ANZ’s September 2017 Pillar 3 disclosure
2017
BASEL III
PILLAR 3
DISCLOSURE
AS AT 30 SEPTEMBER 2017
APS 330: PUBLIC DISCLOSURE
ANZ Basel III Pillar 3 Disclosure September 2017
1
Important notice
This
document has been prepared by Australia and New Zealand Banking Group Limited (ANZ)
to
meet its disclosure obligations under the Australian P r u d e n t i a l Regulation Authority
(
APRA) ADI Prudential Standard (APS) 330: Public Disclosure.
ANZ Basel III Pillar 3 Disclosure September 2017
2
TABLE OF CONTENTS
1
Chapter 1 – Highlights .............................................................................................................. 3
Chapter 2 – Introduction ........................................................................................................... 5
Purpose of this document ............................................................................................. 5
Chapter 3 - Risk appetite and governance .................................................................................. 6
Risk types ............................................................................................................................... 6
Risk appetite framework ........................................................................................................... 7
Risk management governance ................................................................................................... 7
Chapter 4 – Capital reporting and measurement ......................................................................... 9
Chapter 5 – Capital and capital adequacy .................................................................................. 10
Table 1 Capital disclosure template ......................................................................... 10
Table 2 Main features of capital instruments ............................................................. 22
Table 6 Capital adequacy ....................................................................................... 22
Chapter 6 – Credit risk ........................................................................................................... 26
Table 7 Credit risk – General disclosures .................................................................. 26
Table 8 Credit risk – Disclosures for portfolios subject to the Standardised approach and
supervisory risk weights in the IRB approach................................................. 42
Table 9 Credit risk – Disclosures for portfolios subject to Advanced IRB approaches ...... 43
Table 10 Credit risk mitigation disclosures ................................................................. 53
Table 11 General disclosures for derivative and counterparty credit risk ........................ 58
Chapter 7 – Securitisation ...................................................................................................... 62
Table 12 Banking Book - Securitisation disclosures ...................................................... 65
Trading Book - Securitisation disclosures ...................................................... 73
Chapter 8 – Market risk .......................................................................................................... 76
Table 13 Market risk – Standard approach ................................................................. 76
Table 14 Market risk – Internal models approach ........................................................ 77
Chapter 9 - Operational risk .................................................................................................... 81
Table 15 Operational risk ........................................................................................ 81
Chapter 10 – Equities ............................................................................................................ 87
Table 16 Equities – Disclosures for banking book positions ........................................... 87
Chapter 11 – Interest Rate Risk in the Banking Book .................................................................. 89
Table 17 Interest Rate Risk in the Banking Book ......................................................... 89
Chapter 12 – Leverage and Liquidity Coverage Ratio .................................................................. 92
Glossary ......................................................................................................................
......... 95
1
Each table reference adopted in this document aligns to those required by APS 330 to be disclosed at half year.
ANZ Basel III Pillar 3 Disclosure September 2017
3
Chapter 1 – Highlights
EAD up $3.7bn to $903bn for 2H17
• Underlying movement primarily driven
by growth in Residential Mortgage asset
class offset by reduction in Standardised
portfolio from the partial completion of
the Retail Asia and Wealth sale.
*Exposure at Default is post Credit Risk Mitigation (CRM) and does
not include Securitisation, Equities or Other Assets.
Impaired Assets down $551m, -18%
HoH
• Decrease in Impaired Assets HoH driven
by Institutional and New Zealand divisions
with higher repayments and upgrades on
a small number of large exposures,
combined with reductions in Retail Asia
and Pacific division due to the partial
completion of the Asia Retail and Wealth
sale.
Strong capital position at September
2017
• The CET1 ratio of 10.6% at 30
September 2017 positions ANZ well to
achieve APRA’s “unquestionably strong”
requirements well ahead of the 2020
implementation.
• Capital ratios have increased in the half
to September 2017 mainly due to
reduction in underlying credit RWA in
Institutional, cash earnings generation,
and benefit from partial settlement of the
Asia Retail and Wealth sale. This was
partly offset by payment of the Interim
2017 dividends and implementation of
ANZ’s new Australian mortgages capital
model.
• ANZ’s capital ratios are in excess of
APRA’s Capital Conservation Buffer (CCB)
requirements. The CCB incorporates an
additional 1% Domestically Systemic
Important Bank (D-SIB) CET1
requirement.
* Internationally Comparable methodology aligns with APRA’s
information paper entitled International Capital Comparison Study (13
Jul
y 2015).
ANZ Basel III Pillar 3 Disclosure September 2017
4
*Exposure at Default is post Credit Risk Mitigation (CRM) and does not include Securitisation, Equities or Other Assets.
Provision coverage remains sound
• The total provision ratio decreased
by 6bps HoH to 1.13%. Collective
Provision ratio decreased by 2bps to
0.79% and continues to provide
adequate coverage.
• September 2016 to September 2017
reporting period includes the impact of
regulatory changes and revised capital
models on the Australian mortgages
Credit RWA. Excluding these changes,
CP balance as a % of Credit RWA
increases to 88bps.
Credit Risk Weighted Assets
(CRWA) decreased by $5.0bn
HoH.
• FX movements decreased CRWA by
$0.9bn, mainly driven by appreciation
of AUD against US and NZ currencies.
• CRWA decreased by $9.7bn driven
by portfolio contraction in Institutional
business and partial completion of
Retail Asia and Wealth portfolio and
partially offset by an increase in
Australia Residential Mortgages.
ANZ Basel III Pillar 3 Disclosure September 2017
5
Chapter 2 - Introduction
Purpose of this document
This document has been prepared in accordance with the Australian Prudential Regulation Authority
(APRA) ADI Prudential Standard (APS) 330: Public Disclosure.
APS 330 mandates the release to the investment community and general public of information relating
to capital adequacy and risk management practices. APS 330 was established to implement Pillar 3 of
the Basel Committee on Banking Supervision’s framework for bank capital adequacy
2
. In simple
terms, the Basel framework consists of three mutually reinforcing ‘Pillars’:
Pillar 1
Minimum capital requirement
Pillar 2
Supervisory review process
Pillar 3
Market discipline
Minimum capital requirements
for Credit Risk, Operational
Risk, Market Risk and Interest
Rate Risk in the Banking Book
Firm-wide risk oversight,
Internal Capital Adequacy
Assessment Process (ICAAP),
consideration of additional risks,
capital buffers and targets and
risk concentrations, etc.
Regular disclosure to the
market of qualitative and
quantitative aspects of risk
management, capital adequacy
and underlying risk metrics
APS 330 requires the publication of various levels of information on a quarterly, semi-annual and
annual basis. This document is the annual disclosure.
Basel in ANZ
In December 2007, ANZ received accreditation for the most advanced approaches permitted under
Basel for credit risk and operational risk, complementing its accreditation for market risk. Effective
January 2013, ANZ adopted APRA requirements for Basel III with respect to the measurement and
monitoring of regulatory capital.
Verification of disclosures
These Pillar 3 disclosures have been verified in accordance with Board approved policy, including
ensuring consistency with information contained in ANZ’s Financial Report and in Pillar 1 returns
provided to APRA. In addition ANZ’s external auditor has performed an agreed upon procedure review
with respect to these disclosures.
Comparison to ANZ’s Financial Reporting
These disclosures have been produced in accordance with regulatory capital adequacy concepts and
rules, rather than in accordance with accounting policies adopted in ANZ’s financial reports. As such,
there are different areas of focus and measures in some common areas of disclosures. These
differences are most pronounced in the credit risk disclosures, for instance:
The principal method for measuring the amount at risk is Exposure at Default (EAD), which is the
estimated amount of exposure likely to be owed on a credit obligation at the time of default.
Under the Advanced Internal Ratings Based (AIRB) approach in APS 113 Capital Adequacy:
Internal Ratings-based Approach to Credit Risk, banks are accredited to provide their own
estimates of EAD for all exposures (drawn, commitments or contingents) reflecting the current
balance as well as the likelihood of additional drawings prior to default.
Loss Given Default (LGD) is an estimate of the amount of losses expected in the event of default.
LGD is essentially calculated as the amount at risk (EAD) less expected net recoveries from
realisation of collateral as well as any post default repayments of principal and interest.
Most credit risk disclosures split ANZ’s portfolio into regulatory asset classes, which span different
areas of ANZ’s internal divisional and business unit organisational structure.
Unless otherwise stated, all amounts are rounded to AUD millions.
2
Basel Committee on Banking Supervision, International Convergence of Capital Measurement and Capital
Standards: A Revised Framework, 2004.
ANZ Basel III Pillar 3 Disclosure September 2017
6
Chapter 3 – Risk appetite and governance
Risk types: ANZ is exposed to a broad range of inter-related business risks.
Credit risk is the risk of financial loss resulting from a counterparty failing to fulfil its obligations,
or from a decrease in credit quality of a counterparty resulting in a loss in value.
Market risk stems from ANZ’s trading and balance sheet activities and is the risk to ANZ’s
earnings arising from changes in interest rates, foreign exchange rates, credit spreads, volatility,
correlations or from fluctuations in bond, commodity or equity prices.
Securitisation risk is the risk of credit related losses greater than expected due to a
securitisation failing to operate as anticipated, or of the values and risks accepted or transferred,
not emerging as expected.
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people
and systems, or from external events. This definition includes legal risk, and the risk of reputation
loss, or damage arising from inadequate or failed internal processes, people and systems, but
excludes strategic risk.
Equity risk is the risk of financial loss arising from the unexpected reduction in value of equity
investments not held in the trading book including those of the Group’s associates.
Capital Adequacy risk is the risk of loss arising from ANZ failing to maintain the level of capital
required by prudential regulators and other key stakeholders (shareholders, debt investors,
depositors, rating agencies etc.) to support ANZ's consolidated operations and risk appetite. Losses
also include those arising from diminished reputation, a reduction in investor/counter-party
confidence, regulatory non-compliance (e.g. fines and banking license restrictions) and an inability
for ANZ to continue to do business.
Compliance risk is defined as the probability and impact of an event that results in a failure to
act in accordance with laws, regulations, industry standards and codes, internal policies and
procedures and principles of good governance as applicable to ANZ’s businesses.
Liquidity and Funding 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.
Reputation risk
3
is defined as the risk of loss caused by adverse perceptions of ANZ held by the
public, the media, depositors, shareholders, investors, regulators, or rating agencies that directly
or indirectly impact earnings, capital adequacy or value.
Insurance risk is defined as the risk of unexpected losses resulting from worse than expected
claims experience (variation in timing and amount of insurance claims due to incidence or non-
incidence of death, sickness, disability or general insurance claims) and includes inadequate or
inappropriate underwriting, claims management, reserving, insurance concentrations, reinsurance
management, product design and pricing which will expose an insurer to financial loss and the
consequent inability to meet its liabilities.
Reinsurance risk - Reinsurance is an agreement in which one insurer (‘the reinsurer’) indemnifies
another insurer for all or part of the risk of a policy originally issued and assumed by that other
insurer. Reinsurance is a risk transfer tool between the insurer and reinsurer. The main risk that
arises with reinsurance is counterparty credit risk. This is the risk that a reinsurer fails to meet
their contractual obligations, i.e. to pay reinsurance claims when due. This risk is measured by
assigning a counterparty credit rating or probability of default. Reinsurance counterparty credit risk
is mitigated by restricting counterparty exposures on the basis of financial strength and
concentration.
Strategic risks are risks that affect or are created by an organisation’s business strategy and
strategic objectives. Where the strategy leads to an increase in other Key Material Risks (e.g.
Credit Risk, Market Risk, Operational Risk) the risk management strategies associated with these
risks form the primary controls.
3
Regulatory Capital is calculated in accordance with the definition of Operational Risk outlined in APS 115 Capital
Adequacy: Advanced Measurement Approaches to Operational Risk, and therefore excludes reputation risk
considerations.
ANZ Basel III Pillar 3 Disclosure September 2017
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Risk Appetite Framework
ANZ's Board is ultimately responsible for ANZ’s risk management framework, which includes the
Group Risk Appetite Statement (RAS). The Group RAS is the document which clearly and concisely
sets out the Board’s expectations regarding the degree of risk that ANZ is prepared to accept in
pursuit of its strategic objectives and business plan.
The articulation of risk appetite and risk tolerances is central to the risk appetite statement. ANZ’s
Group RAS conveys the following:
The degree of risk (risk appetite) that ANZ is prepared to accept in pursuit of its strategy,
objectives and business plans with consideration of its shareholders’ and customers’ best interests.
For each material risk, ANZ has set the maximum level of risk (risk tolerance) that it is willing to
operate within, expressed as a risk limit and based on its risk appetite, risk profile and capital
strength. Risk tolerances translate risk appetite into operational limits for the day-to-day
management of material risks, where possible.
The process for ensuring that risk tolerances are set at an appropriate level, based on an estimate
of the impact in the event that a risk tolerance is breached, and the likelihood that each material
risk is realised.
The process for monitoring compliance with each risk tolerance and for taking appropriate action in
the event that it is breached; and
The timing and process for review of the risk appetite and risk tolerances.
Risk management governance
ANZ’s Board has ultimate responsibility for establishing processes, and monitoring the effectiveness of
the processes for risk management. There are five key committees focused on risks that impact
regulatory capital.
Risk Committee
The Board is principally responsible for overseeing the establishment by
management of a sound risk management culture with an operational
structure and the necessary resources to facilitate effective risk management
throughout ANZ, and which in turn supports the ability of ANZ to operate
consistently within its risk appetite and approves the risk appetite within
which management is expected to operate and including ANZ’s risk appetite
statement and risk management strategy. The purpose of the Risk Committee
is to assist the Board of Directors in the effective discharge of its
responsibilities for business, market, credit, equity and other investment,
financial, operational, liquidity and reputational risk management and for the
management of the Group’s compliance obligations. The Risk Committee also
assists the Board by providing an objective non-executive oversight of the
implementation by management of ANZ’s risk management framework and its
related operation and by enabling an institution-wide view of ANZ’s current
and future risk position relative to its risk appetite and capital strength. The
Committee meets at least four times annually.
Audit Committee
Assists the Board of Directors in reviewing: financial reporting principles and
policies, controls and procedures; the effectiveness of ANZ's internal control
and risk management framework; the integrity of ANZ’s financial statements
and the independent audit thereof and compliance with related legal and
regulatory requirements; due diligence procedures; prudential supervision
procedures and other regulatory requirements to the extent relating to
financial reporting and for reviewing reports from major subsidiary audit
committees. It is also responsible for the appointment and evaluation of the
external auditor. The Committee meets at least four times annually.
Environment,
Sustainability and
Governance
Committee
Amongst other matters, the Committee reviews the development of and
approves all other corporate governance policies and principles applicable to
ANZ and ensures an appropriate Board and Committee structure is in place. It
ensures there is a robust and effective process for evaluating the performance
of the Board, Board Committees and Non-Executive Directors. It also
approves corporate sustainability objectives and reviews their progress in
achieving them and provides advice to management on sustainability issues
within ANZ. The Committee meets at least twice annually.
ANZ Basel III Pillar 3 Disclosure September 2017
8
Digital Business
and Technology
Committee
The purpose of the Committee is to assist the Board of Directors in the
effective discharge of its responsibilities in connection with the oversight of
ANZ’s digital transformation, information technology, and technology-related
innovation strategies. The Committee meets at least three times annually.
Human Resource
Committee
Is responsible for, among other matters, reviewing and making
recommendations to the Board on the design of executive remuneration
structures and significant incentive plans and the Group’s Remuneration
Policy. It also approves most key executive appointments, reviews senior
executive succession plans and monitors the effectiveness of ANZ’s culture,
employee engagement and diversity and inclusion programs. The Committee
meets at least four times annually.
The above Committees are exclusively comprised of non-executive directors. Members, including the
Chair are appointed by the Board and serve at the discretion of the Board and for such term or terms
as the Board determines. Internal Audit provides independent and objective assurance around ANZ’s
risk management and control effectiveness, and the Head of Internal Audit reports directly and solely
to the Chair of the Audit Committee.
Executive Management Committees are responsible for co-ordination of risk matters for each of the
areas of risk management. The Executive Management Committees most relevant to the risks
described above and overall capital management at ANZ are as follows:
Group Asset and Liability Committee (GALCO)
GALCO is responsible for the oversight and strategic management of the ANZ’s balance sheet,
liquidity and funding positions and capital management activities. The committee meets at least
four times per year, or on an ‘as required’ basis.
Capital Management Policy Committee (CMPC)
CMPC is responsible for the oversight and control of the Group’s capital and portfolio measurement
framework, addressing economic and regulatory capital requirements and is also responsible for
making capital management and portfolio measurement related recommendations to the Risk
Committee and ANZ Board. The committee meets six times per year or on an ‘as required’ basis.
CMPC is a sub-committee of GALCO.
Credit and Market Risk Committee (CMRC)
CMRC is responsible for the oversight and control of credit, market, insurance and material
financial risks across the ANZ Group. The committee meets monthly, or on an ‘as required’ basis.
Credit Ratings System Oversight Committee (CRSOC)
CRSOC oversees and controls the internal ratings system for credit risk in the wholesale and retail
sectors, including credit model approvals and performance monitoring. CRSOC is assisted in its
rating systems governance role by the Wholesale Ratings Working Group and the Retail Ratings
Working Group. The committee meets four times per year or more frequently on an ‘as required’
basis. CRSOC is a sub-committee of CMRC.
Operational Risk Executive Committee (OREC)
OREC is responsible for oversight of Operational Risk and Compliance Risk expected and
unexpected risk profile and the related Control Environment. The committee meets at least four
times per year, or on an ‘as required’ basis.
Responsible Business Committee (RBC)
The Responsible Business Committee (RBC) is a leadership and decision making body that exists to
advance ANZ’s purpose, through considering who we bank and how we bank them. The committee
focuses on social, environmental and reputational risk matters.
Stress Testing Oversight Committee (STOC)
STOC is responsible for the oversight and control of the Group’s stress testing framework,
modelling and processes. The committee meets three times per year, or on an ‘as required’ basis.
STOC is a sub-committee of CMPC.
Processes and procedures relating to the operation of each of the Executive Management Committees
are documented in the committee charters.
ANZ Basel III Pillar 3 Disclosure September 2017
9
Chapter 4 – Capital reporting and measurement
Capital reporting and measurement
To ensure that an Authorised Deposit-taking Institution (ADI) is adequately capitalised on both a
standalone and group basis, APRA adopts a tiered approach to the measurement of an ADI’s capital
adequacy by assessing the ADI’s financial strength at three levels:
Level 1 - being the ADI i.e. Australia and New Zealand Banking Group Limited, consolidated with
APRA approved subsidiaries, to form the ADI’s Extended Licensed Entity (ELE).
Level 2 - being the consolidated group for financial reporting purposes adjusted to exclude
associates activities and certain subsidiaries referenced under APS 001: Definitions that undertake
the following business activities:
Insurance businesses (including friendly societies and health funds).
Acting as manager, responsible entity, approved trustee, trustee or similar role in relation to
funds management.
Non-financial (commercial) operations.
Securitisation special purpose vehicles to which assets have been transferred in accordance
with APRA's requirements as set out in APS 120: Securitisation.
Level 3 – the consolidated group for financial reporting purposes.
ANZ measures capital adequacy monthly and reports for prudential purposes on a Level 1 and Level 2
basis.
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. The non-capital components of the Level 3 framework relating to group
governance, intragroup transactions and other risk management and compliance requirements were
effective from 1 July 2017 and have no material impact on the Group’s capital position.
Based upon the current versions of the Level 3 standards covering capital adequacy, ANZ is not
expecting any material impact on its operations.
This Pillar 3 report is based on the Level 2 prudential structure.
Refer to Note 24 Controlled Entities of ANZ’s 2017 Annual Report for a list of all material subsidiaries
and a brief description of their key activities.
ANZ Basel III Pillar 3 Disclosure September 2017
10
Chapter 5 – Capital and Capital Adequacy
Table 1 Capital Disclosure template
The head of the Level 2 Group to which this prudential standard applies is Australia and New Zealand
Banking Group Limited.
Table 1 of this chapter consists of a Capital Disclosure template that assists users in understanding
the differences between the application of the Basel III reforms in Australia and those rules as detailed
in the document Basel III: A global regulatory framework for more resilient banks and banking
systems, issued by the Bank for International Settlements. The capital disclosure template in this
chapter is the post January 2018 version as ANZ is fully applying the Basel III regulatory adjustments,
as implemented by APRA. Note that the capital conservation and countercyclical buffers referred to in
rows 64 to 67 have been effective since 1 January 2016 and the phase out period for capital
instruments began on 1 January 2013.
The information in the lines of the template has been mapped to ANZ’s Level 2 balance sheet, which
adjusts for non-consolidated subsidiaries as required under APS 001: Definitions. Where this
information cannot be mapped on a one to one basis, it is provided in an explanatory table. ANZ’s
material non-consolidated subsidiaries are also listed in this chapter.
Restrictions on Transfers of Capital within ANZ
ANZ operates branches and locally incorporated subsidiaries in many countries. These operations are
capitalised at an appropriate level to cover the risks in the business and to meet local prudential
requirements. This level of capitalisation may be enhanced to meet local taxation and operational
requirements. Any repatriation of capital from subsidiaries or branches is subject to meeting the
requirements of the local prudential regulator and/or the local central bank. Apart from ANZ’s
operations in New Zealand, local country capital requirements do not impose any material call on
ANZ’s capital base. ANZ undertakes banking activities in New Zealand principally through its wholly
owned subsidiary, ANZ Bank New Zealand Limited, which is subject to minimum capital requirements
as set by the Reserve Bank of New Zealand (RBNZ). The RBNZ adopted the Basel II framework,
effective from 1 January 2008 and Basel III reforms from 1 January 2013 and ANZ Bank New Zealand
Limited has been accredited to use the advanced approach for the calculation of credit risk and
operational risk. ANZ Bank New Zealand Limited maintains a buffer above the minimum capital base
required by the RBNZ. This capital buffer has been calculated via the ICAAP undertaken for ANZ Bank
New Zealand Limited, to ensure ANZ Bank New Zealand Limited is appropriately capitalised under
stressed economic scenarios.
ANZ Basel III Pillar 3 Disclosure September 2017
11
Table 1 Capital disclosure template
Sep 17
Reconciliation
Table
Reference
$M
Common Equity Tier 1 Capital: instruments and reserves
1 Directly issued qualifying ordinary shares (and equivalent for mutually-owned entities) capital 29,213
Table A
2 Retained earnings 29,125
Table B
3 Accumulated other comprehensive income (and other reserves) 76
Table C
4
Directly issued capital subject to phase out from CET1 (only applicable to mutually-owned
companies)
n/a
5
Ordinary share capital issued by subsidiaries and held by third parties (amount allowed in group
CET1)
51
Table D
6 Common Equity Tier 1 capital before regulatory adjustments 58,465
Common Equity Tier 1 capital : regulatory adjustments
7 Prudential valuation adjustments -
8 Goodwill (net of related tax liability) 3,553 Table E
9 Other intangibles other than mortgage servicing rights (net of related tax liability) 3,926 Table F
10
Deferred tax assets that rely on future profitability excluding those arising from temporary
differences (net of related tax liability)
- Table J
11 Cash-flow hedge reserve 131
12 Shortfall of provisions to expected losses 719 Table G
13 Securitisation gain on sale -
14 Gains and losses due to changes in own credit risk on fair valued liabilities (6)
15 Defined benefit superannuation fund net assets 98 Table H
16 Investments in own shares (if not already netted off paid-in capital on reported balance sheet) -
17 Reciprocal cross-holdings in common equity -
18
Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the ADI does not own more than 10%
of the issued share capital (amount above 10% threshold)
-
19
Significant investments in the ordinary shares of banking, financial and insurance entities that are
outside the scope of regulatory consolidation, net of eligible short positions (amount above 10%
threshold)
1,634 Table I
20 Mortgage service rights (amount above 10% threshold) n/a
21
Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related
tax liability)
-
22 Amount exceeding the 15% threshold -
23 of which: significant investments in the ordinary shares of financial entities -
24 of which: mortgage servicing rights n/a
25 of which: deferred tax assets arising from temporary differences -
26 National specific regulatory adjustments (sum of rows 26a - 26j) 7,074
26a of which: treasury shares -
26b
of which: offset to dividends declared under a dividend reinvestment plan (DRP), to the extent
that the dividends are used to purchase new ordinary shares issued by the ADI
-
26c of which: deferred fee income (131)
26d of which: equity investments in financial institutions not reported in rows 18, 19 and 23 5,028 Table I
26e of which: deferred tax assets not reported in rows 10, 21 and 25 946 Table J
26f of which: capitalised expenses 1,149 Table K
26g
of which: investments in commercial (non-financial) entities that are deducted under APRA
prudential requirements
48 Table L
26h of which: covered bonds in excess of asset cover in pools -
26i of which: undercapitalisation of a non-consolidated subsidiary -
26j of which: other national specific regulatory adjustments not reported in rows 26a to 26i 34
27
Regulatory adjustments applied to CET1 due to insufficient Additional Tier 1 and Tier 2 to cover
deductions
-
28 Total regulatory adjustments to CET1 17,129
29 Common Equity Tier 1 Capital (CET1) 41,336
ANZ Basel III Pillar 3 Disclosure September 2017
12
Sep 17
Reconciliation
Table
Reference
$M
Additional Tier 1 Capital: instruments
30 Directly issued qualifying Additional Tier 1 instruments 7,528 Table M
31 of which: classified as equity under applicable accounting standards -
32 of which: classified as liabilities under applicable accounting standards 7,528 Table M
33 Directly issued capital instruments subject to phase out from Additional Tier 1 573 Table M
34
Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries
and held by third parties (amount allowed in group AT1)
293 Table M
35 of which: instruments issued by subsidiaries subject to phase out n/a
36 Additional Tier 1 Capital before regulatory adjustments 8,394
Additional Tier 1 Capital: regulatory adjustments
37 Investments in own Additional Tier 1 instruments -
38 Reciprocal cross-holdings in Additional Tier 1 instruments -
39
Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the ADI does not own more than 10%
of the issued share capital (amount above 10% threshold)
-
40
Significant investments in the capital of banking, financial and insurance entities that are outside the
scope of regulatory consolidation (net of eligible short positions)
405 Table M
41 National specific regulatory adjustments (sum of rows 41a - 41c) 1
41a
of which: holdings of capital instruments in group members by other group members on behalf of
third parties
-
41b
of which: investments in the capital of financial institutions that are outside the scope of
regulatory consolidations not reported in rows 39 and 40
-
41c of which: other national specific regulatory adjustments not reported in rows 41a and 41b 1 Table M
42 Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions -
43 Total regulatory adjustments to Additional Tier 1 capital 406
44 Additional Tier 1 capital (AT1) 7,988 Table M
45 Tier 1 Capital (T1=CET1+AT1) 49,324
Tier 2 Capital: instruments and provisions
46 Directly issued qualifying Tier 2 instruments 6,206 Table N
47 Directly issued capital instruments subject to phase out from Tier 2 1,583 Table N
48
Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 34) issued by
subsidiaries and held by third parties (amount allowed in group T2)
815
49 of which: instruments issued by subsidiaries subject to phase out 815 Table N
50 Provisions 200 Table G
51 Tier 2 Capital before regulatory adjustments 8,804
Tier 2 Capital: regulatory adjustments
52 Investments in own Tier 2 instruments 10 Table N
53 Reciprocal cross-holdings in Tier 2 instruments -
54
Investments in the Tier 2 capital of banking, financial and insurance entities that are outside the
scope of regulatory consolidation, net of eligible short positions, where the ADI does not own more
than 10% of the issued share capital (amount above 10% threshold)
-
55
Significant investments in the Tier 2 capital of banking, financial and insurance entities that are
outside the scope of regulatory consolidation, net of eligible short positions
85 Table N
56 National specific regulatory adjustments (sums of rows 56a - 56c) 40
56a
of which: holdings of capital instruments in group members by other group members on behalf of
third parties
-
56b
of which: investments in the capital of financial institutions that are outside the scope of
regulatory consolidation not reported in rows 54 and 55
40 Table N
56c of which: other national specific regulatory adjustments not reported in rows 56a and 56b -
57 Total regulatory adjustments to Tier 2 capital 135
58 Tier 2 capital (T2) 8,669 Table N
59 Total capital (TC=T1+T2) 57,993
60 Total risk-weighted assets based on APRA standards 391,113
ANZ Basel III Pillar 3 Disclosure September 2017
13
Sep 17
Reconciliation
Table
Reference
$M
Capital ratios and buffers
61 Common Equity Tier 1 (as a percentage of risk-weighted assets)
10.6%
62 Tier 1 (as a percentage of risk-weighted assets)
12.6%
63 Total capital (as a percentage of risk-weighted assets)
14.8%
64
Institution specific buffer requirement (minimum CET1 requirement plus capital conservation buffer
plus countercyclical buffer requirements plus G-SIBs buffer requirement, expressed as a percentage
of risk-weighted assets) - not applicable until
8.017%
65 of which: capital conservation buffer requirement 3.5%
4
66 of which: ADI-specific countercyclical buffer requirements 0.017%
67 of which: G-SIB buffer requirement (not applicable) n/a
68 Common Equity Tier 1 available to meet buffers (as a percentage of risk-weighted assets) 6.1%
National minima (if different from Basel III)
69 National Common Equity Tier 1 minimum ratio (if different from Basel III minimum) n/a
70 National Tier 1 minimum ratio (if different from Basel III minimum) n/a
71 National total capital minimum ratio (if different from Basel III minimum) n/a
Amount below thresholds for deductions (not risk-weighted)
72 Non-significant investments in the capital of other financial entities 64
73 Significant investments in the ordinary shares of financial entities 5,004
Table I
74 Mortgage servicing rights (net of related tax liability) n/a
75 Deferred tax assets arising from temporary differences (net of related tax liability) 946
Table J
Applicable caps on the inclusion of provisions in Tier 2
76
Provisions eligible for inclusion in Tier 2 in respect of exposures subject to standardised approach
(prior to application of cap)
200
77 Cap on inclusion of provisions in Tier 2 under standardised approach 295
78
Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based
approach (prior to application of cap)
-
79 Cap for inclusion of provisions in Tier 2 under internal ratings-based approach 1,879
Capital instruments subject to phase-out arrangements (only application between 1 January
2018 to 1 January 2022)
80 Current cap on CET1 instruments subject to phase out arrangements n/a
81 Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities) n/a
82 Current cap on AT1 instruments subject to phase out arrangements 2,991
83
Amount excluded from AT1 instruments due to cap (excess over cap after redemptions and
maturities)
-
84 Current cap on T2 instruments subject to phase out arrangements 3,435
85 Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) -
Counter Cyclical Capital Buffer
Geographic breakdown of Private Sector Credit
Exposures
Hong Kong
$M
Sweden
$M
Norway
$M
Other
$M
Total
$M
RWA for all private sector credit exposures 3,064 388 425 306,265 310,142
Jurisdictional buffer set by national authorities 1.250% 2.000% 1.500% 0.000% n/a
Countercyclical buffer requirement
0.012% 0.003% 0.002% 0.000% 0.017%
4
Includes 1.0% buffer applied by APRA to ADI’s deemed as domestic systemically important.
ANZ Basel III Pillar 3 Disclosure September 2017
14
The following table shows ANZ's consolidated balance sheet and the adjustments required to derive
the Level 2 balance sheet. The adjustments remove the external assets and liabilities of the entities
deconsolidated for prudential purposes and reinstate any intragroup assets and liabilities, treating
them as external to the Level 2 group.
Balance
Sheet as in
published
financial
statements Adjustments
Balance
sheet under
scope of
regulatory
consolidation
Template and
Reconciliation
Table
Reference
Assets $M $M $M
Cash and Cash Equivalents 68,048 30 68,078
Settlement balances owed to ANZ 5,504 - 5,504
Collateral Paid 8,987 - 8,987
Trading securities 43,605 - 43,605
of which: Financial Institutions capital instruments 40 Table N
of which: Investments in the capital of financial institutions
10 Table N
Derivative financial instruments 62,518 (2) 62,516
Available-for-sale assets 69,384 (1,607) 67,777
of which: significant investment in Financial institutions
equity instruments
676
Table I
of which: non-significant investment in financial
institutions equity instruments
23
Table I
of which: Other entities equity investments
38
Table L
Net loans and advances
574,331 (1,627) 572,704
of which: deferred fee income
(131)
Row 26c
of which: collective provision
(2,662)
Table G
of which: individual provisions
(1,136)
Table G
of which: capitalised brokerage 1,057 Table K
of which: Other equity exposures
1
Table L
of which: CET1 margin lending adjustment
34
Row 26j
of which: AT1 margin lending adjustment
1
Table M
Regulatory deposits 2,015 - 2,015
Assets held for sale 7,970 - 7,970
of which: Goodwill 122 Table E
of which: Significant investment in financial institutions 1,868 Table I
Due from controlled entities - 1,719 1,719
of which: Significant investments in the Tier 2 capital of
banking, financial and insurance entities that are outside
the scope of regulatory consolidation
85 Table N
Shares in controlled entities
- 4,747 4,747
of which: Investment in deconsolidated financial
subsidiaries
4,342 Table I
of which: AT1 significant investment in banking, financial
and insurance entities that are outside the scope of
regulatory consolidation
405 Table M
Investments in associates 2,248 (2) 2,246
of which: Financial Institutions
2,237
Table I
of which: Other Entities
9
Table L
Current tax assets
30 - 30
Deferred tax assets
675 97 772
Table J
Goodwill and other intangible assets
6,970 (1,846) 5,124
of which: Goodwill
3,264
Table E
of which: Software
1,860
Table F
of which: other intangible assets -
Table F
Investments backing policy liabilities
37,964 (37,964)
-
Premises and equipment
1,965 (2) 1,963
Other assets
5,112 (1,389) 3,723
of which: Defined benefit superannuation fund net assets 122
Total Assets 897,326 (37,846) 859,480
ANZ Basel III Pillar 3 Disclosure September 2017
15
Balance
Sheet as in
published
financial
statements
Adjustments
Balance
sheet under
scope of
regulatory
consolidation
Template and
Reconciliation
Table
Reference
Liabilities $M $M $M
Settlement balances owed by ANZ
9,914 (1) 9,913
Collateral Received
5,919 - 5,919
Deposits and other borrowings
595,611 5,270 600,881
Derivative financial instruments
62,252 (1) 62,251
Due to controlled entities
- 2,139 2,139
Current tax liabilities
241 (29) 212
Deferred tax liabilities
257 (317) (60) Table J
of which: related to intangible assets
34 Table F
of which: related to capitalised expenses
5
Table K
of which: related to defined benefit super assets 24
Table H
Liabilities held for sale
4,693 - 4,693
Policy liabilities
37,448 (37,448) -
External unit holder liabilities (life insurance funds)
4,435 (4,435) -
Provisions
1,158 (53) 1,105
Payables and other liabilities
8,350 (1,181) 7,169
Debt Issuances
90,263 (1,547) 88,716
Subordinated Debt
17,710 10 17,720
of which: Directly issued qualifying Additional Tier 1
instruments
7,422 Table M
of which: Directly issued capital instruments subject to
phase out from Additional Tier 1
573 Table M
of which: Additional Tier 1 Instruments 457 Table M
of which: Directly issued capital instruments subject to
phase out from Tier 2
2,284 Table N
of which: Directly issued qualifying Tier 2 instruments
6,206
Table N
of which: instruments issued by subsidiaries subject to
phase out
768 Table N
Total Liabilities 838,251 (37,593) 800,658
Net Assets 59,075 (253) 58,822
Balance
Sheet as in
published
financial
statements Adjustments
Balance
sheet under
scope of
regulatory
consolidation
Template and
Reconciliation
Table
Reference
Shareholders’ equity $M $M $M
Ordinary Share Capital
29,088 325 29,413
Table A
of which: Share reserve
200
Table A & C
Reserves
37 (85) (48)
Table C
of which: Cash flow hedging reserves
131
Row 11
Retained earnings
29,834 (491) 29,343
Table B
Share capital and reserves attributable to shareholders
of the Company
58,959 (251) 58,708
Non-controlling interest 116 (2) 114 Table D
Total shareholders’ equity 59,075 (253) 58,822
ANZ Basel III Pillar 3 Disclosure September 2017
16
The following reconciliation tables provide additional information on the difference between Table 1
Capital Disclosure template and the Level 2 balance sheet.
Sep 17 Table 1
Reference
Table A $M
Issued capital 29,413
less Reclassification to reserves (200) Table C
Regulatory Directly Issued qualifying ordinary shares 29,213 Row 1
Sep 17 Table 1
Reference
Table B $M
Retained earnings 29,343
less
Regulatory reclassification from significant investments in the ordinary shares of banking, financial
and insurance entities outside the scope of regulatory consolidation
(218) Table I
Retained earnings 29,125 Row 2
Sep 17 Table 1
Reference
Table C $M
Reserves (48)
add Reclassification from Issued Capital 200 Table A
less Non qualifying reserves (76)
Reserves for Regulatory capital purposes (amount allowed in group CET1) 76 Row 3
Sep 17 Table 1
Reference
Table D $M
Non-controlling interests 114
less Surplus capital attributable to minority shareholders (63)
Ordinary share capital issued by subsidiaries and held by third parties 51 Row 5
Sep 17 Table 1
Reference
Table E $M
Goodwill 3,264
add Goodwill reclassified to Assets held for Sale 122
add Goodwill component of investments in financial associates 167 Table I
Goodwill (net of related tax liability) 3,553 Row 8
Sep 17 Table 1
Reference
Table F $M
Software 1,860
Other intangible assets -
less Associated deferred tax liabilities (34)
add
Regulatory reclassification from significant investments in the ordinary shares of banking, financial
and insurance entities outside the scope of regulatory consolidation
2,100 Table I
Other intangibles other than mortgage servicing rights (net of related tax liability) 3,926 Row 9
ANZ Basel III Pillar 3 Disclosure September 2017
17
Sep 17 Table 1
Reference
Table G $M
Qualifying collective provision
Collective provision (2,662)
less Non-qualifying collective provision 352
less Standardised collective provision 200 Row 50
less Non-defaulted expected loss 2,829
Non-Defaulted: Expected Loss - Eligible Provision Shortfall 719
Qualifying individual provision
Individual provision (1,136)
add Additional individual provisions for partial write offs (300)
less Standardised individual provision 117
add Collective provision on advanced defaulted (320)
less Defaulted expected loss 1,634
Defaulted: Expected Loss - Eligible Provision Shortfall -
Gross deduction 719 Row 12
Table H
Sep 17
$M
Table 1
Reference
Defined benefit superannuation fund net assets 122
less Associated deferred tax liabilities (24)
Defined benefit superannuation fund net assets 98 Row 15
Sep 17 Table 1
Reference
Table I $M
Investment in deconsolidated financial subsidiaries 4,342
less Regulatory reclassification to Retained Earnings and Other Intangible Assets (2,318) Tables B & F
add Investment in financial associates 4,105
add Investment in financial institutions Available for Sale 676
less Goodwill component of investments in financial associates (167) Table E
less Amount below 10% threshold of CET 1 (5,004) Row 73
Significant investments in the ordinary shares of banking, financial and insurance entities
that are outside the scope of regulatory consolidation, net of eligible short positions
(amount above 10% threshold)
1,634 Row 19
add Amount below the 10% threshold of CET 1 5,004 Row 73
add
Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the ADI does not own more than 10%
of the issued share capital – trading security exposures
-
add
Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the ADI does not own more than 10%
of the issued share capital - Available for Sale exposures
23
Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the ADI does not own more than 10%
of the issued share capital - Loan exposures
-
Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the ADI does not own more than 10%
of the issued share capital - Undrawn
1
Equity investment in financial institutions not reported in rows 18, 19 and 23 5,028 Row 26d
Deduction for equity holdings in financial institutions - APRA regulations 6,662
ANZ Basel III Pillar 3 Disclosure September 2017
18
Sep 17 Table 1
ReferenceTable J $M
Deferred tax assets 772
add Deferred tax liabilities 60
DTL reclassed to Held for Sale 8
Deferred tax asset less deferred tax liabilities 840
less Deferred tax assets that rely on future profitability - Row 10
add
Deferred tax liabilities on intangible assets, capitalised expenses and defined benefit superannuation
assets
63
add Impact of calculating the deduction on a jurisdictional basis 43
Deferred tax assets not reported in rows 10, 21 and 25 of the Capital Disclosure Template 946 Row 26e
Sep 17 Table 1
ReferenceTable K $M
Capitalised brokerage costs 1,057
Capitalised debt and capital issuance expenses 97
less Associated deferred tax liabilities (5)
Capitalised expenses 1,149 Row 26f
Sep 17 Table 1
Reference
Table L $M
Investments in non-financial Available for Sale equities 38
Investments in non-financial associates 9
Non-financial equity exposures (loans) 1
Equity exposures to non-financial entities 48 Row 26g
Sep 17 Table 1
Reference
Table M $M
Directly issued qualifying Additional Tier 1 Capital Instruments classified as liabilities 7,422
add Issue costs 51
less Fair value adjustment 55
Directly issued qualifying Additional Tier 1 Capital Instruments classified as liabilities 7,528 Row 30
Directly issued capital instruments subject to phase out from Additional Tier 1 – loan capital 573
Directly issued capital instruments subject to phase out from Additional Tier 1 573 Row 33
Additional Tier 1 instruments issued by subsidiaries held by third parties 457
add Issue costs 3
Surplus capital attributable to third party holders (167)
add AT1 Instruments issued by subsidiaries and held by third parties (amounts allowed in Group AT1) 293 Row34
Additional Tier 1 capital before regulatory adjustments 8,394 Row 36
less
Significant investments in the capital of banking, financial and insurance entities that are outside the
scope of regulatory consolidation
(405) Row 40
Other national specific regulatory adjustments not reported (1) Row 41
Additional Tier 1 capital 7,988 Row 44
ANZ Basel III Pillar 3 Disclosure September 2017
19
Sep 17 Table 1
Reference
Table N $M
Directly issued capital instruments subject to phase out from Tier 2 2,284
add Issue costs 21
less Amortisation of Tier 2 Capital Instruments subject to Phase out (676)
less Fair value adjustment (46)
less Transition adjustment -
Directly issued capital instruments subject to phase out from Tier 2 1,583 Row 47
Instruments issued by subsidiaries subject to phase out from Tier 2 768
add Additional Tier capital 1 attributable to third party holders 47
Instruments issued by subsidiaries subject to phase out from Tier 2 815 Row 49
add Directly issued qualifying Tier 2 instruments 6,206 Row 46
add Provisions 200 Table G
Tier 2 capital before regulatory adjustments 8,804 Row 51
less Investments in own Tier 2 instruments (trading limit) (10) Row 52
less
Significant investments in the Tier 2 capital of banking, financial and insurance entities that are
outside the scope of regulatory consolidation, net of eligible short positions
(85) Row 55
less
Investments in the capital of financial institutions that are outside the scope of regulatory
consolidation not reported in rows 54 and 55
(40) Row 56b
Tier 2 capital 8,669 Row 58
ANZ Basel III Pillar 3 Disclosure September 2017
20
The following table provides details of entities included within the accounting scope of consolidation
but excluded from regulatory consolidation.
Entity Activity
Total Assets
($M)
Total Liabilities
($M)
ACN 008 647 185 Pty Ltd Holding Company - -
ANZ ILP Pty Ltd Incorporated Legal Practice 2 -
ANZ Investment Services (New Zealand) Limited Funds Manager 28 10
ANZ Lenders Mortgage Insurance Pty Limited Mortgage insurance 1,177 745
ANZ Life Assurance Company Pty Ltd Insurance - -
ANZ New Zealand Investments Limited Funds Manager 98 25
ANZ New Zealand Investments Nominees Limited Trustee/Nominee - -
ANZ Self Managed Super Ltd Investment - -
ANZ Wealth Alternative Investments Management Pty Ltd Investment 1,050 1,048
ANZ Wealth Australia Limited Holding Company / Corporate 2,729 -
ANZ Wealth New Zealand Limited Holding Company 473 -
ANZcover Insurance Private Ltd Captive-Insurance 96 38
AUT Administration Pty Ltd Corporate - -
Capricorn Financial Advisers Pty Ltd Advice - -
Elders Financial Planning Pty Ltd Advice 5 1
Financial Investment Network Group Pty Ltd Advice 106 -
Financial Lifestyle Solutions Pty Limited Advice 4 1
Financial Planning Hotline Pty Ltd Advice - -
Financial Services Partners Holdings Pty Limited Holding Company / Advice 2 -
Financial Services Partners Incentive Co Pty Limited Advice - -
Financial Services Partners Management Pty Limited Advice - -
Financial Services Partners Pty Ltd Advice 3 3
FSP Funds Management Limited Advice - -
FSP Group Pty Limited Holding Company / Advice 26 1
FSP Portfolio Administration Limited Advice - -
FSP Super Pty Limited Advice - -
Integrated Networks Pty Limited Holding Company / Advice 44 -
Kingfisher Trust 2016-1 Securitisation Trust
1,560 1,560
Looking Together Pty Ltd Property Price Information
5
Mercantile Mutual Financial Services Pty Ltd Investment - -
Millennium 3 Financial Services Group Pty Ltd Advice 41 6
Millennium 3 Financial Services Pty Ltd Advice 14 6
Millennium 3 Mortgage Platform Services Pty Limited Advice - -
Millennium 3 Professional Services Pty Ltd Advice 1 -
OASIS Asset Management Limited Investment 9 1
OASIS Fund Management Limited Superannuation 3 1
OneAnswer Nominees Limited Trustee/Nominee - -
OnePath Administration Pty Ltd Corporate 71 29
OnePath Custodians Pty Ltd Superannuation 48 2
OnePath Financial Planning Pty Ltd Advice 1 -
OnePath Funds Management Limited (RE) Investment 46 16
OnePath General Insurance Pty Ltd Insurance 121 77
OnePath Investment Holdings Pty Ltd Investment 7 -
OnePath Life (NZ) Limited Insurance 847 315
OnePath Life Australia Holdings Pty Ltd Holding Company / Corporate 3,000 -
OnePath Life Limited Insurance 41,002 38,446
Polaris Financial Solutions Pty Limited Advice - 1
ANZ Basel III Pillar 3 Disclosure September 2017
21
Entity Activity
Total Assets
($M)
Total Liabilities
($M)
RI Advice Group Pty Ltd Advice 18 -
RI Central Coast Pty Ltd Advice - -
RI Gold Coast Pty Ltd Advice - -
RI Maroochydore Pty Ltd Advice - -
RI Newcastle Pty Ltd Advice 1 -
RI Parramatta Pty Ltd Advice - -
RI Rockhampton & Gladstone Pty Ltd Advice - -
RI Townsville Pty Ltd Advice - -
Rieas Pty Ltd Advice - -
Shout for Good Pty Ltd Fund raising platform - -
Tandem Financial Advice Pty Limited Advice - -
Union Investment Company Pty Limited Advice - -
ANZ Basel III Pillar 3 Disclosure September 2017
22
Table 2 Main features of capital instruments
As the main features of ANZ’s capital instruments are updated on an ongoing basis, ANZ has provided
this information separately in the Regulatory Disclosures section of its website.
Table 3 Capital adequacy, Table 4 Credit risk, Table 5 Securitisation
The above tables are produced at the quarters ending 30 June and 31 December.
Table 6 Capital adequacy
Capital management
ANZ pursues an active approach to capital management, which is designed to protect the interests of
depositors, creditors and shareholders. This involves the on-going review and Board approval of the
level and composition of ANZ’s capital base, assessed against the following key policy objectives:
Regulatory compliance such that capital levels exceed APRA’s, ANZ’s primary prudential
supervisor, minimum Prudential Capital Ratios (PCRs) both at Level 1 (the Company and specified
subsidiaries) and Level 2 (ANZ consolidated under Australian prudential standards), along with US
Federal Reserve’s minimum Level 2 requirements under ANZ’s Foreign Holding Company Licence in
the United States of America;
Capital levels are aligned with the risks in the business and to meet strategic and business
development plans through ensuring that available capital exceeds the level of Economic Capital
required to support the Ratings Agency ‘default frequency’ confidence level for a ‘AA’ credit rating
category bank. Economic Capital is an internal estimate of capital levels required to support risk
and unexpected losses above a desired target solvency level; and
An appropriate balance between maximising shareholder returns and prudent capital management
principles.
ANZ achieves these objectives through an Internal Capital Adequacy Assessment Process (ICAAP)
whereby ANZ conducts detailed strategic and capital planning over a medium term time horizon.
Annually, ANZ conducts a detailed strategic planning process over a three year time horizon, the
outcomes of which are embodied in the Strategic Plan. This process involves forecasting key economic
variables which Divisions use to determine key financial data for their existing business. New strategic
initiatives to be undertaken over the planning period and their financial impact are then determined.
These processes are used for the following:
Review capital ratios, targets, and levels of different classes of capital against ANZ’s risk profile
and risk appetite outlined in the Strategic Plan. ANZ’s capital targets reflect the key policy
objectives above, and the desire to ensure that under specific stressed economic scenarios that
capital levels have sufficient capital to remain above both Economic Capital and PCR requirements;
Stress tests are performed under different economic conditions to ensure a comprehensive review
of ANZ’s capital position both before and after mitigating actions. The stress tests determine the
level of additional capital (i.e. the ‘stress capital buffer’) needed to absorb losses that may be
experienced during an economic downturn; and
Stress testing is integral to strengthening the predictive approach to risk management and is a key
component in managing risks, asset writing strategies and business strategies. It creates greater
understanding of the impacts on financial performance through modelling relationships and
sensitivities between geographic, industry and Divisional exposures under a range of macro-
economic scenarios. ANZ has a dedicated stress testing team within Risk Management that models
and reports to management and the Board’s Risk Committee on a range of scenarios and stress
tests.
Results are subsequently used to:
Recalibrate ANZ’s management targets for minimum and operating ranges for its respective classes
of capital such that ANZ will have sufficient capital to remain above both Economic Capital and
regulatory requirements; and
Identify the level of organic capital generation and hence determine current and future capital
issuance requirements for Level 1 and Level 2.
From these processes, a Capital Plan is developed and approved by the Board which identifies the
capital issuance requirements, capital securities maturity profile, and options around capital products,
timing and markets to execute the Capital Plan under differing market and economic conditions.
ANZ Basel III Pillar 3 Disclosure September 2017
23
The Capital Plan is maintained and updated through a monthly review of forecast financial
performance, economic conditions and development of business initiatives and strategies. The Board
and senior management are provided with monthly updates of ANZ’s capital position. Any actions
required to ensure ongoing prudent capital management are submitted to the Board for approval.
Regulatory environment
ANZ’s regulatory capital calculation is governed by APRA’s Prudential Standards which adopt a risk-
based capital assessment framework based on the Basel III capital measurement standards. This risk-
based approach requires eligible capital to be divided by total risk weighted assets (RWA), with the
resultant ratio being used as a measure of an Authorised Deposit-taking Institution’s (ADIs) capital
adequacy. APRA determines PCRs for Common Equity Tier 1 (CET1), Tier 1 and Total Capital, with
capital as the numerator and RWAs as the denominator.
Regulatory capital is divided into Tier 1, carrying the highest capital elements, and Tier 2, which has
lower capital elements, but still adds to the overall strength of the ADI.
Tier 1 capital is comprised of Common Equity Tier 1 capital less deductions and Additional Tier 1
capital instruments. Common Equity Tier 1 capital comprises shareholders’ equity adjusted for items
which APRA does not allow as regulatory capital or classifies as lower forms of regulatory capital.
Common Equity Tier 1 capital includes the following significant adjustments:
Additional Tier 1 capital instruments included within shareholders’ equity are excluded;
Reserves exclude the hedging reserve and reserves of insurance and funds management
subsidiaries;
Retained and current year earnings excluding those of insurance and funds management
subsidiaries, but includes capitalised deferred fees forming part of loan yields that meet the criteria
set out in the prudential standard;
Inclusion of qualifying treasury shares.
Additional Tier 1 capital instruments are high quality components of capital that provide a permanent
and unrestricted commitment of funds, are available to absorb losses, are subordinated to the claims
of depositors and senior creditors in the event of the winding up of the issuer and provide for fully
discretionary capital distributions.
Deductions from the capital base comprise mainly deductions to the Common Equity Tier 1
component. These deductions are largely intangible assets, investments in insurance and funds
management entities and associates, capitalised expenses (including loan and origination fees), and
the amount of regulatory expected losses (EL) in excess of eligible provisions.
Tier 2 capital mainly comprises perpetual subordinated debt instruments and dated subordinated debt
instruments which have a minimum term of five years at issue date.
Total Capital is the sum of Tier 1 capital and Tier 2 capital.
In addition to the prudential capital oversight that APRA conducts over the Company and the Group,
the Company’s branch operations and major banking subsidiary operations are overseen by local
regulators such as the Reserve Bank of New Zealand, the US Federal Reserve, the UK Prudential
Regulation Authority, the Monetary Authority of Singapore, the Hong Kong Monetary Authority and the
China Banking Regulatory Commission who may impose minimum capitalisation rates on those
operations.
Throughout the financial year, the Company and the Group maintained compliance with the minimum
Common Equity Tier 1, Tier 1 and Total Capital ratios set by APRA and the US Federal Reserve (as
applicable) as well as applicable capitalisation rates set by regulators in countries where the Company
operates branches and subsidiaries.
Regulatory development
There are a number of matters currently outstanding that may have an impact on ANZ’s regulatory
capital in the future. Details of these matters are available in ANZ’s 2017 Full Year Results
Announcement Group Results section, pages 46 and 47, available on ANZ’s website:
[shareholder.anz.com/pages/results-announcement-archive.]
ANZ Basel III Pillar 3 Disclosure September 2017
24
Table 6 Capital adequacy - Capital Ratio and Risk Weighted Assets
The following table provides the composition of capital used for regulatory purposes and capital
adequacy ratios.
Sep 17 Mar 17Sep 16
Risk weighted assets (RWA) $M $M$M
Subject to Advanced Internal Rating Based (IRB) approach
Corporate 121,915 127,544130,799
Sovereign 7,555 6,7186,634
Bank 13,080 14,26714,884
Residential Mortgage 96,267 86,21884,275
Qualifying Revolving Retail 7,059 7,5137,334
Other Retail 31,077 31,00431,360
Credit risk weighted assets subject to Advanced IRB approach 276,953 273,264275,286
Credit risk Specialised Lending exposures subject to slotting approach
5
31,845 33,89636,100
Subject to Standardised approach
Corporate 13,365 16,26420,459
Residential Mortgage 950 2,3542,493
Other Retail 2,000 3,1313,277
Credit risk weighted assets subject to Standardised approach 16,315 21,74926,229
Credit Valuation Adjustment and Qualifying Central Counterparties 7,269 8,1689,371
Credit risk weighted assets relating to securitisation exposures 1,083 1,1711,203
Other assets 3,369 3,5613,844
Total credit risk weighted assets 336,834 341,809352,033
Market risk weighted assets 5,363 6,3236,188
Operational risk weighted assets 37,305 38,57638,661
Interest rate risk in the banking book (IRRBB) risk weighted assets 11,611 10,33211,700
Total risk weighted assets 391,113 397,040408,582
Capital ratios (%)
6
Level 2 Common Equity Tier 1 capital ratio
8.5% 8.2%
n/a
10.6% 10.1%9.6%
Level 2 Tier 1 capital ratio 12.6% 12.1%11.8%
Level 2 Total capital ratio 14.8% 14.5%14.3%
Level 1: Extended licensed Common Equity Tier 1 capital ratio 10.5% 10.2%9.7%
Level 1: Extended licensed entity Tier 1 capital ratio 12.7% 12.3%12.1%
Level 1: Extended licensed entity Total capital ratio 14.8% 14.8%14.7%
Other significant Authorised Deposit-taking Institution (ADI)
or overseas bank subsidiary:
ANZ Bank New Zealand Limited – Common Equity Tier 1 capital ratio 10.7% 10.2%10.0%
ANZ Bank New Zealand Limited - Tier 1 capital ratio 14.1% 13.5%13.2%
ANZ Bank New Zealand Limited - Total capital ratio 14.4% 13.8%13.7%
5
Specialised Lending exposures subject to slotting approach are those where the main servicing and repayment is
from the asset being financed, and includes specified commercial property development/investment lending, project
finance and object finance.
6
ANZ Bank New Zealand Limited’s capital ratios have been calculated in accordance with Reserve Bank of New
Zealand prudential standards.
ANZ Basel III Pillar 3 Disclosure September 2017
25
Credit Risk Weighted Assets (CRWA)
Total CRWA decreased $15.2 billion (4.3%) from $352.0 billion in September 2016 to $336.8 billion in
September 2017. This was mainly driven by portfolio contraction in our Institutional business and
partial sale of the Retail Asia and Wealth business, partially offset by an increase in Australia
Residential Mortgages.
Market Risk, Operational Risk and IRRBB RWA
Traded Market Risk RWA decreased $0.83 billion (13.3%) driven by reduced exposure to stressed
market conditions.
IRRBB RWA decreased marginally over the year due to lower repricing and yield curve risk offset by a
reduction in embedded market value.
The Operational Risk RWA decreased by $1.36 billion (3.5%) primarily driven by the scale back of
ANZ’s operations in certain parts of the business and simplification of portfolios across the Group.
ANZ Basel III Pillar 3 Disclosure September 2017
26
Chapter 6 – Credit risk
Table 7 Credit risk – General disclosures
Definition of credit risk
Credit Risk is the risk of financial loss resulting from a counterparty failing to fulfil its obligations, or
from a decrease in credit quality of a counterparty resulting in a loss in value.
Regulatory approval to use the Advanced Internal Ratings-based approach
ANZ has been given approval by APRA to use the Advanced Internal Ratings (AIRB) based approach to
credit risk, under APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk. As an
AIRB bank, ANZ’s internal models generate the inputs into regulatory capital adequacy to determine
the risk weighted exposure calculations for both on and off-balance sheet exposures, including
undrawn portions of credit facilities, committed and contingent exposures and expected loss (EL)
calculations.
ANZ’s internal models are used to generate three key risk components that serve as inputs to the IRB
approach to credit risk:
Probability of Default (PD) is an estimate of the level of the risk of borrower default
Exposure at Default (EAD) is defined as the expected facility exposure at the date of default
Loss Given Default (LGD) is an estimate of the potential economic loss on a credit exposure,
incurred as a consequence of obligor default.
There are however several small portfolios (mainly retail and local corporates in Asia Pacific) where
ANZ applies the Standardised approach to credit risk, under APS 112 Capital Adequacy: Standardised
Approach to Credit Risk.
Credit risk management framework and policies
ANZ has a comprehensive framework to manage Wholesale Credit Risk. The framework is top down,
being defined by credit principles and policies. Credit policies, requirements and procedures cover all
aspects of the credit life cycle such as transaction structuring, risk grading, initial approval, ongoing
management and problem debt management, as well as specialist policy topics.
The effectiveness of the credit risk management framework is assessed through various compliance
and monitoring processes. These, together with portfolio selection, define and guide the credit
process, organisation and staff.
Organisation
The Credit and Market Risk Committee (CMRC) is a senior executive level committee responsible for
the oversight and control of credit, market, insurance and material financial risks across the ANZ
Group. The Credit Rating System Oversight Committee (CRSOC) supports the CMRC, by providing
oversight and control of the internal ratings system for credit risk in the wholesale and retail sectors,
including credit model approvals and performance monitoring.
The primary responsibility for prudent and profitable management of credit risk assets and customer
relationships rests with the business units. An independent credit risk management function is staffed
by risk specialists. Independence is achieved by having all credit risk staff ultimately report to the
Chief Risk Officer (CRO), even where they are embedded in business units. Risk provides independent
credit assessment and approval on lending decisions, and also performs key roles in portfolio
management such as development and validation of credit risk measurement systems, loan asset
quality reporting, and development of credit policies and requirements.
The authority to make credit decisions is delegated by the Board to the CEO who in turn delegates
authority to the CRO. The CRO in turn delegates some of their credit discretion to individuals as part
of a ‘cascade’ of authority from senior to the most junior credit officers. Within ANZ, credit approval
for material judgemental lending is made on a ‘dual approval’ basis, jointly by the business writer in
the business unit and the respective independent credit risk officer. Individuals must be suitably
skilled and accredited in order to be granted and retain a credit discretion. Credit discretions are
reviewed on an annual basis, and may be varied based on the holder’s performance.
Programmed credit assessment typically covers retail and some small business lending, and refers to
the automated assessment of credit applications using a combination of scoring (application and
behavioural), policy rules and external credit reporting information. Where an application does not
meet the automated assessment criteria it will be referred out for manual assessment, with assessors
considering the decision tool recommendation.
ANZ Basel III Pillar 3 Disclosure September 2017
27
Portfolio direction and performance
The credit risk management framework contains several portfolio direction and performance tools
which enable Risk to play a fundamental role in monitoring the direction and performance of the
portfolio. These include:
Group and divisional level risk appetite strategies, business writing strategies and segment
transaction guidelines are prepared by the businesses and set out appetite, planned portfolio
growth, capital usage and risk/return profile, and also identify areas that may require attention to
mitigate and improve risk management;
Regular portfolio reviews; and
Exposure concentration limits, covering single customers, industries and cross border risk, to
ensure a diversified portfolio.
ANZ uses portfolio monitoring and analysis tools, technologies and techniques to assist with portfolio
risk assessment and management. These assist in:
Monitoring, analysing and reporting ANZ’s credit risk profile and progress in meeting portfolio
objectives;
Calculating and reporting ANZ’s collective provision, economic capital, expected loss, regulatory
RWA and regulatory expected loss;
Assessing impact of emerging issues, and conducting ad-hoc investigations and analysis.
Validating rating/scoring tools and credit estimates; and
Ongoing review and refinement of ANZ's credit risk measurement and policy framework.
Reporting – overview and definitions
Credit risk management information systems, reporting and analysis are managed centrally and at the
divisional and business unit level.
Periodic reporting provides confirmation of the effectiveness of processes highlights emerging issues
requiring attention and allows monitoring of portfolio trends by all levels of management and the
Board.
Examples of reports include EAD, portfolio mix, risk grade profiles and migrations, RWAs, large
exposure reporting, credit watch and control lists, impaired assets and provisions.
Exposure at default
EAD is defined as the expected facility exposure at the date of default. Unless otherwise stated,
throughout this disclosure EAD represents credit exposure net of offsets for credit risk mitigation such
as guarantees, credit derivatives, netting and financial collateral.
Past due facilities
Facilities where a contractual payment has not been met or the customer is outside of contractual
arrangements for a material length of time are deemed past due. Past due facilities include those
operating in excess of approved arrangements or where scheduled repayments are outstanding, but do
not include impaired assets.
Impaired assets
A facility for which there is doubt about timely payment of principal, interest and fees being achieved
and / or a material credit obligation is 90 days or more past due and is not well secured. It includes all
problem assets, off-balance sheet exposures and assets brought to ANZ’s balance sheet through the
enforcement of security.
Restructured Items
A facility in which the original contractual terms have been modified to provide concessions of
interest, principal, or other payments due, or for an extension in maturity for a non-commercial
period for reasons related to the financial difficulties of the entity.
ANZ Basel III Pillar 3 Disclosure September 2017
28
Collective Provisions
As well as holding individual provisions for credit loss, ANZ also holds a collective provision to cover
credit losses which have been incurred but have not yet been specifically identified.
Calculation of the collective provision involves placing exposures in pools of similar assets with similar
risk characteristics. The required collective provision is estimated on the basis of historical loss
experience for assets with credit risk characteristics similar to those in the collective pool and includes
an allowance for inherent risk associated with the design and use of models. The initial calculation from
historical loss experience may be adjusted based on current observable data such as changed
economic conditions, and to take account of the impact of inherent risk of large concentrated losses
within the portfolio.
The methodology underpinning calculation of collective provision from historical experience is
predominantly based around the product of an exposure’s PD, LGD and EAD. ANZ uses slightly
different PD, LGD and EAD factors in the calculation of regulatory capital and regulatory EL, due to the
different requirements of APRA and accounting standards. The key differences are:
ANZ must use more conservative LGD assumptions for regulatory capital purposes, such as the
20% LGD floor for retail mortgages and downturn LGD factors.
ANZ must use cycle-adjusted PDs for regulatory capital purposes, but uses point-in-time estimates
to calculate provisions.
Essentially these differences reflect the effects of the credit cycle on credit losses. Point-in-time refers
to losses at any given point in the credit cycle, cycle-adjusted refers to adjusting estimates to reflect a
full credit cycle and downturn refers to losses at the worst of the cycle and is the most conservative
estimate to use. Regardless of the adjustments, the starting point for all estimates is the output of the
rating/scoring models and tools to satisfy the in use test
7
.
Individual Provisions
Individual provisions are assessed on a case-by-case basis for all individually managed impaired assets
taking into consideration factors such as the realisable value of security (or other credit mitigants), the
likely return available upon liquidation or bankruptcy, legal uncertainties, estimated costs involved in
recovery, the market price of the exposure in secondary markets and the amount and timing of
expected receipts and recoveries.
Write-offs
Facilities are written off against the related provision for impairment when they are assessed as
partially or fully uncollectable, and after proceeds from the realisation of any collateral have been
received. Where individual provisions recognised in previous periods have subsequently decreased or
are no longer required, such impairment losses are reversed in the current period income statement.
Definition of default
ANZ uses the following definition of default:
ANZ considers that the customer is unlikely to pay its credit obligations in full, without recourse to
actions such as realising security, or
the customer is at least 90 days past due on a credit obligation, or
the customer’s overdraft or other revolving facility(ies) have been continuously outside approved
limits for 90 or more consecutive days.
Specific provision and General Reserve for Credit Losses
Due to definitional differences, there is a difference in the split between ANZ’s individual provision and
collective provision for accounting purposes and the specific provision and general reserve for credit
losses (GRCL) for regulatory purposes. This does not impact total provisions, and essentially relates to
the classification of collectively assessed provisions on defaulted accounts. The disclosures in this
document are based on individual provision and collective provision, for ease of comparison with other
published results.
7
One of the key criteria for regulatory acceptance of a rating model is that the outputs must be used in a wide range
of ongoing management activities, to demonstrate that the model is used in day-to-day management of exposures
and not just for regulatory capital calculation.
ANZ Basel III Pillar 3 Disclosure September 2017
29
Exposure at Default in Table 7 represents credit exposure net of offsets for credit risk mitigation such
as guarantees, credit derivatives, netting and financial collateral. It includes Advanced IRB,
Specialised Lending and Standardised exposures, and excludes Securitisation, Equities or Other Assets
exposures.
Table 7(b) part (i): Period end and average Exposure at Default
8
8
Average Exposure at Default for half year is calculated as the simple average of the balances at the start and the
end of each six month period.
Sep 17
Advanced IRB approach
Risk Weighted
Assets
$M
Exposure
at Default
$M
Average
Exposure at
Default for
half year
$M
Individual
provision
charge for
half year
$M
Write-offs for
half year
$M
Corporate 121,915 230,375229,52275178
Sovereign 7,555 131,473131,139--
Bank 13,080 44,54045,12858
Residential Mortgage 96,267 366,669360,6794220
Qualifying Revolving Retail 7,059 22,05522,164118137
Other Retail 31,077 41,95142,039245275
Total Advanced IRB approach 276,953 837,063830,671485618
Specialised Lending 31,845 37,20537,951(4)2
Standardised approach
Corporate 13,365 14,45515,661(1)80
Residential Mortgage 950 2,4484,46221
Other Retail 2,000 1,9882,6387290
Total Standardised approach 16,315 18,89122,76173171
Credit Valuation Adjustment and
Qualifying Central Counterparties
7,269 9,9199,838--
Total 332,382 903,078901,221554791
ANZ Basel III Pillar 3 Disclosure September 2017
30
Mar 17
Advanced IRB approach
Risk Weighted
Assets
$M
Exposure
at Default
$M
Average
Exposure at
Default for
half year
$M
Individual
provision
charge for
half year
$M
Write-offs for
half year
$M
Corporate 127,544 228,669228,993 289314
Sovereign 6,718 130,805125,869 (1)4
Bank 14,267 45,71547,295 3-
Residential Mortgage 86,218 354,689351,541 3522
Qualifying Revolving Retail 7,513 22,27322,334 104141
Other Retail 31,004 42,12642,209 239270
Total Advanced IRB approach 273,264 824,277818,241 669751
Specialised Lending 33,896 38,69639,577 (3)4
Standardised approach
Corporate 16,264 16,86619,060 3544
Residential Mortgage 2,354 6,4766,664 -1
Other Retail 3,131 3,2883,284 86102
Total Standardised approach 21,749 26,63029,008 121147
Credit Valuation Adjustment and
Qualifying Central Counterparties
8,168 9,75610,102 --
Total 337,077 899,359896,928 787902
Sep 16
Advanced IRB approach
Risk Weighted
Assets
$M
Exposure
at Default
$M
Average
Exposure at
Default for
half year
$M
Individual
provision
charge for
half year
$M
Write-offs for
half year
$M
Corporate 130,799 229,317235,169 466468
Sovereign 6,634 120,933119,576 22
Bank 14,884 48,87549,001 --
Residential Mortgage 84,275 348,394342,854 3317
Qualifying Revolving Retail 7,334 22,39522,406 104141
Other Retail 31,360 42,29141,617 251275
Total Advanced IRB approach 275,286 812,205810,623 856 903
Specialised Lending 36,100 40,45839,933 (1) 8
Standardised approach
Corporate 20,459 21,25421,875 107 61
Residential Mortgage 2,493 6,8517,017 2 3
Other Retail 3,277 3,2793,416 83 91
Total Standardised approach 26,229 31,38432,308 192 155
Credit Valuation Adjustment and
Qualifying Central Counterparties
9,371 10,4489,071 - -
Total 346,986 894,495891,935 1,047 1,066
ANZ Basel III Pillar 3 Disclosure September 2017
31
Table 7(b) part (ii): Exposure at Default by portfolio type
9
Sep 17 Mar 17Sep 16
Average for half
year Sep 17
Portfolio Type $M $M$M$M
Cash 26,123 33,61327,05429,868
Contingents liabilities, commitments, and
other off-balance sheet exposures
153,775 153,607154,142153,691
Derivatives 38,922 40,39341,64139,657
Settlement Balances 21,532 18,43316,66219,983
Investment Securities 66,802 58,57858,42662,690
Net Loans, Advances & Acceptances 568,089 565,027563,545566,558
Other assets 2,558 3,4113,1342,985
Trading Securities 25,277 26,29729,89125,787
Total exposures 903,078 899,359894,495901,219
9
Average for half year is calculated as the simple average of the balances at the start and the end of each six month
period.
ANZ Basel III Pillar 3 Disclosure September 2017
32
Table 7(c): Geographic distribution of Exposure at Default
Sep 17
Australia New Zealand
Asia Pacific,
Europe and
AmericasTotal
Portfolio Type $M $M $M$M
Corporate 126,446 45,60572,779244,830
Sovereign 47,632 11,30672,535131,473
Bank 19,697 4,62020,22344,540
Residential Mortgage 291,868 74,8012,448369,117
Qualifying Revolving Retail 22,055 --22,055
Other Retail 30,140 11,8111,98843,939
Qualifying Central Counterparties 6,790 1,3461,7839,919
Specialised Lending 26,331 10,74912537,205
Total exposures 570,959 160,238171,881903,078
Mar 17
Australia New Zealand
Asia Pacific,
Europe and
AmericasTotal
Portfolio Type $M $M $M$M
Corporate 122,728 45,91176,896245,535
Sovereign 47,939 8,23074,636130,805
Bank 20,686 4,43020,59945,715
Residential Mortgage 281,972 72,7176,476361,165
Qualifying Revolving Retail 22,273 --22,273
Other Retail 30,459 11,6873,26845,414
Qualifying Central Counterparties 6,479 1,7511,5269,756
Specialised Lending 27,905 10,67611538,696
Total exposures 560,441 155,402183,516899,359
Sep 16
Australia New Zealand
Asia Pacific,
Europe and
AmericasTotal
Portfolio Type $M $M$M$M
Corporate 122,934 48,55379,084250,571
Sovereign 45,457 11,46964,007120,933
Bank 23,684 5,56219,62948,875
Residential Mortgage 274,291 74,1046,850355,245
Qualifying Revolving Retail 22,395 --22,395
Other Retail 30,232 12,0833,25545,570
Qualifying Central Counterparties 6,905 1,6511,89210,448
Specialised Lending 29,392 10,60146540,458
Total exposures 555,290 164,023175,182894,495
ANZ Basel III Pillar 3 Disclosure
September 2017
33
Table 7(d): Industry distributi
on of Exposure at Default
10
11
10
Property Services includes Commercial property operators, Resi
dential property operators, Retirement village operators/develop
ers, Real estate agents, Non-financial asset investors
and Machinery and equipment hiring and leasing.
11
Other industry includes Health & Community Services, Education, Communication Services and Personal & Other Services.
Sep 17
Portfolio Type
Agriculture,
Forestry,
Fishing &
Mining
$M
Business
Services
$M
Construction
$M
Electricity,
Gas & Water
Supply
$M
Entertainment,
Leisure
&
Tourism
$M
Financial,
Investment
& Insurance
$M
Government
and Official
Institutions
$M
Manufacturing
$M
Personal
$M
Property
Services
$M
Wholesale
Trade
$M
Retail Trade
$M
Transport &
Storage
$M
Other
$M
Total
$M
Corporate
41,333
9,746
5,468
9,461
13,109
33,600
3,027
36,912
870
18,919
24,289
13,526
15,177
19,393
244,830
Sovereign
1,075
‐
29
524
1
65,694
61,576
856
‐
1,026
16
‐
370
306
131,473
Bank
132
49
34
25
4
44,119
‐
65
‐
‐
39
‐
43
30
44,540
Residential Mortgage
‐
‐
‐
‐
‐
‐
‐
‐
369,117
‐
‐
‐
‐
‐
369,117
Qualifying Revolving Retail
‐
‐
‐
‐
‐
‐
‐
‐
22,055
‐
‐
‐
‐
‐
22,055
Other Retail
3,257
2,951
4,135
110
2,376
713
15
1,650
16,511
1,278
1,259
4,288
1,442
3,954
43,939
Qualifying Central Counterparties
‐
‐
‐
‐
‐
9,919
‐
‐
‐
‐
‐
‐
‐
‐
9,919
Specialised Lending
807
7
181
1,696
232
1
‐
1
‐
32,824
14
16
708
718
37,205
Total exposures
46,604
12,753
9,847
11,816
15,722
154,046
64,618
39,484
408,553
54,047
25,617
17,830
17,740
24,401
903,078
% of Total
5.2%
1.4%
1.1%
1.3%
1.7%
17.1%
7.2%
4.4%
45.1%
6.0%
2.8%
2.0%
2.0%
2.7%
100.0%
ANZ Basel III Pillar 3 disclosure
September 2017
34
Mar 17
Portfolio Type
Agriculture,
Forestry,
Fishing &
Mining
$M
Business
Services
$M
Construction
$M
Electricity,
Gas & Water
Supply
$M
Entertainment,
Leisure
&
Tourism
$M
Financial,
Investment
& Insurance
$M
Government
and Official
Institutions
$M
Manufacturing
$M
Personal
$M
Property
Services
$M
Wholesale
Trade
$M
Retail Trade
$M
Transport
&
Storage
$M
Other
$M
Total
$M
Corporate
43,336
9,300
5,634
9,778
12,937
26,787
2,890
41,265
1,946
18,950
24,415
13,938
15,895
18,464
245,535
Sovereign
1,462
1
32
627
1
74,814
51,855
939
1
413
21
‐
405
234
130,805
Bank
176
5
35
62
4
45,331
‐
19
‐
‐
58
10
1
14
45,715
Residential Mortgage
‐
‐
‐
‐
‐
‐
‐
‐
361,165
‐
‐
‐
‐
‐
361,165
Qualifying Revolving Retail
‐
‐
‐
‐
‐
‐
‐
‐
22,273
‐
‐
‐
‐
‐
22,273
Other Retail
3,363
2,879
4,092
106
2,382
710
15
1,629
18,042
1,311
1,246
4,336
1,455
3,848
45,414
Qualifying Central Counterparties
‐
‐
‐
‐
‐
9,756
‐
‐
‐
‐
‐
‐
‐
‐
9,756
Specialised Lending
927
4
36
1,619
278
1
‐
1
‐
34,267
14
2
879
668
38,696
Total exposures
49,264
12,189
9,829
12,192
15,602
157,399
54,760
43,853
403,427
54,941
25,754
18,286
18,635
23,228
899,359
% of Total
5.5%
1.4%
1.1%
1.4%
1.7%
17.4%
6.1%
4.9%
44.8%
6.1%
2.9%
2.0%
2.1%
2.6%
100.0%
Sep 16
Portfolio Type
Agriculture,
Forestry,
Fishing &
Mining
$M
Business
Services
$M
Construction
$M
Electricity,
Gas & Water
Supply
$M
Entertainment,
Leisure
&
Tourism
$M
Financial,
Investment
& Insurance
$M
Government
and Official
Institutions
$M
Manufacturing
$M
Personal
$M
Property
Services
$M
Wholesale
Trade
$M
Retail Trade
$M
Transport
&
Storage
$M
Other
$M
Total
$M
Corporate
42,860
9,875
6,161
9,007
12,900
28,248
3,455
41,971
2,124
19,328
25,299
14,292
16,193
18,858
250,571
Sovereign
1,514
‐
44
590
9
64,277
52,213
1,177
‐
384
27
‐
455
243
120,933
Bank
182
10
2
27
8
48,476
‐
48
‐
‐
45
10
2
65
48,875
Residential Mortgage
‐
‐
‐
‐
‐
‐
‐
‐
355,245
‐
‐
‐
‐
‐
355,245
Qualifying Revolving Retail
‐
‐
‐
‐
‐
‐
‐
‐
22,395
‐
‐
‐
‐
‐
22,395
Other Retail
3,423
2,717
3,953
105
2,301
650
10
1,588
18,437
1,250
1,216
4,288
1,473
4,159
45,570
Qualifying Central Counterparties
‐
‐
‐
‐
‐
10,448
‐
‐
‐
‐
‐
‐
‐
‐
10,448
Specialised Lending
1,155
6
170
1,718
423
2
‐
5
‐
35,137
11
6
1,127
698
40,458
Total exposures
49,134
12,608
10,330
11,447
15,641
152,101
55,678
44,789
398,201
56,099
26,598
18,596
19,250
24,023
894,495
% of Total
5.5%
1.4%
1.2%
1.3%
1.7%
17.0%
6.2%
5.0%
44.5%
6.3%
3.0%
2.1%
2.2%
2.7%
100.0%
ANZ Basel III Pillar 3 Disclosure September 2017
35
Table 7(e): Residual contractual maturity of Exposure at Default
12
Sep 17
Portfolio Type
< 12 mths
$M
1 - 5 years
$M
> 5 years
$M
No Maturity
Specified
$M
Total
$M
Corporate 109,154 120,76914,746161244,830
Sovereign 66,591 40,31924,563-131,473
Bank 30,068 14,159313-44,540
Residential Mortgage 345 2,533335,66430,575369,117
Qualifying Revolving Retail - --22,05522,055
Other Retail 15,462 8,28919,75843043,939
Qualifying Central Counterparties 3,103 3,7712,7043419,919
Specialised Lending 16,160 19,9851,0105037,205
Total exposures 240,883 209,825398,75853,612903,078
Mar 17
Portfolio Type
< 12 mths
$M
1 - 5 years
$M
> 5 years
$M
No Maturity
Specified
$M
Total
$M
Corporate 101,298 129,00715,063167245,535
Sovereign 70,734 30,10929,962-130,805
Bank 30,075 15,295345-45,715
Residential Mortgage 337 6,355323,32731,146361,165
Qualifying Revolving Retail - --22,27322,273
Other Retail 16,332 8,42320,05560445,414
Qualifying Central Counterparties 3,202 3,6542,5523489,756
Specialised Lending 15,353 22,1001,1925138,696
Total exposures 237,331 214,943392,49654,589899,359
Sep 16
Portfolio Type
< 12 mths
$M
1 - 5 years
$M
> 5 years
$M
No Maturity
Specified
$M
Total
$M
Corporate 100,671 133,59216,138170250,571
Sovereign 57,697 30,65932,577-120,933
Bank 29,864 18,500511-48,875
Residential Mortgage 434 6,603316,00332,205355,245
Qualifying Revolving Retail - --22,39522,395
Other Retail 16,640 8,29320,00063745,570
Qualifying Central Counterparties 4,045 3,3752,70032810,448
Specialised Lending 14,161 24,5101,7325540,458
Total exposures 223,512 225,532389,66155,790894,495
12
No Maturity Specified predominately includes credit cards and residential mortgage equity manager accounts.
ANZ Basel III Pillar 3 Disclosure September 2017
36
Table 7(f) part (i): Impaired assets
13 14
, Past due loans
15
, Provisions and Write-offs by
Industry sector
Sep 17
Industry Sector
Impaired
derivatives
$M
Impaired
loans/
facilities
$M
Past due
loans ≥90
days
$M
Individual
provision
balance
$M
Individual
provision
charge for
half year
$M
Write-offs
for half
year
$M
Agriculture, Forestry, Fishing
& Mining
- 545 110 203 (14) 62
Business Services - 109 31 31 (7) 15
Construction - 225 71 125 48 16
Electricity, gas and water
supply
- 2 2 1 1 1
Entertainment Leisure &
Tourism
- 144 45 59 16 33
Financial, Investment &
Insurance
- 29 30 14 6 10
Government & Official
Institutions
- - - - - -
Manufacturing - 219 26 137 36 93
Personal - 745 2,177 307 369 421
Property Services - 50 39 28 (14) 14
Retail Trade - 129 90 62 25 19
Transport & Storage - 144 25 33 8 10
Wholesale Trade - 121 28 65 48 55
Other - 119 82 71 32 42
Total - 2,581 2,756 1,136 554 791
13
Impaired derivatives are net of credit value adjustment (CVA) of $42 million, being a market value based
assessment of the credit risk of the relevant counterparties (March 2017: $55 million; September 2016: $63 million).
14
Impaired loans / facilities include restructured items of $167 million for customer 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 (March 2017: $367 million; September 2016: $403
million).
15
For regulatory reporting, not well secured portfolio managed retail exposures have been reclassified from past due
loans > 90 days to impaired loans / facilities.
ANZ Basel III Pillar 3 Disclosure September 2017
37
Mar 17
Industry Sector
Impaired
derivatives
$M
Impaired
loans/
facilities
$M
Past due
loans ≥90
days
$M
Individual
provision
balance
$M
Individual
provision
charge for
half year
$M
Write-offs
for half
year
$M
Agriculture, Forestry, Fishing
& Mining
- 867 150 265 19 25
Business Services - 85 31 51 16 17
Construction - 173 62 96 21 22
Electricity, gas and water
supply
- 2 1 2 - -
Entertainment Leisure &
Tourism
- 120 45 58 26 27
Financial, Investment &
Insurance
1 40 19 16 7 6
Government & Official
Institutions
- - - - - 4
Manufacturing 5 347 30 201 12 82
Personal - 839 1,961 276 358 435
Property Services - 90 57 42 - 10
Retail Trade 1 115 77 59 20 36
Transport & Storage - 167 24 39 30 12
Wholesale Trade 3 129 20 71 211 209
Other - 158 92 93 67 17
Total 10 3,132 2,569 1,269 787 902
Sep 16
Industry Sector
Impaired
derivatives
$M
Impaired
loans/
facilities
$M
Past due
loans ≥90
days
$M
Individual
provision
balance
$M
Individual
provision
charge for
half year
$M
Write-offs
for half
year
$M
Agriculture, Forestry, Fishing
& Mining
- 1,016 93 283 108 102
Business Services - 84 30 46 10 35
Construction - 178 58 95 59 32
Electricity, gas and water
supply
- 2 1 1 2 4
Entertainment Leisure &
Tourism
- 134 44 59 51 28
Financial, Investment &
Insurance
1 33 23 11 (3) 14
Government & Official
Institutions
- - - 4 2 -
Manufacturing 6 466 36 266 322 251
Personal - 834 1,989 284 374 422
Property Services - 120 63 46 13 26
Retail Trade 3 221 68 76 55 38
Transport & Storage - 88 23 25 14 36
Wholesale Trade 4 115 13 67 18 62
Other - 72 58 44 22 16
Total 14 3,363 2,499 1,307 1,047 1,066
ANZ Basel III Pillar 3 Disclosure September 2017
38
Table 7(f) part (ii): Impaired asset, Past due loans, Provisions and Write-offs
Sep 17
Impaired
derivatives
$M
Impaired
loans/
facilities
$M
Past due
loans ≥
90 days
$M
Individual
provision
balance
$M
Individual
provision
charge for
half year
$M
Write-
offs
for half
year
$M
Portfolios subject to Advanced IRB approach
Corporate - 1,193 175 520 75 178
Sovereign - - - 3 - -
Bank - - 10 - 5 8
Residential Mortgage - 259 2,166 126 42 20
Qualifying Revolving Retail - 99 - 18 118 137
Other Retail - 586 325 299 245 275
Total Advanced IRB approach - 2,137 2,676 966 485 618
Specialised Lending - 25 21 17 (4) 2
Portfolios subject to Standardised approach
Corporate - 273 34 140 (1) 80
Residential Mortgage - 25 19 10 2 1
Other Retail - 121 6 3 72 90
Total Standardised approach - 419 59 153 73 171
Qualifying Central Counterparties - - - - - -
Total - 2,581 2,756 1,136 554 791
Mar 17
Impaired
derivatives
$M
Impaired
loans/
facilities
$M
Past
due
loans ≥
90 days
$M
Individual
provision
balance
$M
Individual
provision
charge for
half year
$M
Write-
offs
for half
year
$M
Portfolios subject to Advanced IRB approach
Corporate 1 1,569207614289314
Sovereign - --3(1)4
Bank - 131133-
Residential Mortgage - 2311,9621043522
Qualifying Revolving Retail - 88--104141
Other Retail - 552291289239270
Total Advanced IRB approach 1 2,4532,4711,013669751
Specialised Lending - 393019(3)4
Portfolios subject to Standardised approach
Corporate 9 382422223544
Residential Mortgage - 31189-1
Other Retail - 2278686102
Total Standardised approach 9 64068237121147
Qualifying Central Counterparties - -----
Total 10 3,1322,5691,269787902
ANZ Basel III Pillar 3 Disclosure September 2017
39
Sep 16
Impaired
derivatives
$M
Impaired
loans/
facilities
$M
Past
due
loans ≥
90 days
$M
Individual
provision
balance
$M
Individual
provision
charge for
half year
$M
Write-
offs
for half
year
$M
Portfolios subject to Advanced IRB approach
Corporate 1 1,795178653466468
Sovereign - --622
Bank - -11---
Residential Mortgage - 2201,981943317
Qualifying Revolving Retail - 89--104141
Other Retail - 515255281251275
Total Advanced IRB approach 1 2,6192,4251,034856903
Specialised Lending - 423823(1)8
Portfolios subject to Standardised approach
Corporate 13 4401823710761
Residential Mortgage - 2911823
Other Retail - 233758391
Total Standardised approach 13 70236250192155
Qualifying Central Counterparties - -----
Total 14 3,3632,4991,3071,0471,066
ANZ Basel III Pillar 3 Disclosure September 2017
40
Table 7(g): Impaired assets
16
17
, Past due loans
18
and Provisions
19
by Geography
Sep 17
Geographic region
Impaired
derivatives
$M
Impaired
loans/
facilities
$M
Past due
loans
≥ 90 days
$M
Individual
provision
balance
$M
Collective
provision
balance
$M
Australia - 1,723 2,519 791 1,810
New Zealand - 359 168 141 398
Asia Pacific, Europe and America - 499 69 204 454
Total - 2,581 2,756 1,136 2,662
4fii 0 0 0 0 0
RA
Mar 17
Geographic region
Impaired
derivatives
$M
Impaired
loans/
facilities
$M
Past due
loans
≥ 90 days
$M
Individual
provision
balance
$M
Collective
provision
balance
$M
Australia 1 1,705 2,347 777 1,830
New Zealand 1 488 144 158 411
Asia Pacific, Europe and America 8 939 78 334 544
Total 10 3,132 2,569 1,269 2,785
4fii 0 0 0 0 0
RA
Sep 16
Geographic region
Impaired
derivatives
$M
Impaired
loans/
facilities
$M
Past due
loans
≥ 90 days
$M
Individual
provision
balance
$M
Collective
provision
balance
$M
Australia 1 1,804 2,319 757 1,803
New Zealand 3 483 127 147 456
Asia Pacific, Europe and America 10 1,076 53 403 617
Total 14 3,363 2,499 1,307 2,876
16
Impaired derivatives are net of credit value adjustment (CVA) of $42 million, being a market value based
assessment of the credit risk of the relevant counterparties (March 2017: $55 million; September 2016: $63 million).
17
Impaired loans / facilities include restructured items of $167 million for customer 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 (March 2017: $367 million; September 2016: $403
million).
18
For regulatory reporting, not well secured portfolio managed retail exposures have been reclassified from past due
loans > 90 days to impaired loans / facilities.
19
Due to definitional differences, there is a variation in the split between ANZ’s Individual Provision and Collective
Provision for accounting purposes and the Specific Provision and General Reserve for Credit Losses (GRCL) for
regulatory purposes. This does not impact total provisions, and essentially relates to the classification of collectively
assessed provisions on defaulted accounts. The disclosures in this document are based on Individual Provision and
Collective Provision, for ease of comparison with other published results.
ANZ Basel III Pillar 3 Disclosure September 2017
41
Table 7(h): Provision for Credit Impairment
Half year
Sep 17
Half year
Mar 17
Half year
Sep 16
Collective Provision
$M $M $M
Balance at start of period 2,785 2,876 2,862
Charge to income statement (75) (67) (9)
Adjustments for exchange rate fluctuations (9) (24) 28
Esanda Dealer Finance divestment - - (5)
Asia Retail and Wealth divestment (39) - -
Total Collective Provision 2,662 2,785 2,876
-
Individual Provision
-
Balance at start of period 1,269 1,307 1,238
New and increased provisions 948 1,121 1,308
Write-backs (280) (221) (151)
Adjustment for exchange rate fluctuations (2) (12) 17
Discount unwind (8) (24) (39)
Bad debts written off (791) (902) (1,066)
Total Individual Provision 1,136 1,269 1,307
Total Provisions for Credit Impairment 3,798 4,054 4,183
Table 7(j): Specific Provision Balance and General Reserve for Credit Losses
20
S
Sep 17
Specific Provision
Balance
$M
General Reserve
for Credit Losses
$M
Total
$M
Collective Provision 352 2,310 2,662
Individual Provision 1,136 - 1,136
Total Provision for Credit Impairment 1,488 2,310 3,798
Mar 17
Specific Provision
Balance
$M
General Reserve
for Credit Losses
$M
Total
$M
Collective Provision 350 2,435 2,785
Individual Provision 1,269 - 1,269
Total Provision for Credit Impairment 1,619 2,435 4,054
Sep 16
Specific Provision
Balance
$M
General Reserve
for Credit Losses
$M
Total
$M
Collective Provision 350 2,526 2,876
Individual Provision 1,307 - 1,307
Total Provision for Credit Impairment 1,657 2,526 4,183
20
Due to definitional differences, there is a variation in the split between ANZ’s Individual Provision and Collective
Provision for accounting purposes and the Specific Provision and General Reserve for Credit Losses (GRCL) for
regulatory purposes. This does not impact total provisions, and essentially relates to the classification of collectively
assessed provisions on defaulted accounts. The disclosures in this document are based on Individual Provision and
Collective Provision, for ease of comparison with other published results.
ANZ Basel III Pillar 3 Disclosure September 2017
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Table 8 Credit risk – Disclosures for portfolios subject to the
Standardised approach and supervisory risk weights in the
IRB approach
Table 8(b): Exposure at Default by risk bucket
21
Risk weight
Sep 17 Mar 17 Sep 16
Standardised approach exposures $M $M $M
0% - - -
20% 308 219 459
35% 2,030 6,061 6,417
50% 2,336 1,927 2,067
75% 5 6 4
100% 14,000 18,118 21,834
150% 215 300 680
>150% 4 4 -
Capital deductions - - -
Total 18,898 26,635 31,461
Other Asset exposures
0% - - -
20% 947 954 1,202
35% - - -
50% - - -
75% - - -
100% 3,179 3,370 3,604
150% - - -
>150% - - -
Capital deductions - - -
Total 4,126 4,324 4,806
Specialised Lending exposures
0% 120 122 182
70% 13,935 13,211 13,052
90% 19,659 21,383 22,193
115% 3,207 3,367 4,139
250% 284 613 892
Total 37,205 38,696 40,458
21
Table 8(b) shows exposure at default after credit risk mitigation in each risk category.
ANZ Basel III Pillar 3 Disclosure September 2017
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Table 9 Credit risk – Disclosures for portfolios subject to Advanced
IRB approaches
Portfolios subject to the Advanced IRB (AIRB) approach
The following table summarises the types of borrowers and the rating approach adopted within each of
ANZ’s AIRB portfolios:
IRB Asset Class Borrower Type Rating Approach
Corporate Corporations, partnerships or proprietorships that do
not fit into any other asset class
AIRB
Sovereign Central governments
Central banks
Certain multilateral development banks
AIRB
Bank Banks
22
In Australia only, other authorised deposit taking
institutions (ADI) incorporated in Australia
AIRB
Residential
Mortgages
Exposures secured by residential property AIRB
Qualifying Revolving
Retail
Consumer credit cards <$100,000 limit AIRB
Other Retail Small business lending
Other lending to consumers
AIRB
Specialised Lending Income Producing Real Estate
23
Project finance
Object finance
AIRB – Supervisory
Slotting
24
Other Assets All other assets not falling into the above classes e.g.
margin lending, fixed assets
AIRB – fixed risk
weights
In addition, ANZ has applied the Standardised approach to some portfolio segments (mainly retail and
local corporates in Asia Pacific) where currently available data does not enable development of
advanced internal models for PD, LGD and EAD estimates. Under the Standardised approach,
exposures are mapped to several regulatory risk weights, mainly based on the type of counterparty
and its external rating. For these counterparties, external ratings by Standard & Poor’s and Moody’s
Investors Service are used as inputs into the RWA calculation. As described in the section on the ANZ
rating system, ANZ has mapped its master scale to the grading of these two External Credit
Assessment Institutions (ECAIs).
ANZ applies its full normal risk measurement and management framework to these segments for
internal management purposes, such as for economic capital. Standardised segments will be migrated
to AIRB if they reach a volume that generates sufficient data for development of advanced internal
models.
ANZ has not applied the Foundation IRB approach to any portfolios.
The ANZ rating system
As an AIRB bank, ANZ’s internal models generate the inputs into regulatory capital adequacy to
determine the risk weighted exposure calculations for both on and off-balance sheet exposures,
including undrawn portions of credit facilities, committed and contingent exposures and EL
calculations. ANZ’s internal models are used to generate the three key risk components that serve as
inputs to the IRB approach to credit risk:
PD is an estimate of the level of the risk of borrower default. Borrower ratings are derived by way
of rating models used both at loan origination and for ongoing monitoring.
EAD is defined as the expected facility exposure at the date of default.
22
The IRB asset classification of investment banks is Corporate, rather than Bank.
23
Since 2009, APRA has agreed that some large, well-diversified commercial property exposures may be treated as
corporate exposures, in line with the original Basel Committee’s definition of Specialised Lending.
24
ANZ uses an internal assessment which is mapped to the appropriate Supervisory Slot.
ANZ Basel III Pillar 3 Disclosure September 2017
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LGD is an estimate of the potential economic loss on a credit exposure, incurred as a consequence
of obligor default and expressed as a percentage of the facility’s EAD. When measuring economic
loss, all relevant factors are taken into account, including material effects of the timing of cash
flows and material direct and indirect costs associated with collecting on the exposure, including
realisation of collateral.
Effective maturity is also calculated as an input to the risk weighted exposure calculation for bank,
sovereign and corporate IRB asset classes.
ANZ’s rating system has two separate and distinct dimensions that:
Measure the PD, which is expressed by the Customer Credit Rating (CCR), reflecting the ability to
service and repay debt.
Measure the LGD as expressed by the Security Indicator (SI) ranging from A to G. The SI is
calculated by reference to the percentage of loan covered by security which can be realised in the
event of default. This calculation uses standard ratios to adjust the current market value of
collateral items to allow for historical realisation outcomes. The security-related SIs are
supplemented with a range of other SIs which cover such factors as cash cover, mezzanine
finance, intra-group guarantees and sovereign backing as ANZ’s LGD research indicates that these
transaction characteristics have different recovery outcomes. ANZ’s LGD also includes recognition
of the different legal and insolvency regimes in different countries, where this has been shown to
influence recovery outcomes.
ANZ’s corporate PD master scale is APRA approved, and is made up of 27 rating grades. Each
level/grade is separately defined and has a range of default probabilities attached to it. The PD master
scale enables ANZ’s rating system to be mapped to the grading’s of external rating agencies, using
the PD as a common element after ensuring that default definitions and other key attributes are
aligned.
The following table demonstrates this alignment (for one year PDs):
ANZ CCR Moody’s Standard & Poor’s PD Range
0+ to 1- Aaa to Aa3 AAA to AA- 0.0000 - 0.0346%
2+ to 3+ A1 to Baa1 A+ to BBB+ 0.0347 - 0.1636%
3= to 4+ Baa2 to > Baa3 BBB to > BB+ 0.1637 - 0.4004%
4= to 6= Ba1 to B1 BB+ to B+ 0.4005 – 2.7550%
6- to 7= B2 to B3 B to B- 2.7551 – 9.7980%
7- to 8+ Caa CCC 9.7981 – 27.1109%
8= Ca, C CC, C 27.1110 – 99.9999%
8-, 9 and 10 Default Default 100%
In the retail asset classes, most facilities utilise credit rating scores. The scores are calibrated to PDs,
and used to allocate exposures to homogenous pools, along with LGD and EAD.
Use of internal estimates other than for regulatory capital purposes
ANZ’s rating system is a fundamental part of credit management and plays a key role in:
Lending discretions.
Minimum origination standards.
Concentration limits.
Portfolio reporting.
Customer profitability measurement.
Collective provision measurement.
Management of deteriorating customers (where certain CCR/SI combinations trigger
increasing scrutiny).
Pricing decisions.
ANZ Basel III Pillar 3 Disclosure September 2017
45
PD, LGD and EAD are used in the calculation of economic capital and in the collective provisioning
process. Regulatory and economic capital are calculated from the same data sources and starting
from the same basis, however there are some differences between the factors used because several
aspects of ANZ’s rating system are adjusted in accordance with APRA requirements for regulatory
capital purposes. The most significant of these adjustments are the use for regulatory capital
purposes of downturn LGDs; the imposition of a 20% LGD floor for exposures secured by Australian
residential real estate and the mandatory use of the supervisory slotting approach for project finance
and most commercial real estate exposures.
Controls surrounding the ratings system
ANZ’s rating system and credit risk estimates are governed by the Board Risk Committee and several
executive management committees, and are underpinned by a comprehensive framework of controls
that operate throughout ANZ. All policies, methodologies, model designs, model reviews, validations,
responsibilities, systems and processes supporting the ratings systems are documented, and subject
to review by Global Internal Audit.
The design, build and implementation of credit rating models resides with a specialist Group-level
team. Credit rating models are owned by central Risk teams. The use (including overrides) and
performance of credit rating models is monitored by the relevant business and their counterparts in
Risk, and validated regularly by a separate specialist Group-level function. This cycle of design, build,
implementation, monitoring and validation is overseen by the CRSOC, and informs the need for new
models or recalibration of existing models.
Within ANZ’s wholesale businesses, Group Credit Assurance provides independent credit related
assurance activities, including providing an independent assessment of both the asset quality in the
portfolio and the quality of credit decision making. It also assesses management controls from a “top
down” portfolio oversight perspective as well as credit risk processes from a “bottom up” perspective
based on individual customer file reviews.
Risk grades are an integral part of reporting to the Board and executives.
In addition, the use of the rating system’s outputs in key business unit performance measures in
processes such as provisioning and the allocation of economic capital ensures that the rating system
receives robust input from the business units, not just the specialist modelling teams.
Rating process by asset class
Building reliable and accurate rating tools requires balancing of many factors including data
availability (external data may be used in some circumstances, where it is relevant), the size of the
segment (the more customers within the segment, the more likely that statistically reliable models
can be built), and the need to be able to validate the model. Rating tool approaches include:
Statistical models producing a PD or a LGD, which are developed from internal or external data on
defaults.
Statistical models producing an internal rating, which involve calibrating ANZ’s models to external
rating data where data on defaults is insufficient for statistical purposes (such as banks).
Hybrid statistical and expert models producing an internal rating, which use a mixture of default
data and expert input.
Expert models/processes that produce an internal rating, including external rating agency replication
models.
Ongoing data collection and testing processes ensure enhanced or new models are introduced as
required to maintain and improve the accuracy and reliability of rating processes.
ANZ Basel III Pillar 3 Disclosure September 2017
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Regardless of what credit risk rating tool is used, lending staff rating a customer are required to
review the model-generated PD (or CCR) and take into account any out-of-model factors or policy
overlays to decide whether or not to override the model rating. Overrides of a rating model to a
better rating require approval from the independent credit risk function. The significance of the model
for risk grading varies with the customer segment: models will dominate risk grading of homogenous,
simple and data-rich segments such as in Retail, however for complex, specialised business segments
expert knowledge and the highly customised nature of transactions will influence the rating outcome.
The following table summarises the types of internal rating approaches used in ANZ:
IRB Asset Class Borrower type Rating Approach
Corporate Corporations, partnerships or
proprietorships that do not fit into any
other asset class
Mainly statistical models
Some use of expert models and
policy processes
Sovereign Central governments
Central banks
Certain multilateral development banks
Australian state governments
External rating and expert
judgement
Bank Banks
In Australia only, other ADIs
incorporated in Australia
Statistically-based models
Review of all relevant and
material information including
external ratings
Residential
Mortgages
Exposures secured by residential
property
Statistical models
Qualifying Revolving
Retail
Consumer credit cards <$100,000 limit Statistical models
Other Retail Small business lending
Other lending to consumers
Statistical models
Specialised Lending Income Producing Real Estate
Project finance
Object finance
Expert models/Supervisory
Slotting
25
For the Retail Basel asset class (Residential Mortgages, Qualifying Revolving Retail and Other Retail
Exposures) the large number of relatively homogenous exposures enable the development of
statistically robust application scoring models for use at origination and behavioural scoring for
ongoing management. As noted above, the scores are calibrated to PD, and used to allocate
exposures to homogenous pools, along with LGD and EAD.
Estimation of LGD and EAD
ANZ’s LGD modelling takes into account data on secured recovery, unsecured recovery rates and debt
seniority, geography and internal management costs from several major data sources. Internal data is
used as the basis for LGD estimation in the retail asset class, and is supplemented by external data for
the corporate asset class. Given the scarcity of internal data for Bank and Sovereign Basel asset
classes, LGD modelling for these classes is primarily based on external data.
EAD represents the expected facility exposure at the date of default, including an estimate of
additional drawings prior to default, as well as post-default drawings that were legally committed to
prior to default.
25
Specialised Lending exposures are rated with internal rating tools to produce a PD and LGD. These are used in
internal processes, but not for regulatory capital purposes where the exposures are mapped to Supervisory Slots.
ANZ Basel III Pillar 3 Disclosure September 2017
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Table 9(d): Non Retail Exposure at Default subject to Advanced Internal Ratings Based
(IRB) approach
26
27
28
Sep 17
AAA
< A+
$M
A+
< BBB
$M
BBB
< BB+
$M
BB+
< B+
$M
B+
< CCC
$M
CCC
$M
Default
$M
Total
$M
Exposure at Default
Corporate 20,273 59,50472,91659,26814,5251,8562,033230,375
Sovereign 107,161 18,1772,1381,4032,57321-131,473
Bank 16,773 23,2483,0551,3718021144,540
Total 144,207 100,92978,10962,04217,1781,8792,044406,388
% of Total 35.5% 24.8%19.2%15.3%4.2%0.5%0.5%100.0%
Undrawn commitments (included in above)
Corporate 6,621 23,37222,80210,0881,4481445264,527
Sovereign 553 85656---700
Bank 15 14423-1--183
Total 7,189 23,60122,83110,1441,4491445265,410
Average Exposure at Default
Corporate 8.590 8.1141.5780.6490.1260.1850.6600.836
Sovereign 143.456 757.35437.5138.45129.9243.468-121.062
Bank 15.416 5.8466.9909.5231.1020.0735.1957.747
Exposure-weighted average Loss Given Default (%)
Corporate 55.8% 56.6%45.7%39.1%34.2%38.0%46.5%46.9%
Sovereign 5.6% 12.2%38.9%50.1%50.8%56.3%-8.4%
Bank 63.2% 63.1%68.8%68.8%73.1%69.5%29.6%63.7%
Exposure-weighted average risk weight (%)
Corporate 18.1% 32.7%50.9%67.5%85.7%181.4%118.1%51.4%
Sovereign 1.2% 3.2%43.3%107.3%124.5%301.2%-5.8%
Bank 20.1% 26.1%64.8%109.3%190.4%390.2%136.2%29.4%
26
In accordance with APS 330, EAD in Table 9(d) includes Advanced IRB exposures and excludes Specialised
Lending, Standardised, Securitisation, Equities or Other Assets exposures. Specialised Lending is excluded from
Table 9(d) as it follows the Supervisory Slotting treatment, and a breakdown of risk weightings is provided in Table
8(b).
27
Average EAD is calculated as total EAD post risk mitigants divided by the total number of credit risk generating
exposures.
28
Exposure-weighted average risk weight (%) is calculated as CRWA divided by EAD.
ANZ Basel III Pillar 3 Disclosure September 2017
48
Mar 17
AAA
< A+
$M
A+
< BBB
$M
BBB
< BB+
$M
BB+
< B+
$M
B+
< CCC
$M
CCC
$M
Default
$M
Total
$M
Exposure at Default
Corporate 16,574 58,71174,89058,62315,2191,9902,662228,669
Sovereign 109,437 16,0531,9301,5921,780121130,805
Bank 18,017 22,1193,6671,8503941945,715
Total 144,028 96,88380,48762,06517,0382,0062,682405,189
% of Total 35.5% 23.9%19.9%15.3%4.2%0.5%0.7%100.0%
Undrawn commitments (included in above)
Corporate 5,505 25,58121,89311,1671,5871797065,982
Sovereign 485 420827---940
Bank 88 11315911--362
Total 6,078 26,11422,06011,1951,5881797067,284
Average Exposure at Default
Corporate 4.853 3.4941.4460.5980.1750.2640.8530.854
Sovereign 143.242 573.32231.6437.36949.4346.1010.204117.525
Bank 14.402 2.7535.9436.4680.4720.1692.3564.437
Exposure-weighted average Loss Given Default (%)
Corporate 55.6% 57.2%46.7%39.9%34.7%40.9%40.2%47.4%
Sovereign 5.7% 10.8%40.4%54.7%47.3%57.0%71.0%8.0%
Bank 63.4% 63.3%66.0%67.6%69.5%73.1%34.0%63.7%
Exposure-weighted average risk weight (%)
Corporate 19.1% 34.3%52.7%70.1%86.6%200.2%142.2%55.8%
Sovereign 1.2% 3.0%44.7%119.4%118.1%356.2%-5.1%
Bank 20.7% 26.4%68.5%111.0%203.3%387.1%146.5%31.2%
Sep 16
AAA
< A+
$M
A+
< BBB
$M
BBB
< BB+
$M
BB+
< B+
$M
B+
< CCC
$M
CCC
$M
Default
$M
Total
$M
Exposure at Default
Corporate 17,682 55,34176,47959,06815,8832,4092,455229,317
Sovereign 101,889 13,7152,0541,8851,37614-120,933
Bank 20,835 22,6173,5431,8064925-48,875
Total 140,406 91,67382,07662,75917,3082,4482,455399,125
% of Total 35.2% 23.0%20.6%15.7%4.3%0.6%0.6%100.0%
Undrawn commitments (included in above)
Corporate 5,665 23,17623,15010,2991,5692085064,117
Sovereign 963 364128043--1,462
Bank 15 474081--111
Total 6,643 23,58723,20210,3871,6132085065,690
Average Exposure at Default
Corporate 6.131 3.4231.4410.6100.1820.3520.7580.862
Sovereign 139.767 489.83238.03011.63328.0731.804-117.837
Bank 21.726 4.8587.15811.0780.5950.878-7.657
Exposure-weighted average Loss Given Default (%)
Corporate 55.0% 56.9%47.9%39.8%35.2%45.2%40.7%47.6%
Sovereign 6.1% 10.4%39.6%55.0%48.2%58.3%-8.3%
Bank 63.5% 61.8%62.6%67.5%70.3%52.3%-62.8%
Exposure-weighted average risk weight (%)
Corporate 19.3% 35.6%55.2%70.6%89.2%212.6%141.8%56.6%
Sovereign 1.4% 2.9%42.3%122.0%122.5%323.9%-5.4%
Bank 21.3% 26.4%64.6%111.6%187.5%290.4%-30.5%
ANZ Basel III Pillar 3 Disclosure September 2017
49
Table 9(d): Retail Exposure at Default subject to Advanced Internal Ratings Based (IRB)
approach by risk grade
Sep 17
0.00%
<0.11%
$M
0.11%
<0.30%
$M
0.30%
<0.51%
$M
0.51%
<3.49%
$M
3.49%
<10.09%
$M
10.09%
<100.0%
$M
Default
$M
Total
$M
Exposure at Default
Residential Mortgage 68,361 96,84859,982126,2258,3944,3812,478366,669
Qualifying Revolving Retail - 11,7852,8334,8251,72372416522,055
Other Retail 1,066 5,4432,33923,1826,7732,15599341,951
Total 69,427 114,07665,154154,23216,8907,2603,636430,675
% of Total 16.1% 26.5%15.1%35.9%3.9%1.7%0.8%100.0%
Undrawn commitments (included in above)
Residential Mortgage 15,073 7,1532,6559,1023723134,044
Qualifying Revolving Retail - 9,2392,0972,194671823614,319
Other Retail 814 3,4661,5433,1345668669,615
Total 15,887 19,8586,29514,4301,2741914357,978
Average Exposure at Default
Residential Mortgage 0.243 0.2270.2450.2420.3190.3150.2680.241
Qualifying Revolving Retail - 0.0110.0090.0100.0090.0080.0090.010
Other Retail 0.008 0.0150.0110.0250.0110.0100.0260.017
Exposure-weighted average Loss Given Default (%)
Residential Mortgage 19.8% 18.6%19.2%20.9%20.4%20.0%20.1%19.8%
Qualifying Revolving Retail - 73.2%73.2%73.2%73.2%73.2%73.2%73.2%
Other Retail 57.2% 54.7%74.4%45.2%64.0%58.1%50.1%52.2%
Exposure-weighted average risk weight (%)
Residential Mortgage 5.9% 11.8%19.5%40.2%94.5%128.3%195.5%26.3%
Qualifying Revolving Retail - 5.2%14.5%39.8%116.1%210.4%355.4%32.0%
Other Retail 31.3% 36.8%55.9%59.5%111.9%175.4%239.5%74.1%
ANZ Basel III Pillar 3 Disclosure September 2017
50
Mar 17
0.00%
<0.11%
$M
0.11%
<0.30%
$M
0.30%
<0.51%
$M
0.51%
<3.49%
$M
3.49%
<10.09%
$M
10.09%
<100.0%
$M
Default
$M
Total
$M
Exposure at Default
Residential Mortgage
70,265 157,67336,26571,04110,8056,3882,252354,689
Qualifying Revolving Retail
11,810 -2,6664,7532,00886117522,273
Other Retail
1,188 5,5072,34523,0996,8542,21292142,126
Total
83,263 163,18041,27698,89319,6679,4613,348419,088
% of Total
19.9% 38.9%9.8%23.6%4.7%2.3%0.8%100.0%
Undrawn commitments (included in above)
Residential Mortgage 6,940 17,9321,0357,097193186133,384
Qualifying Revolving Retail 9,195 -1,9652,1937941003414,281
Other Retail 636 2,2251,3352,9995387967,818
Total 16,771 20,1574,33512,2891,5253654155,483
Average Exposure at Default
Residential Mortgage 0.246 0.2260.2170.2510.2790.2820.2470.236
Qualifying Revolving Retail 0.011 -0.0090.0100.0090.0080.0090.010
Other Retail 0.006 0.0120.0100.0250.0100.0100.0230.016
Exposure-weighted average Loss Given Default (%)
Residential Mortgage 19.8% 19.2%19.0%21.8%20.3%20.0%20.1%19.9%
Qualifying Revolving Retail 73.2% -73.2%73.2%73.2%73.2%73.2%73.2%
Other Retail 57.7% 53.6%74.2%45.4%63.7%59.4%50.9%52.3%
Exposure-weighted average risk weight (%)
Residential Mortgage 9.6% 11.7%19.6%39.0%111.7%147.4%223.1%24.3%
Qualifying Revolving Retail 5.0% -13.9%39.0%113.1%207.7%368.2%33.7%
Other Retail 29.9% 36.4%55.9%59.5%110.6%177.5%226.8%73.6%
Sep 16
0.00%
<0.11%
$M
0.11%
<0.30%
$M
0.30%
<0.51%
$M
0.51%
<3.49%
$M
3.49%
<10.09%
$M
10.09%
<100.0%
$M
Default
$M
Total
$M
Exposure at Default
Residential Mortgage 71,052 153,76931,08674,7959,6195,8162,257348,394
Qualifying Revolving Retail - 11,7152,8055,1491,75579917222,395
Other Retail 1,173 5,4382,29923,2437,0892,19785242,291
Total 72,225 170,92236,190103,18718,4638,8123,281413,080
% of Total 17.5% 41.4%8.8%25.0%4.5%2.1%0.8%100.0%
Undrawn commitments (included in above)
Residential Mortgage 6,744 17,8441,0237,549159179-33,498
Qualifying Revolving Retail - 9,1442,0692,418605933114,360
Other Retail 626 2,2011,3063,1065618567,891
Total 7,370 29,1894,39813,0731,3253573755,749
Average Exposure at Default
Residential Mortgage 0.242 0.2240.2090.2530.2700.2780.2490.234
Qualifying Revolving Retail - 0.0110.0090.0100.0090.0080.0090.010
Other Retail 0.006 0.0120.0100.0250.0110.0110.0200.016
Exposure-weighted average Loss Given Default (%)
Residential Mortgage 19.8% 19.2%18.8%21.9%20.4%20.0%20.3%19.9%
Qualifying Revolving Retail - 73.2%73.2%73.2%73.2%73.2%73.2%73.2%
Other Retail 59.1% 54.4%74.2%46.7%64.1%60.0%53.1%53.1%
Exposure-weighted average risk weight (%)
Residential Mortgage 9.8% 11.9%18.2%38.5%112.9%148.0%223.8%24.2%
Qualifying Revolving Retail - 5.2%14.3%39.8%112.6%209.5%366.6%32.8%
Other Retail 31.5% 37.3%55.3%60.0%111.1%178.5%228.6%74.2%
ANZ Basel III Pillar 3 Disclosure September 2017
51
Table 9(e): Actual Losses by portfolio type
Half year Sep 17
Basel Asset Class
Individual provision
charge
$M
Write-offs
$M
Corporate 75 178
Sovereign - -
Bank 5 8
Residential Mortgage 42 20
Qualifying Revolving Retail 118 137
Other Retail 245 275
Total Advanced IRB 485 618
Specialised Lending (4) 2
Standardised approach 73 171
Total 554 791
Half year Mar 17
Basel Asset Class
Individual provision
charge
$M
Write-offs
$M
Corporate 289 314
Sovereign (1) 4
Bank 3 -
Residential Mortgage 35 22
Qualifying Revolving Retail 104 141
Other Retail 239 270
Total Advanced IRB 669 751
Specialised Lending (3) 4
Standardised approach 121 147
Total 787 902
Half year Sep 16
Basel Asset Class
Individual provision
charge
$M
Write-offs
$M
Corporate 466 468
Sovereign 2 2
Bank - -
Residential Mortgage 33 17
Qualifying Revolving Retail 104 141
Other Retail 251 275
Total Advanced IRB 856 903
Specialised Lending (1) 8
Standardised approach 192 155
Total 1,047 1,066
Factors impacting the loss experience
The individual credit impairment charge decreased $233 million over the half driven primarily by AIRB
Corporate asset class due to lower new individual provisions and higher writeback and recoveries.
Write-offs decreased $111 million over the half driven by AIRB Corporate asset class reflecting the
decrease in the number of large single names exposures being written-off.
ANZ Basel III Pillar 3 Disclosure September 2017
52
Table 9(f): Average estimated vs. actual PD, EAD and LGD – Advanced IRB
Sep 17
Portfolio Type
Average
Estimated
PD
%
Average
Actual PD
%
Average
estimated to
actual EAD
ratio
Average
Estimated
LGD
%
Average
Actual LGD
%
Corporate 1.64 1.15 1.13 41.21 32.10
Sovereign 0.39 nil n/a n/a n/a
Bank 0.67 0.11 0.82 46.00 58.30
Specialised Lending n/a 1.78 1.09 n/a 23.90
Residential Mortgage
29
0.70 0.77 1.01 20.8 2.5
Qualifying Revolving Retail 2.54 1.91 1.05 73.2 72.6
Other Retail 3.89 3.58 1.05 51.6 41.8
APS 330 Table 9(f) compares internal credit risk estimates used in calculating regulatory capital with
realised outcomes by portfolio types. It covers the PD, EAD and LGD estimates for the IRB portfolios.
Estimated PD and LGD for Specialised Lending exposures have not been provided, since APRA requires
the use of supervisory slotting for Regulatory EL calculations.
Actual PD, EAD ratio, Estimated LGD and Actual LGD for Sovereign exposures have not been provided,
since there were no Sovereign defaults observed in ANZ Sovereign exposures for the observation
period.
The estimated PD is based on the average of the internally estimated long-run PD’s for obligors that
are not in default at the beginning of each financial year over the period of observation being 2009 to
2017. The actual PD is based on the number of defaulted obligors up to August 2017 compared to the
total number of obligors measured.
The EAD ratio compares internally estimated EAD prior to default to realised EAD for defaulted
obligors over the 8 years of observation being 2009 to August 2017. A ratio greater than 1.0 signifies
that on average, the actual defaulted exposures are lower than the estimated exposures at the time of
default.
The estimated LGD is the downturn LGD for accounts that defaulted at the beginning of each year
during the observation period being 2009 to September 2015. The actual LGD is based on the average
realised losses over the period for the accounts observed at the beginning and defaulted during the
observation period. For non-retail portfolios, the estimated and actual LGDs are based on accounts
that defaulted up to September 2015. Defaults occurring after September 2015 have been excluded
from the analysis to allow sufficient time for workout period. Actual LGD for defaults where workouts
were not finalised have been estimated to approximate the final actual loss.
For retail portfolios, the estimated and actual LGDs are based on accounts that defaulted in 2011 to
2015 financial years. For the retail portfolios, defaults with non-finalised workout have been excluded
from the analysis.
In assessing the accuracy of the credit risk estimates, it should be noted that the period of analysis
does not cover a full economic cycle.
29
A revised capital model was introduced in June 2017, which will impact Average Estimated PD rates for the
Australian Residential Mortgages portolio. The current Average Estimated PD rate is based on the previous capital
models, with the impacts of the revised model to gradually roll through in future periods.
ANZ Basel III Pillar 3 Disclosure September 2017
53
Table 10 Credit risk mitigation disclosures
Main types of collateral taken by ANZ
Collateral is used to mitigate credit risk, as the secondary source of repayment in case the
counterparty cannot meet its contractual repayment obligations.
30
Types of collateral typically taken
by ANZ include:
Charges over residential, commercial, industrial or rural property.
Charges over business assets.
Charges over specific plant and equipment.
Charges over listed shares, bonds or securities.
Charges over cash deposits.
Guarantees and pledges.
In some cases, such as where the customer risk profile is considered very sound or by the nature of
the product, a transaction may not be supported by collateral.
Our credit policy, requirements and processes set out the acceptable types of collateral, as well as a
process by which additional instruments and/or asset types can be considered for approval. ANZ’s
credit risk modelling teams use historical internal loss data and other relevant external data to assist
in determining the discount that each type would be expected to incur in a forced sale. The
discounted value is used in the determination of the SI.
Policies and processes for collateral valuation and management
ANZ has well established policies, requirements and processes around collateral valuation and
management, that are reviewed regularly. The concepts of legal enforceability, certainty and current
valuation are central to collateral management.
In order to achieve legal enforceability and certainty, ANZ uses standard collateral instruments or
has specific documentation drawn up by external legal advisers, and where applicable, security
interests are registered. The use of collateral management systems also provides certainty that the
collateral has been properly taken, registered and stored.
In order to rely on the valuation of collateral assets, ANZ has developed comprehensive rules around
acceptable types of valuations (including who may value an asset), the frequency of revaluations and
standard extension ratios for typical asset types. Upon receipt of a new valuation, the information is
used to recalculate the SI (or to reassess the adequacy of the provision, in the case of an impaired
asset), thereby ensuring that the exposure has an updated LGD attached to it for risk quantification
purposes.
Guarantee support
Guarantee support for lending proposals is an integral component in transaction structuring for ANZ.
The guarantee of a financially stronger party can help improve the PD of a transaction through its
explicit support of the weaker rated borrower.
Guarantees that are recognised for risk rating purposes may be provided by parties that include
associated entities, banks, sovereigns or individuals. Credit requirements provide threshold
parameters to determine acceptable counterparties in achieving risk grade enhancement of the
transaction.
The suitability of the guarantor is determined by risk rating that guarantor. Not all guarantees or
guarantors are recognised for risk grade enhancement purposes.
Use of credit derivatives for risk mitigation
ANZ uses purchased credit derivatives to mitigate credit risk by lowering exposures to reference
entities that generate high concentration risk exposures or to improve risk return performance. Only
certain credit derivatives such as credit default swaps (CDS) are recognised for risk mitigation
purposes in the determination of regulatory capital.
30
For some products, the collateral provided is fundamental to its structuring so is not strictly the secondary source
of repayment. For example, lending secured by trade receivables is typically repaid by the collection of those
receivables.
ANZ Basel III Pillar 3 Disclosure September 2017
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A CDS entails the payment by one party in exchange for credit default protection payment if a credit
default event on a reference asset occurs. Standard, legally enforceable documentation applies.
For regulatory capital purposes, ANZ only recognises protection using credit derivatives where they
meet several policy and regulatory requirements around the strength of the protection offered such
as being irrevocable.
A CDS may only be transacted with banks and non-bank financial institutions that have been credit
assessed and approved by a designated specialist credit officer. All parties must meet minimum
credit standards and be allocated a related credit limit. In the event that the creditworthiness of a
credit protection provider falls below the minimum required to provide effective protection, the
protection is no longer recognised as an effective risk mitigant for regulatory purposes.
The use of netting
Netting is a form of credit risk mitigation in that it reduces EAD, by offsetting a customer’s positive
and negative balances with ANZ.
In order to apply on-balance sheet netting, the arrangement must be specifically documented with
the customer and meet a number of legally enforceable requirements.
Netting is also used where the credit exposure arises from off-balance sheet market related
transactions. For close-out netting to be utilised with counterparties, a legally enforceable eligible
netting agreement in an acceptable jurisdiction must be in place. This means that each transaction is
aggregated into a single net amount and transactions are netted to arrive at a single overall sum.
Transaction structuring to mitigate credit risk
Besides collateral, guarantee support and derivatives described above, credit risk mitigation can also
be furthered by prudent transaction structuring. For example, the risk in project finance lending can
be mitigated by lending covenants, loan syndication and political risk insurance.
Concentrations of credit risk mitigation
Taking collateral raises the possibility that ANZ may inadvertently increase its risk by becoming
exposed to collateral concentrations. For example, in the same way that an over-exposure to a
particular industry may mean that a bank is more sensitive to the fortunes of that industry, an over-
exposure to a particular collateral asset type may make ANZ more sensitive to the performance of that
asset type.
ANZ does not believe that it has any material concentrations of collateral types, given the well
diversified nature of its portfolio and conservative asset extension ratios.
ANZ Basel III Pillar 3 Disclosure September 2017
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Table 10(b): Credit risk mitigation on Standardised approach portfolios – collateral
31
Sep 17
Exposure at
Default
$M
Eligible Financial
Collateral
$M
Other
Eligible
Collateral
$M% Coverage
Standardised approach
Corporate 14,455 5,0232,49952.0%
Residential Mortgage 2,448 --0.0%
Other Retail 1,988 131-6.6%
Total 18,891 5,1542,49940.5%
Mar 17
Exposure at
Default
$M
Eligible Financial
Collateral
$M
Other
Eligible
Collateral
$M% Coverage
Standardised approach
Corporate
16,866 4,4032,78742.6%
Residential Mortgage
6,476 1-0.0%
Other Retail
3,288 95-2.9%
Total
26,630 4,4992,78727.4%
Sep 16
Exposure at
Default
$M
Eligible Financial
Collateral
$M
Other
Eligible
Collateral
$M% Coverage
Standardised approach
Corporate 21,254
4,382 2,54432.6%
Residential Mortgage 6,851
1 -0.0%
Other Retail
3,279 63 -1.9%
Total 31,384 4,446 2,54422.3%
31
Eligible Collateral could include cash collateral (cash, certificates deposits and bank bills issued by the lending
ADI), gold bullion and highly rated debt securities.
ANZ Basel III Pillar 3 Disclosure September 2017
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Table 10(c): Credit risk mitigation – guarantees and credit derivatives
Sep 17
Exposure at
Default
$M
Exposures
covered by
Guarantees
$M
Exposures
covered by
Credit
Derivatives
$M % Coverage
Advanced IRB
Corporate (incl. Specialised Lending) 267,580 6,824 887 2.9%
Sovereign 131,473 4,479 - 3.4%
Bank 44,540 15 - 0.0%
Residential Mortgage 366,669 - - 0.0%
Qualifying Revolving Retail 22,055 - - 0.0%
Other Retail 41,951 - - 0.0%
Total 874,268 11,318 887 1.4%
Standardised approach
Corporate 14,455 168 - 1.2%
Residential Mortgage 2,448 - - 0.0%
Other Retail 1,988 - - 0.0%
Total 18,891 168 - 0.9%
Qualifying Central Counterparties 9,919 - - 0.0%
Mar 17
Exposure at
Default
$M
Exposures
covered by
Guarantees
$M
Exposures
covered by
Credit
Derivatives
$M % Coverage
Advanced IRB
Corporate (incl. Specialised Lending) 267,365 5,313 828 2.3%
Sovereign 130,805 4,286 - 3.3%
Bank 45,715 11 - 0.0%
Residential Mortgage 354,689 - - 0.0%
Qualifying Revolving Retail 22,273 - - 0.0%
Other Retail 42,126 - - 0.0%
Total 862,973 9,610 828 1.2%
Standardised approach
Corporate 16,866 245 - 1.5%
Residential Mortgage 6,476 - - 0.0%
Other Retail 3,288 - - 0.0%
Total 26,630 245 - 0.9%
Qualifying Central Counterparties 9,756 - - 0.0%
ANZ Basel III Pillar 3 Disclosure September 2017
57
Sep 16
Exposure at
Default
$M
Exposures
covered by
Guarantees
$M
Exposures
covered by
Credit
Derivatives
$M% Coverage
Advanced IRB
Corporate (incl. Specialised Lending) 269,775 4,9745892.1%
Sovereign 120,933 4,579-3.8%
Bank 48,875 10-0.0%
Residential Mortgage 348,394 --0.0%
Qualifying Revolving Retail 22,395 --0.0%
Other Retail 42,291 --0.0%
Total 852,663 9,5635891.2%
Standardised approach
Corporate 21,254 349261.8%
Residential Mortgage 6,851 --0.0%
Other Retail 3,279 --0.0%
Total 31,384 349261.2%
Qualifying Central Counterparties 10,448 --0.0%
ANZ Basel III Pillar 3 Disclosure September 2017
58
Table 11 General disclosures for derivatives and counterparty credit
risk
Definition of Counterparty Credit Risk
Counterparty credit risk in derivative transactions arises from the risk of counterparty default before
settlement date of derivative contracts and the counterparty is unable to fulfil present and future
contractual payment obligations. The amount at risk may change over time as a function of the
underlying market parameters up to the positive value of the contract in favour of ANZ.
Counterparty credit risk is present in market instruments (derivatives and forward contracts), and
comprises:
Settlement risk, which arises where one party makes payment or delivers value in the expectation
but without certainty that the counterparty will perform the corresponding obligation in a bilateral
contract at settlement date.
Market replacement risk (pre-settlement risk), which is the risk that a counterparty will default
during the life of a derivative contract and that a loss will be incurred in covering the position.
ANZ transacts market instruments with the following counterparties:
End users – would typically use Over the Counter (OTC) derivative instruments provided by ANZ to
manage price movement risk associated with their core business activity.
Professional counterparties – ANZ may hedge price movement risks by entering into transactions
with professional counterparties that conduct two way (buy and sell) business.
Counterparty credit risk requires a different method to calculate exposure at default because actual
and potential market movements impact ANZ’s exposure or replacement cost over the life of
derivative contracts. The markets covered by this treatment include the derivative activities associated
with interest rate, foreign exchange, CDS, equity, commodity and repurchase agreement (repo)
products.
Counterparty credit risk governance
ANZ’s counterparty credit risk management is governed by its credit principles, policies and
procedures. The Markets Risk function is responsible for determining the counterparty credit risk
exposure methodology applied to market instruments, in the framework for counterparty credit limit
management, measurement and reporting.
The counterparty credit risk associated with derivative transactions is governed by credit limit setting
consistent with all credit exposures to the ANZ Group. Counterparty credit limits are approved by the
appropriate credit delegation holders.
Counterparty credit risk measurement and reporting
The approach to measure counterparty credit risk exposure is based on internal models. These
measures are referred to as potential credit risk exposure (PCRE) and potential future exposure (PFE)
and measure the maximum credit exposure of derivative transactions at future time points to ANZ.
PFE is measured at the 97.5th percentile at future pre-described time points, and PCRE is a 97.5th
percentile averaged over time points.
PCRE factors recognise that prices may change over the remaining period to maturity, and that risk
decreases as the contract’s remaining term to maturity decreases. In general terms PCRE is calculated
by applying a risk weighting or volatility factor to the face value of the notional principal of individual
trades.
PFE simulates relevant risk factors in a portfolio by taking into account the relevant volatilities and
correlations calibrated to historical market data.
PFE and PCRE models are also used by credit officers to establish credit limits on an uncommitted and
unadvised basis, to ensure the potential volatility of the transaction value is recognised. Counterparty
credit risk exposure is calculated six times per 24 hour day. Excesses above approved limits are
reported daily to account controllers and Credit Officers for action.
ANZ Basel III Pillar 3 Disclosure September 2017
59
Credit valuation adjustment (CVA)
Over the life of a derivative instrument, ANZ uses a CVA 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 PD, LGD, and expected credit
risk exposure.
APRA requires banks to hold additional risk based capital to cover the risk of mark to market losses
associated with deterioration in counterparty credit worthiness when entering into derivatives
transactions. The effect is that banks are required to increase the amount of capital provisioned for
deterioration in the counterparty credit worthiness when entering into a derivatives trade.
Wrong way risk
ANZ’s management of counterparty credit risk also considers the possibility of wrong way risk, which
emerges when PD is adversely correlated with counterparty credit risk exposures.
Counterparty credit risk mitigation and credit enhancements
ANZ’s primary tools to mitigate counterparty credit risk include:
A bilateral netting master agreement (e.g. an International Swaps and Derivatives Association –
(ISDA) allowing close-out netting of exposures in a portfolio with offsetting contracts, with a single
net payment with the same legal counterparty.
Use of collateral agreements in some transactions based on standard market documentation (i.e.
ISDA master agreement with credit support annex) that governs the amount of collateral required
to be posted or received by ANZ throughout the life of the contract. Some agreements are linked
to external credit ratings which means in the event of a party’s (ANZ or a counterparty) external
rating being downgraded, it would likely be required to lodge collateral. The operation of collateral
agreements falls under policy which establishes the control framework to ensure a robust and
globally consistent approach to the management of collaterised exposures.
Use of right to break clauses in master agreement or in trade confirmation to reduce term of long
dated derivative trades.
Independent limit setting, credit exposure control, monitoring and reporting of excesses against
approved credit limits.
Additional termination triggers (close out of exposure) such as credit rating downgrade clauses and
change in ownership clauses included in documentation.
Linking covenants and events of default in existing loan facility agreement to master agreement.
Use of credit derivatives to hedge counterparty credit risk exposure.
Settlement through Continuous Linked Settlement (CLS) to eliminate settlement risk for foreign
exchange transactions with CLS members.
Clearing certain derivative transactions through central counterparties (CCPs).
Exchange of variation and initial margin for derivative transactions not cleared through CCP’s
mandated by regulators subject to certain criteria.
In the event of a downgrading of ANZ’s rating by one notch from AA- to A+, as at 30 September
2017, ANZ would not be required to lodge additional collateral with its counterparties.
ANZ Basel III Pillar 3 Disclosure September 2017
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Table 11(b): Counterparty credit risk – net derivative credit exposure
Net derivative credit exposure
Sep 17 Mar 17 Sep 16
$M $M $M
Gross positive fair value of contracts 62,518 63,882 87,496
Netting benefits (49,227) (50,335) (71,394)
Netted current credit exposure 13,291 13,547 16,102
Collateral held (5,093) (3,861) (5,259)
Net derivatives credit exposure 8,198 9,686 10,843
Counterparty credit risk exposure – by portfolio type
Sep 17 Mar 17 Sep 16
Portfolio Type $M $M $M
Corporate 13,573 14,671 15,214
Sovereign 1,359 1,801 1,801
Bank 13,569 13,540 13,537
Qualifying Central Counterparties 9,916 9,756 10,120
Specialised Lending 505 625 969
Total exposures 38,922 40,393 41,641
Notional Value of Credit Derivative Hedges
Sep 17 Mar 17 Sep 16
Product Type $M $M $M
Credit Default Swaps 731 729 737
Interest Rate Swaps - - -
Currency Swaps - - -
Other - - -
Total exposures 731 729 737
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Table 11(c): Counterparty credit risk exposure – credit derivative transactions
Sep 17
Protection
Bought
$M
Protection
Sold
$M
Total
$M
Credit derivative products used for own credit portfolio
Credit default swaps 6,138 5,672 11,810
Total notional value 6,138 5,672 11,810
Credit derivative products used for intermediation
Credit default swaps 731 731 1,462
Total return swaps - - -
Total notional value 731 731 1,462
Total credit derivative notional value 6,869 6,403 13,272
Mar 17
Protection
Bought
$M
Protection
Sold
$M
Total
$M
Credit derivative products used for own credit portfolio
Credit default swaps 7,764 7,384 15,148
Total notional value 7,764 7,384 15,148
Credit derivative products used for intermediation
Credit default swaps 729 729 1,458
Total return swaps - - -
Total notional value 729 729 1,458
Total credit derivative notional value 8,493 8,113 16,606
Sep 16
Protection
Bought
$M
Protection
Sold
$M
Total
$M
Credit derivative products used for own credit portfolio
Credit default swaps 8,397 7,796 16,193
Total notional value 8,397 7,796 16,193
Credit derivative products used for intermediation
Credit default swaps
737 737 1,474
Total return swaps
- - -
Total notional value 737 737 1,474
Total credit derivative notional value 9,134 8,533 17,667
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Chapter 7 – Securitisation
Table 12 Securitisation disclosures
Definition of securitisation and resecuritisation
A securitisation is a financial structure where the cash flow from a pool of assets is used to service
obligations to at least two different tranches or classes of creditors, typically holders of debt securities,
with each class or tranche reflecting a different degree of credit risk. This stratification of credit risk
means that one class of creditors is entitled to receive payments from the pool before another class.
32
A resecuritisation exposure is a securitisation exposure in which the risk associated with an underlying
pool of exposures is tranched and at least one of the underlying exposures is a securitisation exposure.
Securitisations may be categorised as:
Traditional securitisations, where legal ownership of the underlying asset pool is transferred to
investors, with principal and interest paid from realisation of or regular cash flows from the assets.
The Special Purpose Vehicle (SPV) assets are insulated from bankruptcy of the seller or servicer.
Synthetic securitisations, where credit risk is transferred to a third party but legal ownership of the
underlying assets remain with the originator e.g. by using credit derivatives or guarantees.
Covered bond transactions, whereby bonds issued by ANZ are secured by assets held in a special
purpose vehicle, are not securitisation exposures.
Securitisation Activities
ANZ’s key securitisation activities are:
Securitisation of third-party originated assets, including residential mortgages, auto and equipment
loans and trade receivables.
Investment in securities – ANZ may purchase notes issued by securitisation programs.
Securitisation of ANZ originated assets (including self securitisation) as a funding and liquidity
management tool, which may or may not involve the transfer of credit risk i.e. may or may not
provide regulatory capital relief.
Provision of facilities and services to securitisations or resecuritisations (where the underlying
assets may be ANZ or third-party originated) e.g. structuring and arranging services, providing
funding and/or swaps to securitisation vehicles and (via ANZ Capel Court Limited) trust
management services. Funding may be provided via an ANZ-sponsored securitisation vehicle which
is consolidated onto the Bank’s financial statements, to certain clients wishing to access
securitisation.
For any assets ANZ has securitised or for SPVs that ANZ sponsors, any role provided by ANZ or its
subsidiaries is subject to market based terms and conditions, and ANZ’s normal approval and review
processes. Further, any securitisation exposures retained by ANZ or its affiliated entities are subject to
ANZ’s normal approval and review processes as well as satisfying the requirements under APS 120:
Securitisation.
Governance of securitisation activities
Governance of securitisation activities is overseen by the Board and executive committees described in
Chapter 3, and managed in accordance with the credit risk and market risk frameworks described in
Chapters 6 and 8.
32
APRA’s definition of securitisation includes certain cases where only one tranche or class of creditors is serviced by
the cash flow from the pool of assets.
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Risk Management
Similar to other exposures, securitisation exposures are subject to credit, market, operational liquidity
and legal risks. Roles and responsibilities are clearly outlined in ANZ’s established risk management
framework of policies and procedures, including:
Appropriate risk management systems to identify, measure, monitor and manage the risks arising
from its involvement in securitisation exposures;
Impact of ANZ’s involvement in securitisation exposures on its risk profile; and
How ANZ ensures that it does not provide any implicit support to its securitisation exposures.
Funding for third party originated exposures and investment in securities are via balance sheet funded
arrangements where such arrangements satisfy ANZ’s credit, due diligence and other business
requirements.
Many functions within ANZ are involved in securitisation activities given the range of activities
undertaken and risks that need to be managed. For origination and structuring of securitisation
transactions, ANZ has a specialist securitisation team with independent Risk personnel overseeing
operations. Credit decisions require joint Risk and business approval. The securitisation team must be
involved in all non-trading securitisation transactions across ANZ, which ensures consistent expert
treatment. Where ANZ invests in instruments issued by securitisation programs, the relevant business
area manages these exposures until the securitisation exposures are repaid in full or traded.
All facilities provided to our investments in securitisation programs (across both the banking and
trading books) undergo initial and ongoing due diligence requirements as outlined by APRA. This due
diligence is completed with input from the Risk function and includes analysing the structure of the
transaction and monitoring performance of the underlying assets of the transaction. In addition, such
securitisation exposures are formally reviewed at least annually, including the risk grade.
Risk reporting of securitisation exposures
In addition to the formal credit review process for ANZ’s securitisation exposures, the type and
frequency of internal reporting to the appropriate Risk and management functions is as follows:
Facilities provided to securitisation programs are reported using standard credit reporting systems,
distinguished by appropriate product codes. The regular reporting frequency for most of these
systems is monthly.
Investments in securitisations are reported through the banking book or the trading book on a
monthly basis.
The use and treatment of Credit Risk Mitigation (CRM) techniques with respect to securitisation
exposures is assessed on a case-by-case basis in a manner consistent with the bank-wide CRM
methodology
33
.
Regulatory capital approaches
For securitisation exposures held in ANZ’s banking book
34
, ANZ applies an IRB approach (as outlined in
APS 120: Securitisation) to determine the regulatory capital charge.
Chapter 8 outlines regulatory capital treatment for securitisation exposures held in ANZ’s trading book.
The operational requirements for the recognition of external credit assessments outlined in Attachment
B to APS120 apply to these exposures.
33
For example, various types of analysis including quantitative analysis of credit enhancements are performed for
non-externally rated transactions. Factors such as geography, facility/transaction type and ANZ’s role will determine
the applicable CRM techniques to apply.
34
Exposures are classified into either the trading book or the banking book. In general terms, the trading book
consists of positions in financial instruments and commodities held with trading intent or in order to hedge other
elements of the trading book, and the banking book contains all other exposures. Banking book exposures are
typically held to maturity, in contrast to the shorter term, trading nature of the trading book.
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In accordance with APS 120: Securitisation, ANZ has a hierarchy of approaches available to quantify
the credit risk of banking book securitisation exposures. The most common approaches used are the
Ratings Based Approach (specifically utilising the external ratings of External Credit Assessment
Institutions (ECAIs)) and the Internal Assessment Approach (IAA). Other approaches that may be used
are Supervisory Formula Approach (SFA) and Eligible Facility Approach.
Where the use of ECAIs is relevant, ANZ applies the ratings or the rating methodologies provided by
Standard & Poor’s, Moody’s Investor Services and/or Fitch Ratings as appropriate.
IAA is applied to securitisation exposures that are not externally rated where the underlying assets are
residential mortgages, equipment finance, auto loans or trade receivables. When utilising the IAA, ANZ
uses a rating agency-type methodology which specifies certain stress factors, takes into account
historical performance of assets and other (asset-specific) considerations such as underwriting
standards.
IAA methodology is applied and maintained in accordance with APRA’s requirements and it forms part
of ANZ’s overall securitisation risk-grading framework. In addition to adopting IAA for regulatory and
economic capital requirements, IAA may be used for internal management purposes.
From 1 January 2018, there will be a change to the applicable rating approaches as a result of APRA’s
revised APS 120: Securitisation, scheduled to come into effect on this date.
Accounting policies
The principal accounting policies governing ANZ’s securitisation activities are outlined in ANZ’s 2017
Annual Report, Notes to the Financial Statements. These include the valuation, derecognition,
consolidation and income recognition principles outlined in the accounting policies and key judgements
and estimates in each relevant note. ANZ applies these group accounting policies to its securitisation
activities, as appropriate and these policies have not changed since the prior year. Note 26 –
Structured Entities and Note 27 – Transfers of Financial Assets also provides details about the nature
of ANZ’s securitisation activities and certain accounting policies and key judgements and estimates as
they specifically apply to these activities.
Financial instruments held or issued by structured entities are recognised and valued using the
principles of AASB 139 Financial Instruments: Recognition and Measurement. For synthetic
securitisations, any transferred credit exposure is recognised through the fair value measurement of
the segregated embedded or stand-alone credit derivative established within the structure.
To the extent that ANZ has exposures intended to be securitised, they could reside in either the
banking or trading book.
To the extent that ANZ has entered into contractual arrangements that could require it to provide
financial support for securitised assets e.g. liquidity facilities, these are recognised in accordance with
the accounting policies set out in ANZ’s 2017 Annual Report.
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Banking Book
Table 12(g): Banking Book: Traditional and synthetic securitisation exposures
Sep 17
Traditional securitisations
Underlying asset
ANZ Originated
$M
ANZ Self Securitised
$M
ANZ Sponsored
$M
Residential mortgage 1,528 71,011-
Credit cards and other personal loans - --
Auto and equipment finance - --
Commercial loans - --
Other - --
Total 1,528 71,011-
Synthetic securitisations
Underlying asset
ANZ Originated
$M
ANZ Self Securitised
$M
ANZ Sponsored
$M
Residential mortgage - --
Credit cards and other personal loans - --
Auto and equipment finance - --
Commercial loans - --
Other - --
Total - --
Aggregate of traditional and synthetic securitisations
Underlying asset
ANZ Originated
$M
ANZ Self Securitised
$M
ANZ Sponsored
$M
Residential mortgage 1,528 71,011-
Credit cards and other personal loans - --
Auto and equipment finance - --
Commercial loans - --
Other - --
Total 1,528 71,011-
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Mar 17
Traditional securitisations
Underlying asset
ANZ Originated
$M
ANZ Self Securitised
$M
ANZ Sponsored
$M
Residential mortgage 1,750 81,224-
Credit cards and other personal loans - --
Auto and equipment finance - --
Commercial loans - --
Other - --
Total 1,750 81,224-
Synthetic securitisations
Underlying asset
ANZ Originated
$M
ANZ Self Securitised
$M
ANZ Sponsored
$M
Residential mortgage - --
Credit cards and other personal loans - --
Auto and equipment finance - --
Commercial loans - --
Other - --
Total - --
Aggregate of traditional and synthetic securitisations
Underlying asset
ANZ Originated
$M
ANZ Self Securitised
$M
ANZ Sponsored
$M
Residential mortgage 1,750 81,224-
Credit cards and other personal loans - --
Auto and equipment finance - --
Commercial loans - --
Other - --
Total 1,750 81,224-
Sep 16
Traditional securitisations
Underlying asset
ANZ Originated
$M
ANZ Self Securitised
$M
ANZ Sponsored
$M
Residential mortgage - 80,478-
Credit cards and other personal loans - --
Auto and equipment finance - --
Commercial loans - --
Other - --
Total - 80,478-
Synthetic securitisations
Underlying asset
ANZ Originated
$M
ANZ Self Securitised
$M
ANZ Sponsored
$M
Residential mortgage - --
Credit cards and other personal loans - --
Auto and equipment finance - --
Commercial loans - --
Other - --
Total - --
Aggregate of traditional and synthetic securitisations
Underlying asset
ANZ Originated
$M
ANZ Self Securitised
$M
ANZ Sponsored
$M
Residential mortgage - 80,478-
Credit cards and other personal loans - --
Auto and equipment finance - --
Commercial loans - --
Other - --
Total - 80,478-
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Table 12(h): Banking Book: Impaired and Past due loans relating to ANZ originated
securitisations
Sep 17
Underlying asset
ANZ Originated
$M
ANZ Self
Securitised
$M
Impaired
$M
Past due
$M
Losses recognised
for the six month
ended
$M
Residential mortgage 1,528 71,011-67-
Credit cards and other personal loans - ----
Auto and equipment finance - ----
Commercial loans - ----
Other - ----
Total 1,528 71,011-67-
Mar 17
Underlying asset
ANZ Originated
$M
ANZ Self
Securitised
$M
Impaired
$M
Past due
$M
Losses recognised
for the six month
ended
$M
Residential mortgage 1,750 81,224-57-
Credit cards and other personal loans - ----
Auto and equipment finance - ----
Commercial loans - ----
Other - ----
Total 1,750 81,224-57-
Sep 16
Underlying asset
ANZ Originated
$M
ANZ Self
Securitised
$M
Impaired
$M
Past due
$M
Losses recognised
for the six month
ended
$M
Residential mortgage - 80,478 -44-
Credit cards and other personal loans - - ---
Auto and equipment finance - - ---
Commercial loans - - ---
Other - - ---
Total - 80,478 -44-
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Table 12(i): Banking Book: Total amount of outstanding exposures intended to be
securitised
No assets from ANZ's Banking Book were intended to be securitised as at the reporting date.
Table 12(j): Banking Book: Securitisation - Summary of current period’s activity by
underlying asset type and facility
35
Sep 17
Original value securitised
Securitisation activity by underlying asset type
ANZ
Originated
$M
ANZ Self
Securitised
$M
ANZ
Sponsored
$M
Recognised
gain or loss
on sale
$M
Residential mortgage
(222) (10,213)
--
Credit cards and other personal loans - ---
Auto and equipment finance - ---
Commercial loans - ---
Other - ---
Total (222) (10,213)--
Securitisation activity by facility provided
Notional
amount
$M
Liquidity facilities -
Funding facilities 815
Underwriting facilities -
Lending facilities -
Credit enhancements -
Holdings of securities (excluding trading book) (635)
Other 4
Total 184
Mar 17
Original value securitised
Securitisation activity by underlying asset type
ANZ
Originated
$M
ANZ Self
Securitised
$M
ANZ
Sponsored
$M
Recognised
gain or loss
on sale
$M
Residential mortgage 1,750 746- -
Credit cards and other personal loans - -- -
Auto and equipment finance - -- -
Commercial loans - -- -
Other - -- -
Total 1,750 746- -
Securitisation activity by facility provided
Notional
amount
$M
Liquidity facilities 18
Funding facilities 220
Underwriting facilities -
Lending facilities -
Credit enhancements -
Holdings of securities (excluding trading book) (772)
Other 80
Total (454)
35
Activity represents net movement in outstandings.
ANZ Basel III Pillar 3 Disclosure September 2017
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Sep 16
Original value securitised
Securitisation activity by underlying asset type
ANZ
Originated
$M
ANZ Self
Securitised
$M
ANZ
Sponsored
$M
Recognised
gain or loss
on sale
$M
Residential mortgage - 672- -
Credit cards and other personal loans - -- -
Auto and equipment finance - -- -
Commercial loans - -- -
Other - -- -
Total - 672- -
Securitisation activity by facility provided
Notional
amount
$M
Liquidity facilities -
Funding facilities 317
Underwriting facilities -
Lending facilities -
Credit enhancements -
Holdings of securities (excluding trading book) (934)
Other 11
Total (606)
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Table 12(k): Banking Book: Securitisation - Regulatory credit exposures by exposure type
Securitisation exposure type - On balance sheet
Sep 17
$M
Mar 17
$M
Sep 16
$M
Liquidity facilities 21 235
Funding facilities 7,004 7,0236,791
Underwriting facilities - --
Lending facilities - --
Credit enhancements - --
Holdings of securities (excluding trading book) 2,569 3,2043,975
Protection provided - --
Other 151 182152
Total 9,745 10,43210,923
Securitisation exposure type - Off balance sheet
Sep 17
$M
Mar 17
$M
Sep 16
$M
Liquidity facilities
51 5761
Funding facilities
- --
Underwriting facilities
- --
Lending facilities
- --
Credit enhancements
- --
Holdings of securities (excluding trading book)
- --
Protection provided
- --
Other
- --
Total 51 5761
Total Securitisation exposure type
Sep 17
$M
Mar-17
$M
Sep 16
$M
Liquidity facilities 72 8066
Funding facilities 7,004 7,0236,791
Underwriting facilities - --
Lending facilities - --
Credit enhancements - --
Holdings of securities (excluding trading book) 2,569 3,2043,975
Protection provided - --
Other 151 182152
Total 9,796 10,48910,984
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Table 12(l) part (i): Banking Book: Securitisation - Regulatory credit exposures by risk
weight band
Sep 17 Mar 17
Sep 16
Securitisation
risk weights
Regulatory
credit
exposure
$M
Risk
weighted
assets
$M
Regulatory
credit
exposure
$M
Risk
weighted
assets
$M
Regulatory
credit
exposure
$M
Risk
weighted
assets
$M
≤ 25% 9,709 1,01210,395 1,09310,8731,113
>25 ≤ 35% - -- ---
>35 ≤ 50% - -- ---
>50 ≤ 75% 36 2037 215029
>75 ≤ 100% 51 5157 576161
>100 ≤ 650% - -- ---
1250% (Deduction) - -- ---
Total 9,796 1,08310,489 1,17110,9841,203
Sep 17 Mar 17 Sep 16
Resecuritisation
risk weights
Regulatory
credit
exposure
$M
Risk
weighted
assets
$M
Regulatory
credit
exposure
$M
Risk
weighted
assets
$M
Regulatory
credit
exposure
$M
Risk
weighted
assets
$M
≤ 25%
- -- ---
>25 ≤ 35%
- -- ---
>35 ≤ 50%
- -- ---
>50 ≤ 75%
- -- ---
>75 ≤ 100%
- -- ---
>100 ≤ 650%
- -- ---
1250% (Deduction)
- -- ---
Total - -- ---
Sep 17 Mar 17 Sep 16
Total Securitisation
risk weights
Regulatory
credit
exposure
$M
Risk
weighted
assets
$M
Regulatory
credit
exposure
$M
Risk
weighted
assets
$M
Regulatory
credit
exposure
$M
Risk
weighted
assets
$M
≤ 25% 9,709 1,01210,395 1,09310,8731,113
>25 ≤ 35% - -- ---
>35 ≤ 50% - -- ---
>50 ≤ 75% 36 2037 215029
>75 ≤ 100% 51 5157 576161
>100 ≤ 650% - -- ---
1250% (Deduction) - -- ---
Total 9,796 1,08310,489 1,17110,9841,203
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Table 12(l) part (ii): Banking Book: Securitisation - Aggregate securitisation exposures
deducted from Capital
No longer required under Basel III; defaulted exposures are given a risk weight of 1250% and no
longer deducted from Capital.
Table 12(m): Banking Book: Securitisations subject to early amortisation treatment
ANZ does not have any Securitisations subject to early amortisation treatment or using Standardised
approach.
Table 12(n): Banking Book: Resecuritisation - Aggregate amount of resecuritisation
exposures retained or purchased
ANZ does not have any retained or purchased Resecuritisation exposures.
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Trading Book
Table 12(o): Trading Book: Traditional and synthetic securitisation exposures
No assets from ANZ's Trading Book were securitised during the reporting period.
Table 12(p): Trading Book: Total amount of outstanding exposures intended to be
securitised
No assets from ANZ's Trading Book were intended to be securitised as at the reporting date.
Table 12(q): Trading Book: Securitisation - Summary of current year's activity by
underlying asset type and facility
No assets from ANZ's Trading Book were securitised during the reporting period.
Table 12(r): Trading Book: Traditional and synthetic securitisation exposures
No assets from ANZ's Trading Book were securitised during the reporting period.
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Table 12(s): Trading Book: Securitisation – Regulatory credit exposures by exposure type
Securitisation exposure type - On balance sheet
Sep 17
$M
Mar 17
$M
Sep 16
$M
Liquidity facilities - --
Funding facilities - --
Underwriting facilities - --
Lending facilities - --
Credit enhancements - --
Holdings of securities 23 819
Protection provided - --
Other - --
Total 23 819
Securitisation exposure type - Off balance sheet
Sep 17
$M
Mar 17
$M
Sep 16
$M
Liquidity facilities - - -
Funding facilities - - -
Underwriting facilities - - -
Lending facilities - - -
Credit enhancements - - -
Holdings of securities - - -
Protection provided - - -
Other - - -
Total - - -
Total Securitisation exposure type
Sep 17
$M
Mar 17
$M
Sep 16
$M
Liquidity facilities - - -
Funding facilities - - -
Underwriting facilities - - -
Lending facilities - - -
Credit enhancements - - -
Holdings of securities 23 8 19
Protection provided - - -
Other - - -
Total 23 8 19
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Table 12(t)(i) & Table 12(u)(i): Trading Book: Aggregate securitisation exposures subject
to Internal Models Approach (IMA) and the associated Capital requirements
ANZ does not have any Securitisation exposures subject to Internal Models Approach.
Table 12(t)(ii) & Table 12(u)(ii): Trading Book: Aggregate securitisation exposures subject
to APS 120 and the associated Capital requirements
ANZ does not have any aggregate Securitisation exposures subject to APS120 and the associated
Capital requirements.
Table 12(u)(iii): Trading Book: Securitisation - Aggregate securitisation exposures
deducted from Capital
ANZ does not have any Securitisation exposures deducted from Capital.
Table 12(v): Trading Book: Securitisations subject to early amortisation treatment
ANZ does not have any Securitisation exposures subject to early amortisation or using Standardised
approach.
Table 12(w): Trading Book: Resecuritisation - Aggregate amount of resecuritisation
exposures retained or purchased
ANZ does not have any retained or purchased Resecuritisation exposures.
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Chapter 8 – Market risk
Table 13 Market risk – Standard approach
ANZ uses the standard model approach to measure market risk capital for specific risk
36
(APRA does
not currently permit Australian banks to use an internal model approach for this).
Table 13(b): Market risk – Standard approach
37
Sep 17 Mar 17Sep 16
$M $M$M
Interest rate risk 90 7579
Equity position risk - -1
Foreign exchange risk - --
Commodity risk - -1
Total 90 7581
Risk Weighted Assets equivalent 1,125 9381,013
36
Specific risk is the risk that the value of a security will change due to issuer-specific factors. It applies to interest
rate and equity positions related to a specific issuer.
37
RWA equivalent is the capital requirement multiplied by 12.5 in accordance with APS 110.
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Table 14 Market risk – Internal models approach
Definition and scope of market risk
Market Risk stems from ANZ’s trading and balance sheet activities and is the risk to ANZ’s earnings
arising from changes in interest rates, foreign exchange rates, credit spreads, volatility, correlations or
from fluctuations in bond, commodity or equity prices.
Market risk management of IRRBB is described in Chapter 11 and is excluded from this Chapter.
Regulatory approval to use the Internal Models Approach
ANZ has been approved by APRA to use the Internal Models Approach (IMA) under APS 116 Capital
Adequacy: Market Risk for general market risk and under APS 117 Capital Adequacy: Interest Rate
Risk in the Banking Book (Advanced ADIs) for interest rate risk in the banking book (IRRBB).
Governance of market risk
The Board Risk Committee supervision of market risk is supported by the Credit and Market Risk
Committee (CMRC). CMRC is responsible for the oversight and control of credit, market, insurance and
material financial risks across the ANZ Group and meets at least monthly.
The Market Risk function is a specialist risk management unit independent of the business that is
responsible for:
Designing and implementing policies and procedures to ensure market risk exposures are managed
within the appetite and limit framework set by the Board.
Measuring and monitoring market risk exposures, and approving counterparty and associated risks.
The ongoing effectiveness and appropriateness of the risk management framework.
Traded Market Risk
Traded Market Risk is the risk of loss from changes in the value of financial instruments due to
movements in price factors for both physical and derivative trading positions. Trading positions arise
from transactions where ANZ acts as principal with customers, financial exchanges or inter-bank
counterparties.
The Traded, Foreign Exchange and Commodity Market Risk Policy and accompanying procedures
(together the “TFC Framework”) governs the management of traded market risk and its key
components include:
A clear definition of the trading book.
A comprehensive set of requirements that promote the proactive identification and communication
of risk.
A robust Value at Risk (VaR) quantification approach supplemented by comprehensive stress
testing.
A comprehensive limit framework that controls all material market risks.
An independent Market Risk function with specific responsibilities.
Regular and effective reporting of market risk to executive management and the Board.
Non-Traded Market Risk
Non Traded Market Risk is the market risk associated with the management of non-traded interest rate
risk, liquidity risk and foreign exchange exposures from the Group’s foreign currency capital and
earnings.
Included in Non-Traded Market risk is Interest Rate Risk in the Banking Book (IRRBB). This is the risk
of loss arising from adverse changes in the overall and relative level of interest rates for different
tenors, differences in the actual versus expected net interest margin, and the potential valuation risk
associated with embedded options in financial instruments and bank products.
ANZ Basel III Pillar 3 Disclosure September 2017
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In quantifying risk, all material market risk factors need to be identified and reflected within the risk
measurement approach. Non-traded market risk (or balance sheet risk) comprises the management of
non-traded interest rate risk, liquidity risk, and foreign exchange exposures from the Group’s foreign
currency capital and earnings.
ANZ has a detailed market risk management and control framework, to support its trading and balance
sheet activities, which incorporates an independent risk measurement approach to quantify the
magnitude of market risk within the trading and balance sheet portfolios. This approach, along with
related analysis, identifies the range of possible outcomes that can be expected over a given period of
time, and establishes the likelihood of those outcomes and allocates an appropriate amount of capital
to support these activities.
Measurement of Traded Market Risk
ANZ’s traded market risk management framework incorporates a risk measurement approach to
quantify the magnitude of market risk within trading books. This approach and related analysis
identifies the range of possible outcomes that can be expected over a given period of time and
establishes the relative likelihood of those outcomes.
ANZ’s key tools to measure and manage traded market risk on a daily basis are VaR, sensitivity
measures and stress tests. VaR is calculated using a historical simulation with a 500 day observation
period for standard VaR, and a one-year stressed period for stressed VaR. Traded VaR is calculated at
a 99% confidence level for one and ten-day holding periods for standard VaR, and a ten-day holding
period for stressed VaR. All material market risk factors and all trading portfolios are captured within
the VaR model, with any exception documented.
ANZ also undertakes a wide range of stress tests on the Group trading portfolio and to individual
trading portfolios. Standard stress tests are applied daily measuring the potential loss that could arise
from the largest market movements observed since 2008 over specific holding periods. Holding periods
used to calculate stress parameters differ and reflect the relative liquidity of each product type. Results
from stress testing on plausible severe scenarios are also calculated daily.
VaR and stress tests are supplemented by loss limits and detailed control limits. Loss limits ensure that
in the event of continued losses from a trading activity, the trading activity is stopped and senior
management reviews before trading resumed. Where necessary, detailed control limits such as
sensitivity or position limits are also in place to ensure appropriate control is exercised over a specific
risk or product.
Comparison of VaR estimates to gains/losses
Back testing involves comparing VaR calculations with corresponding profit and loss to identify how
often trading losses exceed the calculated VaR. For APRA back testing purposes, VaR is calculated at
the 99% confidence interval with a one-day holding period.
Back testing is conducted daily, and outliers are analysed to determine whether they are the result of
trading decisions, systemic changes in market conditions or issues related to the VaR model (historical
data or model calibration).
ANZ uses actual and hypothetical profit and loss data. Hypothetical data is designed to remove the
impacts of intraday trading and sales margins. It is calculated as the difference between the value of
the prior day portfolio at prior day closing rates and the value at current day closing rates. Markets
Finance calculates actual profit and loss while Market Risk calculates hypothetical profit and loss.
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Table 14(e): Value at Risk (VaR) and stressed VaR over the reporting period
38
Six months ended 30 Sep 17
99% 1 Day Value at Risk (VaR)
Mean
$M
Maximum
$M
Minimum
$M
Period end
$M
Foreign Exchange 5.3 10.52.54.2
Interest Rate 11.7 17.08.412.8
Credit 3.8 5.42.64.4
Commodity 1.9 3.01.42.2
Equity 0.1 0.2--
Six months ended 31 Mar 17
99% 1 Day Value at Risk (VaR)
Mean
$M
Maximum
$M
Minimum
$M
Period end
$M
Foreign Exchange 4.8 9.22.67.9
Interest Rate 13.0 19.75.38.6
Credit 3.1 4.22.03.9
Commodity 2.2 3.91.53.1
Equity 0.3 0.50.20.2
Six months ended 30 Sep 16
99% 1 Day Value at Risk (VaR)
Mean
$M
Maximum
$M
Minimum
$M
Period end
$M
Foreign Exchange 4.8 8.62.24.0
Interest Rate 7.0 15.24.14.7
Credit 3.4 4.42.23.3
Commodity 1.8 2.81.42.5
Equity 0.1 0.60.10.5
Six months ended 30 Sep 17
99% 10 Day Stressed VaR
Mean
$M
Maximum
$M
Minimum
$M
Period end
$M
Foreign Exchange
40.9 81.118.437.2
Interest Rate
82.1 184.041.263.1
Credit
31.8 38.026.234.8
Commodity
7.0 14.94.28.5
Equity
1.8 2.1-0.3
Six months ended 31 Mar 17
99% 10 Day Stressed VaR
Mean
$M
Maximum
$M
Minimum
$M
Period end
$M
Foreign Exchange
27.8 71.27.853.8
Interest Rate
87.6 121.736.6112.5
Credit
26.1 35.716.532.8
Commodity
8.2 13.13.87.7
Equity
2.5 3.51.92.0
Six months ended 30 Sep 16
99% 10 Day Stressed VaR
Mean
$M
Maximum
$M
Minimum
$M
Period end
$M
Foreign Exchange
31.7 53.013.027.1
Interest Rate
42.8 95.217.739.4
Credit
19.6 30.212.516.7
Commodity
8.4 16.45.58.6
Equity
1.8 3.90.93.5
38
The Foreign exchange VaR excludes foreign exchange translation exposures outside of the trading book.
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Reporting of Traded Market Risk
Market Risk reports daily VaR and stress testing results to senior management in Market Risk and the
Markets business. Market Risk expediently escalates details of any limit breach to the appropriate
discretion holder within Market Risk and to Group Risk, and reports to the CMRC each month.
Market Risk monitors and analyses back testing results daily and reports results to the CMRC quarterly.
Total traded market risks back testing exceptions were within the APS 116 green zone for the period.
Mitigation of market risk
The Market Risk team’s responsibilities, including the reporting and escalation processes described
above, are fundamental to how market risk is managed. Market Risk has presence in all the major
dealing operations centres in Australia, New Zealand, Asia, Europe and America.
Commodities risk
Commodity price risk arises as a result of movement in prices or the implied volatilities of various
commodities. All direct commodity price exposures are managed in the trading book by the Markets
business and monitored by Market Risk in accordance with the TFC framework.
Foreign exchange risk
Foreign exchange risk arises as a result of movements in values or the implied volatilities of exchange
rates.
Exposures from ANZ’s normal operating business and trading activities are recorded in core multi-
currency systems and managed within the trading book in accordance with the TFC framework.
Structural exposures from foreign investments and capital management activities are managed in
accordance with policies approved by the Board Risk Committee, with the main objective of ensuring
that ANZ’s capital ratio is largely protected from changes in foreign exchange. As at 30 September
2017, ANZ’s investment in ANZ Bank New Zealand Limited is the main source of the structural foreign
exchange exposure.
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Chapter 9 – Operational risk
Table 15 Operational risk
Definition of operational risk
Operational Risk is the risk of loss resulting from inadequate or failed internal processes, people and
systems, or from external events. This definition includes legal risk, and the risk of reputation loss, or
damage arising from inadequate or failed internal processes, people and systems, but excludes
strategic risk.
ANZ has been authorised by APRA to use the advanced measurement approach (AMA) for calculation
of operational risk capital requirements under APS 115 Capital Adequacy: Advanced Measurement
Approaches to Operational Risk. This methodology applies across all of ANZ.
Operational risk governance and structure
The ANZ Board has delegated its powers to the Risk Committee to approve the ANZ Operational Risk
Measurement and Management Framework which is in accordance with APS 115.
The Operational Risk Executive Committee (OREC) is the primary senior executive management
forum responsible for oversight of ANZ’s Risk Profile. The purpose of OREC is to assist the Board Risk
Committee in the effective discharge of its responsibilities for operational risk management and the
management of the compliance obligations of ANZBGL and its controlled entities.
OREC’s role is to monitor the state of operational risk measurement and management and
compliance management on an enterprise basis and instigate any necessary corrective actions.
Divisional Risk Committees and Business Unit Risk Forums manage and maintain oversight of
operational risks supported by thresholds for escalation and monitoring. Day to day management of
operational risk is the accountability of every employee. Business Units undertake operational risk
activities as part of this accountability. This includes implementation of the operational risk
framework and involvement in decision making processes concerning all material operational risk
matters.
Three lines of Defence
ANZ operates a three lines of defence model for the management of Operational Risk. Each line of
Defence has defined roles, responsibilities and escalation paths to support effective two way
communication and management of operational risk at ANZ. There are also on-going review
mechanisms in place to ensure the Operational Risk Measurement and Management Framework
(ORMMF) and Compliance Framework continue to meet organisational needs and regulatory
requirements.
The Business has first line of defence responsibility for managing operational risk including
obligations to:
take primary accountability for the identification, measurement and management of key risks and
the related control environment;
undertake day-to-day management of risks;
promote a strong risk culture; manage risk exposure and make sustainable business decisions;
ensure operational risk information is up to date and reflective of the bank’s true operational risk
position.
Operational Risk functions (Division and Group) form the second line of defence
Division Risk is accountable for:
undertaking review and challenge of business activities and ensuring that the strategy is
maintained across the division;
undertaking independent oversight of the application of the ORMMF;
coordinating, oversighting and reporting on material operational risks and change initiatives;
contributing to the identification of systemic issues and risk collation across the Division.
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Group Operational Risk is accountable for:
developing and maintaining relevant policies and procedures to ensure continuing appropriateness
of the Operational Risk Measurement and Management Framework (ORMMF) and to support its
consistent execution;
setting and monitoring compliance with the Group Operational Risk, Risk Appetite Statements
(RAS);
undertaking independent review and challenge of business activities and ensuring that the strategy
is maintained across the enterprise;
leading the scenario analysis and operational risk capital calculation process;
being a central point of contact for regulators in regards to operational risk;
ensuring a strong risk management culture across the enterprise.
Internal Audit forms the third line of defence and is accountable for:
providing independent and objective assurance to management and the ANZ Board regarding
compliance with policy and regulatory requirements;
performing objective assessments across all geographies, divisions, lines of business and
processes;
undertaking independent review of the adequacy of the ORMMF.
Collectively Internal Audit, Operational Risk functions, Divisions and Business Units are responsible
for monitoring and reporting to Executive Management, the Board, Regulators and others on all
matters related to the measurement and management of operational risk.
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Operational Risk Principles
ANZ has developed a comprehensive framework to manage operational risk and compliance which
includes the following operational risk management principles:
Principle 1:
Risk Governance
ANZ recognises operational risk as a primary risk category and has an
effective and embedded operational risk governance structure. This includes a
dedicated and independent operational risk management function and an
executive committee for oversight of operational risk across ANZ, supported
by organisation wide policies, procedures and systems.
Principle 2:
Risk Culture
ANZ believes risk management is everyone’s responsibility and encourages a
culture of prompt escalation of risk to staff sufficiently senior to drive
resolution. This culture is supported by clearly articulated roles and
responsibilities to ensure effective measurement and management of
operational risk.
Principle 3:
Risk Appetite and
Objective Setting
ANZ’s Board is responsible for the overall operational risk profile and
accordingly has an approved operational risk appetite, including thresholds for
risk assessment and reporting that determines the risk boundaries within
which the business must operate to set its strategy.
Principle 4:
Risk and Control
Assessment
ANZ periodically identifies and assesses its exposure to key operational risk
within all existing and new products, processes, projects and systems, and
assesses the key controls in place to manage these risks.
Principle 5:
Loss and Incident
Management
ANZ incorporates analysis of loss, incident and control failure into improving
the underlying control environment by defining clearly articulated risk
response strategies. This includes effective contingency and business
continuity plans that enable it to operate on an ongoing basis and limit losses
in the event of severe business disruption.
Principle 6:
Capital Calculation
ANZ holds capital commensurate with its operational risk, and maintains
comprehensive and well documented operational risk capital processes for
calculating its operational risk capital, including monitoring for material
changes to capital exposure.
Principle 7:
Risk Monitoring and
Reporting
ANZ maintains a comprehensive and sustainable approach for monitoring and
reporting relevant operational risk data, and monitors material changes to
operational risk exposure, including Key Risk Indicators (KRIs), to support the
proactive management of operational risk across the Group.
Principle 8:
Assurance and
Continuous
Improvement
ANZ has appropriate review processes to continuously evaluate the
effectiveness and relevance of its operational risk measurement and
management processes to meet organisational needs and regulatory
requirements.
Principle 9:
Risk Based Decision
Making
ANZ ensures effective integration of day to day operational risk management
with outputs from the operational risk measurement processes, to support
risk based decision making.
ANZ’s operational risk framework is delivered through:
Level 1 ANZ Board Operational Risk Policy (the Principles) – approved by the Board Risk
Committee, it sets out the operational risk principles for governing the overall measurement and
management of operational risk across ANZ.
Level 2 Global Operational Risk Measurement and Management Policy (the Policy) – approved by
the Board Risk Committee, outlines the core standards, roles and responsibilities and minimum
requirements for the way in which operational risk is measured and managed, in line with Level 1
ANZ Board Operational Risk Policy and APS 115.
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Level 2A Global Operational Risk Procedures – owned by Group Operational Risk, they detail the
processes that support the consistent application of Level 1 and Level 2 Global Operational Risk
Policies across ANZ. The procedures are further augmented by tools, templates, systems and on-
going training.
Operational risk management
The objective of operational risk management is to ensure that risks are identified, assessed,
measured, evaluated, treated, monitored and reported in a structured environment with appropriate
governance and oversight. ANZ does not expect to eliminate all risks. Rather it seeks to ensure that its
residual risk exposure is managed as low as reasonably practical based on a sound risk/reward
analysis in the context of an international financial institution.
Risk and controls are managed as part of business as usual right across the organisation. Risk
management, supported by a strong Risk Culture, ensures all staff are thinking about and managing
risk on a daily basis – “Risk is Everyone’s Responsibility”. However, Senior Management needs visibility
of key risks. These are the risks that if they materialised, would adversely affect the achievement of
business objectives, ANZ’s reputation, legal and regulatory compliance or impact key processes.
Day-to-day management of operational risk is the responsibility of business unit line management and
staff. This includes:
primary accountability for the understanding of key risks and the related control environment;
analysis of identified risks, including assessment of inherent and residual risks. This requires
analysis of the potential consequences of failing to deal with the risks, the likelihood of the risks
being realised and the effectiveness of the key controls in place to prevent or mitigate the risk;
evaluation of the risk to determine whether it is within Board approved risk appetite tolerances;
identification and implementation of risk treatment options to improve the environment of key risks
that are outside appetite;
ensuring operational risk information is up to date and reflective of the true operational risk
position;
monitoring and reviewing of treatment plans, operational risks and controls, including testing of
key controls and reporting on the current operational risk profile;
promoting a strong risk culture of managing risk exposure and making sustainable risk decisions.
Operational risk mitigation
In line with industry practice, ANZ obtains insurance to cover those operational risks where cost-
effective premiums can be obtained. In conducting their business, Business Units are advised to act as
if uninsured and not to use insurance as a guaranteed mitigants for operational risk.
ANZ has business continuity, recovery and crisis management plans. The intention of the business
continuity and recovery plans is to ensure critical business functions can be maintained, or restored in
a timely fashion, in the event of material disruptions arising from internal or external events.
Crisis management planning at Group and country levels supplement business continuity plans in the
event of a broader group or country crisis. Crisis management plans include crisis team structures,
roles, responsibilities and contact lists, and are subject to testing.
Operational Risk Reporting
ANZ’s operational risk management framework includes Compliance and Operational Risk (COR)
platform, a global, web-based Risk, Compliance and IT Governance tool that provides ANZ an
enterprise solution for operational risk management. It is the source of truth and provides greater
transparency and integrity of Risk, Controls, Obligations and Events information across ANZ.
ANZ’s advanced measurement approach
ANZ has been authorised by APRA to use the advanced measurement approach (AMA) for calculation
of operational risk capital requirements under APS 115. This methodology applies across all of ANZ.
Group Operational Risk is responsible for maintaining ANZ’s AMA for the measurement and allocation
of operational risk capital.
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Operational risk capital is held to protect depositors and shareholders of the bank from rare and severe
unexpected losses. In order to quantify the overall operational risk profile, ANZ maintains and
calculates operational risk capital (including regulatory and economic capital), on at least a six monthly
basis. The capital model uses the following data as inputs:
historical internal losses captured and reported in the bank wide Compliance and Operational Risk
platform;
relevant external losses, sourced from the Operational Risk Data Exchange (ORX), an industry data
base comprising the anonymised loss data from over 60 member banks;
scenario analysis - unexpected potential loss estimates for severe but plausible risk events which
are calculated using exposure models developed using business data and inputs from subject
matter experts.
Operational risk modelling is performed by a specialist central function. The data inputs are combined
using loss distribution approach and calculated using Monte Carlo simulations.
Once calculated, the capital is allocated to divisions based on the historic loss experience and exposure
to scenarios. Understanding the divisional exposure to scenarios (and their underlying risk drivers)
allows lines of business to consider capital impacts when making decisions. Accordingly, capital
allocations are structured to encourage businesses to effectively manage their operational risk
exposures e.g. improve controls, reduce losses etc.
Operational risk regulatory capital to meet the regulatory capital soundness standard is based on a
99.9% confidence interval in accordance with APS 115. Economic Capital is based on 99.97%
confidence interval.
Compliance
ANZ’s Compliance Function is responsible for the development and maintenance of ANZ’s Compliance
Framework. Each division and business is responsible for embedding the Framework into its business
operations, identifying all regulatory compliance obligations and escalating and managing incidents
when they occur.
Definition of compliance
Compliance Risk is defined as the probability and impact of an event that results in a failure to act in
accordance with laws, regulations, industry standards and codes, internal policies and procedures and
principles of good governance as applicable to ANZ’s businesses.
Compliance Governance and structure
Board Risk Committee and OREC.
ANZ’s Compliance Function is accountable for designing a program that enables ANZ to meet its
regulatory obligations and satisfy itself that appropriate standards of good governance are met. It has
also been tasked to provide assurance to the Board that material compliance risks are identified,
assessed and appropriately managed by the business.
The consequences of Compliance failure may include significant legal or regulatory sanctions, material
financial loss (fines, civil penalties, damages) diminished reputation or restrictions on the ability of ANZ
to do business.
In order for the Business to be able to identify and manage Compliance Risk, they must be able to
identify their Regulatory Obligations and their impacted business activities, and maintain and monitor
key controls. The Compliance Framework requires ANZ across the three lines of defence to maintain
appropriate governance and oversight of compliance controls and maintain a robust compliance
culture.
Group Compliance is accountable for designing a compliance program that allows ANZ to meet its
regulatory obligations. It also provides assurance to the Board that material risks are identified,
assessed and managed by the business.
Divisional Compliance is accountable for:
Providing advice and assisting the Business in developing compliance-related controls;
Developing, delivering, and overseeing training on compliance;
Identifying and analysing regulatory change and assisting the Business to respond effectively;
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Surveillance and monitoring of conduct;
Establishing and implementing the strategy for engagement of our key regulators; and
Advising on compliance incidents and assisting in their remediation;
Developing, delivering, and overseeing the testing of key compliance controls;
Assisting Country Management in complying with local compliance requirements.
ANZ’s Compliance Framework is aligned to key industry and global standards and benchmarks. It
utilises the concept of a 'risk-based' approach to manage compliance. This allows the Compliance
function to support divisions and businesses by taking a standardised approach to compliance
management tasks. This enables ANZ to be consistent in proactively identifying, assessing, managing,
reporting and escalating compliance-related risk exposures, while respecting the specific obligations of
each jurisdiction in which we operate.
Key features of ANZ’s Compliance Framework
Centralised management of key obligations via a Global Obligations Library, enabling ANZ’s change
management capability in relation to new and revised obligations.
An emphasis on the identification of changing regulations and the business environment, to enable
proactive assessment of emerging compliance risks.
A requirement that businesses develop risk-based plans, integrating obligation, risk assessment,
incident management and control assessment data.
A requirement that businesses regularly consider options and strategies to monitor and provide
compliance assurance by focusing on key controls. This means that controls managing key risks are
subject to more stringent monitoring and testing.
Recognition of incident management as a separate element to enhance ANZ’s ability to identify,
manage and report on incidents/breaches in a timely manner.
Robust reporting and certification processes, facilitating the provision of insightful reporting on the
“health” of compliance.
Collaboration with Internal Audit to reinforce prime accountabilities and assess operational
effectiveness of the Compliance Framework.
ANZ’s compliance principles
The following Principles, approved by ANZ’s Board set out ANZ’s commitment to compliance:
Doing the right thing the right way - ANZ will operate to high ethical standards by promoting a
culture where our people understand the importance of doing the right thing the right way and will
reinforce this through its values, Code of Conduct and training programs.
Group-wide approach for compliance - ANZ will adopt an enterprise-wide approach for managing
compliance and ensure consistent standards are embedded in how we do business, how we conduct
ourselves and the design and operation of our processes, systems and products.
Clearly defined authority and accountability - ANZ will clearly define authority and accountability for
compliance management and associated decision-making across its business operations and will
commit adequate resources to enable its businesses to operate in a compliant manner.
Independent compliance function – ANZ will have an independent compliance function responsible
for governance, management, oversight and reporting of compliance with ANZ’s key compliance
obligations.
No tolerance for deliberate non-compliance – Managing ANZ’s business to our global compliance
standards and the laws of the countries in which we operate is non-negotiable. ANZ will not tolerate
deliberate or negligent non-compliance. Consequences could result in severe disciplinary action
such as dismissal.
Adequate risk and control environment and prompt response to deficiencies – ANZ will ensure
implementation of a generally acceptable risk and control environment for managing compliance
which is within our risk appetite settings. When compliance incidents are identified, ANZ will act
promptly to implement meaningful corrective action.
ANZ's Compliance Framework is aligned to key industry and global standards and benchmarks. It
utilises the concept of a 'risk-based' approach to manage compliance.
Allows the Compliance Function to support divisions and businesses by taking a simple and
standardised approach to compliance management tasks.
Enables ANZ to be consistent in proactively identifying, assessing, managing, reporting and
escalating compliance related risk exposures.
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Chapter 10 – Equities
Table 16 Equities – Disclosures for banking book positions
Definition and categorisation of equity investments held in the banking book
Equity risk is the risk of financial loss arising from the unexpected reduction in value of equity
investments not held in the trading book including those of the Group’s associates. ANZ’s equity
exposures in the banking book are primarily categorised as follows:
Equity investments that are taken for strategic reasons - These transactions represent strategic
business initiatives and include ANZ’s investments in partnership arrangements with financial
institutions in Asia. These investments are undertaken after extensive analysis and due diligence by
Group Strategy, internal specialists and external advisors, where appropriate. Board approval is
required prior to committing to any investments over delegated authorities, and all regulatory
notification requirements are met. Performance of these investments is monitored by both the
owning business unit and Group Strategy to ensure that it is within expectations and the values of
the investments are tested at least six monthly for impairment.
Equity investments made as the result of a work out of a problem exposure - From time to time,
ANZ will take an equity stake in a customer as part of a work out arrangement for problem
exposures. These investments are made only where there is no other viable option available and
form an immaterial part of ANZ’s equity exposures.
Valuation of and accounting for equity investments in the banking book
In line with Group Accounting Policy the accounting treatment of equity investments depends on
whether ANZ has significant influence over the investee.
Investments in associates
Where significant influence exists, the investment is classified as an Investment in Associate in the
financial statements. ANZ adopts the equity method of accounting for associates. ANZ’s share of the
results of associates is included in the consolidated income statement. The associate investments are
recognised at cost plus ANZ’s share of post-acquisition net assets. Interests in associates are
reviewed bi-annually for impairment, using either market value, or a discounted cash flow
methodology to assess value in-use. As at 30 September 2017 the carrying value of these
investments were supported by value in use calculations.
Available-for-Sale Investments
Where ANZ does not have significant influence over the investee, the investment is classified as
Available-for-Sale (AFS). The investment is initially recognised at fair value plus transaction costs.
Changes in the fair value of the investments are recognised in an equity reserve with any impairment
recognised in the income statement. When the asset is sold the cumulative gain or loss relating to the
asset held in the AFS revaluation reserve is transferred to the income statement.
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Table 16(b) and 16(c): Equities – Types and nature of Banking Book investments
Sep 17
Equity investments $M
Balance sheet value Fair value
Value of listed (publicly traded) equities 2,900 2,633
Value of unlisted (privately held) equities 1,953 1,953
Total 4,853 4,586
Mar 17
Equity investments $M
Balance sheet value Fair value
Value of listed (publicly traded) equities 2,8392,500
Value of unlisted (privately held) equities 1,9181,918
Total 4,7574,418
Sep 16
Equity investments $M
Balance sheet value Fair value
Value of listed (publicly traded) equities 2,9902,503
Value of unlisted (privately held) equities 2,1312,131
Total 5,1214,634
Table 16(d) and 16(e): Equities – gains (losses)
Half Year
Sep 17
Half Year
Mar 17
Half Year
Sep 16
Realised gains (losses) on equity investments
$M $M $M
Cumulative realised gains (losses) from disposals
and liquidations in the reporting period
(2) --
Cumulative realised losses from impairment and
writedowns in the reporting period
- (1)-
Total (2) (1)-
Half Year
Sep 17
Half Year
Mar 17
Half Year
Sep 16
Unrealised gains (losses) on equity investments
$M $M $M
Total unrealised gains (losses) 21 (145)(84)
Total unrealised gains (losses) included in Common
Equity Tier 1, Tier 1 and/or Tier 2 capital
21 (145)(84)
Table 16(f): Equities Risk Weighted Assets
From 1 January 2013 all banking book equity exposures are deducted from Common Equity Tier 1
capital.
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Chapter 11 – Interest Rate Risk in the Banking Book
Table 17 Interest Rate Risk in the Banking Book
Definition of Interest Rate Risk in the Banking Book (IRRBB)
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.
Optionality risk – the risk to earnings or market value arising from the existence of stand-alone
or embedded options in banking book items.
Regulatory capital approach
ANZ has received approval from APRA to use the IMA for the calculation of regulatory capital for
IRRBB, under APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (Advanced ADIs).
Governance
The Board Risk Committee has established a risk appetite for IRRBB and delegated authority to the
Group Asset and Liability Committee (GALCO) to manage the strategic position (capital investment
term) and oversee the interest rate risk arising from the repricing of asset and liabilities (mismatch
risk) in the banking book. GALCO has delegated the management of this mismatch risk to the Markets
business.
Market Risk is the independent function responsible for:
Designing and implementing policies and procedures to ensure that IRRBB exposure is managed
within the limit framework set by the Board Risk Committee.
Monitoring and measuring IRRBB market risk exposure, compliance with limits and policies.
Ensuring ongoing effectiveness and appropriateness of the risk management framework.
Risk Management framework
IRRBB is managed under a comprehensive measurement and reporting framework, supported by an
independent Market Risk function. Key components of the framework include:
A comprehensive set of policies that promote proactive risk identification and communication.
Funds Transfer Pricing framework to transfer interest rate risk from business units so it can be
managed by the Markets business and monitored by Market Risk.
Quantifying the magnitude of risks and controlling the potential impact that changes in market
interest rates can have on the net interest income and balance sheet fair value of ANZ.
Regular and effective reporting of IRRBB to executive management and the Board.
Measurement of interest rate risk in the banking book
ANZ uses the following principal techniques to quantify and monitor IRRBB:
Interest Rate Sensitivity - this is an estimate of the change in economic value of the banking book
due to a 1 basis point move in a specific part of the yield curve.
Earnings at risk (EaR) - this is an estimate of the amount of income that is at risk from interest rate
movements over a given holding period, expressed to a 97.5% or 99% level of statistical
confidence.
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Value at risk (VaR) - this is an estimate of the impact of interest rate changes on the banking
book’s market value, expressed to a 99% level of statistical confidence for a given holding period.
Market Value loss limits - this mitigates the potential for embedded losses within the banking book.
Stress testing - standard and extraordinary tests are used to highlight potential risk which may not
be captured by VaR, and how the portfolio might behave under extraordinary circumstances.
The calculations used to quantify IRRBB require assumptions to be made about the repricing term of
exposures that do not have a contractually defined repricing date, such as deposits with no set
maturity dates, and prepayments. Changes to these assumptions require GALCO approval.
Where relevant, IRRBB techniques recognise foreign currency effects as all measures are expressed in
Australian dollars.
Basis and optionality risks are measured using Monte Carlo simulation techniques, to generate a
theoretical worst outcome at a specified confidence level (typically no less than at a 99% level of
statistical confidence) less the average outcome.
Reporting of interest rate risk in the banking book
Market Risk analyses the output of ANZ’s VaR, EaR and Stress Testing calculations daily. Compliance
with the risk appetite and limit framework is reported to CMRC, GALCO and the Board Risk Committee.
IRRBB regulatory capital is calculated monthly.
ANZ’s interest rate risk in the banking book capital requirement
The IRRBB regulatory capital requirements includes a value for repricing and yield curve risk, basis and
optionality risks based on a 99% confidence interval, one year holding period and a six year historical
data set.
Embedded losses also contribute to make up the capital requirement and are calculated as the
difference between the book value of banking book items and the current economic value.
Results of standard shock scenario
The Basel II framework sets out a standard shock scenario of a 200 basis point parallel shift change in
interest rates, in order to establish a comparable test across banks.
Table 17(b) that follows shows the results of this test by currency of the exposures outside the trading
book.
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Table 17(b): Interest Rate Risk in the Banking Book
Change in Economic Value
Standard Shock Scenario Stress Testing:
Interest rate shock applied
Sep 17 Mar 17Sep 16
$M $M$M
AUD
200 basis point parallel increase (427) (19)(85)
200 basis point parallel decrease 415 (3)84
NZD
200 basis point parallel increase (82) (58)(58)
200 basis point parallel decrease 75 5351
USD
200 basis point parallel increase (32) (27)31
200 basis point parallel decrease 34 30(29)
GBP
200 basis point parallel increase 9 1118
200 basis point parallel decrease (9) (11)(18)
Other
200 basis point parallel increase (98) (68)(53)
200 basis point parallel decrease 103 7459
IRRBB regulatory capital 929 827 936
IRRBB regulatory RWA 11,611 10,332 11,700
IRRBB stress testing methodology
Stress tests within ANZ include standard and extraordinary tests. These tests are used to highlight
potential risk which may not be captured by VaR, and how the portfolio might behave under
extraordinary circumstances. Standard stress tests include statistically derived scenarios based on
historical yield curve movements. These combine parallel shocks with twists and bends in the curve to
produce a wide range of hypothetical scenarios at high statistical confidence levels, with the single
worst scenario identified and reported. Extraordinary stress tests include interest rate moves from
historical periods of stress as well as stresses to assumptions made about the repricing term of
exposures. The rate move scenarios include daily changes over the stressed periods and the worst
theoretical losses over the selected periods are each reported. Stresses of the repricing term
assumptions investigate scenarios where actual repricing terms are significantly different to the base
modelling assumptions.
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Chapter 12 – Leverage and Liquidity Coverage Ratio
Leverage Ratio
The Leverage Ratio requirements are part of the Basel Committee on Banking Supervision (BCBS)
Basel III capital framework. It is a simple, non-risk based supplement or backstop to the current risk
based capital requirements and is intended to restrict the build-up of excessive leverage in the
banking system.
Consistent with the BCBS definition, APRA’s Leverage Ratio compares Tier 1 Capital to the Exposure
Measure (expressed as a percentage) as defined by APS 110. APRA has not finalised a minimum
Leverage Ratio requirement for Australian ADIs, although the current BCBS proposal is for a minimum
of 3%. Currently the Leverage Ratio is only a disclosure requirement, with implementation as a Pillar 1
requirement expected by January 2018.
At 30 September 2017, the Group’s Leverage Ratio of 5.4% was above the 3% minimum currently
proposed by the BCBS. Table 18 below shows the Group’s Leverage Ratio calculation as at 30
September 2017 and Table 19 summarises the reconciliation of accounting assets and leverage ratio
exposure measure at 30 September 2017.
Table 18 Leverage Ratio
Sep 17
$M
Mar 17
$M
Sep 16
$M
On-balance sheet exposures
1 On-balance sheet items (excluding derivatives and SFTs, but including collateral) 768,930 764,169 762,007
2 (Asset amounts deducted in determining Basel III Tier 1 capital) (16,583) (16,461) (17,648)
3 Total on-balance sheet exposures (excluding derivatives and SFTs) 752,347 747,708 744,359
Derivative exposures
4
Replacement cost associated with all derivatives transactions (i.e. net of eligible
cash variation margin)
8,354 9,685 11,295
5 Add-on amounts for PFE associated with all derivatives transactions 28,193 28,199 27,304
6
Gross-up for derivatives collateral provided where deducted from the balance
sheet assets pursuant to the operative accounting framework
- - -
7
(Deductions of receivables assets for cash variation margin provided in derivatives
transactions)
(6,102) (7,924) (9,151)
8 (Exempted CCP leg of client-cleared trade exposures) - - -
9 Adjusted effective notional amount of written credit derivatives 6,429 8,115 8,535
10
(Adjusted effective notional offsets and add-on deductions for written credit
derivatives)
(5,405) (7,107) (7,383)
11 Total derivative exposures 31,469 30,968 30,600
Securities financing transaction exposures
12
Gross SFT assets (with no recognition of netting), after adjusting for sale
accounting transactions
28,034 29,680 29,937
13 (Netted amounts of cash payables and cash receivables of gross SFT assets) (490) (1,261) (391)
14 CCR exposure for SFT assets 1,054 1,867 1,871
15 Agent transaction exposures - - -
16 Total securities financing transaction exposures 28,598 30,286 31,417
Other off-balance sheet exposures
17 Off-balance sheet exposure at gross notional amount 232,162 236,054 245,189
18 (Adjustments for conversion to credit equivalent amounts) (135,397) (138,562) (146,729)
19 Off-balance sheet items 96,765 97,492 98,460
Capital and Total Exposures
20 Tier 1 capital 49,324 48,091 48,285
21 Total exposures 909,179 906,454 904,836
Leverage ratio
22 Basel III leverage ratio 5.4% 5.3% 5.3%
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Table 19 Summary comparison of accounting assets vs.
leverage ratio exposure measure
Sep 17
$M
Mar 17
$M
Sep 16
$M
1 Total consolidated assets as per published financial statements 897,326 896,511 914,869
2
Adjustment for investments in banking, financial, insurance or commercial
entities that are consolidated for accounting purposes but outside the scope of
regulatory consolidation.
(37,846) (38,781) (35,432)
3
Adjustment for assets held on the balance sheet in a fiduciary capacity
pursuant to the Australian Accounting Standards but excluded from the
leverage ratio exposure measure
- - -
4 Adjustments for derivative financial instruments. (31,047) (32,913) (56,893)
5 Adjustment for SFTs (i.e. repos and similar secured lending) 564 606 1,480
6
Adjustment for off-balance sheet exposures (i.e. conversion to credit
equivalent amounts of off-balance sheet exposures)
96,765 97,492 98,460
7 Other adjustments (16,583) (16,461) (17,648)
8 Leverage ratio exposure 909,179 906,454 904,836
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Table 20 Liquidity Coverage Ratio disclosure template
Sep 17 Jun 17 Mar 17
Total
Unweighted
Value
$M
Total
Weighted
Value
$M
Total
Unweighted
Value
$M
Total
Weighted
Value
$M
Total
Unweighted
Value
$M
Total
Weighted
Value
$M
Liquid assets, of which:
1 High-quality liquid assets (HQLA) - 128,333 - 138,331 - 134,040
2 Alternative liquid assets (ALA)
- 37,797 - 37,797 - 38,125
3
Reserve Bank of New Zealand (RBNZ)
securities
- 8,329 - 8,877 - 8,249
Cash outflows
4
Retail deposits and deposits from small
business customers
203,322 21,941 209,027 22,374 210,397 22,093
5 of which: stable deposits
77,762 3,888 77,258 3,863 79,887 3,994
6 of which: less stable deposits
125,560 18,053 131,769 18,511 130,510 18,099
7 Unsecured wholesale funding
183,549 103,476 192,499 112,275 194,592 113,154
8
of which: operational deposits (all
counterparties) and deposits in
networks for cooperative banks
57,996 13,892 57,469 13,778 55,476 13,274
9
of which: non-operational deposits
(all counterparties)
112,066 76,097 121,579 85,046 125,497 86,261
10 of which: unsecured debt
13,487 13,487 13,451 13,451 13,619 13,619
11 Secured wholesale funding
423
60 109
12 Additional requirements
138,071 39,151 136,845 34,662 134,942 35,254
13
of which: outflows related to
derivatives exposures and other
collateral requirements
27,226 27,226 22,519 22,519 23,401 23,401
14
of which: outflows related to loss of
funding on debt products
- - - - - -
15 of which: credit and liquidity facilities
110,845 11,925 114,326 12,143 111,541 11,853
16 Other contractual funding obligations
9,227 - 10,033 - 10,772
-
17 Other contingent funding obligations
103,590 8,482 99,388 6,091 101,739 4,692
18 Total cash outflows
173,473
175,462 175,302
Cash inflows
19 Secured lending (e.g. reverse repos) 21,148 1,479 20,786 1,449 17,389 1,280
20
Inflows from fully performing
exposures
31,593 22,366 34,460 24,427 34,181 23,409
21
Other cash inflows
19,350 19,350 13,428 13,428 14,266 14,266
22 Total cash inflows
72,091 43,195 68,674 39,304
65,836 38,955
23 Total liquid assets
174,459
185,005 - 180,414
24 Total net cash outflows
130,278
136,158 - 136,347
25 Liquidity Coverage Ratio (%)
133.9%
135.9% 132.3%
Number of data points used (simple
average)
65
65 64
Liquidity Coverage Ratio (LCR)
ANZ’s average LCR for the 6 months to 30 September 2017 was 135% with total liquid assets
exceeding net outflows by an average of $46.5b.
The main contributors to net outflows were modelled outflows associated with the bank’s corporate
and retail deposit portfolios, offset by inflows from maturing loans. While cash outflows associated
with derivatives are material, these are effectively offset by derivative cash inflows.
The composition of the liquid asset portfolio has remained relatively stable through the half, with
HQLA securities and cash making up on average 74% of total liquid assets.
Through the period the Liquidity Coverage Ratio has remained within a range of 129% to 144%. ANZ
has a well diversified deposit and funding base avoiding undue concentrations by investor type,
maturity, market source and currency.
ANZ monitors and manages its liquidity risk on a daily basis including LCR by geography and currency,
ensuring ongoing compliance across the network.
ANZ Basel III Pillar 3 Disclosure September 2017
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Glossary
ADI Authorised Deposit-taking Institution.
Basel III Credit Valuation
adjustment (CVA) capital
charge
CVA charge is an additional capital requirement under Basel III for
bilateral derivative exposures. Derivatives not cleared through a
central exchange/counterparty are subject to this additional capital
charge and also receive normal CRWA treatment under Basel II
principles.
Collective provision (CP) Collective provision is the provision for credit losses that are
inherent in the portfolio but not able to be individually identified. A
collective provision may only be recognised when a loss event has
already occurred. Losses expected as a result of future events, no
matter how likely, are not recognised.
Credit exposure
The aggregate of all claims, commitments and contingent liabilities
arising from on- and off-balance sheet transactions (in the banking
book and trading book) with the counterparty or group of related
counterparties.
Credit risk The risk of financial loss resulting from a counterparty failing to
fulfil its obligations, or from a decrease in credit quality of a
counterparty resulting in a loss in value.
Credit Valuation Adjustment
(CVA)
Over the life of a derivative instrument, ANZ uses a CVA 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.
Days past due
The number of days a credit obligation is overdue, commencing on
the date that the arrears or excess occurs and accruing for each
completed calendar day thereafter.
Exposure at Default (EAD) Exposure At Default is defined as the expected facility exposure at
the date of default.
Impaired assets (IA) Facilities are classified as impaired when there is doubt as to
whether the contractual amounts due, including interest and other
payments, will be met in a timely manner. Impaired assets include
impaired facilities, and impaired derivatives. Impaired derivatives
have a credit valuation adjustment (CVA), which is a market
assessment of the credit risk of the relevant counterparties.
Impaired loans (IL) Impaired loans comprise of drawn facilities where the customer’s
status is defined as impaired.
Individual provision charge
(IPC)
Individual provision charge 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.
Individual provisions (IP) Individual provisions are assessed on a case-by-case basis for all
individually managed impaired assets taking into consideration
factors such as the realisable value of security (or other credit
mitigants), the likely return available upon liquidation or
bankruptcy, legal uncertainties, estimated costs involved in
recovery, the market price of the exposure in secondary markets
and the amount and timing of expected receipts and recoveries.
Internationally Comparable
Basel III Capital
The Internationally Comparable Basel 3 CET1 ratio incorporates
differences between APRA and both the Basel Committee Basel III
framework (including differences identified in the March 2014 Basel
Committee Regulatory Consistency Assessment Programme (RCAP)
on Basel III implementation in Australia) and its application in
major offshore jurisdictions.
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Market risk The risk to ANZ’s earnings arising from changes in interest rates,
foreign exchange rates, credit spreads, volatility, correlations or
from fluctuations in bond, commodity or equity prices. ANZ has
grouped market risk into two broad categories to facilitate the
measurement, reporting and control of market risk:
Traded market risk - the risk of loss from changes in the value of
financial instruments due to movements in price factors for both
physical and derivative trading positions. Trading positions arise
from transactions where ANZ acts as principal with customers,
financial exchanges or inter-bank counterparties.
Non-traded market risk (or balance sheet risk) - comprises interest
rate risk in the banking book and the risk to the AUD denominated
value of ANZ’s capital and earnings due to foreign exchange rate
movements.
Operational risk The risk of loss resulting from inadequate or failed internal
processes, people and systems, or from external events including
legal risk but excluding reputation risk.
Past due facilities Facilities where a contractual payment has not been met or the
customer is outside of contractual arrangements are deemed past
due. Past due facilities include those operating in excess of
approved arrangements or where scheduled repayments are
outstanding but do not include impaired assets.
Qualifying Central
Counterparties (QCCP)
QCCP is a central counterparty which is an entity that interposes
itself between counterparties to derivative contracts. Trades with
QCCP attract a more favorable risk weight calculation.
Recoveries Payments received and taken to profit for the current period for the
amounts written off in prior financial periods.
Restructured items 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.
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.
Securitisation risk The risk of credit related losses greater than expected due to a
securitisation failing to operate as anticipated, or of the values and
risks accepted or transferred, not emerging as expected.
Write-Offs Facilities are written off against the related provision for impairment
when they are assessed as partially or fully uncollectable, and after
proceeds from the realisation of any collateral have been received.
Where individual provisions recognised in previous periods have
subsequently decreased or are no longer required, such impairment
losses are reversed in the current period income statement.
ANZ Basel III Pillar 3 Disclosure September 2017
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ANZ Basel III Pillar 3 Disclosure September 2017
Average Risk Weights (Credit RWA / EAD*)
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.