Macquarie Leasing Pty Ltd - FORM 8-K - EX-99.1

Attached files

file	filename
8-K - FORM 8-K - Macquarie Leasing Pty Ltd	d573812d8k.htm

Exhibit 99.1

LOGO

Australia and New Zealand Banking Group Limited

ABN 11 005 357 522

Half Year

31 March 2018

Consolidated Financial Report

Dividend Announcement

and Appendix 4D

The Consolidated Financial Report and Dividend Announcement contains information required by Appendix 4D of the Australian Securities Exchange (ASX) Listing Rules. It should be read in conjunction with ANZ’s 2017 Annual Report, and is lodged with the ASX under listing rule 4.2A.

RESULTS FOR ANNOUNCEMENT TO THE MARKET

APPENDIX 4D


Name of Company:		Australia and New Zealand Banking Group Limited
		ABN 11 005 357 522

Report for the half year ended 31 March 2018

Operating Results¹

AUD million

Operating income from continuing operations

10,175

Net statutory profit attributable to shareholders

14%

3,323

Cash profit²

-16%

2,876

Cash profit from continuing operations

3,493

Dividends³

Cents

per

share

Franked

amount⁴

per share

Proposed Interim dividend

100%

Record date for determining entitlements to the proposed 2018 interim dividend

15 May 2018

Payment date for the proposed 2018 interim dividend

2 July 2018

Dividend Reinvestment Plan and Bonus Option Plan

Australia and New Zealand Banking Group Limited (ANZ) has a Dividend Reinvestment Plan (DRP) and a Bonus Option Plan (BOP) that will operate in respect of the 2018 interim dividend. For the 2018 interim dividend, ANZ intends to provide shares under the DRP through an on-market purchase and BOP through the issue of new shares. The ‘Acquisition Price’ to be used in determining the number of shares to be provided under the DRP and BOP will be calculated by reference to the arithmetic average of the daily volume weighted average sale price of all fully paid ANZ ordinary shares sold in the ordinary course of trading on the ASX and Chi-X during the ten trading days commencing on 18 May 2018, and then rounded to the nearest whole cent. Shares provided under the DRP and BOP will rank equally in all respects with existing fully paid ANZ ordinary shares. Election notices from shareholders wanting to commence, cease or vary their participation in the DRP or BOP for the 2018 interim dividend must be received by ANZ’s Share Registrar by 5.00pm (Australian Eastern Standard Time) on 16 May 2018. Subject to receiving effective contrary instructions from the shareholder, dividends payable to shareholders with a registered address in the United Kingdom (including the Channel Islands and the Isle of Man) or New Zealand will be converted to Pounds Sterling or New Zealand Dollars respectively at an exchange rate calculated on 18 May 2018.

¹	Unless otherwise noted, all comparisons are to the half year ended 31 March 2017.

Cash profit excludes non-core items included in statutory profit and is provided to assist readers in understanding the result of the ongoing business activities of the Group. The non-core items are calculated consistently period on period so as not to discriminate between positive and negative adjustments and fall into one of the three categories: gains or losses included in earnings arising from changes in tax, legal or accounting legislation or other non-core items not associated with the ongoing operations of the Group; treasury shares, revaluation of policy liabilities, economic hedging and similar accounting items that represent timing differences that will reverse through earnings in the future; and accounting reclassifications between individual line items that do not impact reported results, such as policyholders tax gross up. Cash profit is not a measure of cash flow or profit determined on a cash basis. The net after tax adjustment was a reduction to statutory profit of $447 million made up of several items. Refer pages 67 to 71 for further details.

³	There is no conduit foreign income attributed to the dividends.

⁴	It is proposed that the interim dividend will be fully franked for Australian tax purposes (30% tax rate) and carry New Zealand imputation credits of NZD 9 cents per ordinary share.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

ABN 11 005 357 522

CONSOLIDATED FINANCIAL REPORT, DIVIDEND ANNOUNCEMENT AND APPENDIX 4D

Half year ended 31 March 2018


CONTENTS	PAGE

Disclosure Summary		5

Summary		7

Group Results		17

Divisional Results		43

Profit Reconciliation		67

Condensed Consolidated Financial Statements		73

Supplementary Information		109

Definitions		119

ASX Appendix 4D Cross Reference Index		122

Alphabetical Index		123

This Consolidated Financial Report, Dividend Announcement and Appendix 4D has been prepared for Australia and New Zealand Banking Group Limited (the “Company” or “Parent Entity”) together with its subsidiaries which are variously described as “ANZ”, “Group”, “ANZ Group”, “the consolidated entity”, “the Bank”, “us”, “we” or “our”.

All amounts are in Australian dollars unless otherwise stated. The Condensed Consolidated Financial Statements have been reviewed by the Group’s auditors, KPMG. The Company has a formally constituted Audit Committee of the Board of Directors. The signing of the Condensed Consolidated Financial Statements was approved by resolution of a Committee of the Board of Directors on 30 April 2018.

When used in this Results Announcement the words “estimate”, “project”, “intend”, “anticipate”, “believe”, “expect”, “should” and similar expressions, as they relate to ANZ and its management, are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. ANZ does not undertake any obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

ABN 11 005 357 522

This page has been left blank intentionally

DISCLOSURE SUMMARY

SUMMARY OF 2018 HALF YEAR RESULTS AND ASSOCIATED DISCLOSURE MATERIALS

The following disclosure items were lodged separately with the ASX and NZX and can be accessed via the ANZ Shareholder Centre on the Group website http://www.shareholder.anz.com/ within the disclosures for 2018 Half Year Results.

•

Consolidated Financial Report, Dividend Announcement & Appendix 4D

•

Results Presentation and Investor Discussion Pack

•

News Release

•

APS 330 Pillar III Disclosure at 31 March 2018

•

Key Financial Data

•

UK DTR Submission

DISCLOSURE SUMMARY

This page has been left blank intentionally

SUMMARY


CONTENTS	Page

Guide to Half Year Results		9

Statutory Profit Results - including discontinued operations		11

Cash Profit Results - including discontinued operations		12

Key Balance Sheet Metrics - including discontinued operations		13

Large/Notable Items - continuing operations		14

Full Time Equivalent Staff - including discontinued operations		16

Other Non-Financial Information - including discontinued operations		16

SUMMARY

This page has been left blank intentionally

SUMMARY

Guide to Half Year Results

Presentation of Information

As a result of the sales outlined below, the financial results of the Wealth Australia businesses being divested and associated Group reclassification and consolidation impacts are treated as discontinued operations from a financial reporting perspective. This impacts the current and comparative financial information for Wealth Australia and TSO and Group Centre divisions.

The comparative Group Income Statements and Statements of Comprehensive Income have been restated to show discontinued operations separately from continuing operations in a separate line item ‘profit from discontinued operations’. Included in the March 2018 half year in ‘profit from discontinued operations’ is a $632 million loss relating to the reclassification of Wealth Australia businesses to held for sale.

Sale of Wealth Australia Businesses

•

Sale to IOOF Holdings Limited (IOOF)

On 17 October 2017, the Group announced it had agreed to sell its OnePath pensions and investments (OnePath P&I) and aligned dealer groups (ADG) businesses to IOOF. The aligned dealer groups business consists of aligned advice businesses that operate under their own Australian Financial Services licences. Completion is expected in the first half of the 2019 financial year, subject to certain conditions including regulatory approvals and completing the extraction of the OnePath P&I business from OnePath Life Insurance.

•

Sale to Zurich Financial Services Australia (Zurich)

On 12 December 2017, ANZ announced that it had agreed to the sale of its life insurance business to Zurich to further simplify ANZ’s Wealth Australia division. The transaction is subject to closing conditions and regulatory approval and ANZ expects it to close in the first half of the 2019 financial year.

The retained Wealth Australia business includes lenders mortgage insurance, share investing, financial planning and general insurance distribution.

SUMMARY

Cash Profit Results



	Total - inclusive of discontinued operations									Continuing operations									Movement
	Mar 18 $M			Sep 17 $M			Mar 17 $M			Mar 18 $M			Sep 17 $M			Mar 17 $M			Mar 18 v. Sep 17		Mar 18 v. Mar 17
Net interest income		7,350			7,456			7,416			7,350			7,456			7,419			-1%		-1%
Other operating income		2,090			2,730			2,887			2,458			2,384			2,557			3%		-4%
Operating income		9,440			10,186			10,303			9,808			9,840			9,976			0%		-2%
Operating expenses		(4,654	)		(4,717	)		(4,731	)		(4,411	)		(4,480	)		(4,487	)		-2%		-2%
Profit before credit impairment and income tax		4,786			5,469			5,572			5,397			5,360			5,489			1%		-2%
Credit impairment charge		(408	)		(479	)		(720	)		(408	)		(479	)		(720	)		-15%		-43%
Profit before income tax		4,378			4,990			4,852			4,989			4,881			4,769			2%		5%
Income tax expense		(1,495	)		(1,456	)		(1,433	)		(1,489)			(1,420	)		(1,406	)		5%		6%
Non-controlling interests		(7	)		(7	)		(8	)		(7	)		(7	)		(8	)		0%		-13%
Cash Profit		2,876			3,527			3,411			3,493			3,454			3,355			1%		4%
Average interest earning assets		765,186			752,073			743,906			765,186			752,073			743,906			2%		3%
Average deposits and other borrowings		612,291			607,390			601,218			612,291			607,390			601,218			1%		2%
Funds under management¹		80,178			77,985			76,509			30,596			28,925			27,258			6%		12%
Common Equity Tier 1²
APRA Basel		11.0%			10.6%			10.1%			11.0%			10.6%			10.1%
Internationally Comparable Basel 3		16.3%			15.8%			15.2%			16.3%			15.8%			15.2%
Earnings per share (basic)		98.3			120.4			116.7			119.4			117.9			114.8			1%		4%
Ordinary share dividend payout ratio		80.4%			66.6%			68.9%			66.2%			68.0%			70.0%
Profitability Ratios
Return on average ordinary shareholders’ equity³		9.8%			12.0%			11.8%			11.9%			11.7%			11.6%
Return on average assets		0.62%			0.76%			0.74%			0.79%			0.78%			0.77%
Net interest margin		1.93%			1.98%			2.00%			1.93%			1.98%			2.00%
Efficiency Ratios
Operating expenses to operating income		49.3%			46.3%			45.9%			45.0%			45.5%			45.0%
Operating expenses to average assets		1.00%			1.02%			1.03%			0.99%			1.02%			1.03%
FTE⁴		41,580			44,896			46,046			39,540			42,873			44,015			-8%		-10%

^1.

Funds under management for continuing operations relates to New Zealand Wealth and Private Bank in Australia division.

^2.

Common Equity Tier 1 is not impacted by discontinued operations until sale completion.

^3.

Average ordinary shareholders’ equity excludes non-controlling interests.

^4.

Discontinued FTE is based on an estimate. Actual FTE that will transfer to IOOF and Zurich on sale completion is currently being determined.

SUMMARY

Statutory Profit Results - including discontinued operations


			Half Year					Movement
			Mar 18 $M	Sep 17 $M			Mar 17 $M	Mar 18 v. Sep 17	Mar 18 v. Mar 17

Net interest income			7,350		7,456		7,419	-1%	-1%

Other operating income			2,825		2,347		2,176	20%	30%
Operating income			10,175		9,803		9,595	4%	6%

Operating expenses			(4,411)		(4,480	)	(4,487)	-2%	-2%

Profit before credit impairment and income tax			5,764		5,323		5,108	8%	13%

Credit impairment charge			(408)		(479	)	(719)	-15%	-43%
Profit before income tax			5,356		4,844		4,389	11%	22%

Income tax expense			(1,426)		(1,427	)	(1,447)	0%	-1%

Non-controlling interests			(7)		(7	)	(8)	0%	-13%

Profit attributable to shareholders of the Company from continuing operations			3,923		3,410		2,934	15%	34%

Profit/(Loss) from discontinued operations			(600)		85		(23)	large	large
Profit attributable to shareholders of the Company			3,323		3,495		2,911	-5%	14%

Earnings Per Ordinary Share (cents)			Half Year					Movement
	Reference Page		Mar 18	Sep 17			Mar 17	Mar 18 v. Sep 17	Mar 18 v. Mar 17

Basic		88	114.2		119.9		100.2	-5%	14%

Diluted		88	108.6		114.7		96.7	-5%	12%

							Half Year

			Reference Page				Mar 18	Sep 17	Mar 17
Ordinary Share Dividends (cents)

Interim - 100% franked¹			87				80	-	80

Final - 100% franked¹			87				-	80	-
Total - 100% franked¹			87				80	80	80

Ordinary share dividend payout ratio²			87				69.6%	67.2%	80.7%

Profitability Ratios

Return on average ordinary shareholders’ equity³							11.3%	11.9%	10.1%

Return on average assets⁴							0.71%	0.76%	0.64%

Net interest margin							1.93%	1.98%	2.00%

Efficiency Ratios

Operating expenses to operating income							46.8%	45.9%	47.3%

Operating expenses to average assets⁴							1.00%	1.02%	1.03%

Credit Impairment Charge/(Release)

Individual credit impairment charge ($M)			92				430	554	786

Collective credit impairment charge/(release) ($M)			92				(22)	(75)	(67)
Total credit impairment charge ($M)			92				408	479	719

Individual credit impairment charge as a % of average gross loans and advances⁴							0.15%	0.19%	0.26%

Total credit impairment charge as a % of average gross loans and advances⁴							0.14%	0.16%	0.24%

^1.

Fully franked for Australian tax purposes and carry New Zealand imputation credits of NZD 9 cents per ordinary share for the proposed 2018 interim dividend (2017 final dividend: NZD 10 cents; 2017 interim dividend: NZD 9 cents).

^2.

Dividend payout ratio is calculated using the proposed 2018 interim, 2017 final and 2017 interim dividends.

^3.

Average ordinary shareholders’ equity excludes non-controlling interests.

^4.

Average assets and average gross loans and advances include assets held for sale.

SUMMARY

Cash Profit Results - including discontinued operations¹


	Half Year							Movement
	Mar 18 $M			Sep 17 $M			Mar 17 $M	Mar 18 v. Sep 17	Mar 18 v. Mar 17

Net interest income		7,350			7,456		7,419	-1%	-1%

Other operating income		2,458			2,384		2,557	3%	-4%
Operating income		9,808			9,840		9,976	0%	-2%

Operating expenses		(4,411	)		(4,480	)	(4,487)	-2%	-2%
Profit before credit impairment and income tax		5,397			5,360		5,489	1%	-2%

Credit impairment charge		(408	)		(479	)	(720)	-15%	-43%
Profit before income tax		4,989			4,881		4,769	2%	5%

Income tax expense		(1,489	)		(1,420	)	(1,406)	5%	6%

Non-controlling interests		(7	)		(7	)	(8)	0%	-13%

Cash profit from continuing operations		3,493			3,454		3,355	1%	4%

Cash profit from discontinued operations		(617	)		73		56	large	large

Cash profit		2,876			3,527		3,411	-18%	-16%

Earnings Per Ordinary Share (cents)				Half Year				Movement
	Mar 18			Sep 17			Mar 17	Mar 18 v. Sep 17	Mar 18 v. Mar 17

Basic		98.3			120.4		116.7	-18%	-16%

Diluted		94.2			115.2		111.9	-18%	-16%

							Half Year

				Reference Page			Mar 18	Sep 17	Mar 17
Ordinary Share Dividends
Ordinary share dividend payout ratio²							80.4%	66.6%	68.9%

Profitability Ratios

Return on average ordinary shareholders’ equity³							9.8%	12.0%	11.8%

Return on average assets⁴							0.62%	0.76%	0.74%

Net interest margin							1.93%	1.98%	2.00%

Efficiency Ratios

Operating expenses to operating income							49.3%	46.3%	45.9%

Operating expenses to average assets⁴							1.00%	1.02%	1.03%

Credit Impairment Charge/(Release)

Individual credit impairment charge ($M)					27		430	554	787

Collective credit impairment charge/(release) ($M)					27		(22)	(75)	(67)
Total credit impairment charge ($M)					27		408	479	720

Individual credit impairment charge as a % of average gross loans and advances⁴							0.15%	0.19%	0.27%

Total credit impairment charge as a % of average gross loans and advances⁴							0.14%	0.16%	0.25%

Cash Profit/(Loss) By Division	Half Year							Movement
	Mar 18 $M			Sep 17 $M			Mar 17 $M	Mar 18 v. Sep 17	Mar 18 v. Mar 17

Australia		1,915			1,857		1,759	3%	9%

Institutional		793			859		1,065	-8%	-26%

New Zealand		726			692		677	5%	7%

Wealth Australia		44			37		58	19%	-24%

Asia Retail & Pacific		106			65		(222)	63%	large

TSO and Group Centre		(91	)		(56	)	18	63%	large

Discontinued Operations		(617	)		73		56	large	large
Cash profit by division		2,876			3,527		3,411	-18%	-16%

^1.

Cash profit excludes non-core items included in statutory profit and is provided to assist readers in understanding the results of the ongoing business activities of the Group. Refer to pages 67 to 71 for the reconciliation between statutory and cash profit. Refer to pages 14 to 15 for information on large notable items included in cash profit.

^2.

Dividend payout ratio is calculated using the proposed 2018 interim, 2017 final and 2017 interim dividends.

^3.

Average ordinary shareholders’ equity excludes non-controlling interests.

^4.

Average assets and average gross loans and advances include assets held for sale.

SUMMARY

Key Balance Sheet Metrics - including discontinued operations¹


			As at								Movement
	Reference Page		Mar 18			Sep 17		Mar 17			Mar 18 v. Sep 17		Mar 18 v. Mar 17
Capital Management

Common Equity Tier 1

- APRA Basel 3		38		11.0%			10.6%		10.1%

- Internationally Comparable Basel 3²		38		16.3%			15.8%		15.2%

Credit risk weighted assets ($B)		112		342.8			336.8		341.8			2%		0%

Total risk weighted assets ($B)		38		395.8			391.1		397.0			1%		0%

Leverage Ratio		40		5.4%			5.4%		5.3%

Balance Sheet: Key Items

Gross loans and advances ($B)				595.5			584.1		580.4			2%		3%

Net loans and advances ($B)				591.9			580.3		576.3			2%		3%

Total assets ($B)				935.1			897.3		896.5			4%		4%

Customer deposits ($B)				472.8			467.6		468.2			1%		1%

Total equity ($B)				59.5			59.1		57.9			1%		3%

			Half Year Average								Movement
Liquidity Risk	Reference Page		Mar 18			Sep 17		Mar 17			Mar 18 v. Sep 17		Mar 18 v. Mar 17

Liquidity Coverage Ratio		36		134%			135%		135%			-1%		-1%

Net Stable Funding Ratio		37		114.9%			113.9%		112.5%			1%		2%

			As at								Movement
	Reference Page		Mar 18			Sep 17		Mar 17			Mar 18 v. Sep 17		Mar 18 v. Mar 17
Impaired Assets

Gross impaired assets ($M)		29		2,034			2,384		2,940			-15%		-31%

Gross impaired assets as a % of gross loans and advances				0.34%			0.41%		0.51%

Net impaired assets ($M)		29		1,018			1,248		1,671			-18%		-39%

Net impaired assets as a % of shareholders’ equity				1.7%			2.1%		2.9%

Individual provision ($M)		28		1,016			1,136		1,269			-11%		-20%

Individual provision as a % of gross impaired assets				50.0%			47.7%		43.2%

Collective provision ($M)		28		2,579			2,662		2,785			-3%		-7%

Collective provision as a % of credit risk weighted assets				0.75%			0.79%		0.81%

Net Assets

Net tangible assets attributable to ordinary shareholders ($B)³				53.0			51.9		50.6			2%		5%

Net tangible assets per ordinary share ($)				18.27			17.66		17.24			3%		6%

			As at								Movement
Net Loans And Advances By Division			Mar 18 $B			Sep 17 $B		Mar 17 $B			Mar 18 v. Sep 17		Mar 18 v. Mar 17

Australia				339.4			333.6		325.5			2%		4%

Institutional				137.9			131.6		132.1			5%		4%

New Zealand				111.3			107.9		104.9			3%		6%

Wealth Australia				1.7			1.7		1.8			0%		-6%

Asia Retail & Pacific				2.2			5.5		12.4			-60%		-82%

TSO and Group Centre				(0.7	)		-		(0.4	)		n/a		75%

Discontinued Operations				0.1			-		-			n/a		n/a
Net loans and advances by division				591.9			580.3		576.3			2%		3%

^1.

Balance Sheet amounts and metrics include assets and liabilities held for sale.

^2.

See page 38 for further details regarding the differences between APRA Basel 3 and Internationally Comparable Basel 3 standards.

^3.

Equals total shareholders’ equity less total non-controlling interests, goodwill and other intangible assets.

SUMMARY

Large/Notable items - continuing operations

Large/notable items included in cash profit are described below.

Divestment impacts

The Group announced the following divestments in line with the Group’s strategy to create a simpler, better capitalised, better balanced and more agile bank. The financial impacts from these divestments are summarised below:


	Gain/(Loss) on sale from divestments								Divested business results
Cash Profit Impact	Mar 18 $M			Sep 17 $M		Mar 17 $M			Mar 18 $M		Sep 17 $M		Mar 17 $M
Asia Retail and Wealth businesses		85			14		(284	)		24		117		145
SRCB		(86	)		-		-			-		-		58
MCC		121			-		-			-		24		15
UDC		18			-		-			-		-		-
Total		138			14		(284	)		24		141		218

•

Asia Retail and Wealth businesses

The Group announced that it had agreed to sell its Retail and Wealth businesses in Singapore, Hong Kong, China, Taiwan and Indonesia to Singapore’s DBS Bank on 31 October 2016, and its Retail business in Vietnam to Shinhan Bank Vietnam on 21 April 2017. The Group successfully completed the transition of businesses in China, Singapore and Hong Kong in the September 2017 half, and Vietnam, Taiwan, and Indonesia in the March 2018 half. The Group recognised the following impacts:

•

In the March 2018 half, the Group recognised a $85 million gain relating to the sale of the remaining Asia Retail and Wealth businesses, net of costs associated with the sale and tax expenses.

•

In the September 2017 half, the Group recognised a $14 million gain on the partial completion of the Asia Retail and Wealth sale comprising sale premium and recoveries, net of related sale costs.

•

In the March 2017 half year, the Group recognised a $284 million loss relating to the reclassification of assets to held for sale in addition to costs associated with the sale and tax expenses.

•

Shanghai Rural Commercial Bank (SRCB)

On 3 January 2017, the Group announced it had agreed to sell its 20% stake in Shanghai Rural Commercial Bank (SRCB). On 18 September 2017, the Group announced a revision to the 3 January 2017 arrangement in which Baoshan Iron & Steel Co. Ltd. (Bao) replaced Shanghai Sino-Poland Enterprise Management Development Corporation Limited to join China COSCO Shipping Corporation Limited (COSCO) to acquire ANZ’s 20% stake in SRCB. Under the updated arrangement, COSCO and Bao each acquired a 10% stake in SRCB. The key financial terms of the revised sale agreement were unchanged from the original transaction announcement. The sale was completed in the March 2018 half and the Group recognised a net loss of $86 million. This reflects equity accounted earnings of $58 million in the March 2017 half which increased the carrying value prior to the reclassification to held for sale, and additional foreign exchange and tax expenses related to the delay in sale completion. Allowing for the impact of equity accounted earnings, the net loss on sale was $28 million.

•

Metrobank Card Corporation (MCC)

On 18 October 2017, the Group announced it had entered into an agreement with its joint venture partner Metropolitan Bank & Trust Company (Metrobank) in relation to its 40% stake in the Philippines based Metrobank Card Corporation (MCC). The Group has agreed to sell 20% of its stake, and entered into a put option to sell the remaining 20% stake exercisable in the fourth quarter of FY18 on the same terms for the same consideration. The first 20% stake sale was completed in the March 2018 half and the Group recognised a net $121 million gain.

•

UDC Finance (UDC)

On 11 January 2017, the Group announced that it had entered into a conditional agreement to sell UDC to HNA Group (HNA). On 21 December 2017, the Group announced that it had been informed that New Zealand’s Overseas Investment Office had declined HNA’s application to acquire UDC and the agreement with HNA was terminated in January 2018. In the March 2018 half, an $18 million cost recovery was recognised in respect of the terminated transaction process.

On 20 March 2018, the Group announced that it was continuing to examine a broad range of options for UDC’s future including an Initial Public Offering (IPO) and trade sale.

Other large/notable items

•

Derivative valuation adjustments

In determining the fair value of derivative positions, adjustments are made to the risk free value to include factors such as the impact of credit and funding. Following changes made to the credit valuation adjustment (CVA) methodology in 2016 and changes previously made to align funding valuation adjustment (FVA) with emerging market practices these adjustments became more susceptible to changes in market inputs which can fluctuate significantly. Decreasing credit spreads and increasing yields drove significant gains in 2017. In the March and September 2017 half, a $113 million gain and a $47 million gain was recognised respectively to reflect the impact of funding and credit valuation adjustments, net of associated hedges and tax expenses. The derivative valuation adjustments in the March 2018 half are immaterial and therefore not included as a large/notable item.

•

Gain on sale of 100 Queen Street, Melbourne

The Group sold the 100 Queen Street office tower and former head office in Melbourne, Australia during the March 2017 half. The transaction resulted in a net gain on sale of $112 million.

SUMMARY

Large/Notable items - continuing operations

Within continuing cash profit, the Group has recognised some large/notable items. These items are shown in the tables below.


	March 2018 Half Year									March 2017 Half Year
	Large/notable items included in continuing cash profit												Large/notable items included in continuing cash profit
	Continuing cash profit $M			Gain/(Loss) on sale from divestments $M			Divested business results $M			Continuing cash profit $M			Gain/(Loss) on sale from divestments $M			Divested business results $M			Derivative valuation adjustments $M			Gain on sale of 100 Queen St, Melbourne $M

Cash Profit

Net interest income		7,350			-			53			7,419			-			249			-			-

Other operating income		2,458			238			38			2,557			(324	)		194			162			114

Operating income		9,808			238			91			9,976			(324	)		443			162			114

Operating expenses		(4,411	)		-			(35	)		(4,487	)		-			(120	)		-			-

Profit before credit impairment and income tax		5,397			238			56			5,489			(324	)		323			162			114

Credit impairment charge		(408	)		-			(26	)		(720	)		-			(71	)		-			-

Profit before income tax		4,989			238			30			4,769			(324	)		252			162			114

Income tax expense		(1,489	)		(100	)		(6	)		(1,406	)		40			(34	)		(49	)		(2	)

Non-controlling interests		(7	)		-			-			(8	)		-			-			-			-
Cash profit from continuing operations		3,493			138			24			3,355			(284	)		218			113			112

	March 2018 Half Year									September 2017 Half Year
	Large/notable items included in continuing cash profit												Large/notable items included in continuing cash profit
	Continuing cash profit $M			Gain/(Loss) on sale from divestments $M			Divested business results $M			Continuing cash profit $M			Gain/(Loss) on sale from divestments $M			Divested business results $M			Derivative valuation adjustments $M			Gain on sale of 100 Queen St, Melbourne $M

Cash Profit

Net interest income		7,350			-			53			7,456			-			193			-			-

Other operating income		2,458			238			38			2,384			14			127			67			-

Operating income		9,808			238			91			9,840			14			320			67			-

Operating expenses		(4,411	)		-			(35	)		(4,480	)		-			(97	)		-			-

Profit before credit impairment and income tax		5,397			238			56			5,360			14			223			67			-

Credit impairment charge		(408	)		-			(26	)		(479	)		-			(53	)		-			-

Profit before income tax		4,989			238			30			4,881			14			170			67			-

Income tax expense		(1,489	)		(100	)		(6	)		(1,420	)		-			(29	)		(20	)		-

Non-controlling interests		(7	)		-			-			(7	)		-			-			-			-
Cash profit from continuing operations		3,493			138			24			3,454			14			141			47			-

SUMMARY

Full Time Equivalent Staff - including discontinued operations

As at 31 March 2018, ANZ employed 41,580 people worldwide (Sep 17: 44,896; Mar 17: 46,046) on a full-time equivalent basis (FTEs).


Division	As at						Movement
	Mar 18		Sep 17		Mar 17		Mar 18 v. Sep 17		Mar 18 v. Mar 17

Australia		13,701		13,885		13,898		-1%		-1%

Institutional		6,505		6,783		6,950		-4%		-6%

New Zealand		6,319		6,372		6,417		-1%		-2%

Wealth Australia		2,388		2,512		2,512		-5%		-5%

Asia Retail & Pacific		1,199		3,664		4,637		-67%		-74%

TSO and Group Centre		11,468		11,680		11,632		-2%		-1%
Total		41,580		44,896		46,046		-7%		-10%
Average FTE		44,029		45,674		46,462		-4%		-5%

Geography	As at						Movement
	Mar 18		Sep 17		Mar 17		Mar 18 v. Sep 17		Mar 18 v. Mar 17

Australia		19,351		19,657		19,712		-2%		-2%

Asia Pacific, Europe & America		14,511		17,484		18,573		-17%		-22%

New Zealand		7,718		7,755		7,761		0%		-1%
Total		41,580		44,896		46,046		-7%		-10%

Other Non-Financial Information - including discontinued operations

	Half Year						Movement
Shareholder value - ordinary shares	Mar 18		Sep 17		Mar 17		Mar 18 v. Sep 17		Mar 18 v. Mar 17

Share price ($)

- high		27.35		32.95		32.44		-17%		-16%

- low		26.81		27.18		25.78		-1%		4%

- closing		26.86		29.60		31.82		-9%		-16%

Closing market capitalisation of ordinary shares ($B)		77.9		86.9		93.4		-10%		-17%

Total shareholder returns (TSR)		-6.8%		-1.8%		22.4%		large		large

As at Mar 18

Credit Ratings

Short-Term

Long-Term

Outlook

Moody’s Investor Services

P-1

Aa3

Stable

Standard & Poor’s

A-1+

AA-

Negative

Fitch Ratings

F1+

AA-

Stable

GROUP RESULTS


CONTENTS	Page

Cash Profit		18

Group Performance		19

Net Interest Income - continuing operations		20

Other Operating Income - continuing operations		22

Operating Expenses - continuing operations		24

Investment Spend - continuing operations		25

Software Capitalisation - continuing operations		26

Credit Risk - including discontinued operations		27

Income Tax Expense - continuing operations		31

Impact of Foreign Currency Translation - continuing operations		32

Earnings Related Hedges - including discontinued operations		33

Earnings per Share - continuing operations		33

Dividends - continuing operations		34

Economic Profit - continuing operations		34

Condensed Balance Sheet - including discontinued operations		35

Liquidity Risk - including discontinued operations		36

Funding - including discontinued operations		37

Capital Management - including discontinued operations		38

Leverage Ratio - including discontinued operations		40

Other Regulatory Developments		40

GROUP RESULTS

Non-IFRS Information

The Group provides additional measures of performance in the Consolidated Financial Report & Dividend Announcement which are prepared on a basis other than in accordance with accounting standards. The guidance provided in Australian Securities and Investments Commission (ASIC) Regulatory Guide 230 has been followed when presenting this information.

Cash Profit

Cash profit represents ANZ’s preferred measure of the result of the ongoing business activities of the Group, enabling readers to assess Group and Divisional performance against prior periods and against peer institutions. To calculate cash profit, the Group excludes non-core items from statutory profit (refer to Definitions for further details). The adjustments made in arriving at cash profit are included in statutory profit which is subject to review within the context of the external auditor’s review of the Condensed Consolidated Financial Statements. Cash profit is not subject to review or audit by the external auditor. The external auditor has informed the Audit Committee that recurring adjustments have been determined on a consistent basis across each period presented, and the adjustments for the sale impact of the Shanghai Rural Commercial Bank (SRCB) in the March 2018, September 2017 and March 2017 half year are appropriate.

The Group Results section is reported on a cash profit basis for continuing operations unless otherwise stated. For continuing operations, comparatives have been restated accordingly. For information on discontinued operations please refer the Guide to Half Year Results on page 9 and 10.


	Half Year							Movement
	Mar 18			Sep 17			Mar 17	Mar 18		Mar 18
	$M			$M			$M	v. Sep 17		v. Mar 17

Statutory profit attributable to shareholders of the Company from continuing operations		3,923			3,410		2,934		15%		34%

Adjustments between statutory profit and cash profit¹

Revaluation of policy liabilities		(10	)		(8	)	33		25%		large

Economic hedges		(124	)		31		178		large		large

Revenue hedges		40			6		(105)		large		large

Structured credit intermediation trades		(3	)		(2	)	(1)		50%		large

Sale of SRCB		(333	)		17		316		large		large
Total adjustments between statutory profit and cash profit for continuing operations		(430	)		44		421		large		large
Cash profit from continuing operations		3,493			3,454		3,355		1%		4%

^1. Refer to pages 67 to 71 for analysis of the adjustments between statutory profit and cash profit.

Group performance - cash profit	Half Year							Movement
	Mar 18			Sep 17			Mar 17	Mar 18		Mar 18
	$M			$M			$M	v. Sep 17		v. Mar 17

Net interest income		7,350			7,456		7,419		-1%		-1%

Other operating income		2,458			2,384		2,557		3%		-4%

Operating income		9,808			9,840		9,976		0%		-2%

Operating expenses		(4,411	)		(4,480	)	(4,487)		-2%		-2%

Profit before credit impairment and income tax		5,397			5,360		5,489		1%		-2%

Credit impairment charge		(408	)		(479	)	(720)		-15%		-43%

Profit before income tax		4,989			4,881		4,769		2%		5%

Income tax expense		(1,489	)		(1,420	)	(1,406)		5%		6%

Non-controlling interests		(7	)		(7	)	(8)		0%		-13%
Cash profit from continuing operations		3,493			3,454		3,355		1%		4%

	Half Year							Movement
	Mar 18			Sep 17			Mar 17	Mar 18		Mar 18
Cash profit/(loss) by Division	$M			$M			$M	v. Sep 17		v. Mar 17

Australia		1,915			1,857		1,759		3%		9%

Institutional		793			859		1,065		-8%		-26%

New Zealand		726			692		677		5%		7%

Wealth Australia		44			37		58		19%		-24%

Asia Retail & Pacific		106			65		(222)		63%		large

TSO and Group Centre		(91	)		(56	)	18		63%		large
Cash profit from continuing operations		3,493			3,454		3,355		1%		4%

GROUP RESULTS

Group Performance

Group Cash Profit - March 2018 Half Year v March 2017 Half Year

LOGO

•

March 2018 v March 2017

Cash profit from continuing operations increased 4% compared with the March 2017 half reflecting the impact of large/notable items in the March 2018 half, rigorous cost management and a reduction in credit impairment charges.

•

Net interest income decreased $69 million (-1%) largely due to a 7 basis point decrease in the net interest margin, partially offset by 3% growth in average interest earning assets. The lower net interest margin reflects growth in lower margin liquid assets and lower earnings on capital, the sale of Retail Asia and Wealth businesses, and the introduction of the major bank levy from July 2017. This was partially offset by higher deposit margins and differentiated pricing in home loans. The increase in average interest earning assets reflects growth in ANZ’s home loans and Institutional banking portfolios, partially offset by the sale of Asia Retail and Wealth businesses.

•

Other operating income decreased $99 million (-4%) largely the result of Markets income, and large/notable items which include divestment impacts. Refer to page 22 and 23 for further details on key movements.

•

Operating expenses decreased $76 million (-2%) primarily due to a reduction in personnel and premises expenses. Refer to page 24 for further details on key movements.

•

Credit impairment charges decreased $312 million (-43%) largely due to lower individual credit impairment charges. Refer to page 27 and 28 for further details on key movements.

•

March 2018 v September 2017

Cash profit from continuing operations increased 1% compared with the September 2018 half.

•

Net interest income decreased $106 million (-1%) largely due to a 5 basis point decrease in the net interest margin, partially offset by 2% growth in average interest earning assets. The lower net interest margin reflects growth in lower margin liquid assets and lower earnings on capital, the sale of Retail Asia and Wealth businesses, and the introduction of the major bank levy from July 2017. This was partially offset by differentiated pricing in home loans and higher deposit margins. The increase in average interest earning assets reflects growth in ANZ’s home loans and Institutional banking portfolios, partially offset by the sale of Asia Retail and Wealth businesses.

•

Other operating income increased $74 million (+3%) largely the result of large/notable items including divestment activity. Refer to page 22 and 23 for further details on key movements.

•

Operating expenses decreased $69 million (-2%) primarily due to lower non-lending losses and discretionary spend. Refer to page 24 for further details on key movements.

•

Credit impairment charges decreased $71 million (-15%) largely due to lower individual credit impairment charges. Refer to page 27 and 28 for further details on key movements.

GROUP RESULTS

Net Interest Income - continuing operations


	Half Year						Movement
	Mar 18		Sep 17		Mar 17		Mar 18		Mar 18
Group	$M		$M		$M		v. Sep 17		v. Mar 17

Cash net interest income¹		7,350		7,456		7,419		-1%		-1%

Average interest earning assets²		765,186		752,073		743,906		2%		3%

Average deposits and other borrowings^2,3		612,291		607,390		601,218		1%		2%

Net interest margin (%) - cash		1.93		1.98		2.00		-5 bps		-7 bps

Group (excluding Markets business unit)

Cash net interest income¹		6,981		7,014		6,941		0%		1%

Average interest earning assets²		538,968		536,939		538,598		0%		0%

Average deposits and other borrowings^2,3		455,946		459,304		456,551		-1%		0%

Net interest margin (%) - cash		2.60		2.61		2.58		-1 bps		2 bps

	Half Year						Movement
	Mar 18		Sep 17		Mar 17		Mar 18		Mar 18
Cash profit net interest margin by major division	$M		$M		$M		v. Sep 17		v. Mar 17

Australia

Net interest margin (%)		2.78		2.73		2.73		5 bps		5 bps

Average interest earning assets		310,830		304,976		297,195		2%		5%

Average deposits and other borrowings		203,239		198,799		193,654		2%		5%

Institutional

Net interest margin (%)		0.91		0.99		1.08		-8 bps		-17 bps

Average interest earning assets		333,919		318,464		313,933		5%		6%

Average deposits and other borrowings		257,874		249,308		244,541		3%		5%

New Zealand¹

Net interest margin (%)		2.37		2.31		2.30		6 bps		7 bps

Average interest earning assets²		108,008		108,763		109,664		-1%		-2%

Average deposits and other borrowings²		79,669		78,747		79,190		1%		1%

^1.

Cash net interest income includes income from continuing operations and income earned on assets prior to divestment.

^2.

Average balance sheet amounts include assets and liabilities reclassified as held for sale from continuing operations.

^3.

In the March 2018 half, certain instruments were reclassified from average non-deposit interest bearing liabilities to average deposit and other borrowings to better reflect their nature. Comparatives have been restated accordingly (Sep 17 half: $4,371 million; Mar 17 half: $3,881 million).

Group net interest margin - March 2018 Half Year v March 2017 Half Year

LOGO

•

March 2018 v March 2017

Net interest margin (-7 bps)

•

Asset mix and funding mix (-1 bps): unfavourable asset mix from the impacts of customer switching and growth in Australia home loans.

•

Funding costs (-2 bps): full impact of the major bank levy, partially offset by reduced wholesale funding costs.

•

Deposit competition (+2 bps): improved deposit margins in Australia and Institutional divisions.

•

Asset competition and risk mix (+2 bps): impact of home loans re-pricing in Australia and New Zealand, partially offset by lower Institutional lending margins.

•

Treasury (-2 bps): adverse impact to earnings on capital as the result of lower interest rates.

•

Markets Balance Sheet activities (-5 bps): growth in the liquidity portfolio and lower earnings from markets activities.

GROUP RESULTS

•

Asia Retail and Wealth (-1 bps): adverse impact from the sale of Asia Retail and Wealth businesses.

Average interest earning assets (+$21.3 billion or +3%)

•

Average net loans and advances (+$5.7 billion or +1%): excluding the impact of foreign currency translation, growth was +$10.2 billion or +2% driven by growth in Australia and New Zealand home loans. This is partially offset by the sale of Asia Retail and Wealth businesses.

•

Average trading and available for sale assets (+$7.2 billion or +7%): excluding the impact of foreign currency translation, growth was +$8.3 billion or +8% driven by growth in the liquidity portfolio.

•

Average cash and other liquids (+$8.4 billion or +10%): excluding the impact of foreign currency translation, growth was +$9.7 billion or +12% driven by liquidity management requirements.

Average deposits and other borrowings (+$11.1 billion or +2%)

•

Average deposits and other borrowings (+$11.1 billion or +2%): excluding the impact of foreign currency translation growth was +$17.8 billion or +3% driven by growth in customer deposits in Australia and Institutional businesses, partially offset by the sale of Asia Retail and Wealth businesses.

Group net interest margin - March 2018 Half Year v September 2017 Half Year

LOGO

•

March 2018 v September 2017

Net interest margin (-5 bps)

•

Asset mix and funding mix (-3 bps): unfavourable asset mix from the impacts of customer switching and growth in Australia home loans, and unfavourable funding mix on a higher proportion of wholesale funding.

•

Funding costs (0 bps): impact of the major bank levy, offset by reduced wholesale funding costs.

•

Deposit competition (+2 bps): improved deposit margins in Australia and Institutional divisions.

•

Asset competition and risk mix (+1 bps): impact of home loans re-pricing in Australia and New Zealand, partially offset by lower Institutional lending margins.

•

Treasury (-1 bps): adverse impact to earnings on capital as the result of lower interest rates.

•

Markets Balance Sheet activities (-3 bps): growth in the liquidity portfolio and lower earnings from markets activities.

•

Asia Retail and Wealth (-1 bps): adverse margin impact from the sale of Asia Retail and Wealth businesses.

Average interest earning assets (+$13.1 billion or +2%)

•

Average net loans and advances (+$3.1 billion or +1%): excluding the impact of foreign currency translation, increase was +$5.4 billion (+1%), driven by growth in Australia home loans and Institutional lending, partially offset by the sale of Asia Retail and Wealth businesses.

•

Average trading and available-for-sale assets (+$5.5 billion or +5%): excluding the impact of foreign currency translation, increase was +$6 billion (+6%) driven by growth in the liquidity portfolio.

•

Average cash and other liquids (+$4.5 billion or +5%): excluding the impact of foreign currency translation, increase was +$4.7 billion (+5%) driven by liquidity management requirements.

Average deposits and other borrowings (+$4.9 billion or +1%)

•

Average deposits and other borrowings (+$4.9 billion or +1%): excluding the impact of foreign currency translation, increase was +$7.7 billion (+1%) driven by growth in Australia and Institutional divisions, partially offset by the loss of deposits associated with the sale of Asia Retail and Wealth businesses.

GROUP RESULTS

Other Operating Income - continuing operations


	Half Year							Movement

	Mar 18 $M		Sep 17 $M		Mar 17 $M			Mar 18 v. Sep 17		Mar 18 v. Mar 17

Net fee and commission income¹		1,110		1,185		1,177			-6%		-6%

Net funds management and insurance income¹		293		323		345			-9%		-15%

Markets other operating income		551		550		886			0%		-38%

Share of associates’ profit¹		88		127		173			-31%		-49%

Other¹		416		199		(24	)		large		large
Cash other operating income from continuing operations		2,458		2,384		2,557			3%		-4%

	Half Year							Movement

Markets income	Mar 18 $M		Sep 17 $M		Mar 17 $M			Mar 18 v. Sep 17		Mar 18 v. Mar 17

Net interest income		369		442		478			-17%		-23%

Other operating income		551		550		886			0%		-38%
Cash Markets income from continuing operations		920		992		1,364			-7%		-33%

	Half Year							Movement

Other operating income by division	Mar 18 $M		Sep 17 $M		Mar 17 $M			Mar 18 v. Sep 17		Mar 18 v. Mar 17

Australia		559		615		602			-9%		-7%

Institutional		1,028		998		1,368			3%		-25%

New Zealand		338		336		317			1%		7%

Wealth Australia		162		165		179			-2%		-9%

Asia Retail & Pacific		184		168		(150	)		10%		large

TSO and Group Centre		187		102		241			83%		-22%
Cash other operating income from continuing operations		2,458		2,384		2,557			3%		-4%

^1.

Excluding Markets.

Other operating income - March 2018 Half Year v March 2017 Half Year

LOGO

•

March 2018 v March 2017

Other operating income decreased by $99 million (-4%). Key drivers:

Net fee and commission income (-$67 million or -6%)

•

$32 million decrease in the Asia Retail and Pacific division as a result of the sale of Asia Retail and Wealth businesses.

•

$31 million decrease in the Australia division primarily due to higher interchange costs, lower deposit fee income and the removal of ATM fees during the March 2018 half.

Net funds management and insurance income (-$52 million or -15%)

•

$33 million decrease in the Asia Retail and Pacific division as a result of the sale of Asia Retail and Wealth businesses.

•

$19 million decrease in Wealth Australia division primarily due to lower financial planning revenue and lower commission income.

GROUP RESULTS

Cash Markets income (-$444 million or -33%)

•

$339 million decrease in Franchise Trading primarily attributable to a $151 million reduction in derivative credit and funding valuation adjustments (net of associated hedges) following significant gains from narrowing credit spreads in the March 2017 half, and a $188 million reduction due to challenging trading conditions when compared to the March 2017 half which benefited from a strengthening USD and rising yield curves post the US election.

•

$61 million decrease in Balance Sheet Trading driven by lower mark-to-market gains associated with credit spreads movements.

•

$44 million decrease in Franchise Sales due to the impact of business transformational initiatives implemented during 2017 (client and product rationalisation) and subdued client hedge activity due to the ongoing low interest rate environment and low foreign exchange volatility.

Share of associates’ profit (-$85 million or -49%)

•

$73 million decrease due to cessation of equity accounting of SRCB from January 2017 ($58 million) and MCC from October 2017 ($15 million).

•

$12 million net decrease in profits from associates of which $6 million relates to Ambank and $5 million to P.T. Bank Pan Indonesia.

Other (+$440 million)

•

$423 million increase due to a non-recurring $324 million charge recognised on reclassification of Asia Retail and Wealth businesses to held for sale in the March 2017 half, in addition to a $99 million gain recognised in the March 2018 half associated with sale completions.

•

$119 million increase related to the sale of the Group’s 20% stake in MCC.

•

$18 million increase relating to a cost recovery in respect of the UDC terminated transaction process.

•

$114 million gain on sale of 100 Queen Street, Melbourne recognised in the March 2017 half.

•

March 2018 v September 2017

Other operating income increased by $74 million (+3%). Key drivers:

Net fee and commission income (-$75 million or -6%)

•

$35 million decrease in the Asia Retail and Pacific division following the progressive sale of Asia Retail and Wealth businesses.

•

$32 million decrease in the Australia division primarily due to a reduction in deposit fees and the removal of ATM fees during the March 2018 half.

Net funds management and insurance income (-$30 million or -9%)

•

$21 million decrease in the Asia Retail and Pacific division following the progressive sale of Asia Retail and Wealth businesses.

Cash Markets income (-$72 million or -7%)

•

$77 million decrease in Franchise Trading attributable to a $56 million reduction in derivative credit and funding valuation adjustments (net of associated hedges) from narrowing credit spreads relative to the September 2017 half, and a $21 million reduction due to challenging trading conditions as a result of lower volatility, particularly in the first quarter of the March 2018 half.

Share of associates’ profit (-$39 million or -31%)

•

$24 million decrease due to cessation of equity accounting of MCC from October 2017.

•

$15 million net decrease in profits from associates of which $6 million relates to Ambank and $6 million to P.T. Bank Pan Indonesia.

Other (+$217 million)

•

$119 million increase related to the sale of the Group’s 20% stake in MCC.

•

$85 million increase in the net gain recognised on the progressive sale of the Asia Retail and Wealth businesses.

•

$18 million increase relating to a cost recovery in respect of the UDC terminated transaction process.

GROUP RESULTS

Operating Expenses - continuing operations


	Half Year						Movement
	Mar 18 $M		Sep 17 $M		Mar 17 $M		Mar 18 v. Sep 17		Mar 18 v. Mar 17

Personnel expenses		2,402		2,405		2,519		0%		-5%

Premises expenses		395		430		432		-8%		-9%

Technology expenses		815		803		799		1%		2%

Restructuring expenses		78		26		36		large		large

Other expenses		721		816		701		-12%		3%

Total cash operating expenses from continuing operations		4,411		4,480		4,487		-2%		-2%

Full time equivalent staff (FTE) from continuing operations		39,540		42,873		44,015		-8%		-10%

Average full time equivalent staff (FTE) from continuing operations		41,991		43,658		44,390		-4%		-5%

	Half Year						Movement
Expenses by division	Mar 18 $M		Sep 17 $M		Mar 17 $M		Mar 18 v. Sep 17		Mar 18 v. Mar 17

Australia		1,812		1,713		1,669		6%		9%

Institutional		1,371		1,392		1,422		-2%		-4%

New Zealand		588		593		600		-1%		-2%

Wealth Australia		123		136		126		-10%		-2%

Asia Retail & Pacific		146		280		334		-48%		-56%

TSO and Group Centre		371		366		336		1%		10%

Total cash operating expenses from continuing operations		4,411		4,480		4,487		-2%		-2%

Operating expenses - March 2018 Half Year v March 2017 Half Year

LOGO

•

March 2018 v March 2017

Operating expenses decreased by $76 million (-2%) reflecting the Group’s ongoing focus to re-shape the business, and improve cost efficiency.

•

Personnel expenses decreased $117 million (-5%) due to a 5% reduction in average FTE partially offset by wage inflation.

•

Premises expenses decreased $37 million (-9%) primarily driven by the reshaping of our Asia footprint.

•

Technology expenses increased $16 million (+2%) largely to support an increased technology investment agenda.

•

Restructuring expenses increased $42 million associated with the move to agile ways of working in the Australia division and other transformation activities.

•

Other expenses increased $20 million (+3%) largely related to higher consultancy fees associated with increased investment expenditure.

•

March 2018 v September 2017

Operating expenses decreased by $69 million (-2%) reflecting strong cost management whilst delivering the Group’s strategy.

•

Personnel expenses decreased $3 million (flat) mainly due to a 4% reduction in average FTE.

•

Premises expenses decreased $35 million (-8%) primarily driven by the reshaping of our Asia footprint.

•

Technology expenses increased $12 million (+1%) largely to support an increased technology investment agenda.

•

Restructuring expenses increased $52 million associated with the move to agile ways of working in the Australia division and other transformation activities.

•

Other expenses decreased $95 million (-12%) as the result of lower non-lending losses and discretionary spend.

GROUP RESULTS

Investment Spend - continuing operations

Investment spend includes expenditure that develops and enhances the Group’s capability to meet business, efficiency and strategic objectives. Investment is categorised based on primary objective but may contribute to multiple investment categories. The analysis below aggregates all projects over $1 million. Spend on projects less than $1 million was $57 million in the March 2018 half (Sep 17 half: $82 million; Mar 17 half: $84 million).



			Half Year				Movement

	Mar 18		Sep 17		Mar 17		Mar 18		Mar 18
	$M		$M		$M		v. Sep 17		v. Mar 17

Expensed investment spend		317		303		208		5%		52%

Capitalised investment spend		165		227		160		-27%		3%

Investment spend from continuing operations		482		530		368		-9%		31%

Comprising			Half Year				Movement

	Mar 18		Sep 17		Mar 17		Mar 18		Mar 18
	$M		$M		$M		v. Sep 17		v. Mar 17

Business initiatives		270		281		198		-4%		36%

Risk and compliance		110		120		94		-8%		17%

Infrastructure and other		102		129		76		-21%		34%

Investment spend from continuing operations		482		530		368		-9%		31%

Investment spend breakdown:

•

March 2018 v March 2017: Investment has been maintained but mix recalibrated to drive a simpler, better balanced bank. Investment is focused on data strategies, digital customer solutions and streamlining processes and platforms, whilst maintaining infrastructure/compliance spend.

•

March 2018 v September 2017: Lower investment spend in the March 2018 half reflects the phasing of initiatives between the periods. Overall, investment spend has been maintained.



Investment spend by division			Half Year				Movement

	Mar 18		Sep 17		Mar 17		Mar 18		Mar 18
	$M		$M		$M		v. Sep 17		v. Mar 17

Australia		194		197		130		-2%		49%

Institutional		88		104		60		-15%		47%

New Zealand		29		35		31		-17%		-6%

Asia Retail & Pacific		1		2		1		-50%		0%

Wealth Australia		4		2		8		100%		-50%

TSO and Group Centre		166		190		138		-13%		20%

Investment spend from continuing operations		482		530		368		-9%		31%

GROUP RESULTS

Software Capitalisation - continuing operations

As at 31 March 2018, the Group’s intangible assets included $1,775 million of costs incurred to acquire and develop software. Details are set out in the table below:



				Half Year						Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	$M			$M			$M			v. Sep 17		v. Mar 17

Balance at start of period		1,856			1,917			2,196			-3%		-15%

Software capitalised during the period		198			232			172			-15%		15%

Amortisation during the period		(281	)		(271	)		(294	)		4%		-4%

Software impaired/written-off

- Reclassification of Asia Retail and Wealth to held for sale¹		-			-			(154	)		n/a		-100%

- Other		(5	)		(16	)		(1	)		-69%		large

Foreign exchange differences		7			(6	)		(2	)		large		large

Total capitalised software from continuing operations		1,775			1,856			1,917			-4%		-7%

Net book value by Division				As at						Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	$M			$M			$M			v. Sep 17		v. Mar 17

Australia		413			441			459			-6%		-10%

Institutional		542			597			649			-9%		-16%

New Zealand		20			24			26			-17%		-23%

Wealth Australia		13			14			14			-7%		-7%

TSO and Group Centre		787			780			769			1%		2%

Total from continuing operations		1,775			1,856			1,917			-4%		-7%

^1.

Reclassification of Asia Retail and Wealth to held for sale includes impairment of software supporting both the Institutional and Asia Retail and Wealth businesses. Only components relating to the Asia Retail and Wealth businesses have been impaired which were recorded on the Institutional and Asia Retail and Pacific balance sheet. These impairment charges are recognised as other operating income in the Condensed Consolidated Income Statement.

GROUP RESULTS

Credit Risk - including discontinued operations


	Half Year						Half Year						Movement
	Mar 18						Mar 17						Mar 18 v. Mar 17
Division	Individual charge $M		Collective charge $M		Total charge $M		Individual charge $M		Collective charge $M		Total charge $M		Individual charge %		Collective charge %		Total charge %

Australia		337		(25)		312		415		53		468		-19%		large		-33%

Institutional		28		21		49		225		(96)		129		-88%		large		-62%

New Zealand		34		(14)		20		61		(24)		37		-44%		-42%		-46%

Asia Retail & Pacific		31		(4)		27		86		(11)		75		-64%		-64%		-64%

TSO and Group Centre		-		-		-		-		11		11		n/a		-100%		-100%
Total		430		(22)		408		787		(67)		720		-45%		-67%		-43%

	Half Year						Half Year						Movement
			Mar 18				Sep 17						Mar 18 v. Sep 17
Division	Individual charge $M		Collective charge $M		Total charge $M		Individual charge $M		Collective charge $M		Total charge $M		Individual charge %		Collective charge %		Total charge %

Australia		337		(25)		312		449		(32)		417		-25%		-22%		-25%

Institutional		28		21		49		(29)		(8)		(37)		large		large		large

New Zealand		34		(14)		20		55		(14)		41		-38%		0%		-51%

Asia Retail & Pacific		31		(4)		27		79		(10)		69		-61%		-60%		-61%

TSO and Group Centre		-		-		-		-		(11)		(11)		n/a		-100%		-100%
Total		430		(22)		408		554		(75)		479		-22%		-71%		-15%


Individual credit impairment charge

	Half Year						Movement
	Mar 18 $M		Sep 17 $M		Mar 17 $M		Mar 18 v. Sep 17		Mar 18 v. Mar 17
New and increased individual credit impairments

Australia		528		619		601		-15%		-12%

Institutional		92		123		315		-25%		-71%

New Zealand		67		109		102		-39%		-34%

Asia Retail & Pacific		41		97		104		-58%		-61%
New and increased individual credit impairments		728		948		1,122		-23%		-35%
Recoveries and write-backs

Australia		(191)		(170)		(186)		12%		3%

Institutional		(64)		(152)		(90)		-58%		-29%

New Zealand		(33)		(54)		(41)		-39%		-20%

Asia Retail & Pacific		(10)		(18)		(18)		-44%		-44%

Recoveries and write-backs		(298)		(394)		(335)		-24%		-11%
Total individual credit impairment charge		430		554		787		-22%		-45%

•

March 2018 v March 2017

The individual credit impairment charge decreased $357 million (-45%) reflecting $394 million (-35%) decrease in new and existing provisions across all divisions. Institutional division decreased $197 million (-88%) primarily driven by lower provisions arising from ongoing portfolio rebalancing combined with a benign credit environment. Australia division decreased $78 million (-19%) driven by a combination of lower provisions and higher write-backs. New Zealand division decreased $27 million (-44%) driven by lower provisions and a one-off large provision taken in the March 2017 half. Asia Retail & Pacific division decreased $55 million (-64%) due to the sale of Asia Retail and Wealth businesses.

•

March 2018 v September 2017

The individual credit impairment charge decreased $124 million (-22%) primarily driven by a $112 million (-25%) decrease in the Australia division from lower new individual provisions and higher write-backs, and a $48 million (-61%) decrease in the Asia Retail & Pacific division following the progressive sale of Asia Retail and Wealth businesses. This is partially offset by a $57 million increase in the Institutional division due to lower write-backs in the March 2018 half.

GROUP RESULTS

Collective credit impairment charge


	Half Year									Movement

	Mar 18			Sep 17			Mar 17			Mar 18	Mar 18
Collective credit impairment charge/(release) by source	$M			$M			$M			v. Sep 17	v. Mar 17

Lending growth - excluding Asia Retail and Wealth businesses		4			(11	)		(25	)	large	large

Lending growth - Asia Retail and Wealth businesses		(4	)		(7	)		(5	)	-43%	-20%

Risk profile		2			(91	)		(78	)	large	large

Economic cycle adjustment		(24	)		34			41		large	large
Total collective credit impairment charge/(release)		(22	)		(75	)		(67	)	-71%	-67%

•

March 2018 v March 2017

The reduction in the collective credit impairment release of $45 million is primarily driven by risk profile and lending growth releases in the March 2017 half largely due to portfolio rebalancing in the Institutional division, and the partial release of economic cycle adjustments relating to the Australia and New Zealand divisions in the March 2018 half. The collective credit impairment charge driven by lending growth increased in the March 2018 half reflecting growth in Institutional Loans & Specialised Finance and New Zealand Commercial Agri, offset by reductions in the Australia division in Business & Private Bank.

•

March 2018 v September 2017

The reduction in the collective credit impairment release of $53 million is primarily driven by risk profile releases in the March 2017 half, and the partial release of economic cycle adjustments relating to the Australia and New Zealand divisions in the March 2018 half. The collective credit impairment charge driven by lending growth increased in the March 2018 half reflecting growth in Institutional Loans & Specialised Finance and New Zealand Commercial Agri, offset by reductions in the Australia division in Business & Private Bank.

Provision for credit impairment


	As at			As at			Movement
	Mar 18			Sep 17			Mar 18 v. Sep 17
	Individual	Collective	Total	Individual	Collective	Total	Individual	Collective	Total
	provision	provision	provision	provision	provision	provision	provision	provision	provision
Division	$M	$M¹	$M	$M	$M¹	$M	%	%	%

Australia	577	1,113	1,690	633	1,139	1,772	-9%	-2%	-5%

Institutional	320	1,101	1,421	353	1,069	1,422	-9%	3%	0%

New Zealand	104	316	420	131	323	454	-21%	-2%	-7%

Asia Retail & Pacific	15	46	61	19	128	147	-21%	-64%	-59%

TSO and Group Centre	-	3	3	-	3	3	n/a	0%	0%
Total	1,016	2,579	3,595	1,136	2,662	3,798	-11%	-3%	-5%

	As at			As at			Movement
	Mar 18			Mar 17			Mar 18 v. Mar 17
	Individual	Collective	Total	Individual	Collective	Total	Individual	Collective	Total
	provision	provision	provision	provision	provision	provision	provision	provision	provision
Division	$M	$M¹	$M	$M	$M¹	$M	%	%	%

Australia	577	1,113	1,690	579	1,171	1,750	0%	-5%	-3%

Institutional	320	1,101	1,421	539	1,085	1,624	-41%	1%	-13%

New Zealand	104	316	420	135	335	470	-23%	-6%	-11%

Asia Retail & Pacific	15	46	61	16	180	196	-6%	-74%	-69%

TSO and Group Centre	-	3	3	-	14	14	n/a	-79%	-79%
Total	1,016	2,579	3,595	1,269	2,785	4,054	-20%	-7%	-11%

The collective provision includes amounts for off-balance sheet credit exposures of $522 million as at 31 March 2018 (Sep 17 half: $544 million; Mar 17 half: $574 million). The impact on the Income Statement for the half year ended 31 March 2018 was a $26 million release (Sep 17 half: $20 million release; Mar 17 half: $46 million release).

GROUP RESULTS

Group Expected Loss

Management believe that disclosure of modelled expected loss data for individual provisions assists in assessing the longer term expected loss rates of the lending portfolio as it removes the volatility of reported earnings created by the use of accounting losses. The expected loss methodology is used internally for return on equity analysis and economic profit reporting.

Asia Retail and Wealth

On 31 October 2016, ANZ announced the sale of its Asia Retail and Wealth businesses in Singapore, Hong Kong, China, Taiwan and Indonesia and Vietnam on 21 April 2017. The Group completed the transition of the businesses in China, Singapore and Hong Kong in the September 2017 half, and Vietnam, Taiwan and Indonesia in the March 2018 half.


	As at

Expected loss as a % of gross lending assets	Mar 18		Sep 17		Mar 17

Australia division		0.31%		0.33%		0.33%

New Zealand division		0.21%		0.22%		0.26%

Institutional division		0.32%		0.30%		0.35%

Subtotal		0.29%		0.30%		0.33%

Asia Retail and Wealth businesses		-		2.75%		1.51%

Total Group		0.30%		0.32%		0.35%

Gross Impaired Assets¹


	As at									Movement

	Mar 18 $M			Sep 17 $M			Mar 17 $M			Mar 18 v. Sep 17		Mar 18 v. Mar 17

Impaired loans		1,863			2,118			2,478			-12%		-25%

Restructured items²		76			167			367			-54%		-79%

Non-performing commitments and contingencies		95			99			95			-4%		0%
Gross impaired assets		2,034			2,384			2,940			-15%		-31%

Individual provisions

Impaired loans		(990	)		(1,118	)		(1,253	)		-11%		-21%

Non-performing commitments and contingencies		(26	)		(18	)		(16	)		44%		63%
Net impaired assets		1,018			1,248			1,671			-18%		-39%

Gross impaired assets by division

Australia		1,114			1,181			1,148			-6%		-3%

Institutional		626			757			1,143			-17%		-45%

New Zealand		244			307			409			-21%		-40%

Asia Retail & Pacific		50			140			240			-64%		-79%
Gross impaired assets		2,034			2,384			2,940			-15%		-31%

Gross impaired assets by size of exposure

Less than $10 million		1,487			1,622			1,724			-8%		-14%

$10 million to $100 million		547			655			1,106			-16%		-51%

Greater than $100 million		-			107			110			-100%		-100%
Gross impaired assets		2,034			2,384			2,940			-15%		-31%

^1.

Balance sheet amounts include assets and liabilities reclassified as held for sale.

^2.

Restructured items are facilities where the original contractual terms have been modified for reasons related to the financial difficulties of the customer. Restructuring may consist of reduction of interest, principal or other payments legally due, or an extension in maturity materially beyond those typically offered to new facilities with similar risk.

•

March 2018 v March 2017

Gross impaired assets decreased $906 million (-31%) driven by Institutional (-$517 million) and New Zealand (-$165 million) divisions, and Asia Retail & Pacific division (-$190 million) following the sale of the Asia Retail and Wealth businesses. The Group’s individual provision coverage ratio on impaired assets was 50.0% at 31 March 2018 (Mar 17: 43.2%).

•

March 2018 v September 2017

Gross impaired assets decreased $350 million (-15%) in the March 2018 half driven by Institutional (-$131 million), Australia (-$67million) and New Zealand (-$63 million) divisions, combined with Asia Retail & Pacific division (-$90 million) following the sale of the Asia Retail and Wealth businesses. The Group’s individual provision coverage ratio on impaired assets was 50.0% at 31 March 2018 (Sep 17: 47.7%).

GROUP RESULTS

New Impaired Assets¹


	Half Year						Movement

	Mar 18		Sep 17		Mar 17		Mar 18		Mar 18
	$M		$M		$M		v. Sep 17		v. Mar 17

Impaired loans		917		1,315		1,637		-30%		-44%

Restructured items		21		21		88		0%		-76%

Non-performing commitments and contingencies		25		89		62		-72%		-60%
Total new impaired assets		963		1,425		1,787		-32%		-46%

New impaired assets by division

Australia		699		770		765		-9%		-9%

Institutional		124		344		599		-64%		-79%

New Zealand		101		216		296		-53%		-66%

Asia Retail & Pacific		39		95		127		-59%		-69%
Total new impaired assets		963		1,425		1,787		-32%		-46%

•

March 2018 v March 2017

New impaired assets decreased $824 million (-46%) primarily driven by Institutional division’s improved risk profile from portfolio rebalancing, combined with a benign credit environment. Improvements in portfolio credit quality in the New Zealand Commercial and Agri business, and reductions associated with the progressive sale of the Asia Retail and Wealth businesses also contributed to a decrease in new impaired assets.

•

March 2018 v September 2017

New impaired assets decreased by $462 million (-32%) primarily driven by Institutional division’s improved risk profile from portfolio rebalancing, combined with a benign credit environment. Improvements in portfolio credit quality in the New Zealand Commercial and Agri business, and reductions associated with the progressive sale of the Asia Retail and Wealth businesses also contributed to a decrease in new impaired assets.

Ageing analysis of net loans and advances that are past due but not impaired¹


	As at						Movement

	Mar 18		Sep 17		Mar 17		Mar 18		Mar 18
	$M		$M		$M		v. Sep 17		v. Mar 17

1-29 days		8,974		8,790		9,123		2%		-2%

30-59 days		2,576		2,143		2,355		20%		9%

60-89 days		1,233		1,148		1,148		7%		7%

>90 days		3,038		2,953		2,771		3%		10%
Total		15,821		15,034		15,397		5%		3%

^1.

Balance sheet amounts include assets and liabilities reclassified as held for sale.

•

March 2018 v March 2017

Net loans and advances past due but not impaired increased $424 million (+3%) driven by growth in the Australia division home loan portfolio, combined with seasonality which is consistent with trends observed in the March 2017 half. This was partially offset by the impact of the sale of Asia Retail and Wealth businesses.

•

March 2018 v September 2017

Net loans and advances past due but not impaired increased $787 million (+5%) driven by growth in the Australia division home loan portfolio, combined with seasonal higher delinquencies compared to the September 2017 half.

GROUP RESULTS

Income Tax Expense - continuing operations

Half Year

Movement

Mar 18

Sep 17

Mar 17

Mar 18

v. Sep 17

v. Mar 17

Income tax expense on cash profit

1,489

1,420

1,406

Effective tax rate (cash profit)

29.8%

29.1%

29.5%

•

March 2018 v March 2017

The effective tax rate has increased from 29.5% to 29.8%. The increase of +30 bps is primarily due the non-tax deductible net loss on completion of the sale of Shanghai Rural Commercial Bank in the March 2018 half (+176 bps) and a reduction in equity accounted earnings (+57 bps). This is partially offset by an increase in offshore earnings in the March 2018 half (-82 bps) which attract a lower average tax rate, non-taxable profit on the disposal of 20% of the Group’s stake in Metrobank Card Corporation (-74 bps) and a tax provision release (-46 bps). Offshore earnings in the March 2017 half were lower due to the reclassification of Asia Retail and Wealth businesses to held for sale.

•

March 2018 v September 2017

The effective tax rate increased from 29.1% to 29.8%. The increase of +70 bps is primarily due to the non-tax deductible net loss on completion of the sale of Shanghai Rural Commercial Bank in the March 2018 half (+176 bps) and a reduction in equity accounted earnings (+26 bps). This is partially offset by non-taxable profit on the disposal of 20% of the Group’s stake in Metrobank Card Corporation (-74 bps) and a tax provision release (-46 bps).

GROUP RESULTS

Impact of Foreign Currency Translation - continuing operations

The following tables present the Group’s cash profit results and net loans and advances neutralised for the impact of foreign currency translation. Comparative data has been adjusted to remove the translation impact of foreign currency movements by retranslating prior period comparatives at current period foreign exchange rates.


Cash Profit - March 2018 Half Year vs March 2017 Half Year
	Half Year												Movement

	Actual			FX unadjusted			FX impact			FX adjusted			FX unadjusted		FX adjusted
	Mar 18 $M			Mar 17 $M			Mar 17 $M			Mar 17 $M			Mar 18 v. Mar 17		Mar 18 v. Mar 17
Net interest income		7,350			7,419			(67	)		7,352			-1%		0%
Other operating income		2,458			2,557			6			2,563			-4%		-4%
Operating income		9,808			9,976			(61	)		9,915			-2%		-1%
Operating expenses		(4,411	)		(4,487	)		42			(4,445	)		-2%		-1%
Profit before credit impairment and income tax		5,397			5,489			(19	)		5,470			-2%		-1%
Credit impairment charge		(408	)		(720	)		5			(715	)		-43%		-43%
Profit before income tax		4,989			4,769			(14	)		4,755			5%		5%
Income tax expense		(1,489	)		(1,406	)		4			(1,402	)		6%		6%
Non-controlling interests		(7	)		(8	)		-			(8	)		-13%		-13%
Cash profit		3,493			3,355			(10	)		3,345			4%		4%
Balance Sheet
Net loans and advances¹		591,947			576,304			3,819			580,123			3%		2%
^1. Balance sheet amounts include assets and liabilities reclassified as held for sale.

Cash Profit- March 2018 Half Year vs September 2017 Half Year
	Half Year												Movement

	Actual			FX unadjusted			FX impact			FX adjusted			FX unadjusted		FX adjusted
	Mar 18 $M			Sep 17 $M			Sep 17 $M			Sep 17 $M			Mar 18 v. Sep 17		Mar 18 v. Sep 17
Net interest income		7,350			7,456			(32	)		7,424			-1%		-1%
Other operating income		2,458			2,384			22			2,406			3%		2%
Operating income		9,808			9,840			(10	)		9,830			0%		0%
Operating expenses		(4,411	)		(4,480	)		18			(4,462	)		-2%		-1%
Profit before credit impairment and income tax		5,397			5,360			8			5,368			1%		1%
Credit impairment charge		(408	)		(479	)		-			(479	)		-15%		-15%
Profit before income tax		4,989			4,881			8			4,889			2%		2%
Income tax expense		(1,489	)		(1,420	)		(3	)		(1,423	)		5%		5%
Non-controlling interests		(7	)		(7	)		1			(6	)		0%		17%
Cash profit		3,493			3,454			6			3,460			1%		1%
Balance Sheet
Net loans and advances¹		591,947			580,293			4,378			584,671			2%		1%

^1.

Balance sheet amounts include assets and liabilities reclassified as held for sale.

GROUP RESULTS

Earnings Related Hedges - including discontinued operations

Where it is considered appropriate, the Group takes out economic hedges against larger foreign exchange denominated revenue streams (primarily New Zealand Dollar, US Dollar and US Dollar correlated). New Zealand Dollar exposure relates to the New Zealand geography and USD exposures relate to Asia Pacific, Europe & America. Details of these hedges are set out below.


	Half Year

	Mar 18			Sep 17			Mar 17
NZD Economic hedges	$M			$M			$M
Net open NZD position (notional principal)¹		2,669			3,036			3,347
Amount taken to income (pre-tax statutory basis)²		(50	)		(34	)		125
Amount taken to income (pre-tax cash basis)³		7			(27	)		(19	)

^1.

Value in AUD at contracted rate.

^2.

Unrealised valuation movement plus realised revenue from matured or closed out hedges.

^3.

Realised revenue from closed out hedges.

As at 31 March 2018, the following hedges were in place to partially hedge future earnings against adverse movements in exchange rates:

•

NZD 2.9 billion at a forward rate of approximately NZD 1.08 / AUD.

There were no USD hedges in place or impacting income for the March 2018 half.

During the March 2018 half:

•

NZD 0.9 billion of economic hedges matured and a realised gain of $7 million (pre-tax) was recorded in cash profit.

•

An unrealised loss of $57 million (pre-tax) on the outstanding NZD economic hedges was recorded in the statutory Income Statement during the half. This unrealised loss has been treated as an adjustment to statutory profit in calculating cash profit as these are hedges of future NZD revenues.

Earnings per Share - continuing operations


	Half Year						Movement

							Mar 18		Mar 18
	Mar 18		Sep 17		Mar 17		v. Sep 17		v. Mar 17

Cash earnings per share (cents) from continuing operations¹

Basic		119.4		117.9		114.8		1%		4%

Diluted		113.4		112.9		110.1		0%		3%

Cash weighted average number of ordinary shares (M)²

Basic		2,924.6		2,929.2		2,923.7		0%		0%

Diluted		3,204.3		3,183.7		3,180.8		1%		1%

Cash profit from continuing operations ($M)		3,493		3,454		3,355		1%		4%

Cash profit used in calculating diluted cash earnings per share ($M)		3,634		3,594		3,503		1%		4%

^1.

Calculation is based on weighted average number of ordinary shares. No adjustment for the impact of discontinued operations.

^2.

Cash weighted average number of ordinary shares includes treasury shares held in Wealth Australia as the associated gains and losses are included in cash profit.

GROUP RESULTS

Dividends - continuing operations


	Half Year						Movement

							Mar 18		Mar 18
Dividend per ordinary share (cents) - continuing operations	Mar 18		Sep 17		Mar 17		v. Sep 17		v. Mar 17
Interim (fully franked)¹		80		-		80		n/a		0%
Final (fully franked)		-		80		-		n/a		n/a
Total (fully franked)		80		80		80		0%		0%

Ordinary share dividends used in payout ratio ($M)²		2,313		2,350		2,349		-2%		-2%
Cash profit from continuing operations		3,493		3,454		3,355		1%		4%
Ordinary share dividend payout ratio (cash basis)²		66.2%		68.0%		70.0%

^1.

Interim dividend for 2018 is proposed.

^2.

Dividend payout ratio is calculated using proposed 2018 interim dividend of $2,313 million, which is based on the forecast number of ordinary shares on issue at the dividend record date. Dividend payout ratios for the September 2017 half and March 2017 half were calculated using actual dividend paid of $2,350 million and $2,349 million respectively.

The Directors propose an interim dividend of 80 cents be paid on each eligible fully paid ANZ ordinary share on 2 July 2018. The proposed 2018 interim dividend will be fully franked for Australian tax purposes, and New Zealand imputation credits of NZD 9 cents per ordinary share will also be attached.

Economic Profit - continuing operations


	Half Year									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	$M			$M			$M			v. Sep 17		v. Mar 17
Statutory profit attributable to shareholders of the Company from continuing operations		3,923			3,410			2,934			15%		34%
Adjustments between statutory profit and cash profit from continuing operations		(430	)		44			421			large		large
Cash Profit from continuing operations		3,493			3,454			3,355			1%		4%

Economic credit cost adjustment		(369	)		(353	)		(211	)		5%		75%

Imputation credits		600			687			707			-13%		-15%
Economic return from continuing operations		3,724			3,788			3,851			-2%		-3%

Cost of capital		(2,624	)		(2,626	)		(2,588	)		0%		1%
Economic profit from continuing operations		1,100			1,162			1,263			-5%		-13%

Economic profit is a risk adjusted profit measure used to evaluate business unit performance and is considered in determining the variable component of remuneration packages. This is used for internal management purposes and is not subject to audit.

Economic profit is calculated via a series of adjustments to cash profit. The economic credit cost adjustment replaces the actual credit loss charge with internal expected loss based on the average loss per annum on the portfolio over an economic cycle. The benefit of imputation credits is recognised, measured at 70% of Australian tax. The cost of capital is a major component of economic profit. At an ANZ Group level, this is calculated using average ordinary shareholders’ equity (excluding non-controlling interests), multiplied by the cost of capital rate (currently 9.5% and applied across comparative periods). At a business unit level, capital is allocated based on economic capital, whereby higher risk businesses attract higher levels of capital. This method is designed to help drive appropriate risk management and ensure business returns align with the level of risk. Key risks covered include credit risk, operating risk, market risk and other risks.

Economic profit decreased $163 million (-13%) against the March 2017 half driven by higher economic credit costs and lower imputation credits on lower Australian profits, partially offset by higher cash profit.

Economic profit decreased $62 million (-5%) against the September 2017 half driven by lower imputation credits on lower Australian profits, partially offset by higher cash profit.

GROUP RESULTS

Condensed Balance Sheet - including discontinued operations


			As at				Movement

	Mar 18		Sep 17		Mar 17		Mar 18		Mar 18
Assets	$B		$B		$B		v. Sep 17		v. Mar 17

Cash / Settlement balances owed to ANZ / Collateral paid¹		98.0		82.5		89.3		19%		10%

Trading and available for sale assets¹		115.3		113.0		108.8		2%		6%

Derivative financial instruments¹		70.9		62.5		63.9		13%		11%

Net loans and advances¹		588.9		574.3		564.0		3%		4%

Investments backing policy liabilities¹		-		38.0		37.6		-100%		-100%

Assets held for sale		45.3		8.0		14.1		large		large

Other¹		16.7		19.1		18.8		-12%		-11%
Total assets		935.1		897.4		896.5		4%		4%
Liabilities

Settlement balances owed by ANZ / Collateral received		20.0		15.8		14.9		27%		34%

Deposits and other borrowings¹		616.2		595.6		581.4		3%		6%

Derivative financial instruments		70.6		62.3		65.1		13%		8%

Debt issuances and subordinated debt		114.9		108.0		109.1		6%		5%

Policy liabilities and external unit holder liabilities¹		-		41.9		41.3		-100%		-100%

Liabilities held for sale		44.8		4.7		17.2		large		large

Other¹		9.1		10.0		9.6		-9%		-5%
Total liabilities		875.6		838.3		838.6		4%		4%
Total equity		59.5		59.1		57.9		1%		3%

^1.

Balances exclude assets and liabilities held for sale.

•

March 2018 v March 2017

•

Cash / Settlement balances owed to ANZ / Collateral paid increased $8.7 billion (+10%). Adjusting for a $1.5 billion increase due to foreign currency translation, the $7.2 billion increase was primarily driven by increased liquidity portfolio holdings due to balance sheet growth in Markets.

•

Trading and available-for-sale assets increased $6.5 billion (+6%). Adjusting for a $0.5 billion increase due to foreign currency translation and $1.0 billion decrease due to assets reclassified as held for sale, the $7.0 billion increase was primarily driven by increased liquidity portfolio holdings due to balance sheet growth in Markets.

•

Derivative financial assets and liabilities increased $7.0 billion (+11%) and $5.5 billion (+8%) respectively as foreign exchange rate and interest rate movements resulted in higher derivative fair values.

•

Net loans and advances increased $24.9 billion (+4%). Adjusting for a $3.8 billion increase due to foreign currency translation, the $21.1 billion increase was primarily driven by growth in home loans across Australia (+$13.8 billion) and New Zealand (+$3.2 billion) divisions, and lending growth in the Institutional division (+$4.9 billion).

•

Deposits and other borrowings increased $34.8 billion (+6%). Adjusting for a $3.1 billion increase due to foreign currency translation, the $31.7 billion increase was primarily driven by growth in customer deposits across Institutional, Australia and New Zealand divisions (+$18.1 billion), and a $21.6 billion increase in deposits from banks and commercial paper, partially offset by a reduction of $7.1 billion in certificates of deposit.

•

Debt issuances and subordinated debt increased $5.8 billion (+5%). Adjusting for a $0.5 billion increase due to foreign currency translation, the $5.3 billion increase was primarily driven by senior debt issuances.

•

March 2018 v September 2017

•

Cash / Settlement balances owed to ANZ / Collateral paid increased by $15.5 billion (+19%). Adjusting for a $2.2 billion increase due to foreign currency translation, the $13.3 billion increase was primarily driven by increased liquidity portfolio holdings due to balance sheet growth in Markets.

•

Derivative financial assets and liabilities increased $8.4 billion (+13%) and $8.3 billion (+13%) respectively as foreign exchange rate and interest rate movements resulted in higher derivative fair values.

•

Net loans and advances increased $14.6 billion (+3%). Adjusting for a $4.4 billion increase due to foreign currency translation, the $10.2 billion increase was primarily driven by growth in home loans across Australia (+$5.8 billion) and New Zealand (+1.0 billion) divisions, and lending growth in Institutional division (+$4.3 billion).

•

Deposits and other borrowings increased by $20.6 billion (+3%). Adjusting for a $5.9 billion increase due to foreign currency translation, the $14.7 billion increase was primarily driven by growth in customer deposits across Australia and New Zealand divisions (+$5.3 billion), and a $18.9 billion increase in deposits from banks and commercial paper, partially offset by a reduction of $7.9 billion in certificates of deposit and reverse repurchase agreements.

•

Debt issuances and subordinated debt increased $6.9 billion (+6%). Adjusting for a $0.9 billion increase due to foreign currency translation, the $6.0 billion increase was primarily driven by senior debt issuances.

Investments backing policy liabilities, policy liabilities and external unit holder liabilities balances as at March 2018 reflect the reclassification of assets and liabilities to held for sale. Refer to Note 11 to the financial statements for details of assets and liabilities held for sale.

GROUP RESULTS

Liquidity Risk - including discontinued operations

Liquidity risk is the risk that the Group is unable to meet its payment obligations as they fall due, including repaying depositors or maturing wholesale debt, or that the Group has insufficient capacity to fund increases in assets. The timing mismatch of cash flows and the related liquidity risk is inherent in all banking operations and is closely monitored by the Group and managed in accordance with the risk appetite set by the Board.

The Group’s approach to liquidity risk management incorporates two key components:

•

Scenario modelling of funding sources

ANZ’s liquidity risk appetite is defined by the ability to meet a range of regulatory requirements and internal liquidity metrics mandated by the Board. The metrics cover a range of scenarios of varying duration and level of severity. The objective of this framework is to:

•

Provide protection against shorter-term extreme market dislocation and stress.

•

Maintain structural strength in the balance sheet by ensuring that an appropriate amount of longer-term assets are funded with longer-term funding.

•

Ensure that no undue timing concentrations exist in the Group’s funding profile.

A key component of this framework is the Liquidity Coverage Ratio (LCR), which is a severe short term liquidity stress scenario mandated by banking regulators including APRA. As part of meeting LCR requirements, ANZ has a Committed Liquidity Facility (CLF) with the Reserve Bank of Australia (RBA). The CLF has been established to offset the shortage of available High Quality Liquid Assets (HQLA) in Australia and provides an alternative form of contingent liquidity. The total amount of the CLF available to a qualifying ADI is set annually by APRA. From 1 January 2018, ANZ’s CLF is $46.9 billion (2017 calendar year end: $43.8 billion).

•

Liquid assets

The Group holds a portfolio of high quality unencumbered liquid assets in order to protect the Group’s liquidity position in a severely stressed environment, as well as to meet regulatory requirements. High Quality Liquid Assets comprise three categories, with the definitions consistent with Basel 3 LCR:

•

Highest-quality liquid assets (HQLA1): Cash, highest credit quality government, central bank or public sector securities eligible for repurchase with central banks to provide same-day liquidity.

•

High-quality liquid assets (HQLA2): High credit quality government, central bank or public sector securities, high quality corporate debt securities and high quality covered bonds eligible for repurchase with central banks to provide same-day liquidity.

•

Alternative liquid assets (ALA): Assets qualifying as collateral for the CLF and other eligible securities listed by the Reserve Bank of New Zealand (RBNZ).

The Group monitors and manages the size and composition of its liquid assets portfolio on an ongoing basis in line with regulatory requirements and the risk appetite set by the Board.


	Half Year Average					Movement

	Mar 18 $B		Sep 17 $B		Mar 17 $B	Mar 18 v. Sep 17	Mar 18 v. Mar 17
Market Values Post Discount¹
HQLA1²		131.8		128.7	127.1	2%	4%
HQLA2		4.9		4.7	4.3	4%	14%
Internal Residential Mortgage Backed Securities (Australia)²		31.6		30.3	33.7	4%	-6%
Internal Residential Mortgage Backed Securities (New Zealand)³		6.2		1.1	0.6	large	large
Other ALA⁴		13.8		14.9	15.6	-7%	-12%
Total Liquid Assets		188.3		179.7	181.3	5%	4%

Cash flows modelled under stress scenario
Cash outflows		180.5		174.5	172.7	3%	5%
Cash inflows		40.4		41.3	38.2	-2%	6%
Net cash outflows		140.1		133.2	134.5	5%	4%

Liquidity Coverage Ratio⁵		134%		135%	135%	-1%	-1%

^1.

Half year average basis, calculated as prescribed per APRA Prudential Regulatory Standard (APS 210 Liquidity) and consistent with APS 330 requirements.

^2.

RBA open repo arrangement netted down from CLF, with a corresponding increase in HQLA.

^3.

Includes ANZ Bank New Zealand Limited LCR surplus, capped at Level 1 all currency LCR for 31 March 2018. Prior periods exclude ANZ Bank New Zealand Limited’s LCR surplus.

^4.

Comprised of assets qualifying as collateral for the CLF, excluding internal RMBS, up to approved facility limit; and any liquid assets contained in the RBNZ’s Liquidity Policy - Annex: Liquidity Assets - Prudential Supervision Department Document BS13A12.

^5.

All currency Level 2 LCR.

GROUP RESULTS

Funding - including discontinued operations

ANZ targets a diversified funding base, avoiding undue concentrations by investor type, maturity, market source and currency.

$13.1 billion of term wholesale debt with a remaining term greater than one year as at 31 March 2018 was issued during the half year ended 31 March 2018.

The following table shows the Group’s total funding composition:


				As at						Movement

	Mar 18 $B			Sep 17 $B			Mar 17 $B			Mar 18 v. Sep 17		Mar 18 v. Mar 17
Customer deposits and other liabilities¹

Australia		204.2			201.3			197.6			1%		3%

Institutional		190.7			189.0			181.5			1%		5%

New Zealand		79.2			75.3			74.3			5%		7%

Wealth Australia		-			-			0.3			n/a		-100%

Asia Retail & Pacific		3.4			7.0			19.8			-51%		-83%

TSO and Group Centre¹		(4.7	)		(5.0	)		(5.3	)		-6%		-11%

Customer deposits		472.8			467.6			468.2			1%		1%

Other funding liabilities^2,3		8.0			8.5			7.9			-6%		1%

Total customer liabilities (funding)		480.8			476.1			476.1			1%		1%

Wholesale funding⁴

Debt issuances		97.5			90.3			88.8			8%		10%

Subordinated debt		17.2			17.7			20.3			-3%		-15%

Certificates of deposit		50.3			55.2			57.4			-9%		-12%

Commercial paper		24.1			18.0			9.5			33%		large

Other wholesale borrowings^2,5,6		84.4			69.2			73.9			22%		14%

Total wholesale funding		273.5			250.4			249.9			9%		9%

Shareholders’ equity		59.5			59.1			57.9			1%		3%

Total funding		813.8			785.6			783.9			4%		4%

^1.

Includes term deposits, other deposits and an adjustment recognised in Group Centre to eliminate Wealth Australia investments in ANZ deposit products.

^2.

Non-bank trade dated liabilities reclassified to align with current period presentation.

^3.

Includes interest accruals, payables and other liabilities, provisions and net tax provisions, excluding other liabilities in Wealth Australia.

^4.

Excludes liability for acceptances as they do not provide net funding.

^5.

Includes borrowings from banks, securities sold under repurchase agreements, net derivative balances, special purpose vehicles and other borrowings.

^6.

Includes RBA open repo arrangement netted down by the exchange settlement account cash balance.

Net Stable Funding Ratio

The following table shows the Level 2 Net Stable Funding Ratio (NSFR) composition:


	As at						Movement

	Mar 18 $B		Sep 17 $B		Mar 17 $B		Mar 18 v. Sep 17		Mar 18 v. Mar 17
Required Stable Funding¹

Retail & small and medium enterprises, corporate loans <35% risk weight²		184.0		181.7		178.1		1%		3%

Retail & small and medium enterprises, corporate loans >35% risk weight²		177.2		176.2		176.2		1%		1%

Other lending³		19.1		17.2		15.6		11%		22%

Liquid assets		9.7		9.3		9.3		4%		4%

Other assets⁴		38.4		39.1		44.8		-2%		-14%

Total Required Stable Funding		428.4		423.5		424.0		1%		1%

Available Stable Funding¹

Retail & small and medium enterprise customer deposits		233.4		230.7		236.2		1%		-1%

Corporate, public sector entities & operational deposits		83.4		80.8		73.8		3%		13%

Central bank & other financial institution deposits		4.2		4.2		2.8		0%		50%

Term funding		94.0		87.6		89.9		7%		5%

Short term funding & other liabilities		2.7		5.3		0.5		-49%		large

Capital		74.4		73.9		73.9		1%		1%

Total Available Stable Funding		492.1		482.5		477.1		2%		3%

Net Stable Funding Ratio		114.9%		113.9%		112.5%		1%		2%

^1.

NSFR factored balance as per APS 210 Liquidity.

^2.

Risk weighting under APS 112 Capital Adequacy: Standardised Approach to Credit Risk.

^3.

Includes financial institution and central bank loans.

^4.

Includes off-balance sheet items, net derivatives and other assets.

GROUP RESULTS

Capital Management - including discontinued operations


	As at
	APRA Basel 3						Internationally Comparable Basel 3¹
	Mar 18		Sep 17		Mar 17		Mar 18		Sep 17		Mar 17
Capital Ratios

Common Equity Tier 1		11.0%		10.6%		10.1%		16.3%		15.8%		15.2%

Tier 1		12.9%		12.6%		12.1%		18.7%		18.4%		18.2%

Total capital		14.9%		14.8%		14.5%		21.3%		21.2%		21.3%
Risk weighted assets ($B)		395.8		391.1		397.0		311.5		306.5		309.4

^1.

Internationally Comparable methodology aligns with APRA’s information paper entitled “International Capital Comparison Study” (13 July 2015).

APRA Basel 3 Common Equity Tier 1 (CET1 ratio) - March 2018 v September 2017

LOGO

^1.

Excludes large/notable items for the purposes of Capital Management attribution. Refer to pages 14 to 15.

^2.

Capital deductions represent the movement in retained earnings in deconsolidated entities, capitalised software, EL versus EP shortfall and other intangibles in the period.

•

March 2018 v September 2017

ANZ’s CET1 ratio increased 47 bps to 11.0% during the March 2018 half. Key drivers of the movement in the CET1 ratio were:

•

Net organic capital generation was 72 bps or $2.8 billion. This was primarily driven by cash profit partially offset by capital usage from RWA growth and other business capital deductions.

•

Payment of the September 2017 Final Dividend (net of Bonus Option Plan issuance) reduced the CET1 ratio by 59 bps.

•

Capital benefits from asset disposals increased CET1 ratio by 55 bps (SRCB, Asia Retail and Wealth businesses in Vietnam, Taiwan and Indonesia and the 20% stake in MCC). This is partially offset by the impact of the $1.1 billion on-market share buy-back (-29 bps). The remaining $0.4 billion on-market share buy-back will be completed in the September 2018 half to meet the planned $1.5 billion share buy-back.

•

Other impacts from movements in non-cash earnings and net foreign currency translation.

Total Risk Weighted Assets (RWA) - March 2018 v September 2017

LOGO

•

March 2018 v September 2017

ANZ’s total RWA increased by $4.7 billion. Excluding the impact of foreign currency exchange translation and other non-recurring CRWA changes, CRWAs increased by $6.2 billion. Other CRWA changes mainly reflect the reduction from the transition of Asia Retail and Wealth businesses in Vietnam, Taiwan and Indonesia to DBS and modest net impacts from RWA modelling changes. Non-CRWA decreased by $1.3 billion mainly driven by a lower risk profile in IRRBB RWA.

GROUP RESULTS

Capital Management – including discontinued operations, cont’d

APRA to Internationally Comparable¹ Common Equity Tier 1 (CET1 ratio) as at 31 March 2018

LOGO

^1.

ANZ’s interpretation of the regulations documented in the Basel Committee publications: “Basel 3: A global regulatory framework for more resilient banks and banking systems” (June 2011) and “International Convergence of Capital Measurement and Capital Standards” (June 2006). Also includes differences identified in APRA’s information paper entitled “International Capital Comparison Study” (13 July 2015).

•

March 2018 v September 2017

The above provides a reconciliation of the CET1 ratio under APRA’s Basel 3 prudential capital standards to Internationally Comparable Basel 3 standards. APRA views the Basel 3 reforms as a minimum requirement and hence has not incorporated some of the concessions proposed in the Basel 3 rules and has also set higher requirements in other areas. As a result, Australian banks’ Basel 3 reported capital ratios will not be directly comparable with international peers. The International Comparable Basel 3 CET1 ratio incorporates differences between APRA and both the Basel Committee Basel 3 framework (including differences identified in the March 2014 Basel Committee’s Regulatory Consistency Assessment Programme (RCAP) on Basel 3 implementation in Australia) and its application in major offshore jurisdictions.

The material differences between APRA Basel 3 and Internationally Comparable Basel 3 ratios include:

Deductions

•

Investments in insurance and banking associates - APRA requires full deduction against CET1. On an Internationally Comparable basis, these investments are subject to a concessional threshold before a deduction is required.

•

Deferred tax assets - A full deduction is required from CET1 for deferred tax assets (DTA) relating to temporary differences. On an Internationally Comparable basis, this is first subject to a concessional threshold before the deduction is required.

Risk Weighted Assets (RWA)

•

IRRBB RWA - APRA requires inclusion of Interest Rate Risk in the Banking Book (IRRBB) within the RWA base for the CET1 ratio calculation. This is not required on an Internationally Comparable basis.

•

Mortgages RWA - APRA imposes a floor of 20% on the downturn Loss Given Default (LGD) used in credit RWA calculations for residential mortgages. Additionally, from July 2016, APRA also requires a higher correlation factor above the Basel framework 15%. The Internationally Comparable Basel 3 framework only requires a downturn LGD floor of 10% and a correlation factor of 15%.

•

Specialised lending - APRA requires the supervisory slotting approach to be used in determining credit RWA for specialised lending exposures. The Internationally Comparable basis allows for the advanced internal ratings based approach to be used when calculating RWA for these exposures.

•

Unsecured Corporate Lending LGD - Adjustment to align ANZ’s unsecured corporate lending LGD to 45% to be consistent with banks in other jurisdictions. The 45% LGD rate is also used in the Foundation Internal Ratings-Based approach (FIRB).

•

Undrawn Corporate Lending Exposure at Default (EAD) - To adjust ANZ’s credit conversion factors (CCF) for undrawn corporate loan commitments to 75% (used in FIRB approach) to align with banks in other jurisdictions.

GROUP RESULTS

Leverage Ratio - including discontinued operations

At 31 March 2018, the Group’s APRA Leverage Ratio was 5.4% which is above the 3% minimum required by the Basel Committee on Banking Supervision (BCBS). APRA has not finalised a minimum leverage ratio requirement for Australian Authorised Deposit-taking Institutions (ADIs). The following table summarises the Group’s Leverage Ratio calculation:


	As at						Movement

	Mar 18 $M		Sep 17 $M		Mar 17 $M		Mar 18 v. Sep 17		Mar 18 v. Mar 17
Tier 1 Capital (net of capital deductions)		51,125		49,324		48,091		4%		6%

On-balance sheet exposures (excluding derivatives and securities financing transaction exposures)		780,272		752,347		747,708		4%		4%

Derivative exposures		32,747		31,469		30,968		4%		6%

Securities Financing Transaction (SFT) exposures		29,351		28,598		30,286		3%		-3%

Other off-balance sheet exposures		99,921		96,765		97,492		3%		2%

Total exposure measure		942,291		909,179		906,454		4%		4%

APRA Leverage Ratio¹		5.4%		5.4%		5.3%

Internationally Comparable Leverage Ratio¹		6.1%		6.2%		6.0%

^1.

Leverage ratio includes Additional Tier 1 securities subject to Basel 3 transitional relief, net of any transitional adjustments.

•

March 2018 v September 2017

ANZ’s Leverage Ratio is flat relative to September 2017 reflecting:

•

net organic capital generation from cash earnings (excluding large/notable items and net of dividend payments) (+11 bps);

•

divestment benefits (+22 bps) largely offset by share buy-backs (-12 bps) and a reduction in Additional Tier 1 capital instruments (-6 bps); and

•

exposure growth of -15 bps (loan growth -8 bps, liquid asset growth -5 bps, derivatives growth -1 bps and off-balance sheet growth -1 bps).

Other Regulatory Developments

•

Financial System Inquiry (FSI)

The Australian Government completed a comprehensive inquiry into Australia’s financial system in 2014 which included a number of key recommendations that may have an impact on regulatory capital levels. Recent initiatives by APRA in support of the FSI are:

•

In July 2017, APRA released an information paper outlining its assessment on the additional capital required for the Australian banking sector to be considered ‘unquestionably strong’ as originally outlined in the FSI final report in December 2014. APRA indicated that “in the case of the four major Australian banks, this equated to a benchmark CET1 capital ratio, under the current capital adequacy framework, of at least 10.5 per cent”. APRA also stated that this benchmark should be met by 1 January 2020 at the latest.

•

In February 2018, APRA released two further discussion papers that commences its consultation on the following:

•

APRA’s proposal regarding risk-based capital approach for credit, market and operational risk following finalisation of these requirements by the Basel Committee in December 2017. Whilst the final forms of these proposals will only be determined later in 2020, the Group expects the implementation of any revisions to the current requirements will result in further changes to the risk weighting framework for certain asset classes and other risk types (such as market and operational risks). APRA has announced that it does not expect that the changes to the risk weights will necessitate further increases in capital for ADIs, although this could vary by ADIs depending on the final requirements. ANZ’s current capital position is in excess of APRA’s unquestionably strong CET1 benchmark of 10.5% and therefore, the Group is likely to be in a strong position to meet future changes that will arise as a result of final revisions to the capital framework.

•

The design and application of a minimum leverage ratio requirement as complement to the risk-based capital framework proposal. APRA has proposed a minimum leverage ratio requirement of 4% (Basel minimum is 3%) as well as changes to the Exposure Measure requirements. The Group is well placed to meet the proposed changes in its current form based on its Leverage Ratio position at March 2018.

APRA’s consultation for the above is currently taking place with final prudential standards planned to be made available by 2020. APRA has proposed an implementation date of 2021, which is one year earlier than the Basel Committee’s equivalent, with no phase-in arrangements.

•

APRA’s prudential standards may also be further supplemented by yet to be released proposals to implement other key FSI recommendations:

•

To implement a minimum total loss-absorbing capacity requirement where certain senior debt could be “bailed in” to recapitalise a stressed financial institution.

•

Potential adjustments to the overall design of the capital framework to improve transparency, international comparability and flexibility.

Given the number of items that are currently open for consultations with APRA, the final outcome of the FSI including any further changes to APRA’s prudential standards or other impacts on the Group remain uncertain.

•

Level 3 Conglomerates (Level 3)

APRA is extending its prudential supervision framework to Conglomerate Groups via the Level 3 framework which will regulate a bancassurance group such as ANZ as a single economic entity with minimum capital requirements and additional monitoring of risk exposure levels.

In August 2016, APRA confirmed the deferral of capital requirements for Conglomerate Groups until 2019 at the earliest, to allow for the final capital requirements arising from FSI recommendations as well as from international initiatives that are in progress.

GROUP RESULTS

The non-capital components of the Level 3 framework relating to group governance, risk exposures, intragroup transactions and other risk management and compliance requirements came into effect on 1 July 2017. These have had no material impact on the Group’s capital position.

•

RBNZ review of capital requirements

On 1 May 2017 the RBNZ published an issues paper announcing that it is undertaking a comprehensive review of the capital adequacy framework applying to New Zealand locally incorporated registered banks over 2017 and 2018. The aim of the review is to identify the most appropriate framework for setting capital requirements for New Zealand banks, taking into account how the current framework has operated and international developments in bank capital requirements. The capital review will focus on the three key components of the current framework:

•

The definition of eligible capital instruments;

•

The measurement of risk; and

•

The minimum capital ratios and buffers.

The RBNZ requested feedback about the topics covered by the issues paper for which responses were due on 9 June 2017. Detailed consultation documents on policy proposals and options for each of the three components will be released during 2017, with a view to concluding the review in 2018.

On 14 July 2017, the RBNZ released a consultation paper on what types of financial instruments should qualify as eligible regulatory capital. The consultation paper sets out proposals for reform to the definition of eligible capital instruments for which responses were due 8 September 2017.

The impact on Group and our subsidiary bank in New Zealand (ANZ Bank New Zealand Limited) arising from the above consultations will not be known until the RBNZ finalises their review in 2018.

GROUP RESULTS

This page has been left blank intentionally

DIVISIONAL RESULTS


CONTENTS	Page

Divisional Performance - continuing operations		44

Australia - continuing operations		47

Institutional - continuing operations		51

New Zealand - continuing operations		58

Wealth Australia - continuing operations		63

Asia Retail & Pacific - continuing operations		64

Technology, Services & Operations (TSO) and Group Centre - continuing operations		65

DIVISIONAL RESULTS

Divisional Performance - continuing operations

The Group operates on a divisional structure with six continuing divisions: Australia, New Zealand, Institutional, Asia Retail & Pacific, Wealth Australia, and Technology, Services & Operations (TSO) and Group Centre. For further information on the composition of divisions, refer to the Definitions on page 121.

As part of the broader simplification strategy for ANZ, there have been several structural changes during the March 2018 half. Prior period comparatives have been aligned with these changes, which include:

•

the Corporate business, formerly part of the Corporate and Commercial Banking business within the Australia division, was transferred to the Institutional division;

•

the residual Asia Retail and Wealth businesses in Philippines, Japan and Cambodia not sold as part of the Asia Retail and Wealth divestment have been transferred to the Institutional division; and

•

the Group made a further realignment by transferring Group Hub’s divisional specific operations in TSO and Group Centre to the respective divisions. As these costs were previously recharged, there is no change to previously reported divisional cash profit. Divisional full time equivalents (FTEs) have been restated to reflect this change.

The structural changes affected the prior period comparatives of the Australia and Institutional divisions with changes reflected in the table below.


	Australia division												Institutional division
	Current structure						Old structure						Current structure						Old structure
	Sep 17			Mar 17			Sep 17			Mar 17			Sep 17			Mar 17			Sep 17			Mar 17
	$M			$M			$M			$M			$M			$M			$M			$M
Net interest income		4,169			4,049			4,251			4,133			1,577			1,687			1,480			1,588
Other operating income		615			602			616			602			998			1,368			989			1,357
Operating income		4,784			4,651			4,867			4,735			2,575			3,055			2,469			2,945
Operating expenses		(1,713	)		(1,669	)		(1,730	)		(1,693	)		(1,392	)		(1,422	)		(1,357	)		(1,379	)
Profit before credit impairment and income tax		3,071			2,982			3,137			3,042			1,183			1,633			1,112			1,566
Credit impairment charge		(417	)		(468	)		(425	)		(472	)		37			(129	)		45			(125	)
Profit before income tax		2,654			2,514			2,712			2,570			1,220			1,504			1,157			1,441
Income tax expense and non-controlling interest		(797	)		(755	)		(815	)		(772	)		(361	)		(439	)		(342	)		(420	)
Cash profit from continuing operations		1,857			1,759			1,897			1,798			859			1,065			815			1,021


	Sep 17				Mar 17

Full Time Equivalents¹	Current structure		Old structure		Current structure		Old structure
Australia		13,885		11,387		13,898		11,447
Institutional		6,783		4,754		6,950		4,899
New Zealand		6,372		6,207		6,417		6,250
Wealth Australia		912		835		899		822
Asia Retail & Pacific		3,664		3,981		4,637		4,719
TSO and Group Centre		11,257		15,709		11,214		15,878
Total continuing operations		42,873		42,873		44,015		44,015

¹.	For continuing operations, the impact of Group Hub’s realignment to the respective divisions from previously reported FTE is as follows:

•

September 2017: Australia +2,825, Institutional +1,089, New Zealand +367, Wealth Australia +77, Asia Retail & Pacific +6.

•

March 2017: Australia +2,789, Institutional +1,106, New Zealand +378, Wealth Australia +77, Asia Retail & Pacific +229.

The Divisional Results section is reported on a cash profit basis for continuing operations and comparatives have been restated accordingly. For information on discontinued operations please refer the Guide to Half Year Results on page 9 and 10. The retained Wealth Australia business includes lenders mortgage insurance, share investing, financial planning and general insurance distribution.

The divisions reported are consistent with internal reporting provided to the chief operating decision maker, being the Chief Executive Officer.

DIVISIONAL RESULTS

Cash profit by division - March 2018 Half Year v March 2017 Half Year

LOGO

^1.

Includes Wealth Australia, Pacific and TSO and Group Centre.


	Australia			Institutional			New Zealand			Wealth Australia			Asia Retail & Pacific			TSO and Group Centre			Group
March 2018 Half Year		$M			$M			$M			$M			$M			$M			$M
Net interest income		4,304			1,516			1,278			24			119			109			7,350
Other operating income		559			1,028			338			162			184			187			2,458
Operating income		4,863			2,544			1,616			186			303			296			9,808
Operating expenses		(1,812	)		(1,371	)		(588	)		(123	)		(146	)		(371	)		(4,411	)
Profit before credit impairment and income tax		3,051			1,173			1,028			63			157			(75	)		5,397
Credit impairment charge		(312	)		(49	)		(20	)		-			(27	)		-			(408	)
Profit before income tax		2,739			1,124			1,008			63			130			(75	)		4,989
Income tax expense and non-controlling interests		(824	)		(331	)		(282	)		(19	)		(24	)		(16	)		(1,496	)
Cash profit/(loss) from continuing operations		1,915			793			726			44			106			(91	)		3,493

	Australia			Institutional			New Zealand			Wealth Australia			Asia Retail & Pacific			TSO and Group Centre			Group
March 2017 Half Year		$M			$M			$M			$M			$M			$M			$M
Net interest income		4,049			1,687			1,260			25			316			82			7,419
Other operating income		602			1,368			317			179			(150	)		241			2,557
Operating income		4,651			3,055			1,577			204			166			323			9,976
Operating expenses		(1,669	)		(1,422	)		(600	)		(126	)		(334	)		(336	)		(4,487	)
Profit before credit impairment and income tax		2,982			1,633			977			78			(168	)		(13	)		5,489
Credit impairment charge		(468	)		(129	)		(37	)		-			(75	)		(11	)		(720	)
Profit before income tax		2,514			1,504			940			78			(243	)		(24	)		4,769
Income tax expense and non-controlling interests		(755	)		(439	)		(263	)		(20	)		21			42			(1,414	)
Cash profit/(loss) from continuing operations		1,759			1,065			677			58			(222	)		18			3,355

March 2018 Half Year vs March 2017 Half Year

	Australia			Institutional			New Zealand			Wealth Australia			Asia Retail & Pacific			TSO and Group Centre			Group
Net interest income		6%			-10%			1%			-4%			-62%			33%			-1%
Other operating income		-7%			-25%			7%			-9%			large			-22%			-4%
Operating income		5%			-17%			2%			-9%			83%			-8%			-2%
Operating expenses		9%			-4%			-2%			-2%			-56%			10%			-2%
Profit before credit impairment and income tax		2%			-28%			5%			-19%			large			large			-2%
Credit impairment charge		-33%			-62%			-46%			n/a			-64%			-100%			-43%
Profit before income tax		9%			-25%			7%			-19%			large			large			5%
Income tax expense and non-controlling interests		9%			-25%			7%			-5%			large			large			6%
Cash profit/(loss) from continuing operations		9%			-26%			7%			-24%			large			large			4%

DIVISIONAL RESULTS

Cash profit by division - March 2018 Half Year v September 2017 Half Year


March 2018 Half Year	Australia $M	Institutional $M	New Zealand $M	Wealth Australia $M	Asia Retail & Pacific $M	TSO and Group Centre $M	Group $M
Net interest income	4,304	1,516	1,278	24	119	109	7,350

Other operating income	559	1,028	338	162	184	187	2,458
Operating income	4,863	2,544	1,616	186	303	296	9,808

Operating expenses	(1,812)	(1,371)	(588)	(123)	(146)	(371)	(4,411)
Profit before credit impairment and income tax	3,051	1,173	1,028	63	157	(75)	5,397

Credit impairment charge	(312)	(49)	(20)	-	(27)	-	(408)
Profit before income tax	2,739	1,124	1,008	63	130	(75)	4,989

Income tax expense and non-controlling interests	(824)	(331)	(282)	(19)	(24)	(16)	(1,496)
Cash profit/(loss) from continuing operations	1,915	793	726	44	106	(91)	3,493

September 2017 Half Year	Australia $M	Institutional $M	New Zealand $M	Wealth Australia $M	Asia Retail & Pacific $M	TSO and Group Centre $M	Group $M
Net interest income	4,169	1,577	1,259	24	260	167	7,456

Other operating income	615	998	336	165	168	102	2,384
Operating income	4,784	2,575	1,595	189	428	269	9,840

Operating expenses	(1,713)	(1,392)	(593)	(136)	(280)	(366)	(4,480)
Profit before credit impairment and income tax	3,071	1,183	1,002	53	148	(97)	5,360

Credit impairment charge	(417)	37	(41)	-	(69)	11	(479)
Profit before income tax	2,654	1,220	961	53	79	(86)	4,881

Income tax expense and non-controlling interests	(797)	(361)	(269)	(16)	(14)	30	(1,427)
Cash profit/(loss) from continuing operations	1,857	859	692	37	65	(56)	3,454

March 2018 Half Year vs September 2017 Half Year

	Australia	Institutional	New Zealand	Wealth Australia	Asia Retail & Pacific	TSO and Group Centre	Group
Net interest income	3%	-4%	2%	0%	-54%	-35%	-1%

Other operating income	-9%	3%	1%	-2%	10%	83%	3%
Operating income	2%	-1%	1%	-2%	-29%	10%	0%

Operating expenses	6%	-2%	-1%	-10%	-48%	1%	-2%
Profit before credit impairment and income tax	-1%	-1%	3%	19%	6%	-23%	1%

Credit impairment charge	-25%	large	-51%	n/a	-61%	-100%	-15%
Profit before income tax	3%	-8%	5%	19%	65%	-13%	2%

Income tax expense and non-controlling interests	3%	-8%	5%	19%	71%	large	5%
Cash profit/(loss) from continuing operations	3%	-8%	5%	19%	63%	63%	1%

DIVISIONAL RESULTS

Australia - continuing operations

Fred Ohlsson


	Half Year									Movement

	Mar 18 $M			Sep 17 $M			Mar 17 $M			Mar 18 v. Sep 17	Mar 18 v. Mar 17
Net interest income		4,304			4,169			4,049		3%	6%

Other operating income		559			615			602		-9%	-7%
Operating income		4,863			4,784			4,651		2%	5%

Operating expenses		(1,812	)		(1,713	)		(1,669	)	6%	9%
Profit before credit impairment and income tax		3,051			3,071			2,982		-1%	2%

Credit impairment charge		(312	)		(417	)		(468	)	-25%	-33%
Profit before income tax		2,739			2,654			2,514		3%	9%

Income tax expense and non-controlling interests		(824	)		(797	)		(755	)	3%	9%
Cash profit		1,915			1,857			1,759		3%	9%

Balance Sheet
Net loans and advances		339,345			333,560			325,548		2%	4%

Other external assets		3,136			3,058			2,929		3%	7%
External assets		342,481			336,618			328,477		2%	4%
Customer deposits		204,165			201,326			197,612		1%	3%

Other external liabilities		9,895			10,856			11,110		-9%	-11%
External liabilities		214,060			212,182			208,722		1%	3%

Risk weighted assets		160,644			160,915			150,027		0%	7%

Average gross loans and advances		338,697			331,662			322,714		2%	5%

Average deposits and other borrowings		203,239			198,799			193,654		2%	5%

Ratios

Return on average assets		1.13%			1.12%			1.09%

Net interest margin		2.78%			2.73%			2.73%

Operating expenses to operating income		37.3%			35.8%			35.9%

Operating expenses to average assets		1.07%			1.03%			1.03%
Individual credit impairment charge/(release)		337			449			415		-25%	-19%

Individual credit impairment charge/(release) as a % of average GLA		0.20%			0.27%			0.26%

Collective credit impairment charge/(release)		(25	)		(32	)		53		-22%	large

Collective credit impairment charge/(release) as a % of average GLA		(0.01%	)		(0.02%	)		0.03%

Gross impaired assets		1,114			1,181			1,148		-6%	-3%

Gross impaired assets as a % of GLA		0.33%			0.36%			0.35%
Total full time equivalent staff (FTE)		13,701			13,885			13,898		-1%	-1%

Performance March 2018 v March 2017

•

Retail lending volumes grew in home loans particularly in owner occupier and principal and interest loans. Customer deposits grew across all portfolios.

•

Net interest margin increased as the result of differentiated pricing in home loans and higher deposit margins. This was partially offset by the introduction of the major bank levy from July 2017.

•

Operating expenses increased due to restructuring for agile ways of working, increased business investment in digital capability, and inflation. This is partially offset by a reduction in FTE.

•

Credit impairment charges decreased as the result of portfolio and collection initiatives, the partial release of the Retail Trade economic cycle adjustment, and slower lending growth.

LOGO

DIVISIONAL RESULTS

Australia - continuing operations

Fred Ohlsson


Individual credit impairment charge/(release)	Half Year								Movement

	Mar 18			Sep 17			Mar 17		Mar 18		Mar 18
	$M			$M			$M		v. Sep 17		v. Mar 17
Retail		198			259			238		-24%		-17%

Home Loans		44			44			38		0%		16%

Cards and Personal Loans		144			202			187		-29%		-23%

Deposits and Payments¹		10			13			13		-23%		-23%

Business & Private Bank		139			190			177		-27%		-21%

Business Banking		44			79			75		-44%		-41%

Small Business Banking		95			111			102		-14%		-7%

Private Bank		-			-			-		n/a		n/a
Individual credit impairment charge/(release)		337			449			415		-25%		-19%

Collective credit impairment charge/(release)	Half Year								Movement

	Mar 18			Sep 17			Mar 17		Mar 18		Mar 18
	$M			$M			$M		v. Sep 17		v. Mar 17
Retail		(10	)		(33	)		26		-70%		large

Home Loans		8			2			8		large		0%

Cards and Personal Loans		(18	)		(33	)		17		-45%		large

Deposits and Payments¹		-			(2	)		1		-100%		-100%

Business & Private Bank		(15	)		1			27		large		large

Business Banking		(8	)		2			25		large		large

Small Business Banking		(7	)		(1	)		2		large		large

Private Bank		-			-			-		n/a		n/a
Collective credit impairment charge/(release)		(25	)		(32	)		53		-22%		large
Total credit impairment charge/(release)		312			417			468		-25%		-33%

^1. Represents credit impairment charge/(release) on overdraft balances.

Net loans and advances	As at								Movement

	Mar 18			Sep 17			Mar 17		Mar 18		Mar 18
	$M			$M			$M		v. Sep 17		v. Mar 17
Retail		281,728			275,229			267,166		2%		5%

Home Loans		271,132			264,612			256,174		2%		6%

Cards and Personal Loans		10,536			10,543			10,910		0%		-3%

Deposits and Payments¹		60			74			82		-19%		-27%

Business & Private Bank		57,617			58,331			58,382		-1%		-1%

Business Banking		40,746			41,202			41,147		-1%		-1%

Small Business Banking		15,296			15,584			15,715		-2%		-3%

Private Bank		1,575			1,545			1,520		2%		4%
Net loans and advances		339,345			333,560			325,548		2%		4%

Customer deposits	As at								Movement

	Mar 18			Sep 17			Mar 17		Mar 18		Mar 18
	$M			$M			$M		v. Sep 17		v. Mar 17
Retail		120,990			119,437			117,242		1%		3%

Home Loans²		27,488			26,771			25,593		3%		7%

Cards and Personal Loans		242			261			245		-7%		-1%

Deposits and Payments		93,260			92,405			91,404		1%		2%

Business & Private Bank		83,175			81,889			80,370		2%		3%

Business Banking		20,932			20,841			20,582		0%		2%

Small Business Banking		37,546			36,288			35,151		3%		7%

Private Bank		24,697			24,760			24,637		0%		0%
Customer deposits		204,165			201,326			197,612		1%		3%

^1.

Net loans and advances for the deposits and payments business represent amounts in overdraft.

^2.

Customer deposit amounts for the home loans business represent balances in offset accounts.

DIVISIONAL RESULTS

Australia - continuing operations

Fred Ohlsson


March 2018 Half Year	Retail $M			B&PB $M			Australia Total $M
Net interest income		2,963			1,341			4,304

Other operating income		332			227			559
Operating income		3,295			1,568			4,863

Operating expenses		(1,262	)		(550	)		(1,812	)
Profit before credit impairment and income tax		2,033			1,018			3,051

Credit impairment (charge)/release		(188	)		(124	)		(312	)
Profit before income tax		1,845			894			2,739

Income tax expense and non-controlling interests		(553	)		(271	)		(824	)
Cash profit		1,292			623			1,915

Individual credit impairment charge/(release)		198			139			337

Collective credit impairment charge/(release)		(10	)		(15	)		(25	)

Net loans and advances		281,728			57,617			339,345

Customer deposits		120,990			83,175			204,165

Risk weighted assets		106,875			53,769			160,644

March 2017 Half Year
Net interest income		2,728			1,321			4,049

Other operating income		378			224			602
Operating income		3,106			1,545			4,651

Operating expenses		(1,121	)		(548	)		(1,669	)
Profit before credit impairment and income tax		1,985			997			2,982

Credit impairment (charge)/release		(264	)		(204	)		(468	)
Profit before income tax		1,721			793			2,514

Income tax expense and non-controlling interests		(516	)		(239	)		(755	)
Cash profit		1,205			554			1,759

Individual credit impairment charge/(release)		238			177			415

Collective credit impairment charge/(release)		26			27			53

Net loans and advances		267,166			58,382			325,548

Customer deposits		117,242			80,370			197,612

Risk weighted assets		94,422			55,605			150,027

March 2018 Half Year vs March 2017 Half Year
Net interest income		9%			2%			6%

Other operating income		-12%			1%			-7%
Operating income		6%			1%			5%

Operating expenses		13%			0%			9%
Profit before credit impairment and income tax		2%			2%			2%

Credit impairment (charge)/release		-29%			-39%			-33%
Profit before income tax		7%			13%			9%

Income tax expense and non-controlling interests		7%			13%			9%
Cash profit		7%			12%			9%

Individual credit impairment charge/(release)		-17%			-21%			-19%

Collective credit impairment charge/(release)		large			large			large

Net loans and advances		5%			-1%			4%

Customer deposits		3%			3%			3%

Risk weighted assets		13%			-3%			7%

DIVISIONAL RESULTS

Australia - continuing operations

Fred Ohlsson


March 2018 Half Year	Retail $M			B&PB $M			Australia Total $M
Net interest income		2,963			1,341			4,304

Other operating income		332			227			559
Operating income		3,295			1,568			4,863

Operating expenses		(1,262	)		(550	)		(1,812	)
Profit before credit impairment and income tax		2,033			1,018			3,051

Credit impairment (charge)/release		(188	)		(124	)		(312	)
Profit before income tax		1,845			894			2,739

Income tax expense and non-controlling interests		(553	)		(271	)		(824	)
Cash profit		1,292			623			1,915

Individual credit impairment charge/(release)		198			139			337

Collective credit impairment charge/(release)		(10	)		(15	)		(25	)

Net loans and advances		281,728			57,617			339,345

Customer deposits		120,990			83,175			204,165

Risk weighted assets		106,875			53,769			160,644

September 2017 Half Year
Net interest income		2,839			1,330			4,169

Other operating income		383			232			615
Operating income		3,222			1,562			4,784

Operating expenses		(1,149	)		(564	)		(1,713	)
Profit before credit impairment and income tax		2,073			998			3,071

Credit impairment (charge)/release		(226	)		(191	)		(417	)
Profit before income tax		1,847			807			2,654

Income tax expense and non-controlling interests		(555	)		(242	)		(797	)
Cash profit		1,292			565			1,857

Individual credit impairment charge/(release)		259			190			449

Collective credit impairment charge/(release)		(33	)		1			(32	)

Net loans and advances		275,229			58,331			333,560

Customer deposits		119,437			81,889			201,326

Risk weighted assets		105,865			55,050			160,915

March 2018 Half Year vs September 2017 Half Year
Net interest income		4%			1%			3%

Other operating income		-13%			-2%			-9%
Operating income		2%			0%			2%

Operating expenses		10%			-2%			6%
Profit before credit impairment and income tax		-2%			2%			-1%

Credit impairment (charge)/release		-17%			-35%			-25%
Profit before income tax		0%			11%			3%

Income tax expense and non-controlling interests		0%			12%			3%
Cash profit		0%			10%			3%

Individual credit impairment charge/(release)		-24%			-27%			-25%

Collective credit impairment charge/(release)		-70%			large			-22%

Net loans and advances		2%			-1%			2%

Customer deposits		1%			2%			1%

Risk weighted assets		1%			-2%			0%

DIVISIONAL RESULTS

Institutional - continuing operations

Mark Whelan


	Half Year									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	$M			$M			$M			v. Sep 17		v. Mar 17
Net interest income		1,516			1,577			1,687			-4%		-10%

Other operating income		1,028			998			1,368			3%		-25%
Operating income		2,544			2,575			3,055			-1%		-17%

Operating expenses		(1,371	)		(1,392	)		(1,422	)		-2%		-4%
Profit before credit impairment and income tax		1,173			1,183			1,633			-1%		-28%

Credit impairment (charge)/release		(49	)		37			(129	)		large		-62%
Profit before income tax		1,124			1,220			1,504			-8%		-25%

Income tax expense and non-controlling interests		(331	)		(361	)		(439	)		-8%		-25%
Cash profit		793			859			1,065			-8%		-26%

Balance Sheet
Net loans and advances		137,884			131,582			132,136			5%		4%

Other external assets		281,079			254,769			258,240			10%		9%
External assets		418,963			386,351			390,376			8%		7%
Customer deposits		190,733			189,015			181,459			1%		5%

Other deposits and borrowings		68,190			57,297			61,207			19%		11%

Deposits and other borrowings		258,923			246,312			242,666			5%		7%

Other external liabilities		108,737			94,728			95,029			15%		14%
External liabilities		367,660			341,040			337,695			8%		9%
Risk weighted assets		165,614			158,783			168,959			4%		-2%

Average gross loans and advances		137,864			133,573			137,053			3%		1%

Average deposits and other borrowings		257,874			249,308			244,541			3%		5%

Ratios
Return on average assets		0.38%			0.42%			0.52%

Net interest margin		0.91%			0.99%			1.08%

Net interest margin (excluding Markets)		2.14%			2.17%			2.23%

Operating expenses to operating income		53.9%			54.1%			46.6%

Operating expenses to average assets		0.65%			0.68%			0.69%
Individual credit impairment charge/(release)		28			(29	)		225			large		-88%

Individual credit impairment charge/(release) as a % of average GLA		0.04%			(0.04%	)		0.33%

Collective credit impairment charge/(release)		21			(8	)		(96	)		large		large

Collective credit impairment charge/(release) as a % of average GLA		0.03%			(0.01%	)		(0.14%	)

Gross impaired assets		626			757			1,143			-17%		-45%

Gross impaired assets as a % of GLA		0.45%			0.57%			0.87%
Total full time equivalent staff (FTE)		6,505			6,783			6,950			-4%		-6%

Performance March 2018 v March 2017

•

Lending volumes grew in Loans & Specialised Finance and Transaction Banking. Customer deposits grew in Transaction Banking and Markets.

•

Net interest margin ex-Markets decreased largely due to the introduction of the major bank levy from July 2017.

•

Other operating income decreased due to large positive derivative valuation adjustments in the March 2017 half, and a reduction in Markets Balance Sheet, Franchise Trading and Sales income due to less favourable trading conditions in the March 2018 half.

•

Operating expenses decreased due to a reduction in FTE as a result of ongoing simplification and transformation activities.

•

Credit impairment charges primarily decreased due to lower individual provision charges from ongoing portfolio rebalancing.

LOGO

DIVISIONAL RESULTS

Institutional - continuing operations

Mark Whelan

Institutional by Geography


	Half Year									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
Australia	$M			$M			$M			v. Sep 17		v. Mar 17
Net interest income		845			915			949			-8%		-11%

Other operating income		452			478			669			-5%		-32%
Operating income		1,297			1,393			1,618			-7%		-20%

Operating expenses		(614	)		(650	)		(624	)		-6%		-2%
Profit before credit impairment and income tax		683			743			994			-8%		-31%

Credit impairment (charge)/release		(18	)		2			(123	)		large		-85%
Profit before income tax		665			745			871			-11%		-24%

Income tax expense and non-controlling interests		(198	)		(243	)		(266	)		-19%		-26%
Cash profit		467			502			605			-7%		-23%

Individual credit impairment charge/(release)		(18	)		(26	)		179			-31%		large

Collective credit impairment charge/(release)		36			24			(56	)		50%		large

Net loans and advances		78,029			76,008			76,364			3%		2%

Customer deposits		77,466			77,134			68,931			0%		12%

Risk weighted assets		85,181			83,766			88,062			2%		-3%

Asia Pacific, Europe, and America

Net interest income		524			500			561			5%		-7%

Other operating income		442			405			531			9%		-17%
Operating income		966			905			1,092			7%		-12%

Operating expenses		(675	)		(652	)		(712	)		4%		-5%
Profit before credit impairment and income tax		291			253			380			15%		-23%

Credit impairment (charge)/release		13			11			(4	)		18%		large
Profit before income tax		304			264			376			15%		-19%

Income tax expense and non-controlling interests		(90	)		(58	)		(101	)		55%		-11%
Cash profit		214			206			275			4%		-22%

Individual credit impairment charge/(release)		3			19			41			-84%		-93%

Collective credit impairment charge/(release)		(16	)		(30	)		(37	)		-47%		-57%

Net loans and advances		52,652			48,590			48,304			8%		9%

Customer deposits		97,869			98,103			98,796			0%		-1%

Risk weighted assets		69,565			64,797			69,898			7%		0%

New Zealand

Net interest income		147			162			177			-9%		-17%

Other operating income		134			115			168			17%		-20%
Operating income		281			277			345			1%		-19%

Operating expenses		(82	)		(90	)		(86	)		-9%		-5%
Profit before credit impairment and income tax		199			187			259			6%		-23%

Credit impairment (charge)/release		(44	)		24			(2	)		large		large
Profit before income tax		155			211			257			-27%		-40%

Income tax expense and non-controlling interests		(43	)		(60	)		(72	)		-28%		-40%
Cash profit		112			151			185			-26%		-39%

Individual credit impairment charge/(release)		43			(22	)		5			large		large

Collective credit impairment charge/(release)		1			(2	)		(3	)		large		large

Net loans and advances		7,203			6,984			7,468			3%		-4%

Customer deposits		15,398			13,778			13,732			12%		12%

Risk weighted assets		10,868			10,220			10,999			6%		-1%

DIVISIONAL RESULTS

Institutional - continuing operations

Mark Whelan


Individual credit impairment charge/(release)	Half Year									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	$M			$M			$M			v. Sep 17		v. Mar 17

Transaction Banking		11			(1	)		41			large		-73%

Loans & Specialised Finance		17			(30	)		179			large		-91%

Markets		(1	)		(1	)		-			0%		n/a

Central Functions		1			3			5			-67%		-80%
Individual credit impairment charge/(release)		28			(29	)		225			large		-88%

Collective credit impairment charge/(release)	Half Year									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	$M			$M			$M			v. Sep 17		v. Mar 17

Transaction Banking		2			(1	)		(5	)		large		large

Loans & Specialised Finance		17			(4	)		(91	)		large		large

Markets		1			(3	)		3			large		-67%

Central Functions		1			-			(3	)		n/a		large
Collective credit impairment charge/(release)		21			(8	)		(96	)		large		large
Total credit impairment charge/(release)		49			(37	)		129			large		-62%

Net loans and advances	As at									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	$M			$M			$M			v. Sep 17		v. Mar 17

Transaction Banking		14,731			13,020			12,083			13%		22%

Loans & Specialised Finance		96,105			88,880			91,076			8%		6%

Markets		26,598			29,303			28,591			-9%		-7%

Central Functions		450			379			386			19%		17%
Net loans and advances		137,884			131,582			132,136			5%		4%

Customer deposits	As at									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	$M			$M			$M			v. Sep 17		v. Mar 17

Transaction Banking		95,707			96,000			89,028			0%		8%

Loans & Specialised Finance		1,336			993			943			35%		42%

Markets		91,237			89,431			88,947			2%		3%

Central Functions		2,453			2,591			2,541			-5%		-3%
Customer deposits		190,733			189,015			181,459			1%		5%

DIVISIONAL RESULTS

Institutional - continuing operations

Mark Whelan


March 2018 Half Year	Transaction Banking $M			Loans & Specialised Finance $M			Markets $M			Central Functions $M			Institutional Total $M
Net interest income		436			683			369			28			1,516

Other operating income		360			92			551			25			1,028
Operating income		796			775			920			53			2,544

Operating expenses		(404	)		(324	)		(618	)		(25	)		(1,371	)
Profit before credit impairment and income tax		392			451			302			28			1,173

Credit impairment (charge)/release		(13	)		(34	)		-			(2	)		(49	)
Profit before income tax		379			417			302			26			1,124

Income tax expense and non-controlling interests		(109	)		(114	)		(81	)		(27	)		(331	)
Cash profit		270			303			221			(1	)		793

Individual credit impairment charge/(release)		11			17			(1	)		1			28

Collective credit impairment charge/(release)		2			17			1			1			21

Net loans and advances		14,731			96,105			26,598			450			137,884

Customer deposits		95,707			1,336			91,237			2,453			190,733

Risk weighted assets		23,645			89,962			51,056			951			165,614

March 2017 Half Year
Net interest income		432			752			478			25			1,687

Other operating income		365			85			886			32			1,368
Operating income		797			837			1,364			57			3,055

Operating expenses		(419	)		(329	)		(626	)		(48	)		(1,422	)
Profit before credit impairment and income tax		378			508			738			9			1,633

Credit impairment (charge)/release		(36	)		(88	)		(4	)		(1	)		(129	)
Profit before income tax		342			420			734			8			1,504

Income tax expense and non-controlling interests		(106	)		(115	)		(202	)		(16	)		(439	)
Cash profit		236			305			532			(8	)		1,065

Individual credit impairment charge/(release)		41			179			-			5			225

Collective credit impairment charge/(release)		(5	)		(91	)		3			(3	)		(96	)

Net loans and advances		12,083			91,076			28,591			386			132,136

Customer deposits		89,028			943			88,947			2,541			181,459

Risk weighted assets		23,883			92,445			51,649			982			168,959

March 2018 Half Year vs March 2017 Half Year
Net interest income		1%			-9%			-23%			12%			-10%

Other operating income		-1%			8%			-38%			-22%			-25%
Operating income		0%			-7%			-33%			-7%			-17%

Operating expenses		-4%			-2%			-1%			-48%			-4%
Profit before credit impairment and income tax		4%			-11%			-59%			large			-28%

Credit impairment (charge)/release		-64%			-61%			-100%			100%			-62%
Profit before income tax		11%			-1%			-59%			large			-25%

Income tax expense and non-controlling interests		3%			-1%			-60%			69%			-25%
Cash profit		14%			-1%			-58%			-88%			-26%

Individual credit impairment charge/(release)		-73%			-91%			n/a			-80%			-88%

Collective credit impairment charge/(release)		large			large			-67%			large			large

Net loans and advances		22%			6%			-7%			17%			4%

Customer deposits		8%			42%			3%			-3%			5%

Risk weighted assets		-1%			-3%			-1%			-3%			-2%

DIVISIONAL RESULTS

Institutional - continuing operations

Mark Whelan


	Transaction Banking			Loans & Specialised Finance			Markets			Central Functions			Institutional Total
March 2018 Half Year	$M			$M			$M			$M			$M
Net interest income		436			683			369			28			1,516

Other operating income		360			92			551			25			1,028
Operating income		796			775			920			53			2,544

Operating expenses		(404	)		(324	)		(618	)		(25	)		(1,371	)
Profit before credit impairment and income tax		392			451			302			28			1,173

Credit impairment (charge)/release		(13	)		(34	)		-			(2	)		(49	)
Profit before income tax		379			417			302			26			1,124

Income tax expense and non-controlling interests		(109	)		(114	)		(81	)		(27	)		(331	)
Cash profit		270			303			221			(1	)		793

Individual credit impairment charge/(release)		11			17			(1	)		1			28

Collective credit impairment charge/(release)		2			17			1			1			21

Net loans and advances		14,731			96,105			26,598			450			137,884

Customer deposits		95,707			1,336			91,237			2,453			190,733

Risk weighted assets		23,645			89,962			51,056			951			165,614

September 2017 Half Year
Net interest income		423			682			442			30			1,577

Other operating income		366			58			550			24			998
Operating income		789			740			992			54			2,575

Operating expenses		(410	)		(328	)		(659	)		5			(1,392	)
Profit before credit impairment and income tax		379			412			333			59			1,183

Credit impairment (charge)/release		2			34			4			(3	)		37
Profit before income tax		381			446			337			56			1,220

Income tax expense and non-controlling interests		(113	)		(126	)		(91	)		(31	)		(361	)
Cash profit		268			320			246			25			859

Individual credit impairment charge/(release)		(1	)		(30	)		(1	)		3			(29	)

Collective credit impairment charge/(release)		(1	)		(4	)		(3	)		-			(8	)

Net loans and advances		13,020			88,880			29,303			379			131,582

Customer deposits		96,000			993			89,431			2,591			189,015

Risk weighted assets		23,365			86,091			48,594			733			158,783

March 2018 Half Year vs September 2017 Half Year
Net interest income		3%			0%			-17%			-7%			-4%

Other operating income		-2%			59%			0%			4%			3%
Operating income		1%			5%			-7%			-2%			-1%

Operating expenses		-1%			-1%			-6%			large			-2%
Profit before credit impairment and income tax		3%			9%			-9%			-53%			-1%

Credit impairment (charge)/release		large			large			-100%			-33%			large
Profit before income tax		-1%			-7%			-10%			-54%			-8%

Income tax expense and non-controlling interests		-4%			-10%			-11%			-13%			-8%
Cash profit		1%			-5%			-10%			large			-8%

Individual credit impairment charge/(release)		large			large			0%			-67%			large

Collective credit impairment charge/(release)		large			large			large			n/a			large

Net loans and advances		13%			8%			-9%			19%			5%

Customer deposits		0%			35%			2%			-5%			1%

Risk weighted assets		1%			4%			5%			30%			4%

DIVISIONAL RESULTS

Institutional - continuing operations

Mark Whelan

Analysis of Markets operating income


	Half Year						Movement

	Mar 18		Sep 17		Mar 17		Mar 18		Mar 18
Composition of Markets operating income by business activity	$M		$M		$M		v. Sep 17		v. Mar 17

Franchise Sales¹		439		451		483		-3%		-9%

Franchise Trading^{2, 3}		186		263		525		-29%		-65%

Balance Sheet⁴		295		278		356		6%		-17%
Markets operating income		920		992		1,364		-7%		-33%

^1.

Franchise Sales represents direct client flow business on core products such as fixed income, foreign exchange, commodities and capital markets.

^2.

Franchise Trading primarily represents management of the Group’s strategic positions and those taken as part of direct client sales flow. Franchise Trading also includes the impact of valuation adjustments made to derivatives risk free value when determining fair value (includes credit and funding adjustments, bid-offer adjustments and associated hedges).

^3.

During the March 2018 half, the impact of derivative valuation adjustments was a gain of $11 million (Sep 17 half: gain of $67 million; Mar 17 half: gain of $162 million).

^4.

Balance Sheet represents hedging of interest rate risk on the Group’s loan and deposit books and the management of the Group’s liquidity portfolio.


	Half Year						Movement

	Mar 18		Sep 17		Mar 17		Mar 18		Mar 18
Composition of Markets operating income by geography	$M		$M		$M		v. Sep 17		v. Mar 17

Australia		319		437		634		-27%		-50%

Asia Pacific, Europe & America		456		415		535		10%		-15%

New Zealand		145		140		195		4%		-26%
Markets operating income		920		992		1,364		-7%		-33%

DIVISIONAL RESULTS

Institutional - continuing operations

Mark Whelan

Market risk

Traded market risk

Below are aggregate Value at Risk (VaR) exposures at 99% confidence level covering both physical and derivatives trading positions for the Group’s principal trading centres. All figures are in AUD.

99% confidence level (1 day holding period)

As at

High for
period

Low for
period

Avg for
period

As at

High for
year

Low for
year

Avg for
year

Mar 18

Sep 17

Value at Risk at 99% confidence

Foreign exchange

3.3

10.3

2.1

5.0

4.2

10.5

2.5

5.1

Interest rate

5.9

16.0

5.9

9.4

6.3

21.3

5.1

7.9

Credit

3.6

6.5

3.4

5.1

4.4

5.4

2.0

3.4

Commodities

3.5

1.4

2.4

2.2

3.8

1.4

2.1

Equity

0.5

0.2

Diversification benefit

(6.8

)

n/a

(8.8

)

(7.6

)

n/a

(7.7

)

Total VaR

9.5

19.9

8.7

13.1

9.5

24.9

6.9

11.0

Non-traded interest rate risk

Non-traded interest rate risk is managed by Markets and relates to the potential adverse impact of changes in market interest rates on future net interest income for the Group. Interest rate risk is reported using various techniques including VaR and scenario analysis based on a 1% shock.

99% confidence level (1 day holding period)

As at

High for
period

Low for
period

Avg for
period

As at

High for
year

Low for
year

Avg for
year

Mar 18

Sep 17

Value at Risk at 99% confidence

Australia

20.3

32.7

20.3

25.1

31.6

37.5

25.9

31.3

New Zealand

6.6

7.1

5.6

6.5

11.8

15.1

11.1

12.4

Asia Pacific, Europe & America

13.1

14.4

12.5

13.5

14.6

19.0

14.3

15.9

Diversification benefit

(13.1

)

n/a

(13.5

)

(20.6

)

n/a

(19.7

)

Total VaR

26.9

36.4

26.9

31.6

37.4

44.0

33.5

39.9

Impact of 1% rate shock on the next 12 months’ net interest income margin


	As at

	Mar 18		Sep 17
As at period end		0.09%		0.52%

Maximum exposure		0.59%		0.65%

Minimum exposure		0.09%		0.01%

Average exposure (in absolute terms)		0.33%		0.28%

DIVISIONAL RESULTS

New Zealand - continuing operations

David Hisco

Table reflects NZD for New Zealand (AUD results shown on page 62)


	Half Year									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	NZD M			NZD M			NZD M			v. Sep 17		v. Mar 17
Net interest income		1,395			1,352			1,334			3%		5%

Other operating income		181			177			153			2%		18%

Net funds management and insurance income		189			182			183			4%		3%
Operating income		1,765			1,711			1,670			3%		6%

Operating expenses		(642	)		(635	)		(636	)		1%		1%
Profit before credit impairment and income tax		1,123			1,076			1,034			4%		9%

Credit impairment (charge)/release		(22	)		(44	)		(39	)		-50%		-44%
Profit before income tax		1,101			1,032			995			7%		11%

Income tax expense and non-controlling interests		(308	)		(290	)		(278	)		6%		11%
Cash profit		793			742			717			7%		11%

Balance Sheet¹
Net loans and advances		118,540			117,242			114,731			1%		3%

Other external assets		4,911			3,869			7,032			27%		-30%
External assets		123,451			121,111			121,763			2%		1%
Customer deposits		84,372			81,855			81,238			3%		4%

Other deposits and borrowings		2,555			3,721			2,949			-31%		-13%
Deposits and other borrowings		86,927			85,576			84,187			2%		3%

Other external liabilities		22,883			22,297			22,232			3%		3%
External liabilities		109,810			107,873			106,419			2%		3%
Risk weighted assets		61,332			60,971			62,421			1%		-2%

Average gross loans and advances		118,091			116,671			114,087			1%		4%

Average deposits and other borrowings		87,027			84,490			83,884			3%		4%
In-force premiums		196			194			192			1%		2%

Funds under management		29,185			28,490			27,146			2%		8%

Average funds under management		29,195			27,810			26,383			5%		11%

Ratios¹
Return on average assets		1.31%			1.23%			1.20%

Net interest margin		2.37%			2.31%			2.30%

Operating expenses to operating income		36.4%			37.1%			38.1%

Operating expenses to average assets		1.06%			1.06%			1.07%
Individual credit impairment charge/(release)		36			59			64			-39%		-44%

Individual credit impairment charge/(release) as a % of average GLA		0.06%			0.10%			0.11%

Collective credit impairment charge/(release)		(14	)		(15	)		(25	)		-7%		-44%

Collective credit impairment charge/(release) as a % of average GLA		(0.02%	)		(0.03%	)		(0.04%	)

Gross impaired assets		260			334			448			-22%		-42%

Gross impaired assets as a % of GLA		0.22%			0.28%			0.39%
Total full time equivalent staff (FTE)		6,319			6,372			6,417			-1%		-2%

^1.

Balance Sheet amounts include asset and liabilities reclassified as held for sale.

Performance March 2018 v March 2017

•

Volumes grew in home loans in addition to higher balances in funds under management. Customer deposits grew across all portfolios.

•

Net interest margin increased due to higher lending margins, partly offset by portfolio mix changes and lower deposit margins.

•

Other operating income increased primarily due to a one-off insurance recovery in the March 2018 half. Net funds management and insurance income increased due to higher funds under management.

•

Operating expenses increased due to increased business investment in digital capability, and inflation. This was partially offset by a reduction in FTE driven by customer migration to lower cost channels.

•

Credit impairment charges decreased due to credit quality improvements across the Retail and Commercial and Agri portfolios, and the partial release of the Agri economic cycle adjustment.

LOGO

DIVISIONAL RESULTS

New Zealand - continuing operations

David Hisco


Individual credit impairment charge/(release)¹	Half Year									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	NZD M			NZD M			NZD M			v. Sep 17		v. Mar 17
Retail		23			25			21			-8%		10%

Home Loans		-			(1	)		(6	)		100%		100%

Other		23			26			27			-12%		-15%

Commercial		13			34			43			-62%		-70%
Individual credit impairment charge/(release)		36			59			64			-39%		-44%

Collective credit impairment charge/(release)¹	Half Year									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	NZD M			NZD M			NZD M			v. Sep 17		v. Mar 17
Retail		8			(6	)		(7	)		large		large

Home Loans		3			(2	)		(3	)		large		large

Other		5			(4	)		(4	)		large		large

Commercial		(22	)		(9	)		(18	)		large		22%
Collective credit impairment charge/(release)		(14	)		(15	)		(25	)		-7%		-44%
Total credit impairment charge/(release)		22			44			39			-50%		-44%

Net loans and advances^{1, 2}	As at									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	NZD M			NZD M			NZD M			v. Sep 17		v. Mar 17
Retail		77,066			76,279			74,379			1%		4%

Home Loans		73,651			72,353			70,439			2%		5%

Other		3,415			3,926			3,940			-13%		-13%

Commercial		41,474			40,963			40,352			1%		3%
Net loans and advances		118,540			117,242			114,731			1%		3%

Customer deposits^1,2	As at									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	NZD M			NZD M			NZD M			v. Sep 17		v. Mar 17
Retail		67,735			67,797			66,292			0%		2%

Commercial		16,637			14,058			14,946			18%		11%
Customer deposits		84,372			81,855			81,238			3%		4%

^1.

During the March 2018 half, business agri customers transferred from retail to commercial. Prior periods have not been restated.

^2.

Balance Sheet amounts include asset and liabilities reclassified as held for sale.

Net funds management and insurance income


	Half Year									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	NZD M			NZD M			NZD M			v. Sep 17		v. Mar 17
Insurance		83			81			85			2%		-2%

Insurance income		89			86			91			3%		-2%

Insurance volume related expenses		(6	)		(5	)		(6	)		20%		0%

Funds Management		106			101			98			5%		8%

Funds management income		122			116			109			5%		12%

Funds management volume related expenses		(16	)		(15	)		(11	)		7%		45%
Total net funds management and insurance income		189			182			183			4%		3%

In-force premiums		196			194			192			1%		2%

Funds under management		29,185			28,490			27,146			2%		8%

Average funds under management		29,195			27,810			26,383			5%		11%

Retail Insurance lapse rates		12.8%			14.6%			13.8%

DIVISIONAL RESULTS

New Zealand - continuing operations

David Hisco


	Retail			Commercial			Central Functions			New Zealand Total
March 2018 Half Year¹	NZD M			NZD M			NZD M			NZD M
Net interest income		910			478			7			1,395

Other operating income		152			10			19			181

Net funds management and insurance income		190			-			(1	)		189
Operating income		1,252			488			25			1,765

Operating expenses		(514	)		(126	)		(2	)		(642	)
Profit before credit impairment and income tax		738			362			23			1,123

Credit impairment (charge)/release		(31	)		9			-			(22	)
Profit before income tax		707			371			23			1,101

Income tax expense and non-controlling interests		(197	)		(104	)		(7	)		(308	)
Cash profit		510			267			16			793

Individual credit impairment charge/(release)		23			13			-			36

Collective credit impairment charge/(release)		8			(22	)		-			(14	)

Net loans and advances²		77,066			41,474			-			118,540

Customer deposits²		67,735			16,637			-			84,372

Risk weighted assets²		29,441			30,748			1,143			61,332

March 2017 Half Year
Net interest income		877			446			11			1,334

Other operating income		145			9			(1	)		153

Net funds management and insurance income		184			-			(1	)		183
Operating income		1,206			455			9			1,670

Operating expenses		(498	)		(127	)		(11	)		(636	)
Profit before credit impairment and income tax		708			328			(2	)		1,034

Credit impairment (charge)/release		(14	)		(25	)		-			(39	)
Profit before income tax		694			303			(2	)		995

Income tax expense and non-controlling interests		(195	)		(84	)		1			(278	)
Cash profit		499			219			(1	)		717

Individual credit impairment charge/(release)		21			43			-			64

Collective credit impairment charge/(release)		(7	)		(18	)		-			(25	)

Net loans and advances²		74,379			40,352			-			114,731

Customer deposits²		66,292			14,946			-			81,238

Risk weighted assets²		29,358			32,086			977			62,421

March 2018 Half Year vs March 2017 Half Year
Net interest income		4%			7%			-36%			5%

Other operating income		5%			11%			large			18%

Net funds management and insurance income		3%			n/a			0%			3%
Operating income		4%			7%			large			6%

Operating expenses		3%			-1%			-82%			1%
Profit before credit impairment and income tax		4%			10%			large			9%

Credit impairment (charge)/release		large			large			n/a			-44%
Profit before income tax		2%			22%			large			11%

Income tax expense and non-controlling interests		1%			24%			large			11%
Cash profit		2%			22%			large			11%

Individual credit impairment charge/(release)		10%			-70%			n/a			-44%

Collective credit impairment charge/(release)		large			22%			n/a			-44%

Net loans and advances²		4%			3%			n/a			3%

Customer deposits²		2%			11%			n/a			4%

Risk weighted assets²		0%			-4%			17%			-2%

^1.

During the March 2018 half, business agri customers transferred from retail to commercial. Prior periods have not been restated.

^2.

Balance Sheet amounts include asset and liabilities reclassified as held for sale.

DIVISIONAL RESULTS

New Zealand - continuing operations

David Hisco


	Retail			Commercial			Central Functions			New Zealand Total
March 2018 Half Year¹	NZD M			NZD M			NZD M			NZD M
Net interest income		910			478			7			1,395

Other operating income		152			10			19			181

Net funds management and insurance income		190			-			(1	)		189
Operating income		1,252			488			25			1,765

Operating expenses		(514	)		(126	)		(2	)		(642	)
Profit before credit impairment and income tax		738			362			23			1,123

Credit impairment (charge)/release		(31	)		9			-			(22	)
Profit before income tax		707			371			23			1,101

Income tax expense and non-controlling interests		(197	)		(104	)		(7	)		(308	)
Cash profit		510			267			16			793

Individual credit impairment charge/(release)		23			13			-			36

Collective credit impairment charge/(release)		8			(22	)		-			(14	)

Net loans and advances²		77,066			41,474			-			118,540

Customer deposits²		67,735			16,637			-			84,372

Risk weighted assets²		29,441			30,748			1,143			61,332

September 2017 Half Year
Net interest income		896			454			2			1,352

Other operating income		169			9			(1	)		177

Net funds management and insurance income		183			1			(2	)		182
Operating income		1,248			464			(1	)		1,711

Operating expenses		(509	)		(132	)		6			(635	)
Profit before credit impairment and income tax		739			332			5			1,076

Credit impairment (charge)/release		(19	)		(25	)		-			(44	)
Profit before income tax		720			307			5			1,032

Income tax expense and non-controlling interests		(200	)		(87	)		(3	)		(290	)
Cash profit		520			220			2			742

Individual credit impairment charge/(release)		25			34			-			59

Collective credit impairment charge/(release)		(6	)		(9	)		-			(15	)

Net loans and advances²		76,279			40,963			-			117,242

Customer deposits²		67,797			14,058			-			81,855

Risk weighted assets²		28,757			31,004			1,210			60,971

March 2018 Half Year vs September 2017 Half Year
Net interest income		2%			5%			large			3%

Other operating income		-10%			11%			large			2%

Net funds management and insurance income		4%			-100%			-50%			4%
Operating income		0%			5%			large			3%

Operating expenses		1%			-5%			large			1%
Profit before credit impairment and income tax		0%			9%			large			4%

Credit impairment (charge)/release		63%			large			n/a			-50%
Profit before income tax		-2%			21%			large			7%

Income tax expense and non-controlling interests		-2%			20%			large			6%
Cash profit		-2%			21%			large			7%

Individual credit impairment charge/(release)		-8%			-62%			n/a			-39%

Collective credit impairment charge/(release)		large			large			n/a			-7%

Net loans and advances²		1%			1%			n/a			1%

Customer deposits²		0%			18%			n/a			3%

Risk weighted assets²		2%			-1%			-6%			1%

^1.

During the March 2018 half, business agri customers transferred from retail to commercial. Prior periods have not been restated.

^2.

Balance Sheet amounts include asset and liabilities reclassified as held for sale.

DIVISIONAL RESULTS

New Zealand - continuing operations

David Hisco

Table reflects AUD for New Zealand

NZD results shown on page 58


	Half Year						Movement

	Mar 18		Sep 17		Mar 17		Mar 18		Mar 18
	$M		$M		$M		v. Sep 17		v. Mar 17
Net interest income		1,278		1,259		1,260		2%		1%

Other operating income		165		166		144		-1%		15%

Net funds management and insurance income		173		170		173		2%		0%
Operating income		1,616		1,595		1,577		1%		2%

Operating expenses		(588)		(593)		(600)		-1%		-2%
Profit before credit impairment and income tax		1,028		1,002		977		3%		5%

Credit impairment (charge)/release		(20)		(41)		(37)		-51%		-46%
Profit before income tax		1,008		961		940		5%		7%

Income tax expense and non-controlling interests		(282)		(269)		(263)		5%		7%
Cash profit		726		692		677		5%		7%

Consisting of:
Retail		467		484		472		-4%		-1%

Commercial		244		206		206		18%		18%

Central Functions		15		2		(1)		large		large
Cash profit		726		692		677		5%		7%

Balance Sheet¹
Net loans and advances		111,308		107,886		104,884		3%		6%

Other external assets		4,610		3,560		6,429		29%		-28%
External assets		115,918		111,446		111,313		4%		4%
Customer deposits		79,225		75,323		74,266		5%		7%

Other deposits and borrowings		2,398		3,424		2,696		-30%		-11%
Deposits and other borrowings		81,623		78,747		76,962		4%		6%

Other external liabilities		21,488		20,518		20,324		5%		6%
External liabilities		103,111		99,265		97,286		4%		6%
Risk weighted assets		57,590		56,106		57,064		3%		1%

Average gross loans and advances		108,107		108,751		107,704		-1%		0%

Average deposits and other borrowings		79,669		78,747		79,190		1%		1%
In-force premiums		184		179		175		3%		5%

Funds under management		27,404		26,215		24,816		5%		10%

Average funds under management		26,727		25,922		24,912		3%		7%

Ratios¹
Return on average assets		1.31%		1.23%		1.20%

Net interest margin		2.37%		2.31%		2.30%

Operating expenses to operating income		36.4%		37.1%		38.1%

Operating expenses to average assets		1.06%		1.06%		1.07%
Individual credit impairment charge/(release)		34		55		61		-38%		-44%

Individual credit impairment charge/(release) as a % of average GLA		0.06%		0.10%		0.11%

Collective credit impairment charge/(release)		(14)		(14)		(24)		0%		-42%

Collective credit impairment charge/(release) as a % of average GLA		(0.03%)		(0.03%)		(0.04%)

Gross impaired assets		244		307		409		-21%		-40%

Gross impaired assets as a % of GLA		0.22%		0.28%		0.39%
Retail Insurance lapse rates		12.8%		14.6%		13.8%
Total full time equivalent staff (FTE)		6,319		6,372		6,417		-1%		-2%

^1.

Balance Sheet amounts include assets and liabilities reclassified as held for sale.

DIVISIONAL RESULTS

Wealth Australia - continuing operations

Alexis George


	Half Year									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	$M			$M			$M			v. Sep 17		v. Mar 17
Net interest income		24			24			25			0%		-4%

Other operating income		42			33			40			27%		5%

Net funds management and insurance income		120			132			139			-9%		-14%
Operating income		186			189			204			-2%		-9%

Operating expenses		(123	)		(136	)		(126	)		-10%		-2%
Profit before income tax		63			53			78			19%		-19%

Income tax expense and non-controlling interests		(19	)		(16	)		(20	)		19%		-5%
Cash profit from continuing operations		44			37			58			19%		-24%

Key metrics - LMI

Gross written premium		81			85			88			-5%		-8%

Net claims paid		8			9			6			-11%		33%

Loss rate (of exposure)		0.03%			0.02%			0.01%
Total full time equivalent staff (FTE)¹		895			912			899			-2%		0%

^1.

Adjustments for discontinued FTE are based on an estimate. Actual FTE that will transfer to IOOF and Zurich on sale completion is currently being determined.

DIVISIONAL RESULTS

Asia Retail & Pacific - continuing operations

David Hisco


	Half Year									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	$M			$M			$M			v. Sep 17		v. Mar 17
Net interest income		119			260			316			-54%		-62%

Other operating income		184			168			(150	)		10%		large
Operating income		303			428			166			-29%		83%

Operating expenses		(146	)		(280	)		(334	)		-48%		-56%
Profit before credit impairment and income tax		157			148			(168	)		6%		large

Credit impairment (charge)/release		(27	)		(69	)		(75	)		-61%		-64%
Profit before income tax		130			79			(243	)		65%		large

Income tax expense and non-controlling interests		(24	)		(14	)		21			71%		large
Cash profit/(loss)		106			65			(222	)		63%		large

Balance Sheet¹
Net loans and advances		2,168			5,503			12,368			-61%		-82%

Customer deposits		3,382			6,964			19,754			-51%		-83%
Risk weighted assets		4,049			6,791			12,422			-40%		-67%

Ratios¹
Return on average assets		3.60%			0.78%			(2.13%	)

Net interest margin		4.51%			3.22%			3.17%

Operating expenses to operating income		48.2%			65.4%			201.2%

Operating expenses to average assets		4.96%			3.36%			3.20%
Individual credit impairment charge/(release)		31			79			86			-61%		-64%

Individual credit impairment charge/(release) as a % of average GLA		1.61%			1.52%			1.33%

Collective credit impairment charge/(release)		(4	)		(10	)		(11	)		-60%		-64%

Collective credit impairment charge/(release) as a % of average GLA		(0.22%	)		(0.20%	)		(0.17%	)

Gross impaired assets		50			140			240			-64%		-79%

Gross impaired assets as a % of GLA		2.23%			2.47%			1.91%
Total full time equivalent staff (FTE)		1,199			3,664			4,637			-67%		-74%

^1.

Balance Sheet amounts include assets and liabilities reclassified as held for sale.


Asia Retail and Wealth	Half Year									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	$M			$M			$M			v. Sep 17		v. Mar 17
Net interest income		53			193			249			-73%		-79%

Other operating income		137			117			(203	)		17%		large
Operating income		190			310			46			-39%		large

Operating expenses		(83	)		(216	)		(272	)		-62%		-69%
Profit before credit impairment and income tax		107			94			(226	)		14%		large

Credit impairment (charge)/release		(26	)		(53	)		(71	)		-51%		-63%
Profit before income tax		81			41			(297	)		98%		large

Income tax expense and non-controlling interests		(10	)		(2	)		34			large		large
Cash profit/(loss)		71			39			(263	)		82%		large

Balance Sheet¹
Net loans and advances		15			3,309			10,091			-100%		-100%

Customer deposits		12			3,612			16,614			-100%		-100%

Risk weighted assets		221			2,921			8,743			-92%		-97%
Total full time equivalent staff (FTE)		27			2,447			3,473			-99%		-99%

^1.

Balance Sheet amounts include assets and liabilities reclassified as held for sale.

DIVISIONAL RESULTS

Technology, Services & Operations and Group Centre - continuing operations


	Half Year									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	$M			$M			$M			v. Sep 17		v. Mar 17
Operating income (minority investments in Asia)		209			149			170			40%		23%

Operating income (other)		87			120			153			-28%		-43%
Operating income		296			269			323			10%		-8%

Operating expenses		(371	)		(366	)		(336	)		1%		10%
Profit before credit impairment and income tax		(75	)		(97	)		(13	)		-23%		large

Credit impairment (charge)/release		-			11			(11	)		-100%		-100%
Profit before income tax		(75	)		(86	)		(24	)		-13%		large

Income tax expense and non-controlling interests		(16	)		30			42			large		large
Cash profit/(loss)		(91	)		(56	)		18			63%		large
Risk weighted assets		6,813			7,287			7,586			-7%		-10%

Total full time equivalent staff (FTE)		10,921			11,257			11,214			-3%		-3%

DIVISIONAL RESULTS

This page has been left blank intentionally

PROFIT RECONCILIATION


CONTENTS	Page

Adjustments between statutory profit and cash profit		68

Explanation of adjustments between statutory profit and cash profit - continuing operations		68

Explanation of adjustments between statutory profit and cash profit - discontinued operations		69

Reconciliation of statutory profit to cash profit		70

PROFIT RECONCILIATION

Non-IFRS information

The Group provides additional measures of performance in the Consolidated Financial Report & Dividend Announcement which are prepared on a basis other than in accordance with accounting standards. The guidance provided in ASIC’s Regulatory Guide 230 has been followed when presenting this information.

Adjustments between statutory profit and cash profit

Cash profit represents ANZ’s preferred measure of the result of the ongoing business activities of the Group, enabling readers to assess Group and Divisional performance against prior periods and against peer institutions. To calculate cash profit, the Group excludes non-core items from statutory profit (refer to Definitions for further details). The adjustments made in arriving at cash profit are included in statutory profit which is subject to review within the context of the external auditor’s review of the Condensed Consolidated Financial Statements. Cash profit is not subject to review or audit by the external auditor. The external auditor has informed the Audit Committee that recurring adjustments have been determined on a consistent basis across each period presented, and the adjustments for the sale impact of Shanghai Rural Commercial Bank (SRCB) in the March 2018, September 2017 and March 2017 half year are appropriate.


	Half Year									Movement

	Mar 18 $M			Sep 17 $M			Mar 17 $M			Mar 18 v. Sep 17		Mar 18 v. Mar 17

Statutory profit attributable to shareholders of the Company from continuing operations		3,923			3,410			2,934			15%		34%

Adjustments between statutory profit and cash profit from continuing operations

Revaluation of policy liabilities		(10	)		(8	)		33			25%		large

Economic hedges		(124	)		31			178			large		large

Revenue hedges		40			6			(105	)		large		large

Structured credit intermediation trades		(3	)		(2	)		(1	)		50%		large

Sale of SRCB		(333	)		17			316			large		large

Total adjustments between statutory profit and cash profit from continuing operations		(430	)		44			421			large		large

Cash profit from continuing operations		3,493			3,454			3,355			1%		4%

Statutory profit attributable to shareholders of the Company from discontinued operations		(600	)		85			(23	)		large		large

Adjustments between statutory profit and cash profit from discontinued operations

Treasury shares adjustment		(23	)		(18	)		76			28%		large

Revaluation of policy liabilities		6			6			3			0%		100%
Total adjustments between statutory profit and cash profit from discontinued operations		(17	)		(12	)		79			42%		large

Cash profit/(loss) from discontinued operations		(617	)		73			56			large		large

Cash profit		2,876			3,527			3,411			-18%		-16%

Explanation of adjustments between statutory profit and cash profit - continuing operations

_●

Revaluation of policy liabilities - New Zealand division

When calculating policy liabilities, the projected future cash flows on insurance contracts are discounted to reflect the present value of the obligation, with the impact of changes in the market discount rate each period being reflected in the Income Statement. ANZ includes the impact on the remeasurement of the insurance contract attributable to changes in market discount rates as an adjustment to statutory profit to remove the volatility attributable to changes in market interest rates which reverts to zero over the life of the insurance contract.

_●

Economic and revenue hedges

The Group enters into economic hedges to manage its interest rate and foreign exchange risk which in accordance with accounting standards, result in fair value gains and losses being recognised within the Income Statement. ANZ removes the fair value adjustments from cash profit since the profit or loss resulting from the hedge transactions will reverse over time to match with the profit or loss from the economically hedged item as part of cash profit. This includes gains and losses arising from approved classes of derivatives not designated in accounting hedge relationships but which are considered to be economic hedges, including hedges of larger foreign exchange denominated revenue and expense streams, primarily NZD and USD (and USD correlated), as well as ineffectiveness from designated accounting hedges.

Economic hedges comprise:

–

Funding related swaps (primarily cross currency interest rate swaps) used to convert the proceeds of foreign currency debt issuances into floating rate Australian dollar and New Zealand dollar debt. As these swaps do not qualify for hedge accounting, movements in the fair values are recorded in the Income Statement. The main drivers of these fair values are currency basis spreads and Australian dollar and New Zealand dollar fluctuations against other major funding currencies.

–

Economic hedges of select structured finance and specialised leasing transactions that do not qualify for hedge accounting. The main drivers of these fair value adjustments are movements in the Australian and New Zealand term structure of interest rates.

–

Ineffectiveness from designated accounting hedge relationships.

PROFIT RECONCILIATION

In the March 2018 half, the majority of the gain on economic hedges adjusted from cash profit relates to funding related swaps, principally from widening basis spreads on AUD/USD currency pair and from weakening of the AUD against the USD and EUR.

The loss on revenue hedges adjusted from cash profit in the March 2018 half was due to the weakening of the AUD against the NZD.


	Half Year

	Mar 18 $M			Sep 17 $M		Mar 17 $M

Economic hedges		(175	)		42		254
Revenue hedges		57			8		(148	)
Increase/(decrease) to cash profit before tax		(118	)		50		106

Increase/(decrease) to cash profit after tax		(84	)		37		73

_●

Structured credit intermediation trades

ANZ entered into a series of structured credit intermediation trades prior to the Global Financial Crisis with eight US financial guarantors. This involved selling credit default swaps (CDSs) as protection over specific debt structures and purchasing CDS protection over the same structures. ANZ has subsequently exited its positions with six US financial guarantors and is monitoring the remaining two portfolios with a view to reducing the exposures when ANZ deems it cost effective relative to the perceived risk associated with a specific trade or counterparty.

The notional value of outstanding bought and sold CDSs at 31 March 2018 amounted to $0.3 billion (Sep 17: $0.7 billion; Mar 17: $0.7 billion). While both the bought and sold CDSs are measured at fair value through profit and loss, the associated fair value movements do not fully offset due to the impact of credit risk on the bought CDSs which is driven by market movements in credit spreads and AUD/USD and NZD/USD rates. The fair value of the CDSs (excluding CVA) is $27 million (Sep 17: $59 million; Mar 17: $65 million) with CVA on the bought protection of $5 million (Sep 17: $7 million; Mar 17: $9 million).

The profit and loss associated with the bought and sold protection is included as an adjustment to cash profit as it relates to a legacy business where, unless terminated early, the fair value movements are expected to reverse to zero in future periods.

_●

Sale of Shanghai Rural Commercial Bank (SRCB)

On 3 January 2017, the Group announced that it had agreed to sell its 20% stake in Shanghai Rural Commercial Bank (SRCB). On 18 September 2017, the Group announced a revision to the 3 January arrangement in which Baoshan Iron & Steel Co. Ltd. (Bao) replaced Shanghai Sino-Poland Enterprise Management Development Corporation Limited to join China COSCO Shipping Corporation Limited (COSCO) to acquire ANZ’s 20% stake in SRCB. Under the updated arrangement, COSCO and Bao each acquired a 10% stake in SRCB. The key financial terms of the revised sale agreement were unchanged from the original transaction announcement. The sale completed in the March 2018 half.

The impact of SRCB has been treated as an adjustment between statutory profit to cash profit. The rationale being the loss on reclassification to held for sale was expected to be largely offset by the release of reserve gains on sale completion. The transaction was initially expected to complete in the 2017 financial year, however completion was delayed until the March 2018 half.

The March and September 2017 halves include the impairment to the investment, losses on release of reserves and additional tax expenses associated with the delay in completion. In the March 2018 half, the Group recycled the reserve gains to profit, which was partly offset by further foreign exchange losses, and tax expenses.

In the March 2018 half, the entire impact of the transaction has been recognised in cash profit. Accordingly, the adjustments between statutory profit and cash profit in the March and September 2017 halves have been reversed.

_●

Credit risk on impaired derivatives (nil profit after tax impact)

The charge to income for derivative credit valuation adjustments of $1 million on defaulted and impaired derivative exposures was reclassified to cash credit impairment charges in the March 2017 half year. The reclassification was made to reflect the manner in which the defaulted and impaired derivatives are managed. There were no such reclassifications in the March 2018 and September 2017 half.

Explanation of adjustments between statutory profit and cash profit - discontinued operations

_●

Treasury shares adjustment

ANZ shares held by the Group in Wealth Australia (Mar 18: 14.8 million shares; Sep 17: 15.4 million shares; Mar 17: 15.3 million shares) are deemed to be Treasury shares for accounting purposes. Dividends and realised and unrealised gains and losses from these shares are reversed as these are not permitted to be recognised as income for statutory reporting purposes. In deriving cash profit, these earnings are included to ensure there is no asymmetrical impact on the Group’s profits because the Treasury shares are held to support policy liabilities which are revalued through the Income Statement. Accordingly, the half year gain of $23 million after tax ($27 million pre-tax) reversed for statutory accounting purposes has been added back to cash profit.

_●

Revaluation of policy liabilities - Wealth Australia division

PROFIT RECONCILIATION


				Adjustments to statutory profit
	Statutory profit $M			Treasury shares adjustment $M			Revaluation of policy liabilities $M			Economic hedges $M			Revenue hedges $M			Structured Credit intermediation trades $M			Credit risk on impaired derivatives $M		Sale of Shanghai Rural Commercial Bank $M			Total adjustments to statutory profit $M			Cash profit $M
March 2018 Half Year

Net interest income		7,350			-			-			-			-			-			-		-			-			7,350
Net fee and commission income		1,152			-			-			-			-			-			-		-			-			1,152

Net funds management and insurance income		307			-			(14	)		-			-			-			-		-			(14	)		293

Other		1,366			-			-			(175	)		57			(4	)		-		(231	)		(353	)		1,013
Other operating income		2,825			-			(14	)		(175	)		57			(4	)		-		(231	)		(367	)		2,458
Operating income		10,175			-			(14	)		(175	)		57			(4	)		-		(231	)		(367	)		9,808

Operating expenses		(4,411	)		-			-			-			-			-			-		-			-			(4,411	)
Profit before credit impairment and tax		5,764			-			(14	)		(175	)		57			(4	)		-		(231	)		(367	)		5,397

Credit impairment charge		(408	)		-			-			-			-			-			-		-			-			(408	)
Profit before income tax		5,356			-			(14	)		(175	)		57			(4	)		-		(231	)		(367	)		4,989

Income tax expense		(1,426	)		-			4			51			(17	)		1			-		(102	)		(63	)		(1,489	)

Non-controlling interests		(7	)		-			-			-			-			-			-		-			-			(7	)
Profit after tax from continuing operations		3,923			-			(10	)		(124	)		40			(3	)		-		(333	)		(430	)		3,493

Profit/(Loss) after tax from discontinued operations		(600	)		(23	)		6			-			-			-			-		-			(17	)		(617	)
Profit after tax		3,323			(23	)		(4	)		(124	)		40			(3	)		-		(333	)		(447	)		2,876

September 2017 Half Year

Net interest income		7,456			-			-			-			-			-			-		-			-			7,456
Net fee and commission income		1,227			-			-			-			-			-			-		-			-			1,227

Net funds management and insurance income		335			-			(12	)		-			-			-			-		-			(12	)		323

Other		785			-			-			42			8			(2	)		-		1			49			834
Other operating income		2,347			-			(12	)		42			8			(2	)		-		1			37			2,384
Operating income		9,803			-			(12	)		42			8			(2	)		-		1			37			9,840

Operating expenses		(4,480	)		-			-			-			-			-			-		-			-			(4,480	)
Profit before credit impairment and tax		5,323			-			(12	)		42			8			(2	)		-		1			37			5,360

Credit impairment charge		(479	)		-			-			-			-			-			-		-			-			(479	)
Profit before income tax		4,844			-			(12	)		42			8			(2	)		-		1			37			4,881

Income tax expense		(1,427	)		-			4			(11	)		(2	)		-			-		16			7			(1,420	)

Non-controlling interests		(7	)		-			-			-			-			-			-		-			-			(7	)
Profit after tax from continuing operations		3,410			-			(8	)		31			6			(2	)		-		17			44			3,454

Profit/(Loss) after tax from discontinued operations		85			(18	)		6			-			-			-			-		-			(12	)		73
Profit after tax		3,495			(18	)		(2	)		31			6			(2	)		-		17			32			3,527

PROFIT RECONCILIATION


				Adjustments to statutory profit

	Statutory profit			Treasury shares adjustment		Revaluation of policy liabilities			Economic hedges			Revenue hedges			Structured credit intermediation trades			Credit risk on impaired derivatives			Sale of Shanghai Rural Commercial Bank		Total adjustments to statutory profit			Cash profit
	$M			$M		$M			$M			$M			$M			$M			$M		$M			$M
March 2017 Half Year

Net interest income		7,419			-		-			-			-			-			-			-		-			7,419

Net fee and commission income		1,226			-		-			-			-			-			-			-		-			1,226

Net funds management and insurance income		299			-		46			-			-			-			-			-		46			345

Other		651			-		-			254			(148	)		(2	)		1			230		335			986

Other operating income		2,176			-		46			254			(148	)		(2	)		1			230		381			2,557

Operating income		9,595			-		46			254			(148	)		(2	)		1			230		381			9,976

Operating expenses		(4,487	)		-		-			-			-			-			-			-		-			(4,487	)

Profit before credit impairment and tax		5,108			-		46			254			(148	)		(2	)		1			230		381			5,489

Credit impairment charge		(719	)		-		-			-			-			-			(1	)		-		(1	)		(720	)

Profit before income tax		4,389			-		46			254			(148	)		(2	)		-			230		380			4,769

Income tax expense		(1,447	)		-		(13	)		(76	)		43			1			-			86		41			(1,406	)

Non-controlling interests		(8	)		-		-			-			-			-			-			-		-			(8	)

Profit after tax from continuing operations		2,934			-		33			178			(105	)		(1	)		-			316		421			3,355

Profit/(Loss) after tax from discontinued operations		(23	)		76		3			-			-			-			-			-		79			56

Profit after tax		2,911			76		36			178			(105	)		(1	)		-			316		500			3,411

PROFIT RECONCILIATION

This page has been left blank intentionally

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - TABLE OF CONTENTS


CONTENTS	Page

Condensed Consolidated Income Statement		75

Condensed Consolidated Statement of Comprehensive Income		76

Condensed Consolidated Balance Sheet		77

Condensed Consolidated Cash Flow Statement		78

Condensed Consolidated Statement of Changes in Equity		79

Notes to Condensed Consolidated Financial Statements		80

DIRECTORS’ REPORT

The Directors present their report on the Condensed Consolidated Financial Statements for the half year ended 31 March 2018.

Directors

The names of the Directors of the Company who held office during and since the end of the half year are:


Mr DM Gonski, AC		Chairman
Mr SC Elliott		Director and Chief Executive Officer
Ms IR Atlas		Director
Ms PJ Dwyer		Director
Ms SJ Halton, AO PSM		Director
Mr Lee Hsien Yang		Director
Mr GR Liebelt		Director
Rt Hon Sir JP Key, GNZM AC		Director, appointed 28 February 2018
Mr JT MacFarlane		Director

Result

The consolidated profit attributable to shareholders of the Company was $3,323 million, and consolidated profit attributable to shareholders of the Company from continuing operations was $3,923 million. Further details are contained in Group Results on pages 17 to 41 which forms part of this report, and in the Condensed Consolidated Financial Statements.

Review of operations

A review of the operations of the Group during the half year and the results of those operations are contained in the Group Results on pages 17 to 41 which forms part of this report.

Lead auditor’s independence declaration

The lead auditor’s independence declaration given under section 307C of the Corporations Act 2001 (as amended) is set out on page 108 which forms part of this report.

Rounding of amounts

The amounts contained in these Condensed Consolidated Financial Statements have been rounded to the nearest million dollars, except where otherwise indicated, as permitted by ASIC Corporations Instrument 2016/191.

Significant events since balance date

There have been no significant events from 31 March 2018 to the date of signing of this report.

Signed in accordance with a resolution of the Directors.




David M Gonski, AC		Shayne C Elliott
Chairman		Director

30 April 2018

CONDENSED CONSOLIDATED INCOME STATEMENT

Australia and New Zealand Banking Group Limited


			Half Year¹									Movement

	Note		Mar 18 $M			Sep 17 $M			Mar 17 $M			Mar 18 v. Sep 17		Mar 18 v. Mar 17

Interest income				14,849			14,694			14,426			1%		3%

Interest expense				(7,499	)		(7,238	)		(7,007	)		4%		7%

Net interest income		2		7,350			7,456			7,419			-1%		-1%

Other operating income		2		2,430			1,885			1,704			29%		43%

Net funds management and insurance income		2		307			335			299			-8%		3%

Share of associates’ profit		2, 17		88			127			173			-31%		-49%

Operating income				10,175			9,803			9,595			4%		6%

Operating expenses		3		(4,411	)		(4,480	)		(4,487	)		-2%		-2%

Profit before credit impairment and income tax				5,764			5,323			5,108			8%		13%

Credit impairment charge		9		(408	)		(479	)		(719	)		-15%		-43%

Profit before income tax				5,356			4,844			4,389			11%		22%

Income tax expense		4		(1,426	)		(1,427	)		(1,447	)		0%		-1%

Profit after tax from continuing operations				3,930			3,417			2,942			15%		34%

Profit/(Loss) after tax from discontinued operations		11		(600	)		85			(23	)		large		large

Profit for the period				3,330			3,502			2,919			-5%		14%

Comprising:

Profit attributable to shareholders of the Company				3,323			3,495			2,911			-5%		14%

Profit attributable to non-controlling interests				7			7			8			0%		-13%

Earnings per ordinary share (cents) including discontinued operations

Basic		6		114.2			119.9			100.2			-5%		14%

Diluted		6		108.6			114.7			96.7			-5%		12%

Earnings per ordinary share (cents) from continuing operations

Basic		6		134.8			117.0			100.9			15%		34%

Diluted		6		127.4			112.0			97.4			14%		31%

Dividend per ordinary share (cents)		5		80			80			80			0%		0%

^1.

Information has been restated and presented on a continuing operations basis. Discontinued operations include OnePath pensions and investments and aligned dealer groups sale to IOOF Holdings Limited and the life insurance sale to Zurich Financial Services Australia.

The notes appearing on pages 80 to 106 form an integral part of the Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Australia and New Zealand Banking Group Limited


	Half Year¹									Movement
	Mar 18 $M			Sep 17 $M			Mar 17 $M			Mar 18 v Sep 17		Mar 18 v Mar 17
Profit for the period from continuing operations		3,930			3,417			2,942			15%		34%

Other comprehensive income

Items that will not be reclassified subsequently to profit or loss		27			2			24			large		13%

Items that may be reclassified subsequently to profit or loss
Foreign currency translation reserve²		460			(59	)		(689	)		large		large
Other reserve movements		174			(69	)		(228	)		large		large

Income tax attributable to the above items		(121	)		18			(10	)		large		large
Share of associates’ other comprehensive income³		(5	)		(1	)		2			large		large
Other comprehensive income after tax from continuing operations		535			(109	)		(901	)		large		large
Profit/(Loss) after tax from discontinued operations		(600	)		85			(23	)		large		large
Other comprehensive income after tax from discontinued operations		10			(1	)		(29	)		large		large
Total comprehensive income for the period		3,875			3,392			1,989			14%		95%
Comprising total comprehensive income attributable to:
Shareholders of the Company		3,865			3,392			1,980			14%		95%
Non-controlling interests		10			-			9			n/a		11%

^1. Information has been restated and presented on a continuing operations basis. Discontinued operations include OnePath pensions and investments and aligned dealer groups sale to IOOF Holdings Limited and the life insurance sale to Zurich Financial Services Australia.

^2. Includes foreign currency translation differences attributable to non-controlling interests of $3 million gain (Sep 17 half: $7 million loss; Mar 17 half: $1 million gain).

^3. Share of associates’ other comprehensive income includes an available for sale revaluation reserve loss of $2 million (Sep 17 half: $3 million gain; Mar 17 half: $4 million loss) and a foreign currency translation reserve loss of $3 million (Sep 17 half: $4 million loss; Mar 17 half: $6 million gain) that may be reclassified subsequently to profit or loss.

The notes appearing on pages 80 to 106 form an integral part of the Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEET

Australia and New Zealand Banking Group Limited


			As at						Movement
			Mar 18		Sep 17		Mar 17		Mar 18		Mar 18
Assets	Note		$M		$M		$M		v. Sep 17		v. Mar 17

Cash and cash equivalents¹				82,071		68,048		75,185		21%		9%

Settlement balances owed to ANZ				5,037		5,504		2,930		-8%		72%

Collateral paid				10,863		8,987		11,179		21%		-3%

Trading securities				45,058		43,605		44,085		3%		2%

Derivative financial instruments				70,915		62,518		63,882		13%		11%

Available for sale assets				70,239		69,384		64,685		1%		9%

Net loans and advances		8		588,946		574,331		564,035		3%		4%

Regulatory deposits				1,229		2,015		2,154		-39%		-43%

Assets held for sale		11		45,278		7,970		14,145		large		large

Investment in associates				2,481		2,248		2,286		10%		9%

Current tax assets				15		30		242		-50%		-94%

Deferred tax assets				840		675		572		24%		47%

Goodwill and other intangible assets				5,338		6,970		7,053		-23%		-24%

Investments backing policy liabilities				-		37,964		37,602		-100%		-100%

Premises and equipment				1,892		1,965		1,979		-4%		-4%

Other assets				4,914		5,112		4,497		-4%		9%
Total assets				935,116		897,326		896,511		4%		4%

Liabilities

Settlement balances owed by ANZ				10,577		9,914		9,736		7%		9%

Collateral received				9,395		5,919		5,189		59%		81%

Deposits and other borrowings		10		616,230		595,611		581,407		3%		6%

Derivative financial instruments				70,624		62,252		65,050		13%		9%

Current tax liabilities				371		241		185		54%		large

Deferred tax liabilities				258		257		224		0%		15%

Liabilities held for sale		11		44,773		4,693		17,166		large		large

Policy liabilities				-		37,448		37,111		-100%		-100%

External unit holder liabilities				-		4,435		4,227		-100%		-100%

Payables and other liabilities				7,442		8,350		8,054		-11%		-8%

Provisions				1,110		1,158		1,179		-4%		-6%

Debt issuances		12		114,836		107,973		109,075		6%		5%
Total liabilities				875,616		838,251		838,603		4%		4%
Net assets				59,500		59,075		57,908		1%		3%

Shareholders’ equity

Ordinary share capital				27,933		29,088		29,036		-4%		-4%

Reserves				541		37		115		large		large

Retained earnings				30,900		29,834		28,640		4%		8%
Share capital and reserves attributable to shareholders of the Company		15		59,374		58,959		57,791		1%		3%

Non-controlling interests		15		126		116		117		9%		8%
Total shareholders’ equity		15		59,500		59,075		57,908		1%		3%

^1. Includes settlement balances owed to ANZ that meet the definition of cash and cash equivalents.

The notes appearing on pages 80 to 106 form an integral part of the Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Australia and New Zealand Banking Group Limited

The Condensed Consolidated Cash Flow Statement includes cash flows associated with discontinued operations. Please refer to Note 11 for cash flows associated with discontinued operations and cash and cash equivalents reclassified as held for sale.


	Half Year
	Inflows (Outflows)			Inflows (Outflows)			Inflows (Outflows)
	Mar 18			Sep 17			Mar 17
	$M			$M			$M
Profit after income tax		3,330			3,502			2,919
Adjustments to reconcile to net cash provided by/(used in) operating activities:
Provision for credit impairment charge		408			479			719
Depreciation and amortisation		485			468			504
(Profit)/loss on sale of premises and equipment		-			-			(114	)
Net derivatives/foreign exchange adjustment		903			(1,833	)		(1,576	)
(Gain)/loss on sale from divestments		(469	)		(13	)		554
Other non-cash movements		(221	)		(157	)		(85	)
Net (increase)/decrease in operating assets:
Collateral paid		(1,725	)		2,065			1,468
Trading securities		(1,148	)		(1,994	)		4,075
Net loans and advances		(10,909	)		(11,424	)		(6,414	)
Investments backing policy liabilities		(881	)		(672	)		(1,450	)
Other assets		(643	)		459			50
Net increase/(decrease) in operating liabilities:
Deposits and other borrowings		14,023			14,815			16,089
Settlement balances owed by ANZ		596			204			(831	)
Collateral received		3,300			864			(1,174	)
Life insurance contract policy liabilities		1,130			824			1,436
Other liabilities		(28	)		1,225			(1,010	)
Total adjustments		4,821			5,310			12,241
Net cash provided by/(used in) operating activities¹		8,151			8,812			15,160
Cash flows from investing activities
Available for sale assets:
Purchases		(13,483	)		(12,725	)		(14,495	)
Proceeds from sale or maturity		12,670			7,224			12,527
Proceeds from divestments		2,044			(5,213	)		-
Other assets		1,026			(400	)		252
Net cash provided by/(used in) investing activities		2,257			(11,114	)		(1,716	)
Cash flows from financing activities
Debt issuances:
Issue proceeds		14,694			8,602			15,371
Redemptions		(9,171	)		(7,533	)		(15,045	)
Subordinated debt:
Issue proceeds		(2	)		1,155			-
Redemptions		(573	)		(3,762	)		(1,069	)
Dividends paid		(2,104	)		(2,123	)		(2,087	)
Share buy-back		(1,324	)		(176	)		-
Net cash provided by/(used in) financing activities		1,520			(3,837	)		(2,830	)
Net increase in cash and cash equivalents		11,928			(6,139	)		10,614
Cash and cash equivalents at beginning of period		68,048			75,185			66,220
Effects of exchange rate changes on cash and cash equivalents		2,100			(998	)		(1,649	)
Cash and cash equivalents at end of period²		82,076			68,048			75,185

^1. Net cash provided by/(used in) operating activities includes income taxes paid of $1,515 million (Sep 17 half: $1,367 million; Mar 17 half: $1,497 million).

^2. Includes cash and cash equivalents recognised on the face of balance sheet and amounts recorded as part of assets held for sale.

The notes appearing on pages 80 to 106 form an integral part of the Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Australia and New Zealand Banking Group Limited


	Ordinary share capital $M			Reserves $M			Retained earnings $M			Share capital and reserves attributable to shareholders of the Company $M			Non- controlling interests $M			Total shareholders’ equity $M
As at 1 October 2016		28,765			1,078			27,975			57,818			109			57,927
Profit or loss from continuing operations		-			-			2,934			2,934			8			2,942
Profit or loss from discontinued operations		-			-			(23	)		(23	)		-			(23	)
Other comprehensive income for the period from continuing operations		-			(922	)		20			(902	)		1			(901	)
Other comprehensive income for the period from discontinued operations		-			(29	)		-			(29	)		-			(29	)
Total comprehensive income for the period		-			(951	)		2,931			1,980			9			1,989
Transactions with equity holders in their capacity as equity holders:¹
Dividends paid		-			-			(2,300	)		(2,300	)		(1	)		(2,301	)
Dividend income on treasury shares held within the Group’s life insurance statutory funds		-			-			14			14			-			14
Dividend reinvestment plan		199			-			-			199			-			199
Other equity movements:¹
Treasury shares Wealth Australia adjustment		71			-			-			71			-			71
Group employee share acquisition scheme		1			-			-			1			-			1
Other items		-			(12	)		20			8			-			8
As at 31 March 2017		29,036			115			28,640			57,791			117			57,908
Profit or loss from continuing operations		-			-			3,410			3,410			7			3,417
Profit or loss from discontinued operations		-			-			85			85			-			85
Other comprehensive income for the period from continuing operations		-			(97	)		(5	)		(102	)		(7	)		(109	)
Other comprehensive income for the period from discontinued operations		-			(1	)		-			(1	)		-			(1	)
Total comprehensive income for the period		-			(98	)		3,490			3,392			-			3,392
Transactions with equity holders in their capacity as equity holders:¹
Dividends paid		-			-			(2,309	)		(2,309	)		-			(2,309	)
Dividend income on treasury shares held within the Group’s life insurance statutory funds		-			-			12			12			-			12
Dividend reinvestment plan		176			-			-			176			-			176
Group share buy-back²		(176	)		-			-			(176	)		-			(176	)
Other equity movements:¹
Treasury shares Wealth Australia adjustment		(2	)		-			-			(2	)		-			(2	)
Group employee share acquisition scheme		55			-			-			55			-			55
Other items		(1	)		20			1			20			(1	)		19
As at 30 September 2017		29,088			37			29,834			58,959			116			59,075
Profit or loss from continuing operations		-			-			3,923			3,923			7			3,930
Profit or loss from discontinued operations		-			-			(600	)		(600	)		-			(600	)
Other comprehensive income for the period from continuing operations		-			511			21			532			3			535
Other comprehensive income for the period from discontinued operations		-			10			-			10			-			10
Total comprehensive income for the period		-			521			3,344			3,865			10			3,875
Transactions with equity holders in their capacity as equity holders:¹
Dividends paid		-			-			(2,308	)		(2,308	)		-			(2,308	)
Dividend income on treasury shares held within the Group’s life insurance statutory funds		-			-			12			12			-			12
Dividend reinvestment plan		192			-			-			192			-			192
Group share buy-back²		(1,324	)		-			-			(1,324	)		-			(1,324	)
Other equity movements:¹
Treasury shares Wealth Australia adjustment		20			-			-			20			-			20
Group employee share acquisition scheme		(43	)		-			-			(43	)		-			(43	)
Other items		-			(17	)		18			1			-			1
As at 31 March 2018		27,933			541			30,900			59,374			126			59,500

Current period and prior periods include discontinued operations.

Following the issue of $192 million of shares under the Dividend Reinvestment Plan for the 2017 final dividend, the Company repurchased $192 million of shares via an on-market share buy-back. (Sep 17 half: $176 million).

The notes appearing on pages 80 to 106 form an integral part of the Condensed Consolidated Financial Statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of preparation

These Condensed Consolidated Financial Statements:

_●

have been prepared in accordance with the recognition and measurement requirements of Australian Accounting Standards (AASs);

_●

should be read in conjunction with ANZ’s Annual Financial Statements for the year ended 30 September 2017 and any public announcements made by the Parent Entity and its controlled entities (the Group) for the half year ended 31 March 2018 in accordance with the continuous disclosure obligations under the Corporations Act 2001 and the ASX Listing Rules;

_●

do not include all notes of the type normally included in ANZ’s Annual Financial Report;

_●

are presented in Australian dollars unless otherwise stated; and

_●

were approved by the Board of Directors on 30 April 2018.

i)	Statement of Compliance

These Condensed Consolidated Financial Statements have been prepared in accordance with the Corporations Act 2001 and AASB 134 which ensures compliance with IAS 34 Interim Financial Reporting.

ii)

Accounting policies

These Condensed Consolidated Financial Statements have been prepared on the basis of accounting policies and using methods of computation consistent with those applied in the 2017 ANZ Annual Financial Report.

Discontinued operations are excluded from the results of the continuing operations and are presented as a single line item ‘profit/(loss) after tax from discontinued operations’ in the Condensed Consolidated Income Statement. Notes to the Condensed Consolidated Income Statement have been restated and presented on a continuing basis. Assets and liabilities of discontinued operations have been presented as held for sale on the Condensed Consolidated Balance Sheet as at 31 March 2018.

iii)

Basis of measurement

The financial information has been prepared in accordance with the historical cost basis except that the following assets and liabilities are stated at their fair value:

_●

derivative financial instruments as well as, in the case of fair value hedging, the fair value adjustment on the underlying hedged exposure;

_●

available for sale financial assets;

_●

financial instruments held for trading;

_●

other financial assets and liabilities designated at fair value through profit and loss; and

_●

assets and liabilities held for sale (except those at carrying value as per Note 11).

In accordance with AASB 1038 Life Insurance Contracts, life insurance liabilities are measured using the Margin on Services model.

In accordance with AASB 119 Employee Benefits, defined benefit obligations are measured using the Projected Unit Credit method.

iv)

Use of estimates, assumptions and judgements

The preparation of these Condensed Consolidated Financial Statements requires the use of management judgement, estimates and assumptions that affect reported amounts and the application of accounting policies. Discussion of the critical accounting estimates and judgements, which include complex or subjective decisions or assessments are provided in the 2017 ANZ Annual Financial Report. Such estimates and judgements are reviewed on an ongoing basis.

At 31 March 2018, the impairment assessment of non-lending assets identified that two of the Group’s associate investments (AMMB Holdings Berhad (AmBank) and PT Bank Pan Indonesia (PT Panin) had indicators of impairment. Although their market value (based on share price) was below their carrying value, no impairment was recognised as the carrying value was supported by their value in use (VIU).

The VIU calculation is sensitive to a number of key assumptions, including discount rate, long term growth rates, future profitability and capital levels. A change in key assumptions could have an adverse impact on the recoverable amount of the investment. The key assumptions used in the VIU calculations are outlined below:


	As at 31 Mar 18

	AmBank		PT Panin

Carrying value supported by VIU calculation ($m)		940		948

Post-tax discount rate		11.0%		13.0%

Terminal growth rate		4.9%		5.5%

Expected NPAT growth (compound annual growth rate - 5 years)		5.4%		9.5%

Core equity tier 1 ratio		11.3% to 12.5%		11.3%

At 31 March 2018, as a result of persistent illiquidity of the quoted share price of Bank of Tianjin (BoT), the Group determined the fair value based on a valuation model. Judgement is required in both the selection of the model and inputs used. Refer to Note 14 for further details.

v)	Rounding of amounts

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

vi)

Future accounting developments

AASB 9 Financial Instruments (AASB 9)

AASB 9 is effective for the Group from 1 October 2018.

AASB 9 stipulates new requirements for the impairment of financial assets, classification and measurement of financial assets and liabilities and general hedge accounting. Details of the key requirements and estimated impacts on the Group are outlined below.

Impairment

AASB 9 replaces the “incurred loss” impairment model under AASB 139 Financial Instruments: Recognition and Measurement (AASB 139) with an “expected loss” model incorporating forward looking information. This model will be applied to all financial assets measured at amortised cost, debt instruments measured at fair value through other comprehensive income, lease receivables, certain loan commitments and financial guarantees not measured at fair value through profit or loss.

Under AASB 9, the following three-stage approach is applied to measuring expected credit losses (ECL) consequent to credit migration between the stages:

_●

Stage 1: At the origination of a financial asset, and where there has not been a significant increase in credit risk since origination, a provision equivalent to 12 months ECL is recognised.

_●

Stage 2: Where there has been a significant increase in credit risk since origination, a provision equivalent to lifetime ECL is recognised.

_●

Stage 3: Similar to the current AASB 139 requirements for individual impairment provisions, lifetime ECL is recognised for loans where there is objective evidence of impairment.

Expected credit losses are estimated by using a probability of default reflecting a probability weighted range of possible future economic scenarios, and applying this to the estimated exposure of the Group at the point of default (exposure at default) after taking into account the value of any collateral held or other mitigants of loss (loss given default), while allowing for the impact of discounting for the time value of money.

Key judgements and estimates made by the Group include the following:

_●

Significant increase in credit risk

Stage 2 assets are those that have experienced a significant increase in credit risk (SICR) since initial recognition. In determining what constitutes a SICR, the Group considers both qualitative and quantitative information. For the majority of portfolios, the primary indicator of a SICR is a significant deterioration in the internal credit rating grade of a facility since origination. The Group will also use secondary indicators, such as 30 days past due arrears, as backstops to these primary indicators.

The determination of trigger points in relation to the deterioration of rating grades, combined with secondary risk indicators where used, requires judgement. In determining the Group’s policy, alternative indicators have been considered and assessed, and these will be subject to regular review to ensure they remain appropriate.

_●

Forward looking information

The measurement of expected credit losses needs to reflect an unbiased probability-weighted range of possible future outcomes. AASB 9 provides limited guidance on how to meet this requirement and consequently the Group has developed an approach considered appropriate for its credit portfolio informed by emerging market practices.

In applying forward looking information in the Group’s AASB 9 credit models, the Group intends to consider four alternative economic scenarios in estimating ECL. A base case scenario reflects management’s base case assumptions used for medium term planning purposes. Additional upside and downside scenarios are determined together with a severe downside scenario. The Group’s Credit and Market Risk Committee (CMRC) will be responsible for reviewing and approving forecast economic scenarios and the associated probability weights applied to each scenario.

Where applicable, adjustments may be made to account for situations where known or expected risks have not been adequately addressed in the modelling process. CMRC will be responsible for recommending such adjustments.

The overall level of expected credit losses and areas of significant management judgement will be reported to, and oversighted by, the Group’s Board Risk Committee.

Classification and measurement

Financial assets - general

There are three measurement classifications for financial assets under AASB 9: Amortised Cost, Fair Value through Profit or Loss (FVTPL) and Fair Value through Other Comprehensive Income (FVOCI). Financial assets are classified into these measurement classifications on the basis of two criteria:

_●

the business model within which the financial asset is managed; and

_●

the contractual cash flow characteristics of the financial asset (specifically whether the contractual cash flows represent ‘solely payments of principal and interest’).

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The resultant financial asset classifications are summarised in the following table:



	Amortised Cost	Fair Value through Other Comprehensive Income	Fair Value through Profit or Loss

Business Model	Objective is to collect contractual cash flows	Objective is to both collect contractual cash flows and to sell	All other business models

Contractual cash flow characteristics	Solely Payments of Principal and Interest	Solely Payments of Principal and Interest	All other contractual cash flow characteristics

In December 2017, the AASB issued AASB 2017-6 Amendments to Australian Accounting Standards - Prepayment Features with Negative Compensation [AASB 9] which amends the requirements of AASB 9 so that certain prepayment features meet the solely payments of principal and interest test. The Group intends to early adopt this amendment so that it applies from the date of initial application of AASB 9.

Financial assets - equity instruments

AASB 9 also permits non-traded equity investments to be designated at FVOCI on an instrument by instrument basis. If this election is made under AASB 9, gains or losses are not reclassified from other comprehensive income to profit or loss on disposal of the investment. However, gains or losses may be reclassified within equity.

Financial liabilities

The classification and measurement requirements for financial liabilities under AASB 9 are largely consistent with AASB 139 with the exception that for financial liabilities designated as measured at fair value, gains or losses relating to changes in the entity’s own credit risk are included in other comprehensive income. This part of the standard was early adopted by the Group on 1 October 2013.

General hedge accounting

AASB 9 introduces new hedge accounting requirements which more closely align accounting with risk management activities undertaken when hedging financial and non-financial risks.

AASB 9 provides the Group with an accounting policy choice to continue to apply the AASB 139 hedge accounting requirements until the International Accounting Standards Board’s ongoing project on macro hedge accounting is completed. The Group’s current expectation is that it will continue to apply the hedge accounting requirements of AASB 139.

Transition to AASB 9

Other than as noted above under classification and measurement of financial liabilities, AASB 9 has a date of initial application for the Group of 1 October 2018.

The classification and measurement, and impairment requirements, will be applied retrospectively by adjusting opening retained earnings at 1 October 2018. ANZ does not intend to restate comparatives.

Impact

Impairment

Based on the portfolio of in-scope financial assets held as at 30 September 2017, economic conditions prevailing at that time and management’s judgements and estimates, the application of AASB 9 at that date would have resulted in:

_●

an aggregate of stage 1 and 2 expected credit loss provisions of between $2.9 billion and $3.2 billion. This represents an increase over the previous collective provision in the range of $240 million and $540 million; and

_●

a reduction in the CET1 capital ratio in the range of 3 bps to 6 bps.

The actual impact at the date of initial application (1 October 2018) will differ reflecting the composition of the Group’s portfolio, prevailing economic and business conditions, and management judgements and estimates which cannot be anticipated in advance.

The Group continues to refine its methodology and assumptions over the period until the initial application of the standard on 1 October 2018.

Classification and measurement of financial assets

While some classification changes are expected as a result of the application of the business model and contractual cash flow characteristics tests, these are not expected to be significant from a Group perspective.

AASB 15 Revenue from Contracts with Customers (AASB 15)

AASB 15 was issued in December 2014 and is effective for the Group from 1 October 2018. AASB 15 contains new requirements for the recognition of revenue.

The standard requires identification of distinct performance obligations within a contract and allocation of the transaction price of the contract to those performance obligations. Revenue is recognised as each performance obligation is satisfied. Variable amounts of revenue can only be recognised if it is highly probable that a significant reversal of the variable amount will not be required in future periods. The standard also provides guidance on whether an entity is acting as a principal or an agent that may impact the presentation of revenue on a gross or net basis.

Although a significant proportion of the Group’s revenue is outside the scope of AASB 15, certain revenue streams are in the scope of the standard. The Group is in the process of assessing the impact of the application of AASB 15 and is not yet able to reasonably estimate the impact on its financial statements.

AASB 15 may be applied under different transition approaches which could impact (a) revenue recognised in future periods and (b) the opening adjustment to retained earnings at the relevant date of initial application. The Group has not determined which transition approach it will adopt.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AASB 16 Leases (AASB 16)

The final version of AASB 16 was issued in February 2016 and is effective for the Group from 1 October 2019. AASB 16 requires a lessee to recognise its:

_●

right to use the underlying leased asset, as a right-of-use asset; and

_●

obligation to make lease payments as a lease liability.

AASB 16 substantially carries forward the lessor accounting requirements in AASB 117 Leases (AASB 117).

The Group is in the process of assessing the impact of the application of AASB 16 and is not yet able to reasonably estimate the impact on its financial statements.

AASB 17 Insurance Contracts (AASB 17)

The final version of AASB 17 was issued in July 2017 and is effective for the Group from 1 October 2021. It will replace AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts. AASB 17 establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts.

The measurement, presentation and disclosure requirements under AASB 17 are significantly different from current accounting standards. Although the overall profit recognised in respect of insurance contracts will not change, it is expected that the timing of profit recognition will change.

The Group is not yet able to reasonably estimate the impact of AASB 17 on its financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2.	Income


	Half Year¹									Movement
	Mar 18 $M			Sep 17 $M			Mar 17 $M			Mar 18 v. Sep 17		Mar 18 v. Mar 17

Interest income		14,849			14,694			14,426			1%		3%

Interest expense		(7,322	)		(7,152	)		(7,007	)		2%		4%

Major bank levy		(177	)		(86	)		-			large		n/a
Net interest income		7,350			7,456			7,419			-1%		-1%
i) Fee and commission income

Lending fees²		348			363			369			-4%		-6%

Non-lending fees and commissions		1,429			1,475			1,518			-3%		-6%

Fee and commission income		1,777			1,838			1,887			-3%		-6%

Fee and commission expense		(625	)		(611	)		(661	)		2%		-5%
Net fee and commission income		1,152			1,227			1,226			-6%		-6%

ii) Other income

Net foreign exchange earnings and other financial instruments income³		770			578			867			33%		-11%

Gain on sale of 100 Queen Street, Melbourne		-			-			114			n/a		-100%

Sale of Asia Retail and Wealth businesses		99			14			(324	)		large		large

Sale of SRCB		233			(1	)		(230	)		large		large

Sale of MCC		119			-			-			n/a		n/a

Other⁴		57			67			51			-15%		12%
Other income		1,278			658			478			94%		large
Other operating income		2,430			1,885			1,704			29%		43%
iii) Net funds management and insurance income

Funds management income		142			159			162			-11%		-12%

Investment income		1			3			14			-67%		-93%

Insurance premium income		183			211			213			-13%		-14%

Commission expense		(11	)		(27	)		(20	)		-59%		-45%

Claims		(31	)		(29	)		(20	)		7%		55%

Changes in policy liabilities		23			18			(50	)		28%		large
Net funds management and insurance income		307			335			299			-8%		3%
iv) Share of associates’ profit		88			127			173			-31%		-49%
Operating income		10,175			9,803			9,595			4%		6%

^1.

Information has been restated and presented on a continuing operations basis.

^2.

Lending fees exclude fees treated as part of the effective yield calculation in interest income.

^3.

Includes fair value movements (excluding realised and accrued interest) on derivatives not designated as accounting hedges entered into to manage interest rate and foreign exchange risk on funding instruments, ineffective portions of cash flow hedges, and fair value movements in financial assets and liabilities designated at fair value through profit and loss.

^4.

Other income includes external dividend income of nil (Sep 17 half: $27.3 million; Mar 17 half: nil).

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3.	Operating expenses


	Half Year¹						Movement
	Mar 18 $M		Sep 17 $M		Mar 17 $M		Mar 18 v. Sep 17		Mar 18 v. Mar 17
i) Personnel
Salaries and related costs		2,133		2,117		2,215		1%		-4%
Superannuation costs		149		150		153		-1%		-3%
Other		120		138		151		-13%		-21%
Personnel expenses		2,402		2,405		2,519		0%		-5%

ii) Premises
Rent		232		252		248		-8%		-6%
Other		163		178		184		-8%		-11%
Premises expenses		395		430		432		-8%		-9%

iii) Technology
Depreciation and amortisation		368		348		373		6%		-1%
Licences and outsourced services		327		332		301		-2%		9%
Other		120		123		125		-2%		-4%
Technology expenses		815		803		799		1%		2%

iv) Restructuring		78		26		36		large		large

v) Other
Advertising and public relations		99		125		114		-21%		-13%
Professional fees		259		252		177		3%		46%
Freight, stationery, postage and telephone		116		132		126		-12%		-8%
Other		247		307		284		-20%		-13%
Other expenses		721		816		701		-12%		3%
Operating expenses		4,411		4,480		4,487		-2%		-2%

^1. Information has been restated and presented on a continuing operations basis.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4.	Income tax expense

Reconciliation of the prima facie income tax expense on pre-tax profit with the income tax expense recognised in the profit and loss.


	Half Year¹									Movement
	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	$M			$M			$M			v. Sep 17		v. Mar 17
Profit before income tax		5,356			4,844			4,389			11%		22%
Prima facie income tax expense at 30%		1,607			1,453			1,317			11%		22%
Tax effect of permanent differences:
Sale of MCC		(37	)		-			-			n/a		n/a
Share of associates’ profit		(26	)		(38	)		(52	)		-32%		-50%
Sale of SRCB		(84	)		16			156			large		large
Interest on Convertible Instruments		34			34			35			0%		-3%
Overseas tax rate differential		(48	)		(32	)		(5	)		50%		large
Tax provisions no longer required		(23	)		-			-			n/a		n/a
Other		3			12			(3)			-75%		large
		1,426			1,445			1,448			-1%		-2%
Income tax over provided in previous years		-			(18	)		(1	)		-100%		-100%
Income tax expense		1,426			1,427			1,447			0%		-1%
Australia		949			1,007			1,010			-6%		-6%
Overseas		477			420			437			14%		9%
Income tax expense		1,426			1,427			1,447			0%		-1%
Effective tax rate		26.6%			29.5%			33.0%

^1.

Information has been restated and presented on a continuing operations basis.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5.	Dividends


Dividend per ordinary share (cents) - including discontinued operations	Half Year									Movement
	Mar 18			Sep 17			Mar 17			Mar 18 v. Sep 17		Mar 18 v. Mar 17
Interim (fully franked)		80			-			80			n/a		0%
Final (fully franked)		-			80			-			n/a		n/a
Total		80			80			80			0%		0%

Ordinary share dividend ($M)¹
Interim dividend		-			2,349			-			n/a		n/a
Final dividend		2,350			-			2,342			n/a		0%
Bonus option plan adjustment		(42	)		(40	)		(42	)		5%		0%
Total		2,308			2,309			2,300			0%		0%
Ordinary share dividend payout ratio (%)²		69.6%			67.2%			80.7%

^1.

Dividends paid to ordinary equity holders of the Company. Excludes dividends paid by subsidiaries of the Group to non-controlling equity holders (Mar 18 half: nil; Sep 17 half: nil; Mar 17 half: $1.3 million).

^2.

Dividend payout ratio is calculated using the proposed 2018 interim dividend of $2,313 million (not shown in the above table). The proposed 2018 interim dividend of $2,313 million is based on the forecast number of ordinary shares on issue at the dividend record date. Dividend payout ratios for the September and March 2017 half year are calculated using actual dividends paid of $2,350 million and $2,349 million respectively.

Ordinary Shares

The Directors propose that an interim dividend of 80 cents be paid on each eligible fully paid ANZ ordinary share on 2 July 2018. The 2018 interim dividend will be fully franked for Australian tax purposes, and New Zealand imputation credits of NZ 9 cents per ordinary share will also be attached.

ANZ has a Dividend Reinvestment Plan (DRP) and a Bonus Option Plan (BOP) that will operate in respect of the proposed 2018 interim dividend. For the 2018 interim dividend, ANZ intends to provide shares under the DRP through an on-market purchase and BOP through the issue of new shares. The “Acquisition Price” to be used in determining the number of shares to be provided under the DRP and BOP will be calculated by reference to the arithmetic average of the daily volume weighted average sale price of all fully paid ANZ ordinary shares sold in the ordinary course of trading on ASX and Chi-X during the ten trading days commencing on 18 May 2018, and then rounded to the nearest whole cent. Shares provided under the DRP and BOP will rank equally in all respects with existing fully paid ANZ ordinary shares. Election notices from shareholders wanting to commence, cease or vary their participation in the DRP or BOP for the 2018 interim dividend must be received by ANZ’s Share Registrar by 5.00pm (Australian Eastern Standard Time) on 16 May 2018.

Subject to receiving effective contrary instructions from the shareholder, dividends payable to shareholders with a registered address in the United Kingdom (including the Channel Islands and the Isle of Man) or New Zealand will be converted to Pounds Sterling or New Zealand Dollars respectively at an exchange rate calculated on 18 May 2018.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6.	Earnings per share


	Half Year						Movement
	Mar 18		Sep 17		Mar 17		Mar 18 v. Sep 17		Mar 18 v. Mar 17
Earnings Per Share (EPS) - Basic
Earnings Per Share (cents)¹		114.2		119.9		100.2		-5%		14%
Earnings Per Share (cents) from continuing operations		134.8		117.0		100.9		15%		34%
Earnings Per Share (cents) from discontinued operations		(20.6)		2.9		(0.8)		large		large

Earnings Per Share (EPS) - Diluted
Earnings Per Share (cents)		108.6		114.7		96.7		-5%		12%
Earnings Per Share (cents) from continuing operations		127.4		112.0		97.4		14%		31%
Earnings Per Share (cents) from discontinued operations		(18.8)		2.7		(0.7)		large		large

Reconciliation of earnings used in EPS Calculations
Basic:
Profit for the period ($M)		3,330		3,502		2,919		-5%		14%
Less: profit attributable to non-controlling interests ($M)		7		7		8		0%		-13%
Earnings used in calculating basic earnings per share ($M)		3,323		3,495		2,911		-5%		14%

Less: Profit/(Loss) after tax from discontinued operations ($M)		(600)		85		(23)		large		large
Earnings used in calculating basic earnings per share from continuing operations ($M)		3,923		3,410		2,934		15%		34%

Diluted:
Earnings used in calculating basic earnings per share ($M)		3,323		3,495		2,911		-5%		14%
Add: interest on convertible subordinated debt ($M)		141		140		148		1%		-5%
Earnings used in calculating diluted earnings per share ($M)		3,464		3,635		3,059		-5%		13%
Less: Profit/(Loss) after tax from discontinued operations ($M)		(600)		85		(23)		large		large
Earnings used in calculating diluted earnings per share from continuing operations ($M)		4,064		3,550		3,082		14%		32%

Reconciliation of weighted average number of ordinary shares (WANOS) used in EPS calculations²
WANOS used in calculating basic earnings per share		2,909.6		2,914.0		2,906.6		0%		0%
Add: Weighted average dilutive potential ordinary shares (M)
Convertible subordinated debt (M)		269.7		243.0		247.1		11%		9%
Share based payments (options, rights and deferred shares) (M)		10.0		11.5		10.0		-13%		0%
Adjusted weighted average number of shares - diluted (M)		3,189.3		3,168.5		3,163.7		1%		1%

^1.

Post disposal of the discontinued operations, treasury shares held in Wealth Australia will cease to be eliminated in the Group’s consolidated financial statements and will be included in the denominator used in calculating earnings per share. If the weighted average number of treasury shares held in Wealth Australia was included in the denominator used in calculating earnings per share from continuing operations for the half year ended 31 March 2018, basic earnings per share would have been 134.1 cents (Sep 17 half: 116.4 cents; Mar 17 half: 100.4 cents) and diluted earnings per share would have been 126.8 cents (Sep 17 half: 111.5 cents; Mar 17 half: 96.9 cents).

^2.

Weighted average number of ordinary shares excludes the weighted average number of treasury shares held in ANZEST and Wealth Australia as summarised in the table below:


	Mar 18 half (Million)	Sep 17 half (Million)	Mar 17 half (Million)
ANZEST Pty Ltd	6.3	7.5	8.8
Wealth Australia	15.0	15.2	17.1
Total treasury shares	21.3	22.7	25.9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7.	Segment analysis

i) Description of segments

During the March 2018 half:

•

the Group transferred Wealth Australia businesses to be divested and associated Group reclassification and consolidation impacts to discontinued operations;

•

the Corporate business, formerly part of the Corporate and Commercial Banking business within the Australia division, was transferred to the Institutional division;

•

the residual Asia Retail and Wealth businesses in Philippines, Japan and Cambodia not sold as part of the Asia Retail and Wealth divestment have been transferred to the Institutional division; and

•

Other than the changes described above, there have been no other significant structural changes during the year. However, certain prior period comparatives have been restated to align with current period presentation. The divisions reported below are consistent with internal reporting provided to the chief operating decision maker, being the Chief Executive Officer.

ANZ measures the performance of continuing segments on a cash profit basis. To calculate cash profit, certain non-core items are removed from statutory profit. Details of these items are included in the ‘Other items’ section of this note. Transactions between business units across segments within ANZ are conducted on an arm’s-length basis and disclosed as part of the income and expenses of these segments. For information on discontinued operations please refer to Note 11. The retained Wealth Australia business includes lenders mortgage insurance, share investing, financial planning and general insurance distribution.


ii) Operating segments	Half Year¹						Movement
	Mar 18		Sep 17		Mar 17		Mar 18		Mar 18
Operating Income	$M		$M		$M		v. Sep 17		v. Mar 17
Australia		4,863		4,784		4,651		2%		5%
Institutional		2,544		2,575		3,055		-1%		-17%
New Zealand		1,616		1,595		1,577		1%		2%
Wealth Australia		186		189		204		-2%		-9%
Asia Retail & Pacific		303		428		166		-29%		83%
TSO and Group Centre		296		269		323		10%		-8%
Subtotal		9,808		9,840		9,976		0%		-2%
Other²		367		(37)		(381)		large		large
Group total		10,175		9,803		9,595		4%		6%

	Half Year¹						Movement
	Mar 18		Sep 17		Mar 17		Mar 18		Mar 18
Profit	$M		$M		$M		v. Sep 17		v. Mar 17
Australia		1,915		1,857		1,759		3%		9%
Institutional		793		859		1,065		-8%		-26%
New Zealand		726		692		677		5%		7%
Wealth Australia		44		37		58		19%		-24%
Asia Retail & Pacific		106		65		(222)		63%		large
TSO and Group Centre		(91)		(56)		18		63%		large
Subtotal		3,493		3,454		3,355		1%		4%
Other²		430		(44)		(421)		large		large
Group total		3,923		3,410		2,934		15%		34%

^1.

Information has been restated and presented on a continuing operations basis.

^2.

In evaluating the performance of the operating segments, certain items are removed from the statutory profit where they are not considered integral to the ongoing performance of the segment and are revalued separately.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7.	Segment analysis, cont’d

iii) Other items

The table below sets out the profit after tax impact of other items which are removed from statutory profit to reflect the cash profit of each segment.

Half Year¹

Movement

Mar 18

Sep 17

Mar 17

Mar 18

Item gains/(losses)

Related segment

v. Sep 17

v. Mar 17

Revaluation of policy liabilities

New Zealand

(33)

25%

large

Economic hedges

Institutional, TSO and Group Centre

124

(31)

(178)

large

Revenue hedges

TSO and Group Centre

(40)

(6)

105

large

Structured credit intermediation trades

Institutional

50%

large

Sale of SRCB

TSO and Group Centre

333

(17)

(316)

large

Total profit after tax from continuing operations

430

(44)

(421)

large

^1. Information has been restated and presented on a continuing operations basis.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8.	Net loans and advances


	As at			Movement
	Mar 18	Sep 17	Mar 17	Mar 18		Mar 18
	$M	$M	$M	v. Sep 17		v. Mar 17
Australia

Overdrafts	5,843	5,939	5,786		-2%		1%

Credit cards outstanding	8,629	8,632	8,846		0%		-2%

Commercial bills outstanding	7,467	8,471	9,232		-12%		-19%

Term loans - housing	270,631	264,105	255,721		2%		6%

Term loans - non-housing	125,901	124,307	123,464		1%		2%

Lease receivables	1,072	1,153	1,084		-7%		-1%

Hire purchase contracts	893	634	641		41%		39%

Other	8	15	415		-47%		-98%
Total Australia	420,444	413,256	405,189		2%		4%

Asia Pacific, Europe & America

Overdrafts	538	449	743		20%		-28%

Credit cards outstanding	13	869	1,351		-99%		-99%

Term loans - housing	729	2,469	6,501		-70%		-89%

Term loans - non-housing¹	53,971	50,901	52,131		6%		4%

Lease receivables	210	117	163		79%		29%

Other	17	34	320		-50%		-95%
Total Asia Pacific, Europe & America	55,478	54,839	61,209		1%		-9%

New Zealand

Overdrafts	809	957	1,158		-15%		-30%

Credit cards outstanding	1,558	1,508	1,503		3%		4%

Term loans - housing	73,751	70,735	68,592		4%		8%

Term loans - non-housing	41,306	40,697	40,247		1%		3%

Lease receivables	182	189	198		-4%		-8%

Hire purchase contracts	1,411	1,263	1,115		12%		27%
Total New Zealand	119,017	115,349	112,813		3%		5%
Sub-total	594,939	583,444	579,211		2%		3%

Unearned income	(441)	(411)	(458)		7%		-4%

Capitalised brokerage/mortgage origination fees²	1,044	1,058	1,040		-1%		0%

Customer liability for acceptances³	-	-	565		n/a		-100%
Gross loans and advances (including assets reclassified as held for sale)	595,542	584,091	580,358		2%		3%

Provision for credit impairment (refer to Note 9)	(3,595)	(3,798)	(4,054)		-5%		-11%
Net loans and advances (including assets reclassified as held for sale)	591,947	580,293	576,304		2%		3%

Net loans and advances held for sale (refer to Note 11)	(3,001)	(5,962)	(12,269)		-50%		-76%
Net loans and advances	588,946	574,331	564,035		3%		4%

^1.

Commercial bills outstanding are included in Term loans - non-housing. Restatement impact of $2,597 million for September 2017 and $2,065 million for March 2017.

^2.

Capitalised brokerage/mortgage origination fees are amortised over the expected life of the loan.

^3.

Customer liability for acceptances has been recognised as Other assets from 1 April 2017.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9.	Provision for credit impairment


	Half Year							Movement

	Mar 18 $M			Sep 17 $M			Mar 17 $M	Mar 18 v. Sep 17		Mar 18 v. Mar 17
Individual provision

Balance at start of period		1,136			1,269		1,307		-10%	-13%

New and increased provisions		728			948		1,121		-23%	-35%

Write-backs		(191	)		(280	)	(221)		-32%	-14%

Adjustment for exchange rate fluctuations and transfers		5			(2	)	(12)		large	large

Discount unwind		(7	)		(8	)	(24)		-13%	-71%

Bad debts written-off		(651	)		(791	)	(902)		-18%	-28%

Asia Retail and Wealth businesses divestment		(4	)		-		-		n/a	n/a
Total individual provision		1,016			1,136		1,269		-11%	-20%

Collective provision
Balance at start of period		2,662			2,785		2,876		-4%	-7%

Charge/(Release) to Income Statement		(22	)		(75	)	(67)		-71%	-67%

Adjustment for exchange rate fluctuations and transfers		18			(9	)	(24)		large	large

Asia Retail and Wealth businesses divestment		(79	)		(39	)	-		large	n/a
Total collective provision¹		2,579			2,662		2,785		-3%	-7%


Total provision for credit impairment		3,595			3,798		4,054		-5%	-11%

^1. The collective provision includes amounts for off-balance sheet credit exposures of $522 million as at 31 March 2018 (Sep 17: $544 million; Mar 17: $574 million). The impact on the Income Statement for the half year ended 31 March 2018 was a $26 million release (Sep 17 half: $20 million release; Mar 17 half: $46 million release).

	Half Year							Movement

Provision movement analysis	Mar 18 $M			Sep 17 $M			Mar 17 $M	Mar 18 v. Sep 17		Mar 18 v. Mar 17
New and increased individual provisions		728			948		1,121		-23%	-35%
Write-backs		(191	)		(280	)	(221)		-32%	-14%
		537			668		900		-20%	-40%
Recoveries of amounts previously written-off		(107	)		(114	)	(114)		-6%	-6%
Individual credit impairment charge		430			554		786		-22%	-45%

Collective credit impairment charge/(release)		(22	)		(75	)	(67)		-71%	-67%
Credit impairment charge		408			479		719		-15%	-43%

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10.

Deposits and other borrowings


	As at						Movement

	Mar 18 $M		Sep 17 $M		Mar 17 $M		Mar 18 v. Sep 17		Mar 18 v. Mar 17

Australia

Certificates of deposit		43,157		50,565		51,875		-15%		-17%

Term deposits		75,116		72,679		72,471		3%		4%

On demand and short term deposits		191,228		190,480		179,928		0%		6%

Deposits not bearing interest		10,548		10,221		9,268		3%		14%

Deposits from banks and securities sold under repurchase agreements		37,718		35,896		37,824		5%		0%

Commercial paper		21,658		14,599		6,786		48%		large
Total Australia		379,425		374,440		358,152		1%		6%

Asia Pacific, Europe & America

Certificates of deposit		5,234		2,894		4,629		81%		13%

Term deposits		77,335		78,863		90,449		-2%		-14%

On demand and short term deposits		19,557		21,769		23,468		-10%		-17%

Deposits not bearing interest		4,362		4,519		4,650		-3%		-6%

Deposits from banks and securities sold under repurchase agreements		30,756		23,251		24,765		32%		24%
Total Asia Pacific, Europe & America		137,244		131,296		147,961		5%		-7%

New Zealand

Certificates of deposit		1,897		1,763		924		8%		large

Term deposits		44,810		41,829		40,236		7%		11%

On demand and short term deposits		39,580		38,143		38,762		4%		2%

Deposits not bearing interest		9,334		8,173		7,832		14%		19%

Deposits from banks and securities sold under repurchase agreements		1,543		145		662		large		large

Commercial paper and other borrowings		3,297		4,380		3,888		-25%		-15%
Total New Zealand		100,461		94,433		92,304		6%		9%
Total deposits and other borrowings (including liabilities reclassified as held for sale)		617,130		600,169		598,417		3%		3%

Deposits and other borrowings held for sale (refer to Note 11)		(900)		(4,558)		(17,010)		-80%		-95%
Total deposits and other borrowings		616,230		595,611		581,407		3%		6%

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11. Discontinued operations and assets and liabilities held for sale

i) Discontinued operations

On 17 October 2017, the Group announced it had agreed to sell OnePath pensions and investments (OnePath P&I) and aligned dealer groups (ADG) business to IOOF Holdings Limited (IOOF). The aligned dealer groups business consists of aligned advice businesses that operate under their own Australian Financial Services licences. Completion is expected in the first half of the 2019 financial year, subject to certain conditions including regulatory approvals and completing the extraction of the OnePath P&I business from OnePath Life Insurance.

On 12 December 2017, ANZ announced that it had agreed to the sale of its life insurance business to Zurich Financial Services Australia (Zurich) to further simplify ANZ’s Wealth Australia division. The transaction is subject to closing conditions and regulatory approval and ANZ expects it to close in the first half of the 2019 financial year.

As a result of the sale transactions outlined above, the financial results of the businesses to be divested and associated Group reclassification and consolidation impacts are treated as discontinued operations from a reporting perspective. This impacts the current and comparative financial information for Wealth Australia and TSO and Group Centre divisions.

Income Statement


	Half Year			Movement
	Mar 18 $M	Sep 17 $M	Mar 17 $M	Mar 18 v. Sep 17		Mar 18 v. Mar 17
Net interest income	-	-	(3)		n/a		-100%

Other operating income¹	(655)	5	6		large		large

Net funds management and insurance income	426	469	398		-9%		7%

Operating income	(229)	474	401		large		large

Operating expenses	(243)	(237)	(244)		3%		0%

Profit/(Loss) before income tax	(472)	237	157		large		large

Income tax expense	(128)	(152)	(180)		-16%		-29%
Profit/(Loss) for the period attributable to shareholders of the Company	(600)	85	(23)		large		large

^1.

Includes a $632 million loss relating to the reclassification of Wealth Australia businesses to held for sale.

Cash Flow Statement


	Half Year						Movement
	Mar 18 $M		Sep 17 $M		Mar 17 $M		Mar 18 v. Sep 17		Mar 18 v. Mar 17

Net cash provided by/(used in) operating activities		924		558		799		66%		16%

Net cash provided by/(used in) investing activities		(1,133)		(492)		(1,675)		large		-32%

Net cash provided by/(used in) financing activities		179		(64)		864		large		-79%

Net cash provided by/(used in)		(30)		2		(12)		large		large

ii) Assets and liabilities held for sale

At 31 March 2018, assets and liabilities held for sale are re-measured at the lower of their existing carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, financial assets and contractual rights under insurance contracts, which are specifically exempt from this requirement and continue to be recognised at their existing carrying value.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Assets and liabilities held for sale¹


	As at 31 Mar 2018								As at 30 Sep 2017										As at 31 Mar 2017

	Discontinued operations $M		UDC and Paymark $M		Metrobank Card Corporation $M		Total $M		Asia Retail and Wealth businesses $M		UDC $M		Shanghai Rural Commercial Bank $M		Metrobank Card Corporation $M		Total $M		Asia Retail and Wealth businesses $M		UDC $M		Shanghai Rural Commercial Bank $M		Total $M
Cash and cash equivalents		5		-		-		5		-		-		-		-		-		-		-		-		-
Derivative financial instruments		1		-		-		1		-		-		-		-		-		-		-		-		-
Available for sale assets		1,040		-		-		1,040		-		-		-		-		-		-		-		-		-
Net loans and advances		118		2,883		-		3,001		3,283		2,679		-		-		5,962		9,776		2,493		-		12,269
Investment in associates		1		7		60		68		-		-		1,748		120		1,868		-		-		1,735		1,735
Deferred tax assets		72		-		-		72		-		-		-		-		-		-		-		-		-
Goodwill and other intangible assets		946		124		-		1,070		-		122		-		-		122		-		118		-		118
Investments backing policy liabilities		38,803		-		-		38,803		-		-		-		-		-		-		-		-		-
Premises and equipment		5		-		-		5		-		-		-		-		-		-		-		-		-
Other assets		1,198		15		-		1,213		-		18		-		-		18		-		23		-		23
Total assets held for sale		42,189		3,029		60		45,278		3,283		2,819		1,748		120		7,970		9,776		2,634		1,735		14,145

Deposits and other borrowings		-		900		-		900		3,602		956		-		-		4,558		15,818		1,192		-		17,010
Current tax liabilities		(158)		36		-		(122)		-		22		-		-		22		-		31		-		31
Deferred tax liabilities		387		(9)		-		378		-		(8)		-		-		(8)		-		-		-		-
Policy liabilities		38,381		-		-		38,381		-		-		-		-		-		-		-		-		-
External unit holder liabilities		4,618		-		-		4,618		-		-		-		-		-		-		-		-		-
Payables and other liabilities		560		28		-		588		47		30		-		-		77		44		30		-		74
Provisions		29		1		-		30		43		1		-		-		44		50		1		-		51
Total liabilities held for sale		43,817		956		-		44,773		3,692		1,001		-		-		4,693		15,912		1,254		-		17,166

^1.

Amounts in the table above are shown net of intercompany balances.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11. Discontinued operations and assets and liabilities held for sale, cont’d

Other strategic divestments presented as assets and liabilities held for sale in the prior periods:

•

Asia Retail and Wealth Businesses

The Group announced that it had agreed to sell Retail and Wealth businesses in Singapore, Hong Kong, China, Taiwan and Indonesia to Singapore’s DBS Bank on 31 October 2016, and its Retail business in Vietnam to Shinhan Bank Vietnam on 21 April 2017. The Group successfully completed the transition of businesses in China, Singapore and Hong Kong in the September 2017 half, and Vietnam, Taiwan, and Indonesia in the March 2018 half. These businesses were part of the Asia Retail & Pacific division.

•

UDC Finance (UDC) and Paymark Limited (Paymark)

On 20 March 2018, the Group announced that it was continuing to examine a broad range of options for UDC’s future including an Initial Public Offering (IPO) and trade sale. As a result of the ongoing process, the assets and liabilities of UDC continue to meet the criteria to be reclassified to held for sale as at 31 March 2018.

On 17 January 2018, the Group entered into an agreement to sell its 25% shareholding in Paymark to Ingenico Group. The carrying amount of the Group’s investment in Paymark at 31 March 2018 is $7 million and the asset is reclassified to held for sale. The transaction is subject to regulatory consents. These businesses are part of the New Zealand division.

•

Shanghai Rural Commercial Bank

•

Metrobank Card Corporation

On 18 October 2017, the Group announced it had entered into an agreement with its joint venture partner Metropolitan Bank & Trust Company (Metrobank) in relation to its 40% stake in the Philippines based Metrobank Card Corporation (MCC). The Group agreed to sell 20% of its stake, and entered into a put option to sell the remaining 20% stake, exercisable in the fourth quarter of 2018 on the same terms for the same consideration. The first 20% stake sale was completed in the March 2018 half. This asset is part of the TSO and Group Centre division.

Income Statement impact relating to assets and liabilities held for sale

During the March 2018 half year, the Group recognised the following impacts in relation to assets and liabilities held for sale:

•

$632 million loss relating to the reclassification of the Wealth Australia business to held for sale, comprising a $277 million impairment, and $355 million of costs (net of tax) associated with the sale. This loss is recognised in discontinued operations.

•

$85 million gain relating to the sale of the remaining Asia Retail and Wealth businesses, net of costs associated with the sale including $14 million of tax expenses. This gain is recognised in continuing operations.

•

$18 million gain relating to UDC comprising a cost recovery in respect of the terminated transaction process. This gain is recognised in continuing operations.

•

$247 million net gain relating to SRCB comprising a $289 million gain on release of reserves, $56 million of foreign exchange losses and other costs, and a $14 million adjustment for tax. This gain is recognised in continuing operations.

•

$121 million net gain relating to MCC comprising a $121 million gain on sale of the first 20% stake, $1 million of foreign exchange gains, $3 million loss on release of reserves, and a $2 million adjustment for tax. This gain is recognised in continuing operations.

During the September 2017 half year, the Group recognised the following impacts in continuing operations in relation to assets and liabilities held for sale:

•

$14 million gain recognised on the partial completion of the Asia Retail and Wealth sale comprising sale premium and recoveries, net of related sale costs.

•

$17 million loss relating to the Group’s investment in SRCB comprising $1 million of foreign exchange losses, and $16 million of tax expenses.

During the March 2017 half year, the Group recognised the following impacts in continuing operations in relation to the assets and liabilities:

•

$324 million loss relating to the reclassification of the Group’s Asia Retail and Wealth businesses to held for sale comprising $225 million of software, goodwill and other assets impairment charges, and $99 million of costs associated with the sale. The Group also recognised a $40 million tax benefit as a result of the loss on reclassification to held for sale.

•

$316 million loss relating to the Group’s investment in SRCB comprising of a $219 million impairment to the investment, $11 million of foreign exchange losses, and $86 million of tax expenses.

These impacts are included in ‘Other income’ and ‘Income tax expense’ (refer Note 2 and 4).

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12.

Debt issuances


	Half Year				Movement

		Mar 18	Sep 17	Mar 17		Mar 18	Mar 18
		$M	$M	$M		v. Sep 17	v. Mar 17

Total unsubordinated debt		97,576	90,263	88,778		8%	10%

Additional Tier 1 Capital¹

Convertible Preference Shares (ANZ CPS)

ANZ CPS3²		-	573	1,340		-100%	-100%

ANZ Capital Notes (ANZ CN)

ANZ CN1³		1,117	1,116	1,116		0%	0%

ANZ CN2⁴		1,604	1,604	1,603		0%	0%

ANZ CN3⁵		961	963	962		0%	0%

ANZ CN4⁶		1,609	1,608	1,607		0%	0%

ANZ CN5⁷		924	925	-		0%	n/a

ANZ Capital Securities⁸		1,188	1,206	1,218		-1%	-2%

ANZ NZ Capital Notes⁹		467	457	454		2%	3%

Tier 2 Capital¹⁰

Perpetual subordinated notes		1,174	1,150	1,156		2%	2%

Term subordinated notes		8,216	8,108	10,841		1%	-24%

Total subordinated debt		17,260	17,710	20,297		-3%	-15%

Total debt issuances		114,836	107,973	109,075		6%	5%

¹^.

ANZ Capital Notes, ANZ Capital Securities and the ANZ NZ Capital Notes are Basel 3 compliant instruments.

^2.

On 28 September 2011, ANZ issued $1,340 million of convertible preference shares (CPS3). On 28 September 2017, ANZ bought back and cancelled $767 million of CPS3 and on 1 March 2018 ANZ repaid all remaining CPS3 for their issue price of $100 each.

^3.

On 7 August 2013, ANZ issued capital notes (CN1) which will convert into ANZ ordinary shares on 1 September 2023 at a 1% discount (subject to certain conditions being satisfied). If ANZ’s Common Equity Tier 1 capital ratio is equal to or less than 5.125%, or ANZ receives a notice of non-viability from APRA, then the notes will immediately convert into ANZ ordinary shares at a 1% discount subject to a maximum conversion number. Subject to certain conditions, on 1 September 2021 the notes are redeemable or convertible to ANZ ordinary shares (on similar terms to mandatory conversion) by ANZ.

^4.

On 31 March 2014, ANZ issued capital notes (CN2) which will convert into ANZ ordinary shares on 24 March 2024 at a 1% discount (subject to certain conditions being satisfied). If ANZ’s Common Equity Tier 1 capital ratio is equal to or less than 5.125%, or ANZ receives a notice of non-viability from APRA, then the notes will immediately convert into ANZ ordinary shares at a 1% discount subject to a maximum conversion number. Subject to certain conditions, on 24 March 2022 the notes are redeemable or convertible into ANZ ordinary shares (on similar terms to the mandatory conversion) by ANZ.

^5.

On 5 March 2015, ANZ acting through its New Zealand Branch issued capital notes (CN3) which will convert into ANZ ordinary shares on 24 March 2025 at a 1% discount (subject to certain conditions being satisfied). If ANZ’s Common Equity Tier 1 capital ratio is equal to or less than 5.125%, or ANZ receives a notice of non-viability from APRA, then the notes will immediately convert into ANZ ordinary shares at a 1% discount subject to a maximum conversion number. Subject to certain conditions, on 24 March 2023 the notes are redeemable or convertible into ANZ ordinary shares (on similar terms to the mandatory conversion) by ANZ.

^6.

On 27 September 2016, ANZ issued capital notes (CN4) which will convert into ANZ ordinary shares on 20 March 2026 at a 1% discount (subject to certain conditions being satisfied). If ANZ’s Common Equity Tier 1 capital ratio is equal to or less than 5.125%, or ANZ receives a notice of non-viability from APRA, then the notes will immediately convert into ANZ ordinary shares at a 1% discount subject to a maximum conversion number. Subject to certain conditions, on 20 March 2024 the notes are redeemable or convertible into ANZ ordinary shares (on similar terms to the mandatory conversion) by ANZ.

^7.

On 28 September 2017, ANZ issued capital notes (CN5) which will convert into ANZ ordinary shares on 20 March 2027 at a 1% discount (subject to certain conditions being satisfied). If ANZ’s Common Equity Tier 1 capital ratio is equal to or less than 5.125% or ANZ receives a notice of non-viability from APRA, then the notes will immediately convert into ANZ ordinary shares at a 1% discount subject to a maximum conversion number. Subject to certain conditions, on 20 March 2025 the notes are redeemable or convertible into ANZ ordinary shares (on similar terms to the mandatory conversion) by ANZ.

^8.

On 15 June 2016, ANZ acting through its London branch issued fully-paid perpetual subordinated contingent convertible securities (ANZ Capital Securities). If ANZ’s Common Equity Tier 1 capital ratio is equal to or less than 5.125%, or ANZ receives a notice of non-viability from APRA, then the securities will immediately convert into ANZ ordinary shares at a 1% discount subject to a maximum conversion number. Subject to certain conditions, on the First Reset Date (15 June 2026) and each 5 year anniversary, ANZ has the right to redeem all of the securities at its discretion.

^9.

On 31 March 2015, ANZ Bank New Zealand Limited (ANZ Bank NZ) issued convertible notes (ANZ NZ Capital Notes) which will convert into ANZ ordinary shares on 25 May 2022 at a 1% discount (subject to certain conditions being satisfied). If ANZ or ANZ Bank NZ’s Common Equity Tier 1 capital ratio is equal to or less than 5.125%, ANZ receives a notice of non-viability from APRA, ANZ Bank NZ receives a direction from RBNZ or a statutory manager is appointed to ANZ Bank NZ and makes a determination, then the notes will immediately convert into ANZ ordinary shares at a 1% discount subject to a maximum conversion number. Subject to certain conditions, on 25 May 2020 the notes are redeemable or convertible into ANZ ordinary shares (on similar terms to the mandatory conversion) by ANZ Bank NZ.

^10.

The convertible dated subordinated notes are Basel 3 compliant instruments. APRA has granted transitional capital treatment for all other outstanding subordinated notes until their first call date or, in the case of the perpetual subordinated notes the earlier of the end of the transitional period (December 2021) and the first call date when a step-up event occurs. If ANZ receives a notice of non-viability from APRA, then the convertible subordinated notes will immediately convert into ANZ ordinary shares at a 1% discount subject to a maximum conversion number.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

13.

Credit risk

Maximum exposure to credit risk

For financial assets recognised on the balance sheet, the maximum exposure to credit risk is the carrying amount. In certain circumstances there may be differences between the carrying amounts reported on the balance sheet and the amounts reported in the tables below. Principally, these differences arise in respect of financial assets that are subject to risks other than credit risk, such as equity instruments which are primarily subject to market risk, or bank notes and coins.

For undrawn facilities, this maximum exposure to credit risk is the full amount of the committed facilities. For contingent exposures, the maximum exposure to credit risk is the maximum amount the group would have to pay if the instrument is called upon.

The table below shows the maximum exposure to credit risk of on-balance sheet, and off-balance sheet, positions before taking account of any collateral held or other credit enhancements:


	Reported As at				Excluded/Other^1,2 As at				Maximum Exposure to Credit Risk As at
		Mar 18	Sep 17	Mar 17		Mar 18	Sep 17	Mar 17		Mar 18	Sep 17	Mar 17
On-balance sheet positions³		$M	$M	$M		$M	$M	$M		$M	$M	$M

Net loans and advances²		591,947	580,293	576,304		(548)	(562)	(590)		592,495	580,855	576,894

Other financial assets		329,365	307,789	304,820		50,524	50,472	47,684		278,841	251,317	257,136


Total other financial assets		921,312	888,082	881,124		49,976	49,910	47,094		871,336	832,172	834,030


Off-balance sheet positions

Undrawn and contingent facilities^2,4		233,527	232,162	236,054		548	562	590		232,979	231,600	235,464


Total		1,154,839	1,120,244	1,117,178		50,524	50,472	47,684		1,104,315	1,063,772	1,069,494

^1.

Excluded comprises bank notes and coins and cash at bank within liquid assets, equity securities within available-for-sale financial assets and investments relating to the insurance business where the credit risk is passed onto the policy holder. In September 2017, equity securities and precious metal exposures recognised as trading securities and trade dated assets recognised as settlement balances owed to ANZ have been excluded as they do not carry credit risk. Comparatives have been restated accordingly.

^2.

Other relates to the transfer of individual and collective provisions related to off-balance sheet facilities held in net loans and advances. The provisions are transferred for the purposes of showing the maximum exposure to credit risk by relevant facility type in this and the following tables.

^3.

On-balance sheet positions include assets and liabilities reclassified as held for sale.

^4.

Undrawn facilities and contingent facilities includes guarantees, letters of credit and performance related contingencies.

Credit Quality

The table below provides an analysis of the credit quality of the maximum exposure to credit risk split by:

•

Neither past due nor impaired assets by credit quality

The credit quality of financial assets is managed by the Group using internal customer credit ratings (CCRs) based on their current probability of default. The Group’s masterscales are mapped to external rating agency scales, to enable wider comparisons.

•

Past due but not impaired assets by ageing

Ageing analysis of past due loans is used by the Group to measure and manage emerging credit risks. Financial assets that are past due but not impaired include those which are assessed, approved and managed on a portfolio basis within a centralised environment (for example credit cards and personal loans) that can be held on a productive basis until they are 180 days past due, as well as those which are managed on an individual basis. A large portion of retail credit exposures, such as residential mortgages, are generally well secured. That is, the value of supporting collateral is sufficient to cover amounts outstanding.

•

Restructured and impaired assets presented as gross amounts and net of individual provisions.

ANZ regularly reviews its portfolio and monitors adherence to contractual terms. When doubt arises as to the collectability of a credit facility, the financial instrument (or ‘the facility’) is classified and reported as individually impaired and an individual provision is allocated against it.

As described in the summary of significant accounting policies in the 2017 Annual Financial Report, impairment provisions are created for financial instruments that are reported on the balance sheet at amortised cost. For instruments reported at fair value, impairment provisions are treated as part of overall change in fair value and directly reduce the reported carrying amounts.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

13. Credit risk, cont’d


													Off-balance sheet credit related
	Loans and advances						Other financial assets						commitments
	As at						As at						As at
	Mar 18		Sep 17		Mar 17		Mar 18		Sep 17		Mar 17		Mar 18		Sep 17		Mar 17
	$M		$M		$M		$M		$M		$M		$M		$M		$M
Neither past due nor impaired

Strong credit profile¹		427,729		410,343		435,778		274,815		246,774		252,646		194,393		190,083		193,658

Satisfactory risk²		131,229		137,432		107,026		3,859		4,429		4,322		36,756		39,578		39,217

Sub-standard but not past due or impaired³		16,767		16,879		17,101		167		114		158		1,761		1,858		2,520

Subtotal		575,725		564,654		559,905		278,841		251,317		257,126		232,910		231,519		235,395
Past due but not impaired

1-29 days		8,974		8,790		9,123		-		-		-		-		-		-

30-59 days		2,576		2,143		2,355		-		-		-		-		-		-

60-89 days		1,233		1,148		1,148		-		-		-		-		-		-

>90 days		3,038		2,953		2,771		-		-		-		-		-		-

Subtotal		15,821		15,034		15,397		-		-		-		-		-		-
Restructured and impaired

Impaired loans		1,863		2,118		2,478		-		-		-		-		-		-

Restructured items⁴		76		167		367		-		-		-		-		-		-

Non-performing commitment and contingencies		-		-		-		-		-		-		95		99		85

Other		-		-		-		-		-		10		-		-		-

Gross impaired financial assets		1,939		2,285		2,845		-		-		10		95		99		85

Individual provisions		(990)		(1,118)		(1,253)		-		-		-		(26)		(18)		(16)

Subtotal		949		1,167		1,592		-		-		10		69		81		69

Total		592,495		580,855		576,894		278,841		251,317		257,136		232,979		231,600		235,464

^1.

Customers that have demonstrated superior stability in their operating and financial performance over the long-term, and whose debt servicing capacity is not significantly vulnerable to foreseeable events. This rating broadly corresponds to ratings “Aaa” to “Baa3” and “AAA” to “BBB-” of Moody’s and Standard & Poor’s respectively. In 2018, collective provisions against Satisfactory and Sub-standard risk, which previously had been allocated against Strong credit profile are now reallocated to Satisfactory and Sub-standard risk. Comparatives have been restated accordingly.

^2.

Customers that have consistently demonstrated sound operational and financial stability over the medium to long term, even though some may be susceptible to cyclical trends or variability in earnings. This rating broadly corresponds to ratings “Ba2” to “B1” and “BB” to “B+” of Moody’s and Standard & Poor’s respectively. In 2018, collective provisions against Satisfactory and Sub-standard risk, which previously had been allocated against Strong credit profile are now reallocated to Satisfactory and Sub-standard risk. Comparatives have been restated accordingly (Sep 17: Net loans and advances $585 million, Credit related commitments $187 million; Mar 17: Net loans and advances $550 million, Credit related commitments $186 million).

^3.

Customers that have demonstrated some operational and financial instability, with variability and uncertainty in profitability and liquidity projected to continue over the short and possibly medium term. This rating broadly corresponds to ratings “B2” to “Caa” and “B” to “CCC” of Moody’s and Standard & Poor’s respectively. In 2018, collective provisions against Satisfactory and Sub-standard risk, which previously had been allocated against Strong credit profile are now reallocated to Satisfactory and Sub-standard risk. Comparatives have been restated accordingly (Sep 17: Net loans and advances $639 million, Credit related commitments $85 million; Mar 17: Net loans and advances $762 million, Credit related commitments $114 million).

^4.

Restructured items are facilities in which the original contractual terms have been modified for reasons related to the financial difficulties of the customer. Restructuring may consist of reduction of interest, principal or other payments legally due, or an extension in maturity materially beyond those typically offered for new facilities with similar risk.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

14. Fair value measurement

The Group carries a significant number of financial instruments on the balance sheet at fair value. In addition the Group also holds assets classified as held for sale which are measured at fair value less costs to sell. The fair value is the best estimate of the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

i) Assets

and liabilities measured at fair value on the balance sheet

a)	Valuation

The Group has an established control framework, including appropriate segregation of duties, to ensure that fair values are accurately determined, reported and controlled. The framework includes the following features:

•

products are approved for transacting with external customers and counterparties only where fair values can be appropriately determined;

•

when using quoted prices to value an instrument, these are independently verified from external pricing providers;

•

fair value methodologies and inputs are evaluated and approved by a function independent of the party that undertakes the transaction;

•

movements in fair values are independently monitored and explained by reference to underlying factors relevant to the fair value; and

•

valuation adjustments (such as funding valuation adjustments, credit valuation adjustments and bid-offer adjustments) are independently validated and monitored.

If the Group holds offsetting risk positions, then the Group uses the portfolio exception in AASB 13 Fair Value Measurement (AASB 13) to measure the fair value of such groups of financial assets and financial liabilities. We measure the portfolio based on the price that would be received to sell a net long position (an asset) for a particular risk exposure, or to transfer a net short position (a liability) for a particular risk exposure.

b)	Fair value approach and valuation techniques

We use valuation techniques to estimate the fair value of assets and liabilities for recognition, measurement and disclosure purposes where no quoted price in an active market for that asset or liability exists. This includes the following:


Asset or Liability		Fair Value Approach
Financial instruments classified as:		Valuation techniques are used that incorporate observable market inputs for securities with similar credit risk, maturity and yield characteristics. Equity instruments that are not traded in active markets may be measured using comparable company valuation multiples.
- trading securities
- securities short sold
- derivative financial assets and liabilities
- available-for-sale assets
- other assets
Net loans and advances, deposits and other borrowings and debt issuances		Discounted cash flow techniques are used whereby contractual future cash flows of the instrument are discounted using discount rates incorporating wholesale market rates, or market borrowing rates for debt with similar maturities or with a yield curve appropriate for the remaining term to maturity.
Assets and liabilities held for sale		Valuation based on the agreed sale price before transaction costs.

Details of significant unobservable inputs used in measuring fair values are described in (ii)(a) below.

c)	Fair value hierarchy categorisation

The Group categorises financial assets and liabilities carried at fair value into a fair value hierarchy as required by AASB 13 based on the observability of inputs used to measure the fair value:

•

Level 1 - valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities;

•

Level 2 - valuations using inputs other than quoted prices included within Level 1 that are observable for a similar asset or liability, either directly or indirectly; and

•

Level 3 - valuations where significant unobservable inputs are used to measure the fair value of the asset or liability.

d)	Fair value hierarchy disclosure

The following table presents assets and liabilities carried at fair value in accordance with the fair value hierarchy:

100

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

14.

Fair value measurement, cont’d


	Fair value measurements
As at March 2018	Level 1 $M		Level 2 $M		Level 3 $M		Total $M

Assets

Trading securities¹		38,517		6,541		-		45,058

Derivative financial instruments		259		70,593		63		70,915

Available for sale assets^{1, 2}		63,283		5,921		1,035		70,239

Net loans and advances (measured at fair value)		-		145		-		145

Assets held for sale³		-		42,544		-		42,544

Other assets		4		139		-		143

Total		102,063		125,883		1,098		229,044
Liabilities

Deposits and other borrowings (designated at fair value)		-		2,470		-		2,470

Derivative financial instruments		1,008		69,570		46		70,624

Liabilities held for sale³		-		43,817		-		43,817

Payables and other liabilities (measured at fair value)⁵		1,884		161		-		2,045

Debt issuances (designated at fair value)		-		1,785		-		1,785

Total		2,892		117,803		46		120,741
As at September 2017

Assets

Trading securities¹		40,435		3,170		-		43,605

Derivative financial instruments		433		61,996		89		62,518

Available for sale assets¹		61,694		7,479		211		69,384

Net loans and advances (measured at fair value)		-		156		-		156

Investments backing policy liabilities¹		27,308		10,306		350		37,964

Assets held for sale³		-		1,748		-		1,748

Total		129,870		84,855		650		215,375
Liabilities

Deposits and other borrowings (designated at fair value)		-		3,497		-		3,497

Derivative financial instruments		275		61,900		77		62,252

Policy liabilities⁴		-		37,106		-		37,106

External unit holder liabilities (life insurance funds)		-		4,435		-		4,435

Payables and other liabilities (measured at fair value)⁵		1,726		166		-		1,892

Debt issuances (designated at fair value)		-		1,752		-		1,752

Total		2,001		108,856		77		110,934
As at March 2017

Assets

Trading securities¹		40,714		3,371		-		44,085

Derivative financial instruments		378		63,407		97		63,882

Available for sale assets¹		58,353		6,111		221		64,685

Net loans and advances (measured at fair value)		-		314		18		332

Investments backing policy liabilities¹		26,640		10,603		359		37,602

Assets held for sale³		-		1,735		-		1,735

Total		126,085		85,541		695		212,321
Liabilities

Deposits and other borrowings (designated at fair value)		-		2,771		-		2,771

Derivative financial instruments		600		64,352		98		65,050

Policy liabilities⁴		-		36,847		-		36,847

External unit holder liabilities (life insurance funds)		-		4,227		-		4,227

Payables and other liabilities⁵		2,001		126		-		2,127

Debt issuances (designated at fair value)		-		1,786		-		1,786

Total		2,601		110,109		98		112,808

^1.

During the March 2018 half, $753 million was transferred from Level 2 to Level 1 following increased trading activity to support the quoted prices (Sep 17: $44 million; Mar 17: nil). There were no material transfers from Level 1 to Level 2 (Sep 17: $92 million; Mar 17: $621 million). We deem transfers into and out of Level 1 and Level 2 to have occurred as at the beginning of the reporting period in which the transfer occurred.

^2.

During the March 2018 half, $676 million was transferred from Level 1 to Level 3 following a change in the valuation approach used to measure the investment in Bank of Tianjin.

^3.

The amounts reclassified as assets and liabilities held for sale relate to assets and liabilities measured at fair value less costs to sell in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations. The amounts presented reflect the fair value gross of transaction costs but net of intercompany eliminations.

^4.

Policy liabilities relate only to life investment contract liabilities, as we designated these at fair value through profit or loss.

^5.

Payables and other liabilities relates to securities short sold, classified as held for trading and measured at fair value through profit or loss.

101

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

14. Fair value measurement, cont’d

ii) Details of fair value measurements that incorporate unobservable market data

a) Level 3 fair value measurements

The net balance of Level 3 financial instruments is an asset of $1,052 million (Sep 17: $573 million; Mar 17: $597 million). The financial instruments which incorporate significant unobservable inputs primarily include:

•

structured credit products for which credit spreads and default probabilities relating to the reference assets and derivative counterparties cannot be observed;

•

reverse mortgage swaps for which the mortality rate cannot be observed; and

•

equities for which there is no active market or traded prices cannot be observed.

Movements in the Level 3 balance are due to:

•

investments backing policy liabilities being classified to Level 2 as part of assets held for sale following the agreed sale of the Wealth businesses, and;

•

our available-for-sale investment in Bank of Tianjin being transferred to Level 3 following a change in the valuation approach used to measure the asset.

There were no other material transfers in or out of Level 3 during the period.

Bank of Tianjin (BoT)

A revised valuation technique was applied to the investment in BoT as the Group considers that, in light of persistent illiquidity, the share price of BoT is not representative of fair value. The investment is valued based on comparative price-to-book (P/B) multiples (a P/B multiple is the ratio of the market value of equity to the book value of equity). The extent of judgment applied in determining the appropriate multiple and comparator group from which the multiple is derived are non-observable inputs which have resulted in the Level 3 classification.

The application of this valuation approach resulted in a $306 million increase in the carrying value of the investment during the period to $982 million (Sep 17: $676 million). The increase has been recognised as an unrealised gain in the available for sale revaluation reserve within shareholders’ equity and accordingly, there is no impact from this revaluation on the Income Statement for the March 2018 half.

b) Sensitivity to Level 3 data inputs

When we make assumptions due to significant inputs not being directly observable in the market place (Level 3 inputs), then changing these assumptions changes the Group’s estimate of the instrument’s fair value. Favourable and unfavourable changes are determined by changing the primary unobservable parameter used to derive the valuation.

Bank of Tianjin (BoT)

The valuation of the BoT investment is sensitive to the selected unobservable input, being the P/B multiple. If the P/B multiple was increased or decreased by 10% it would result in a $98 million increase or decrease to the fair value of the investment, which would be recognised in shareholders’ equity.

Other

The remaining Level 3 balance is immaterial and changes in the Level 3 inputs have a minimal impact on net profit and net assets of the Group.

c) Deferred fair value gains and losses

The Group does not immediately recognise the difference between the transaction price and the amount we determine based on the valuation technique (day one gain or loss) in profit or loss. After initial recognition, we recognise the deferred amount in profit or loss over the life of the transaction on a straight line basis or until all inputs become observable.

The day one gains and losses deferred are not material.

iii) Financial assets and liabilities not measured at fair value

The classes of financial assets and liabilities listed in the table below are generally carried at amortised cost on the Group’s balance sheet. Whilst this is the value at which we expect the assets will be realised and the liabilities settled, the Group provides an estimate of the fair value of the financial assets and liabilities at balance date in the table below.

102

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

14.

Fair value measurement, cont’d


	Carrying amount in the balance sheet						Fair Value
	At amortised		At fair
	cost		value		Total
As at March 2018	$M		$M		$M		$M
Financial assets

Net loans and advances¹		591,684		263		591,947		592,352

Financial liabilities

Deposits and other borrowings¹		614,660		2,470		617,130		617,254

Debt issuances		113,051		1,785		114,836		115,811
Total		727,711		4,255		731,966		733,065

As at September 2017
Financial assets

Net loans and advances¹		580,137		156		580,293		580,479

Financial liabilities

Deposits and other borrowings¹		596,672		3,497		600,169		600,359

Debt issuances		106,221		1,752		107,973		109,251
Total		702,893		5,249		708,142		709,610

As at March 2017
Financial assets

Net loans and advances¹		575,972		332		576,304		576,650

Financial liabilities

Deposits and other borrowings¹		595,646		2,771		598,417		598,654

Debt issuances		107,289		1,786		109,075		110,178
Total		702,935		4,557		707,492		708,832

^1.

Net loans and advances and deposits and other borrowings include amounts reclassified to assets and liabilities held for sale (refer to Note 11).

103

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

15.

Shareholders’ equity

Issued and quoted securities

Half Year

Mar 18

Sep 17

Mar 17

Ordinary share capital

No.

Closing balance

2,898,758,978

2,937,415,327

2,936,037,009

Issued/(Repurchased) during the period¹

(38,656,349

)

1,378,318

8,560,349

^1.

The Company issued 8.1 million shares under the Dividend Reinvestment Plan and Bonus Option Plan for the 2017 final dividend (7.5 million shares for the 2017 interim dividend; 8.6 million shares for the 2016 final dividend). Following the provision of the 8.1 million shares, the Company repurchased 6.6 million of shares via an on-market share buy-back resulting in 6.6 million shares being cancelled. On 18 December 2017, the Company announced its intention to buy-back up to $1.5 billion of shares on-market as part of the Group’s broader capital management plan. To date, the Company has bought back $1,132 million of shares resulting in 40.1 million shares being cancelled during the half.


	Half Year									Movement
	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	$M			$M			$M			v. Sep 17		v. Mar 17
Shareholders’ equity

Ordinary share capital		27,933			29,088			29,036			-4%		-4%
Reserves

Foreign currency translation reserve		257			(196	)		(140	)		large		large

Share option reserve		70			87			67			-20%		4%

Available for sale revaluation reserve		119			38			31			large		large

Cash flow hedge reserve		117			131			180			-11%		-35%

Transactions with non-controlling interests reserve		(22	)		(23	)		(23	)		-4%		-4%

Total reserves		541			37			115			large		large

Retained earnings		30,900			29,834			28,640			4%		8%

Share capital and reserves attributable to shareholders of the Company		59,374			58,959			57,791			1%		3%

Non-controlling interests		126			116			117			9%		8%

Total shareholders’ equity		59,500			59,075			57,908			1%		3%

104

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

16.

Changes in composition of the Group

There were no acquisitions or disposals of material controlled entities for the half year ended 31 March 2018.

17.

Investments in Associates

Half Year

Movement

Mar 18

Sep 17

Mar 17

v. Sep 17

v. Mar 17

Share of associates’ profit

127

173

-31%

-49%


Contributions to profit¹	Contribution to						Ownership interest
	Group profit after tax						held by Group
Associates	Half Year						As at
	Mar 18		Sep 17		Mar 17		Mar 18		Sep 17		Mar 17
	$M		$M		$M		%		%		%

P.T. Bank Pan Indonesia		45		51		50		395		39		39

AMMB Holdings Berhad		42		48		48		24		24		24

Shanghai Rural Commercial Bank²		-		-		58		-		20		20

Other associates³		1		28		17		n/a		n/a		n/a

Share of associates’ profit		88		127		173

^1.

Contributions to profit reflect the IFRS equivalent results adjusted to align with the Group’s financial year end which may differ from the published results of these entities. Excludes gains or losses on disposal or valuation adjustments.

^2.

On 3 January 2017, the Group announced that it had agreed to sell its 20% stake in Shanghai Rural Commercial Bank (SRCB). The Group ceased equity accounting for the investment in SRCB from that date. The sale concluded during the March 2018 half.

^3.

Includes Metrobank Card Corporation (MCC). On 18 October 2017, the Group announced it had entered into an agreement with its joint venture partner Metropolitan Bank & Trust Company (Metrobank) in relation to its 40% stake in the Philippines based Metrobank Card Corporation (MCC). The Group agreed to sell 20% of its stake (sale completed in the March 2018 half), and entered into a put option to sell the remaining 20% stake, exercisable in the fourth quarter of FY18 on the same terms for the same consideration. MCC was reclassified as an asset held for sale and the Group ceased equity accounting for the investment from 1 October 2017.

18.

Related party disclosure

There have been no transactions with related parties that are significant to understanding the changes in financial position and performance of the Group since 30 September 2017.

105

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

19. Contingent liabilities and contingent assets

There are outstanding court proceedings, claims and possible claims for and against the Group. Where relevant, expert legal advice has been obtained and, in the light of such advice, provisions and/or disclosures as deemed appropriate have been made. In some instances we have not disclosed the estimated financial impact of the individual items either because it is not practicable to do so or because such disclosure may prejudice the interests of the Group.

Refer to Note 33 of the 2017 ANZ Annual Financial Report for a description of contingent liabilities and contingent assets as at 30 September 2017. A summary of some of those contingent liabilities, and new contingent liabilities that have arisen in the current reporting period, is set out below.

•

Bank fees litigation

A litigation funder commenced a class action against the Company in 2010, followed by a second similar class action in March 2013. The applicants contended that certain exception fees (honour, dishonour and non-payment fees on transaction accounts and late payment and over-limit fees on credit cards) were unenforceable penalties and that various of the fees were also unenforceable under statutory provisions governing unconscionable conduct, unfair contract terms and unjust transactions. A further action, limited to late payment fees only, commenced in August 2014.

The penalty and statutory claims in the March 2013 class action failed and the claims have been dismissed. The August 2014 action was discontinued in October 2016.

The original claims in the 2010 class action have been dismissed. A new claim has been added to the 2010 class action, in relation to the Company’s entitlement to charge certain periodical payment non-payment fees.

•

Benchmark/rate actions

In July and August 2016, class action complaints were brought in the United States District Court against local and international banks, including the Company - one action relating to the bank bill swap rate (BBSW), and one action relating to the Singapore Interbank Offered Rate (SIBOR) and the Singapore Swap Offer Rate (SOR). The class actions are expressed to apply to persons and entities that engaged in US-based transactions in financial instruments that were priced, benchmarked, and/or settled based on BBSW, SIBOR, or SOR. The claimants seek damages or compensation in amounts not specified, and allege that the defendant banks, including the Company, violated US anti-trust laws, anti-racketeering laws, the Commodity Exchange Act, and (in the BBSW case only) unjust enrichment principles. The Company is defending the proceedings. The matters are at an early stage.

In February 2017, the South African Competition Commission commenced proceedings against local and international banks including the Company alleging breaches of the cartel provisions of the South African Competition Act in respect of trading in the South African rand. The potential civil penalty or other financial impact is uncertain. The matter is at an early stage.

•

Franchisee litigation

In February 2018, two related class actions were brought against the Company. The primary action alleges that the Company breached contractual obligations and acted unconscionably when it lent to the applicant, and other 7-Eleven franchisees. The action seeks to set aside the loans to those franchisees and claims unspecified damages. The second action seeks to set aside related mortgages and guarantees given to the Company. The matters are at an early stage.

•

Regulatory and customer exposures

In recent years there has been an increase in the number of matters on which ANZ engages with its regulators. There have been significant increases in the nature and scale of regulatory investigations and reviews, enforcement actions (whether by court action or otherwise) and the quantum of fines issued by regulators, particularly against financial institutions both in Australia and globally. ANZ also instigates engagement with its regulators. The nature of these interactions can be wide ranging and, for example, currently include a range of matters including responsible lending practices, product suitability, wealth advice, pricing and competition, conduct in financial markets and capital market transactions and product disclosure documentation. ANZ has received various notices and requests for information from its regulators as part of both industry-wide and ANZ-specific reviews and has also made disclosures to its regulators at its own instigation. There may be exposures to customers which are additional to any regulatory exposures. These could include class actions, individual claims or customer remediation or compensation activities. The outcomes and total costs associated with such reviews and possible exposures remain uncertain.

•

Royal Commission

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was established on 14 December 2017. The Commission has been asked to submit its final report by 1 February 2019 (and may choose to give an interim report by 30 September 2018). The Commission is likely to result in additional costs and may lead to further exposures, including exposures associated with further regulator activity or potential customer exposures such as class actions, individual claims or customer remediation or compensation activities. The outcomes and total costs associated with these possible exposures remain uncertain.

•

Security recovery actions

Various claims have been made or are anticipated, arising from security recovery actions taken to resolve impaired assets. These claims will be defended.

•

Warranties and Indemnities

The Group has provided warranties, indemnities and other commitments in favour of the purchaser and other persons in connection with various disposals of businesses and assets and other transactions, covering a range of matters and risks. It is exposed to potential claims under those warranties, indemnities and commitments.

20. Subsequent events since balance date

There have been no significant events from 31 March 2018 to the date of signing this report.

106

DIRECTORS’ DECLARATION

Directors’ Declaration

The Directors of Australia and New Zealand Banking Group Limited declare that:

1.	in the Directors’ opinion the Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial Statements are in accordance with the Corporations Act 2001, including:

•

section 304, that they comply with the Australian Accounting Standards and any further requirements in the Corporations Regulations 2001; and

•

section 305, that they give a true and fair view of the financial position of the Group as at 2018 and of its performance for the half year ended on that date; and

2.	in the Directors’ opinion as at the date of this declaration there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the Directors.




David M Gonski, AC		Shayne C Elliott
Chairman		Director

30 April 2018

107

AUDITOR’S REVIEW REPORT AND INDEPENDENCE DECLARATION

Independent Auditor’s Review Report to the shareholders of Australia and New Zealand Banking Group Limited

LOGO

Report on the half year Condensed Consolidated Financial Statements

Conclusion

We have reviewed the accompanying half year Condensed Consolidated Financial Statements of Australia and New Zealand Banking Group Limited (the Group).

The Group comprises Australia and New Zealand Banking Group Limited (the Company) and the entities it controlled at the half year’s end or from time to time during the half year.

The half year Condensed Consolidated Financial Statements comprise:

•

the condensed consolidated balance sheet as at 31 March 2018;

•

the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity, and condensed consolidated statement of cash flows for the half-year ended on 31 March 2018;

•

Notes 1 to 20 comprising a basis of preparation and other explanatory information; and

•

the Directors’ Declaration.

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half year Condensed Consolidated Financial Statements of Australia and New Zealand Banking Group Limited are not in accordance with the Corporations Act 2001, including:

i)	giving a true and fair view of the Group’s financial position as at 31 March 2018 and of its performance for the half year ended on that date; and

ii)	complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.

Responsibilities of the Directors for the half year Condensed Consolidated Financial Statements

The Directors of the Company are responsible for:

•

the preparation of the half year Condensed Consolidated Financial Statements that give a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; and

•

such internal control as the Directors determine is necessary to enable the preparation of the half year Condensed Consolidated Financial Statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility for the review of the half year Condensed Consolidated Financial Statements

Our responsibility is to express a conclusion on the half year Condensed Consolidated Financial Statements based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half year Condensed Consolidated Financial Statements are not in accordance with the Corporations Act 2001 including: giving a true and fair view of the Group’s financial position as at 31 March 2018 and its performance for the half year ended on that date, and complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As auditor of Australia and New Zealand Banking Group Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of half year Condensed Consolidated Financial Statements consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.



KPMG		Alison Kitchen
Melbourne		Partner
30 April 2018

Lead Auditor’s Independence Declaration under section 307C of the Corporations Act 2001

To the Directors of Australia and New Zealand Banking Group Limited

I declare that, to the best of my knowledge and belief, in relation to the review of Australia and New Zealand Banking Group Limited for the half-year ended 31 March 2018, there have been:

(i)	no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and

(ii)	no contraventions of any applicable code of professional conduct in relation to the review.



KPMG		Alison Kitchen
Melbourne		Partner
30 April 2018

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (”KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation.

108

SUPPLEMENTARY INFORMATION


CONTENTS			Page

Capital management - including discontinued operations			113

Average balance sheet and related interest - continuing operations			114

Select geographical disclosures – including discontinued operations			117

Exchange rates			118

Derivative financial instruments - including discontinued operations			118

109

SUPPLEMENTARY INFORMATION

Capital management - including discontinued operations

ANZ provides information as required under APRA’s prudential standard APS 330: Public Disclosure. This information is located in the Regulatory Disclosures section of ANZ’s website: shareholder.anz.com/pages/regulatory-disclosure.

This information includes disclosures detailed in the following sections of the standard, Attachment A: Capital disclosure template, Attachment B: Main features of Capital instruments, Attachment E: Leverage ratio disclosure requirements and Attachment F: Liquidity Coverage Ratio disclosure template.


		As at									Movement
		Mar 18 $M			Sep 17 $M			Mar 17 $M			Mar 18 v. Sep 17		Mar 18 v. Mar 17
Qualifying Capital

Tier 1

Shareholders’ equity and non-controlling interests			59,500			59,075			57,908			1%		3%

Prudential adjustments to shareholders’ equity	Table 1		(394	)		(481	)		(509	)		-18%		-23%

Gross Common Equity Tier 1 capital			59,106			58,594			57,399			1%		3%

Deductions	Table 2		(15,399	)		(17,258	)		(17,182	)		-11%		-10%

Common Equity Tier 1 capital			43,707			41,336			40,217			6%		9%

Additional Tier 1 capital	Table 3		7,418			7,988			7,874			-7%		-6%

Tier 1 capital			51,125			49,324			48,091			4%		6%

Tier 2 capital	Table 4		8,040			8,669			9,648			-7%		-17%

Total qualifying capital			59,165			57,993			57,739			2%		2%

Capital adequacy ratios

Common Equity Tier 1			11.0%			10.6%			10.1%

Tier 1			12.9%			12.6%			12.1%

Tier 2			2.0%			2.2%			2.4%

Total			14.9%			14.8%			14.5%

Risk weighted assets	Table 5		395,777			391,113			397,040			1%		0%

110

SUPPLEMENTARY INFORMATION

Capital management - including discontinued operations, cont’d


		As at									Movement
		Mar 18 $M			Sep 17 $M			Mar 17 $M			Mar 18 v. Sep 17		Mar 18 v. Mar 17
Table 1: Prudential adjustments to shareholders’ equity

Treasury shares attributable to ANZ Wealth Australia policyholders			306			326			324			-6%		-6%

Accumulated retained profits and reserves of insurance and funds management entities			(608	)		(711	)		(811	)		-14%		-25%

Deferred fee revenue including fees deferred as part of loan yields			135			131			175			3%		-23%

Available for sale reserve attributable to deconsolidated subsidiaries			(91	)		(83	)		(82	)		10%		11%

Other			(136	)		(144	)		(115	)		-6%		18%

Total			(394	)		(481	)		(509	)		-18%		-23%

Table 2: Deductions from Common Equity Tier 1 capital

Unamortised goodwill & other intangibles (excluding ANZ Wealth Australia and New Zealand)			(3,638	)		(3,553	)		(3,532	)		2%		3%

Intangible component of investments in ANZ Wealth Australia and New Zealand			(1,634	)		(2,100	)		(2,099	)		-22%		-22%

Capitalised software			(1,745	)		(1,826	)		(1,887	)		-4%		-8%

Capitalised expenses including loan and lease origination fees			(1,133	)		(1,149	)		(1,129	)		-1%		0%

Applicable deferred net tax assets			(869	)		(946	)		(902	)		-8%		-4%

Expected losses in excess of eligible provisions	Table 8		(686	)		(719	)		(696	)		-5%		-1%

Investment in other insurance and funds management subsidiaries			(274	)		(274	)		(274	)		0%		0%

Investment in ANZ Wealth Australia and New Zealand			(1,751	)		(1,750	)		(1,749	)		0%		0%

Investment in banking associates and minority interests			(2,272	)		(3,919	)		(3,826	)		-42%		-41%

Other deductions			(1,397	)		(1,022	)		(1,088	)		37%		28%

Total			(15,399	)		(17,258	)		(17,182	)		-11%		-10%

Table 3: Additional Tier 1 capital

ANZ Convertible Preference Shares 3			-			573			1,340			-100%		-100%

ANZ Capital Notes 1			1,117			1,116			1,116			0%		0%

ANZ Capital Notes 2			1,604			1,604			1,603			0%		0%

ANZ Capital Notes 3			961			963			962			0%		0%

ANZ Capital Notes 4			1,609			1,608			1,607			0%		0%

ANZ Capital Notes 5			924			925			-			0%		n/a

ANZ Bank NZ Capital Notes			467			457			454			2%		3%

ANZ Capital Securities			1,188			1,206			1,218			-1%		-2%

Regulatory adjustments and deductions			(452	)		(464	)		(426	)		-3%		6%

Total			7,418			7,988			7,874			-7%		-6%

Table 4: Tier 2 capital

General reserve for impairment of financial assets			123			200			257			-39%		-52%

Perpetual subordinated notes			390			1,150			1,156			-66%		-66%

Term subordinated debt notes			8,216			8,108			10,841			1%		-24%

Regulatory adjustments and deductions			(689	)		(789	)		(518	)		-13%		33%

Transitional adjustments			-			-			(2,088	)		n/a		n/a

Total			8,040			8,669			9,648			-7%		-17%

111

SUPPLEMENTARY INFORMATION

Capital management - including discontinued operations, cont’d


		As at						Movement
		Mar 18 $M		Sep 17 $M		Mar 17 $M		Mar 18 v. Sep 17		Mar 18 v. Mar 17
Table 5: Risk weighted assets

On balance sheet			257,304		254,534		253,532		1%		1%

Commitments			53,644		53,546		56,279		0%		-5%

Contingents			12,333		11,704		12,648		5%		-2%

Derivatives			19,541		17,050		19,350		15%		1%

Total credit risk	Table 6		342,822		336,834		341,809		2%		0%

Market risk - Traded			6,558		5,363		6,323		22%		4%

Market risk - IRRBB			9,019		11,611		10,332		-22%		-13%

Operational risk			37,378		37,305		38,576		0%		-3%

Total risk weighted assets			395,777		391,113		397,040		1%		0%

		As at						Movement
		Mar 18 $M		Sep 17 $M		Mar 17 $M		Mar 18 v. Sep 17		Mar 18 v. Mar 17
Table 6: Credit risk weighted assets by Basel asset class

Subject to Advanced IRB approach

Corporate			123,253		121,915		127,544		1%		-3%

Sovereign			6,896		7,555		6,718		-9%		3%

Bank			15,129		13,080		14,267		16%		6%

Residential mortgage			99,560		96,267		86,218		3%		15%

Qualifying revolving retail (credit cards)			6,845		7,059		7,513		-3%		-9%

Other retail			30,769		31,077		31,004		-1%		-1%

Credit risk weighted assets subject to Advanced IRB approach			282,452		276,953		273,264		2%		3%



Credit risk specialised lending exposures subject to slotting criteria			32,065		31,845		33,896		1%		-5%

Subject to Standardised approach

Corporate			15,105		13,365		16,264		13%		-7%

Residential mortgage			321		950		2,354		-66%		-86%

Other retail (includes credit cards)			102		2,000		3,131		-95%		-97%

Credit risk weighted assets subject to Standardised approach			15,528		16,315		21,749		-5%		-29%



Credit Valuation Adjustment and Qualifying Central Counterparties			7,864		7,269		8,168		8%		-4%

Credit risk weighted assets relating to securitisation exposures			1,728		1,083		1,171		60%		48%

Other assets			3,185		3,369		3,561		-5%		-11%

Total credit risk weighted assets			342,822		336,834		341,809		2%		0%

112

SUPPLEMENTARY INFORMATION

Capital management - including discontinued operations, cont’d


	Collective Provision and Individual Provision						Basel Expected Loss¹

Table 7: Total provision for credit impairment and expected loss by division	Mar 18 $M		Sep 17 $M		Mar 17 $M		Mar 18 $M		Sep 17 $M		Mar 17 $M

Australia		1,690		1,772		1,750		2,499		2,625		2,514

Institutional		1,421		1,422		1,624		1,097		1,076		1,558

New Zealand		420		454		470		725		754		766

Asia Retail & Pacific		61		147		196		8		8		5

TSO and Group Centre		3		3		14		-		-		-

Total provision for credit impairment and expected loss		3,595		3,798		4,054		4,329		4,463		4,843

^1.

Only applicable to Advanced Internal Ratings based portfolios.


	As at									Movement

Table 8: APRA Expected loss in excess of eligible provisions	Mar 18 $M			Sep 17 $M			Mar 17 $M			Mar 18 v. Sep 17		Mar 18 v. Mar 17

APRA Basel 3 expected loss: non-defaulted		2,826			2,829			2,866			0%		-1%

Less: Qualifying collective provision

Collective provision		(2,579	)		(2,662	)		(2,785	)		-3%		-7%

Non-qualifying collective provision		312			352			349			-11%		-11%

Standardised collective provision		123			200			257			-39%		-52%

Non-defaulted excess included in deduction		682			719			687			-5%		-1%

APRA Basel 3 expected loss: defaulted		1,503			1,634			1,977			-8%		-24%

Less: Qualifying individual provision

Individual provision		(1,016	)		(1,136	)		(1,269	)		-11%		-20%

Additional individual provision for partial write offs		(301	)		(300	)		(540	)		0%		-44%

Standardised individual provision		108			117			149			-8%		-28%

Collective provision on advanced defaulted		(290	)		(320	)		(308	)		-9%		-6%

		4			(5	)		9			large		-56%

Shortfall in expected loss not included in deduction		-			5			-			-100%		n/a

Defaulted excess included in deduction		4			-			9			n/a		-56%

Gross deduction		686			719			696			-5%		-1%

113

SUPPLEMENTARY INFORMATION

Average balance sheet and related interest - continuing operations^{1, 2}


	Half Year Mar 18							Half Year Sep 17							Half Year Mar 17
	Avg bal $M			Int $M		Rate %		Avg bal $M			Int $M		Rate %		Avg bal $M			Int $M		Rate %
Loans and advances

Home loans		314,135			7,296		4.7%		311,138			7,232		4.6%		303,459			6,961		4.6%

Consumer finance		19,250			1,003		10.4%		22,556			1,143		10.1%		24,089			1,217		10.2%

Business lending		229,117			4,680		4.1%		225,924			4,724		4.2%		229,553			4,664		4.1%

Individual provisions for credit impairment		(1,057	)		-		n/a		(1,262	)		-		n/a		(1,320	)		-		n/a
Total		561,445			12,979		4.6%		558,356			13,099		4.7%		555,781			12,842		4.6%
Non-lending interest earning assets

Cash and other liquid assets		90,591			438		1.0%		86,130			325		0.8%		82,182			329		0.8%

Trading and available for sale assets		111,734			1,271		2.3%		106,245			1,172		2.2%		104,548			1,150		2.2%

Other assets		1,416			161		n/a		1,342			98		n/a		1,395			108		n/a
Total		203,741			1,870		1.8%		193,717			1,595		1.7%		188,125			1,587		1.7%
Total interest earning assets³		765,186			14,849		3.9%		752,073			14,694		3.9%		743,906			14,429		3.9%
Non-interest earning assets		126,019							168,196							173,988
Total average assets (continuing operations)		891,205							920,269							917,894

Total average assets (discontinued operations)		42,263							-							-
Total average assets		933,468							920,269							917,894

Deposits and other borrowings

Certificates of deposit		51,748			529		2.1%		57,610			603		2.1%		59,500			664		2.2%

Term deposits		200,255			2,185		2.2%		194,258			2,090		2.1%		205,073			1,951		1.9%

On demand and short term deposits		222,540			1,843		1.7%		230,143			1,830		1.6%		209,759			1,777		1.7%

Deposits from banks and securities sold under agreement to repurchase		65,455			508		1.6%		62,668			442		1.4%		64,267			379		1.2%

Commercial paper and other borrowings⁴		21,359			208		2.0%		14,092			156		2.2%		15,916			186		2.3%
Total		561,357			5,273		1.9%		558,771			5,121		1.8%		554,515			4,957		1.8%
Non-deposit interest bearing liabilities

Collateral received and settlement balances owed by ANZ		12,060			48		0.8%		10,839			36		0.7%		10,982			31		0.6%

Debt issuances & subordinated debt⁴		109,020			1,858		3.4%		110,531			1,905		3.4%		107,802			1,903		3.5%

Other liabilities		4,050			320		n/a		2,657			176		n/a		2,902			119		n/a
Total		125,130			2,226		3.6%		124,027			2,117		3.4%		121,686			2,053		3.4%
Total interest bearing liabilities³		686,487			7,499		2.2%		682,798			7,238		2.1%		676,201			7,010		2.1%
Non-interest bearing liabilities		144,409							178,745							183,894
Total average liabilities (continuing operations)		830,896							861,543							860,095

Total average liabilities (discontinued operations)		43,573							-							-
Total average liabilities		874,469							861,543							860,095

Total average shareholders’ equity		58,999							58,726							57,799

^1.

Averages used are predominantly daily averages.

^2.

Assets and liabilities held for sale are included in continuing operations balance sheet categories and discontinued operations.

^3.

Intra-group interest earning assets and interest income and Intra-group interest earning liabilities and interest expense have been eliminated.

^4.

In the March 2018 half certain instruments were reclassified from average debt issuances and subordinated debt to average commercial paper and other borrowings to better reflect their nature. Comparatives have been restated accordingly (Sep 17 half: $4,371 million average balance and $40 million interest reclassified; Mar 17 half: $3,881 million average balances and $37 million interest).

114

SUPPLEMENTARY INFORMATION

Average balance sheet and related interest - continuing operations^{1, 2}, cont’d


	Half Year Mar 18						Half Year Sep 17						Half Year Mar 17
	Avg bal $M		Int $M		Rate %		Avg bal $M		Int $M		Rate %		Avg bal $M		Int $M		Rate %
Loans and advances

Australia		389,907		9,273		4.8%		382,613		9,299		4.8%		375,642		9,027		4.8%

Asia Pacific, Europe & America		56,019		977		3.5%		59,871		1,048		3.5%		64,699		1,093		3.4%

New Zealand		115,519		2,729		4.7%		115,872		2,752		4.7%		115,440		2,722		4.7%
Total		561,445		12,979		4.6%		558,356		13,099		4.7%		555,781		12,842		4.6%
Trading and available for sale assets

Australia		62,044		740		2.4%		58,974		671		2.3%		60,330		662		2.2%

Asia Pacific, Europe & America		35,399		344		1.9%		33,162		296		1.8%		29,489		264		1.8%

New Zealand		14,291		187		2.6%		14,109		205		2.9%		14,729		224		3.0%
Total		111,734		1,271		2.3%		106,245		1,172		2.2%		104,548		1,150		2.2%
Total interest earning assets³

Australia		484,628		10,346		4.3%		473,945		10,162		4.3%		466,147		9,915		4.3%

Asia Pacific, Europe & America		146,690		1,533		2.1%		144,345		1,522		2.1%		143,750		1,491		2.1%

New Zealand		133,868		2,970		4.4%		133,783		3,010		4.5%		134,009		3,023		4.5%
Total		765,186		14,849		3.9%		752,073		14,694		3.9%		743,906		14,429		3.9%

Total average assets

Australia		570,913						599,342						593,672

Asia Pacific, Europe & America		172,264						168,967						170,297

New Zealand		148,028						151,960						153,925
Total average assets (continuing operations)		891,205						920,269						917,894

Total average assets (discontinued operations)		42,263						-						-
Total average assets		933,468						920,269						917,894

Interest bearing deposits and other borrowings

Australia⁴		335,149		3,382		2.0%		331,384		3,336		2.0%		322,519		3,336		2.1%

Asia Pacific, Europe & America		137,993		855		1.2%		139,591		740		1.1%		143,505		590		0.8%

New Zealand		88,215		1,036		2.4%		87,796		1,045		2.4%		88,491		1,031		2.3%
Total		561,357		5,273		1.9%		558,771		5,121		1.8%		554,515		4,957		1.8%
Total interest bearing liabilities³

Australia		409,712		4,880		2.4%		408,615		4,744		2.3%		398,657		4,681		2.4%

Asia Pacific, Europe & America		165,303		1,182		1.4%		163,644		1,030		1.3%		167,295		871		1.0%

New Zealand		111,472		1,437		2.6%		110,539		1,464		2.6%		110,249		1,458		2.7%
Total		686,487		7,499		2.2%		682,798		7,238		2.1%		676,201		7,010		2.1%

Total average liabilities

Australia		508,544						541,175						534,389

Asia Pacific, Europe & America		191,020						186,034						190,287

New Zealand		131,332						134,333						135,419
Total average liabilities (continuing operations)		830,896						861,543						860,095

Total average liabilities (discontinued operations)		43,573						-						-
Total average liabilities		874,469						861,543						860,095

Total average shareholders’ equity

Ordinary share capital, reserves, retained earnings and non-controlling interests		58,999						58,726						57,799
Total average shareholders’ equity		58,999						58,726						57,799

Total average liabilities and shareholder’s equity		933,468						920,269						917,894

^1.

Averages used are predominantly daily averages.

^2.

Assets and liabilities held for sale are included in continuing operations balance sheet categories and discontinued operations.

^3.

Intra-group interest earning assets and interest income and Intra-group interest earning liabilities and interest expense have been eliminated.

^4.

115

SUPPLEMENTARY INFORMATION


	Half Year
Gross earnings rate¹		Mar 18 %	Sep 17 %	Mar 17 %
Australia		4.49	4.46	4.49
Asia Pacific, Europe & America		2.12	2.08	1.99
New Zealand		4.45	4.49	4.52
Group		3.89	3.90	3.89

Net interest spread and net interest margin may be analysed as follows:
	Half Year
Australia¹		Mar 18 %	Sep 17 %	Mar 17 %
Net interest spread		1.99	2.08	2.07
Interest attributable to net non-interest bearing items		0.28	0.23	0.24
Net interest margin - Australia		2.27	2.31	2.31
Asia Pacific, Europe & America¹
Net interest spread		0.68	0.82	0.95
Interest attributable to net non-interest bearing items		0.08	0.05	0.04
Net interest margin - Asia Pacific, Europe & America		0.76	0.87	0.99
New Zealand¹
Net interest spread		1.83	1.81	1.84
Interest attributable to net non-interest bearing items		0.33	0.34	0.33
Net interest margin - New Zealand		2.16	2.15	2.17
Group
Net interest spread		1.70	1.79	1.81
Interest attributable to net non-interest bearing items		0.23	0.19	0.19
Net interest margin		1.93	1.98	2.00
Net interest margin (excluding Markets)		2.60	2.61	2.58

^1.

Geographic gross earnings rate, net interest spread and net interest margin are calculated gross of intra group items (Intra-group interest earning assets and associated interest income and intra-group interest bearing liabilities and associated interest expense).

116

SUPPLEMENTARY INFORMATION

Select geographical disclosures – including discontinued operations

The following divisions operate across the geographic locations illustrated below:

•

Institutional division - Asia, Europe & America, Pacific, New Zealand and Australia

•

Asia Retail & Pacific division - Asia and Pacific

•

New Zealand division - New Zealand

The International geography includes Asia, Europe & America and Pacific


	Australia		New Zealand		International		Total
	$M		$M		$M		$M

March 2018 Half Year

Statutory profit		1,984		880		459		3,323

Cash profit		1,583		860		433		2,876

Net loans and advances¹		418,588		118,537		54,822		591,947

Customer deposits¹		276,892		94,623		101,249		472,764

Risk weighted assets¹		253,490		68,559		73,727		395,776

September 2017 Half Year

Statutory profit		2,261		849		385		3,495

Cash profit		2,277		861		389		3,527

Net loans and advances¹		411,298		114,915		54,080		580,293

Customer deposits¹		273,383		89,100		105,147		467,630

Risk weighted assets¹		252,983		66,403		71,727		391,113

March 2017 Half Year

Statutory profit		1,850		823		238		2,911

Cash profit		2,340		879		192		3,411

Net loans and advances¹		403,228		112,401		60,675		576,304

Customer deposits¹		261,666		87,998		118,551		468,215

Risk weighted assets¹		246,455		68,117		82,469		397,041
^1. Balance Sheet amounts include assets and liabilities held for sale.

New Zealand geography (in NZD)


	Half Year									Movement

	Mar 18			Sep 17			Mar 17			Mar 18		Mar 18
	NZD M			NZD M			NZD M			v. Sep 17		v. Mar 17

Net interest income		1,572			1,544			1,534			2%		2%

Other operating income		535			485			514			10%		4%

Operating income		2,107			2,029			2,048			4%		3%

Operating expenses		(737	)		(728	)		(718	)		1%		3%

Profit before credit impairment and income tax		1,370			1,301			1,330			5%		3%

Credit impairment (charge)/release		(70	)		(19	)		(40	)		large		75%

Profit before income tax		1,300			1,282			1,290			1%		1%

Income tax expense and non-controlling interests		(359	)		(355	)		(362	)		1%		-1%

Cash profit		941			927			928			2%		1%

Adjustments between statutory profit and cash profit		23			(16	)		(59	)		large		large

Statutory profit		964			911			869			6%		11%

Individual credit impairment charge/(release) - cash		84			36			69			large		22%

Collective credit impairment charge/(release) - cash		(14	)		(17	)		(29	)		-18%		-52%

Net loans and advances¹		126,239			124,880			122,954			1%		3%

Customer deposits¹		100,771			96,829			96,259			4%		5%

Risk weighted assets¹		73,014			72,162			74,511			1%		-2%

Total full time equivalent staff (FTE)		7,718			7,755			7,761			0%		-1%

^1.	Balance Sheet amounts include assets and liabilities held for sale.

117

SUPPLEMENTARY INFORMATION

Exchange rates

Major exchange rates used in the translation of foreign subsidiaries, branches, investments in associates and issued debt are as follows:


	Balance Sheet						Profit & Loss Average

	As at						Half Year

	Mar 18		Sep 17		Mar 17		Mar 18		Sep 17		Mar 17

Chinese Renminbi		4.8276		5.2297		5.2716		5.0410		5.1781		5.1672

Euro		0.6221		0.6655		0.7160		0.6460		0.6729		0.7025

Pound Sterling		0.5445		0.5848		0.6122		0.5718		0.5916		0.6071

Indian Rupee		49.860		51.289		49.557		50.145		49.236		50.639

Indonesian Rupiah		10,556		10,565		10,184		10,534		10,191		10,018

Japanese Yen		81.664		88.404		85.565		85.957		84.942		83.904

Malaysian Ringgit		2.9677		3.3155		3.3834		3.1401		3.2884		3.3021

New Taiwan Dollar		22.362		23.795		23.216		23.087		23.148		23.681

New Zealand Dollar		1.0650		1.0867		1.0939		1.0924		1.0671		1.0593

Papua New Guinean Kina		2.4945		2.5102		2.4304		2.5060		2.4348		2.3906

United States Dollar		0.7671		0.7845		0.7644		0.7772		0.7650		0.7533

Derivative financial instruments - including discontinued operations

Derivative financial instruments are contracts whose value is derived from one or more underlying variables or indices defined in the contract, require little or no initial net investment and are settled at a future date. Derivatives include contracts traded on registered exchanges and contracts agreed between counterparties. The use of derivatives and their sale to customers as risk management products is an integral part of the Group’s trading and sales activities. Derivatives are also used to manage the Group’s own exposure to fluctuations in foreign exchange and interest rates as part of its asset and liability management activities.

The following table provides an overview of the Group’s foreign exchange, interest rate, commodity and credit derivatives. They include all trading and balance sheet risk management contracts. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market rates relative to the terms of the derivative.


	Assets		Liabilities			Assets		Liabilities			Assets		Liabilities
	Mar 18		Mar 18			Sep 17		Sep 17			Mar 17		Mar 17
Fair Values	$M		$M			$M		$M			$M		$M

Interest rate contracts

Forward rate agreements		23		(22	)		2		(1	)		2		(2	)

Futures contracts		26		(229	)		182		(56	)		40		(316	)

Swap agreements		34,981		(35,868	)		33,335		(33,404	)		35,939		(36,011	)

Options purchased		749		-			746		-			649		-

Options sold		-		(1,549	)		-		(1,365	)		-		(1,388	)

Total		35,779		(37,668	)		34,265		(34,826	)		36,630		(37,717	)

Foreign exchange contracts

Spot and forward contracts		19,682		(19,347	)		15,243		(14,954	)		12,703		(11,830	)

Swap agreements		13,357		(11,437	)		10,334		(10,423	)		11,439		(13,247	)

Options purchased		543		-			517		-			565		-

Options sold		-		(527	)		-		(475	)		-		(587	)

Total		33,582		(31,311	)		26,094		(25,852	)		24,707		(25,664	)

Commodity contracts		1,486		(1,567	)		1,991		(1,398	)		2,340		(1,461	)

Credit default swaps

Structured credit derivatives purchased		22		-			52		-			56		-

Other credit derivatives purchased		6		(47	)		13		(110	)		14		(129	)

Credit derivatives purchased		28		(47	)		65		(110	)		70		(129	)

Structured credit derivatives sold		-		(26	)		-		(58	)		-		(64	)

Other credit derivatives sold		41		(5	)		103		(8	)		135		(15	)

Credit derivatives sold		41		(31	)		103		(66	)		135		(79	)

Total		69		(78	)		168		(176	)		205		(208	)

Derivative financial instruments		70,916		(70,624	)		62,518		(62,252	)		63,882		(65,050	)

AASB - Australian Accounting Standards Board. The term “AASB” is commonly used when identifying Australian Accounting Standards issued by the AASB.

ADI - Authorised Deposit-taking Institution.

APRA - Australian Prudential Regulation Authority.

118

DEFINITIONS

APS - ADI Prudential Standard.

BCBS - Basel Committee on Banking Supervision.

Cash and cash equivalents comprise coins, notes, money at call, balances held with central banks, liquid settlement balances (readily convertible to known amounts of cash which are subject to insignificant risk of changes in value) and securities purchased under agreements to resell (reverse repos) in less than three months.

Cash profit is an additional measure of profit which is prepared on a basis other than in accordance with accounting standards. Cash profit represents

ANZ’s preferred measure of the result of the ongoing business activities of the Group, enabling readers to assess Group and Divisional performance against prior periods and against peer institutions. To calculate cash profit, the Group excludes non-core items from statutory profit as noted below. These items are calculated consistently period on period so as not to discriminate between positive and negative adjustments.

Gains and losses are adjusted where they are significant, or have the potential to be significant in any one period, and fall into one of three categories:

gains or losses included in earnings arising from changes in tax, legal or accounting legislation or other non-core items not associated with the ongoing operations of the Group;

treasury shares, revaluation of policy liabilities, economic hedging impacts and similar accounting items that represent timing differences that will reverse through earnings in the future; and

accounting reclassifications between individual line items that do not impact reported results, such as policyholders tax gross up.

Cash profit is not a measure of cash flow or profit determined on a cash accounting basis.

Collective provision is the provision for credit losses that are inherent in the portfolio but not able to be individually identified. A collective provision is only recognised when a loss event has occurred. Losses expected as a result of future events, no matter how likely, are not recognised.

Covered bonds are bonds issued by an ADI to external investors secured against a pool of the ADI’s assets (the cover pool) assigned to a bankruptcy remote special purpose entity. The primary assets forming the cover pool are mortgage loans. The mortgages remain on the issuer’s balance sheet. The covered bond holders have dual recourse to the issuer and the cover pool assets. The mortgages included in the cover pool cannot be otherwise pledged or disposed of but may be repurchased and substituted in order to maintain the credit quality of the pool. The Group issues covered bonds as part of its funding activities.

Credit risk is the risk of financial loss resulting from the failure of ANZ’s customers and counterparties to honour or perform fully the terms of a loan or contract.

Credit risk weighted assets (CRWA) represent assets which are weighted for credit risk according to a set formula as prescribed in APS 112/113.

Customer deposits represent term deposits, other deposits bearing interest, deposits not bearing interest and borrowing corporations’ debt excluding securitisation deposits.

Derivative credit valuation adjustment (CVA) - Over the life of a derivative instrument, ANZ uses a model to adjust fair value to take into account the impact of counterparty credit quality. The methodology calculates the present value of expected losses over the life of the financial instrument as a function of probability of default, loss given default, expected credit risk exposure and an asset correlation factor. Impaired derivatives are also subject to a CVA.

Dividend payout ratio is the total ordinary dividend payment divided by profit attributable to shareholders of the Company, adjusted for the amount of preference share dividends paid.

Gross loans and advances (GLA) is made up of loans and advances, acceptances and capitalised brokerage/mortgage origination fees less unearned income.

IFRS - International Financial Reporting Standards.

Impaired assets are those financial assets where doubt exists as to whether the full contractual amount will be received in a timely manner, or where concessional terms have been provided because of the financial difficulties of the customer. Financial assets are impaired if there is objective evidence of impairment as a result of a loss event that occurred prior to the reporting date, and that loss event has had an impact, which can be reliably estimated, on the expected future cash flows of the individual asset or portfolio of assets.

Impaired loans comprise drawn facilities where the customer’s status is defined as impaired.

Individual provision is the amount of expected credit losses on financial instruments assessed for impairment on an individual basis (as opposed to on a collective basis). It takes into account expected cash flows over the lives of those financial instruments.

Interest rate risk in the banking book (IRRBB) relates to the potential adverse impact of changes in market interest rates on ANZ’s future net interest income. The risk generally arises from:

Repricing and yield curve risk - the risk to earnings or market value as a result of changes in the overall level of interest rates and/or the relativity of these rates across the yield curve;

Basis risk - the risk to earnings or market value arising from volatility in the interest margin applicable to banking book items; and

Optionality risk - the risk to earnings or market value arising from the existence of stand-alone or embedded options in banking book items.

Internationally comparable ratios are ANZ’s interpretation of the regulations documented in the Basel Committee publications; “Basel 3: A global regulatory framework for more resilient banks and banking systems” (June 2011) and “International Convergence of Capital Measurement and Capital Standards” (June 2006). They also include differences identified in APRA’s information paper entitled International Capital Comparison Study (13 July 2015).

Net interest margin is net interest income as a percentage of average interest earning assets.

Net loans and advances represent gross loans and advances less provisions for credit impairment.

Net tangible assets equal share capital and reserves attributable to shareholders of the Company less preference share capital and unamortised intangible assets (including goodwill and software).

Operating expenses include personnel expenses, premises expenses, technology expenses, restructuring expenses, and other operating expenses (excluding credit impairment charges).

119

DEFINITIONS

Operating income includes net interest income, net fee and commission income, net funds management and insurance income, share of associates’ profit and other income.

Regulatory deposits are mandatory reserve deposits lodged with local central banks in accordance with statutory requirements.

Restructured items comprise facilities in which the original contractual terms have been modified for reasons related to the financial difficulties of the customer. Restructuring may consist of reduction of interest, principal or other payments legally due, or an extension in maturity materially beyond those typically offered to new facilities with similar risk.

Return on average assets is the profit attributable to shareholders of the Company, adjusted for the amount of preference share dividends paid, divided by average total assets.

Return on average ordinary shareholders’ equity is the profit attributable to shareholders of the Company, adjusted for the amount of preference share dividends paid, divided by average ordinary shareholders’ equity.

Risk weighted assets (RWA) - Assets (both on and off-balance sheet) are risk weighted according to each asset’s inherent potential for default and what the likely losses would be in the case of default. In the case of non asset backed risks (i.e. market and operational risk), RWA is determined by multiplying the capital requirements for those risks by 12.5.

Settlement balances owed to/by ANZ represent financial assets and/or liabilities which are in the course of being settled. These may include trade dated assets and liabilities, nostro/vostro accounts and securities settlement accounts.

120

DEFINITIONS

Description of divisions

During the March 2018 half:

•

the Group transferred Wealth Australia businesses to be divested and associated Group reclassification and consolidation impacts to discontinued operations;

•

the Corporate business, formerly part of the Corporate and Commercial Banking business within the Australia division, was transferred to the Institutional division;

•

the residual Asia Retail and Wealth businesses in Philippines, Japan and Cambodia not sold as part of the Asia Retail and Wealth divestment have been transferred to the Institutional division; and

•

Australia

The Australia division comprises the Retail and Business & Private Banking (B&PB) business units.

•

Retail provides products and services to consumer customers in Australia via the branch network, mortgage specialists, the contact centre and a variety of self-service channels (internet banking, phone banking, ATMs, website and digital banking) and third party brokers.

•

B&PB provides a full range of banking products and financial services, including asset financing, across the following customer segments: medium to large commercial and agribusiness customers across regional Australia, small business owners and high net worth individuals and family groups.

Institutional

The Institutional division services global institutional and business customers across three product sets: Transaction Banking, Loans & Specialised Finance and Markets.

•

Transaction Banking provides working capital and liquidity solutions including documentary trade, supply chain financing as well as cash management solutions, deposits, payments and clearing.

•

Loans & Specialised Finance provides loan products, loan syndication, specialised loan structuring and execution, project and export finance, debt structuring and acquisition finance, structured trade and asset finance, and corporate advisory.

•

Markets provide risk management services on foreign exchange, interest rates, credit, commodities and debt capital markets in addition to managing the Group’s interest rate exposure and liquidity position.

New Zealand

The New Zealand division comprises the Retail and Commercial business units.

•

Retail provides a full range of banking and wealth management services to consumer, private banking and small business banking customers. We deliver our services via our internet and app-based digital solutions and network of branches, mortgage specialists, relationship managers and contact centres.

•

Commercial provides a full range of banking services including traditional relationship banking and sophisticated financial solutions through dedicated managers focusing on privately owned medium to large enterprises and the agricultural business segment.

Wealth Australia

The retained Wealth Australia business includes lenders mortgage insurance, share investing, financial planning and general insurance distribution.

Refer to Note 11 for details on Wealth Australia discontinued operations.

Asia Retail & Pacific

The Asia Retail & Pacific division comprises the Asia Retail and Wealth, and the Pacific business units, connecting customers to specialists for their banking needs.

•

Asia Retail and Wealth provides general banking and wealth management services to affluent and emerging affluent retail customers via relationship managers, branches, contact centres and a variety of self-service digital channels (internet and mobile banking, phone and ATMs). Core products offered include deposits, credit cards, loans, investments and insurance. Refer to Note 11 for details on the sale of Asia Retail and Wealth businesses.

•

Pacific provides products and services to retail customers, small to medium-sized enterprises, institutional customers and Governments located in the Pacific Islands. Products and services include retail products provided to consumers, traditional relationship banking and sophisticated financial solutions provided to business customers through dedicated managers.

Technology, Services & Operations and Group Centre

TSO and Group Centre provide support to the operating divisions, including technology, group operations, shared services, property, risk management, financial management, strategy, marketing, human resources and corporate affairs. The Group Centre includes Group Treasury, Shareholder Functions and minority investments in Asia. Refer to Note 11 for details on TSO and Group Centre discontinued operations.

121

ASX APPENDIX 4D - CROSS REFERENCE INDEX


			Page

Details of the reporting period (4D Item 1)			After front cover

Results for Announcement to the Market (4D Item 2)			After front cover

Net Tangible Assets per security (4D Item 3)			13

Details of entities over which control has been gained or lost (4D Item 4)			105

Dividends and dividend dates (4D Item 5)			After front cover

Dividend Reinvestment Plan (4D Item 6)			After front cover

Details of associates and joint venture entities (4D Item 7)			105

122

ALPHABETICAL INDEX


	*PAGE*

Appendix 4D Cross Reference Index		122

Appendix 4D Statement		2

Auditor’s Review Report and Independence Declaration		108

Average Balance Sheet and Related Interest		114

Basis of Preparation		80

Capital Management		110

Changes in Composition of the Group		105

Condensed Consolidated Balance Sheet		77

Condensed Consolidated Cash Flow Statement		78

Condensed Consolidated Income Statement		75

Condensed Consolidated Statement of Changes in Equity		79

Condensed Consolidated Statement of Comprehensive Income		76

Contingent Liabilities and Contingent Assets		106

Credit Risk		98

Definitions		119

Deposits and Other Borrowings		93

Derivative Financial Instruments		118

Directors’ Declaration		107

Directors’ Report		74

Discontinued Operations		94

Dividends		87

Divisional Results		43

Earnings Per Share		88

Exchange Rates		118

Fair Value Measurement		100

Full Time Equivalent Staff		16

Group Results		17

Income		84

Income Tax Expense		86

Investments In Associates		105

Net Loans and Advances		91

Operating Expenses		85

Profit Reconciliation		67

Provision for Credit Impairment		92

Related Party Disclosures		105

Segment Analysis		89

Select Geographical Disclosures		117

Share Capital		104

Shareholders’ Equity		104

Subordinated Debt		97

Subsequent Events Since Balance Date		106

Summary		7

123

ALPHABETICAL INDEX

THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY

124

Macquarie Leasing Pty Ltd - FORM 8-K - EX-99.1 - June 5, 2018

Attached files