finanical report-1999

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

1999 FINANCIAL STATEMENTS

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T a b l e o f C o n t e n t s

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ALPHABETICAL INDEX 2

PROFIT AND LOSS ACCOUNTS 3

BALANCE SHEETS 4

STATEMENTS OF CHANGES IN

SHAREHOLDERS’ EQUITY 5

STATEMENTS OF CASH FLOWS 6

NOTES TO THE FINANCIAL STATEMENTS

1 Accounting policies ..........................................................7

2 Income ..........................................................................10

3 Expenses........................................................................10

4 Remuneration of auditors ..............................................12

5 Abnormal items..............................................................12

6 Income tax expense ......................................................13

7 Dividends ......................................................................13

8 Earnings per ordinary share ..........................................15

9 Liquid assets ..................................................................16

10 Due from other financial institutions..............................16

11 Trading securities ..........................................................17

12 Investment securities ....................................................18

13 Net loans and advances ................................................21

14 Impaired assets..............................................................24

15 Provisions for doubtful debts ........................................26

16 Customers’ liabilities for acceptances ..........................27

17 Regulatory deposits ......................................................28

18 Shares in controlled entities and associates..................28

19 Other assets ..................................................................29

20 Premises and equipment ..............................................30

21 Due to other financial institutions ..................................30

22 Deposits and other borrowings ....................................31

23 Income tax liability ........................................................31

24 Creditors and other liabilities ........................................32

25 Provisions ......................................................................32

26 Bonds and notes ............................................................32

27 Loan capital ....................................................................33

28 Share capital ..................................................................34

29 Outside equity interests ................................................34

30 Average balance sheet and related interest ..............35

31 Interest sensitivity gap ..............................................38

32 Net fair value of financial instruments........................41

33 Segment analysis ......................................................43

34 Notes to the statements of cash flows ....................47

35 Controlled entities ......................................................49

36 Associates ..................................................................50

37 Commitments ............................................................50

38 Derivative financial instruments ................................50

39 Contingent liabilities and

credit related commitments ..................................56

40 Superannuation commitments ..................................58

41 Fiduciary activities ......................................................59

42 Employee share purchase and

share option schemes ............................................60

43 Related party disclosures ..........................................62

44 Remuneration of directors..........................................64

45 Remuneration of executives ......................................65

46 US GAAP reconciliation ..............................................66

47 Exchange rates ..........................................................71

48 Events since the end of the financial year ................71

DIRECTORS’ DECLARATION 72

AUDITORS’ REPORT 73

RISK MANAGEMENT 74

FINANCIAL INFORMATION

1 Capital adequacy ........................................................76

2 Interest spreads and net interest

average margins......................................................78

3 Cross border outstandings ........................................79

4 Certificates of deposit and term

deposit maturities ..................................................79

5 Volume and rate analysis............................................80

6 Concentrations of credit risk ......................................82

7 Doubtful debts - industry analysis ..............................84

8 Short term borrowings ..............................................85

GLOSSARY 86

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A l p h a b e t i c a l I n d e x

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Abnormal items ..................................................................12

Accounting policies ..............................................................7

Associates ..........................................................................50

Auditors’ report ..................................................................73

Average balance sheet and related interest ......................35

Balance sheets ....................................................................4

Bonds and notes ................................................................32

Capital adequacy ................................................................76

Certificates of deposit and term deposit maturities ..........79

Commitments ....................................................................50

Concentrations of credit risk ..............................................82

Contingent liabilities and credit related commitments ......56

Controlled entities ..............................................................49

Creditors and other liabilities ..............................................32

Cross border outstandings ................................................79

Customers’ liabilities for acceptances ................................27

Deposits and other borrowings ..........................................31

Derivative financial instruments ........................................50

Directors’ declaration..........................................................72

Dividends ............................................................................13

Doubtful debts - industry analysis ......................................84

Due from other financial institutions ..................................16

Due to other financial institutions ......................................30

Earnings per ordinary share ................................................15

Employee share purchase and share option schemes ......60

Events since the end of the financial year ........................71

Exchange rates ..................................................................71

Expenses ............................................................................10

Fiduciary activities ..............................................................59

Glossary ..............................................................................86

Impaired assets ..................................................................24

Income................................................................................10

Income tax expense ..........................................................13

Income tax liability ..............................................................31

Interest sensitivity gap ......................................................38

Interest spreads and net interest average margins............78

Investment securities ........................................................18

Liquid assets ......................................................................16

Loan capital ........................................................................33

Net fair value of financial instruments................................41

Net loans and advances......................................................21

Notes to the financial statements ........................................7

Notes to the statements of cash flows..............................47

Other assets ......................................................................29

Outside equity interests ....................................................34

Premises and equipment....................................................30

Profit and loss accounts ......................................................3

Provisions ..........................................................................32

Provisions for doubtful debts..............................................26

Regulatory deposits ............................................................28

Related party disclosures ..................................................62

Remuneration of auditors ..................................................12

Remuneration of directors..................................................64

Remuneration of executives ..............................................65

Risk Management ..............................................................74

Segment analysis................................................................43

Share capital ......................................................................34

Shares in controlled entities and associates ......................28

Short term borrowings ......................................................85

Statements of cash flows ..................................................6

Statements of changes in shareholders’ equity ..................5

Superannuation commitments ..........................................58

Trading securities................................................................17

US GAAP reconciliation ......................................................66

Volume and rate analysis ....................................................80


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Australia and New Zealand Banking Group Limited and Controlled EntitiesProfit and Loss Accounts for the year ended 30 September 1999

Consolidated The Company1999 1998 1997 1999 1998

Note $M $M $M $M $M

Interest income 2 8,674 9,499 9,455 5,693 6,004Interest expense 3 (5,029) (5,952) (6,018) (3,510) (3,793)

Net interest income 3,645 3,547 3,437 2,183 2,211Other operating income 2 2,321 2,099 2,110 2,159 2,365

Operating income 5,966 5,646 5,547 4,342 4,576Operating expenses 3 (3,294) (3,438) (3,502) (2,411) (2,620)

Operating profit beforedebt provision and abnormal items 2,672 2,208 2,045 1,931 1,956

Provision for doubtful debts 15 (510) (487) (400) (245) (326)

Operating profit before abnormal items 2,162 1,721 1,645 1,686 1,630Abnormal loss 5 – (102) (182) – (85)

Operating profit before income tax 2,162 1,619 1,463 1,686 1,545

Income tax (expense) benefitOperating profit 6 (676) (537) (466) (387) (241)Abnormal loss 5 – 33 35 – 27

Income tax expense 6 (676) (504) (431) (387) (214)

Operating profit after income tax 1,486 1,115 1,032 1,299 1,331Outside equity interests (6) (9) (8) – –

Operating profit after income taxattributable to members of the Company 1,480 1,106 1,024 1,299 1,331

Retained profits at start of year 2,412 1,830 1,583 1,317 733

Total available for appropriation 3,892 2,936 2,607 2,616 2,064Transfers (to) from reserves (54) 223 (82) – –Ordinary share dividends provided for or paid 7 (814) (747) (695) (814) (747)Preference share dividends paid 7 (72) – – – –

Retained profits at end of year 2,952 2,412 1,830 1,802 1,317

Earnings per ordinary share (cents) 8BasicBefore abnormal items 90.6 77.2 78.4 n/a n/aAfter abnormal items 90.6 72.6 68.6 n/a n/aDilutedBefore abnormal items 90.3 76.9 78.2 n/a n/aAfter abnormal items 90.3 72.4 68.4 n/a n/a

The notes appearing on pages 7 to 71 form an integral part of these financial statementsn/a Not applicable


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Australia and New Zealand Banking Group Limited and Controlled EntitiesBalance Sheets as at 30 September 1999

Consolidated The Company1999 1998 1999 1998

Note $M $M $M $M

Assets

Liquid assets 9 5,283 7,527 3,564 4,466Due from other financial institutions 10 3,472 4,158 2,212 2,747Trading securities 11 4,259 5,973 2,940 4,774Investment securities 12 4,695 3,979 1,856 1,402Net loans and advances 13 104,063 94,457 71,798 62,169Customers’ liabilities for acceptances 16 14,858 15,648 14,674 15,181Due from controlled entities – – 7,169 7,836Regulatory deposits 17 616 1,530 49 744Shares in controlled entities and associates 18 32 11 7,117 5,935Other assets 19 10,305 14,864 7,277 11,954Premises and equipment 20 1,424 1,573 511 470

Total assets 149,007 149,720 119,167 117,678

Liabilities

Due to other financial institutions 21 9,001 10,758 7,980 9,131Deposits and other borrowings 22 96,559 94,599 60,828 61,231Liability for acceptances 14,858 15,648 14,674 15,181Due to controlled entities – – 9,887 6,822Income tax liability 23 1,051 914 551 389Creditors and other liabilities 24 9,422 14,009 7,805 11,625Provisions 25 1,010 987 859 819Bonds and notes 26 4,456 666 4,298 666Loan capital 27 3,221 3,748 2,959 3,477

Total liabilities 139,578 141,329 109,841 109,341

Net assets 9,429 8,391 9,326 8,337

Shareholders’ equity

Ordinary share capital 28 4,770 4,581 4,770 4,581Preference share capital 28 1,145 645 1,145 645Reserves 536 697 1,609 1,794Retained profits 2,952 2,412 1,802 1,317

Share capital and reserves attributable tomembers of the Company 9,403 8,335 9,326 8,337

Outside equity interests 29 26 56 – –

Total shareholders’ equity and outsideequity interests 9,429 8,391 9,326 8,337

Commitments 37Derivative financial instruments 38Contingent liabilities and credit related

commitments 39

The notes appearing on pages 7 to 71 form an integral part of these financial statements


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Australia and New Zealand Banking Group Limited and Controlled EntitiesStatements of Changes in Shareholders’ Equity for the year ended 30 September 1999


Note $M $M $M $M $M

Share capital

Balance at start of year 5,226 4,335 4,115 5,226 4,335Ordinary shares

Dividend reinvestment plan 176 218 180 176 218Group employee share acquisition scheme 4 5 27 4 5Group share option scheme 9 22 11 9 22Group share purchase scheme # 1 1 # 1Directors’ share and option purchase scheme – # 1 – #

Preference shares 28 500 645 – 500 645

Total share capital 5,915 5,226 4,335 5,915 5,226

Asset revaluation reserve

Balance at start of year – – – 1,419 1,593Revaluation of investments in controlled entities – – – (126) (174)

Total asset revaluation reserve – – – 1,293 1,419

Foreign currency translation reserve

Balance at start of year 63 (79) (183) 320 225Currency translation adjustments net of hedges after tax (215) 142 104 (59) 95

Total foreign currency translation reserve (152) 63 (79) 261 320

General reserve

Balance at start of year 485 708 626 55 55Transfers from (to) retained profits 54 (223) 82 – –

Total general reserve 539 485 708 55 55

Capital reserve 149 149 149 – –

Total reserves 536 697 778 1,609 1,794

Retained profits

Balance at start of year 2,412 1,830 1,583 1,317 733Operating profit after income tax

attributable to members of the Company 1,480 1,106 1,024 1,299 1,331

Total available for appropriation 3,892 2,936 2,607 2,616 2,064Transfers (to) from reserves (54) 223 (82) – –Ordinary share dividends provided for or paid 7 (814) (747) (695) (814) (747)Preference share dividends paid 7 (72) – – – –

Retained profits at end of year 2,952 2,412 1,830 1,802 1,317

Total shareholders’ equity attributable to members of the Company 9,403 8,335 6,943 9,326 8,337

The notes appearing on pages 7 to 71 form an integral part of these financial statements# Amounts less than $500,000


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Australia and New Zealand Banking Group Limited and Controlled EntitiesStatements of Cash Flows for the year ended 30 September 1999


Note $M $M $M $M $M

Cash flows from operating activities

Interest received 8,679 9,403 9,389 5,672 6,423Dividends received 157 169 327 615 959Fees and other income received 2,089 1,797 1,664 1,647 1,384Interest paid (5,039) (6,238) (5,996) (3,520) (4,425)Personnel expenses paid (1,840) (2,001) (2,155) (1,434) (1,527)Premises expenses paid (282) (291) (315) (235) (314)Other operating expenses paid (977) (1,085) (759) (663) (834)Income taxes paid (535) (423) (426) (238) (203)Net decrease in trading securities 1,442 926 304 1,743 376

Net cash provided by operating activities 34(a) 3,694 2,257 2,033 3,587 1,839

Cash flows from investing activities

Net decrease (increase)Due from other financial institutions 616 2,299 1,840 506 2,126Regulatory deposits 828 (308) (14) 700 (105)Loans and advances (12,936) (9,680) (8,029) (10,775) (7,916)Shares in controlled entities – – – (1,308) (991)

Investment securitiesPurchases (5,527) (5,490) (3,140) (1,817) (1,178)Proceeds from sale or maturity 4,670 5,279 2,803 1,340 1,649

Controlled entities and associates 34(c)Purchased (net of cash acquired) (2) (8) (11) – –Proceeds from sale (net of cash disposed) – – 41 – –Transferred from controlled entities to associates (net of cash) (94) – – – –

Premises and equipmentPurchases (177) (143) (219) (170) (143)Proceeds from sale 142 75 47 4 10

Other (610) 1,483 1,389 (83) 1,381

Net cash (used in) investing activities (13,090) (6,493) (5,293) (11,603) (5,167)

Cash flows from financing activities

Net (decrease) increaseDue to other financial institutions (779) (2,047) (2,787) (317) (2,091)Deposits and other borrowings 5,202 2,131 7,861 405 1,656Due from/to controlled entities – – – 2,942 2,974Creditors and other liabilities 743 (288) 425 991 (613)

Bonds and notesIssue proceeds 4,330 802 973 4,172 802Redemptions (479) (2,174) (1,434) (479) (2,174)

Loan capitalIssue proceeds – 559 323 – 559Redemptions (256) (273) (851) (256) (273)

Decrease in outside equity interests (1) (3) (3) – –Dividends paid (671) (491) (478) (599) (491)Share capital issues 591 714 39 591 714

Net cash provided by (used in) financing activities 8,680 (1,070) 4,068 7,450 1,063

Net cash provided by operating activities 3,694 2,257 2,033 3,587 1,839Net cash (used in) investing activities (13,090) (6,493) (5,293) (11,603) (5,167)Net cash provided by (used in) financing activities 8,680 (1,070) 4,068 7,450 1,063

Net (decrease) increase in cash and cash equivalents (716) (5,306) 808 (566) (2,265)Cash and cash equivalents at beginning of year 8,981 12,456 11,246 5,183 6,993Foreign currency translation on opening balances (1,631) 1,831 402 (440) 455

Cash and cash equivalents at end of year 34(b) 6,634 8,981 12,456 4,177 5,183

The notes appearing on pages 7 to 71 form an integral part of these financial statements


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N o t e s t o t h e F i n a n c i a l S t a t e m e n t s

1: Accounting Policies

(i) Bases of preparation

This general purpose financial report complies with theaccounts provisions of the Banking Act, applicableAustralian Accounting Standards, the accounts provisionsof the Corporations Law, Urgent Issues Group ConsensusViews and other authoritative pronouncements of theAustralian Accounting Standards Board. The accountingpolicies are consistent with those of the previous yearexcept for the changes disclosed in note (ii).

Certain disclosures required by the United StatesSecurities and Exchange Commission in respect of foreignregistrants have also been included in this report.

The financial report has been prepared in accordance withthe historical cost convention as modified by therevaluation of certain properties, trading instruments andshares in controlled entities.

The Company is a company of the kind referred to in theAustralian Securities and Investments Commission classorder 98/100, dated 10 July 1998. Consequently, amountsin the financial report have been rounded to the nearestmillion dollars except where otherwise indicated.

All amounts are expressed in Australian dollars, unlessotherwise stated. Where necessary, amounts shown for theprevious year have been reclassified to facilitatecomparison.

(ii) Changes in accounting policy

(a) Effective 1 October 1998, costs incurred in developing,acquiring and enhancing application software arecapitalised and amortised over the estimated useful lifewhich generally ranges from 3 to 5 years. The Grouppreviously expensed these costs. The change resultsfrom adoption of the US Statement of Position 98-1“Accounting for the Costs of Computer SoftwareDeveloped or Obtained for Internal Use”.

The impact on the profit and loss after tax for the yearended 30 September 1999 is $39 million.

(b) The class of assets “Investments in Controlled Entities”in the Company’s financial statements have not beenrevalued. In previous years the controlled entities wererevalued to net tangible asset value. The value in the1999 Company financial statements is disclosed in theCompany’s balance sheet at directors’ valuation, beingthe carrying value as at 30 September 1998.The carrying value of the controlled entities does notexceed their recoverable amount.

The change in policy has no profit or loss impact forthe year ended 30 September 1999.

(iii) Consolidation

The financial statements consolidate the financialstatements of Australia and New Zealand Banking GroupLimited (the Company) and its controlled entities.

Where controlled entities and associates have been sold oracquired during the year, their operating results have beenincluded to the date of disposal or from the date ofacquisition.

The Group adopts the equity method of accounting forassociates. Shares in associates are stated in theconsolidated balance sheet at cost plus the Group’s share ofpost acquisition net assets. The Group’s share of results ofassociates is included in the profit and loss account.

(iv) Goodwill

Goodwill, representing the excess of the purchaseconsideration over the fair value of the identifiable netassets of a controlled entity at the date of gaining control,is recognised as an asset and amortised on a straight linebasis over the period during which the benefits areexpected to arise, not exceeding 20 years.

The unamortised balance of goodwill and the period ofamortisation are reviewed annually. Where the balanceexceeds the value of expected future benefits, thedifference is charged to the profit and loss account.

(v) Foreign currency

Revenues and expenses of overseas branches andcontrolled entities are translated at average exchange ratesfor the year, while assets and liabilities are translated at themid-point rates of exchange ruling at balance date.

Net translation differences arising from the translation ofoverseas branches and controlled entities considered to beself-sustaining operations are included in the foreigncurrency translation reserve, after allowing for thosepositions hedged by foreign exchange contracts and relatedcurrency borrowings.

Assets and liabilities denominated in foreign currencies aretranslated into Australian dollars at the rates of exchangeruling at balance date.

(vi) Fee Income

Fee income is brought to account on an accruals basis.Yield-related front-end application fees received aredeferred and accrued to income as an adjustment of yieldover the period of the loan. Non yield-related applicationand activation lending fees received are recognised asincome no later than when the loan is disbursed or thecommitment to lend expires. Fees received on an ongoingbasis that represent the recoupment of the costs ofproviding service (for example, maintaining andadministering existing facilities) are taken to income whenthe fees are receivable.

(vii) Net loans and advances

Net loans and advances include direct finance provided tocustomers such as bank overdrafts, credit cards, term loans,lease finance, hire purchase finance and commercial bills.

Overdrafts, credit cards and term loans are carried atprincipal balances outstanding. Interest on amountsoutstanding is accounted for on an accruals basis.


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Finance leases and hire purchase contracts are accounted forusing the finance method whereby income is taken toaccount progressively over the life of the lease or thecontract in proportion to the outstanding investmentbalance. Investments in leveraged leases are recorded at anamount equal to the investment participation, and income istaken to account on an actuarial basis over the term of eachlease.

Customer financing through redeemable preference sharesis included within net loans and advances. Dividendsreceived on redeemable preference shares are taken to theprofit and loss account as part of interest income.

All loans are subject to regular scrutiny and gradedaccording to the level of credit risk. Loans are classified aseither productive or non-accrual. The Group has adoptedthe Australian Prudential Regulation Authority ImpairedAssets Guidelines in assessing non-accrual loans. Non-accrual loans include loans where the accrual of interestand fees has ceased due to doubt as to full recovery, andloans that have been restructured with an effective yieldbelow the Group’s average cost of funds at the date ofrestructuring. A specific provision is raised to cover theexpected loss, where full recovery of principal is doubtful.

Restructured loans are loans with an effective yield abovethe Group’s cost of funds and below the yield applicable toa customer of equal credit standing.

Cash receipts on non-accrual loans are, in the absence of acontrary agreement with the customer, applied as incomeor fees in priority to being applied as a reduction inprincipal, except where the cash receipt relates to proceedsfrom the sale of security.

(viii) Bad and doubtful debts

Specific provisions are maintained to cover identifieddoubtful debts. All known bad debts are written off in theyear in which they are identified.

The Group’s annual debt provision charge represents theexpected average annual loss on principal over theeconomic cycle for the lending portfolio. The debtprovision charge is credited to the general provision.

The specific provision requirement (representing new andincreased specific provisions less specific provision releases)is transferred from the general provision to the specificprovision. Recoveries, representing excess transfers to thespecific provision, are credited to the general provision.

Provisions for doubtful debts are deducted from loans andadvances in the balance sheet.

(ix) Acceptances

Commercial bills accepted but not held in portfolio areaccounted for and disclosed as a liability with acorresponding contra asset.The Group’s own acceptances discounted are held as partof either the trading securities portfolio or the loanportfolio, depending on whether, at the time of suchdiscount, the intention was to hold the acceptances forresale or until maturity.

(x) Trading securities

Securities held for trading purposes are recorded atmarket value. Unrealised gains and losses on revaluationare taken to the profit and loss account.

(xi) Investment securities

Investment securities are those which the Group intendsand has the ability to hold until maturity. Such securitiesare recorded at cost or at cost adjusted for amortisation ofpremiums or discounts.Premiums and discounts are capitalised and amortisedfrom the date of purchase to maturity. Interest anddividend income is accrued. Changes in market values ofsecurities are not taken into account unless there isconsidered to be a permanent diminution in value.

(xii) Repurchase agreements

Securities sold under repurchase agreements are retainedin the financial statements and a counterparty liability isdisclosed under the classifications of Due to otherfinancial institutions or Deposits and other borrowings.The difference between the sale price and the repurchaseprice is amortised over the life of the repurchaseagreement and charged to interest expense in the profitand loss account.

Securities purchased under agreements to resell arerecorded as Liquid assets, Net loans and advances, or Duefrom other financial institutions, depending on the termof the agreement and the counterparty.

(xiii) Derivative financial instruments

Derivative financial instruments (derivatives) are contractswhose value is derived from one or more underlyingfinancial instruments or indices. They include swaps,forward rate agreements, futures, options andcombinations of these instruments.

Trading derivatives, comprising derivatives entered intofor customer-related or proprietary reasons or for hedgingthe trading portfolio, are measured at fair value and allgains and losses are taken to the profit and loss account.Fair value losses arising from trading derivatives are notoffset against fair value gains unless a legal right of set-offexists.

Derivatives designated, and effective, as hedges ofunderlying non-trading exposures are accounted for onthe same basis as the underlying exposures. To bedesignated as a hedge, the fair value of the hedge mustmove inversely with changes in the fair value of theunderlying exposure.

Gains and losses resulting from the termination of aderivative that was designated as a hedge of non-tradingexposures are deferred and amortised over the remainingperiod of the original term covered by the terminatedinstrument where the underlying exposure still exists.Where the underlying exposure no longer exists, the gainsand losses are recognised in the profit and loss account.


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Provision for Australian income tax is made where theearnings of overseas controlled entities are subjected toAustralian tax under the attribution rules for the taxationof foreign sourced income.

Otherwise, no provision is made for overseas withholdingtax or Australian income tax which may arise onrepatriation of earnings from overseas controlled entities,where it is expected these earnings will be retained bythose entities to finance their ongoing business.

(xvi) Life insurance business

The Group conducts life insurance business through ANZLife Assurance Company Limited (ANZ Life). TheGroup’s financial statements include its interest in theactuarially assessed surplus of ANZ Life’s statutory fundsfor the year, after allowing for increases in policyholderreserves determined under the margin on servicesmethodology. The net result for the year of $54 million(1998: $50 million) has been included in the profit andloss account and then transferred to the general reserve,until available for distribution under the requirements andrestrictions of the Life Insurance Act 1995 and statutoryaccounting practices.

The Group’s interest in the accumulated retained earningsof the life insurance statutory funds of $267 million(1998: $213 million), together with the net assets of theshareholders’ funds of ANZ Life, are included within thebalance sheet of the Group.

Due to the provisions of the Life Insurance Act 1995, theassets of the life insurance statutory funds attributable topolicyholders of ANZ Life do not form part of the assetsto which the Group is entitled and are therefore notconsolidated.

(xvii) Employee entitlements

The amounts expected to be paid in respect of employees’entitlements to annual leave are accrued at current salaryrates including on-costs. Liability for long service leave isaccrued in respect of all applicable employees at thepresent value of future amounts expected to be paid.

(xviii) Superannuation commitments

Contributions, which are determined on an actuarial basis,to superannuation schemes are charged to personnelexpenses in the profit and loss account.

Any aggregate deficiencies arising from the actuarialvaluations of the Group’s defined benefit schemes havebeen provided for in the financial statements.

The assets and liabilities of the schemes have not beenconsolidated as the Company does not have direct orindirect control of the schemes.

(xix) Leasing

Leases entered into by the Group as lessee arepredominantly operating leases, and the operating leasepayments are included in the profit and loss account inequal instalments over the lease term.


Gains and losses on derivatives related to hedgingexposures arising from anticipated transactions aredeferred and recognised in the financial statements whenthe anticipated transaction occurs.

These gains and losses are deferred only to the extent thatthere is an offsetting unrecognised (unrealised) gain or losson the exposures being hedged. Deferred gains and lossesare amortised over the expected term of the hedgedexposure.

(xiv) Premises and equipment

Premises and equipment (including computer equipment)are carried at cost less depreciation or amortisation, or atvaluation. Any surplus on revaluation of a class of assets iscredited directly to the asset revaluation reserve except tothe extent that it reverses a revaluation decrementpreviously taken to profit and loss. Where a deficit arises,this is debited to the asset revaluation reserve to theextent of any previous revaluation surplus for that class,and the excess debited to the profit and loss account.Potential capital gains tax arising from revaluations is nottaken into account unless the Group intends to dispose ofthe properties.

Profit or loss on the disposal of premises and equipment isdetermined as the difference between the carryingamount of the assets at the time of disposal and theproceeds of disposal, and is included in the results of theGroup in the year of disposal.

Assets other than freehold land are depreciated at ratesbased upon their expected useful lives to the Group, usingthe straight line method. The depreciation rates used foreach class of asset are:

Buildings 1%Building integrals 10%Furniture & equipment 10%Computer & office equipment 12.5% to 20%Leasehold improvements are amortised on a straight linebasis over the remaining period of each lease.

The carrying values of all non-current assets have beenassessed and are not in excess of their recoverable amounts.In assessing recoverable amounts, the relevant cash flowshave not been discounted to their present value.

(xv) Income tax

The Group adopts the liability method of tax effectaccounting whereby income tax expense is calculatedbased on accounting profit adjusted for permanentdifferences. Permanent differences are items of revenueand expense which are recognised in the profit and lossaccount but are not part of taxable income or vice versa.

Future tax benefits and deferred tax liabilities relating totiming differences and tax losses are carried forward at taxrates applicable to future periods. These future taxbenefits are not brought to account unless realisation ofthe asset is assured beyond reasonable doubt. Future taxbenefits relating to tax losses are only carried forwardwhere realisation of the benefit is considered virtuallycertain.


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$M $M $M $M $M

2: Income

Interest incomeFrom other financial institutions 227 556 753 137 382On regulatory deposits 9 10 13 1 1On trading and investment securities 534 818 835 260 398On loans and advances 7,539 7,494 7,308 4,732 4,440Dividends from redeemable preference share finance – 3 8 – –Other 365 618 538 269 403

8,674 9,499 9,455 5,399 5,624From controlled entities – – – 294 380

Total interest income 8,674 9,499 9,455 5,693 6,004

Other operating income(i) Fee income

Lending 679 592 570 563 487Other including commissions1 1,075 982 889 616 568

1,754 1,574 1,459 1,179 1,055From controlled entities – – – 189 298

Total fee income 1,754 1,574 1,459 1,368 1,353

(ii) Other incomeForeign exchange earnings 340 373 237 212 222Gain on sale of investment securities – 26 – – 16Life insurance fund surplus 53 38 94 – –Profit (loss) on trading instruments 89 (83) 182 71 (90)Profit on sale of premises and equipment2 19 18 5 1 3Rental income 10 34 35 7 27Share of associates profit (2) (4) 2 – –Other 58 123 96 500 834

Total other income 567 525 651 791 1,012

Total other operating income 2,321 2,099 2,110 2,159 2,365

Abnormal (loss) profit (refer note 5) – (70) 145 – (70)

Total income3 10,995 11,528 11,710 7,852 8,299

1 Includes commissions from funds management business. Comparatives have been restated2 Gross proceeds on sale of premises and equipment is $142 million (1998: $75 million)3 Includes dividend income of $157 million (1998: $152 million) for the Group and $615 million (1998: $945 million) for the Company.

The Company’s dividends include dividends received from controlled entities of $491 million (1998: $825 million)

3: Expenses

Interest expenseTo other financial institutions 518 687 804 419 555On deposits 3,299 3,929 3,838 2,119 2,364On borrowing corporations’ debt 382 415 512 – –On commercial paper 315 228 275 109 121On bonds and notes 12 17 25 12 17On loan capital 289 291 364 276 273Other 214 385 200 218 230

5,029 5,952 6,018 3,153 3,560To controlled entities – – – 357 233

Total interest expense 5,029 5,952 6,018 3,510 3,793


11



$M $M $M $M $M

3: Expenses (continued)Operating expenses(i) Personnel

Employee taxesPayroll 63 69 76 61 65Fringe benefits tax 38 44 46 35 39

Pension fund 95 88 114 72 64Provision for employee entitlements 33 29 19 29 28Salaries and wages 1,237 1,427 1,453 937 1,057Other 266 197 241 209 157

Total personnel expenses 1,732 1,854 1,949 1,343 1,410

(ii) PremisesAmortisation of leasehold improvements 14 16 16 8 9Depreciation of buildings and integrals 31 30 31 5 6Rent 159 181 189 121 136Utilities and other outgoings 102 113 115 74 81Other 8 7 11 4 3

314 347 362 212 235To controlled entities – – – 37 45

Total premises expenses 314 347 362 249 280

(iii) ComputerComputer contractors 32 46 26 26 40Data communication 43 47 45 34 39Depreciation 94 93 98 63 60Rentals and repairs 65 53 50 53 40Other 110 102 111 51 44

Total computer expenses 344 341 330 227 223

(iv) OtherAdvertising and public relations 84 83 97 55 52Amortisation of goodwill 10 3 3 8 1Audit fees (refer note 4) 3 3 4 1 1Depreciation of furniture and equipment 46 49 52 31 32Freight and cartage 29 40 42 26 37Loss on sale of premises and equipment 6 8 7 2 3Non-lending losses, frauds and forgeries 53 15 2 39 8Postage 44 43 41 31 29Professional fees 130 112 98 110 87Stationery 61 66 71 38 44Telephone 90 99 85 63 68Travel 77 90 87 54 61Other 180 165 182 59 189

Total other expenses 813 776 771 517 612

(v) Restructuring1 91 120 90 75 95

Total operating expenses 3,294 3,438 3,502 2,411 2,620

Total expenses 8,323 9,390 9,520 5,921 6,413

1 In addition, restructuring costs of nil (Company nil) have been treated as abnormal (1998: Group $32 million, Company $15 million), (1997: Group$327 million, Company $214 million). Refer note 5


12

Consolidated The Company1999 1998 1997 1999 1998$’000 $’000 $’000 $’000 $’000

4: Remuneration of Auditors

Amounts received and due and receivableAuditing the accounts

By KPMG 3,312 3,445 3,771 1,389 1,413By other Group auditors 36 13 11 21 –

3,348 3,458 3,782 1,410 1,413

Other servicesBy KPMG

Audit related services1 2,162 1,947 2,008 835 704Accounting 321 140 120 136 60Consulting2 13,552 24,525 20,657 12,782 24,286Taxation 510 240 90 467 163

By other Group auditors 51 100 59 22 39

16,596 26,952 22,934 14,242 25,252

Total remuneration of auditors 19,944 30,410 26,716 15,652 26,665

1 Audit related services are services other than those relating to the audit or review of the statutory financial statements of the Group. These services includeprudential supervision reviews for central banks, prospectus reviews, trust audits and other audits required for local statutory purposes

2 Prior years include fees paid to KPMG Barents (a wholly owned entity of the USA practice of KPMG) for consultancy work principally in connection with the ANZ Global Project (1998: $23,146,000, 1997: $20,326,000)

By virtue of an Australian Securities and Investments Commission class order dated 30 September 1998, the auditors ofAustralia and New Zealand Banking Group Limited and its related bodies corporate, KPMG, have been exempted fromcompliance with the requirements of Section 324 of the Corporations Law. The class order exemption applies in thatpartners and associates of KPMG not engaged on the audit of Australia and New Zealand Banking Group Limited andits related bodies corporate may be indebted to the Company, provided that such indebtedness arose upon ordinarycommercial terms and conditions.


$M $M $M $M $M

5: Abnormal ItemsProfit before tax

Interest on National Housing Bank deposit – – 145 – –(Loss) before tax

Restructuring costs – – (327) – –Costs of exiting businesses

Restructuring – (32) – – (15)Write down of residual emerging markets

securities portfolio – (70) – – (70)

Total abnormal loss before tax – (102) (182) – (85)

Income tax (expense) benefit applicable toInterest on National Housing Bank deposit – – (80) – –Restructuring costs – – 115 – –Costs of exiting businesses

Restructuring – 11 – – 5Write down of residual emerging markets

securities portfolio – 22 – – 22

Total abnormal tax benefit – 33 35 – 27

Total abnormal loss after tax – (69) (147) – (58)



13


$M $M $M $M $M

6: Income Tax Expense

Reconciliation of the prima facie income tax payableon operating profit and abnormal items with the income tax expense charged in the profit and loss account

Operating profit before income tax andabnormal items 2,162 1,721 1,645 1,686 1,630

Prima facie income tax at 36% 778 620 593 607 587Tax effect of permanent differences

Overseas tax rate differential 2 14 12 11 9Other non–assessable income (37) (45) (25) – (8)Rebateable and non–assessable dividends (55) (55) (117) (221) (340)Non–allowable depreciation and amortisation – – 3 – –Other (2) 3 10 (3) (5)

686 537 476 394 243Income tax over provided in prior years (10) – (10) (7) (2)

Total income tax expense on operating profitbefore abnormal items 676 537 466 387 241

Abnormal loss before tax – (102) (182) – (85)

Prima facie income tax at 36% – (37) (65) – (31)Tax effect of permanent differences

Overseas tax rate differential – 4 30 – 4

Total income tax benefit on abnormal items – (33) (35) – (27)

Total income tax expense 676 504 431 387 214


$M $M $M $M $M

7: Dividends

Ordinary dividendsInterim dividend 404 366 329 404 366Proposed final dividend 470 431 392 470 431Bonus option plan adjustment (60) (50) (26) (60) (50)

Dividends on ordinary shares 814 747 695 814 747

A final dividend of 30 cents, partially franked to 80%, is proposed to be paid on each fully paid ordinary share on 20 December 1999 (1998: final dividend of 28 cents, paid 21 December 1998, partially franked to 60%; 1997: finaldividend of 26 cents, paid 21 January 1998, fully franked). The 1999 interim dividend of 26 cents, paid 5 July 1999, waspartially franked to 75%, (1998: interim dividend of 24 cents, paid 6 July 1998, partially franked to 60%; 1997: interimdividend of 22 cents, paid 7 July 1997, fully franked). The unfranked portion will be sourced from the Company’s foreigndividend account. As a result, non–resident shareholders will be exempt from dividend withholding tax.

Preference dividends

Dividends on preference shares 72 – – – –

The Company has issued 124,032,000 preference shares, raising US$775 million via Trust Securities issues. The TrustSecurities carry an entitlement to a distribution of 8% (US$400 million) or 8.08% (US$375 million). The amounts arepayable quarterly in arrears. Shown above are amounts paid from the dates of issue (23 September 1998 and 19 November 1998) to 30 September 1999. Payment dates are the fifteenth day of January,April, July and October.



14


7: Dividends (continued)

Dividend Franking Account

The amount of franking credits available for the subsequent financial year is nil (1998: nil), after adjusting for frankingcredits that will arise from the payment of tax on Australian profits for the 1999 financial year, less franking creditswhich will be utilised in franking the proposed final dividend and franking credits that may not be accessable by theCompany at present.

Restrictions which Limit the Payment of Dividends

There are presently no significant restrictions on the payment of dividends from controlled entities to the Company.Various capital adequacy, liquidity, statutory reserve and other prudential requirements must be observed by certaincontrolled entities and the impact on these requirements caused by the payment of cash dividends is monitored. Inpractice however, there are significant tax considerations associated with the receipt of dividends from controlledentities by a company. Payment of dividends from domestic controlled entities constitutes assessable income to arecipient Australian company. The recipient company is generally entitled to a rebate of tax otherwise payable on theassessable dividend. Should the recipient company’s total assessable income be less than the dividend income, or it be ina tax loss position, the rebate will reduce or be eliminated. The Group therefore acts to preserve the availability ofrebates by avoiding the payment of dividends by domestic controlled entities in this situation.

Payments of dividends from overseas controlled entities may attract withholding taxes which have not been providedfor in these financial statements.

There are presently no restrictions on payment of dividends by the Company. Reductions of shareholders’ equitythrough payment of cash dividends is monitored having regard to the regulatory requirements to maintain a specifiedcapital adequacy ratio. In particular, the Australian Prudential Regulation Authority has advised Australian banks that abank under its supervision must consult with it before declaring a dividend if the bank has incurred a loss, or proposesto pay dividends which exceed the level of profits earned.

Dividend Reinvestment Plan

During the year, 8,543,744 ordinary shares were issued at $10.78 per share, and 7,622,391 ordinary shares at $10.95 pershare, under the Dividend Reinvestment Plan.

Bonus Option Plan

Dividends paid during the year have been reduced by way of certain shareholders participating in the Bonus OptionPlan and forgoing all or part of their right to dividends in return for the receipt of bonus shares.

During the year, 2,492,395 ordinary shares were issued at $10.78 per share, and 3,020,767 ordinary shares at $10.95 pershare, under the Bonus Option Plan.

Declared Bonus options Amountdividend exercised paid

$M $M $M

Final dividend 1998 431 (27) 404Interim dividend 1999 404 (33) 371

835 (60) 775


15


Consolidated1999 1998 1997

$M $M $M

8: Earnings per Ordinary Share

Before abnormal items

Basic

Operating profit after income taxattributable to shareholders of the Company 1,480 1,106 1,024

Abnormal items after tax – 69 147

Operating profit after income tax before abnormal items 1,480 1,175 1,171Less: preference share dividend paid 72 – –

Operating profit after income tax and preference share dividend before abnormal items 1,408 1,175 1,171

Weighted average number of ordinary shares (millions) 1,553.5 1,522.9 1,492.9

Basic earnings per share (cents) 90.6 77.2 78.4

Diluted

Operating profit after income tax and preference sharedividend before abnormal items 1,408 1,175 1,171

Add: notional interest earned on capital raised fromexercise of options 2 2 2

Total adjusted earnings 1,410 1,177 1,173

Weighted average number of ordinary shares (millions) 1,553.5 1,522.9 1,492.9Add: potential dilution of options to ordinary shares 7.5 6.6 7.2

Total adjusted number of shares 1,561.0 1,529.5 1,500.1

Diluted earnings per share (cents) 90.3 76.9 78.2

After abnormal items

Basic


Weighted average number of ordinary shares (millions) 1,553.5 1,522.9 1,492.9

Basic earnings per share (cents) 90.6 72.6 68.6

Diluted


Add: notional interest earned on capital raised fromexercise of options 2 2 2

Total adjusted earnings 1,410 1,108 1,026

Weighted average number of ordinary shares (millions) 1,553.5 1,522.9 1,492.9Add: potential dilution of options to ordinary shares 7.5 6.6 7.2

Total adjusted number of shares 1,561.0 1,529.5 1,500.1

Diluted earnings per share (cents) 90.3 72.4 68.4


16



$M $M $M $M

9: Liquid Assets

Australia

Coins, notes and cash at bankers 540 830 442 765Money at call 170 176 115 116Securities purchased under agreement to

resell less than 90 days 960 1,211 937 1,211Bills receivable and remittances in transit 400 686 400 676

2,070 2,903 1,894 2,768

Overseas

Coins, notes and cash at bankers 312 242 28 25Money at call 494 476 5 38Other banks’ certificates of deposit 1,427 1,614 1,174 1,064Securities purchased under agreement to

resell less than 90 days 224 1,038 – 602Bills receivable and remittances in transit 756 1,254 463 (31)

3,213 4,624 1,670 1,698

Total liquid assets 5,283 7,527 3,564 4,466

Maturity analysis based on original term to maturity at 30 SeptemberLess than 90 days 4,243 6,687 2,676 3,783More than 90 days 1,040 840 888 683

Total liquid assets 5,283 7,527 3,564 4,466

10: Due from Other Financial Institutions

Australia 1,620 433 1,137 433Overseas 1,852 3,725 1,075 2,314

Total due from other financial institutions 3,472 4,158 2,212 2,747

Maturity analysis based on remaining term to maturity at 30 SeptemberOverdraft 54 551 49 546Less than 3 months 3,008 2,387 1,920 1,430Between 3 months and 12 months 301 1,035 203 601Between 1 year and 5 years 93 162 24 147After 5 years 16 23 16 23

Total due from other financial institutions 3,472 4,158 2,212 2,747


17



$M $M $M $M

11: Trading Securities

Trading securities are allocated between Australia andOverseas based on the domicile of the issuer

Listed – Australia

Commonwealth securities 223 640 223 640Local and semi-government securities 63 193 63 193Other securities and equity securities 86 55 – –

372 888 286 833

Listed – Overseas

Indian government securities 8 17 – –Equity securities 633 516 – 2UK non-government securities – 267 – 267Other government securities – 249 – 237Other non-government securities 76 83 2 26

717 1,132 2 532

Total listed 1,089 2,020 288 1,365

Unlisted – Australia

Other government securities 913 1,160 913 1,152ANZ accepted bills 1,229 1,382 1,225 1,324Other securities and equity securities 587 594 512 635

2,729 3,136 2,650 3,111

Unlisted – Overseas

Treasury notes and bills – 106 – –New Zealand non-government securities – 166 – –UK non-government securities – 274 – 274Other government securities 234 259 – 24Other securities and equity securities 207 12 2 –

441 817 2 298

Total unlisted 3,170 3,953 2,652 3,409

Total trading securities 4,259 5,973 2,940 4,774


18



$M $M $M $M

12: Investment Securities

Investment securities are allocated between Australia andOverseas based on the domicile of the issuerListed – Australia

Other securities and equity investments 213 122 43 –

213 122 43 –

Listed – Overseas

Indian government securities 848 894 – –Indian non-government securities 23 325 – –Hong Kong non-government securities – 82 – 21Other government securities 145 167 88 119Other securities and equity investments 239 43 18 22

1,255 1,511 106 162

Total listed 1,468 1,633 149 162


Commonwealth government securities 466 453 466 453Local and semi-government securities 793 516 793 516Other securities and equity investments 309 8 5 2

1,568 977 1,264 971


New Zealand government securities 695 462 – –US government securities 225 39 225 39Pakistan government securities 146 366 – –Bangladesh government securities 156 132 – –Other government securities 416 259 207 146Other securities and equity investments 21 111 11 84

1,659 1,369 443 269

Total unlisted 3,227 2,346 1,707 1,240

Total investment securities 4,695 3,979 1,856 1,402

Market value information

Listed – Australia

Other securities and equity investments 205 122 36 –

205 122 36 –

Listed – Overseas

Indian government securities 867 899 – –Indian non-government securities 23 325 – –Hong Kong non-government securities – 78 – 21Other government securities 146 169 89 119Other securities and equity investments 258 42 18 22

1,294 1,513 107 162

Total market value of listed investment securities 1,499 1,635 143 162


Commonwealth government securities 466 453 466 453Local and semi-government securities 793 516 793 516Other securities and equity investments 309 8 5 2

1,568 977 1,264 971


New Zealand government securities 695 466 – –US government securities 225 36 225 36Pakistan government securities 149 372 – –Bangladesh government securities 156 132 – –Other government securities 416 243 207 131Other securities and equity investments 22 110 11 83

1,663 1,359 443 250

Total market value of unlisted investment securities 3,231 2,336 1,707 1,221

Total market value of investment securities 4,730 3,971 1,850 1,383


19


12: Investment Securities (continued)

Investment Securities by Maturities and Yields

Based on remaining term to maturity at 30 September 1999

Between Between Between NoLess than 3 months and 1 year and 5 years and After maturity Market3 months 12 months 5 years 10 years 10 years specified Total Value

At book value $M $M $M $M $M $M $M $M

Australia

Commonwealth securities 163 – 303 – – – 466 466Local and semi-government securities 744 49 – – – – 793 793Other securities and equity investments 302 – – 1 – 219 522 514

1,209 49 303 1 – 219 1,781 1,773

Overseas

New Zealand government securities 201 494 – – – – 695 695Indian government securities 7 189 565 82 5 – 848 867Indian non-government securities – 10 13 – – – 23 23US government securities 18 15 192 – – – 225 225Pakistan government securities 41 38 67 – – – 146 149Bangladesh government securities 19 86 51 – – – 156 156Other government securities 281 95 172 1 12 – 561 562Other securities and equity investments 15 10 81 3 3 148 260 280

582 937 1,141 86 20 148 2,914 2,957

Total book value 1,791 986 1,444 87 20 367 4,695 n/a

Total market value 1,795 984 1,456 93 22 380 n/a 4,730

Between BetweenLess than 1 year and 5 years and After

1 year 5 years 10 years 10 years% % % %

Weighted average yields1

Australia

Commonwealth securities 4.77 4.78 – –Local and semi-government securities 5.06 – – –Other securities and equity investments 4.98 – – –Overseas

New Zealand government securities 4.97 – – –Indian government securities 11.07 11.79 10.10 13.84Indian non-government securities 13.43 17.20 – –US government securities 4.83 5.99 – –Pakistan government securities 10.96 15.00 – –Bangladesh government securities 8.48 9.48 – –Other government securities 10.99 9.34 8.00 9.77Other securities and equity investments 6.81 5.88 5.61 13.90

1 Based on effective yields for fixed interest and discounted securities and dividend yield for equity investments at 30 September 1999


20


12: Investment Securities (continued)

Investment Securities by Maturities and Yields

Based on remaining term to maturity at 30 September 1998

Between Between Between NoLess than 3 months and 1 year and 5 years and After maturity Market3 months 12 months 5 years 10 years 10 years specified Total Value

At book value $M $M $M $M $M $M $M $M

Australia

Commonwealth securities 100 50 303 – – – 453 453Local and semi-government securities 374 142 – – – – 516 516Other securities and equity investments 14 – 6 1 – 109 130 130

488 192 309 1 – 109 1,099 1,099

Overseas

New Zealand government securities 286 176 – – – – 462 466Indian government securities 67 207 497 118 5 – 894 899Indian non-government securities 30 57 206 32 – – 325 325Hong Kong non-government securities 21 8 50 3 – – 82 78Pakistan government securities 176 160 30 – – – 366 372Bangladesh government securities 127 – 5 – – – 132 132Other government securities 99 179 149 28 10 – 465 448Other securities and equity investments 48 35 58 9 2 2 154 152

854 822 995 190 17 2 2,880 2,872

Total book value 1,342 1,014 1,304 191 17 111 3,979 n/a

Total market value 1,342 1,008 1,303 191 17 110 n/a 3,971

Between BetweenLess than 1 year and 5 years and After

1 year 5 years 10 years 10 years% % % %

Weighted average yields1

Australia

Commonwealth securities 5.08 4.83 – –Local and semi-government securities 5.03 – – –Other securities and equity investments 3.89 – – –Overseas

New Zealand government securities 6.90 – – –Indian government securities 12.02 11.40 12.40 11.98Indian non-government securities 12.96 13.77 12.58 –Hong Kong non-government securities 8.20 8.60 5.51 –Pakistan government securities 14.05 15.00 – –Bangladesh government securities 10.55 10.55 – –Other government securities 8.21 7.48 7.20 13.95Other securities and equity investments 7.43 6.38 5.00 8.39

1 Based on effective yields for fixed interest and discounted securities and dividend yield for equity investments at 30 September 1998


21



$M $M $M $M

13: Net Loans and Advances

Loans and advances are classified between Australia andOverseas based on the domicile of the lending point

Australia

Overdrafts 2,776 2,831 2,776 2,831Credit card outstandings 2,138 1,733 2,138 1,733Term loans – housing 31,684 25,071 31,684 25,071Term loans – non-housing 27,431 24,491 26,247 23,100Lease finance (refer below) 3,585 3,505 845 788Hire purchase 7,257 6,656 43 –Other 384 388 382 380

75,255 64,675 64,115 53,903

Overseas

Overdrafts 2,448 2,542 530 471Credit card outstandings 413 336 5 4Term loans – housing 8,449 7,399 190 235Term loans – non-housing 19,331 21,416 8,406 9,173Lease finance (refer below) 405 115 174 9Hire purchase 327 271 – –Commercial bills 512 662 38 62Redeemable preference share finance 18 19 – –Other 393 476 – 3

32,296 33,236 9,343 9,957

Total gross loans and advances 107,551 97,911 73,458 63,860

Provisions for doubtful debts (refer note 15) (2,302) (2,220) (1,657) (1,683)Income yet to mature (1,186) (1,234) (3) (8)

(3,488) (3,454) (1,660) (1,691)

Total net loans and advances 104,063 94,457 71,798 62,169

Lease finance consists of gross lease receivablesCurrent 1,787 1,757 292 387Non-current 2,203 1,863 727 410

3,990 3,620 1,019 797


22


13: Net Loans and Advances (continued)

Maturity Distribution and Concentrations of Credit Risk

Between BetweenLess than 3 months and 1 year and After

Based on remaining term Overdraft 3 months 12 months 5 years 5 years Totalto maturity at 30 September 1999 $M $M $M $M $M $M

Australia

Agriculture, forestry, fishing and mining 451 480 1,667 960 730 4,288Business service 229 106 235 646 501 1,717Entertainment, leisure and tourism 98 377 245 659 628 2,007Financial, investment and insurance 139 141 3,024 609 525 4,438Government and official institutions 16 13 22 10 45 106Lease finance – 82 277 3,126 100 3,585Manufacturing 621 656 877 1,270 391 3,815Personal1 1,238 698 627 4,979 1,738 9,280Real estate – construction 198 52 207 512 407 1,376Real estate – mortgage2 498 1,428 1,207 4,387 28,342 35,862Retail and wholesale trade 771 914 1,004 874 1,383 4,946Other 229 1,134 684 709 1,079 3,835Overseas

Agriculture, forestry, fishing and mining 99 531 407 603 491 2,131Business service 48 305 56 108 33 550Entertainment, leisure and tourism 15 180 99 305 66 665Financial, investment and insurance 61 445 653 777 278 2,214Government and official institutions 115 65 112 386 72 750Lease finance – 21 20 364 – 405Manufacturing 482 2,793 845 1,785 588 6,493Personal1 343 499 339 620 503 2,304Real estate – construction 74 263 115 237 64 753Real estate – mortgage2 190 234 340 1,371 7,510 9,645Retail and wholesale trade 393 554 393 587 83 2,010Other 486 1,277 531 1,466 616 4,376

Gross loans and advances 6,794 13,248 13,986 27,350 46,173 107,551

Specific provision for doubtful debts (907) – – – – (907)Income yet to mature – (190) (377) (607) (12) (1,186)

(907) (190) (377) (607) (12) (2,093)

Loans and advances net of specificprovision and income yet to mature 5,887 13,058 13,609 26,743 46,161 105,458

General provision (1,395) (1,395)

Net loans and advances 5,887 13,058 13,609 26,743 44,766 104,063

Interest rate sensitivity

Fixed interest rates3 1,348 4,017 9,212 17,401 13,192 45,170Variable interest rates 5,446 9,231 4,774 9,949 32,981 62,381

6,794 13,248 13,986 27,350 46,173 107,551


23


13: Net Loans and Advances (continued)

Maturity Distribution and Concentrations of Credit Risk

Between BetweenLess than 3 months and 1 year and After

Based on remaining term Overdraft 3 months 12 months 5 years 5 years Totalto maturity at 30 September 1998 $M $M $M $M $M $M

Australia

Agriculture, forestry, fishing and mining 605 598 1,002 901 542 3,648Business service 353 174 286 1,124 695 2,632Entertainment, leisure and tourism 83 218 336 847 468 1,952Financial, investment and insurance 666 1,261 1,237 811 526 4,501Government and official institutions 1 – 3 15 44 63Lease finance – 92 296 2,988 129 3,505Manufacturing 646 367 441 814 318 2,586Personal1 1,091 248 530 4,560 683 7,112Real estate – construction 197 91 117 591 297 1,293Real estate – mortgage2 398 1,393 1,326 2,166 23,641 28,924Retail and wholesale trade 731 1,563 416 1,009 1,141 4,860Other 283 1,323 543 1,088 362 3,599Overseas

Agriculture, forestry, fishing and mining 73 375 640 580 450 2,118Business service 58 279 58 105 36 536Entertainment, leisure and tourism 17 95 211 205 129 657Financial, investment and insurance 207 1,061 724 671 180 2,843Government and official institutions 113 181 70 338 119 821Lease finance – 40 10 65 – 115Manufacturing 351 2,655 1,566 1,794 367 6,733Personal1 1,179 517 442 1,078 293 3,509Real estate – construction 68 213 156 196 166 799Real estate – mortgage2 20 338 1,502 3,284 3,681 8,825Retail and wholesale trade 185 872 575 448 100 2,180Other 280 1,393 698 1,135 594 4,100

Gross loans and advances 7,605 15,347 13,185 26,813 34,961 97,911

Specific provision for doubtful debts (819) – – – – (819)Income yet to mature – (234) (372) (616) (12) (1,234)

(819) (234) (372) (616) (12) (2,053)

Loans and advances net of specificprovision and income yet to mature 6,786 15,113 12,813 26,197 34,949 95,858

General provision (1,401) (1,401)

Net loans and advances 6,786 15,113 12,813 26,197 33,548 94,457

Interest rate sensitivity

Fixed interest rates3 848 5,875 8,475 18,795 11,862 45,855Variable interest rates 6,757 9,472 4,710 8,018 23,099 52,056

7,605 15,347 13,185 26,813 34,961 97,911

1 Personal includes non-business loans to individuals through overdrafts, personal loans, credit cards and fully drawn advances2 Real estate mortgage includes residential and commercial property exposure. Loans within this category are for the purchase of such properties and must be

secured by property3 Housing loans and other loans that are capped for an initial period are fixed interest rate loans and their maturities based on the principal repayments due

over the term of the loan


24



$M $M $M $M

14: Impaired Assets

Summary of impaired assets

Non-accrual loans 1,543 1,662 886 1,031Restructured loans 7 4 7 4Unproductive facilities 91 104 70 60

Gross impaired assets 1,641 1,770 963 1,095Specific provisions

Non-accrual loans (886) (762) (467) (473)Unproductive facilities (21) (57) (8) (24)

Net impaired assets 734 951 488 598

Non–accrual loans

Non-accrual loans 1,543 1,662 886 1,031Specific provisions (886) (762) (467) (473)

Total net non-accrual loans 657 900 419 558

Restructured loans

For these loans interest and fees are recognised asincome on an accruals basis 7 4 7 4

Other real estate owned

In the event of customer default, any loan security is held as mortgagee in possession and therefore the Groupdoes not hold any other real estate owned assets – – – –

Unproductive facilities

Unproductive facilities 91 104 70 60Specific provisions (21) (57) (8) (24)

Net unproductive facilities 70 47 62 36

Accruing loans past due 90 days or more

These amounts, comprising loans less than $100,000 or fully secured, are not classified as impaired assets and therefore are not included within the above summary 283 283 233 207


25

14: Impaired Assets (continued)

Further analysis of non-accrual loans at 30 September 1999 and interest and/or other income received during the year underAustralian Prudential Regulation Authority guidelines is as follows

Consolidated The CompanyGross Interest and/or Gross Interest and/or

balance Specific other income balance Specific other incomeoutstanding provision received outstanding provision received

$M $M $M $M $M $M

Non-accrual loans

Without provisionsAustralia 93 – 5 79 – 5New Zealand 17 – 1 – – –Overseas markets 145 – 3 108 – 2

255 – 9 187 – 7

With provisions and no, or partial performance1

Australia 429 238 20 336 188 20New Zealand 29 17 1 – – –Overseas markets 694 557 13 258 220 2

1,152 812 34 594 408 22

With provisions and full performance1

Australia 101 40 4 100 40 4New Zealand 4 3 – – – –Overseas markets 31 31 6 5 19 #

136 74 10 105 59 4

Total non-accrual loans 1,543 886 53 886 467 33

# Amounts less than $500,0001 A loan’s performance is assessed against its contractual repayment schedule

Interest and other income forgone on impaired assets

The following table shows the estimated amount of interest and other income that would have been recorded hadinterest and other income on non-accrual loans been accrued to income (or, in the case of restructured loans, hadinterest and other income been accrued at the original contract rate), and the amount of interest and other incomereceived with respect to such loans.


$M $M $M $M

Gross interest and other income receivable on

non–accrual loans and restructured loans

Australia 73 77 60 70New Zealand 7 8 – –Overseas markets 92 37 30 8

Total gross interest and other income receivable on non-accrual loans and restructured loans 172 122 90 78

Interest and other income received

Australia (29) (29) (29) (28)New Zealand (2) (3) – –Overseas markets (22) (7) (4) (1)

Total interest and other income received (53) (39) (33) (29)

Net interest and other income forgone

Australia 44 48 31 42New Zealand 5 5 – –Overseas markets 70 30 26 7

Total net interest and other income forgone 119 83 57 49



26



$M $M $M $M

15: Provisions for Doubtful Debts

General provision

Balance at start of year 1,401 1,430 1,186 1,127Transfers from controlled entities – – (3) 7Adjustment for exchange rate fluctuations (34) (4) (21) 8Charge to profit and loss account 510 487 245 326Transfer to specific provision (515) (549) (240) (300)Recoveries 33 37 15 18

Total general provision 1,395 1,401 1,182 1,186

Specific provision

Balance at start of year 819 453 497 304Adjustment for exchange rate fluctuations (45) 38 (28) 25Transfers from controlled entities – – 2 11Bad debts written off (382) (221) (236) (143)Transfer from general provision 515 549 240 300

Total specific provision 907 819 475 497

Total provisions for doubtful debts 2,302 2,220 1,657 1,683

Provision movement analysis

New and increased provisions (by exposure)Australia 253 239 172 170New Zealand 32 41 – –Asia 150 263 57 170Other international 211 127 96 52

646 670 325 392Provision releases (131) (121) (86) (93)

515 549 239 299Recoveries of amounts previously written off (33) (37) (15) (18)

Net specific provision 482 512 224 281Net credit (debit) to general provision 28 (25) 21 45

Charge to profit and loss 510 487 245 326

Ratios

Provisions1 as a % of total advances2 % % % %Specific 0.7 0.7 0.5 0.6General 1.1 1.2 1.3 1.5

Provisions as a % of risk weighted assetsSpecific 0.8 0.7 0.6 0.6General 1.2 1.2 1.4 1.5

Bad debts written off as a % of total advances2 0.3 0.2 0.3 0.2

Net specific provision as a % of total advances2 0.4 0.5 0.3 0.4

1 Excludes provisions for unproductive facilities2 See definitions on page 87


27



$M $M $M $M

16: Customers’ Liabilities for Acceptances

Australia

Agriculture, forestry, fishing and mining 817 779 817 779Business service 333 400 333 400Entertainment, leisure and tourism 1,712 2,185 1,712 2,185Financial, investment and insurance 701 943 701 943Government and official institutions 5 2 5 2Manufacturing 3,429 3,375 3,429 3,375Personal1 148 264 148 264Real estate – construction 106 97 106 97Real estate – mortgage2 4,385 4,240 4,385 4,240Retail and wholesale trade 2,204 1,959 2,204 1,959Other 643 721 643 721

14,483 14,965 14,483 14,965

Overseas

Agriculture, forestry, fishing and mining 19 18 – 3Business service 10 47 1 7Entertainment, leisure and tourism 1 16 – –Financial, investment and insurance 143 145 143 130Manufacturing 134 278 12 64Personal1 6 17 – –Real estate – construction 17 33 1 2Real estate – mortgage2 – 4 – –Retail and wholesale trade 41 94 33 10Other 4 31 1 –

375 683 191 216

Total customers’ liabilities for acceptances 14,858 15,648 14,674 15,181

1 Personal includes non-business acceptances to individuals2 Real estate mortgage includes residential and commercial property exposure. Acceptances within this category are for the purchase of such properties and

must be secured by property


28



$M $M $M $M

17: Regulatory Deposits

Reserve Bank of Australia – 639 – 639Overseas central banks 616 891 49 105

Total regulatory deposits 616 1,530 49 744

The Reserve Bank of Australia announced an amendment to the Banking Act. With effect from 1 July 1999, theGroup is no longer required to place a non-callable deposit with the Reserve Bank. As a consequence of this change,an amount of $705 million was repaid to the Group.

18: Shares in Controlled Entities and Associates

Refer notes 35 and 36 for details of material controlled entities and associates


$M $M $M $M

Controlled entities

At directors’ valuation 1998 – 5,934At directors’ valuation 1999 7,116 –

Total shares in controlled entities 7,116 5,934

Associates

Total shares in associates 32 11 1 1

Total shares in controlled entities and associates 32 11 7,117 5,935


29


$M $M $M $M

19: Other Assets

Property held for resaleCost of acquisition 50 57 – –Development expenses capitalised 32 53 – –Interest, rates and taxes capitalised 1 2 – –

83 112 – –Provision for diminution in value (10) (10) – –

73 102 – –

Accrued interest/prepaid discounts 965 1,122 725 867Accrued commission 103 95 54 56Prepaid expenses 177 160 66 33Future income tax benefits (refer below) 1,207 1,170 869 853Treasury instruments revaluations 6,108 9,955 5,112 9,283Security settlements 96 567 70 462Life insurance reserves 257 213 – –Goodwill 109 18 97 6Operating leases residual value 445 388 – –Available for sale emerging markets portfolio 43 231 43 231Other 722 843 241 163

Total other assets 10,305 14,864 7,277 11,954

Future income tax benefits comprisesProvisions for doubtful debts 910 835 640 630Tax losses 79 74 62 58Provision for employee entitlements 71 70 63 61Provision for non-lending losses, frauds and forgeries 34 30 31 27Provision for leased premises surplus to current requirements 7 10 4 4

Development venture income 14 13 – –Leveraged leasing 7 – 6 –Provision for restructuring costs 17 29 13 15Other 68 109 50 58

1,207 1,170 869 853

Future income tax benefitsAustralia 832 866 688 679Overseas 375 304 181 174

1,207 1,170 869 853

Certain potential future income tax benefits within the Group have not been recognised as assets because recoverycannot be regarded as virtually certain. These potential benefits arise from tax losses and timing differences (benefitscould amount to $31 million, 1998: $26 million) and from realised capital losses (benefits could amount to$123 million, 1998: $133 million).

These benefits will only be obtained if(i) the relevant entities derive future assessable income of a nature and amount sufficient to enable the benefit of the

taxation deductions to be realised;(ii) the relevant entities continue to comply with the conditions for deductibility imposed by law; and(iii) there are no changes in taxation legislation adversely affecting the benefit of the taxation deductions.



30


$M $M $M $M

20: Premises and Equipment

Freehold and leasehold land and buildingsAt directors’ valuation 1996 – 918 – 102At directors’ valuation 1999 810 – 93 –At cost – 33 – 1Provision for depreciation (37) (35) (3) (2)

773 916 90 101

Leasehold improvementsAt cost 128 143 89 86Provision for amortisation (86) (89) (61) (54)

42 54 28 32

Furniture and equipmentAt cost 890 838 500 411Provision for depreciation (533) (508) (281) (253)

357 330 219 158

Computer and office equipmentAt cost 769 789 520 512Provision for depreciation (541) (538) (363) (346)

228 251 157 166

Capital works in progressAt cost 24 22 17 13

Total premises and equipment 1,424 1,573 511 470

Valuations of premises are assessed annually by officers of the Group. All premises over a specific value are also subjectto external valuation at least once every three years by independent valuers. Valuations are based on the estimated openmarket value and assume that the premises concerned continue to be used in their existing manner by the Group.

Independent valuations were carried out as at 30 June 1999 by Arthur Andersen (most major Australian and Pacificproperties), by AT Cocks Consulting (100 Queen Street Melbourne property), and by Jones Lang LaSalle Advisory(other major international properties). There have been no material movements in property valuations to 30 September 1999. The valuations estimated that the market value of premises exceeded the book value by $80 million. The excess has not been booked in the financial statements.

21: Due to Other Financial Institutions

Australia 1,364 841 1,364 841Overseas 7,637 9,917 6,616 8,290

Total due to other financial institutions 9,001 10,758 7,980 9,131

Maturity analysis based on remaining term to maturity at 30 SeptemberAt call 550 2,305 348 2,022Less than 3 months 7,725 7,065 6,963 5,923Between 3 months and 12 months 724 1,360 667 1,158Between 1 year and 5 years 2 28 2 28

Total due to other financial institutions 9,001 10,758 7,980 9,131



31



$M $M $M $M

22: Deposits and Other Borrowings

Deposits and other borrowings are classified between Australia and Overseas based on the location of the deposit taking point

Australia

Certificates of deposit 6,787 5,063 6,750 5,063Term deposits 14,265 16,123 14,265 16,088Other deposits bearing interest 24,649 23,124 24,649 23,124Deposits not bearing interest 3,296 3,096 3,296 3,096Commercial paper 4,836 3,264 3,144 1,838Borrowing corporations’ debt 5,798 5,325 – –Securities sold under agreement to repurchase 902 2,031 902 2,031

60,533 58,026 53,006 51,240

Overseas

Certificates of deposit 3,607 5,071 1,042 1,924Term deposits 17,259 19,483 5,639 6,564Other deposits bearing interest 7,831 8,332 763 1,058Deposits not bearing interest 2,358 2,242 288 263Commercial paper 3,757 184 – –Borrowing corporations’ debt 1,071 1,030 – –Securities sold under agreement to repurchase 24 92 – 92Other unsecured borrowings 119 139 90 90

36,026 36,573 7,822 9,991

Total deposits and other borrowings 96,559 94,599 60,828 61,231

Maturity analysis based on remaining term to maturity at 30 SeptemberAt call 29,833 32,391 21,698 23,313Less than 3 months 43,222 44,648 27,986 30,787Between 3 months and 12 months 18,603 12,982 9,316 5,613Between 1 year and 5 years 4,847 4,523 1,784 1,472After 5 years 54 55 44 46

Total deposits and other borrowings 96,559 94,599 60,828 61,231

23: Income Tax Liability

Australia

Provision for income tax 217 76 169 37Provision for deferred income tax (refer below) 494 484 216 225

711 560 385 262

OverseasProvision for income tax 170 213 80 51Provision for deferred income tax (refer below) 170 141 86 76

340 354 166 127

Total income tax liability 1,051 914 551 389

Provision for deferred income tax comprisesLease finance 207 193 16 30Depreciation 23 36 5 8Investment income 8 19 1 –Treasury instruments 46 118 46 118Other 380 259 234 145

664 625 302 301


32



$M $M $M $M

24: Creditors and Other Liabilities

Australia

Creditors 395 317 375 282Accrued interest and unearned discounts 625 575 486 406Treasury instruments revaluations 4,650 4,373 4,650 4,373Accrued charges 214 237 179 209Security settlements 55 185 55 185Other liabilities 228 170 146 95

6,167 5,857 5,891 5,550

Overseas

Creditors 556 469 291 2Accrued interest and unearned discounts 626 756 332 464Treasury instruments revaluations 1,237 5,985 799 5,253Accrued charges 121 153 39 42Security settlements 240 241 203 173Other liabilities 475 548 250 141

3,255 8,152 1,914 6,075

Total creditors and other liabilities 9,422 14,009 7,805 11,625

25: Provisions

Employee entitlements 238 238 186 182Dividends (refer note 7) 470 431 470 431Non-lending losses, frauds and forgeries 120 102 86 72Leased premises surplus to current requirements 21 30 11 11Restructuring costs 46 82 35 42Other 115 104 71 81

Total provisions 1,010 987 859 819

26: Bonds and Notes

Bonds and notes by currency

USD United States dollars 3,295 386 3,295 386GBP Great British pounds 101 14 101 14AUD Australian dollars 91 91 91 91NZD New Zealand dollars 158 – – –JPY Japanese yen 233 175 233 175EUR Euro dollars 489 – 489 –HKD Hong Kong dollars 89 – 89 –

Total bonds and notes 4,456 666 4,298 666

Bonds and notes by maturity

Maturity analysis based on remaining term to maturity at 30 SeptemberLess than 3 months 307 336 307 336Between 3 months and 12 months 732 83 732 83Between 1 year and 5 years 3,326 230 3,168 230After 5 years 91 17 91 17

Total bonds and notes 4,456 666 4,298 666


33


Interest Consolidated The CompanyRate 1999 1998 1999 1998

% $M $M $M $M

27: Loan CapitalPerpetual subordinated notes

USD 300m floating rate notes LIBOR1 + 0.15 459 502 459 502USD 258.7m fixed rate notes 9.125 396 434 396 434

855 936 855 936

Subordinated notes

AUD 48.8m fixed notes due 1999 7.720 – 49 – 49JPY 10,000m fixed notes due 19992 7.430,5.800 – 124 – 124GBP 22.7m fixed notes due 2000 7.050 71 62 – –GBP 60m fixed notes due 2001 12.625 151 171 151 171USD 160m3 floating rate notes due 2002 LIBOR + 0.70 245 335 245 335USD 250m fixed rate notes due 2004 6.25 383 418 383 418USD 125m floating rate notes due 2005 LIBOR + 0.45 191 209 – –USD 500m fixed notes due 2006 7.55 765 836 765 836USD 12.5m floating rate notes due 2007 LIBOR + 0.50 19 21 19 21JPY 482m floating rate notes due 2007 LIBOR + 0.50 7 6 7 6USD 250m floating rate notes due 20074 LIBOR + 0.25 383 418 383 418JPY 568.8m floating rate notes due 2008 LIBOR + 0.55 8 7 8 7USD 14.3m floating rate notes due 2008 LIBOR + 0.50 22 24 22 24USD 79m floating rate notes due 20085 LIBOR + 1.03 121 132 121 132

2,366 2,812 2,104 2,541

Total loan capital 3,221 3,748 2,959 3,477

Loan capital by currency

USD United States dollars 2,984 3,329 2,793 3,120AUD Australian dollars – 49 – 49GBP Great British pounds 222 233 151 171JPY Japanese yen 15 137 15 137

3,221 3,748 2,959 3,477

Loan capital by maturity

Maturity analysis based on remaining term to maturity at 30 SeptemberBetween 3 months and 12 months 71 173 – 173Between 1 year and 5 years 779 568 779 506After 5 years 1,516 2,071 1,325 1,862Perpetual 855 936 855 936

3,221 3,748 2,959 3,477

1 LIBOR is an average of rates offered on loans to leading banks in the London inter-bank market2 Two equal tranches of notes were issued with different interest rates3 As at 30 September 1998 principal of note outstanding was US$200 million. Note is repayable over 5 years ($40 million (20%) per annum), commencing

in October 19984 After February 2002 the interest rate is LIBOR+ 0.75%5 After January 2002 the interest rate is LIBOR+ 0.53%

Loan capital is subordinated in right of payment to the claims of depositors and all other creditors of the Company and its controlled entities which haveissued the notes, and constitutes tier 2 capital as defined by the Australian Prudential Regulation Authority for capital adequacy purposes


34

28: Share Capital

The CompanyNumber of issued shares 1999 1998 1997

Ordinary shares each fully paid 1,565,428,469 1,539,440,677 1,508,550,854Ordinary shares each paid to 10 cents per share 95,000 169,000 274,500Preference shares each fully paid 124,032,000 64,016,000 –

Total number of issued shares 1,689,555,469 1,603,625,677 1,508,825,354

Preference share capital raising

On 19 November 1998, the Company issued 56,016,000 fully paid non-converting non-cumulative preference sharesfor US$6.25 per share, raising capital of US$350 million for the Group via a Trust Securities Issue.

On the 24 November 1998, the Company issued a further 4,000,000 fully paid non-converting non-cumulativepreference shares for US$6.25 per share raising capital of US$25 million. These additional shares resulted from theexercise of an option by the underwriters.

The Trust Securities are mandatorily exchangeable for the preference shares issued by the Company, and carry anentitlement to a non-cumulative trust distribution of 8.08% per annum payable quarterly in arrears. The TrustSecurities were issued by a non diversified closed end management investment company registered under the USInvestment Company Act of 1940. The preference shares themselves carry no present entitlement to dividends.Distributions to investors in the Trust Securities are funded by income distributions made by the Group.

Upon maturity of the Trust Securities in 2048, investors will mandatorily exchange the Trust Securities for thepreference shares and thereupon the preference shares will carry an entitlement to non-cumulative dividends of 8.08%per annum payable quarterly in arrears. The mandatory exchange of the Trust Securities for the preference shares mayoccur earlier at the Company’s option or in specified circumstances.

With the prior consent of the Australian Prudential Regulation Authority, the preference shares are redeemable at theCompany’s option after 5 years, or within 5 years in limited circumstances. The entitlement of investors to distributionson the Trust Securities will cease on redemption of the preference shares.

The conditions of issue of these preference shares are the same as those of the preference shares issued in September1998, however the distribution to Trust Securities holders is 8.08% compared to 8%. The transaction costs arising onthe issue of these instruments were recognised directly in equity as a reduction of the proceeds of the equityinstruments to which the costs relate.


$M $M $M $M

Preference share capitalBalance at start of year USD 400 – 400 –Issued during the year USD 375 400 375 400less: issue costs USD 27 15 27 15

Preference share net proceeds USD 748 385 748 385

Preference share net proceedstranslated to AUD at 30 September rate AUD 1,145 645 1,145 645

Consolidated1999 1998

$M $M

29: Outside Equity Interests

Share capital 7 24Reserves 8 20Retained profits 11 12

Total outside equity interests 26 56



35

30: Average Balance Sheet and Related Interest

Averages used in the following table are predominantly daily averages. Interest income figures are presented on atax-equivalent basis. Non-accrual loans are included under the interest earning asset category “Loans, advances andbills discounted”. Intragroup interest earning assets and interest bearing liabilities are treated as external assets andliabilities for the geographic segments. This is a change from prior years and comparatives have been adjusted.

1999 1998 1997Average Average Average Average Average Averagebalance Interest rate balance Interest rate balance Interest rate

$M $M % $M $M % $M $M %

Interest earning assets

Due from other financial institutionsAustralia 1,237 45 3.6 754 30 3.9 480 32 6.7New Zealand 545 21 3.9 269 16 6.0 359 21 5.9Overseas markets 2,486 161 6.5 7,463 510 6.8 10,380 700 6.7

Regulatory deposits withReserve Bank of Australia 501 – – 606 – – 556 5 0.9

Investments in public securitiesAustralia 4,686 222 4.7 4,814 254 5.3 4,770 301 6.3New Zealand 1,009 47 4.7 1,763 135 7.7 1,603 107 6.7Overseas markets 2,585 270 10.5 4,383 431 9.8 5,094 427 8.4

Loans, advances andbills discounted

Australia 69,251 4,960 7.2 59,133 4,575 7.7 52,703 4,647 8.8New Zealand 15,288 1,178 7.7 14,717 1,443 9.8 14,313 1,427 10.0Overseas markets 16,918 1,411 8.3 17,546 1,484 8.5 14,578 1,249 8.6

Other assetsAustralia 1,593 82 5.1 2,143 112 5.2 1,655 105 6.3New Zealand 960 75 7.9 1,097 109 9.9 831 80 9.6Overseas markets 3,132 218 6.9 5,040 407 8.1 5,920 361 6.1

Intragroup assetsOverseas markets 7,238 388 5.4 2,781 165 5.9 1,263 49 3.9

127,429 9,078 122,509 9,671 114,505 9,511Intragroup elimination (7,238) (388) (2,781) (165) (1,263) (49)

120,191 8,690 7.2 119,728 9,506 7.9 113,242 9,462 8.4

Non-interest earning assets

AcceptancesAustralia 16,045 15,052 13,248New Zealand 49 233 244Overseas markets 420 540 556

Premises and equipment 1,457 1,544 1,558Other assets 12,308 14,795 10,534Provisions for doubtful debts

Australia (1,664) (1,487) (1,274)New Zealand (168) (178) (175)Overseas markets (437) (367) (280)

28,010 30,132 24,411

Total assets 148,201 149,860 137,653

Total average assets

Australia 99,509 87,652 77,604New Zealand 19,366 19,673 18,395Overseas markets 36,564 45,316 42,917

155,439 152,641 138,916Intragroup elimination (7,238) (2,781) (1,263)

148,201 149,860 137,653

% of total assets attributableto overseas activities 32.9% 41.5% 43.6%



36

30: Average Balance Sheet and Related Interest (continued)

1999 1998 1997Average Average Average Average Average Averagebalance Interest rate balance Interest rate balance Interest rate

$M $M % $M $M % $M $M %

Interest bearing liabilities

Time depositsAustralia 21,337 1,008 4.7 19,537 975 5.0 18,495 1,097 5.9New Zealand 8,035 406 5.1 8,358 657 7.9 8,304 658 7.9Overseas markets 14,569 872 6.0 17,971 1,243 6.9 15,904 1,015 6.4

Savings depositsAustralia 9,006 202 2.3 8,705 186 2.1 8,216 222 2.7New Zealand 3,330 90 2.7 2,883 109 3.8 2,462 96 3.9Overseas markets 1,599 84 5.3 1,562 87 5.6 1,266 69 5.5

Other demand depositsAustralia 14,638 522 3.6 13,114 476 3.6 11,237 518 4.6New Zealand 1,633 58 3.5 1,913 134 7.0 1,789 122 6.8Overseas markets 1,525 58 3.8 1,482 62 4.2 1,009 41 4.1

Due to other financial institutionsAustralia 276 12 4.3 387 17 4.5 300 15 5.0New Zealand 631 39 6.2 752 56 7.5 843 73 8.7Overseas markets 8,544 467 5.5 10,160 614 6.0 11,549 716 6.2

Commercial paperAustralia 3,844 187 4.9 3,806 188 4.9 3,081 181 5.9Overseas markets 2,597 127 4.9 720 40 5.6 1,731 94 5.4

Borrowing corporations’ debtAustralia 5,414 317 5.9 5,171 332 6.4 5,326 409 7.7New Zealand 1,067 65 6.1 1,073 83 7.8 1,237 103 8.3

Loan capital, bonds and notesAustralia 4,677 270 5.8 3,913 247 6.3 4,998 313 6.3New Zealand 160 9 5.6 167 15 9.0 170 14 8.2Overseas markets 380 22 5.7 417 28 6.8 653 41 6.3

Other liabilities1

Australia 1,727 61 n/a 2,094 138 n/a 785 70 n/aNew Zealand 193 62 n/a 766 140 n/a 199 33 n/aOverseas markets 508 91 n/a 1,142 125 n/a 2,010 118 n/a

Intragroup LiabilitiesAustralia 5,018 280 5.6 1,673 137 8.2 712 18 2.5New Zealand 2,220 108 4.9 1,108 28 2.5 551 31 5.6

112,928 5,417 108,874 6,117 102,827 6,067Intragroup elimination (7,238) (388) (2,781) (165) (1,263) (49)

105,690 5,029 4.8 106,093 5,952 5.6 101,564 6,018 5.9

Non-interest bearing liabilities

DepositsAustralia 3,204 3,041 2,817New Zealand 730 836 1,288Overseas markets 1,481 1,636 1,529

AcceptancesAustralia 16,045 15,052 13,248New Zealand 49 233 244Overseas markets 420 540 556

Other liabilities 11,255 14,797 9,444

33,184 36,135 29,126

Total liabilities 138,874 142,228 130,690

1 Includes foreign exchange swap costs



37


30: Average Balance Sheet and Related Interest (continued)

1999 1998 1997Average Average Averagebalance balance balance

$M $M $M

Total average liabilities

Australia 91,900 82,295 73,135New Zealand 18,548 18,924 17,739Overseas markets 35,664 43,790 41,079

146,112 145,009 131,953Intragroup elimination (7,238) (2,781) (1,263)

138,874 142,228 130,690

Shareholders’ equity

Ordinary share capital 8,237 7,620 6,963Preference share capital 1,090 12 –

9,327 7,632 6,963

Total liabilities and

shareholders’ equity 148,201 149,860 137,653

% of total liabilities attributable to overseas activities 37.3% 43.3% 44.9%


38


31: Interest Sensitivity Gap

Balance Sheet Interest Rate Risk

Interest rate risk in the balance sheet relates to the potential for changes in market interest rates to have an adverseimpact on the Group’s future net interest income. This risk arises from two principal sources: mismatching therepricing dates of interest bearing assets and liabilities, and the investment of capital and other non-interest bearingliabilities in interest bearing assets.

The objective of balance sheet interest rate risk management is to secure stable and optimal net interest income overboth the medium (next 12 months) and long term.

a) Next 12 Months’ Net Interest Income

The extent of mismatching between the repricing characteristics and/or dates of interest bearing assets and liabilities atany point in time has implications for future net interest income. On a global basis, the Group quantifies the potentialvariation in future net interest income as a result of these repricing mismatches each month using a static gap model.

The repricing gaps themselves are constructed based on contractual repricing information. However, for those assetsand liabilities where the contractual term to repricing is not considered to be reflective of the actual interest ratesensitivity (for example, products priced at the Group’s discretion), a profile based on historically observed and/oranticipated rate sensitivity is used.

For the purpose of this and the economic value analysis described below, it is assumed that shareholders’ funds andother non-interest bearing items do not reprice.

A 1% overnight parallel shift in the yield curve is modelled to determine the potential impact on net interest incomeover the immediate forward period of 12 months. This is a standard risk quantification tool.

The figures in the tables below indicate the outcome of this risk measure for the current and previous financial years -expressed as a percentage of reported net interest income.

Impact of 1% Rate ShockConsolidated Group Position

1999 1998

As at 30 September 0.14% 0.72%Average exposure 0.36% 0.30%High 0.68% 0.72%Low 0.01% 0.02%

In Australia and New Zealand, the static gap approach is supplemented by sophisticated simulation analyses whichsimulate the impact on earnings of a large number of scenarios of rate changes and future balance sheet structures,thereby enabling the Group to accurately quantify the risks and formulate strategies to manage current and future risk profiles.

b) Economic Value

The focus of the Group’s balance sheet interest rate risk management is on the stability of net interest income.However, as an additional indicator of the potential future variability in net interest income, a measure of market valueat risk (VaR) is also calculated - using the Group’s standard VaR methodology. Market value at risk is determined byrecalculating the net present value of the repricing mismatches in each currency using rate movements based on a97.5% confidence level of monthly movements in interest rates.

The figures in the following table represent the potential change in the market value of future net interest income in allfuture periods for the remaining term of existing interest bearing assets and liabilities.

Market Value at Risk Consolidated Group Position 1999 1998

(one month holding period) $M $M

As at 30 September 151 180Average exposure 160 128High 179 180Low 139 111


39


31: Interest Sensitivity Gap (continued)

The following table represents the interest rate sensitivity as at 30 September 1999 of the Group’s assets, liabilities and offbalance sheet instruments repricing (that is, when interest rates applicable to each asset or liability can be changed) in theperiods shown.

Repricing gaps are based upon contractual repricing information except where the contractual terms are not consideredto be reflective of actual interest rate sensitivity, for example, those assests and liabilities priced at the Group’s discretion.In such cases, the rate sensitivity is based upon historically observed and/or anticipated rate sensitivity.

Sensitivity to interest rates arises from mismatches in the period to repricing of assets and that of the correspondingliability funding. These mismatches are managed within policy guidelines for mismatch positions.

Between Between Between NotLess than 3 months and 6 months and 1 year and After bearing3 months 6 months 12 months 5 years 5 years interest Total

At 30 September 1999 $M $M $M $M $M $M $M

Liquid assets and due from other financial institutions 6,586 246 776 66 42 1,039 8,755

Trading and investment securities 5,788 593 1,143 1,237 109 84 8,954Net loans and advances 71,151 7,068 7,869 18,302 432 (759) 104,063Other assets 520 27 7 8 49 26,624 27,235

Total assets 84,045 7,934 9,795 19,613 632 26,988 149,007

Certificates of depositand term deposits 28,703 5,601 2,863 4,735 16 – 41,918

Other deposits 27,364 1,194 1,646 2,274 2 5,654 38,134Other borrowings and due to

other financial institutions 17,170 4,359 1,925 2,054 – – 25,508Other liabilities 439 12 3 – 2 25,885 26,341Bonds, notes and loan capital 4,875 531 98 1,346 827 – 7,677

Total liabilities 78,551 11,697 6,535 10,409 847 31,539 139,578

Shareholders’ equity andoutside equity interests – – – – – 9,429 9,429

Off balance sheet items affectinginterest rate sensitivity (2,004) 300 (1,247) 1,382 979 590 –

Interest sensitivity gap – net 3,490 (3,463) 2,013 10,586 764 (13,390) –– cumulative 3,490 27 2,040 12,626 13,390 – –


40


31: Interest Sensitivity Gap (continued)

The following table represents the interest rate sensitivity as at 30 September 1998 of the Group’s assets, liabilities andoff balance sheet instruments repricing (that is, when interest rates applicable to each asset or liability can be changed)in the periods shown.

Between Between Between NotLess than 3 months and 6 months and 1 year and After bearing3 months 6 months 12 months 5 years 5 years interest Total

At 30 September 1998 $M $M $M $M $M $M $M

Liquid assets and due from other financial institutions 9,668 549 490 90 50 838 11,685

Trading and investment securities 7,526 698 258 962 295 213 9,952Net loans and advances 60,976 6,662 8,731 18,192 454 (558) 94,457Other assets 1,079 – – 2 37 32,508 33,626

Total assets 79,249 7,909 9,479 19,246 836 33,001 149,720

Certificates of depositand term deposits 31,018 5,520 4,657 4,536 9 – 45,740

Other deposits 29,155 238 424 1,639 – 5,338 36,794Other borrowings and due to

other financial institutions 14,540 2,137 2,613 3,012 – 521 22,823Other liabilities 410 – – 1 6 31,141 31,558Bonds, notes and loan capital 1,824 269 270 363 1,688 – 4,414

Total liabilities 76,947 8,164 7,964 9,551 1,703 37,000 141,329

Shareholders’ equity andoutside equity interests – – – – – 8,391 8,391

Off balance sheet items affectinginterest rate sensitivity 3,872 (3,619) (3,217) 1,494 1,395 75 –

Interest sensitivity gap – net 6,174 (3,874) (1,702) 11,189 528 (12,315) –– cumulative 6,174 2,300 598 11,787 12,315 – –


41

32: Net Fair Value of Financial Instruments

Australian Accounting Standard AASB 1033: Presentation and Disclosure of Financial Instruments (AASB 1033) requiresdisclosure of the net fair value of on and off balance sheet financial instruments. The disclosures exclude all non-financial instruments, such as income taxes and regulatory deposits, and specified financial instruments, such as interestsin controlled entities. The aggregate net fair value amounts do not represent the underlying value of the Group.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willingparties in an arm’s length transaction. Net fair value is the fair value adjusted for transaction costs.

Quoted market prices, where available, are adjusted for material transaction costs and used as the measure of net fairvalue. In cases where quoted market values are not available, net fair values are based on present value estimates orother valuation techniques. For the majority of short-term financial instruments, defined as those which reprice ormature in 90 days or less, with no significant change in credit risk, the net fair value was assumed to equate to thecarrying amount in the Group’s balance sheet.

The fair values are based on relevant information available as at 30 September 1999. While judgement is used in obtainingthe net fair value of financial instruments, there are inherent weaknesses in any estimation technique. Many of the estimatesinvolve uncertainties and matters of significant judgement, and changes in underlying assumptions could significantly affectthese estimates. Furthermore, market prices or rates of discount are not available for many of the financial instrumentsvalued and surrogates have been used which may not reflect the price that would apply in an actual sale.

The net fair value amounts have not been updated for the purposes of these financial statements since 30 September1999, and therefore the net fair value of the financial instruments subsequent to 30 September 1999 may be differentfrom the amounts reported.

Net fair value Carrying value1999 1998 1999 1998

Financial Assets $M $M $M $M

Liquid assets 5,283 7,527 5,283 7,527Due from other financial institutions 3,472 4,158 3,472 4,158Trading securities 4,259 5,973 4,259 5,973Investment securities and shares in associates 4,762 3,982 4,727 3,990Loans and advances 105,229 96,182 104,063 94,457Customers’ liabilities for acceptances 14,858 15,648 14,858 15,648Other financial assets 8,847 13,369 8,740 13,105

Liquid assets and Due from other financial institutions

The carrying values of these financial instruments are considered to approximate their net fair values as they are short-term in nature or are receivable on demand.

Trading securitiesTrading securities are carried at market value. Market value is generally based on quoted market prices, broker or dealerprice quotations, or prices for securities with similar credit risk, maturity and yield characteristics.

Investment securities and Shares in associatesNet fair value is based on quoted market prices or broker or dealer price quotations. If this information is not available,net fair value has been estimated using quoted market prices for securities with similar credit, maturity and yieldcharacteristics, or by reference to the net tangible asset backing of the investee.

Loans, advances and Customers’ liabilities for acceptancesThe carrying value of loans, advances and acceptances is net of specific and general provisions for doubtful debts andincome yet to mature. The estimated net fair value of loans, advances and acceptances is based on the discountedamount of estimated future cash flows and accordingly has not been adjusted for either specific or general provisions fordoubtful debts.Estimated contractual cash flows for performing loans are discounted at estimated current market rates to determine fairvalue. For loans with doubt as to collection, expected cash flows (inclusive of the value of security) are discountedusing a rate which includes a premium for the uncertainty of the flows.The difference between estimated net fair values of loans, advances and acceptances and carrying value reflects changesin interest rates and the credit worthiness of borrowers since loan origination. The excess of net fair value of loans andadvances over the carrying value is primarily a result of offsetting the general provision for doubtful debts against thecarrying value.

Net lease receivables, with a carrying value of $2,804 million (1998: $2,845 million) and a net fair value of $2,799 million (1998: $2,880 million), are included in loans and advances.



42

32: Net Fair Value of Financial Instruments (continued)

Other financial assets

Included in this category are accrued interest, fees receivable and derivative financial instruments. The carrying valuesof accrued interest and fees receivable are considered to approximate their net fair values as they are short term innature or are receivable on demand.

The fair values of derivative financial instruments such as interest rate swaps and currency swaps were calculated usingdiscounted cash flow models based on current market yields for similar types of instruments and the maturity of eachinstrument. Foreign exchange contracts and interest rate option contracts were valued using market prices and optionvaluation models as appropriate.

Properties held for resale, future income tax benefits and prepaid expenses are not considered financial assets.

Net fair value Carrying value1999 1998 1999 1998

Financial Liabilities $M $M $M $M

Due to other financial institutions 9,001 10,758 9,001 10,758

Deposits and other borrowings 96,583 94,676 96,559 94,599

Liability for acceptances 14,858 15,648 14,858 15,648

Bonds and notes 4,462 667 4,456 666

Loan capital 3,198 3,858 3,221 3,748

Other financial liabilities 9,189 13,625 9,046 13,495


Due to other financial institutions

The carrying value of amounts due to other financial institutions is considered to approximate the net fair value.

Deposits and other borrowings

The net fair value of a deposit liability without a specified maturity or at call is deemed by AASB 1033 to be theamount payable on demand at the reporting date. The fair value is not adjusted for any value expected to be derivedfrom retaining the deposit for a future period of time.For interest bearing fixed maturity deposits and other borrowings and acceptances without quoted market prices,market borrowing rates of interest for debt with a similar maturity are used to discount contractual cash flows.

Bonds and notes and Loan capital

The aggregate net fair value of bonds and notes and loan capital at 30 September 1999 was calculated based on quotedmarket prices. For those debt issues where quoted market prices were not available, a discounted cash flow model usinga yield curve appropriate for the remaining term to maturity of the instrument was used.

Other financial liabilities

This category includes accrued interest and fees payable for which the carrying amount is considered to approximatethe fair value.Also included are derivative financial instruments, where fair value is determined on the basis describedunder “Other financial assets”.Income tax liabilities, other provisions and accrued charges are not considered financial instruments.

Commitments and contingencies

As outlined in note 39, the Group has various credit related commitments. Based upon the level of fees currentlycharged for granting such commitments, taking into account maturity and interest rates, together with any changes inthe creditworthiness of counterparties since origination of the commitments, their estimated replacement or net fairvalue is not material.

Transaction costs

The fair value of financial instruments required to be disclosed under US accounting standard, Statement of FinancialAccounting Standards No. 107 “Disclosures about Fair Value of Financial Instruments” (SFAS 107) is calculated withoutregard to estimated transaction costs. Such transaction costs are not material, and accordingly the fair values shownabove would not differ materially from fair values calculated in accordance with SFAS 107.


43


33: Segment Analysis

For management purposes the Group is organised on an industry basis into three major operating divisions beingPersonal Financial Services, Corporate Financial Services and International. Group (including discontinuedbusinesses) includes the results of asset and liability management, earnings on central capital and results ofdiscontinued businesses. Each industry segment is identified by the type of products and services the divisionprovides to various customers. A description of each of the operating divisions, including the types of products andservices it provides to customers, is detailed in the Glossary on pages 86 to 87.

The Group operates in seven major geographical locations. They are Australia, New Zealand, UK and Europe,AsiaPacific, South Asia,Americas and Middle East. The composition of each geographical location is detailed in theGlossary on pages 86 to 87.

The following analysis details financial information by industry and geographic location respectively.

Industry Segment Analysis1, 2

GroupPersonal Corporate (includingFinancial Financial discontinued Consolidated

Consolidated Services Services International businesses) Total30 September 1999 $M $M $M $M $M

Total income 4,697 4,068 1,871 359 10,995

Net interest income 1,861 956 569 259 3,645

Other operating income 954 903 384 80 2,321

Operating income 2,815 1,859 953 339 5,966

Depreciation/amortisation (44) (31) (31) (89) (195)

Other expenses (1,844) (1,071) (644) (50) (3,609)

Income tax and outside equity interests (305) (207) (102) (68) (682)

Operating profit before abnormals 622 550 176 132 1,480

Net abnormals – – – – –

Operating profit after income tax 622 550 176 132 1,480

Assets 55,701 66,723 17,859 7,517 147,800

Income tax assets 214 462 219 312 1,207

Total assets 55,915 67,185 18,078 7,829 149,007

Liabilities 35,083 58,493 20,935 24,016 138,527

Income tax liabilities 185 463 241 162 1,051

Total liabilities 35,268 58,956 21,176 24,178 139,578

1 Results are “Equity Standardised”. See definition on page 862 Intersegment transfers are accounted for and determined on an arms length basis. Intersegment transfers are immaterial


44

33: Segment Analysis (continued)

Industry Segment Analysis1,2

GroupPersonal Corporate (includingFinancial Financial discontinued Consolidated

Consolidated Services Services International businesses) Total30 September 1998 $M $M $M $M $M

Total income3 4,739 3,856 2,145 788 11,528

Net interest income 1,808 900 597 242 3,547

Other operating income 825 886 440 (52) 2,099

Operating income 2,633 1,786 1,037 190 5,646

Depreciation/amortisation (48) (24) (30) (89) (191)

Other expenses (1,895) (1,113) (658) (68) (3,734)

Income tax and outside equity interests (224) (177) (129) (16) (546)

Operating profit before abnormals 466 472 220 17 1,175

Net abnormals – – – (69) (69)

Operating profit after income tax 466 472 220 (52) 1,106

Assets 47,040 70,222 19,070 12,218 148,550

Income tax assets 189 496 162 323 1,170

Total assets 47,229 70,718 19,232 12,541 149,720

Liabilities 36,835 64,913 23,361 15,306 140,415

Income tax liabilities 101 479 253 81 914

Total liabilities 36,936 65,392 23,614 15,387 141,329

1 Results are “Equity Standardised”. See definition on page 862 Intersegment transfers are accounted for and determined on an arms length basis. Intersegment transfers are immaterial3 Includes abnormal items



45




Geographic4, 5 $M % $M % $M %

Income6

Australia 6,802 62 6,403 56 6,390 55New Zealand 1,625 15 2,008 17 1,917 16UK and Europe 620 6 800 7 1,163 10Asia Pacific 620 6 868 7 863 7South Asia 585 5 572 5 655 6Americas 348 3 419 4 362 3Middle East 395 3 458 4 360 3

10,995 100 11,528 100 11,710 100

Operating profit before income tax

Australia 1,502 69 1,146 67 890 54New Zealand 282 13 242 14 168 10UK and Europe 49 2 (89) (5) 141 9Asia Pacific 102 5 145 8 139 8South Asia 104 5 134 8 167 10Americas 66 3 65 4 43 3Middle East 57 3 78 4 97 6

2,162 100 1,721 100 1,645 100

Abnormal itemsAustralia – – (17) – (240) –New Zealand – – – – (61) –UK and Europe – – (85) – (13) –Asia Pacific – – – – (1) –South Asia – – – – 136 –Americas – – – – (1) –Middle East – – – – (2) –

– – (102) – (182) –

2,162 – 1,619 – 1,463 –

Operating profit after income tax

Australia 1,042 70 819 70 687 59New Zealand 200 14 167 14 123 11UK and Europe 39 3 (59) (5) 105 9Asia Pacific 59 4 100 9 97 8South Asia 61 4 72 6 84 7Americas 46 3 36 3 24 2Middle East 33 2 40 3 51 4

1,480 100 1,175 100 1,171 100

Abnormal itemsAustralia – – (11) – (155) –New Zealand – – – – (41) –UK and Europe – – (58) – (9) –South Asia – – – – 59 –Middle East – – – – (1) –

– – (69) – (147) –

1,480 – 1,106 – 1,024 –


46




Geographic5, 6 $M % $M % $M %

Total assets

Australia 103,757 70 94,194 63 80,321 58New Zealand 19,730 13 20,155 14 18,831 14UK and Europe 6,426 4 13,803 9 16,886 12Asia Pacific 5,934 4 7,104 5 9,844 7South Asia 4,471 3 5,008 3 3,959 3Americas 4,988 3 4,919 3 4,611 3Middle East 3,701 3 4,537 3 3,789 3

149,007 100 149,720 100 138,241 100

Risk weighted assets

Australia 80,462 68 75,063 65 66,687 63New Zealand 13,546 11 13,766 12 14,332 13UK and Europe 6,733 6 8,597 8 8,471 8Asia Pacific 5,527 5 6,034 5 6,489 6South Asia 3,456 3 3,642 3 2,897 3Americas 4,786 4 5,081 4 4,505 4Middle East 3,527 3 3,913 3 2,766 3

118,037 100 116,096 100 106,147 100

4 Intersegment transfers are accounted for and determined on an arms length basis. Intersegment transfers are immaterial5 The geographic segments represent the locations in which the transaction was booked6 Includes abnormal items


47



$M $M $M $M $M

34: Notes to the Statements of Cash Flows

a) Reconciliation of operating profit after income

tax to net cash provided by operating activitiesInflows Inflows

(Outflows) (Outflows)

Operating profit after income tax 1,480 1,106 1,024 1,299 1,331

Adjustments to reconcile operating profit after income tax to net cash provided by operating activities

Provision for doubtful debts 510 487 400 245 326Depreciation and amortisation 195 191 200 107 107Provision for employee entitlements and other provisions 272 284 560 230 210Payments from provisions (290) (521) (362) (233) (428)(Profit) loss on sale of premises and equipment (13) (10) 2 2 1Provision for surplus lease space 1 (12) 29 – (8)(Profit) loss on sale of controlled entities and associates – – (10) – –Profit on sale of investment securities (1) (11) (2) – (2)Net decrease (increase)

Trading securities 1,442 926 304 1,743 376Interest receivable 78 16 (127) 85 (16)Accrued income (8) (38) (18) 2 (21)Net debit tax balances 95 115 49 152 11

Amortisation of discounts/premiums includedin interest income (73) (112) (85) (7) (10)

Net increase (decrease) Interest payable (10) (239) 23 (10) (187)Accrued expenses 15 116 47 (33) 92

Other 1 (41) (1) 5 57

Total adjustments 2,214 1,151 1,009 2,288 508

Net cash provided by operating activities 3,694 2,257 2,033 3,587 1,839

b) Reconciliation of cash and cash equivalents1

Cash and cash equivalents include liquid assets and amounts due from other financial institutions with original term to maturity ofless than 90 days. Cash and cash equivalents at the end of the financial year as shown in the statements of cash flows are reconciledto the related items in the balance sheets as follows

Liquid assets – less than 90 days 4,243 6,687 4,533 2,676 3,783Due from other financial institutions – less than 90 days 2,391 2,294 7,923 1,501 1,400

6,634 8,981 12,456 4,177 5,183

1 At 30 September 1999, cash and cash equivalents totalling $357 million (1998: $294 million) were not available for use outside the local operations of India$123 million (1998: $207 million), Pakistan $137 million (1998: $87 million), Bangladesh $77 million (1998: nil), Sri Lanka $2 million (1998: nil) and Nepal$18 million (1998: nil) due to exchange control regulations


48


$M $M $M $M $M

34: Notes to the Statements of Cash Flows (continued)

c) Acquisitions and disposals

Details of aggregate assets and liabilities of controlled entities and branches acquired, and disposed of, by the Group are as follows

Fair value of net assets acquiredLiquid assets – – 2 – –Net loans and advances – – – – –Other assets – – 2 – –Premises and equipment – – 4 – –Creditors and other liabilities – – (3) – –Income tax liability – – – – –Provisions – – – – –

Fair value of net assets acquired – – 5 – –Goodwill on acquisition – – 6 – –

Consideration paid – – 11 – –Cash acquired – – – – –

Cash consideration paid – – 11 – –

Fair value of net assets disposedLiquid assets – – 4 – –Due from other financial institutions – – 35 – –Net loans and advances – – 72 – –Other assets – – 20 – –Premises and equipment – – 1 – –Due to other financial institutions – – (2) – –Creditors and other liabilities – – (13) – –Deposits and other borrowings – – (104) – –Provisions – – 1 – –

Fair value of net assets disposed – – 14 – –Net profit on disposal – – 10 – –

Consideration received/receivable – – 24 – –Deferred settlements – – 17 – –

Cash consideration received – – 41 – –

d) Non-cash financing and investing activities

Share capital issuesDividend reinvestment plan 176 218 180 176 218Bonus option plan – 2 3 – 2

e) Financing arrangements 1999 1998Available Unused Available Unused

$M $M $M $M

Financing arrangements which are available under normal financial arrangements

Credit standby arrangementsStandby lines 749 436 1,208 522

Other financing arrangementsOverdrafts and other financing arrangements 949 105 860 99

Total finance available 1,698 541 2,068 621



49


Incorporated in Nature of Business

35: Controlled Entities

All controlled entities are 100% owned unless otherwise noted.The material controlled entities of the Group are

Australia and New Zealand Banking Group Limited BankingANZ Bank (Guernsey) Limited * Guernsey BankingANZCover Insurance Pty Ltd Australia InsuranceANZ Executors & Trustee Company Limited Australia Trustee/NomineeANZ Funds Pty Ltd Australia Holding Company

ANZ Holdings (New Zealand) Limited * New Zealand Holding CompanyANZ Banking Group (New Zealand) Limited * New Zealand BankingBage Investments Limited * New Zealand InvestmentGreyloch Holdings Limited * New Zealand Holding Company

Greyloch Investments Limited * New Zealand FinanceUDC Group Holdings Limited * New Zealand Holding CompanyUDC Finance Limited * New Zealand FinanceNational Mutual Permanent Building Society* New Zealand Building Society

ANZ International Private Limited * Singapore Holding CompanyANZ Singapore Limited * Singapore Merchant Banking

LFD Limited Australia InvestmentMinerva Holdings Limited * England Holding Company

ANZ Grindlays Export Finance Limited * England Export FinanceTown & Country Land Holdings Limited Australia Property Development

ANZ Lenders Mortgage Insurance Pty Limited Australia Mortgage InsuranceANZ Grindlays Jersey Holdings Limited * Jersey Holding Company

ANZ Grindlays Bank (Jersey) Limited * Jersey BankingANZ Grindlays Holdings Limited Australia Holding Company

ANZ Grindlays Bank Limited Australia BankingA.N.Z. Holdings Limited Australia Property OwnerANZ Investment Holdings Limited Australia Investment

530 Collins Street Property Trust Australia Investment ActivitiesANZ Life Assurance Company Limited Australia Life AssuranceANZ Managed Investments Limited Australia Investment ServicesA.N.Z. Properties (Australia) Limited Australia Property OwnerANZ Securities (Holdings) Limited Australia Holding CompanyAustralia and New Zealand Banking Group (PNG) Limited * Papua New Guinea BankingEsanda Finance Corporation Limited Australia General FinanceNMRB Limited Australia Holding Company

ANZ Capel Court Limited Australia Investment BankingPT ANZ Panin Bank *1 Indonesia Banking

* Audited by overseas KPMG firms1 Outside equity interests hold ordinary shares or units in the controlled entities listed above as follows:

PT ANZ Panin Bank – 7,500 IDR1m shares (15%) (1998: 7,500 IDR IM shares (15%))


50


Contribution tothe consolidated

Book value resultInterest 1999 1998 Balance 1999 1998 Principal

Incorporated in % $M $M date $M $M activity

36: Associates

Significant associates of the Group are

ANZ MeesPierson Clearing Services Pty Ltd Australia 51 8 8 30 Sep # # Clearing HouseGrindlays Bahrain Bank BSC1 Bahrain 40 22 – 30 Sep # – BankingOther associates 2 3 (2) (4)

Total shares in associates 32 11 (2) (4)

# Amounts less than $500,0001 An associate effective from 1 October 1998, previously a controlled entity


$M $M $M $M

37: Commitments

Capital expenditure

Contracts for outstanding capital expenditureNot later than 1 year 40 37 6 4Later than 1 year but not later than 2 years 7 6 – –Later than 2 years but not later than 5 years 12 3 – –

Total capital expenditure commitments 59 46 6 4

Lease rentals

Future rentals in respect of leasesLand and buildings

Not later than 1 year 133 128 106 105Later than 1 year but not later than 2 years 93 107 70 87Later than 2 years but not later than 5 years 136 166 86 123Later than 5 years 377 382 350 353

739 783 612 668

Furniture and equipmentNot later than 1 year 3 3 1 1Later than 1 year but not later than 2 years 3 2 – 1Later than 2 years but not later than 5 years 4 3 – –

10 8 1 2

Total lease rental commitments 749 791 613 670

Total commitments 808 837 619 674

38: Derivative Financial Instruments

Derivatives

Derivative instruments are contracts whose value is derived from one or more underlying financial instruments or indices.They include swaps, forward rate agreements, futures, options and combinations of these instruments. The use ofderivatives and their sale to customers as risk management products is an integral part of the Group’s trading activities.Derivatives are also used to manage the Group’s own exposure to fluctuations in exchange and interest rates as part of itsasset and liability management activities and are classified as other than trading. Derivatives are subject to the same typesof credit and market risk as other financial instruments, and the Group manages these risks in a consistent manner.

The principal exchange rate contracts used by the Group are forward foreign exchange contracts, currency swaps andcurrency options. Forward foreign exchange contracts are agreements to buy or sell a specified quantity of foreigncurrency on a specified future date at an agreed rate. A currency swap generally involves the exchange, or notionalexchange, of equivalent amounts of two currencies and a commitment to exchange interest periodically until the principalamounts are re-exchanged on a future date. Currency options provide the buyer with the right, but not the obligation,either to purchase or sell a fixed amount of a currency at a specified rate on or before a future date. As compensation forassuming the option risk, the option writer generally receives a premium at the start of the option period.


51


38: Derivative Financial Instruments (continued)

The principal interest rate contracts used by the Group are forward rate agreements, interest rate futures, interest rateswaps and options. Forward rate agreements are contracts for the payment of the difference between a specified interestrate and a reference rate on a notional deposit at a future settlement date. There is no exchange of principal. Aninterest rate future is an exchange traded contract for the delivery of a standardised amount of a fixed income securityor time deposit at a future date. Interest rate swap transactions generally involve the exchange of fixed and floatinginterest payment obligations without the exchange of the underlying principal amounts.

Derivative transactions generate income for the Group from buy sell spreads and from trading positions taken by theGroup. Income from these transactions is taken to net interest income, foreign exchange earnings or profit on tradinginstruments. Income or expense on derivatives entered into for balance sheet hedging purposes is accrued andrecorded as an adjustment to the interest income or expense of the related hedged item.

Credit risk

The credit risk of derivative financial instruments arises from the potential for a counterparty to default on itscontractual obligation. Credit risk arises when market movements are such that the derivative has a positive value tothe Group. It is the cost of replacing the contract in the event of counterparty default. The Group limits its credit riskwithin a conservative framework by dealing with creditworthy counterparties, setting credit limits on exposures tocounterparties, and obtaining collateral where appropriate.

The following table provides an overview of the Group’s exchange rate and interest rate derivatives. It includes alltrading and other than trading contracts. Notional principal amounts measure the amount of the underlying physicalor financial commodity and represent the volume of outstanding transactions. They are not a measure of the riskassociated with a derivative.

The credit equivalent amount is calculated in accordance with the Australian Prudential Regulation Authority’s CapitalAdequacy guidelines. It combines the aggregate gross replacement cost with an allowance for the potential increase invalue over the remaining term of the transaction should market conditions change.

The fair value of a derivative represents the aggregate net present value of the cash inflows and outflows required toextinguish the rights and obligations arising from the derivative in an orderly market as at the reporting date. Fair valuedoes not indicate future gains or losses, but rather the unrealised gains and losses from marking to market all derivativesat a particular point in time.

Notional Credit Notional Creditprincipal equivalent principal equivalentamount amount Fair value amount amount Fair value

1999 1999 1999 1998 1998 1998Consolidated $M $M $M $M $M $M

Foreign exchange contracts

Spot and forward contracts 159,229 3,091 24 212,883 6,649 742Swap agreements 20,938 1,947 659 19,890 2,063 770Options purchased 12,914 516 302 16,566 1,033 784Options sold1 14,497 n/a (360) 15,867 n/a (566)Other contracts 5,201 313 – 925 46 (49)

212,779 5,867 625 266,131 9,791 1,681

Interest rate contracts

Forward rate agreements 84,114 59 2 46,995 86 11Swap agreements 215,238 2,604 (98) 175,696 3,613 (20)Futures contracts2 74,545 n/a (27) 68,303 n/a (3)Options purchased 5,131 42 25 18,630 27 41Options sold1 5,706 n/a (29) 19,869 n/a (39)Other contracts – – – 12 1 (6)

384,734 2,705 (127) 329,505 3,727 (16)

597,513 8,572 498 595,636 13,518 1,665

1 Options sold have no credit exposure, as they represent obligations rather than assets2 Credit equivalent have not been included as there is minimal credit risk associated with exchange traded futures where the clearing house is the

counterparty n/a not applicable


52



The maturity structure of derivative activity is a primary component of potential credit exposure. The table belowshows the remaining maturity profile by class of derivatives and based on notional principal amounts. The table alsoshows the notional principal amounts of the derivatives held for trading and other than trading purposes.

Consolidated Remaining lifeLess than Greater than Other Than

1 year 1 to 5 years 5 years Total Trading TradingAt 30 September 1999 $M $M $M $M $M $M


Spot and forward contracts 153,885 5,142 202 159,229 147,398 11,831Swap agreements 9,145 9,516 2,277 20,938 13,687 7,251Options purchased 10,911 1,851 152 12,914 12,835 79Options sold 12,391 1,817 289 14,497 14,418 79

Other contracts 3,900 982 319 5,201 5,201 –

190,232 19,308 3,239 212,779 193,539 19,240


Forward rate agreements 79,424 4,690 – 84,114 82,706 1,408Swap agreements 105,643 81,819 27,776 215,238 184,190 31,048Futures contracts 63,749 10,796 – 74,545 74,545 –Options purchased 2,331 2,800 – 5,131 5,113 18Options sold 4,064 1,454 188 5,706 5,688 18Other contracts – – – – – –

255,211 101,559 27,964 384,734 352,242 32,492

Total 445,443 120,867 31,203 597,513 545,781 51,732

At 30 September 1998


Spot and forward contracts 205,757 6,881 245 212,883 202,663 10,220Swap agreements 8,990 9,521 1,379 19,890 15,477 4,413Options purchased 14,691 1,756 119 16,566 15,989 577Options sold 13,831 1,839 197 15,867 15,285 582Other contracts 594 260 71 925 925 –

243,863 20,257 2,011 266,131 250,339 15,792


Forward rate agreements 41,406 5,589 – 46,995 45,901 1,094Swap agreements 73,296 71,921 30,479 175,696 153,847 21,849Futures contracts 58,289 10,014 – 68,303 68,303 –Options purchased 18,097 512 21 18,630 18,532 98Options sold 18,487 1,144 238 19,869 19,780 89Other contracts 12 – – 12 – 12

209,587 89,180 30,738 329,505 306,363 23,142

Total 453,450 109,437 32,749 595,636 556,702 38,934


53



Concentrations of credit risk exist for groups of counterparties when they have similar economic characteristics.Major concentrations of credit risk arise by location and type of customer.

The following table shows the concentrations of credit risk, by class of counterparty and by geographic location,measured by credit equivalent amount. In excess of 60% of the Group’s exposures are with counterparties which areeither Australian banks or banks based in other OECD countries.

Consolidated Australian and Corporations, non-OECDOECD govts OECD banks banks and others Total

At 30 September 1999 $M $M $M $M

Australia 364 2,474 1,943 4,781New Zealand 2 537 366 905UK and Europe 21 2,015 365 2,401Other International 3 389 93 485

390 5,415 2,767 8,572

Australian and Corporations, non-OECDOECD govts OECD banks banks and others Total

At 30 September 1998 $M $M $M $M

Australia 298 3,301 2,987 6,586New Zealand 15 754 340 1,109UK and Europe 6 3,718 865 4,589Other International 119 953 162 1,234

438 8,726 4,354 13,518

Market risk

The market risk of derivatives arises from the potential for changes in value due to movements in interest and foreignexchange rates.

The value at risk is a statistical estimate of the maximum daily trading loss with a 97.5% confidence. Conversely thereis a 2.5% probability of the trading loss exceeding the value at risk estimate on any given day. The Group has adoptedthe variance/covariance methodology as its standard for the calculation of value at risk. This methodology is based onhistoric estimates of the volatility and correlation of market rates and prices. Reflecting the nature of its tradingactivities, the Group monitors its value at risk by reference to close-to-close (overnight) risk levels.

Below are the Group’s aggregate value at risk figures covering both physical and derivatives trading positions for itsprincipal trading centres.

As at Maximum Minimum Average As at Maximum Minimum Average30 Sep 99 1999 1999 1999 30 Sep 98 1998 1998 1998

Consolidated $M $M $M $M $M $M $M $M

Value at risk at 97.5% confidenceForeign exchange 2 3 1 2 2 4 1 2Interest rate 3 9 3 5 8 28 8 18Equities – – – – – 5 – 3


54



The next table shows the fair values of the Group’s derivatives by product type, disaggregated into gross unrealisedgains and gross unrealised losses. The fair value of a derivative represents the aggregate net present value of the cashinflows and outflows required to extinguish the rights and obligations arising from the derivative in an orderly marketas at the reporting date. Fair value does not indicate future gains or losses, but rather the unrealised gains and lossesfrom marking to market all derivatives at a particular point in time.

Other than trading Trading TradingFair value Fair value Fair value Fair value Fair value Fair value

as at as at as at as at Average Average30 Sep 1999 30 Sep 1998 30 Sep 1999 30 Sep 1998 1999 1998

Consolidated $M $M $M $M $M $M


Spot and forward contractsGross unrealised gains 55 833 1,516 3,881 2,417 3,871Gross unrealised losses (49) (89) (1,498) (3,883) (2,411) (3,690)

Swap agreementsGross unrealised gains 435 274 607 965 896 702Gross unrealised losses (3) (6) (380) (463) (440) (376)

Options purchased – 21 302 763 376 593Options sold – – (360) (566) (351) (479)Other contracts

Gross unrealised gains – – 201 22 50 12Gross unrealised losses – – (201) (71) (88) (36)

438 1,033 187 648 449 597


Forward rate agreementsGross unrealised gains – 1 36 55 41 42Gross unrealised losses – (3) (34) (42) (38) (44)

Swap agreementsGross unrealised gains 127 333 1,697 2,617 2,211 1,924Gross unrealised losses (174) (250) (1,748) (2,720) (2,289) (2,449)

Futures contractsGross unrealised gains – 2 26 12 19 26Gross unrealised losses – – (53) (17) (35) (50)

Options purchased – – 25 41 36 48Options sold – – (29) (39) (31) (12)Other contracts

Gross unrealised gains – – – 1 – 1Gross unrealised losses – – – (7) – (8)

(47) 83 (80) (99) (86) (522)

Total 391 1,116 107 549 363 75

The fair values of derivatives vary over time depending on movements in interest and exchange rates and the tradingor hedging strategies used.


55



In addition to customer and trading activities, the Group uses, inter alia, derivatives to manage the risk associated with itsbalance sheet and future revenue streams. The principal objectives of asset and liability management are to hedge themarket value of the Group’s capital and to manage and control the sensitivity of the Group’s income while maintainingacceptable levels of interest rate and liquidity risk. The Group also uses a variety of foreign exchange derivatives to hedgeagainst adverse movements in the value of foreign currency denominated assets and liabilities and future revenue streams.

The table below shows the notional principal amount, credit equivalent amount and fair value of derivatives held by theGroup, split between those entered into for customer-related and trading purposes, and those entered into for other thantrading purposes.

Notional Credit Notional Creditprincipal equivalent Fair principal equivalent Fairamount amount value amount amount value



Customer-related and trading purposes 193,539 5,006 187 250,339 8,462 648Other than trading purposes 19,240 861 438 15,792 1,329 1,033

212,779 5,867 625 266,131 9,791 1,681


Customer-related and trading purposes 352,242 2,480 (80) 306,363 3,311 (99)Other than trading purposes 32,492 225 (47) 23,142 416 83

384,734 2,705 (127) 329,505 3,727 (16)

Total 597,513 8,572 498 595,636 13,518 1,665

Detailed below are the net deferred realised and unrealised gains and losses arising from other than trading contracts usedto hedge interest rate exposure or to hedge anticipated transactions. These gains and losses are deferred only to theextent that there is an offsetting unrecognised gain or loss on the exposure being hedged. Deferred gains or losses aregenerally amortised over the expected term of the hedged exposure.

Foreign Exchange Interest RateContracts Contracts Total


Expected recognition in income

Within one year (1) – (25) 99 (26) 99One to two years – – (15) 68 (15) 68Two to five years – – 2 92 2 92Greater than five years – – 2 11 2 11

(1) – (36) 270 (37) 270


56


39: Contingent Liabilities and Credit Related Commitments

Credit related commitments

The credit risk of the following facilities may be less than the contract amount, but as it cannot be accuratelydetermined, the credit risk has been taken to be the contract amount.

Consolidated The Company Controlled Entities1999 1998 1999 1998 1999 1998

Contract Contract Contract Contract Contract Contractamount amount amount amount amount amount

$M $M $M $M $M $M

Undrawn facilities 46,816 45,576 35,457 34,095 11,359 11,481Underwriting facilities 536 1,027 408 641 128 386

47,352 46,603 35,865 34,736 11,487 11,867

Contingent liabilities

The Group guarantees the performance of customers by issuing standby letters of credit and guarantees to third parties.The risk involved is essentially the same as the credit risk involved in extending loan facilities to customers, thereforethese transactions are subjected to the same credit origination, portfolio management and collateral requirements forcustomers applying for loans. As the facilities may expire without being drawn upon, the notional amounts do notnecessarily reflect future cash requirements.

The credit risk of these facilities may be less than the contract amount, but as it cannot be accurately determined, thecredit risk has been taken to be the contract amount.

Consolidated The Company Controlled Entities1999 1998 1999 1998 1999 1998

Contract Contract Contract Contract Contract Contractamount amount amount amount amount amount

$M $M $M $M $M $M

Guarantees 2,477 2,585 2,157 2,085 320 500Standby letters of credit 1,087 922 1,030 890 57 32Bill endorsements 233 20 210 11 23 9Documentary letters of credit 1,702 1,740 954 1,002 748 738Performance related contingents 10,545 9,691 8,737 7,508 1,808 2,183Other1 1,031 1,173 655 719 376 454

Total contingent liabilities 17,075 16,131 13,743 12,215 3,332 3,916

1 In addition the Group had equity underwriting commitments of $39 million at 30 September 1999 (1998: $115 million) which are classified as market riskexposures

The details and estimated maximum amount of contingent liabilities that may become payable are set out below.

(i) In accordance with the clearing arrangements set out in the Australian Payments Clearing Association Limited(APCA) Regulations for the Australian Paper Clearing System, the Bulk Electronic Clearing System and the HighValue Clearing System, the Company has a commitment to provide liquidity support to these clearing streams inthe event of a failure to settle by a member institution; for the latter clearing stream, the obligation arises only inlimited circumstances.

(ii) The Group will indemnify each customer of controlled entities engaged in nominee activities against loss sufferedby reason of such entities failing to perform any obligation undertaken by them to a customer.

(iii) Pursuant to class order 98/1418 dated 13 August 1998, relief was granted during that year to a number of whollyowned controlled entities from the Corporations Law requirements for preparation, audit, and publication offinancial statements. The entities to which relief was granted are

A.F.T. Investors Services Limited ANZ Grindlays Holdings LimitedA.N.Z. Holdings Limited ANZ Investment Holdings LimitedA.N.Z. Properties (Australia) Limited A.N.Z. Nominees LimitedANZ Adelaide Group Limited E.S.&A. Holdings LimitedANZ Capital Hedging Limited E.S.&A. Properties (Australia) LimitedANZ Finance (Far East) Limited NMRB LimitedANZ Funds Pty Ltd NMRSB Limited


57


It is the condition of the class order that the Company and each of the above controlled entities enter into a Deed ofCross Guarantee. A Deed of Cross Guarantee under the class order was lodged and approved by the Australian Securitiesand Investments Commission. The effect of the Deed is that the Company guarantees to each creditor payment in full ofany debt in the event of winding up any of the controlled entities under certain provisions of the Corporations Law.The Company will only be liable in the event that after six months any creditor has not been paid in full. The controlledentities have also given similar guarantees in the event that the Company is wound up. The consolidated profit and lossstatement and consolidated balance sheet of the Company and its wholly owned controlled entities which have enteredinto the Deed of Cross Guarantee are

Consolidated1999 1998

$M $M

Operating profit before tax 2,258 1,558Income tax expense (380) (209)

Operating profit after income tax 1,878 1,349Retained profits at start of year 835 233

Total available for appropriation 2,713 1,582Ordinary share dividends provided

for or paid (814) (747)

Retained profits at end of year 1,899 835

Assets

Liquid assets 3,564 4,466Investment securities 1,899 1,444Net loans and advances 71,870 62,253Other assets 38,564 47,628Premises and equipment 936 995

Total assets 116,833 116,786

Liabilities

Deposits and other borrowings 60,828 61,231Income tax liability 575 389Creditors and other liabilities 45,363 45,998Provisions 859 884

Total liabilities 107,625 108,502

Net assets 9,208 8,284

Shareholders’ equity 9,208 8,284

(iv) The Company has guaranteed payment on maturity of the principal and accrued interest of commercial papernotes issued by ANZ (Delaware) Inc. of $3,783 million (1998: $184 million).

(v) The Company is party to an underpinning agreement with ANZ Grindlays Bank Limited whereby the Companyundertakes to assume risk in relation to credit facilities extended by ANZ Grindlays Bank Limited to certainindividual customers which exceed 25% of ANZ Grindlays Bank Limited’s capital base.

(vi) The Company is party to an underpinning agreement with ANZ Banking Group (New Zealand) Limited whereby theCompany undertakes to assume risk in relation to credit facilities extended by ANZ Banking Group (New Zealand)Limited to individual customers which exceed 35% of ANZ Banking Group (New Zealand) Limited’s capital base.

(vii) The Company is party to an underpinning agreement with Australia and New Zealand Banking Group (PNG)Limited whereby the Company undertakes to assume risk in relation to credit facilities extended by Australia and NewZealand Banking Group (PNG) Limited to individual customers which exceed 50% of Australia and New ZealandBanking Group (PNG) Limited’s capital base.

(viii) The Company has guaranteed, on a subordinated basis, the issue of $191 million (1998: $209 million) SubordinatedFloating Rate Notes issued by ANZ Banking Group (New Zealand) Limited.

39: Contingent Liabilities and Credit Related Commitments (continued)


58


39: Contingent Liabilities and Credit Related Commitments (continued)

General

There are outstanding court proceedings, claims and possible claims against the Group, the aggregate amount of whichcannot readily be quantified. Where considered appropriate, legal advice has been obtained and, in the light of suchadvice, provisions as deemed necessary have been made.

India – National Housing BankIn 1992 the branch of ANZ Grindlays Bank Limited (the Bank) in India received a claim, aggregating approximatelyIndian Rupees 5.06 billion ($178 million at 30 September 1999 rates) from the National Housing Bank (NHB) in thatcountry. The claim arose out of certain cheques drawn by NHB in favour of the Bank, the proceeds of which werecredited into the account of one of the customers of the Bank.

On 29 March 1997, pursuant to an Arbitration Agreement entered into on 4 November 1992, the Arbitrators made anaward on this dispute in favour of the Bank. NHB paid to the Bank the principal and interest due under the award(aggregating Indian Rupees 9.05 billion ($318 million at 30 September 1999 rates)). Subsequently, NHB had the awardreviewed by the Special Court (Trial of Offences Relating to Transactions in Securities) at Mumbai, which on 4 February 1998 ordered that the award be set aside. ANZ has filed an appeal with the Supreme Court of India seekingthat the Special Court’s order be set aside.

As the matter is sub judice, comment by the parties is limited. The Group has obtained legal advice from Senior Counseland based on that advice no provision has been made in respect of the claim.

India – Foreign Exchange Regulation ActIn 1991 certain amounts were transferred from non-convertible Indian Rupee Accounts maintained with ANZ GrindlaysBank Limited (the Bank) in India. In making these transactions it would appear that the provisions of the ForeignExchange Regulation Act, 1973 were inadvertently not complied with. The Bank, on its own initiative, brought thesetransactions to the attention of the Reserve Bank of India.

The Indian authorities have served preliminary notices on the Bank and certain of its officers in India which could leadto prosecutions and possible penalties. The Bank is contesting through the courts in India, the validity of the notices thathave been served. Separate to these court proceedings, adjudications in respect to two of the notices have been heard.No decision has been given in respect of these adjudications. ANZ considers that the outcome will have no materialadverse effect on the 30 September 1999 financial statements.

40: Superannuation Commitments

A number of pension and superannuation schemes have been established by the Group worldwide. The Group is obliged tocontribute to the schemes as a consequence of legislation and provisions of trust deeds. Legal enforceability is dependent on theterms of the legislation and trust deeds. The major schemes with assets in excess of $25 million are

Contribution levelsCountry Scheme Scheme type Employee Employer

Australia ANZGROUP (Australia) DefinedStaff Pension Scheme1 Benefit Scheme nil Balance of cost

Australia ANZ Australian Staff DefinedSuperannuation Scheme2 Contribution Scheme

Contributory 2.5% min Balance of cost3

orSection A optional 7% of salary

New Zealand ANZGROUP (New Zealand) DefinedStaff Superannuation Scheme1, 2 Benefit Scheme 5.5% Balance of cost

orDefined 7.5% of superannuationContribution Scheme 2.5% min salaries

England ANZ UK Staff Pension DefinedScheme1 Benefit Scheme nil Balance of cost

India Grindlays Bank Ltd DefinedIndian Provident Fund2 Contribution Scheme 10% 10% of salary

Balance of cost: the Group’s contribution is assessed by the actuary after taking account of members’ contributions and the value of the schemes’ assets1 These schemes provide for pension benefits2 These schemes provide for lump sum benefits3 As recommended by the actuary, currently 7% of members’ superannuation salaries


59


40: Superannuation Commitments (continued)

The details of major defined benefit schemes with assets in excess of $25 million are as follows

(Deficiency) excess ofnet market value

Employer’s Accrued Net market value of of assets over Vested1999 contribution benefits assets held by scheme accrued benefits benefitsScheme $M $M $M $M $M

ANZGROUP (Australia)Staff Pension Scheme1 4 54 52 (2) 54

ANZ UK Staff Pension Scheme1 – 685 959 274 650

(Deficiency) excess ofnet market value

Employer’s Accrued Net market value of of assets over Vested1998 contribution benefits assets held by scheme accrued benefits benefitsScheme $M $M $M $M $M

ANZGROUP (Australia)Staff Pension Scheme2 4 56 49 (7) 56

ANZ UK Staff Pension Scheme2 – 758 1,013 255 718

1 Amounts were measured at 31 December 19982 Amounts were measured at 31 December 1997

41: Fiduciary Activities

The Group conducts investment management and other fiduciary activities as trustee or manager for investment fundsand trusts, including superannuation and approved deposit funds, equity trusts, property trusts and deceased estates.These funds have not been consolidated as the Company does not have direct or indirect control of the funds.

Where the Company or its controlled entities incur liabilities in respect of these operations as trustee, a right ofindemnity exists against the assets of the applicable funds or trusts. As these assets are sufficient to cover the liabilitiesand it is therefore not probable that the Company or its controlled entities will be required to settle the liabilities, theliabilities are not included in the financial statements.

The aggregate amounts of funds concerned are as follows

1999 1998$M $M

Funds managed 15,268 14,439Trusteeships 3,318 2,800

18,586 17,239


60


42: Employee Share Purchase and Share Option Schemes

The Company has three share purchase and option plans and schemes available for employees of the Group: the ANZGroup Employee Share Acquisition Plan; the ANZ Group Share Purchase Scheme; and the ANZ Group Share OptionScheme. Shareholders of the Company have approved the Rules of each of the current schemes. Fully paid ordinaryshares issued under these plans rank equally with other existing fully paid ordinary shares, except for fully paid ordinaryshares issued on conversion from partly paid shares which are not entitled to the first dividend paid. Partly paidordinary shares, paid to 10 cents, issued under the former ANZ Group Senior Officers’ Share Purchase Scheme are notentitled to dividends payable by the Company, but are entitled to one vote for every ten partly paid shares. They arealso entitled to participate in rights and bonus issues.

Each option granted under the ANZ Group Share Option Scheme entitles a holder to purchase one ordinary sharesubject to any terms and conditions imposed on issue.

An offer to employees and non-executive directors cannot be made under any of the schemes if an issue pursuant tothat offer will result in the aggregate of shares issued, and those liable to be issued pursuant to exercisable optionsgranted under any of the schemes, and bonus shares issued in respect of shares issued under these schemes, exceeding7% of the issued capital of the Company.

Amounts received from the ANZ Group Employee Share Acquisition Plan and ANZ Group Share Purchase Schemes onfully paid and partly paid shares are recognised as share capital.

The market price of one ordinary share at 30 September 1999 was $10.25.

Amounts received from the ANZ Group Share Option Scheme during the financial year, excluding calls on partly paidshares issued in prior financial years, were recognised as follows

The Company1999 1998

$ $

Share capital 8,919,570 22,510,706General reserve (18,439) (10,124)

ANZ Group Employee Share Acquisition Plan

All employees, excluding part-time service employees, who have had continuous service for one year with theCompany or any of its controlled entities are eligible to participate in this scheme. Each eligible employee may beinvited to acquire ordinary shares with a market value not exceeding $1,000 in each financial year. Certain employeesmay also be issued deferred shares which vest in the employee after a qualifying period. Ordinary shares acquiredunder this scheme will be subject to certain disposal restrictions.

During the financial year, 2,610,129 deferred shares were issued under this scheme.

ANZ Group Share Purchase Scheme

Officers eligible to participate in this scheme may be offered fully paid ordinary shares. During the financial year, nofully paid ordinary shares were issued under the scheme.

At 30 September 1999, 11,035,400 fully paid ordinary shares and 7,805,000 partly paid ordinary shares had been issuedsince the commencement of this scheme. The partly paid ordinary shares were paid to 10 cents on application and thebalance payable either at the request of the employee or upon cessation of employment, except in the event of death,retirement or illness, in which case, the balance is payable three months after the event.

During the year the issue proceeds from conversion of partly paid shares to fully paid shares were:

10,000 ordinary shares at $5.32 per share 7,000 ordinary shares at $5.36 per share5,000 ordinary shares at $3.65 per share 3,000 ordinary shares at $4.83 per share

10,000 ordinary shares at $4.83 per share 10,000 ordinary shares at $5.26 per share2,000 ordinary shares at $5.10 per share 10,000 ordinary shares at $5.50 per share3,000 ordinary shares at $5.26 per share 2,000 ordinary shares at $4.94 per share

10,000 ordinary shares at $5.36 per share 2,000 ordinary shares at $5.26 per share


61


42: Employee Share Purchase and Share Option Schemes (continued)

ANZ Group Share Option Scheme

Executive directors and executive officers may be invited to purchase options under this scheme. These options do notentitle the holder to participate in a share issue of any other body corporate apart from the Company.

5,782,500 options were issued during the financial year. 110,220 options granted under the scheme lapsed during thefinancial year.

At 30 September 1999, 10,018,633 options were outstanding under this scheme.

No. of options outstandingat 30 September 1999 Exercise price Exercisable period

249,3571 $8.76 Not exercisable before 31 Jan 2000, or later than 30 Jan 200235,204 $8.76 Not exercisable before 14 Feb 2000, or later than 13 Feb 2002

100,000 $8.76 Not exercisable before 24 Mar 2000, or later than 23 Mar 2002800,000 $8.76 Not exercisable before 2 Jun 2000, or later than 1 Jun 2002173,592 $11.45 Not exercisable before 23 Jan 2001, or later than 22 Jan 2003500,000 $12.12 Not exercisable before 2 Feb 2000, or later than 1 Oct 2002500,000 $11.40 Not exercisable before 2 Jun 2001, or later than 1 Oct 2002100,000 $10.65 Not exercisable before 31 Dec 1998, or later than 30 Dec 1999100,000 $11.40 Not exercisable before 31 Dec 1998, or later than 30 Dec 199910,480 $11.45 Not exercisable before 18 Feb 2001, or later than 17 Feb 2003

1,450,000 $9.51 Not exercisable before 24 Feb 2001, or later than 23 Feb 20032

175,000 $10.64 Not exercisable before 22 Jun 2001, or later than 21 Jun 20032

50,000 $10.76 Not exercisable before 31 Jul 2001, or later than 30 Jul 20032

200,000 $8.93 Not exercisable before 2 Oct 2001, or later than 1 Oct 20032

1,125,000 $8.97 Not exercisable before 28 Oct 2001, or later than 27 Oct 20032

755,000 $10.34 Not exercisable before 11 Dec 2001, or later than 10 Dec 20032

10,000 $10.41 Not exercisable before 28 Jan 2002, or later than 27 Jan 20042

150,000 $10.44 Not exercisable before 24 Feb 2002, or later than 23 Feb 20042

175,000 $11.44 Not exercisable before 25 Mar 2002, or later than 24 Mar 20042

382,500 $11.20 Not exercisable before 2 Jun 2002, or later than 1 Jun 20042,795,000 $11.20 Not exercisable before 2 Jun 2002, or later than 1 Jun 20042

7,500 $11.26 Not exercisable before 7 Jun 2002, or later than 6 Jun 200425,000 $11.29 Not exercisable before 5 Jul 2002, or later than 4 Jul 20042

150,000 $11.30 Not exercisable before 12 Jul 2002, or later than 11 Jul 20042

1 10,710 options are exercisable by 30 December 19992 subject to performance condition

These options will expire immediately on termination of employment, except in the event of retirement, death or whereagreed by the Directors of the Company, in which case the Directors may allow the options to be exercised. 32,238options were exercised at $8.76 per share, 1,570,000 were exercised at $5.34 per share and a further 22,128 were exercisedat $11.45 per share by employees and former employees during the financial year with the consent of the Directors. In theevent of a takeover offer or takeover announcement, the directors of the Company may allow the options to be exercised.

If there is a bonus issue prior to the expiry or exercise of the options, then upon exercise of the options, option holdersare entitled to those shares as if the options had been exercised prior to that issue. Those shares will be allotted to theoption holder when the options are exercised.

As at the date of the Directors’ Report, unexercised options over ordinary shares are as per the table above, adjusted forthe exercise of 4,321 options at $8.76 per share, which were exercised by employees and former employees since theend of the financial year and the issue of 1,000,000 options since the end of the financial year at an exercise price of$9.94.


62


43: Related Party Disclosures

The directors during the year were

C B Goode (Chairman) J McFarlaneJ C Dahlsen J F Ries (retired 18 December 1998)R S Deane B W ScottJ K Ellis G K ToomeyC J Harper (retired 30 September 1999)M A Jackson

Australian banks, parent entities of Australian banks and controlled entities of Australian banks have been exempted,subject to certain conditions, by an Australian Securities and Investments Commission class order, 98/110 dated 10 July1998, from making disclosures of loans made, guaranteed or secured by a bank to related parties (other than specifiedcategories of directors) and financial instrument transactions (other than shares and share options) of a bank where adirector of the relevant entity is not a party to the transaction and where the loan or financial instrument transaction islawfully made and occurs in the course of ordinary banking business either at arm’s length or with the approval of ageneral meeting of the relevant entity and its ultimate chief entity (if any).

The class order does not apply to a loan or financial instrument transaction of which any director of the relevant entityshould reasonably be aware that, if not disclosed, would have the potential to adversely affect the decisions made byusers of the financial statements about the allocation of scarce resources.

A condition of the class order is that for each financial year to which it applies, the Company must provide evidenceto the Commission that the Company has systems of internal controls and procedures which

(i) in the case of any material financial instrument transaction, ensure that; and

(ii) in any other case, are designed to provide a reasonable degree of assurance that,

any financial instrument transaction of a bank which may be required to be disclosed in the Company’s financialstatements and which is not entered into regularly, is drawn to the attention of the directors.

(a) Transactions with directors and director-related entities

Shares and Share Options

Aggregate number of shares and share options issued to directors of the Company and their director-related entities bythe Company during the financial year were as follows

The Company1999 1998No. No.

Fully paid ordinary shares in the Company 22,319 307,716Fully paid deferred shares in the Company – 12,243Options issued under the ANZ Group Share Option Scheme – 1,200,000

Certain executive directors have acquired fully paid ordinary shares under the former ANZ Group Senior Officers’Share Purchase Scheme on conditions no more favourable than those offered to other employees. All other fully paidordinary shares were acquired on terms and conditions no more favourable than those offered to other shareholders.

Aggregate number of shares and share options held directly, indirectly or beneficially by directors of the Company andtheir director-related entities, as at balance date, were as follows

1999 1998No. No.

Fully paid ordinary shares in the Company 1,031,186 1,106,399Fully paid deferred shares in the Company – 12,243Share options over ordinary shares in the Company 1,210,710 1,510,710

Directors of the Company and their director-related entities received normal dividends on these shares.


63


43: Related Party Disclosures (continued)

Loans made to Directors

Loans made to non-executive directors of the Company and controlled entities are made in the course of ordinarybusiness on normal commercial terms and conditions. Loans to executive directors of the Company and controlledentities are made pursuant to the Executive Directors’ Loan Scheme authorised by shareholders on 18 January 1982, onthe same terms and conditions applicable to other employees within the Group in accordance with established policy.

Under the Australian Securities and Investments Commission class order referred to above, disclosure is limited to theaggregate amount of loans made, guaranteed or secured by(i) the Company to its directors;(ii) any controlled entity to the directors of the Company;(iii) banking corporation controlled entities to their directors; and(iv) non-banking corporation controlled entities to directors of controlled entities and to parties related to any one of

them or the directors of the Company.

The directors involved areS Armstrong3 B I Knight1,3,4

I W A Brandon1,2,3,4 J McFarlane1,2,3,4

K Chan3 K McNamara1

K Dorrian3,4 P O’Reilly1

C B Goode2 J F Ries1,2,3,4

D D Hisco2 M Rostain1,2,3,4

M J Horn1,2 W Stevenson2,4

1 Repayments made during the year 3 Repayments made during the prior year2 Loans made during the year 4 Loans made during the prior year

The aggregate amount of such loans outstanding at 30 September 1999 was

Consolidated The Company1999 1998 1999 1998$’000 $’000 $’000 $’000

Balance outstanding at 30 September 4,792 1,669 4,176 958Total interest received 155 155 112 60

The aggregate amount of repayments received from directors and theirdirector-related entities during the financial year was

Normal terms and conditions – 359 – –Employee terms and conditions 876 1,773 837 1,482

The aggregate amount of loans made during the financial year wasNormal terms and conditions 1,500 3 1,500 –Employee terms and conditions 2,482 2,412 2,293 1,575

Other transactions of Directors and Director-Related Entities

(i) Financial instrument transactionsUnder the Australian Securities and Investments Commission class order referred to above, disclosure of financialinstrument transactions regularly made by a bank is limited to disclosure of such transactions with a director of theentity concerned. Financial instrument transactions which have occurred on arm’s length terms and conditions, and aredeemed trivial or domestic in nature are required to be disclosed by general description.Financial instrument transactions between the directors and the banks during the financial year were in the nature ofnormal personal banking, investment and deposit transactions. These transactions occurred on an arm’s length basis andon normal commercial terms and conditions no more favourable than those given to other employees or customers.(ii) Transactions other than financial instrument transactions of banksLegal fees have been paid or are payable to Corrs Chamber Westgarth of which J C Dahlsen is a consultant. These feeswere determined on an arm’s length basis on normal terms and conditions.All other transactions with directors and their director-related entities are conducted on arm’s length terms andconditions, and are deemed trivial or domestic in nature. These transactions are in the nature of deposits, debentures, orinvestment transactions conducted with non-bank controlled entities.


64


44: Remuneration of Directors

Remuneration includes income from salaries, bonuses, other benefits (including non-cash benefits), retirement benefitsand superannuation contributions. The maximum total remuneration for non-executive directors of the Company wasset at the Annual General Meeting of 21 January 1998 at $1.5 million.Total fees paid to non-executive directors by theCompany for the year was $1.1 million (1998: $0.9 million). Retirement benefits paid to directors of the Company aredetailed in the Directors’ Report.

The number of directors of the Company with total income in each of the following bands was

The Company1999 1998

$40,001 to $50,000 – 1

$80,001 to $90,000 1 –

$90,001 to $100,000 1 2

$100,001 to $110,000 2 3

$110,001 to $120,000 1 1

$140,001 to $150,000 1 –

$170,001 to $180,000 – 1

$230,001 to $240,000 – 1

$300,001 to $310,000 1 –

$310,001 to $320,000 – 1

$370,001 to $380,000 1 –

$640,001 to $650,000 – 1$1,460,001 to $1,470,000 1 –$1,750,001 to $1,760,000 – 1$2,790,001 to $2,800,000 1 –

Total number of directors 10 12


Total income paid or payable to directors of the Company and controlled entities from the Company or related entity1 11,748 10,985 5,591 3,753

1 Including the total income of executive directors, excluding executive directors of wholly owned controlled entities who are executives of the Company

43: Related Party Disclosures (continued)

(b) Transactions with associated entities

During the course of the financial year the Company and the Group conducted transactions with associated entities onnormal commercial terms and conditions as shown below


AggregateAmounts receivable from associated entities 60,000 300 60,000 300Interest revenue 953 15 953 15Dividend revenue 1,243 6 – 6


65


45: Remuneration of Executives

Remuneration includes salaries, bonuses, other benefits (including non-cash benefits), and superannuation contributions.The remuneration of executives who work wholly or mainly outside Australia are excluded from this disclosure.

The number of executives with total remuneration exceeding $100,000 in each of the following bands was

Total number of executives 19 17 19 17

Total remuneration received or due and receivable directly or indirectly by executives of the Company and controlled entities ($’000) 17,983,305 16,836,914 17,983,305 16,836,914

The TheConsolidated Company Consolidated Company1999 1998 1999 1998 1999 1998 1999 1998

$160,001 to $170,000 1 – 1 –

$190,001 to $200,000 1 – 1 –

$410,001 to $420,000 – 1 – 1

$430,001 to $440,000 1 – 1 –

$440,001 to $450,000 – 1 – 1

$470,001 to $480,000 – 1 – 1

$600,001 to $610,000 1 1 1 1

$620,001 to $630,000 – 1 – 1

$630,001 to $640,000 1 – 1 –

$640,001 to $650,000 – 1 – 1

$650,001 to $660,000 1 – 1 –

$670,001 to $680,000 – 1 – 1

$690,001 to $700,000 – 1 – 1

$710,001 to $720,000 1 – 1 –

$720,001 to $730,000 – 1 – 1

$740,001 to $750,000 1 – 1 –

$790,001 to $800,000 – 1 – 1

$800,001 to $810,000 1 – 1 –

$820,001 to $830,000 – 1 – 1

$830,001 to $840,000 – 1 – 1

$870,001 to $880,000 1 – 1 –

$950,001 to $960,000 1 – 1 –

$970,001 to $980,000 1 – 1 –

$990,001 to $1,000,000 – 1 – 1

$1,060,001 to $1,070,000 1 – 1 –

$1,070,001 to $1,080,000 1 – 1 –

$1,130,001 to $1,140,000 1 – 1 –

$1,240,001 to $1,250,000 1 – 1 –

$1,420,001 to $1,430,000 – 1 – 1

$1,440,001 to $1,450,000 1 – 1 –

$1,460,001 to $1,470,000 1 – 1 –

$1,750,001 to $1,760,000 – 1 – 1

$2,060,001 to $2,070,000 – 1 – 1

$2,790,001 to $2,800,000 1 – 1 –

$2,810,001 to $2,820,000 – 1 – 1


66


46: US GAAP Reconciliation

The consolidated financial statements of the Group are prepared in accordance with Generally Accepted AccountingPrinciples applicable in Australia (Australian GAAP) which differ in some respects from Generally Accepted AccountingPrinciples in the United States (US GAAP).

The following are reconciliations of the operating profit after income tax, shareholders’ equity and total assets, applyingUS GAAP instead of Australian GAAP.

1999 1998 1997Note $M $M $M

Operating profit after income tax using Australian GAAP1 1,480 1,106 1,024

Items having the effect of increasing (decreasing) reported income:

Employee share issue (xii) (23) – –Depreciation charged on the difference between revaluation

amount and historical cost of buildings (i) 2 3 3Difference in gain or loss on disposal of properties revalued

under historical cost (i) – 9 17Amortisation of goodwill (ii) (36) (36) (36)Deferred profit on sale and leaseback transactions (iii) (12) – –Pension expense adjustment (vi) (1) 14 10

Net income according to US GAAP 1,410 1,096 1,018

Other comprehensive incomeCurrency translation adjustment net of

hedges after tax (215) 142 104Unrealised profit on available for sale securities (ix) 7 – –

Total comprehensive income according to US GAAP 1,202 1,238 1,122

Shareholders’ equity according toAustralian GAAP2 9,403 8,335 6,943

Elimination of gross asset revaluation reserves (i) (340) (340) (349)Unrealised profit on available for sale securities (ix) 7 – –Adjustment to accumulated depreciation on buildings revalued (i) 41 39 36Restoration of previously deducted goodwill (ii) 807 807 807Accumulated amortisation and write-off of goodwill (ii) (544) (508) (472)Deferred profit on sale and leaseback transactions (iii) (12) – –Provision for final dividend (iv) 470 431 392Pension expense adjustment (vi) 57 58 44

Shareholders’ equity according to US GAAP 9,889 8,822 7,401

Total assets according to Australian GAAP 149,007 149,720 138,241Elimination of gross asset revaluation reserves (i) (340) (340) (349)Unrealised profit on available for sale securities (ix) 11 – –Adjustment to accumulated depreciation on buildings revalued (i) 41 39 36Restoration of previously deducted goodwill (ii) 807 807 807Accumulated amortisation and write-off of goodwill (ii) (544) (508) (472)Prepaid pension adjustment (vi) 39 44 33Reclassification of deferred tax assets against deferred

tax liabilities (v) (400) (484) (386)

Total assets according to US GAAP 148,621 149,278 137,910

1 After abnormal items2 Excluding outside equity interests


67


(i) Premises and equipment

Properties have been revalued by the Group at varioustimes, increasing the book value of these assets (refer note1(xiv)). Under Australian GAAP, any increments onrevaluation are credited directly to the Asset RevaluationReserve (ARR), and decrements are debited to the ARRto the extent of any previous revaluation increments.

Decrements in excess of any previous revaluationincrements are charged to the Profit and Loss Account.The ARR forms part of Shareholders’ equity. Under USGAAP, revaluation of properties is not permitted exceptfor decrements which are regarded as other thantemporary.

Under Australian GAAP, depreciation charges aregenerally higher and profits on disposal are lower thanthose required under US GAAP. The depreciationcharges, together with the profits and losses on revaluedassets sold have been adjusted to historical cost in the USGAAP reconciliation.

(ii) Goodwill

The Group changed its accounting policy in respect ofgoodwill in the financial year ended 30 September 1993.Previously, goodwill on acquisition was charged in full tothe Group’s Profit and Loss Account in the year ofacquisition.

Under US GAAP, goodwill is capitalised and amortisedover the period of time during which the benefits areexpected to arise, such period not exceeding 40 yearsgenerally or 25 years in respect of bank acquisitions.

Adjustments have been made in the US GAAPreconciliation statement to writeback goodwill written-off in full and to amortise such goodwill over the periodof the expected benefits. Additionally, to the extent thatperiodic reviews of the carrying amount of goodwill leadto a write-down of goodwill previously capitalised for USpurposes, this is adjusted in the US GAAP reconciliation.

(iii) Sale–leaseback transactions

Under Australian GAAP for operating leases, gains ondisposal under sale-leaseback transactions can berecognised in the period of sale. Under US GAAP, thegain is amortised over the remaining lease term.Thisdifference in treatment has been adjusted in the USGAAP reconciliation.

(iv) Dividends

Under Australian GAAP, dividends are shown in theProfit and Loss Account in the period to which theyrelate rather than in the period when they are declared asrequired by US GAAP. This difference in treatment hasbeen adjusted in the US GAAP shareholders’ equityreconciliation.

(v) Income taxes

Under Australian GAAP, tax benefits relating to carryforward tax losses must be “virtually certain” of beingrealised before being booked. Realisations of benefitsrelating to other timing differences must be “beyondreasonable doubt” before they may be booked. These testsare as stringent as those applied under US GAAP andhence no write-down of future tax benefits is required.

Australian GAAP allows offsetting of future income taxbenefits and liabilities to the extent they will reverse inthe same period. US GAAP requires an offset of thesetwo items where reversal will occur within twelve monthsand in the period exceeding twelve months. This hasbeen adjusted in the US GAAP reconciliation.

(vi) Pension commitments

Under Australian GAAP, contributions in respect ofdefined benefit schemes are made at levels necessary toensure that these schemes are maintained with sufficientassets to meet their actuarially assessed liabilities. Any netdeficiency arising from the aggregation of assets andliabilities of the Group’s defined benefit schemes isprovided for in the Group’s financial statements (refernote 40 in the Financial Statements). Under SFAS 87“Employers’Accounting for Pensions” and the newdisclosure requirements of SFAS 132 “Employers’Disclosures about Pensions and Other Post RetirementBenefits”, pension expense is a function of an employee’sservice period, interest costs, expected actuarial return onthe schemes’ assets, amortisation of net transition asset andrecognised prior service cost.

(vii) Post retirement benefits

Post retirement benefits other than pension payments arenot material and no adjustment is required in the USGAAP reconciliation.

(viii) Trading securities

US GAAP requires that in instances where tradingsecurities are not bought and held principally for thepurpose of selling them in the near term, they should beclassified as available for sale and recorded at market valuewith unrealised profits and losses in respect of market valueadjustments recognised in Shareholders’ equity.

No adjustment is required to be made in the US GAAPreconciliation as the effect of reclassifying certain tradingsecurities as available for sale is not material.

The residual emerging markets portfolio has been classifiedas available for sale with the market value write downtaken through the profit and loss account for bothAustralian GAAP and US GAAP purposes.

46: US GAAP Reconciliation (continued)


68



(ix) Investment Securities

US GAAP requires that investments not classified astrading securities or as held to maturity securities shall beclassified as available for sale securities and be recorded atmarket value in accordance with SFAS 115 “Accountingfor Certain Investments in Debt and Equity Securities”.Available for sale securities are carried at market valuewith unrealised profits and losses in respect of marketvalue adjustments being reported in shareholders’ equity.

(x) Accounting for the impairment of loans

SFAS 114 “Accounting by Creditors for Impairment of aLoan”, as amended by SFAS 118 “Accounting byCreditors for Impairment of a Loan – IncomeRecognition and Disclosures”, requires the value of animpaired loan to be measured as the present value offuture cash flows discounted at the loan’s effective interestrate, the loan’s observable market price or the fair value ofthe collateral, if the loan is collateral dependent.

There is no requirement under Australian GAAP todiscount the expected future cash flows attributable toimpaired loans in assessing the level of specific provisionfor doubtful debts.

No adjustment is required in the US GAAPreconciliation as the estimated fair value of impaired loansis not materially different from the carrying value as at 30 September 1999.

(xi) Accounting for the impairment of long

lived assets and for long-lived assets to be

disposed of

SFAS 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be DisposedOf”, requires that where an event or a change incircumstance indicates that the carrying value of an assetthat is expected to be held and used may not berecoverable, an impairment loss should be recognised.The standard also requires that where there is acommitted plan to dispose of an asset, the asset should bereported at the lower of the carrying value or fair valueless selling costs.

The Group has assessed the carrying values of all non-current assets and determined that they are not in excessof their recoverable amounts.

(xii) Accounting for stock-compensation plans

Under Australian GAAP, an expense is not recognised forshare options issued to employees or for shares issued at adiscount. SFAS 123 “Accounting for Stock-BasedCompensation”, requires share options issued toemployees to be recognised using either the fair valuebased method or the intrinsic value based method asprescribed by APB No 25.

Share options issued under the ANZ Group Share OptionScheme are valued using the intrinsic value based methodand accordingly no adjustment is made in the US GAAPreconciliation as the impact is not material.

Shares issued to employees under the ANZ GroupEmployee Share Acquisition Plan are recognised at fairvalue under US GAAP.

(xiii) Accounting for transfers and servicing

of financial assets and extinguishments

of liabilities

SFAS 125 “Accounting for Transfers and Servicing ofFinancial Assets and Extinguishments of Liabilities”prescribes the accounting and reporting requirements fortransfers of financial assets and extinguishments ofliabilities. Under certain circumstances, the statement alsorequires a transferor of financial assets that are pledged ascollateral to reclassify those assets, and the transferee torecognise those assets and their obligation to return them.

No adjustment is required in the US GAAPreconciliation as the effect of adopting the provisions ofSFAS 125 on total assets is not material.

(xiv) Comprehensive Income

SFAS 130 “Reporting Comprehensive Income”establishes standards for reporting and display ofcomprehensive income and its components.Comprehensive income is defined as all changes inshareholders’ equity during a period excluding thoseresulting from investments by shareholders anddistributions to shareholders.

Accordingly, the Group has shown currency translationadjustments and unrealised profit on available for salesecurities as components of other comprehensive incomewith net income according to US GAAP forming theremaining component of comprehensive income. Priorto the introduction of SFAS 130, these items would havebeen reported as a separate component of shareholders’equity only.

(xv) Accounting for derivative instruments and hedging activities

The Group has not adopted the disclosure provisions ofSFAS 133 “Accounting for Derivative Instruments andHedging Activities” which is not effective until financialyears commencing on or after 15 June 2000.

The requirements of this standard are underconsideration. The impact of adoption of this standard isnot reasonably estimable at this time.


69



(xvi) Details of Pension Schemes and Pension Expense

Reconciliations of the funded status of major defined benefit schemes as at 30 June 1999 are summarised below.Details of the funding of the schemes are set out in note 40.

Australian Scheme

1999 1998 1997$M $M $M

Projected benefit obligation

Balance at start of year 57 59 58Interest cost 4 4 5Benefits paid (7) (7) (8)Actuarial gains 4 1 4

Total projected benefit obligation 58 57 59

Fair value of plan assets

Balance at start of year 51 47 47Actual return on plan assets 5 7 4Employer contribution 4 4 4Benefits paid (7) (7) (8)

Total fair value of plan assets 53 51 47

Deficiency of assets over projected benefit obligation (5) (6) (12)Unrecognised net transition loss 5 6 7Unrecognised net loss 7 3 6Adjustment required to recognise minimum unfunded

projected benefit obligation (12) (10) (13)

Pension liability (5) (7) (12)

The assumptions used in the actuarial calculations are as follows

1999 1998 1997$M $M $M

Discount rate used in determining present values- pensioners 6.5% 7% 8%Annual increase in future compensation levels- pensions 3% 3% 3%Expected long-term rate of return on assets 7.5% 8% 8%


70



UK Scheme

1999 1998 1997$M $M $M

Projected benefit obligation

Balance at start of year 833 596 498Service cost 21 18 13Interest cost 47 50 44Plan amendment 24 – 13Benefits paid (41) (40) (32)Actuarial gains/(losses) 35 36 (8)Foreign currency exchange rate fluctuations (101) 173 68

Total projected benefit obligation 818 833 596Fair value of plan assets

Balance at start of year 1,094 748 603Actual return on plan assets 82 163 91Employer contribution 2 – 2Benefits paid (41) (40) (32)Foreign currency exchange rate fluctuations (133) 223 84

Total fair value of plan assets 1,004 1,094 748

Excess of assets over projected benefit obligation 186 261 152Unrecognised net transition gain (37) (50) (46)Unrecognised net gain (162) (202) (103)Unrecognised prior service cost 52 35 30

Prepaid pension cost 39 44 33

The assumptions used in the actuarial calculations are as follows

1999 1998 1997$M $M $M

Discount rate used in determining present values- active members 6% 6.5% 7.5%- pensioners 6% 6.5% 7.5%Annual increase in future compensation levels- salary 4.75% 5% 6%- pensions 3% 2.75% 6%Expected long-term rate of return on assets 7% 7.5% 8.5%

The elements of the net periodic pension cost of the above schemes are as follows

1999 1998 1997$M $M $M

Service cost 21 18 13Interest cost 51 54 49Expected return on schemes’ assets (66) (66) (57)Amortisation net transition asset (6) (6) (5)Recognised prior service cost 1 1 1

Net periodic pension cost 1 1 1

The Group also sponsors defined contribution schemes. The Group’s contributions to major defined contributionschemes amounted to $66 million for the year.


71


47: Exchange Rates

The exchange rates used in the translation of the results and the assets and liabilities of major overseas branches andcontrolled entities are

1999 1998 1997Closing Average Closing Average Closing Average

Great British pound 0.3972 0.3932 0.3496 0.3913 0.4465 0.4694United States dollar 0.6533 0.6403 0.5972 0.6468 0.7197 0.7679New Zealand dollar 1.2598 1.2014 1.1868 1.1581 1.1272 1.1191

48: Events Since the End of the Financial Year

On 3 November 1999 the Group announced its intention to undertake an on market ordinary share buyback of up to$500 million. Other than this, there have been no significant events since 30 September 1999 to the date of this report.


72

The directors of Australia and New Zealand BankingGroup Limited declare that the financial statements andnotes of the Company and the consolidated entity

(a) are in accordance with the Corporations Law,including

(i) complying with applicable Australian AccountingStandards and other mandatory professional reportingrequirements; and

(ii) giving a true and fair view of the financial position ofthe Company and of the consolidated entity as at 30September 1999 and of their performance asrepresented by the results of their operations and theircash flows, for the year ended on that date; and

(b) in the directors’ opinion at the date of this declarationthere are reasonable grounds to believe that theCompany will be able to pay its debts as and whenthey become due and payable.

D i r e c t o r s ’ D e c l a r a t i o n

John McFarlane

Chief Executive Officer

Signed in accordance with a resolution of the directors

Charles Goode

Chairman

8 November 1999

The Company and some of its wholly owned controlledentities listed in note 39 executed a Deed of CrossGuarantee enabling them to take advantage of theaccounting and audit relief offered by the class order98/1418, dated 13 August 1998 issued by the AustralianSecurities and Investments Commission.

The nature of the Deed of Cross Guarantee is toguarantee each creditor payment in full of any debt inaccordance with the terms of the Deed of CrossGuarantee.

At the date of this declaration, there are reasonablegrounds to believe that the Company and its controlledentities to which the class order applies, are able, as aneconomic entity, to meet any obligations or liabilities towhich they are, or may become, subject by virtue of theDeed of Cross Guarantee.


73

A u d i t o r s ’ R e p o r t

Scope

We have audited the financial report of Australia andNew Zealand Banking Group Limited for the financialyear ended 30 September 1999, consisting of the profitand loss accounts, balance sheets, statements of changesin shareholders’ equity, statements of cash flows,accompanying notes and the directors’ declaration setout on pages 3 to 72. The financial report includes theconsolidated financial statements of the consolidatedentity, comprising the Company and the entities itcontrolled at the year’s end or from time to time duringthe financial year. The Company’s directors areresponsible for the financial report. We have conductedan independent audit of this financial report in order toexpress an opinion on it to the members of theCompany.

Our audit has been conducted in accordance withAustralian Auditing Standards (which are substantiallythe same as auditing standards generally accepted in theUnited States of America) to provide reasonableassurance whether the financial report is free of materialmisstatement. Our procedures included examination,on a test basis, of evidence supporting the amounts andother disclosures in the financial report, and theevaluation of accounting policies and significantaccounting estimates. These procedures have beenundertaken to form an opinion whether, in all materialrespects, the financial report is presented fairly inaccordance with Accounting Standards and othermandatory professional reporting requirements andstatutory requirements so as to present a view which isconsistent with our understanding of the Company’sand the consolidated entity’s financial position andperformance as represented by the results of theiroperations and their cash flows.

The audit opinion expressed in this report has beenformed on the above basis.

Audit Opinion

In our opinion, the financial report of Australia and NewZealand Banking Group Limited is in accordance with:

(a) the Corporations Law, including:(i) giving a true and fair view of the Company’s and

consolidated entity’s financial position as at 30September 1999 and of their performance for theyear ended on that date; and

(ii) complying with Accounting Standards and theCorporations Regulations; and

(b) other mandatory professional reporting requirements.

Accounting principles generally accepted in Australia varyin certain respects from accounting principles generallyaccepted in the United States of America. An explanationof the major differences between the two sets of principlesis presented in note 46 to the financial statements. Theapplication of the United States principles would haveaffected the determination of consolidated net profit foreach of the three years in the period ended 30 September1999 and the determination of the consolidated financialposition as of 30 September 1999, 1998 and 1997 to theextent summarised in note 46 to the financial statements.

KPMG

Chartered AccountantsP S Nash

Partner

Melbourne 8 November 1999

To the Members of Australia and New Zealand Banking Group Limited


74

R i s k M a n a g e m e n t

ANZ continues to engender a robust culture of sound risk management principles and processes throughout all lines ofbusiness and across all risk dimensions, and is committed to achieving global best practice in our risk managementprocesses. Last year, ANZ announced a strategy to re-balance the risk profile of the Group and increase the emphasison lower risk consumer related activities that create a more stable earnings stream. Substantial progress has been madein 1999:

Investment Bank Restructuring

ANZ Investment Bank management has transferred to Melbourne, and the sale of the emerging markets fundmanagement business has been completed. The residual emerging market bond portfolio has been reduced to $43 million.

Traded market risk

Traded market risk has been reduced substantially, with exposures now typically less than one third of those seen lastyear. This reduction in exposure has been accompanied by an enhanced level of market risk management expertisewithin Group Risk Management and increased focus on stress testing, which has enabled the Group to significantlyreduce potential losses in extreme market conditions.

Credit Risk

ANZ is re-balancing the international portfolio, placing emphasis on lower risk assets reflecting the Group’s areas oftraditional strength in trade, foreign exchange and supporting the needs of our network customers and consumerrelated activities.

Australia and New Zealand: Strong growth in the mortgage lending book, boosted by strategic acquisitions andalliances has progressed the Group’s strategic imperative towards a heavier emphasis on consumer related business.Within Australia and New Zealand, mortgage lending now accounts for 41% of on-balance sheet lending exposure(39% in 1998) with the mortgage lending portfolio increasing by 16%. There has been continued improvement in therisk profile of corporate lending activities in Australia and New Zealand and good progress in reducing riskconcentrations by customer and industry – commercial property lending is now less than 10% of Australian and New Zealand lending assets.

Asia: During the past 12 months ANZ has continued to manage down its exposures in Asia. There has been a strategicrefocus towards higher quality credit exposures and developing network business, particularly trade finance, rather thanforeign currency lending to local entities. Asia contributed $113 million to the total specific provisions in 1999,compared with $263 million last year. Looking forward, the Group expects improvement in many of the Asianeconomies, although continued problems in Korea, China and Indonesia may impact any significant improvement overall.

Middle East and South Asia: Clearly the recent developments in Pakistan are of concern. The military leaders havestated that their intervention is temporary in order that they may stabilise the country’s position. While it is expectedthat any instability will be contained, it is difficult to predict whether recent re-scheduling of debt negotiations(Paris/London clubs) will remain unchanged.

Total lending in Pakistan is US$704 million, of which trade and local currency lending represents 59%. The higher riskcross border term lending (US$113 million) is appropriately provisioned. ANZ will continue to take a conservativeview of developments and make specific provisions for defaulted assets.

While conditions elsewhere in the region are still unsettled, the only other material issue is a customer fraud in theMiddle East involving several other international banks for which ANZ has an exposure of $40 million, which is fullyprovisioned.

Risk Management Processes

ANZ’s risk management function supports the business objective of creating shareholder value. In order to establish acommon ‘language’ for risk across all risk types, ANZ allocates economic capital to each line of business and keyproduct areas. This enables business units and decision-makers to evaluate the real contribution of their activitiesagainst the risk capital they use, aligning the performance of individual managers with the interests of shareholders.

The Group’s risk management processes are subject to oversight by the Risk Management Committee of the Board.This includes the review of risk portfolios and the establishment of prudential policies and controls. Core riskmanagement functions, including market risk and corporate lending approvals, are independent of the business units.


75

R i s k M a n a g e m e n t

The Group’s risk management processes have served to foster the development of a Risk Management culture withinthe lines of business and to enhance the awareness of risk across the Group’s activities. In this context, 1999 sawsubstantial progress towards the objective of creating a culture of transparency and dialogue about risk at all levelswithin ANZ, with further work still to be done.

Credit Risk: Credit risk is the potential financial loss resulting from the failure of a customer to honour fully theterms of a loan or contract. The Risk Management Committee of the Board approves a set of policy controls that aimto develop and maintain a well-diversified credit portfolio. The authority for individual credit decisions that are withinpolicy has been delegated to the Credit and Trading Risk Committee. The Credit and Trading Risk Committee is alsoresponsible for the ongoing development of credit policy, while at operational levels, all major lending decisions aremade under dual authority, involving signoff by a separate and independent credit line.

The credit process is supported by an advanced risk grading system that allows for the objective measurement of thecustomer’s default risk.

Under Group policy, the expected loss on the portfolio of credit risks is charged to profit and added to the generalprovision. ANZ believes that this expectation provides a better reflection of the fundamental risk of the portfolio forthe year than the actual losses brought to account in that period. Actual credit losses are subsequently transferred fromthe general provision.

Traded Market Risk: Trading risk is controlled by a specialist function within Group Risk Management. Thisfunction provides specific oversight of each of the main trading areas and is responsible for the establishment of Value atRisk and supplementary limits. ANZ has implemented models across all trading areas that provide Value at Riskinformation and comparison against risk limits on a daily basis. These models comply with the Australian PrudentialRegulation Authority Prudential Supervision Statement C3 (Capital for Market Risk). Increasingly the principal focusof attention in the management of traded market risk is stress testing. Stress test results are used to identify and rectifyareas of excessive risk concentrations.

Balance Sheet Risk Management: The balance sheet risk management process embraces the management ofbalance sheet interest rate risk, liquidity and risk to capital and earnings as a result of exchange rate movements. Theobjective of balance sheet management is to produce strong and stable net interest income over time. ANZ uses modelsto simulate the impact of interest rate changes on earnings and on the market value of the balance sheet. A specialistbalance sheet management unit manages these risks, overseen by the Group Asset and Liability Committee.

Operating Risk Management

Operating risk arises from the potential break down of day to day operational processes, which directly or indirectly canresult in loss. This may arise from failure to comply with policies, laws and regulations, from fraud or forgery or from abreakdown in the availability or integrity of services, systems and information.

A structured methodology is in place to support the business areas in the identification and management of key risks.The Operating Risk Executive Committee, supported by specialist staff, is responsible for the development andimplementation of the policies surrounding operating risk. In light of the push towards greater reliance on automationof banking operations, more sophisticated banking products and disciplined cost management strategies, this element ofour risk management framework will continue to receive increasing emphasis going forward.


76

F i n a n c i a l I n f o r m a t i o n1: Capital Adequacy

The Australian Prudential Regulation Authority (APRA) adopts a risk-based capital assessment framework forAustralian banks based on internationally accepted capital measurement standards. This risk-based approach requireseligible capital to be divided by total risk weighted assets, with the resultant ratio being used as a measure of a bank’scapital adequacy.

Capital is divided into tier 1, or ‘core’ capital, and tier 2, or ‘supplementary’ capital. For capital adequacy purposes,eligible tier 2 capital cannot exceed the level of tier 1 capital. Banks are required to deduct from total capital anystrategic holdings of other banks’ capital instruments and investments in entities engaged in life insurance, fundsmanagement and securitisation activities. Under APRA guidelines, banks must maintain a ratio of qualifying capital torisk weighted assets of at least 8 per cent.

Prior to 1 January 1998, the measurement of risk weighted assets was limited to a credit risk-based approach whereinrisk weightings are applied to all balance sheet assets and to credit converted off balance sheet exposures. Categories ofrisk weights are assigned based upon the nature of the counterparty and the relative liquidity of the assets concerned.

From 1 January 1998, Australian banks are also required to recognise risk weighted assets attributable to market riskarising from their trading and commodity positions. Trading and commodity balance sheet positions no longer attract arisk weighting under the credit risk-based approach.

1999 1998 1999 1998Qualifying capital $M $M $M $M

Tier 1

Total shareholders’ equity and outsideequity interests 9,429 8,391

Unamortised goodwill (82) (18)Net future income tax benefit – (46)Investment in ANZ Lenders Mortgage Insurance (18) (18)

Tier 1 capital 9,329 8,309

Tier 2

Perpetual notes – subordinated 855 936General provision for doubtful debts1 851 889

1,706 1,825

Subordinated notes2 2,211 2,567

Tier 2 capital 3,917 4,392

Deductions (584) (305)

Total qualifying capital 12,662 12,396

Balance sheet assets Assets Risk weighted assets

Cash, claims on Australian Commonwealth and State Governments,and Territories, claims on OECD central governments, local currency claims on non-OECD governments and other zero weighted assets 18,221 23,432 – –

Claims on approved banks and local governments 5,665 6,307 1,133 1,262Advances secured by residential mortgages, approved merchant banks

and stockbroking positions 43,442 36,112 21,720 18,056Other assets – credit risk 75,547 74,851 75,547 74,851

Total balance sheet assets – credit risk 142,875 140,702 98,400 94,169Trading assets – market risk 6,132 9,018 n/a n/a

Total balance sheet assets 149,007 149,720 98,400 94,169


77

F i n a n c i a l I n f o r m a t i o n1: Capital Adequacy (continued)

1999 1998 1999 1998 1999 1998$M $M $M $M $M $M

Contract/ Credit RiskOff balance sheet exposures notional amount equivalent weighted assets

Direct credit substitutes 4,828 4,700 4,828 4,700 3,824 3,465Trade and performance related items 12,248 11,431 5,613 5,193 4,836 4,319Commitments 47,391 46,739 6,716 8,350 6,501 6,920Foreign exchange, interest rate andother market related transactions 577,310 559,900 8,572 13,518 2,491 3,921

Total off balance sheet exposures– credit risk 641,777 622,770 25,729 31,761 17,652 18,625

Total risk weighted assets – credit risk 116,052 112,794Risk weighted assets – market risk 1,985 3,302

Total risk weighted assets 118,037 116,096

Capital adequacy ratios % %Tier 1 7.9 7.2Tier 2 3.3 3.8Deductions (0.5) (0.3)

Total 10.7 10.7

1 Excluding attributable future income tax benefit2 Subordinated note issues are reduced by 20% of the original amount during each of the last five years to maturity


78

F i n a n c i a l I n f o r m a t i o n2: Interest Spreads and Net Interest Average Margins

1999 1998 1997$M $M $M

Net interest income

Australia 2,450 2,275 2,247New Zealand 484 481 505Overseas markets 727 798 692

3,661 3,554 3,444

Average interest earning assets

Australia 77,268 67,450 60,164New Zealand 17,802 17,846 17,106Overseas markets 32,359 37,213 37,235Intragroup elimination (7,238) (2,781) (1,263)

120,191 119,728 113,242

% % %

Gross earnings rate1

Australia 6.87 7.37 8.46New Zealand 7.43 9.54 9.56Overseas markets 7.56 8.05 7.48Group 7.23 7.94 8.37

Interest spreads and net interest average margins may be analysed as followsAustralia

Gross interest spread 2.59 2.82 3.20Interest forgone on impaired assets2 (0.06) (0.07) (0.09)

Net interest spread 2.53 2.75 3.11Interest attributable to net non-interest bearing items 0.64 0.63 0.62

Net interest average margin – Australia 3.17 3.38 3.73

New Zealand



Net interest average margin – New Zealand 2.73 2.70 2.95

Overseas markets



Net interest average margin – Overseas markets 2.25 2.14 1.86

Group



Net interest average margin – Group 3.05 2.97 3.04

1 Average interest rate received on interest earning assets. International markets includes intragroup assets2 Refer note 14 to the financial statements


79

F i n a n c i a l I n f o r m a t i o n3: Cross Border Outstandings

Cross border outstandings of the Group to countries which individually represented in excess of 0.75% of the Group’s total assetsand certain selected countries are shown below. There were no cross border outstandings to any other country exceeding 0.75% oftotal assets.

Cross border foreign outstandings are based on the country of domicile of the borrower or guarantor of the ultimate risk andcomprise loans (including accrued interest), placements with banks, acceptances and other monetary assets denominated incurrencies other than the borrower’s local currency. For certain countries, local currency obligations are also included. Cross borderforeign outstandings are before specific and general provisions.

Governments Banks and Otherand other other financial commercial % of

official institutions institutions and industrial Total Group$M $M $M $M assets


United Kingdom 74 760 3,789 4,623 3.1India1 6 1,022 2,982 4,010 2.7New Zealand – 348 2,609 2,957 2.0USA 9 283 2,379 2,671 1.8Germany 5 390 2,079 2,474 1.7Japan1 2 621 1,675 2,298 1.5U.A.E1 – 681 1,298 1,979 1.3South Korea1 – 1,257 306 1,563 1.0France 8 472 808 1,288 0.9Switzerland – 665 580 1,245 0.8Pakistan1 – 274 804 1,078 0.7Hong Kong1 – 219 692 911 0.6China – 349 453 802 0.5Brazil – 429 328 757 0.5Singapore1 – 196 537 733 0.5Taiwan1 – 285 415 700 0.5Indonesia1 – 205 355 560 0.4


New Zealand – 1,307 5,148 6,455 4.3India1 3 1,386 3,462 4,851 3.2United Kingdom 101 1,333 2,929 4,363 2.9Japan1 13 645 2,095 2,753 1.8USA 192 838 1,427 2,457 1.6Germany – 339 1,917 2,256 1.5South Korea1 4 880 817 1,701 1.1U.A.E1 – 243 1,279 1,522 1.1China1 – 474 844 1,318 0.8France 19 274 1,013 1,306 0.9Pakistan1 – 407 708 1,115 0.7Hong Kong1 3 215 828 1,046 0.7Indonesia1 – 193 665 858 0.6Brazil1 – 189 598 787 0.5Singapore1 32 104 579 715 0.51

Includes local lending in local currency

4: Certificates of Deposit and Term Deposit Maturities

The following table shows the maturity profile of the Group’s certificates of deposit and term deposits in excess of $100,000issued at 30 September 1999

Between BetweenLess than 3 months 6 months After3 months and 6 months and 12 months 1 year Total

$M $M $M $M $M

Australia

Certificates of deposit 2,851 2,678 4 1,234 6,767Term deposits 9,279 722 596 487 11,084

12,130 3,400 600 1,721 17,851

Overseas

Certificates of deposit 2,097 1,027 425 57 3,606Term deposits 10,249 1,139 1,358 197 12,943

12,346 2,166 1,783 254 16,549

Total 24,476 5,566 2,383 1,975 34,400


80

F i n a n c i a l I n f o r m a t i o n5: Volume and Rate Analysis

The following table allocates changes in interest income and interest expense between changes in volume and changes in ratefor the past two years. Volume and rate variances have been calculated on the movement in average balances and the changein the interest rates on average interest earning assets and average interest bearing liabilities. The variance caused by thechange of both volume and rate has been allocated in proportion to the relationship of the absolute dollar amounts of eachchange to the total.

1999 over 1998 1998 over 1997Change due to Change due to

Volume Rate Total Volume Rate Total$M $M $M $M $M $M

Interest earning assets

Due from other financial institutionsAustralia 18 (3) 15 14 (16) (2)New Zealand 12 (7) 5 (5) – (5)Overseas markets (324) (25) (349) (199) 9 (190)

Regulatory deposits withReserve Bank of Australia – – – – (5) (5)

Investments in public securitiesAustralia (7) (25) (32) 3 (50) (47)New Zealand (46) (42) (88) 11 17 28Overseas markets (186) 25 (161) (64) 68 4

Loans, advances and bills discountedAustralia 742 (357) 385 532 (604) (72)New Zealand 54 (319) (265) 40 (24) 16Overseas markets (53) (20) (73) 251 (16) 235

Other assetsAustralia (28) (2) (30) 28 (21) 7New Zealand (13) (21) (34) 26 3 29Overseas markets (138) (51) (189) (59) 105 46

Intragroup assetsOverseas markets 240 (17) 223 88 62 150

Change in interest income 271 (864) (593) 666 (472) 194

Intragroup elimination (240) 17 (223) (88) (62) (150)

31 (847) (816) 578 (534) 44


81

F i n a n c i a l I n f o r m a t i o n5: Volume and Rate Analysis (continued)

1999 over 1998 1998 over 1997Change due to Change due to

Volume Rate Total Volume Rate Total$M $M $M $M $M $M

Interest bearing liabilitiesTime deposits

Australia 87 (54) 33 59 (181) (122)New Zealand (25) (226) (251) 4 (5) (1)Overseas markets (217) (154) (371) 139 89 228

Savings depositsAustralia 7 9 16 13 (49) (36)New Zealand 15 (34) (19) 16 (3) 13Overseas markets 2 (5) (3) 16 2 18

Other demand depositsAustralia 54 (8) 46 78 (120) (42)New Zealand (17) (59) (76) 9 3 12Overseas markets 2 (6) (4) 20 1 21

Due to other financial institutionsAustralia (5) – (5) 4 (2) 2New Zealand (8) (9) (17) (7) (10) (17)Overseas markets (92) (55) (147) (84) (18) (102)

Commercial paperAustralia 2 (3) (1) 39 (32) 7Overseas markets 92 (5) 87 (56) 2 (54)

Borrowing corporations’ debtAustralia 15 (30) (15) (12) (65) (77)New Zealand – (18) (18) (13) (7) (20)

Loan capital, bonds and notesAustralia 45 (22) 23 (68) 2 (66)New Zealand (1) (5) (6) – 1 1Overseas markets (2) (4) (6) (16) 3 (13)

Other liabilitiesAustralia (21) (56) (77) 90 (22) 68New Zealand (144) 66 (78) 103 4 107Overseas markets (90) 56 (34) (66) 73 7

Intragroup liabilitiesAustralia 199 (56) 143 46 89 135New Zealand 42 38 80 25 (10) 15

Change in interest expense (60) (640) (700) 339 (255) 84

Intragroup elimination (241) 18 (223) (71) (79) (150)

(301) (622) (923) 268 (334) (66)

Change in net interest income 332 (225) 107 310 (200) 110


82

F i n a n c i a l I n f o r m a t i o n6: Concentrations of Credit Risk

Concentrations of credit risk exist if a number of counterparties are engaged in similar activities and have similar economiccharacteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic orother conditions. Off balance sheet transactions of the Group are substantially with other banks.

1999 1998 1997Loans and Specific Loans and Specific Loans and Specific advances1 provision advances1 provision advances1 provision

$M $M $M $M $M $M

Australia

Agriculture, forestry, fishing and mining 4,288 12 3,648 11 2,716 12

Business service 1,717 5 2,632 3 1,488 5Entertainment, leisure and tourism 2,007 25 1,952 19 1,392 28Financial, investment and insurance 4,438 5 4,501 3 3,997 6Government and official institutions 106 – 63 – 68 –Lease finance 3,585 5 3,505 4 3,152 5Manufacturing 3,815 19 2,586 24 2,446 29Personal2 9,280 94 7,112 96 6,229 90Real estate – construction 1,376 6 1,293 6 1,216 8Real estate – mortgage3 35,862 48 28,924 64 26,095 54Retail and wholesale trade 4,946 23 4,860 19 4,375 14Other 3,835 39 3,599 48 3,398 64

75,255 281 64,675 297 56,572 315

Overseas

Agriculture, forestry, fishing and mining 2,131 17 2,118 27 2,439 4

Business service 550 7 536 8 346 6Entertainment, leisure and tourism 665 4 657 3 555 –Financial, investment and insurance 2,214 156 2,843 66 3,189 4Government and official institutions 750 – 821 30 656 –Lease finance 405 1 115 – 299 –Manufacturing 6,493 213 6,733 193 5,172 53Personal2 2,304 35 3,509 20 2,852 12Real estate – construction 753 32 799 41 900 8Real estate – mortgage3 9,645 25 8,825 19 9,412 2Retail and wholesale trade 2,010 72 2,180 37 1,851 15Other 4,376 64 4,100 78 2,781 34

32,296 626 33,236 522 30,452 138

Total portfolio 107,551 907 97,911 819 87,024 453


83

F i n a n c i a l I n f o r m a t i o n6: Concentrations of Credit Risk (continued)

1996 1995Loans and Specific Loans and Specific advances1 provision advances1 provision

$M $M $M $M

Australia

Agriculture, forestry, fishing and mining 2,038 21 1,721 25

Business service 950 27 1,053 36Entertainment, leisure and tourism 1,302 18 1,079 23Financial, investment and insurance 2,472 22 2,106 32Government and official institutions 70 – 104 –Lease finance 3,116 8 3,138 14Manufacturing 2,998 17 2,639 62Personal2 7,384 35 7,109 40Real estate – construction 857 12 817 15Real estate – mortgage3 23,518 82 22,734 126Retail and wholesale trade 4,210 51 3,615 75Other 3,008 53 2,157 57

51,923 346 48,272 505

Overseas

Agriculture, forestry, fishing and mining 1,471 4 1,309 11

Business service 439 6 501 9Entertainment, leisure and tourism 393 3 319 7Financial, investment and insurance 4,493 23 2,066 26Government and official institutions 377 3 320 3Lease finance 284 – 51 –Manufacturing 3,722 55 3,973 54Personal2 3,115 15 3,221 11Real estate – construction 753 16 602 16Real estate – mortgage3 8,034 8 7,488 10Retail and wholesale trade 1,711 28 1,554 27Other 2,254 2 1,618 23

27,046 163 23,022 197

Total portfolio 78,969 509 71,294 702

1 Loans and advances exclude acceptances2 Personal includes non-business loans to individuals through overdrafts, personal loans, credit cards and fully drawn advances3 Real estate mortgage includes residential and commercial property exposure. Loans within this category are for the purchase of such properties and must

be secured by property


84

F i n a n c i a l I n f o r m a t i o n7: Doubtful Debts – Industry Analysis

1999 1998 1997 1996 1995$M $M $M $M $M

Balance at start of year 2,220 1,883 1,617 1,758 1,967Adjustment for exchange rate fluctuations (79) 34 16 (16) (2)Bad debts written off (refer (i) below) (382) (221) (199) (346) (497)Charge to profit and loss account 510 487 400 175 237Recoveries (refer (ii) below) 33 37 49 46 52Other – – – – 1

Total provisions for doubtful debts 2,302 2,220 1,883 1,617 1,758

(i) Total write-offs by industryAustralia

Agriculture, forestry, fishing and mining (6) (4) (5) (11) (19)Business service (4) (4) (3) (17) (11)Entertainment, leisure and tourism (3) (3) (11) (19) (29)Financial, investment and insurance (28) (3) (8) (8) (11)Government and official institutions – – – – –Lease finance (5) (5) (5) (12) (45)Manufacturing (18) (11) (10) (49) (41)Personal1 (67) (81) (55) (46) (47)Real estate – construction (8) (5) (6) (6) (6)Real estate – mortgage2 (16) (40) (26) (77) (102)Retail and wholesale trade (19) (14) (11) (33) (50)Other (48) (4) (4) (23) (55)Overseas

Other (160) (47) (55) (45) (81)

Total write-offs (382) (221) (199) (346) (497)

(ii) Total recoveries by industry Australia

Agriculture, forestry, fishing and mining – – 4 3 1Business service – 3 1 1 1Entertainment, leisure and tourism – 1 1 2 3Financial, investment and insurance 3 1 2 3 2Lease finance 2 3 2 3 3Manufacturing 1 4 4 2 1Personal1 8 10 9 9 10Real estate – construction – 1 – 1 –Real estate – mortgage2 1 2 7 9 3Retail and wholesale trade – 1 2 2 4Other 2 1 7 2 3Overseas

Other 16 10 10 9 21

Total recoveries 33 37 49 46 52

Net write-offs (349) (184) (150) (300) (445)

Ratio of net write-offs to averageloans and acceptances 0.3% 0.2% 0.1% 0.3% 0.6%

1 Personal includes non-business loans to individuals through overdrafts, personal loans, credit cards and fully drawn advances2 Real estate mortgage includes residential and commercial property exposure. Loans within this category are for the purchase of such properties and must

be secured by property


85

F i n a n c i a l I n f o r m a t i o n8: Short Term Borrowings

The Group’s short-term borrowings comprise commercial paper, as well as unsecured notes issued by subsidiaryborrowing corporations with an original term to maturity of less than one year.The Group has commercial paperprograms in the United States, where it issues paper through ANZ (Delaware) Inc., and in Europe and Asia, where theGroup issues paper direct.

1999 1998 1997$M $M $M

Balance at end of year

Commercial paper – ANZ (Delaware) Inc. 3,757 184 1,808Commercial paper – other 4,836 3,264 3,023Unsecured notes 856 683 552Weighted average interest rate at end of year

Commercial paper – ANZ (Delaware) Inc. 5.27% 5.25% 5.55%Commercial paper – other 4.69% 6.96% 5.39%Unsecured notes 4.25% 6.71% 6.35%Maximum amount outstanding at any month

end during year

Commercial paper – ANZ (Delaware) Inc. 4,063 1,870 2,094Commercial paper – other 4,847 4,555 3,395Unsecured notes 858 686 564Average amount outstanding during year

Commercial paper – ANZ (Delaware) Inc. 2,597 490 1,731Commercial paper – other 3,844 4,036 3,081Unsecured notes 800 570 427Weighted average interest rate during year

Commercial paper – ANZ (Delaware) Inc. 4.89% 5.51% 5.41%Commercial paper – other 4.86% 4.96% 5.87%Unsecured notes 4.53% 6.06% 6.64%


86

G L O S S A R YCorporate Financial Services comprises Corporate Relationships (including Asset Finance, relationship banking andstructured finance), foreign exchange and capital markets operations in Australia, New Zealand and the mature markets ofUK, Europe and Americas. Corporate Financial Services provides a range of products and services to commercialcustomers including large companies and government organisations. Products include commercial bill lending, termlending, corporate and project financing, originations and syndications, tax based financing, transaction banking, insuranceservices, trade finance services, and asset based financing including motor vehicle and equipment leasing and hirepurchase. The foreign exchange and capital markets operations provide foreign exchange and financial risk managementservices for customers.

Economic loss provisioning (ELP) charge is determined based on the expected average annual loss of principalderived from the Group’s risk management models.

Equity standardisation Economic Value Added (EVATM) principles are in use throughout the Group, whereby riskadjusted capital is allocated and charged against business units. Equity standardised profit is determined by eliminating theimpact of earnings on each business unit’s book capital and attributing earnings on the business unit’s risk adjusted capital.This enhances comparability of business unit performance. Geographic results are not equity standardised.

Geographic segmentationUK and Europe includes France, Germany, Guernsey, Jersey, Switzerland and United Kingdom.Asia Pacific includes Cook Islands, Fiji, Indonesia, Japan, Korea, Malaysia, Papua New Guinea, Philippines, Samoa,Singapore, Solomon Islands, Sri Lanka,Taiwan,Thailand,The People’s Republic of China,Tonga,Vanuatu and Vietnam.South Asia includes Bangladesh, India and Nepal.Americas includes United States of America.Middle East includes Bahrain, Greece, Iran, Israel, Jordan, Pakistan, Palestine, Qatar and United Arab Emirates.

Group (including discontinued businesses) comprises the results of asset and liability management, earnings oncentral capital, costs relating to hedging capital positions, certain central costs not recharged to business units and theresults of discontinued businesses.

Impaired assets are loans or other credit facilities where there is reasonable doubt about the collectability of interest,fees (past and future) or principal outstanding, or where concessional terms have been provided because of the financialdifficulties of the customer.

International comprises the result of operations outside Australia and New Zealand for personal banking (includingPrivate Banking), funds management, business banking and structured finance and the foreign exchange and capitalmarkets operations of other countries, excluding the mature markets of UK, Europe and Americas. Internationaloperations provide commercial banking operations in selected geographic regions which compliment and support thedomestic businesses. Products include trade finance, personal banking services, project and corporate finance, syndicationsand foreign exchange and financial risk management services.

Net advances include gross loans and advances, acceptances and ANZ accepted bills held as part of trading securities lessincome yet to mature and specific provisions (for both as at and average volumes).

Net interest average margin is net interest income as a percentage of average interest earning assets. Non-assessableinterest income is grossed up to the equivalent before tax amount for the purpose of these calculations.

Net interest spread is average interest rate received on interest earning assets less the average interest rate paid oninterest bearing liabilities. Non-assessable interest income is grossed up to the equivalent before tax amount for thepurpose of these calculations.


87

Net non-interest bearing items referred to in the analysis of interest spread and net interest average margin, includesshareholders’ equity, provisions for doubtful debts, and deposits not bearing interest and other liabilities not bearinginterest, offset by premises and equipment and other non-interest earning assets. Non-accrual loans are included withininterest bearing loans, advances and bills discounted.

Net specific provision is the transfer from the general provision to the specific provision (representing new andincreased specific provisions less specific provision releases) less recoveries.

Operating expenses exclude charge for doubtful debts and abnormal items.

Overseas geographic segment includes the results of all operations outside Australia and New Zealand.

Personal Financial Services comprises Personal Banking (including Private Banking) and Funds Managementoperations in Australia and New Zealand. Personal Financial Services provides a wide range of services and products toconsumers and small and medium sized businesses. Products include current account facilities, credit card services,EFTPOS, electronic banking services, term deposits, money market and savings accounts, foreign exchange services,payroll, superannuation, insurance services, fixed and variable rate residential mortgage loans, overdraft facilities and termloans and other consumer and commercial loans. The funds management operations provide financial planning, estateplanning and management, insurance, superannuation and investment management.

Total advances include gross loans and advances, acceptances and ANZ accepted bills held as part of trading securitiesless income yet to mature (for both as at and average volumes).

Unproductive facilities includes standby letters of credit, bill endorsements, documentary letters of credit andguarantees to third parties.

G L O S S A R Y


1999 ANNUAL REPORT • AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED ACN 005 357 522www.anz.com

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finanical report-1999

Economy & Finance