Number in the Group includes directors and other KMP with loan balances greater than $100,000 at any time during the year.
184
ANZ ANNUAL REPORT 2012
46: 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 2012
M Smith
Executive Director 2011
M Smith
Special options
LTI performance rights
Special options
LTI performance rights
Other Key Management Personnel 2012
P Chronican
S Elliott
D Hisco
G Hodges
J Phillips4
A Thursby
P Marriott5
C Page6
LTI performance rights
STI deferred options
LTI performance rights
Hurdled options
LTI performance rights
STI deferred share rights
Hurdled options
LTI performance rights
STI deferred share rights
LTI performance rights
STI deferred options
LTI performance rights
Hurdled options
STI deferred options
LTI performance rights
LTI performance rights
Other Key Management Personnel 2011
P Chronican
S Elliott
D Hisco7
G Hodges
A Thursby
P Marriott
C Page
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
STI deferred options
LTI performance rights
Hurdled options
STI deferred options
LTI performance rights
LTI performance rights
Opening
balance at
1 October
Granted
during the
year as
year as
year as
1
remuneration1
Exercised
during
the year
Resulting from
any other change
any other change
any other change
during the year
during the year
Closing
balance at
30 September2
Vested and
exercisable at
30 September3
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
129,971
164,509
146,234
67,600
48,385
132,940
72,959
57,726
10,614
41,084
32,506
74,631
–
52,191
33,869
149,004
5,663
164,509
146,544
136,863
48,385
149,004
72,959
–
326,424
(700,000)
(259,740)
–
253,164
–
(258,620)
71,982
–
71,982
–
55,370
39,390
–
55,370
–
–
–
77,519
–
–
55,370
–
54,347
138,476
45,986
–
33,444
17,383
–
–
41,806
–
–
45,986
–
–
41,806
–
–
–
–
(10,003)
–
(8,480)
(5,400)
(50,050)
–
–
–
(55,055)
(64,220)
(48,385)
(50,050)
(38,038)
–
–
–
(21,976)
(41,764)
–
(43,791)
(33,869)
(57,870)
–
–
(46,296)
(69,263)
–
(57,870)
–
–
–
–
–
–
–
–
(527)
–
–
(3,000)
–
–
–
–
–
(3,380)
–
(41,265)
(10,671)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
840,230
700,000
773,546
184,055
149,090
159,052
–
121,681
48,293
–
138,260
5,663
129,971
164,509
168,698
–
–
96,995
24,250
112,073
149,090
87,070
10,530
66,311
17,383
8,400
–
132,940
5,663
164,509
146,234
67,600
48,385
132,940
72,959
–
–
–
–
–
79,852
–
–
–
–
–
–
5,663
–
164,509
–
–
–
38,310
24,250
–
5,307
–
10,003
–
–
5,400
–
–
5,663
164,509
–
64,220
48,385
–
–
1
Details of options/rights granted as remuneration during 2012 are provided in Tables 4 and 5 of the 2012 Remuneration Report. Details of options/rights granted as remuneration during 2011
are provided in Table 11 of the 2011 Remuneration Report.
2 There was no change in the balance as at report sign-off date except for A Thursby whose STI deferred options balance at report sign-off date was 82,254.
3 No options/rights were vested and unexerciseable as at 30 September 2012, or at cessation date for those who ceased being a KMP in 2012 (2011: nil).
4 Opening balance is based on holdings at the date of appointment as a KMP on 1 March 2012.
5 Closing balance is based on holdings at the date of cessation as a KMP on 31 August 2012.
6 Closing balance is based on holdings at the date of cessation as a KMP on 16 December 2011.
7 Opening balance is based on holdings at the date of appointment as a KMP on 13 October 2010.
NOTES TO THE FINANCIAL STATEMENTS
185
NOTES TO THE FINANCIAL STATEMENTS (continued)
46: 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
Type
Opening
balance at
1 October
Shares granted
during the year
during the year
during the year
1
as remuneration1
Received during
the year on
the year on
the year on
exercise of
exercise of
options or rights
Resulting from
Closing balance
any other change Closing balance
Closing balance
any other change
any other change
any other change
any other change
3,4
at 30 September3,4
2
2
during the year
during the year
Non-Executive Directors 2012
J Morschel
G Clark
P Dwyer5
P Hay6
H Lee
I Macfarlane
D Meiklejohn
A Watkins
Non-Executive Directors 2011
J Morschel
G Clark
P Hay6
H Lee
I Macfarlane
D Meiklejohn
A Watkins
Executive Director 2012
M Smith
Executive Director 2011
M Smith
Directors’ Share Plan
Ordinary shares
CPS2
Directors’ Share Plan
Ordinary shares
Ordinary shares
Directors’ Share Plan
Ordinary shares
Directors’ Share Plan
Ordinary shares
Ordinary shares
CPS2
CPS3
Ordinary shares
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
Directors’ Share Plan
Ordinary shares
CPS2
CPS3
Ordinary shares
Directors’ Share Plan
Ordinary shares
Deferred shares
Ordinary shares
Deferred shares
Ordinary shares
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
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,700
1,000
–
–
4,000
219
637
129
–
–
–
–
–
(3,419)
3,419
–
3,000
–
–
178
2,422
105
–
(2,574)
6,574
–
1,000
–
–
–
7,860
15,742
1,000
5,479
10,000
4,000
3,209
9,290
1,888
8,000
17,616
500
1,000
16,198
–
19,461
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
150,600
679,698
204,362
265,014
73,459
–
94,896
–
–
959,740
(94,279)
(596,848)
129,780
1,042,590
–
258,620
(148,658)
156,064
150,600
679,698
1 Details of shares granted as remuneration during 2012 are provided in Tables 4 and 5 of the 2012 Remuneration Report. Details of shares granted as remuneration during 2011 are provided in
Table 11 of the 2011 Remuneration Report.
2 Shares resulting from any other change during the year include the net result of any shares purchased, sold or acquired under the Dividend Reinvestment Plan.
3 The following shares (included in the holdings above) were held on behalf of the KMP (i.e. indirect beneficially held shares) as at 30 September 2012 (and for former KMPs as at cessation date):
J Morschel – 17,560 (2011: 11,860); G Clark – 15,479 (2011: 15,479); P Dwyer – 4,000; P Hay – 12,204 (2011: 11,369); H Lee – 1,888 (2011: 1,759); I Macfarlane – 19,116 (2011: 19,116); D Meiklejohn –
13,698 (2011: 13,698); A Watkins – 19,461 (2011: 18,419); M Smith – 129,780 (2011: 150,600).
4 There was no change in the balance as at report sign-off date except for P Hay whose ordinary shares balance at report sign-off date was 11,290.
5 Opening balance is based on holdings at the date of appointment as a KMP on 1 April 2012.
6 Shareholdings for P Hay excludes 19,855 shares (2011: 19,855) which are held indirectly where P Hay has no beneficial interest.
186
ANZ ANNUAL REPORT 2012
46: Key Management Personnel Disclosures (continued)
ii) Shares (continued)
Name
Type
Opening
balance at
1 October
Shares granted
during the year
during the year
during the year
1
as remuneration1
Received during
the year on
the year on
the year on
exercise of
exercise of
options or rights
Resulting from
Closing balance
any other change Closing balance
Closing balance
any other change
any other change
any other change
any other change
3,4
at 30 September3,4
2
2
during the year
during the year
Other Key Management Personnel 2012
P Chronican
S Elliott
D Hisco
G Hodges
J Phillips5
A Thursby
N Williams6
P Marriott7
C Page8
Other Key Management Personnel 2011
P Chronican
S Elliott
D Hisco9
G Hodges
P Marriott
C Page
A Thursby
Deferred shares
Ordinary shares
CPS2
Deferred shares
Ordinary shares
Deferred shares
Ordinary shares
Deferred shares
Ordinary shares
Deferred shares
Deferred shares
Ordinary shares
Deferred shares
Deferred shares
Ordinary shares
CPS3
Deferred shares
Ordinary shares
CPS3
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
26,051
6,000
1,499
44,177
–
47,364
9,023
120,181
109,735
70,471
278,230
–
113,307
156,072
480,052
5,000
59,075
12,129
2,500
–
3,000
1,499
18,069
46,605
6,042
98,838
148,042
134,218
419,596
–
31,449
–
–
223,103
33,175
–
–
19,146
–
–
–
23,696
–
–
33,175
–
–
29,383
–
–
30,805
–
–
25,305
–
–
24,251
–
–
19,822
–
19,822
–
–
41,542
–
–
48,502
–
–
–
–
–
–
18,483
–
55,450
–
–
55,055
–
–
162,655
–
–
38,038
–
–
–
–
–
–
63,740
–
135,530
–
127,133
–
–
–
–
46,296
(9,485)
19,399
–
(31,043)
1,116
(12,777)
(17,506)
4,394
(75,400)
1,290
(104,503)
(55,055)
1,504
(28,634)
(253,529)
–
(25,235)
(24,028)
–
746
3,000
–
1,857
759
(60,759)
1,521
(173,837)
2,032
(66,677)
5,000
(13,916)
12,129
2,500
(39,671)
49,741
25,399
1,499
32,280
1,116
34,587
10,000
148,271
89,785
71,761
206,902
–
114,811
156,821
389,178
5,000
64,645
26,139
2,500
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 Details of shares granted as remuneration during 2012 are provided in Tables 4 and 5 of the 2012 Remuneration Report. Details of shares granted as remuneration during 2011 are provided in
Table 11 of the 2011 Remuneration Report.
2 Shares resulting from any other change during the year include the net result of any shares purchased, sold or acquired under the Dividend Reinvestment Plan.
3 The following shares (included in the holdings above) were held on behalf of the KMP (i.e. indirect beneficially held shares) as at 30 September 2012 (and for former KMPs as at cessation date):
P Chronican – 49,741 (2011: 26,051); S Elliott – 32,280 (2011: 44,177); D Hisco – 39,587 (2011: 52,364); G Hodges – 191,006 (2011: 162,916); J Phillips – 71,761; A Thursby – 206,902 (2011: 278,230);
N Williams – 114,811; P Marriott – 156,821 (2011: 156,072); C Page – 64,645 (2011: 59,075).
4 There was no change in the balance as at report sign-off date except for A Thursby whose deferred shares balance at report sign-off date was 163,292 and whose ordinary shares balance at report
sign-off date was 125,865.
5 Opening balance is based on holdings at the date of appointment as a KMP on 1 March 2012.
6 Opening balance is based on holdings at the date of appointment as a KMP on 17 December 2011.
7 Closing balance is based on holdings at 31 August 2012.
8 Closing balance is based on holdings as at the date of cessation as a KMP on 16 December 2011. Due to cessation, 11,452 LTI deferred shares granted to C Page on 12 November 2010 were
forfeited and processed by Computershare on 20 December 2011.
9 Opening balance is based on holdings at the date of appointment as a KMP on 13 October 2010.
.
NOTES TO THE FINANCIAL STATEMENTS
187
NOTES TO THE FINANCIAL STATEMENTS (continued)
47: Transactions with Other Related Parties
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 associates1
Amounts payable to associates
Interest revenue
Interest expense
Dividend revenue1
Cost recovered from associates
Consolidated
The Company
2012
$000
11,780
70,918
331
1,844
74,804
1,930
2011
$000
56,686
70,199
4,428
1,864
80,435
1,921
2012
$000
7,819
3,105
–
–
20,110
328
2011
$000
25,891
3,433
–
–
28,471
255
1
In the prior year the Company amounts included entities only related at a consolidated level. The 2011 comparative has been restated to exclude these entities.
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 associates on terms equivalent
to those on an arm’s length basis. As of 30 September 2012, all
outstanding amounts are considered fully collectible.
48: 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)
LIFE INSURANCE BUSINESS PROFIT ANALYSIS
OnePath Life Limited
2012
$m
2011
$m
32,132
29,946
31,105
688
339
652
1.92
28,735
855
356
619
1.74
Net shareholder profi t after income tax
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
Changes in assumptions
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
2012
$m
259
178
(29)
1
88
21
18
10
8
2011
$m
251
173
–
(10)
83
5
12
11
1
2012
$m
115
77
30
–
8
–
–
–
–
2011
$m
126
136
(15)
–
5
–
–
–
–
2012
$m
374
255
1
1
96
21
18
10
8
2011
$m
377
309
(15)
(10)
88
5
12
11
1
188
48: Life Insurance Business (continued)
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
ANZ ANNUAL REPORT 2012
Consolidated
2012
$m
9,383
9,226
9,195
28
2,063
2011
$m
9,980
9,040
8,913
27
1,899
29,895
29,859
1 This includes $3,949 million (2011: $5,033 million) in respect of investments relating to external unitholders. In addition, the investment balance has been reduced by $4,203 million
(2011: $3,106 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.
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 method
Business valued by non-projection method
Total net life insurance contract liabilities
Unvested policyholder benefi ts
Liabilities ceded under reinsurance contracts1 (refer note 20)
Total life insurance contract liabilities
Life investment contract liabilities2,3
Total policy liabilities
Consolidated
2012
$m
2011
$m
6,651
1,891
(10,021)
15
21
1,663
3
223
42
509
774
6,059
1,736
(8,882)
11
34
1,454
3
415
42
427
884
28,763
29,537
26,619
27,503
1 Liabilities ceded under insurance contracts are shown as ‘other assets’.
2 Designated at fair value through profit or loss.
3 Life investment contract liabilities that relate to the capital guaranteed element is $1,803 million (2011: $1,946 million). Life investment contract liabilities subject to investment performance
guarantees is $1,108 million (2011: $1,107 million).
b) Reconciliation of movements in policy liabilities
Policy liabilities
Gross liability 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 brought forward
Increase in reinsurance asset
Closing balance
Life investment
contracts
2012
$m
2011
$m
26,619
2,559
3,920
(435)
(3,900)
28,763
28,002
(759)
3,834
(471)
(3,987)
26,619
–
–
–
–
–
–
Total policy liability net of reinsurance asset
28,763
26,619
1 Liabilities ceded under insurance contracts are shown as ‘other assets’.
Life insurance
contracts
Consolidated
2012
$m
884
(110)
–
–
–
774
427
82
509
265
2011
$m
2012
$m
2011
$m
979
(95)
–
–
–
884
360
67
427
457
27,503
2,449
3,920
(435)
(3,900)
29,537
427
82
509
28,981
(854)
3,834
(471)
(3,987)
27,503
360
67
427
29,028
27,076
NOTES TO THE FINANCIAL STATEMENTS
189
NOTES TO THE FINANCIAL STATEMENTS (continued)
48: Life Insurance Business (continued)
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 2012, a 10%
decline in equity markets would have decreased profi t by $20 million (2011: $26 million) and a 10% increase would have increased profi t by
$3 million (2011: $10 million). A 1% increase in interest rates at 30 September would have decreased profi t by $14 million (2011: $16 million)
and 1% decrease would have increased profi t by $3 million (2011: $10 million).
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 2012.
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 APRA.
Policy liabilities have been calculated in accordance with Prudential Standard LPS 1.04 Valuation of Policy Liabilities issued by the 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 judgements used in determining the policy liability is set out in note 2 (vi) on page 91.
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 2012.
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
57
(45)
1
(1)
(17)
(1)
2
(11)
$m
(71)
56
(1)
1
24
1
(2)
14
Change in
variable
% change
-1%
+1%
-10%
+10%
-10%
+10%
-10%
+10%
Equity
$m
57
(45)
1
(1)
(17)
(1)
2
(11)
190
ANZ ANNUAL REPORT 2012
48: 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 Global Wealth
and Private Bank 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, claims management 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 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 – 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.
NOTES TO THE FINANCIAL STATEMENTS
191
NOTES TO THE FINANCIAL STATEMENTS (continued)
49: 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
50: Events Since the End of the Financial Year
There have been no material events since the end of the fi nancial year.
2012
2011
Closing
Average
Closing
Average
6.5848
0.8092
0.6437
55.1714
10,022.6
3.2077
1.2529
2.1773
1.0462
6.5150
0.7914
0.6522
53.9494
9,476.4
3.1998
1.2883
2.1657
1.0278
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
192
ANZ ANNUAL REPORT 2012
ANZ ANNUAL REPORT 2012
DIRECTORS’ DECLARATION AND RESPONSIBILITY STATEMENT
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 are 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 2012 and of their
performance for the year ended on that date; and
b) the notes of the Company and the consolidated entity include a statement that the fi nancial statements and notes of the Company and the
consolidated entity comply with International Financial Reporting Standards; and
c) the Directors have been given 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 43) 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 by virtue of the Deed of Cross Guarantee.
Signed in accordance with a resolution of the Directors.
John Morschel
Chairman
5 November 2012
Michael R P Smith
Director
Responsibility statement of the Directors in accordance with the Disclosure and Transparency Rule 4.1.12 (3)(b) of the United Kingdom
Financial Services Authority
The Directors of Australia and New Zealand Banking Group Limited confi rm to the best of their knowledge that:
The Group’s Annual Report includes:
i) a fair review of the development and performance of the business and the position of the Group and the undertakings included in the
consolidation taken as a whole; together with
ii) a description of the principal risks and uncertainties faced by the Group.
Signed in accordance with a resolution of the Directors.
John Morschel
Chairman
5 November 2012
Michael R P Smith
Director
DIRECTORS’ DECLARATION
193
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
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 2012, 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
50 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.
194
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 2012 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 13 to 35
of the directors’ report for the year ended 30 September 2012. 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 2012,
complies with Section 300A of the Corporations Act 2001.
KPMG
Melbourne
5 November 2012
Andrew Yates
Partner
KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”),
a Swiss entity.
Liability limited by a scheme approved under Professional Standards Legislation.
ANZ ANNUAL REPORT 2012
SECTION 4
Supplementary Information
Shareholder Information
Glossary of Financial Terms
Alphabetical Index
196
207
213
216
SECTION 4
195
SUPPLEMENTARY INFORMATION
1: Capital Adequacy
Qualifying capital
Regulatory capital – qualifying capital
Tier 1
Shareholders' equity and minority 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
Core Tier 1
Tier 1
Tier 2
Total
Risk weighted assets
Table 1
Table 2
Table 3
Table 4
Table 2
2012
$m
2011
$m
41,220
(3,857)
37,363
(10,839)
26,524
4,390
1,587
32,501
1,185
5,702
(2,814)
4,073
37,954
(3,479)
34,475
(10,611)
23,864
5,111
1,641
30,616
1,228
5,017
(3,071)
3,174
36,574
33,790
8.8%
10.8%
1.4%
12.2%
8.5%
10.9%
1.2%
12.1%
Table 5
300,119
279,964
196
1: Capital Adequacy (continued)
Table 1: Prudential adjustments to shareholders’ equity
Treasury shares attributable to OnePath policy holders
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 New Zealand)
Intangible component of investments in
OnePath Australia and New Zealand1
Capitalised software
Capitalised expenses including loan and lease origination fees
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
Negative Available-for-sale reserve
Sub-total
Deductions taken 50% from Tier 1 and 50% from Tier 2
Investment in ANZ insurance subsidiaries
Investment in funds management entities
Investment in OnePath in Australia
and New Zealand
Investment in other Authorised Deposit Taking Institutions
and overseas equivalents
Expected losses in excess of eligible provisions2
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
ANZ ANNUAL REPORT 2012
2012
$m
280
(871)
(1,660)
415
(208)
(94)
(2,149)
430
(3,857)
(3,052)
(2,074)
(1,702)
(850)
(301)
(44)
(2)
(8,025)
50%
(300)
(27)
(721)
(1,070)
(542)
(154)
(2,814)
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)
(310)
(3,071)
(10,839)
(10,611)
951
234
1,185
962
266
1,228
Gross
(599)
(55)
(1,441)
(2,141)
(1,083)
(309)
(5,628)
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.
SUPPLEMENTARY INFORMATION
197
SUPPLEMENTARY INFORMATION (continued)
1: Capital Adequacy (continued)
Table 5: Risk Weighted Assets
On Balance Sheet
Commitments RWA
Contingents RWA
Derivatives RWA
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 approach
2012
$m
190,210
42,807
9,962
11,896
254,875
4,664
12,455
28,125
300,119
111,796
4,088
11,077
42,959
7,092
21,277
198,289
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
Credit risk specialised lending exposures subject to slotting criteria
27,628
27,757
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
18,168
1,812
2,028
1,165
23,173
1,170
1,030
3,585
22,484
845
2,344
1,650
27,323
1,136
1,399
3,523
254,875
248,828
198
1: Capital Adequacy (continued)
Table 7: Collective provision and regulatory expected loss
Australia
International and Institutional Banking
New Zealand
Global Wealth and Private Banking
Group Centre
Underlying collective provision and regulatory expected loss
Adjustments between statutory and underlying
Collective provision and regulatory expected loss
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)
ANZ ANNUAL REPORT 2012
Collective provision
Regulatory Expected Loss
2012
$m
1,015
1,282
413
11
41
2,762
3
2,765
2011
$m
1,058
1,610
454
12
39
3,173
3
3,176
2012
$m
2,154
1,446
814
23
–
4,437
–
4,437
2012
$m
2,168
2,269
4,437
(2,765)
334
269
625
(1,537)
(1,773)
268
(312)
(1,817)
1,083
542
2011
$m
1,878
1,450
896
21
–
4,245
16
4,261
2011
$m
1,975
2,286
4,261
(3,176)
375
340
730
(1,731)
(1,697)
477
(359)
(1,579)
951
475
The measurement of risk weighted assets is based on:
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
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.
SUPPLEMENTARY INFORMATION
199
SUPPLEMENTARY INFORMATION (continued)
2: Average Balance Sheet and Related Interest1
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.
Interest earning assets
Due from other fi nancial institutions
Australia
Asia Pacifi c, Europe & America
New Zealand
Trading and available-for-sale assets
Australia
Asia Pacifi c, Europe & America
New Zealand
Net loans and advances
Australia
Asia Pacifi c, Europe & America
New Zealand
Other assets
Australia
Asia Pacifi c, Europe & America
New Zealand
Intragroup assets
Australia
Asia Pacifi c, Europe & America
Intragroup elimination
Non-interest earning assets
Derivatives
Australia
Asia Pacifi c, Europe & America
New Zealand
Premises and equipment
Insurance assets
Other assets
Provisions for credit impairment
Australia
Asia Pacifi c, Europe & America
New Zealand
Total average assets
Average
balance
$m
3,283
12,461
1,509
33,568
15,022
8,877
2012
Interest
$m
125
188
16
1,372
265
353
302,063
41,905
73,994
21,400
1,766
4,572
175
174
132
575
(24)
31,089
(551)
30,538
4,216
24,330
2,233
4,318
7,293
535,072
(11,611)
523,461
36,492
4,783
9,974
2,085
29,973
25,217
(3,037)
(793)
(885)
103,809
627,270
Average
rate
%
Average
balance
$m
2011
Interest
$m
Average
rate
%
3.8%
1.5%
1.1%
4.1%
1.8%
4.0%
7.1%
4.2%
6.2%
4.2%
0.7%
5.9%
13.3%
-0.3%
5.8%
4.6%
1.1%
0.9%
4.7%
1.7%
4.7%
7.7%
4.3%
6.3%
5.0%
0.9%
6.8%
19.3%
0.1%
6.4%
3,284
11,642
1,720
32,685
11,460
7,212
152
127
16
1,520
192
336
280,821
32,832
73,736
21,533
1,426
4,654
220
115
152
574
9
31,026
(583)
30,443
4,370
12,305
2,235
2,977
9,073
486,352
(12,050)
474,302
28,632
4,977
8,377
2,163
32,448
26,300
(3,046)
(877)
(973)
98,001
572,303
1 As set out in note 1 to the financial statements comparative information has been restated to reflect the impact of the current period reporting treatment of derivative related collateral posted/
received and the associated interest income/expense. Previously, collateral received was shown as part of the non-interest earning derivative asset balance and collateral posted as part of the
non-interest earning derivative liability balance. In line with the current treatment, comparative information has been restated to reflect collateral received as part of the interest earning “Due from
other financial institutions” balance and derivative collateral posted as part of the interest bearing “Due to other financial institutions” balance.
Following the restatements set out in note 1 to the financial statements, comparative information in this note has been restated. As a result, the comparative average interest earning assets
increased by $6.9 billion (associated interest income increased by $75 million and average interest rate percentage reduced by 10 basis points) and average non-interest earning assets increased
by $1.6 billion. The comparative average interest earning liabilities increased by $2.8 billion (associated interest expense increased by $58 million and average interest rate percentage was
unchanged) and average non-interest earning liabilities increased by $5.7 billion.
200
ANZ ANNUAL REPORT 2012
2012
Interest
$m
Average
rate
%
Average
balance
$m
2011
Interest
$m
Average
rate
%
2: Average Balance Sheet and Related Interest (continued)
Interest bearing liabilities
Time deposits
Australia
Asia Pacifi c, Europe & America
New Zealand
Savings deposits
Australia
Asia Pacifi c, Europe & America
New Zealand
Other demand deposits
Australia
Asia Pacifi c, Europe & America
New Zealand
Due to other fi nancial institutions
Australia
Asia Pacifi c, Europe & America
New Zealand
Commercial paper
Australia
New Zealand
Borrowing corporations’ debts
Australia
New Zealand
Loan capital, bonds and notes
Australia
Asia Pacifi c, Europe & America1
New Zealand
Other liabilities
Australia
Asia Pacifi c, Europe & America
New Zealand
Intragroup liabilities
New Zealand
Intragroup elimination
Non-interest bearing liabilities
Deposits
Australia
Asia Pacifi c, Europe & America
New Zealand
Derivatives
Australia
Asia Pacifi c, Europe & America
New Zealand
Insurance liabilities
External unitholder liabilities
Other liabilities
Total average liabilities
1
Includes foreign exchange swap costs.
Average
balance
$m
134,508
60,643
27,981
21,779
4,280
3,757
77,581
9,817
15,135
7,308
21,624
1,851
11,676
3,669
220
1,124
63,620
89
13,278
2,060
1,394
200
6,821
741
1,130
862
24
119
2,845
29
391
260
181
32
510
123
14
55
3,461
2
664
206
53
(95)
5.1%
1.2%
4.0%
4.0%
0.6%
3.2%
3.7%
0.3%
2.6%
3.6%
0.8%
1.7%
4.4%
3.4%
6.4%
4.9%
5.4%
1.8%
5.0%
n/a
n/a
n/a
11,611
495,205
(11,611)
483,594
551
4.7%
18,979
(551)
18,428
3.8%
5,103
2,387
3,863
31,329
5,044
9,207
28,386
4,779
14,014
104,112
587,706
6,862
549
1,305
821
23
47
2,646
28
379
420
141
24
378
111
34
68
4,102
–
725
328
29
(77)
5.5%
1.2%
4.5%
4.1%
0.5%
2.3%
4.0%
0.4%
2.8%
4.5%
0.9%
1.8%
5.0%
3.3%
6.6%
5.7%
6.1%
0.7%
4.8%
n/a
n/a
n/a
583
4.8%
19,526
(583)
18,943
4.3%
124,080
46,364
29,310
20,109
5,097
2,023
66,053
6,985
13,696
9,249
16,222
1,352
7,570
3,384
519
1,190
67,517
39
15,042
4,260
745
141
12,050
452,997
(12,050)
440,947
4,947
2,034
3,718
23,437
4,055
7,067
29,285
5,476
15,470
95,489
536,436
SUPPLEMENTARY INFORMATION
201
SUPPLEMENTARY INFORMATION (continued)
2: Average Balance Sheet and Related Interest (continued)
Total average assets
Australia
Asia Pacifi c, Europe & America
New Zealand
Less intragroup elimination
% of total average assets attributable to overseas activities
Average interest earning assets
Australia
Asia Pacifi c, Europe & America
New Zealand
Less intragroup elimination
Total average liabilities
Australia
Asia Pacifi c, Europe & America
New Zealand
Less intragroup elimination
% of total average assets attributable to overseas activities
Average interest bearing liabilities
Australia
Asia Pacifi c, Europe & America
New Zealand
Less intragroup elimination
Total average shareholders’ equity
Ordinary share capital, reserves and retained earnings
Preference share capital
Total average liabilities and shareholders’ equity
202
2012
$m
2011
$m
425,515
113,341
100,025
638,881
(11,611)
398,297
89,107
96,949
584,353
(12,050)
627,270
572,303
32.9%
30.9%
347,448
101,011
86,613
535,072
(11,611)
324,137
77,312
84,903
486,352
(12,050)
523,461
474,302
398,639
107,562
93,116
599,317
(11,611)
374,008
83,733
90,745
548,486
(12,050)
587,706
536,436
32.2%
30.3%
318,752
97,847
78,606
495,205
(11,611)
299,357
75,452
78,188
452,997
(12,050)
483,594
440,947
38,693
871
39,564
34,996
871
35,867
627,270
572,303
3: Interest Spreads and Net Interest Average Margins1
Net interest income
Australia
Asia Pacifi c, Europe & America
New Zealand
Gross earnings rate2
Australia
Asia Pacifi c, Europe & America
New Zealand
Total 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
Asia Pacifi c, Europe & America
Net interest spread
Interest attributable to net non-interest bearing items
Net interest margin – Asia Pacifi c, Europe & America
New Zealand
Net interest spread
Interest attributable to net non-interest bearing items
Net interest margin – New Zealand
Group
Net interest spread
Interest attributable to net non-interest bearing items
Net interest margin
Net interest margin (excluding Global Markets)
ANZ ANNUAL REPORT 2012
2012
$m
2011
$m
8,668
1,339
2,103
8,410
1,097
1,993
12,110
11,500
%
%
6.81
2.35
5.86
5.83
2.10
0.39
2.49
1.30
0.03
1.33
2.08
0.35
2.43
2.02
0.29
2.31
2.71
7.40
2.42
6.07
6.42
2.19
0.40
2.59
1.40
0.02
1.42
2.03
0.32
2.35
2.12
0.30
2.42
2.80
1 Comparative information has been restated to reflect the impact of the current period reporting treatment of derivative related collateral posted/received and the associated interest income/
expense. Further information is included in note 1 to the financial statements, with the average balance sheet impact discussed on page 200.
2 Average interest rate received on average interest earning assets.
SUPPLEMENTARY INFORMATION
203
SUPPLEMENTARY INFORMATION (continued)
4. Explanation of adjustments between statutory profi t and underlying profi t
GAIN ON SALE OF VISA SHARES
During the year the Group disposed of its equity interest in Visa International which it has held since Visa’s initial IPO in 2008. The gain
recognised on the sale has not been recognised in underlying profi t as the gain is not refl ective of the core business performance.
NEW ZEALAND SIMPLIFICATION PROGRAMME
The New Zealand Simplifi cation programme (which commenced in 2011) will deliver a single core banking system, a single banking brand
and an optimised branch network in New Zealand. This programme is expected to result in lower operational and technology costs. Costs
of $105 million after tax (2011: $86 million), pre-tax $146 million (2011: $123 million), were incurred in the year. This includes a restructuring
provision raised in September 2012 upon the announcement of the brand and branch phase of the programme. Given the size and signifi cance
of the changes to the operations in New Zealand, the associated costs have been excluded from underlying profi t.
ACQUISITION RELATED ADJUSTMENTS
Acquisition related adjustments arose following the acquisition of OnePath Australia, OnePath New Zealand and selected Royal Bank of Scotland
Group PLC businesses in Asia during 2010 and include the following:
Available-for-sale reserve write-off recovery1
Integration and transaction costs
Amortisation of acquisition related intangibles2
Total
Pre-tax
After tax
2012
$m
(6)
17
44
55
2011
$m
(3)
110
54
161
2012
$m
(4)
12
33
41
2011
$m
(2)
89
39
126
1 Adjusted to reverse recoveries on available-for-sale assets written down through equity by OnePath Australia before obtaining control
2 The acquisition of OnePath and RBS resulted in the recognition of intangible assets which previously were not recognised in the underlying business acquired
These items are not recognised in underlying profi t as they are not representative of the Group’s expected ongoing fi nancial performance
following integration.
TREASURY SHARES ADJUSTMENT
ANZ shares held by ANZ in the consolidated managed funds and life business are deemed to be Treasury shares. Realised and unrealised gains
and losses from these shares and dividends received on these shares are reversed as these are not permitted to be recognised in income for
statutory reporting purposes. In deriving underlying profi t, these earnings are included to ensure there is no asymmetrical impact on the
Group’s profi ts because the Treasury shares support policyholder liabilities which are revalued in deriving income. Accordingly, an adjustment
to statutory profi t of $96 million gain after tax (2011: $41 million loss after tax), pre-tax $104 million gain (2011: $48 million loss) has been
recognised.
CHANGES IN NEW ZEALAND TAX LEGISLATION
In 2010 legislation was passed to reduce the New Zealand corporate tax rate from 30% to 28% and to remove the ability to claim tax
depreciation on buildings with an estimated useful life greater than 50 years, eff ective for the 2011-2012 income tax year. A residual component
relating to the impact on the value of deferred tax was recognised in 2011. There was no impact in the current year.
ECONOMIC HEDGING – FAIR VALUE GAINS/(LOSSES) AND MARK-TO-MARKET ADJUSTMENTS ON REVENUE AND NET INVESTMENT HEDGES
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. The application of AASB 139: Financial
Instruments – Recognition and Measurement results in fair value gains/(losses) and mark-to-market adjustments being recognised within the
income statement. ANZ includes the mark-to-market adjustments relating to economic hedges as an adjustment to underlying profi t as the
profi t or loss resulting from the transactions will reverse over time to match with the profi t or loss from the economically hedged item as part
of underlying profi t. This includes income/(loss) arising from:
approved classes of derivatives not designated in accounting hedge relationships but which are considered to be economic hedges, including
hedges of NZD and USD revenue;
the use of the fair value option (principally arising from the valuation of the ‘own name’ credit spread on debt issues designated at fair value);
and
ineff ectiveness from designated accounting cash fl ow, fair value and net investment hedges.
204
ANZ ANNUAL REPORT 2012
4. Explanation of adjustments between statutory profi t and underlying profi t (continued)
In the table below, funding and lending related swaps are primarily foreign exchange rate swaps which are being used to convert the
proceeds of foreign currency debt issuances into fl oating rate Australian dollar and New Zealand dollar debt (‘funding swaps’). As these swaps
do not qualify for hedge accounting, movements in the fair values are recorded in the Income Statement. The main drivers of these fair values
are currency basis spreads and the Australian dollar and New Zealand dollar fl uctuation against other major funding currencies. This category
also includes economic hedges of select structured fi nance and leasing transactions that do not qualify for hedge accounting. The main drivers
of these fair value adjustments are Australian and New Zealand yield curves.
Losses in 2012 from funding and lending related swaps have been strongly impacted by the falling yield curves in both Australia and
New Zealand. Additionally, the appreciation of the Australian dollar during 2012 drove losses from the currency components of the Group’s
off shore funding hedges.
Losses arising from the use of the fair value option on own name debt hedged by derivatives have been driven by contraction of credit spreads
during the year.
The gains from revenue and net investment hedges for 2012 were principally attributable to the appreciation of the AUD against the USD
in 2012.
Impact on income statement
Timing diff erences where IFRS results in asymmetry between the hedge and hedged items
Funding and lending related swaps
Use of the fair value option on own debt hedged by derivatives
Revenue and net investment hedges
Ineff ective portion of cash fl ow and fair value hedges
Profi t/(loss) before tax
Profi t/(loss) after tax
Cumulative pre-tax timing diff erences relating to economic hedging
Timing diff erences where IFRS results in asymmetry between the hedge and hedged items (before tax)
Funding and lending related swaps
Use of the fair value option on own debt hedged by derivatives
Revenue and net investment hedges
Ineff ective portion of cash fl ow and fair value hedges
2012
$m
2011
$m
(194)
(119)
75
(16)
(254)
(176)
(317)
155
(76)
(5)
(243)
(168)
As at
2012
$m
2011
$m
(756)
64
45
17
(630)
(562)
183
(30)
33
(376)
CAPITALISED SOFTWARE IMPAIRMENT
Following the identifi cation of impairment triggers, an impairment assessment was performed on intangible assets, including internally
generated software assets. A detailed review of the recoverable amount was performed, and where the benefi ts associated with the asset were
substantially reduced from what had originally been anticipated, the assets were written down to their recoverable amount. This resulted in
a write-down of $220 million after tax ($273 million pre-tax) during the second half of the year. Given the size and nature of the write-down and
the infrequency of such large impairments, the write-down has been excluded from underlying profi t.
NZ MANAGED FUNDS IMPACTS
During 2011, the collateralised debt obligations held within the Diversifi ed Yield Fund and the Regular Income Fund were sold and the funds
wound up. This resulted in a profi t after tax of $39 million ($61 million pre-tax). There was no material impact in the current year.
CREDIT RISK ON IMPAIRED DERIVATIVES (NIL PROFIT AFTER TAX IMPACT)
Reclassifi cation of a charge to income for credit valuation adjustments on defaulted and impaired derivative exposures to provision for credit
impairment of $60 million (2011: $17 million reversal). The reclassifi cation has been made to refl ect the manner in which the defaulted and
impaired derivatives are managed.
POLICYHOLDERS TAX GROSS UP (NIL PROFIT AFTER TAX IMPACT)
For statutory reporting purposes policyholder income tax and other related taxes paid on behalf of policyholders are included in net income
from wealth management and the Group’s income tax expense. The gross up of $151 million (2011: $208 million) has been excluded from the
underlying results as it does not refl ect the underlying performance of the business which is assessed on a net of policyholder tax basis.
SUPPLEMENTARY INFORMATION
205
SUPPLEMENTARY INFORMATION (continued)
4. Explanation of adjustments between statutory profi t and underlying profi t (continued)
NON CONTINUING BUSINESSES
In 2009, Global Institutional reviewed its existing business portfolio in light of its new strategic and business goals to determine the optimal
structure for the division. As a result, new business ceased in several product areas, including the Alternative Assets and Private Equity
businesses. The Group’s structured credit intermediation trades are also included within non continuing businesses and will result in the profi t/
(loss) fl uctuating as the credit risk adjustment is impacted by market movements in credit spreads and exchange rates. These have been
excluded from underlying earnings in line with how management assesses the performance of the underlying business. A summary of
the impact of non continuing businesses including structured credit intermediation trades follows:
Non continuing businesses
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
Profi t
STRUCTURED CREDIT INTERMEDIATION TRADES
2012
$m
1
100
101
(14)
87
(12)
75
(10)
65
2011
$m
(2)
23
21
(14)
7
(9)
(2)
3
1
ANZ entered into a series of structured credit intermediation trades from 2004 to 2007. The underlying structures involve credit default swaps
(CDS) over synthetic collateralised debt obligations (CDOs), portfolios of external collateralised loan obligations (CLOs) or specifi c bonds/fl oating
rate notes (FRNs). ANZ 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.
Being derivatives, both the sold protection and purchased protection are marked-to-market. Prior to the commencement of the global credit
crisis, movements in valuations of these positions were not signifi cant and largely off set each other in income. Following the onset of the credit
crisis, the purchased protection has provided only a partial off set against movements in valuation of the sold protection because:
one of the counterparties to the purchased protection defaulted and many of the remaining counterparties were downgraded; and
a credit valuation adjustment is applied to the remaining counterparties to the purchased protection refl ective of changes to their credit
worthiness.
ANZ is actively monitoring this portfolio with a view to reducing the exposure via termination and restructuring of both the bought and sold
protection if and when ANZ deems it cost eff ective relative to the perceived risk associated with a specifi c trade or counterparty. Costs were
incurred in prior periods managing these positions. The notional amount on the outstanding sold trades was US$8.0 billion at 30 September
2012 (2011: $8.3 billion).
The cumulative costs include realised losses relating to restructuring of trades in order to reduce risks and realised losses on termination of sold
protection trades. It also includes foreign exchange hedging losses.
The credit risk expense on structured credit derivatives remains volatile refl ecting the impact of market movements in credit spreads and AUD/
USD rates. It is likely there will continue to be volatility in this market value.
The (gain)/loss included in income for these transactions is set out below.
Credit risk on intermediation trades
Financial impacts on credit intermediation trades
Mark-to-market exposure to fi nancial guarantors
Cumulative costs relating to fi nancial guarantors
Credit valuation adjustment for outstanding transactions
Realised close out and hedge costs
Cumulative life to date charges
206
2012
$m
(73)
2011
$m
(4)
As at
2012
$m
2011
$m
359
803
116
322
438
197
314
511
SHAREHOLDER INFORMATION
Ordinary Shares
At 12 October 2012, the twenty largest holders of ordinary shares held 1,621,761,030 ordinary shares, equal to 59.68% of the total issued
ordinary capital.
Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
BNP PARIBAS NOMS PTY LTD
CITICORP NOMINEES PTY LIMITED
JP MORGAN NOMINEES AUSTRALIA LIMITED
AMP LIFE LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES
PTY LIMITED
BNP PARIBAS NOMS PTY LTD
Total
Distribution of shareholdings
At 12 October 2012
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 12 October 2012:
Number of
shares
% of
shares
Name
496,877,028
388,520,632
355,787,235
95,326,902
52,382,287
18.28
14.30
13.09
3.51
1.93
11.
12.
13.
14.
48,693,510
1.79
15.
36,747,189
1.35
26,021,302
20,089,562
0.96
0.74
14,032,348
0.52
16.
17.
18.
19.
20.
BNP PARIBAS NOMS PTY LTD
ANZEST PTY LTD
UBS WEALTH MANAGEMENT AUSTRALIA
NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA)
LIMITED
AUSTRALIAN FOUNDATION INVESTMENT
COMPANY LIMITED
ARGO INVESTMENTS LIMITED
PERPETUAL TRUSTEE COMPANY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA)
LIMITED-GSCO ECA
QIC LIMITED
ANZEST PTY LTD
Number of
shares
% of
shares
12,947,217
12,643,018
11,245,296
0.48
0.47
0.41
10,414,732
0.38
8,187,710
0.30
7,902,915
6,936,856
5,961,974
5,787,257
5,256,060
0.29
0.26
0.22
0.21
0.19
1,621,761,030
59.68
Number of
holders
% of
holders
231,911
166,971
25,627
13,681
429
52.87
38.07
5.84
3.12
0.10
Number of
shares
96,665,046
377,204,439
177,598,813
277,923,886
1,788,065,328
% of
shares
3.56
13.88
6.53
10.23
65.80
438,619
100.00
2,717,457,512
100.00
there were no persons with a substantial shareholding in the Company;
the average size of holdings of ordinary shares was 6,195 (2011: 5,935) shares; and
there were 9,505 holdings (2011: 10,698 holdings) of less than a marketable parcel (less than $500 in value or 20 shares based on the market price of $25.66 per share),
which is less than 2.17% 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)
SUPPLEMENTARY INFORMATION
207
SHAREHOLDER INFORMATION (continued)
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 12 October 2012, the twenty largest holders of ANZ CPS1 held 2,367,385 securities, equal to 21.90% 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
QUESTOR FINANCIAL SERVICES LIMITED
NAVIGATOR AUSTRALIA LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
NULIS NOMINEES (AUSTRALIA) LIMITED
UBS NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
NETWEALTH INVESTMENTS LIMITED
Total
Distribution of ANZ CPS1 holdings
At 12 October 2012
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
securities
% of
securities
454,217
4.20
230,244
213,074
2.13
1.97
210,662
1.95
189,723
172,300
124,973
92,935
83,002
73,591
1.76
1.59
1.16
0.86
0.77
0.68
Name
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMS PTY LTD
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY
LIMITED
BALLARD BAY PTY LTD
JMB PTY LIMITED
SPINETTA PTY LTD
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED –
A/C 2
KOLL PTY LTD
Number of
securities
% of
securities
69,280
68,307
58,376
0.64
0.63
0.54
57,658
0.53
50,000
0.46
50,000
45,000
42,063
41,980
0.46
0.42
0.39
0.39
40,000
0.37
2,367,385
21.90
Number
of holders
% of
holders
Number of
securities
% of
securities
15,822
1,166
73
51
7
17,119
92.42
6.81
0.43
0.30
0.04
100.00
4,762,373
2,393,151
592,863
1,468,544
1,595,193
44.05
22.14
5.48
13.58
14.75
10,812,124
100.00
At 12 October 2012: There were 5 holdings (2011: 6 holdings) of less than a marketable parcel (less than $500 in value or 6 securities based on the market price of $99.48 per security), which is less
than 0.03% 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)
208
ANZ ANNUAL REPORT 2012
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 12 October 2012, the twenty largest holders of ANZ CPS2 held 3,355,266 securities, equal to 17.04% of the total issued 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
QUESTOR FINANCIAL SERVICES LIMITED
NAVIGATOR AUSTRALIA LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
NULIS NOMINEES (AUSTRALIA) LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY
LIMITED
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD
WINCHELADA PTY LIMITED
Number of
securities
% of
securities
669,741
3.40
415,655
302,910
255,411
244,602
175,909
2.11
1.54
1.30
1.24
0.89
149,501
0.76
125,547
0.64
11.
12.
13.
14.
15.
16.
17.
18.
19.
113,086
0.57
20.
102,976
0.52
Name
JMB PTY LIMITED
RHI HOLDINGS PTY LTD
NATIONAL NOMINEES LIMITED
NETWEALTH INVESTMENTS LIMITED
CITICORP NOMINEES PTY LIMITED
RANDAZZO C & G DEVELOPMENTS PTY LTD
CITICORP NOMINEES PTY LIMITED
MR PHILIP WILLIAM DOYLE
W MITCHELL INVESTMENTS PTY LTD
AVANTEOS INVESTMENTS LIMITED
Number of
securities
% of
securities
100,600
100,000
97,667
91,687
84,068
78,500
68,000
60,000
60,000
0.51
0.51
0.50
0.47
0.43
0.40
0.35
0.30
0.30
59,406
0.30
3,355,266
17.04
Total
Distribution of ANZ CPS2 holdings
At 12 October 2012
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
28,386
2,199
162
86
11
30,844
92.03
7.13
0.52
0.28
0.04
100.00
8,777,303
4,665,034
1,266,997
2,321,952
2,655,938
44.58
23.70
6.44
11.79
13.49
19,687,224
100.00
At 12 October 2012: There were 10 holdings (2011: 7 holdings) of less than a marketable parcel (less than $500 in value or 6 securities based on the market price of $99.98 per security), which is less
than 0.04% 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)
SHAREHOLDER INFORMATION
209
SHAREHOLDER INFORMATION (continued)
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 12 October 2012, the twenty largest holders of ANZ CPS3 held 2,233,178 securities, equal to 16.67% of the total issued securities.
Name
Number of
securities
% of
securities
Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES
PTY LTD
RAKIO PTY LTD
NAVIGATOR AUSTRALIA LTD
CITICORP NOMINEES PTY LIMITED
QUESTOR FINANCIAL SERVICES LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY
LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
NULIS NOMINEES (AUSTRALIA) LIMITED
DIMBULU PTY LTD
531,994
3.97
10.
200,000
198,041
195,910
140,821
1.50
1.48
1.46
1.05
120,164
0.90
104,537
92,571
0.78
0.69
85,000
0.64
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
MICHAEL COPPEL VENTURES P/L
JMB PTY LIMITED
EASTCOTE PTY LTD
MR TERRENCE E PEABODY + MRS MARY G PEABODY
RANDAZZO C & G DEVELOPMENTS PTY LTD
TANDOM PTY LTD
WINCHELADA PTY LIMITED
SIR MOSES MONTEFIORE JEWISH HOME
BNP PARIBAS NOMS PTY LTD
MR RONALD MAURICE BUNKER
GAINSDALE PTY LTD
Number of
securities
% of
securities
80,000
0.60
70,000
50,000
50,000
50,000
50,000
50,000
44,140
40,000
40,000
40,000
0.52
0.37
0.37
0.37
0.37
0.37
0.33
0.30
0.30
0.30
2,233,178
16.67
Total
Distribution of ANZ CPS3 holdings
At 12 October 2012
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
18,302
1,473
97
72
7
19,951
91.73
7.38
0.49
0.36
0.04
100.00
5,788,413
3,326,986
780,910
2,012,224
1,491,467
43.20
24.83
5.83
15.01
11.13
13,400,000
100.00
At 12 October 2012: There was 1 holding (2011: nil) of less than a marketable parcel (less than $500 in value or 6 securities based on the market price of $98.80 per security), which is less than 0.01%
of the total holdings of ANZ CPS3.
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)
210
ANZ ANNUAL REPORT 2012
US Trust Securities
On 27 November 2003, the Company issued 750,000 USD non-
cumulative Trust Securities (‘US Trust Securities’). For more details
on the US Trust Securities refer to page 118.
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.
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 share 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.
Euro Trust Securities
On 13 December 2004, the Company issued 500,000 Euro Floating
Rate Non-cumulative Trust Securities (‘Euro Trust Securities’). For more
details on the Euro Trust Securities refer to page 121.
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.
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.
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 2012 participants
held 1.21% (2011: 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 (including covered bonds) and
subordinated (including ANZ Subordinated Notes) debt [Australia
and New Zealand Banking Group Limited];
Channel Islands Stock Exchange – Senior debt [ANZ Jackson
Funding 4 Limited]; subordinated debt [ANZ Jackson Funding plc];
London Stock Exchange – Senior (including covered bonds) and
subordinated debt [Australia and New Zealand Banking Group
Limited]; senior (including covered bonds) debt [ANZ New Zealand
(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 debt and perpetual callable
subordinated notes [ANZ Bank New Zealand Limited]; and
SIX Swiss Exchange – Senior debt (including covered bonds)
[Australia and New Zealand Banking Group Limited and ANZ
New Zealand (Int’l) Limited].
For more information on the Euro Trust Securities and ANZ CPS please
refer to notes 28 and 29 to the Financial Statements.
SHAREHOLDER INFORMATION
211
SHAREHOLDER INFORMATION (continued)
American Depositary Receipts
The Group has American Depositary Receipts (ADRs) representing
American Depositary Shares (ADSs) that are traded on the over-the-
counter securities market “OTC Pink” electronic platform operated by
OTC Markets Group Inc. in the United States under the ticker symbol:
ANZBY and the CUSIP number: 052528304.
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. Registered Depositary
Receipt shareholders can sell shares, access account balances and
transaction history, fi nd answers to frequently asked questions and
download commonly needed forms. To speak directly to a BNY
Mellon representative, please call 1-888-BNY-ADRS (1-888-269-2377)
if you are calling from within the United States. If you are calling from
outside the United States, please call 201-680-6825. You may also
send an e-mail inquiry to shrrelations@bnymellon.com or visit the
website at www.bnymellon.com/shareowner.
212
GLOSSARY
AASs – Australian Accounting Standards.
AASB – Australian Accounting Standards Board.
ADIs – Authorised Deposit-taking Institutions.
AFS – Available-for-sale fi nancial assets.
AIFRS – Australian Equivalents to International Financial
Reporting Standards.
APRA – Australian Prudential Regulation Authority.
Australia division
The Australia division comprises Retail and Commercial and business
units. Retail includes Mortgages, Consumer Cards and Unsecured
Lending and Deposits. Commercial includes Esanda, Regional and
Commercial Banking, Business Banking and Small Business Banking.
Retail
– Retail Distribution delivers banking solutions to customers via
the Australian branch network, ANZ Direct and specialist sales
channels.
– Retail Products is responsible for delivering a range of products
including mortgages, credit cards, personal loans, transaction
banking, savings accounts and deposits, using capabilities in
product, analytics, customer research, segmentation, strategy
and marketing. It also provides online and electronic payment
solutions for businesses:
– Mortgages provides housing fi nance to consumers in Australia
for both owner occupied and investment purposes.
– Cards and Payments provides consumer and commercial
credit cards, personal loans and merchant services.
– Deposits provides transaction banking, savings and
investment 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 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$125 million.
– Small Business Banking provides a full range of banking
services for metropolitan-based small businesses in Australia
with lending up to A$1 million.
Collective provision is the provision for credit losses that are inherent
in the portfolio but not able to be individually identifi ed. 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.
ANZ ANNUAL REPORT 2012
Covered Bonds are bonds issued by an ADI to external investors
secured against a pool of the ADI’s assets (the cover pool) assigned
to a bankruptcy remote special purpose entity. The primary assets
forming the cover pool are mortgage loans. The mortgages remain
on the issuer’s balance sheet. The covered bond holders have dual
recourse to the issuer and the cover pool assets. The mortgages
included in the cover pool cannot be otherwise pledged or disposed
of but may be repurchased and substituted in order to maintain the
credit quality of the pool. The Group issues covered bonds as part of
its funding activities.
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.
Global Wealth and Private Banking division
The Global Wealth and Private Banking division comprises Funds
Management, Insurance and Private Banking which provides
investment, superannuation, insurance products and services
(including Private Banking) for customers across Australia, New
Zealand and Asia
Private Banking specialises in assisting individuals and families to
manage, grow and preserve their wealth. The businesses within
Private Banking & Other Wealth include Private Bank, ANZ Trustees,
E*Trade, Investment Lending, Super Concepts and Other Wealth.
Funds Banking Management and Insurance includes OnePath
Group (in Australia and New Zealand), ANZ Financial Planning,
ANZ General insurance, Lender’s Mortgage Insurance and Online
Investment Account.
Group Centre comprises Global Services & Operations, Group
Technology, Group Human Resources, Group Risk, Group Strategy,
Group Corporate Aff airs, Group Corporate Communications, Group
Treasury, Global Internal Audit, Group Finance, and Group Marketing,
Innovation and Digital and Shareholder Functions.
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
an 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.
Income includes external interest income, funds management and
insurance income, share of associates’ profi t and other external
operating income.
Individual provision charge is the amount of expected credit
losses on 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.
GLOSSARY
213
GLOSSARY (continued)
International and Institutional Banking division
The International and Institutional Banking division comprises
Global Institutional, Retail Asia Pacifi c and Asia Partnerships
business units, together with Relationship & Infrastructure.
Global 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 lending and
markets solutions in Australia, New Zealand, Asia Pacifi c, Europe
and America.
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 (including Corporate Banking) 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.
Retail 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. During the March 2012 half,
the investment in Saigon Thuong Tin Commercial Joint-Stock
(Sacombank) was sold.
Relationship & 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. Relationship and infrastructure
also includes businesses within IIB which are discontinued.
Net interest average margin is net interest income as a percentage
of average interest earning assets.
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 loans and advances include gross loans and advances and
acceptances and capitalised brokerage/mortgage origination fees,
less unearned income and provisions for credit impairment.
214
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).
New Zealand division
The New Zealand division comprises Retail and Commercial
business units, and Operations and Support which includes the
central support functions (including Treasury funding).
Retail
– Includes Mortgages, Credits Cards and Unsecured Lending
to personal customers in New Zealand.
Commercial
– Commercial & Agri 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.
– Small Business Banking provides a full range of banking
services to small enterprises, typically with turnover of less
than NZ$5 million.
Operating expenses includes personnel expenses, premises
expense and other operating expenses (excluding the provision
for impairment of loans and advances charge).
Operating income includes net interest income, funds management
and insurance income, share of associates’ profi t and other operating
income.
Regulatory deposits are mandatory reserve deposits lodged with
local central banks in accordance with statutory requirements.
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 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
a 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.
Segment revenue includes net interest income, share of associates’
profi t and other operating income.
ANZ ANNUAL REPORT 2012
Sub-standard assets are 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.
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 is a measure of profi t which is prepared on a basis
other than in accordance with accounting standards. Underlying
profi t represents the profi t from 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 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 profi t are included in statutory profi t which
is subject to audit within the context of the Group audit opinion.
Underlying profi t is not audited, however, the external auditor
has informed the Audit Committee that the adjustments, and the
presentation thereof, are based on the guidelines released by the
AICD and FINSIA, and have been determined on a consistent basis
with those made in prior periods.
NOTES TO THE FINANCIAL STATEMENTS
215
ALPHABETICAL INDEX
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 and Responsibility Statement
Directors’ Report
Dividends
Due from Other Financial Institutions
Due to 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 Statements
Financial Risk Management
Five Year Summary
127
168
105
200
74
116
196
123
75
6
7
170
94
167
36
171
90
95
114
99
193
8
96
98
114
97
180
192
192
93
152
170
72
128
70
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
Key Management Personnel Disclosures
Life Insurance Business
Liquid Assets
Loan Capital
Maturity Analysis of Assets and Liabilities
Net Loans and Advances
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 Operating Results
Securitisations and Covered Bonds
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
Supplementary Information
Tax Assets
Trading Securities
Transactions with Other Related Parties
213
111
107
72
115
92
194
203
184
188
98
117
161
106
165
78
112
115
112
107
116
13
122
55
169
162
120
207
109
78
76
73
175
196
110
98
188
216
HANdy CONTACTs
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
INVESTOR RELATIONS
Level 10, 833 Collins Street
Docklands VIC 3008 Australia
Telephone +61 3 8654 7682
Facsimile +61 3 8654 8886
Email: investor.relations@anz.com
Website: shareholder.anz.com
Group General Manager Investor Relations: Jill Craig
CORPORATE AFFAIRS/CORPORATE RESPONSIBILITY
Level 10, 833 Collins Street
Docklands VIC 3008 Australia
Telephone +61 3 8654 3276
Facsimile +61 3 8654 8886
Group General Manager Corporate Affairs: Gerard Brown
IMPORTANT dATEs fOR
sHAREHOLdERs*
Date
Event
Interim Results Announcement
30 April 2013
Interim Dividend Ex-Date
9 May 2013
Interim Dividend Record Date
15 May 2013
Interim Dividend Payment Date
1 July 2013
Annual Results Announcement
29 October 2013
Final Dividend Ex-Date
7 November 2013
Final Dividend Record Date
13 November 2013
Final Dividend Payment Date
18 December 2013
sHARE REGIsTRAR
AUSTRALIA
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
Computershare Investor Services Limited
Private Bag 92119 Auckland 1142
New Zealand
Telephone 0800 174 007
Facsimile +64 9 488 8787
UNITED KINGDOM
Computershare Investor Services plc
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
P.O. Box 358516
Pittsburgh, PA 15252-8516
Callers outside USA: 1-201-680-6825
Callers within USA (toll free): 1-888-269-2377
(1-888-BNY-ADRS)
Email: shrrelations@bnymellon.com
www.bnymellon.com/shareowner
OUR INTERNATIONAL PREsENCE
» Australia
» New Zealand
» Asia – Cambodia, China, Hong Kong, India, Indonesia,
Japan, Korea, Laos, Malaysia, the Philippines,
Singapore, Taiwan, Thailand, Vietnam
Annual General Meeting
18 December 2013
» Europe and United Kingdom
* If there are any changes to these dates, the Australian Securities
Exchange will be notified accordingly.
» Pacific – American Samoa, Cook Islands, Fiji, Guam,
Kiribati, New Caledonia, Papua New Guinea, Samoa,
Solomon Islands, Timor-Leste, Tonga, Vanuatu
» Middle East
» United States of America
anz.com
Australia and New Zealand Banking Group Limited ABN 11 005 357 522