ANZ 2019 Half Year Results Documents
Australia and New Zealand Banking Group Limited
ABN 11 005 357 522
Half Year
31 March 2019
Consolidated Financial Report
Dividend Announcement
and Appendix 4D
The Consolidated Financial Report and Dividend Announcement contains information required by Appendix 4D of the Australian Securities
Exchange (ASX) Listing Rules. It should be read in conjunction with ANZ’s 2018 Annual Report, and is lodged with the ASX under listing rule
4.2A.
RESULTS FOR ANNOUNCEMENT TO THE MARKET APPENDIX 4D
2
Name of Company: Australia and New Zealand Banking Group Limited
ABN 11 005 357 522
Report for the half year ended 31 March 2019
Operating Results
1
AUD million
Statutory operating income from continuing operations -9% to 9,293
Statutory profit attributable to shareholders -5% to 3,173
Cash profit
2
22% to 3,514
Cash profit from continuing operations
2
2% to 3,564
Dividends
3
Cents
Franked
per
amount
4
share
per share
Proposed interim dividend
80
100%
Record date for determining entitlements to the proposed 2019 interim dividend 14 May 2019
Payment date for the proposed 2019 interim dividend 1 July 2019
Dividend Reinvestment Plan and Bonus Option Plan
Australia and New Zealand Banking Group Limited (ANZ) has a Dividend Reinvestment Plan (DRP) and a Bonus Option Plan (BOP) that will operate in
respect of the proposed 2019 interim dividend. For the 2019 interim dividend, ANZ intends to provide shares under the DRP through an on-market
purchase and BOP through the issue of new shares. The 'Acquisition Price' to be used in determining the number of shares to be provided under the
DRP and BOP will be calculated by reference to the arithmetic average of the daily volume weighted average sale price of all fully paid ANZ ordinary
shares sold in the ordinary course of trading on the ASX and Chi-X during the ten trading days commencing on 17 May 2019, and then rounded to the
nearest whole cent. Shares provided under the DRP and BOP will rank equally in all respects with existing fully paid ANZ ordinary shares. Election
notices from shareholders wanting to commence, cease or vary their participation in the DRP or BOP for the 2019 interim dividend must be received by
ANZ's Share Registrar by 5.00pm (Australian Eastern Standard Time) on 15 May 2019. Subject to receiving effective contrary instructions from the
shareholder, dividends payable to shareholders with a registered address in the United Kingdom (including the Channel Islands and the Isle of Man) or
New Zealand will be converted to Pounds Sterling or New Zealand Dollars respectively at an exchange rate calculated on 17 May 2019.
1
Unless otherwise noted, all comparisons are to the half year ended 31 March 2018.
2
Cash profit excludes non-core items included in statutory profit and is provided to assist readers in understanding the result of the ongoing business activities of the Group. The non-core
items are calculated consistently period on period so as not to discriminate between positive and negative adjustments, and fall into one of the three categories: gains or losses included
in earnings arising from changes in tax, legal or accounting legislation or other non-core items not associated with the ongoing operations of the Group; treasury shares, revaluation of
policy liabilities, economic hedging and similar accounting items that represent timing differences that will reverse through earnings in the future; and accounting reclassifications between
individual line items that do not impact reported results, such as policyholders tax gross up. Cash profit is not a measure of cash flow or profit determined on a cash basis. The net after
tax adjustment was an increase to statutory profit of $341 million made up of several items. Refer pages 73 to 77 for further details.
3
There is no conduit foreign income attributed to the dividends.
4
It is proposed that the interim dividend will be fully franked for Australian tax purposes (30% tax rate) and carry New Zealand imputation credits of NZD 9 cents per ordinary share.
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED ABN 11 005 357 522
3
CONSOLIDATED FINANCIAL REPORT, DIVIDEND ANNOUNCEMENT AND APPENDIX 4D
Half year ended 31 March 2019
CONTENTS PAGE
Disclosure Summary 5
Summary 7
Group Results 21
Divisional Results 49
Profit Reconciliation 73
Condensed Consolidated Financial Statements 79
Supplementary Information 123
Definitions 135
ASX Appendix 4D Cross Reference Index 138
Alphabetical Index 139
This Consolidated Financial Report, Dividend Announcement and Appendix 4D has been prepared for Australia and New Zealand Banking Group Limited
(the “Company” or “Parent Entity”) together with its subsidiaries which are variously described as “ANZ”, “Group”, “ANZ Group”, “the consolidated entity”,
“the Bank”, “us”, “we” or “our”.
All amounts are in Australian dollars unless otherwise stated. The Company has a formally constituted Audit Committee of the Board of Directors. The
Condensed Consolidated Financial Statements were approved by resolution of a Committee of the Board of Directors on 30 April 2019.
When used in this Results Announcement the words “estimate”, “project”, “intend”, “anticipate”, “believe”, “expect”, “should” and similar expressions, as
they relate to ANZ and its management, are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. ANZ does not undertake any obligation to publicly release the result of any revisions
to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED ABN 11 005 357 522
4
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DISCLOSURE SUMMARY
5
SUMMARY OF 2019 HALF YEAR RESULTS AND ASSOCIATED DISCLOSURE MATERIALS
The following disclosure items were lodged separately with the ASX and NZX and can be accessed via the ANZ Shareholder Centre on the Group
website http://www.shareholder.anz.com within the disclosures for 2019 Half Year Results.
Consolidated Financial Report, Dividend Announcement and Appendix 4D
Half Year Results Investor Discussion Pack
News Release
APS 330 Pillar III Disclosure as at 31 March 2019
Key Financial Data Summary
United Kingdom Disclosure and Transparency Rules Submission
DISCLOSURE SUMMARY
6
This page has been left blank intentionally
SUMMARY
7
CONTENTS Page
Guide to Half Year Results 8
Statutory Profit Results 10
Cash Profit Results 11
Financial Performance Summary – Total and continuing operations 12
Key Balance Sheet Metrics 13
Large/Notable Items – continuing operations 14
Full Time Equivalent Staff 19
Other Non-Financial Information 19
SUMMARY
8
Guide to Half Year Results
ACCOUNTING STANDARDS ADOPTED
During the period, the Group adopted two new Accounting Standards, AASB 9 Financial Instruments (AASB 9) and AASB 15 Revenue from Contracts
with Customers (AASB 15):
AASB 9 - the Group implemented an expected credit loss methodology for impairment of financial assets, and revised the classification and
measurement of certain financial assets from 1 October 2018. Consequently, the Group increased its provision for credit impairment by $813 million
through opening retained earnings. Comparative information has not been restated.
AASB 15 - the main impact of adoption is that certain items previously netted are now presented gross in operating income and operating expenses.
Comparative information has been restated which increased total operating income for the September 2018 half by $91 million (Mar 18 half: $62
million) and increased total operating expenses by the same amount.
For further details on key requirements and impacts of the changes described above refer to Note 1 and 21 of the Condensed Consolidated Financial
Statements.
NON-IFRS INFORMATION
Statutory profit is prepared in accordance with recognition and measurement requirements of Australian Accounting Standards, which comply with
International Financial Reporting Standards (IFRS). The Group provides additional measures of performance in the Consolidated Financial Report &
Dividend Announcement which are prepared on a basis other than in accordance with accounting standards. The guidance provided in Australian
Securities and Investments Commission (ASIC) Regulatory Guide 230 has been followed when presenting this information.
Cash Profit
Cash profit, a non-IFRS measure, represents ANZ’s preferred measure of the result of the ongoing business activities of the Group, enabling readers to
assess Group and Divisional performance against prior periods and against peer institutions. The adjustments made in arriving at cash profit are included
in statutory profit which is subject to review within the context of the external auditor’s review of the Condensed Consolidated Financial Statements. Cash
profit is not subject to review by the external auditor. The external auditor has informed the Audit Committee that cash profit adjustments have been
determined on a consistent basis across each period presented.
Adjustments between statutory profit and cash profit - To calculate cash profit, the Group excludes non-core items from statutory profit. Refer to
pages 73 to 77 for adjustments between statutory and cash profit.
Large/Notable items within cash profit - The Group’s cash profit result from continuing operations includes a number of items collectively referred
to as Large/Notable items. While these items form part of cash profit, given their nature and significance, they have been presented separately with
comparative information, where relevant, to provide transparency and aid comparison. Refer to pages 14 to 18 for Large/Notable items.
DISCONTINUED OPERATIONS
The financial results of the Wealth Australia businesses being divested and associated Group reclassification and consolidation impacts are treated as
discontinued operations from a financial reporting perspective. These businesses qualify as discontinued operations, a subset of assets and liabilities
held for sale, as they represent a major line of business.
The Group Income Statement and Statement of Comprehensive Income show discontinued operations separately from continuing operations in a
separate line item ‘Profit/(Loss) from discontinued operations’. This impacts the current and comparative financial information for Wealth Australia and
Technology, Services & Operations (TSO) and Group Centre divisions.
Sale to IOOF Holdings Limited (IOOF)
On 17 October 2017, the Group announced it had agreed to sell its OnePath pensions and investments (OnePath P&I) business and aligned dealer
groups (ADG) businesses to IOOF. The sale of the aligned dealer groups business completed on 1 October 2018. The completion of the remaining
OnePath P&I business, which is dependent on the receipt of all necessary approvals, is expected to occur before the end of the March 2020 half.
Sale to Zurich Financial Services Australia (Zurich)
On 12 December 2017, ANZ announced that it had agreed to sell its life insurance business to Zurich and regulatory approval was obtained on 10
October 2018. The transaction is subject to closing conditions and ANZ expects it to complete in the first half of the 2019 calendar year.
Included in the ‘Loss from discontinued operations’ is:
A $632 million loss (pre and post-tax) recognised on the reclassification of Wealth Australia businesses to held for sale in the March 2018 half; and
Customer remediation for refunds to customers and related remediation costs for receiving inappropriate advice or services not provided including
the Group’s former aligned dealer groups.
Half Year
Mar 19
$M
Sep 18
$M
Mar 18
$M
Customer remediation (pre-tax)
75 181 -
Customer remediation (post-tax)
53 127 -
SUMMARY
9
CONTINUING OPERATIONS
Divisional Performance
The presentation of divisional results has been impacted by a number of methodology and structural changes during the period. Prior period
comparatives have been restated as follows:
The methodology for allocating earnings on capital at a business unit level has changed from Economic Capital to Regulatory Capital. While neutral
at a Group level, this change has impacted net interest income at the divisional level;
The residual Asia Retail and Wealth businesses have been transferred from the former Asia Retail and Pacific division to TSO and Group Centre
division. The remaining segment has been renamed Pacific division; and
ANZ’s lenders mortgage insurance, share investing and general insurance distribution businesses which were previously part of the continuing
operations of Wealth Australia now form part of the Australia division (ANZ’s financial planning business continues to be part of the continuing
operations of the Wealth Australia division).
Other than those described above, there have been no other significant changes impacting divisional performance.
SUMMARY
10
Statutory Profit Results
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net interest income
7,299 7,164 7,350
2% -1%
Other operating income
1,994 2,583 2,887
-23% -31%
Operating income
9,293 9,747 10,237
-5% -9%
Operating expenses
(4,365) (4,928) (4,473)
-11% -2%
Profit before credit impairment and income tax
4,928 4,819 5,764
2% -15%
Credit impairment charge
(392) (280) (408)
40% -4%
Profit before income tax
4,536 4,539 5,356
0% -15%
Income tax expense
(1,284) (1,358) (1,426)
-5% -10%
Non-controlling interests
(9) (9) (7)
0% 29%
Profit attributable to shareholders of the Company from continuing operations
3,243 3,172 3,923
2% -17%
Profit/(Loss) from discontinued operations
(70) (95) (600)
-26% -88%
Profit attributable to shareholders of the Company
3,173 3,077 3,323
3% -5%
Earnings Per Ordinary Share (cents)
Half Year
Movement
Reference
Page
Mar 19 Sep 18 Mar 18
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Basic
95
111.7 107.3 114.2
4% -2%
Diluted 95
106.4 103.2 108.6 3% -2%
Half Year
Reference Page Mar 19 Sep 18 Mar 18
Ordinary Share Dividends (cents)
Interim - 100% franked
1
94 80 - 80
Final - 100% franked
1
94 - 80 -
Total - 100% franked
1
94 80 80 80
Ordinary share dividend payout ratio
2
94 71.4% 74.6% 69.7%
Profitability Ratios
Return on average ordinary shareholders' equity
3
10.8% 10.4% 11.3%
Return on average assets
4
0.65% 0.64% 0.71%
Net interest margin
1.79% 1.82% 1.93%
Net interest income to average credit RWAs
4
4.23% 4.21% 4.35%
Efficiency Ratios
Operating expenses to operating income 48.6% 52.0% 47.1%
Operating expenses to average assets
4
0.94% 1.09% 1.01%
Credit Impairment Charge/(Release)
Individually assessed credit impairment charge ($M) 379 343 430
Collectively assessed credit impairment charge/(release) ($M)
13 (63) (22)
Total credit impairment charge ($M) 100
392 280 408
Individually assessed credit impairment charge as a % of average gross loans and advances
4,5
0.12% 0.11% 0.15%
Total credit impairment charge as a % of average gross loans and advances
4,5
0.13% 0.09% 0.14%
1.
Fully franked for Australian tax purposes and carry New Zealand imputation credits of NZD 9 cents per ordinary share for the proposed 2019 interim dividend (2018 final dividend: NZD 10
cents; 2018 interim dividend: NZD 9 cents).
2.
Dividend payout ratio is calculated using the proposed 2019 interim, 2018 final and 2018 interim dividends.
3.
Average ordinary shareholders’ equity excludes non-controlling interests.
4.
Average assets, average gross loans and advances and average credit RWAs include assets held for sale.
5.
Credit impairment charge used in the ratio relates to gross loans and advances and off-balance sheet commitments - undrawn and contingent liabilities.
SUMMARY
11
Cash Profit Results
1
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net interest income
7,299 7,164 7,350
2% -1%
Other operating income
2,447 2,333 2,520
5% -3%
Operating income
9,746 9,497 9,870
3% -1%
Operating expenses
(4,365) (4,928) (4,473)
-11% -2%
Profit before credit impairment and income tax
5,381 4,569 5,397
18% 0%
Credit impairment charge
(393) (280) (408)
40% -4%
Profit before income tax
4,988 4,289 4,989
16% 0%
Income tax expense
(1,415) (1,286) (1,489)
10% -5%
Non-controlling interests
(9) (9) (7)
0% 29%
Cash profit from continuing operations
3,564 2,994 3,493
19% 2%
Cash profit/(loss) from discontinued operations
(50) (65) (617)
-23% -92%
Cash profit
3,514 2,929 2,876
20% 22%
Earnings Per Ordinary Share (cents)
Half Year
Movement
Mar 19 Sep 18 Mar 18
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Basic
123.0 101.6 98.3
21% 25%
Diluted
116.8 97.9 94.2 19% 24%
Half Year
Reference
Page Mar 19 Sep 18 Mar 18
Ordinary Share Dividends
Ordinary share dividend payout ratio
2
64.5% 78.4% 80.6%
Profitability Ratios
Return on average ordinary shareholders' equity
3
11.9% 9.9% 9.8%
Return on average assets
4
0.72% 0.61% 0.62%
Net interest margin
1.79% 1.82% 1.93%
Net interest income to average credit RWAs
4
4.23% 4.21% 4.35%
Efficiency Ratios
Operating expenses to operating income 46.4% 54.4% 49.6%
Operating expenses to average assets
4
0.94% 1.09% 1.01%
Credit Impairment Charge/(Release)
Individually assessed credit impairment charge ($M) 32 380 343 430
Collectively assessed credit impairment charge/(release) ($M) 32
13 (63) (22)
Total credit impairment charge ($M) 32
393 280 408
Individually assessed credit impairment charge as a % of average gross loans and advances
4,5
0.12% 0.11% 0.15%
Total credit impairment charge as a % of average gross loans and advances
4,5
0.13% 0.09% 0.14%
Cash Profit/(Loss) By Division Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Australia
1,733 1,726 1,983 0% -13%
Institutional
1,012 713 767 42% 32%
New Zealand
753 772 749 -2% 1%
Wealth Australia
(30) (57) (26) -47% 15%
Pacific
33 39 33 -15% 0%
TSO and Group Centre
63 (199) (13) large large
Discontinued Operations
(50) (65) (617) -23% -92%
Cash profit
3,514 2,929 2,876 20% 22%
1.
Cash profit excludes non-core items included in statutory profit and is provided to assist readers in understanding the results of the ongoing business activities of the Group. Refer to pages
73 to 77 for the reconciliation between statutory and cash profit. Refer to pages 14 to 18 for information on large/notable items included in continuing cash profit.
2.
Dividend payout ratio is calculated using the proposed 2019 interim, 2018 final and 2018 interim dividends.
3.
Average ordinary shareholders’ equity excludes non-controlling interests.
4.
Average assets, average gross loans and advances and average credit RWAs include assets held for sale.
5.
Credit impairment charge used in the ratio relates to gross loans and advances and off-balance sheet commitments - undrawn and contingent liabilities.
SUMMARY
12
Financial Performance Summary – Total and continuing operations For financial reporting purposes the results of discontinued operations are shown in a separate line item ‘Profit/(Loss) from d
iscontinued operations’. In the table below, Total cash profit - inclusive of discontinued operations and Cash
profit - continuing operations are shown. For the purpose of understanding the impact of discontinued operations across various
Income Statement categories, Total cash profit - inclusive of discontinued operations is presented such that
each Income Statement line item is inclusive of discontinued operations.
Total cash profit - incl
usive of discontinued
operations Movement
Cash profit - continuing operations
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net interest income
7,242
7,164 7,350 1% -1%
7,299
7,164 7,350 2% -1%
Other operating income
2,651
2,449 2,152 8% 23%
2,447
2,333 2,520 5% -3%
Operating income
9,893
9,613 9,502 3% 4%
9,746
9,497 9,870 3% -1%
Operating expenses
(4,586)
(5,229)
(4,716)
-12%
-3%
(4,365)
(4,928) (4,473) -11% -2%
Profit before credit impairment and income tax
5,307
4,384 4,786 21% 11%
5,381
4,569 5,397 18% 0%
Credit impairment charge
(392)
(280)
(408)
40%
-4%
(393)
(280) (408) 40% -4%
Profit before income tax
4,915
4,104 4,378 20% 12%
4,988
4,289 4,989 16% 0%
Income tax expense
(1,392)
(1,166)
(1,495)
19%
-7%
(1,415)
(1,286) (1,489) 10% -5%
Non-controlling interests
(9)
(9)
(7)
0%
29%
(9)
(9) (7) 0% 29%
Cash Profit
3,514
2,929 2,876 20% 22%
3,564
2,994 3,493 19% 2%
Average interest earning assets
811,528
784,501 765,186
3% 6%
811,528
784,501 765,186
3% 6%
Average deposits and other borrowings
635,822
621,699 612,291
2% 4%
635,822
621,699 612,291
2% 4%
Funds under management
1
83,164
81,122 80,178
3% 4%
33,816
30,734 30,596
10% 11%
Earnings per share (basic)
123.0
101.6 98.3 21% 25%
124.8
103.9 119.4 20% 5%
Ordinary share dividend payout ratio
64.5%
78.4% 80.6%
63.6%
76.7% 66.3%
Profitability Ratios
Return on average ordinary shareholders' equity
2
11.9%
9.9% 9.8%
12.0%
10.1% 11.9%
Return on average assets
0.72%
0.61% 0.62%
0.77%
0.66% 0.79%
Net interest margin
1.79%
1.82%
1.93%
1.80%
1.82% 1.93%
Net interest income to average credit RWAs
4.23%
4.21%
4.35%
4.35%
4.21% 4.26%
Efficiency Ratios
Operating expenses to operating income
46.4%
54.4% 49.6%
44.8%
51.9% 45.3%
Operating expenses to average assets
0.94%
1.09% 1.01%
0.94%
1.08% 1.01%
FTE
3
39,359
39,924 41,580
-1% -5%
37,364
37,860 39,655
-1% -6%
1.
Funds under management for continuing operations relates to New Zealand Wealth and Private Bank in Australia division.
2.
Average ordinary
shareholders’ equity excludes
non-controlling interests.
3.
The actual FTE that will transfer to IOOF or Zurich on sale co
mpletion or at a later date is currently being determined. Disco
ntinued FTE is based on an estimate using an allocation methodology.
SUMMARY
13
Key Balance Sheet Metrics
1
As at Movement
Reference
Page
Mar 19 Sep 18 Mar 18
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Capital Management
Common Equity Tier 1
- APRA Basel 3 43
11.5% 11.4% 11.0%
- Internationally Comparable Basel 3
2
43 16.9% 16.8% 16.3%
Credit risk weighted assets ($B) 126
345.5 337.6 342.8 2% 1%
Total risk weighted assets ($B) 43
396.3 390.8 395.8 1% 0%
APRA Leverage Ratio 45
5.4% 5.5% 5.4%
Balance Sheet: Key Items
Gross loans and advances ($B) 613.8 608.4 595.5 1% 3%
Net loans and advances ($B)
610.1 605.4 592.5 1% 3%
Total assets ($B)
980.2 943.2 935.7 4% 5%
Customer deposits ($B)
493.4 487.3 472.8 1% 4%
Total equity ($B)
60.0 59.4 59.5 1% 1%
As at Movement
Liquidity Risk
Reference
Page
Mar 19 Sep 18 Mar 18
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Liquidity Coverage Ratio
3
41 137% 142% 134% -5% 3%
Net Stable Funding Ratio 42
115% 115% 115% 0% 0%
As at Movement
Reference
Page
Mar 19 Sep 18 Mar 18
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Impaired Assets
Gross impaired assets ($M) 34
2,022 2,013 2,034 0% -1%
Gross impaired assets as a % of gross loans and advances
0.33% 0.33% 0.34%
Net impaired assets ($M) 34
1,131 1,093 1,018 3% 11%
Net impaired assets as a % of shareholders' equity
1.8% 1.8% 1.7%
Individually assessed provision ($M) 33 891 920 1,016 -3% -12%
Individually assessed provision as a % of gross impaired assets
44.1% 45.7% 50.0%
Collectively assessed provision ($M)
4
33 3,378 2,523 2,579 34% 31%
Collectively assessed provision as a % of credit risk weighted assets
0.98% 0.75% 0.75%
Net Tangible Assets
Net tangible assets attributable to ordinary shareholders ($B)
5
53.7 53.1 53.0 1% 1%
Net tangible assets per ordinary share ($)
18.94 18.47 18.28 3% 4%
As at Movement
Net Loans And Advances By Division (Excluding Held for Sale)
Mar 19
$B
Sep 18
$B
Mar 18
$B
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Australia 336.6 341.3 340.4 -1% -1%
Institutional
151.7 149.1 138.2 2% 10%
New Zealand
118.8 111.3 108.5 7% 9%
Pacific
2.1 2.1 2.2 0% -5%
TSO and Group Centre
0.1 0.6 0.2 -83% -50%
Net loans and advances by division
609.3 604.4 589.5 1% 3%
1.
Balance Sheet amounts and metrics include assets and liabilities held for sale unless otherwise stated.
2.
See page 43 for further details regarding the differences between APRA Basel 3 and Internationally Comparable Basel 3 standards.
3.
Liquidity Coverage Ratio is calculated on a half year average basis.
4.
On adoption of AASB 9 on 1 October 2018, the Group increased the collectively assessed provision by $813 million. Comparative information has not been restated
5.
Equals total shareholders’ equity less total non-controlling interests, goodwill and other intangible assets.
SUMMARY
14
Large/Notable Items – continuing operations
Large/notable items included in cash profit from continuing operations are described below.
Divestment impacts (continuing operations)
The Group announced the following divestments in line with the Group’s strategy to create a simpler, better capitalised, better balanced and more agile
bank. As these divestments do not qualify as discontinued operations under accounting standards they form part of continuing operations. The financial
impacts from these divestments are summarised below including the business results for those divestments that have completed:
Gain/(Loss) on sale from divestments Completed divestment business results
Half Year Half Year
Cash Profit Impact
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
$M
Sep 18
$M
Mar 18
$M
Asia Retail and Wealth businesses - - 99 - - 30
SRCB
- - 2 - - -
UDC
- (7) 18 - - -
MCC
- 121 119 - 10 -
Paymark
37 - - 4 4 1
Cambodia JV
- (42) - - - -
OPL NZ
197 (3) - 14 43 47
PNG Retail, Commercial and SME
- (19) - - - -
Profit/(Loss) before income tax
234 50 238 18 57 78
Income tax benefit/(expense) and non-controlling interests (47) 3 (100) (4) (12) (19)
Cash profit/(loss) from continuing operations
187 53 138 14 45 59
Asia Retail and Wealth businesses
The Group completed the sale of Retail and Wealth businesses in Singapore, Hong Kong, China, Taiwan and Indonesia to Singapore’s DBS Bank in
2017. The Group completed the sale of its Retail business in Vietnam to Shinhan Bank Vietnam during the March 2018 half and recognised a $99
million gain, net of costs associated with the sale.
Shanghai Rural Commercial Bank (SRCB)
On 3 January 2017, the Group announced it had agreed to sell its 20% stake in Shanghai Rural Commercial Bank (SRCB). The sale was completed
in the March 2018 half and the Group recognised a net gain of $2 million.
UDC Finance (UDC)
On 11 January 2017, the Group announced that it had entered into a conditional agreement to sell UDC to HNA Group (HNA). On 21 December
2017, the Group announced that it had been informed that New Zealand’s Overseas Investment Office had declined HNA’s application to acquire
UDC. The agreement with HNA was terminated in January 2018 and an $18 million cost recovery was recognised in respect of the terminated
transaction process. The Group incurred transaction costs of $7 million in the September 2018 half. The assets and liabilities of UDC ceased being
classified as held for sale in the September 2018 half.
Metrobank Card Corporation (MCC)
On 18 October 2017, the Group announced it had entered into a sale agreement with its joint venture partner Metropolitan Bank & Trust Company
(Metrobank) in relation to its 40% stake in the Philippines based Metrobank Card Corporation (MCC). The Group sold its 40% stake in two equal
tranches in January and September 2018. The Group recognised a net gain on sale of $119 million and $121 million during the March and
September 2018 halves respectively, and a dividend of $10 million during the September 2018 half.
Paymark Limited (Paymark)
On 17 January 2018, the Group entered into an agreement to sell its 25% shareholding in Paymark Limited to Ingenico Group. The transaction was
completed on 11 January 2019. The Group recognised a net gain on sale of $37 million during the March 2019 half.
ANZ Royal Bank (Cambodia) Ltd (Cambodia JV)
On 17 May 2018, the Group announced it had reached an agreement to sell its 55% stake in Cambodia JV to J Trust, a Japanese diversified
financial holding company listed on the Tokyo Stock Exchange. The transaction is subject to closing conditions and regulatory approval and ANZ
expects it to close in the 2019 financial year. During the September 2018 half, the Group recognised a $42 million loss on the reclassification of
assets and liabilities to held for sale.
OnePath Life (NZ) Ltd (OPL NZ)
On 30 May 2018, the Group announced that it had agreed to sell OPL NZ to Cigna Corporation. During the September 2018 half, the Group incurred
transaction costs of $3 million. The transaction completed on 30 November 2018 and the Group recognised a $197 million net gain on sale in the
March 2019 half, comprising a $115 million gain on the reversal of the life-to-date cash profit adjustments on the revaluation of policy liabilities sold, a
$56 million gain on sale, and a $26 million of release from the foreign currency translation reserve.
SUMMARY
15
Papua New Guinea Retail, Commercial and Small-Medium Sized Enterprise businesses (PNG Retail, Commercial and SME)
On 25 June 2018, the Group announced it had entered into an agreement to sell its Retail, Commercial and Small-Medium Sized Enterprise (SME)
banking businesses in Papua New Guinea to Kina Bank. The transaction is subject to closing conditions and ANZ expects it to close by late 2019
calendar year. During the September 2018 half, the Group recognised a $19 million loss on the reclassification of assets and liabilities to held for
sale.
Other large/notable items (continuing operations)
Customer remediation
Customer remediation charges of $100 million have been recognised in the March 2019 half (Sep 18 half: $352 million; Mar 18 half: $67 million) for
expected refunds to customers and related remediation costs. $64 million relates to customer remediation impacting operating income (Sep 18 half:
$196 million; Mar 18 half: $32 million), and $36 million relates to customer remediation and remediation project costs impacting operating expenses
(Sep 18 half: $156 million; Mar 18 half: $35 million). These impacts were primarily identified from product reviews in the Australia division. These
reviews remain ongoing.
Accelerated software amortisation
During the September 2018 half, the Group accelerated the amortisation of certain software assets, predominantly relating to the Institutional division
following a review of the International business in light of divestments. An accelerated amortisation expense of $251 million was recognised in the
September 2018 half.
Royal Commission legal costs
External legal costs associated with responding to the Royal Commission were $13 million for the March 2019 half (Sep 18 half: $39 million; Mar 18
half: $16 million).
Restructuring
The Group recognised restructuring expenses of $51 million in the March 2019 half (Sep 18 half: $149 million; Mar 18 Half: $78 million) largely
relating to changes to the Group’s enablement functions announced during the period. The prior period largely related to the move of the Australia
division and technology to agile ways of working in the September and March 2018 halves.
SUMMARY
16
Large/Notable items - continuing operations
Cash Profit Results
March 2019 Half Year vs March 2018 Half Year
March 2019 Half Year vs September 2018 Half Year
Mar 19
Large/
notables
Mar 19
ex. Large/
notables Mar 18
Large/
notables
1
Mar 18
ex. Large/
notables
Movt
ex. Large/
notables
Mar 19
Large/
notables
Mar 19
ex. Large/
notables Sep 18
Large/
notables
1
Sep 18
ex. Large/
notables
Movt
ex. Large/
notables
$M
$M
$M $M $M $M %
$M
$M
$M $M $M $M %
Net interest income
7,299
(21)
7,320
7,350 36 7,314 0%
7,299
(21)
7,320
7,164 (84) 7,248 1%
Other operating income
2,447
214
2,233
2,520 324 2,196 2%
2,447
214
2,233
2,333 20 2,313 -3%
Operating income
9,746
193
9,553
9,870 360 9,510 0%
9,746
193
9,553
9,497 (64) 9,561 0%
Operating expenses
(4,365)
(105)
(4,260)
(4,473) (179) (4,294) -1%
(4,365)
(105)
(4,260)
(4,928) (620) (4,308) -1%
Profit before credit impairment and income tax
5,381
88
5,293
5,397 181 5,216 1%
5,381
88
5,293
4,569 (684) 5,253 1%
Credit impairment charge
(393)
-
(393)
(408) (26) (382) 3%
(393)
-
(393)
(280) - (280) 40%
Profit/(Loss) before income tax
4,988
88
4,900
4,989 155 4,834 1%
4,988
88
4,900
4,289 (684) 4,973 -1%
Income tax benefit/(expense) and non-controlling interests
(1,424)
(2)
(1,422)
(1,496) (69) (1,427) 0%
(1,424)
(2)
(1,422)
(1,295) 195 (1,490) -5%
Cash profit/(loss) from continuing operations
3,564
86
3,478
3,493 86 3,407 2%
3,564
86
3,478
2,994 (489) 3,483 0%
Cash Profit/(Loss) By Division
March 2019 Half Year vs March 2018
Half Year
March 2019 Half Year vs September 2018 Half Year
Mar 19
Large/
notables
Mar 19
ex. Large/
notables Mar 18
Large/
notables
1
Mar 18
ex. Large/
notables
Movt
ex. Large/
notables
Mar 19
Large/
notables
Mar 19
ex. Large/
notables Sep 18
Large/
notables
1
Sep 18
ex. Large/
notables
Movt
ex. Large/
notables
$M
$M
$M $M $M $M %
$M
$M
$M $M $M $M %
Australia
1,733
(76)
1,809
1,983 (75) 2,058 -12%
1,733
(76)
1,809
1,726 (233) 1,959 -8%
Institutional
1,012
(5)
1,017
767 - 767 33%
1,012
(5)
1,017
713 (210) 923 10%
New Zealand
753
14
739
749 34 715 3%
753
14
739
772 21 751 -2%
Wealth Australia
(30)
(7)
(23)
(26) (14) (12) 92%
(30)
(7)
(23)
(57) (43) (14) 64%
Pacific
33
-
33
33 - 33 0%
33
-
33
39 - 39 -15%
TSO and Group Centre
2
63
160
(97)
(13) 141 (154) -37%
63
160
(97)
(199) (24) (175) -45%
Cash profit/(loss) from continuing operations
3,564
86
3,478
3,493 86 3,407 2%
3,564
86
3,478
2,994 (489) 3,483 0%
1.
Where applicable, comparative information has been restated for large/notable items included in the March 2019 half.
2.
TSO and Group Centre includes the Gain/(Loss) on sale from divestments including SRCB, Paymark, UDC, MCC, Asia Retail and Weal
th businesses, Cambodia JV, OPL NZ, PNG Retail, Commercial and SM
E. It also includes the divested business results for the comp
leted sales of Paymark,
MCC and Asia Retail and Wealth businesses.
SUMMARY
17
Large/Notable items - continuing operations
Within continuing cash profit, the Group has recognised some large/notable items. These items are shown in the tables below.
March 2019 Half Year
March 2018 Half Year
1
Large/notable items included in continuing cash profit
Large/notable items included in continuing cash profit
Gain/(Loss)
on sale from
divestments
$M
Divested
business
results
2
$M
Customer
remediation
$M
Royal
Commission
legal costs
$M
Restructuring
$M
Total
$M
Gain/(Loss) on
sale from
divestments
$M
Divested
business
results
2
$M
Customer
remediation
$M
Royal
Commission
legal costs
$M
Restructuring
$M
Total
$M
Cash Profit
Net interest income
-
1
(22)
-
-
(21)
- 55 (19) - -
36
Other operating income
234
22
(42)
-
-
214
238 99 (13) - -
324
Operating income
234
23
(64)
-
-
193
238 154 (32) -
-
360
Operating expenses
-
(5)
(36)
(13)
(51)
(105)
- (50) (35) (16) (78)
(179)
Profit before credit impairment and income tax
234
18
(100)
(13)
(51)
88
238 104 (67) (16) (78)
181
Credit impairment charge
-
-
-
-
-
-
- (26) - - -
(26)
Profit before income tax
234
18
(100)
(13)
(51)
88
238 78 (67) (16) (78)
155
Income tax benefit/(expense) and non-controlling interests
(47)
(4)
30
4
15
(2)
(100) (19) 22
5 23
(69)
Cash profit from continuing operations
187
14
(70)
(9)
(36)
86
138 59 (45) (11) (55)
86
March 2019 Half Year
September 2018 Half Year
1
Large/notable items included in continuing cash profit
Large/notable items included in continuing cash profit
Gain/(Loss)
on sale from
divestments
$M
Divested
business
results
2
$M
Customer
remediation
$M
Royal
Commission
legal costs
$M
Restructuring
$M
Total
$M
Gain/(Loss)
on sale from
divestments
$M
Divested
business
results
2
$M
Customer
remediation
$M
Accelerated
software
amortisation
$M
Royal
Commission
legal costs
$M
Restructuring
$M
Total
$M
Cash Profit
Net interest income
-
1
(22)
-
-
(21)
- 2 (86) - - -
(84)
Other operating income
234
22
(42)
-
-
214
60 70 (110) - - -
20
Operating income
234
23
(64)
-
-
193
60 72 (196) - - -
(64)
Operating expenses
-
(5)
(36)
(13)
(51)
(105)
(10) (15) (156) (251) (39) (149)
(620)
Profit before credit impairment and income tax
234
18
(100)
(13)
(51)
88
50 57 (352) (251) (39) (149)
(684)
Credit impairment charge
-
-
-
-
-
-
- - - - - -
-
Profit before income tax
234
18
(100)
(13)
(51)
88
50 57 (352) (251) (39) (149)
(684)
Income tax benefit/(expense) and non-controlling interests
(47)
(4)
30
4
15
(2)
3 (12) 102 45 12 45
195
Cash profit from continuing operations
187
14
(70)
(9)
(36)
86
53 45 (250) (206) (27) (104)
(489)
1.
Where applicable, comparative information has been restated for large/notable items included in the March 2019 half.
2.
Relates to business results
for completed divestments.
SUMMARY
18
Large/Notable items - continuing operations
Within continuing cash profit, the Group has recognised some large/notable items. The impact of these items on the divisional r
esults are shown in the tables below.
March 2019 Half Year
March 2018 Half Year
1
Large/notable items included in continuing cash profit
Large/notable items included in continuing cash profit
Gain/(Loss)
on sale from
divestments
$M
Divested
business
results
2
$M
Customer
remediation
$M
Royal
Commission
legal costs
$M
Restructuring
$M
Total
$M
Gain/(Loss)
on sale from
divestments
$M
Divested
business
results
2
$M
Customer
remediation
$M
Royal
Commission
legal costs
$M
Restructuring
$M
Total
$M
Profit before income tax
Australia
-
-
(92)
-
(17)
(109)
- - (50) - (57)
(107)
Institutional
-
-
-
-
(7)
(7)
- - 5 - (8)
(3)
New Zealand
-
20
-
-
(2)
18
- 55 (3) - (5)
47
Wealth Australia
-
-
(8)
-
(2)
(10)
- - (19) - (1)
(20)
Pacific
-
-
-
-
-
-
- - - - -
-
TSO and Group Centre
3
234
(2)
-
(13)
(23)
196
238 23 - (16) (7)
238
Profit before income tax
234
18
(100)
(13)
(51)
88
238 78 (67) (16) (78)
155
Income tax benefit/(expense) and non-controlling interests
(47)
(4)
30
4
15
(2)
(100) (19) 22
5 23
(69)
Cash profit from continuing operations
187
14
(70)
(9)
(36)
86
138 59 (45) (11) (55)
86
March 2019 Half Year
September 2018 Half Year
1
Large/notable items included in continuing cash profit
Large/notable items included in continuing cash profit
Gain/(Loss)
on sale from
divestments
$M
Divested
business
results
2
$M
Customer
remediation
$M
Royal
Commission
legal costs
$M
Restructuring
$M
Total
$M
Gain/(Loss)
on sale from
divestments
$M
Divested
business
results
2
$M
Customer
remediation
$M
Accelerated
software
amortisation
$M
Royal
Commission
legal costs
$M
Restructuring
$M
Total
$M
Profit before income tax
Australia
-
-
(92)
-
(17)
(109)
- - (254) (29) - (53)
(336)
Institutional
-
-
-
-
(7)
(7)
- - (12) (222) - (17)
(251)
New Zealand
-
20
-
-
(2)
18
- 54 (24) - - (4)
26
Wealth Australia
-
-
(8)
-
(2)
(10)
- - (62) - - -
(62)
Pacific
-
-
-
-
-
-
- - - - -
-
TSO and Group Centre
3
234
(2)
-
(13)
(23)
196
50 3 - - (39) (75)
(61)
Profit before income tax
234
18
(100)
(13)
(51)
88
50
57 (352) (251) (39) (149)
(684)
Income tax benefit/(expense) and non-controlling interests
(47)
(4)
30
4
15
(2)
3 (12) 102 45 12 45
195
Cash profit from continuing operations
187
14
(70)
(9)
(36)
86
53
45 (250) (206) (27) (104)
(489)
1.
Where applicable, comparative information has been restated for large/notable items included in the March 2019 half.
2.
Relates to business result
s for completed divestments.
3.
TSO and Group Centre includes the Gain/(Loss) on sale from divestments including SRCB, Paymark, UDC, MCC, Asia Retail and Weal
th businesses, Cambodia JV, OPL NZ, PNG Retail, Commercial and SM
E. It also includes the divested business results for the comp
leted sales of Paymark,
MCC and Asia Retail and Wealth businesses.
SUMMARY
19
Full Time Equivalent Staff
As at 31 March 2019, ANZ employed 39,359 staff (Sep 18: 39,924; Mar 18: 41,580) on a full-time equivalent (FTE) basis.
Division
As at
Movement
Mar 19 Sep 18 Mar 18
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Australia 13,020 13,039 13,914 0% -6%
Institutional
6,085 6,188 6,505 -2% -6%
New Zealand
6,003 6,165 6,319 -3% -5%
Wealth Australia
1,991 2,161 2,175 -8% -8%
Pacific
1,096 1,125 1,172 -3% -6%
TSO and Group Centre
11,164 11,246 11,495 -1% -3%
Total FTE
39,359 39,924 41,580 -1% -5%
Continuing operations
1
37,364 37,860 39,655 -1% -6%
Discontinued operations
1
1,995 2,064 1,925 -3% 4%
Average FTE
39,571 40,760 44,029 -3% -10%
Geography
As at
Movement
Mar 19 Sep 18 Mar 18
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Australia 18,652 18,671 19,351 0% -4%
Asia, Pacific, Europe & America
13,396 13,742 14,511 -3% -8%
New Zealand
7,311 7,511 7,718 -3% -5%
Total FTE
39,359 39,924 41,580 -1% -5%
1.
The actual FTE that will transfer to IOOF and Zurich on sale completion or at a later date is currently being determined. The discontinued operations FTE is an estimate based on an
allocation methodology.
Other Non-Financial Information
Half Year
Movement
Shareholder value - ordinary shares
Mar 19 Sep 18 Mar 18
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Share price ($)
- high
28.36 30.39 30.80 -7% -8%
- low
22.98 26.08 26.81 -12% -14%
- closing
26.03 28.18 26.86 -8% -3%
Closing market capitalisation of ordinary shares ($B)
73.7 81.0 77.9 -9% -5%
Total shareholder returns (TSR)
-4.8% 8.0% -6.8% large -29%
As at Mar 19
Credit Ratings
Short-
Term
Long-
Term Outlook
Moody's Investor Services P-1 Aa3 Stable
Standard & Poor's A-1+ AA- Negative
Fitch Ratings F1+ AA- Stable
SUMMARY
20
This page has been left blank intentionally
GROUP RESULTS
21
CONTENTS Page
Cash Profit 22
Group Performance – continuing operations 23
Net Interest Income - continuing operations 24
Other Operating Income - continuing operations 26
Operating Expenses - continuing operations 29
Software Capitalisation - continuing operations 31
Credit Risk - continuing operations 32
Income Tax Expense - continuing operations 36
Impact of Foreign Currency Translation - continuing operations 37
Earnings Related Hedges - continuing operations 38
Earnings per Share - continuing operations 38
Dividends - continuing operations 39
Economic Profit - continuing operations 39
Condensed Balance Sheet - including discontinued operations 40
Liquidity Risk - including discontinued operations 41
Funding - including discontinued operations 42
Capital Management - including discontinued operations 43
Leverage Ratio - including discontinued operations 45
Capital Management - Other Regulatory Developments 46
GROUP RESULTS
22
Non-IFRS Information
Statutory profit is prepared in accordance with recognition and measurement requirements of Australian Accounting Standards, which comply with
International Financial Reporting Standards (IFRS). The Group provides additional measures of performance in the Consolidated Financial Report &
Dividend Announcement which are prepared on a basis other than in accordance with accounting standards. The guidance provided in Australian
Securities and Investments Commission (ASIC) Regulatory Guide 230 has been followed when presenting this information.
Cash Profit
Cash profit, a non-IFRS measure, represents ANZ’s preferred measure of the result of the ongoing business activities of the Group, enabling readers to
assess Group and Divisional performance against prior periods and against peer institutions. To calculate cash profit, the Group excludes non-core items
from statutory profit (refer to Definitions on pages 135 to 136 for further details). The adjustments made in arriving at cash profit are included in statutory
profit which is subject to review within the context of the external auditor’s review of the Condensed Consolidated Financial Statements. Cash profit is not
subject to review by the external auditor. The external auditor has informed the Audit Committee that cash profit adjustments have been determined on a
consistent basis across each period presented.
The Group Results section is reported on a cash profit basis for continuing operations unless otherwise stated. For information on
discontinued operations please refer to the Guide to Half Year Results on page 8.
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Statutory profit attributable to shareholders of the Company from continuing
operations
3,243 3,172 3,923 2% -17%
Adjustments between statutory profit and cash profit
1
Revaluation of policy liabilities 77 (4) (10) large large
Economic hedges
185 (124) (124) large large
Revenue and expense hedges
60 (49) 40 large 50%
Structured credit intermediation trades
(1) (1) (3) 0% -67%
Sale of SRCB
- - (333) n/a -100%
Total adjustments between statutory profit and cash profit for continuing operations
321 (178) (430) large large
Cash profit from continuing operations 3,564 2,994 3,493 19% 2%
1.
Refer to pages 73 to 77 for analysis of the adjustments between statutory profit and cash profit.
Group performance - cash profit
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net interest income 7,299 7,164 7,350 2% -1%
Other operating income
2,447 2,333 2,520 5% -3%
Operating income
9,746 9,497 9,870 3% -1%
Operating expenses (4,365) (4,928) (4,473) -11% -2%
Profit before credit impairment and income tax
5,381 4,569 5,397 18% 0%
Credit impairment charge (393) (280) (408) 40% -4%
Profit before income tax
4,988 4,289 4,989 16% 0%
Income tax expense (1,415) (1,286) (1,489) 10% -5%
Non-controlling interests
(9) (9) (7) 0% 29%
Cash profit from continuing operations
3,564 2,994 3,493 19% 2%
Half Year Movement
Cash profit/(loss) by Division
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Australia
1,733 1,726 1,983
0% -13%
Institutional
1,012 713 767 42% 32%
New Zealand
753 772 749 -2% 1%
Wealth Australia
(30) (57) (26) -47% 15%
Pacific
33 39 33 -15% 0%
TSO and Group Centre
63 (199) (13) large large
Cash profit from continuing operations
3,564 2,994 3,493 19% 2%
GROUP RESULTS
23
Group Performance – continuing operations
Group Cash Profit - March 2019 Half Year v March 2018 Half Year
March 2019 v March 2018
Cash profit from continuing operations increased $71 million (+2%) compared with the March 2018 half. Excluding foreign currency translation
movements, cash profit increased $42 million (+1%).
Net interest income decreased $51 million (-1%) largely due to a 13 basis point decrease in the net interest margin, partially offset by 6% growth
in average interest earning assets. The lower net interest margin reflects growth in lower margin Markets Balance Sheet trading activities, higher
funding costs, changes in asset mix, asset price competition, and the sale of the Asia Retail and Wealth businesses. This was partially offset by
higher deposit margins and home loans re-pricing. The increase in average interest earning assets reflects growth in ANZ’s home loans and
Institutional banking portfolios, partially offset by the sale of Asia Retail and Wealth businesses. Refer to pages 24 and 25 for further details on
key movements.
Other operating income decreased $73 million (-3%) largely as the result of net divestment impacts of $81 million, a $64 million decrease in net
fee and commission income, $60 million reduction in other, and a $29 million increase in customer remediation. This was partially offset by
higher Markets other operating income of $120 million and a $43 million increase in share of associate’s profit. Refer to pages 26 to 28 for further
details on key movements.
Operating expenses decreased $108 million (-2%) primarily due to lower FTE, a reduction in expenses following the sale of OnePath Life (NZ)
and Asia Retail and Wealth businesses of $45 million, lower restructuring expenses of $27 million and software amortisation charges. This was
partially offset by inflation. Refer to pages 29 to 30 for further details on key movements.
Credit impairment charges decreased $15 million (-4%) largely due to lower individually assessed credit impairment charges, partially offset by
higher collectively assessed credit impairment charges. Refer to pages 32 and 33 for further details on key movements.
Excluding large/notable items, cash profit increased $71 million (+2%).
March 2019 v September 2018
Cash profit from continuing operations increased $570 million (+19%) compared with the September 2018 half. Excluding foreign currency translation
movements, cash profit increased $566 million (+19%).
Net interest income increased $135 million (+2%) largely due to 3% growth in average interest earning assets, partially offset by a 2 basis point
decrease in the net interest margin. The lower net interest margin reflects growth in lower margin Markets Balance Sheet trading activities,
changes in asset mix, and asset price competition. This was partially offset by higher deposit margins, home loans re-pricing and lower customer
remediation charges of $64 million. The increase in average interest earning assets reflects growth in ANZ’s home loans in New Zealand and
growth in Institutional banking portfolios. This was partially offset by a reduction in lending in the Australia division. Refer to pages 24 and 25 for
further details on key movements.
Other operating income increased $114 million (+5%) largely the result of net divestment impacts of $126 million, higher Markets other operating
income of $79 million, lower customer remediation of $68 million, and a $36 million increase in share of associate’s profit. This is partially offset
by a $105 million reduction in net fee and commission income and a $71 million reduction in other primarily due to lower dividend income. Refer
to pages 26 to 28 for further details on key movements.
Operating expenses decreased $563 million (-11%) primarily due to an accelerated software amortisation charge in the prior period of $251
million, lower customer remediation of $120 million, restructuring expenses of $98 million, Royal Commission legal costs of $26 million, and
lower FTE. This was partially offset by inflation. Refer to pages 29 to 30 for further details on key movements.
Credit impairment charges increased $113 million (+40%) largely due to higher individually assessed and collectively assessed credit impairment
charges. Refer to pages 32 and 33 for further details on key movements.
Excluding large/notable items, cash profit decreased $5 million (flat).
GROUP RESULTS
24
Net Interest Income - continuing operations
Half Year
Movement
Group
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Cash net interest income
1
7,299 7,164 7,350 2% -1%
Average interest earning assets
2
811,528 784,501 765,186 3% 6%
Average deposits and other borrowings
2
635,822 621,699 612,291 2% 4%
Net interest margin (%) - cash
1.80 1.82 1.93 -2 bps -13 bps
Group (excluding Markets business unit)
Cash net interest income
1,3
7,019 6,861 6,995 2% 0%
Average interest earning assets
2
563,579 549,398 538,968 3% 5%
Average deposits and other borrowings
2
459,478 456,936 455,946 1% 1%
Net interest margin (%) - cash
3
2.50 2.49 2.60 1 bps -10 bps
Half Year
Movement
Cash profit net interest margin by major division
1
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Australia
Net interest margin (%) - cash
3
2.61 2.60 2.78
1 bps -17 bps
Average interest earning assets
314,215 315,614 312,473
0% 1%
Average deposits and other borrowings
202,765 202,530 203,239
0% 0%
Institutional
Net interest margin (%) - cash
3
0.85 0.86 0.89
-1 bps -4 bps
Average interest earning assets
2
372,270 349,090 333,919
7% 11%
Average deposits and other borrowings
2
281,770 269,578 257,874
5% 9%
New Zealand
Net interest margin (%) - cash
3
2.39 2.41 2.43
-2 bps -4 bps
Average interest earning assets
2
116,201 111,092 108,008
5% 8%
Average deposits and other borrowings
2
86,244 81,214 79,669 6% 8%
1.
Includes large/notable items of -$21 million for the March 2019 half (Sep 18 half: -$84 million; Mar 18 half: $36 million). Refer to pages 14 to 18 for further details on large/notable items.
Also includes the major bank levy of -$178 million for the March 2019 half (Sep 18 half: -$178 million; Mar 18 half: -$177 million).
2.
Average balance sheet amounts include assets and liabilities reclassified as held for sale from continuing operations.
3.
In the March 2019 half, the methodology for allocating earnings on capital at a business unit level has changed from being based on Economic Capital to Regulatory Capital. While neutral
at a Group level, this change has impacted net interest income at the divisional level and comparative information has been restated accordingly.
Group net interest margin - March 2019 Half Year v March 2018 Half Year
1.
Markets Balance Sheet activities includes the impact of growth in discretionary liquid assets and other Balance Sheet activities.
March 2019 v March 2018
Net interest margin (-13 bps)
Asset mix and funding mix (-4 bps): unfavourable asset mix from the impacts of customer switching from interest only to principal and interest
home loans in the Australia division, customer switching from variable to fixed home loans in the New Zealand division and unfavourable mix
impacts from a lower proportion of lending in the Australia division.
Funding costs (-3 bps): unfavourable basis risk and broadly flat spreads on wholesale funding.
Deposits (+2 bps): improved deposit margins in the Australia and Institutional divisions.
Assets (-1 bps): adverse impact of home loan competition in the Australia division, partially offset by favourable impact of home loans re-pricing.
GROUP RESULTS
25
Treasury (0 bps): broadly flat earnings on capital.
Markets Balance Sheet activities (-6 bps): growth in lower margin Markets Balance Sheet trading activities.
Asia Retail and Wealth (-1 bps): adverse margin impact following the sale of Asia Retail and Wealth businesses.
Average interest earning assets (+$46.3 billion or +6%)
Average net loans and advances (+$24.5 billion or +4%): increase driven by growth in Institutional lending, home loan growth in the Australia and
New Zealand divisions, and foreign currency translation movements.
Average trading and investment securities/available-for-sale assets (+$2.4 billion or +2%): increase driven mostly by the impact of foreign
currency translation movements.
Average cash and other liquids (+$19.4 billion or +21%): increase driven by higher central bank cash balances and reverse repurchase
agreements, and the impact of foreign currency translation movements.
Average deposits and other borrowings (+$23.5 billion or +4%)
Average deposits and other borrowings (+$23.5 billion or +4%): increase driven by growth in the Institutional and New Zealand divisions, and the
impact of foreign currency translation movements. This has been partly offset by the loss of deposits following the sale of Asia Retail and Wealth
businesses.
Group net interest margin - March 2019 Half Year v September 2018 Half Year
1.
Markets Balance Sheet activities includes the impact of growth in discretionary liquid assets and other Balance Sheet activities.
March 2019 v September 2018
Net interest margin (-2 bps)
Asset mix and funding mix (-2 bps): unfavourable asset mix from the impacts of customer switching from interest only to principal and interest
home loans, lower unsecured lending, and a higher proportion of Institutional lending.
Funding costs (0 bps): broadly flat basis risk, and broadly flat wholesale funding spreads.
Deposits (+1 bps): improved deposit margins in the Institutional division from rising US rates and deposit optimisation.
Assets (+1 bps): impact of re-pricing of home loans in the Australia division, partially offset by increased competition in all divisions.
Treasury (0 bps): broadly flat earnings on capital.
Markets Balance Sheet activities (-4 bps): growth in lower margin Markets Balance Sheet trading activities.
Customer remediation (+2 bps): the impact of higher customer remediation in the September 2018 half.
Average interest earning assets (+$27.0 billion or +3%)
Average net loans and advances (+$13.4 billion or +2%): increase driven by growth in Institutional lending, home loans in the New Zealand
division, and the impact of foreign currency translation movements. This was partially offset by a reduction in lending in the Australia division.
Average trading and investment securities/available-for-sale assets (+$5.1 billion or +5%): increase is mainly driven by an increase in investment
and trading securities, and by the impact of foreign currency translation movements.
Average cash and other liquids (+$8.5 billion or +8%): increase driven by higher central bank cash balances, and the impact of foreign currency
translation movements.
Average deposits and other borrowings (+$14.1 billion or +2%)
Average deposits and other borrowings (+$14.1 billion or +2%): increase driven by growth in the Institutional and New Zealand divisions, and the
impact of foreign currency translation movements.
GROUP RESULTS
26
Other Operating Income - continuing operations
Half Year
1
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net fee and commission income
2
1,218 1,289 1,335 -6% -9%
Net income from insurance business
2
70 127 126 -45% -44%
Markets other operating income
667 577 552 16% 21%
Share of associates' profit
2
131 95 88 38% 49%
Other
2,3
361 245 419 47% -14%
Total cash other operating income from continuing operations
4
2,447 2,333 2,520 5% -3%
Half Year
1
Movement
Markets income
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net interest income 280 303 355 -8% -21%
Other operating income
667 577 552 16% 21%
Total cash Markets income from continuing operations
947 880 907 8% 4%
Half Year
1
Movement
Other operating income by division
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Australia
625 722 728 -13% -14%
Institutional
1,126 1,035 1,031 9% 9%
New Zealand
302 328 343 -8% -12%
Wealth Australia
26 12 48 large -46%
Pacific
50 53 47 -6% 6%
TSO and Group Centre
318 183 323 74% -2%
Total cash other operating income from continuing operations
4
2,447 2,333 2,520 5% -3%
Other operating income - March 2019 Half Year v March 2018 Half Year
Other operating income (excluding large/notable items)
Half Year
1
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net fee and commission income
2
1,258 1,363 1,322 -8% -5%
Net income from insurance business
2
52 71 54 -27% -4%
Markets other operating income
667 588 547 13% 22%
Share of associates' profit
2
131 95 88 38% 49%
Other
2,3
125 196 185 -36% -32%
Total cash other operating income from continuing operations
2,233 2,313 2,196 -3% 2%
1.
On adoption of AASB 15, the Group reclassified certain items previously netted which are now presented gross in operating income and operating expenses. Comparative information has
been restated accordingly which increased total operating income by $91 million for the September 2018 half and $62 million for the March 2018 half.
2.
Excluding Markets.
3.
Includes foreign exchange earnings and net funds management income previously reported under net funds management and insurance income.
4.
Includes large/notable items of $214 million for the March 2019 half (Sep 18 half: $20 million; Mar 18 half: $324 million). Refer to items on pages 14 to 18 for further details on large/notable
items.
GROUP RESULTS
27
March 2019 v March 2018
Other operating income decreased by $73 million (-3%). Excluding foreign currency translation movements, other operating income decreased $93
million (-4%).
Net fee and commission income (-$117 million or -9%)
$85 million decrease in the Australia division primarily as the result of lower fee income due to the removal of fees, lower volume, and higher
customer remediation ($20 million).
$21 million decrease in the Wealth Australia division primarily due to lower financial planning volumes, and higher customer remediation ($9
million).
$20 million decrease in the TSO and Group Centre division primarily due to the loss of income following the sale of Asia Retail and Wealth
businesses.
$14 million increase in the New Zealand division as the result of higher funds under management income, credit card incentives/rebates, and
favourable foreign currency translation movements.
Net income from insurance business (-$56 million or -44%)
$42 million decrease in the New Zealand division primarily due to the sale of the OnePath Life (NZ) business.
$10 million decrease in the TSO and Group Centre division due to the loss of income following the sale Asia Retail and Wealth businesses.
$5 million decrease in the Australia division primarily due to a reduction in lenders mortgage insurance net premium income as the result of lower
volumes ($8 million).
Markets income (+$40 million or +4%)
$49 million increase in Franchise Trading primarily attributable to favourable market conditions in international rate markets and a more
favourable trading environment in Australia and New Zealand rates ($70 million). This was partially offset by adverse derivative valuation
adjustments ($21 million).
$27 million increase in Franchise Sales due to growth initiatives in North East Asia and improved Institutional client flow in Asia on the back of
US China trade tensions sparking volatility in the region.
$36 million decrease in Balance Sheet trading driven by reduced net interest income from Australia and Asia liquidity desks on reduced average
holdings.
Share of associates’ profit (+$43 million or +49%)
$43 million increase in profits from associates of which $25 million relates to P.T. Bank Pan Indonesia and $14 million relates to AmBank.
Other (-$58 million or -14%)
$14 million decrease in the Australia division primarily due to lower brokerage income from ANZ share investing.
$16 million decrease in the New Zealand division largely as the result of a one-off insurance recovery in the March 2018 half.
$12 million decrease in the Institutional division primarily driven by fair value losses on loans measured at fair value through profit and loss.
$14 million decrease in the TSO and Group Centre division primarily due to realised losses on economic hedges against larger foreign exchange
denominated revenue streams as the result of the NZD strengthening against the AUD. These offset foreign currency translation gains elsewhere
in the Group.
Net $4 million decrease as the result of the Asia Retail and Wealth gain on sale ($99 million), MCC gain on sale ($119 million), UDC cost
recovery in respect of the terminated transaction process ($18 million) and SRCB ($2 million) recognised in the March 2018 half, offset against
OnePath Life (NZ) business divestment impacts ($197 million) and Paymark gain on sale ($37 million) recognised in the March 2019 half.
Excluding large/notable items, other operating income increased $37 million (+2%).
March 2019 v September 2018
Other operating income increased by $114 million (+5%). Excluding foreign currency translation movements, other operating income increased $115
million (+5%).
Net fee and commission income (-$71 million or -6%)
$90 million decrease in the Australia division primarily as the result of lower fee income due to timing, the removal of fees, and lower volumes.
This was partially offset by lower customer remediation ($13 million).
$13 million increase in the Wealth Australia division primarily due to lower customer remediation ($21 million), partially offset by lower financial
planning volumes.
$11 million increase in the New Zealand division primarily due to higher credit card incentives/rebates and merchant fees as the result of
seasonality, and favourable foreign currency translation movements.
Net income from insurance business (-$57 million or -45%)
$39 million decrease in the New Zealand division primarily due to the sale of the OnePath Life (NZ) business.
GROUP RESULTS
28
$18 million decrease in the Australia division primarily due to a reduction in lenders mortgage insurance net premium income as the result of
lower volume ($13 million).
Markets income (+$67 million or +8%)
$75 million increase in Franchise Trading primarily attributable to favourable market conditions in international rates markets and tighter credit
spreads in the second quarter of FY19 benefitting the Franchise Trading businesses ($137 million). This was partially offset by adverse
derivative valuation adjustments primarily from falling AUS and NZD swap rates ($62 million).
$10 million increase in Franchise Sales primarily attributable to customer activity in Asia driven by volatility triggered by US China Trade
tensions, declining US yields which reduced Asia yields, and franchise growth initiatives in North East Asia.
$18 million decrease in Balance Sheet trading attributable to reduced net interest income from Australia liquidity desks on reduced average
holdings.
Share of associates’ profit (+$36 million or +38%)
$36 million increase in profits from associates of which $26 million relates to P.T. Bank Pan Indonesia and $8 million relates to AmBank.
Other (+$116 million or +47%)
Net $184 million increase as the result of OnePath Life (NZ) business divestment impacts ($197 million) and Paymark gain on sale ($37 million)
recognised in the March 2019 half, partially offset by divestment impacts recognised in the September 2018 half: MCC gain on sale ($121
million), a net charge recognised on reclassification of Cambodia JV and PNG Retail, Commercial and SME to held for sale (-$61 million), UDC
and OnePath Life (NZ) transaction costs (-$7 million and -$3 million respectively).
$9 million increase in the Australia division as the result of lower customer remediation ($21 million), partially offset by lower brokerage income
from ANZ share investing.
$38 million decrease due to dividend income received from Bank of Tianjin of $28 million and MCC of $10 million in the September 2018 half.
$29 million decrease in the TSO and Group Centre division primarily due to realised losses on economic hedges against larger foreign exchange
denominated revenue streams as the result of the NZD strengthening against the AUD. These offset foreign currency translation gains elsewhere
in the Group.
Excluding large/notable items, other operating income decreased $80 million (-3%).
GROUP RESULTS
29
Operating Expenses - continuing operations
Half Year
1
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Personnel expenses 2,370 2,356 2,402 1% -1%
Premises expenses
406 416 395 -2% 3%
Technology expenses
764 1,084 815 -30% -6%
Restructuring expenses
51 149 78 -66% -35%
Other expenses
774 923 783 -16% -1%
Total cash operating expenses from continuing operations
2
4,365 4,928 4,473 -11% -2%
Full time equivalent staff (FTE) from continuing operations 37,364 37,860 39,655 -1% -6%
Average full time equivalent staff (FTE) from continuing operations 37,558 38,463 41,568 -2% -10%
Half Year
1
Movement
Expenses by division
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Australia
1,843 1,990 1,905
-7% -3%
Institutional
1,320 1,575 1,373
-16% -4%
New Zealand
612 613 592
0% 3%
Wealth Australia
70 95 85
-26% -18%
Pacific
70 65 63
8% 11%
TSO and Group Centre
450 590 455
-24% -1%
Total cash operating expenses from continuing operations
2
4,365 4,928 4,473 -11% -2%
Half Year
Movement
FTE by division
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Australia
13,020 13,039 13,914
0% -6%
Institutional
6,085 6,188 6,505
-2% -6%
New Zealand
6,003 6,165 6,319
-3% -5%
Wealth Australia
640 692 759
-8% -16%
Pacific
1,096 1,125 1,172
-3% -6%
TSO and Group Centre
10,520 10,651 10,986
-1% -4%
Total FTE
37,364 37,860 39,655 -1% -6%
Average FTE 37,558 38,463 41,568 -2% -10%
Operating expenses - March 2019 Half Year v March 2018 Half Year
Expenses (excluding large/notable items)
Half Year
1
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Personnel expenses 2,361 2,260 2,355 4% 0%
Premises expenses
406 416 395 -2% 3%
Technology expenses
764 829 814 -8% -6%
Restructuring expenses
- - - n/a n/a
Other expenses
729 803 730 -9% 0%
Total cash operating expenses from continuing operations
4,260 4,308 4,294 -1% -1%
1.
On adoption of AASB 15, the Group reclassified certain items previously netted which are now presented gross in operating income and operating expenses. Comparative information has
been restated accordingly which increased total operating expenses by $91 million for the September 2018 half and $62 million for the March 2018 half.
2.
Includes large/notable items of $105 million for the March 2019 half (Sep 18 half: $620 million; Mar 18 half: $179 million). Refer to items on pages 14 to 18 for further details on large/notable
items.
GROUP RESULTS
30
March 2019 v March 2018
Operating expenses decreased by $108 million (-2%).
Personnel expenses decreased $32 million (-1%) largely driven by lower FTE, a decrease in customer remediation ($17 million) and lower
personnel expenses following the sale of OnePath Life (NZ) and Asia Retail and Wealth businesses ($21 million). This was partially offset by
wage inflation, the insourcing of technology services and higher long service leave accruals.
Premises expenses increased $11 million (+3%) primarily driven by higher spend on property projects.
Technology expenses decreased $51 million (-6%) largely due to lower software amortisation charges and the insourcing of technology services.
Restructuring expenses decreased $27 million (-35%) due to higher spend in the prior period associated with the move to agile ways of working
in the Australia and Technology divisions.
Other expenses decreased $9 million (-1%) largely due to lower expenses following the sale of OnePath Life (NZ) and Asia Retail and Wealth
businesses ($23 million) and a reduction in Royal Commission legal costs ($3 million), partly offset by higher customer remediation ($18 million).
Excluding large/notable items, operating expenses decreased $34 million (-1%).
March 2019 v September 2018
Operating expenses decreased by $563 million (-11%).
Personnel expenses increased $14 million (+1%) largely driven by wage inflation, the insourcing of technology services, higher long service
leave accruals, and the normalisation of incentives. This was offset by lower FTE, a decrease in customer remediation ($80 million) and lower
personnel expenses following the sale of OnePath Life (NZ) ($6 million).
Premises expenses decreased $10 million (-2%) primarily driven by the consolidation of our property portfolio in Australia and Asia.
Technology expenses decreased $320 million (-30%) largely due to the accelerated amortisation charge in prior period ($251 million), ongoing
lower software amortisation charges and the insourcing of technology services.
Restructuring expenses decreased $98 million (-66%) due to higher spend in the prior period associated with the move to agile ways of working
in the Australia and Technology divisions.
Other expenses decreased $149 million (-16%) largely related to lower Royal Commission legal costs ($26 million), customer remediation ($40
million), expenses following the sale of OnePath Life (NZ) ($5 million) and lower consultancy spend and lower marketing spend which is typically
higher in the September half.
Excluding large/notable items, operating expenses decreased $48 million (-1%).
GROUP RESULTS
31
Software Capitalisation - continuing operations
As at 31 March 2019, the Group’s intangible assets included $1,368 million of costs incurred to acquire and develop software. Details are set out in the
table below:
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Balance at start of period 1,421 1,775 1,856 -20% -23%
Software capitalised during the period
199 195 198 2% 1%
Amortisation during the period
- Current period amortisation
(252) (288) (281) -13% -10%
- Accelerated amortisation
1
- (251) - -100% n/a
Software impaired/written-off
(3) (12) (5) -75% -40%
Foreign currency translation movements
3 2 7 50% -57%
Total capitalised software from continuing operations
1,368 1,421 1,775 -4% -23%
Net book value by Division As at
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Australia 300 334 413 -10% -27%
Institutional
246 277 542 -11% -55%
New Zealand
14 17 20 -18% -30%
Wealth Australia
6 10 13 -40% -54%
TSO and Group Centre
802 783 787 2% 2%
Total from continuing operations
1,368 1,421 1,775 -4% -23%
1.
During the September 2018 half, the Group accelerated the amortisation of certain software assets, predominantly relating to its Institutional division following a review of the International
business in light of divestments. Accelerated amortisation expense of $251 million ($206 million post-tax) was recorded in the September 2018 half.
GROUP RESULTS
32
Credit Risk – continuing operations
The Group has adopted AASB 9 Financial Instruments effective from 1 October 2018 which has resulted in key changes to the classification and
measurement of financial assets, including the impairment of financial assets. Under the new standard, provision for credit impairment is based on an
expected credit loss model (ECL) incorporating forward looking information. The presentation of credit risk information for the March 2019 half has been
amended accordingly. Comparative information has not been restated and continues to reflect the requirements of the previous standard AASB 139
Financial Instruments: Recognition and Measurement. For further details on key requirements and impacts of the changes described above refer to Note
1 and 21 of the Condensed Consolidated Financial Statements.
Credit impairment charge/(release)
Half Year Half Year Movement
Mar 19 Mar 18 Mar 19 v. Mar 18
Division
Collectively
assessed
$M
Individually
assessed
$M
Total
charge
$M
Collectively
assessed
$M
Individually
assessed
$M
Total
charge
$M
Collectively
assessed
%
Individually
assessed
%
Total
charge
%
Australia 46 350 396 (25) 337 312 large 4% 27%
Institutional
(23) (12) (35) 21 28 49 large large large
New Zealand
(5) 35 30 (14) 34 20 -64% 3% 50%
Pacific
(6) 8 2 2 - 2 large n/a 0%
TSO and Group Centre
1 (1) - (6) 31 25 large large -100%
Total 13 380 393 (22) 430 408 large -12% -4%
Half Year Half Year Movement
Mar 19 Sep 18 Mar 19 v. Sep 18
Division
Collectively
assessed
$M
Individually
assessed
$M
Total
charge
$M
Collectively
assessed
$M
Individually
assessed
$M
Total
charge
$M
Collectively
assessed
%
Individually
assessed
%
Total
charge
%
Australia 46 350 396 11 375 386 large -7% 3%
Institutional
(23) (12) (35) (41) (52) (93) -44% -77% -62%
New Zealand
(5) 35 30 (29) 15 (14) -83% large large
Pacific
(6) 8 2 (4) 5 1 50% 60% 100%
TSO and Group Centre
1 (1) - - - - n/a n/a n/a
Total 13 380 393 (63) 343 280 large 11% 40%
Half Year - Mar 19
Collectively Assessed
Individually Assessed
Stage 1 Stage 2 Stage 3 Total
Stage 3 -
New and
increased
Stage 3 -
Recoveries
and write-
backs Total Total
Division
$M $M $M $M $M $M $M $M
Australia
(21) 43 24 46 536 (186) 350 396
Institutional
19 (35) (7) (23) 18 (30) (12) (35)
New Zealand
(4) (5) 4 (5) 60 (25) 35 30
Pacific
(1) (4) (1) (6) 11 (3) 8 2
TSO and Group Centre
1 - - 1 - (1) (1) -
Total
(6) (1) 20 13 625 (245) 380 393
Individually assessed credit impairment charge/(release) under AASB 139
New and increased Recoveries and write-backs Total
Half Year Half Year Half Year
Division
Sep 18
$M
Mar 18
$M
Sep 18
$M
Mar 18
$M
Sep 18
$M
Mar 18
$M
Australia 581 528 (206) (191) 375 337
Institutional 51 92 (103) (64) (52) 28
New Zealand 76 67 (61) (33) 15 34
Pacific 8 5 (3) (5) 5 -
TSO and Group Centre - 36 - (5) - 31
Total 716 728 (373) (298) 343 430
GROUP RESULTS
33
Collectively assessed credit impairment charge
March 2019 v March 2018
The increase in the collectively assessed credit impairment charge of $35 million was primarily driven by an increase of $71 million in the Australia
division due to the weakening Australian economic outlook increasing expected credit loss. This was partially offset by a reduction of $44 million in
the Institutional division as a result of fewer large customer downgrades relative to the prior period, and also the partial release of a temporary
economic overlay.
March 2019 v September 2018
The increase in the collectively assessed credit impairment charge of $76 million was primarily driven by an increase of $35 million in the Australia
division, $18 million in the Institutional division and $24 million in the New Zealand division. The increase in Australia division was due to the
weakening Australian economic outlook increasing expected credit loss. The increase in Institutional division was a result of fewer large customer
upgrades relative to the September 2018 half, partly offset by the partial release of a temporary economic overlay. The increase in New Zealand
division was primarily the result of lower September 2018 half provisions due to a release of the Agri overlay.
Individually assessed credit impairment charge
March 2019 v March 2018
The individually assessed credit impairment charge decreased by $50 million (-12%) primarily due to lower new and increased individually assessed
credit impairment charges in the Institutional division combined with the sale of the Asia Retail and Wealth businesses. This was partially offset by
Australia division which experienced higher provisions in Business & Private Bank.
March 2019 v September 2018
The individually assessed credit impairment charge increased by $37 million (+11%) driven by significant write-backs and recoveries in the
Institutional and New Zealand divisions in the September 2018 half. This was partially offset by a $25 million decrease in the Australia division due to
decreased provisions predominantly in the personal loan and credit card portfolios.
Allowance for expected credit losses
1,2
As at As at Movement
Mar 19 Mar 18 Mar 19 v. Mar 18
Division
Collectively
assessed
$M
Individually
assessed
$M
Total
provision
$M
Collectively
assessed
$M
Individually
assessed
$M
Total
provision
$M
Collectively
assessed
%
Individually
assessed
%
Total
provision
%
Australia 1,834 586 2,420 1,113 577 1,690 65% 2% 43%
Institutional
1,132 208 1,340 1,101 320 1,421 3% -35% -6%
New Zealand
369 73 442 317 104 421 16% -30% 5%
Pacific
43 24 67 45 14 59 -4% 71% 14%
TSO and Group Centre
- - - 3 1 4 -100% -100% -100%
Total
3
3,378 891 4,269 2,579 1,016 3,595 31% -12% 19%
As at As at Movement
Mar 19 Sep 18 Mar 19 v. Sep 18
Division
Collectively
assessed
$M
Individually
assessed
$M
Total
provision
$M
Collectively
assessed
$M
Individually
assessed
$M
Total
provision
$M
Collectively
assessed
%
Individually
assessed
%
Total
provision
%
Australia 1,834 586 2,420 1,125 569 1,694 63% 3% 43%
Institutional
1,132 208 1,340 1,073 251 1,324 5% -17% 1%
New Zealand
369 73 442 279 81 360 32% -10% 23%
Pacific
43 24 67 43 18 61 0% 33% 10%
TSO and Group Centre
- - - 3 1 4 -100% -100% -100%
Total
3
3,378 891 4,269 2,523 920 3,443 34% -3% 24%
As at Mar 19
Collectively Assessed
Individually
Assessed
Division
Stage 1
$M
Stage 2
$M
Stage 3
$M
Total
$M
Stage 3
$M
Total
$M
Australia 384 1,150 300 1,834 586 2,420
Institutional
859 234 39 1,132 208 1,340
New Zealand
152 173 44 369 73 442
Pacific
20 11 12 43 24 67
Total
3
1,415 1,568 395 3,378 891 4,269
1.
Includes allowance for expected credit losses for Net loans and advances – at amortised cost, Investment securities – debt securities at amortised cost and Off-balance sheet commitments -
undrawn and contingent facilities.
2.
Balance Sheet amounts include assets and liabilities reclassified as held for sale from continuing and discontinued operations.
3.
On adoption of AASB 9 on 1 October 2018, the Group increased the collectively assessed provision by $813 million. Comparative information has not been restated.
GROUP RESULTS
34
Long-Run Loss Rates
Management believe that disclosure of modelled expected loss data using average long-run loss rates for individually assessed provisions assists in
assessing the longer term expected loss rates of the lending portfolio as it removes the volatility of reported earnings created by the use of accounting
losses. The expected loss methodology is used for economic profit as an internal measure and is not based on the credit loss provision principles of
AASB 9 Financial Instruments which were effective from 1 October 2018.
As at
Long-run loss as a % of gross lending assets
Mar 19 Sep 18 Mar 18
Australia division
0.29% 0.29% 0.31%
New Zealand division
0.19% 0.19% 0.21%
Institutional division
0.27% 0.27% 0.32%
Total Group
0.27% 0.27% 0.30%
Gross Impaired Assets
1
As at
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Impaired loans 1,697 1,676 1,863 1% -9%
Restructured items
2
264 269 76 -2% large
Non-performing commitments and contingencies
61 68 95 -10% -36%
Gross impaired assets
2,022 2,013 2,034 0% -1%
Individually assessed provisions
Impaired loans
(865) (894) (990) -3% -13%
Non-performing commitments and contingencies
(26) (26) (26) 0% 0%
Net impaired assets
1,131 1,093 1,018 3% 11%
Gross impaired assets by division
Australia 1,357 1,285 1,114 6% 22%
Institutional
373 442 626 -16% -40%
New Zealand
238 236 244 1% -2%
Pacific
53 46 43 15% 23%
TSO and Group Centre
1 4 7 -75% -86%
Gross impaired assets
2,022 2,013 2,034 0% -1%
Gross impaired assets by size of exposure
Less than $10 million 1,505 1,489 1,487 1% 1%
$10 million to $100 million
328 335 547 -2% -40%
Greater than $100 million
189 189 - 0% n/a
Gross impaired assets
2,022 2,013 2,034 0% -1%
1.
Balance sheet amounts include assets and liabilities reclassified as held for sale from continuing and discontinued operations.
2.
Restructured items are facilities where the original contractual terms have been modified for reasons related to the financial difficulties of the customer. Restructuring may consist of
reduction of interest, principal or other payments legally due, or an extension in maturity materially beyond those typically offered to new facilities with similar risk.
March 2019 v March 2018
Gross impaired assets decreased $12 million (-1%) driven by the Institutional division (-$253 million) with repayments reducing a number of large
impaired assets. This was partially offset by an increase in the Australia division ($243 million) primarily driven by a single name restructured loan
and an increase in the home loan portfolio. The Group’s individually assessed provision coverage ratio on impaired assets was 44.1% at 31 March
2019 (Mar 18: 50.0%).
March 2019 v September 2018
Gross impaired assets increased $9 million driven by the Australia division ($72 million) due to a single name exposure in business banking and an
increase in the home loan portfolio. This was partially offset by a decrease in the Institutional division (-$69 million) driven by repayments and write-
offs. The Group’s individually assessed provision coverage ratio on impaired assets was 44.1% at 31 March 2019 (Sep 18: 45.7%).
GROUP RESULTS
35
New Impaired Assets
1
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Impaired loans
857 929 917
-8% -7%
Restructured items
13 203 21
-94% -38%
Non-performing commitments and contingencies
20 13 25 54% -20%
Total new impaired assets
890 1,145 963 -22% -8%
New impaired assets by division
Australia 715 905 699 -21% 2%
Institutional
41 45 124 -9% -67%
New Zealand
120 191 101 -37% 19%
Pacific
14 4 7 large 100%
TSO and Group Centre
- - 32 n/a -100%
Total new impaired assets
890 1,145 963 -22% -8%
1.
Balance sheet amounts include assets and liabilities reclassified as held for sale from continuing and discontinued operations.
March 2019 v March 2018
New impaired assets decreased $73 million (-8%) primarily driven by the Institutional division as the result of an improved risk profile due to portfolio
rebalancing, combined with a benign credit environment. In addition, new impaired assets decreased due to lending reductions following the sale of
Asia Retail and Wealth businesses.
March 2019 v September 2018
New impaired assets decreased by $255 million (-22%) driven by the Australia division primarily due to a single name restructured loan recorded in
the September 2018 half, combined with decreases in the New Zealand Commercial and Agri business.
Ageing analysis of net loans and advances that are past due but not impaired
1
As at Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
1-29 days 9,560 8,958 8,974 7% 7%
30-59 days
2,997 2,240 2,576 34% 16%
60-89 days
1,437 1,268 1,233 13% 17%
>90 days
3,396 2,998 3,038 13% 12%
Total
17,390 15,464 15,821 12% 10%
1.
Balance sheet amounts include assets and liabilities reclassified as held for sale from continuing and discontinued operations.
March 2019 v March 2018
Net loans and advances past due but not impaired increased $1,569 million due to portfolio deterioration across Australia division home loans
($1,286 million) and New Zealand division home loans ($118 million) and Agri portfolios ($127 million).
March 2019 v September 2018
Net loans and advances past due but not impaired increased $1,926 million due to portfolio deterioration across Australia division home loans
($1,675 million) and New Zealand division home loans ($184 million) and Commercial and Agri portfolios ($186 million).
GROUP RESULTS
36
Income Tax Expense - continuing operations
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Income tax expense on cash profit
1,415 1,286 1,489 10% -5%
Effective tax rate (cash profit)
28.4% 30.0% 29.8%
March 2019 v March 2018
The effective tax rate has decreased from 29.8% to 28.4%. The decrease of 140 bps was primarily due to the inclusion in the March 2018 half of a
non-tax deductible net loss on completion of the sale of Shanghai Rural Commercial Bank (-176 bps), partially offset by non-taxable profit on the
disposal of the Group’s stake in Metrobank Card Corporation (+74 bps) and tax provisions no longer required (+46 bps), while the March 2019 half
included a net non-assessable gain on the sale of OnePath Life (NZ) (-20 bps), a non-assessable gain on the sale of Paymark (-20 bps) and higher
offshore earnings which attracted a lower average tax rate (-46 bps).
March 2019 v September 2018
The effective tax rate has decreased from 30.0% to 28.4%. The decrease of 160 bps was primarily due to higher offshore earnings which attracted a
lower average tax rate (-118 bps), a net non-assessable gain on the sale of OnePath Life (NZ) (-20 bps) and a non-assessable gain on the sale of
Paymark (-20 bps) in the March 2019 half.
GROUP RESULTS
37
Impact of Foreign Currency Translation - continuing operations
The following tables present the Group’s cash profit results and net loans and advances neutralised for the impact of foreign currency translation
movements. Comparative data has been adjusted to remove the translation impact of foreign currency movements by retranslating prior period
comparatives at current period foreign exchange rates.
Cash Profit - March 2019 Half Year vs March 2018 Half Year
Half Year Movement
Actual
FX
unadjusted
FX
impact
FX
adjusted
FX
unadjusted
FX
adjusted
Mar 19
$M
Mar 18
$M
Mar 18
$M
Mar 18
$M
Mar 19
v. Mar 18
Mar 19
v. Mar 18
Net interest income 7,299 7,350 91 7,441 -1% -2%
Other operating income
2,447 2,520 20 2,540 -3% -4%
Operating income
9,746 9,870 111 9,981 -1% -2%
Operating expenses (4,365) (4,473) (70) (4,543) -2% -4%
Profit before credit impairment and income tax
5,381 5,397 41 5,438 0% -1%
Credit impairment charge (393) (408) (3) (411) -4% -4%
Profit before income tax
4,988 4,989 38 5,027 0% -1%
Income tax expense (1,415) (1,489) (8) (1,497) -5% -5%
Non-controlling interests
(9) (7) (1) (8) 29% 13%
Cash profit from continuing operations
3,564 3,493 29 3,522 2% 1%
Balance Sheet
Net loans and advances
1
610,143 592,469 5,822 598,291 3% 2%
Cash Profit - March 2019 Half Year vs September 2018 Half Year
Half Year Movement
Actual
FX
unadjusted
FX
impact
FX
adjusted
FX
unadjusted
FX
adjusted
Mar 19
$M
Sep 18
$M
Sep 18
$M
Sep 18
$M
Mar 19
v. Sep 18
Mar 19
v. Sep 18
Net interest income 7,299 7,164 57 7,221 2% 1%
Other operating income
2,447 2,333 (1) 2,332 5% 5%
Operating income
9,746 9,497 56 9,553 3% 2%
Operating expenses (4,365) (4,928) (57) (4,985) -11% -12%
Profit before credit impairment and income tax
5,381 4,569 (1) 4,568 18% 18%
Credit impairment charge (393) (280) 5 (275) 40% 43%
Profit before income tax
4,988 4,289 4 4,293 16% 16%
Income tax expense (1,415) (1,286) (1) (1,287) 10% 10%
Non-controlling interests
(9) (9) 1 (8) 0% 13%
Cash profit from continuing operations
3,564 2,994 4 2,998 19% 19%
Balance Sheet
Net loans and advances
1
610,143 605,437 6,638 612,075 1% 0%
1.
Balance sheet amounts include assets and liabilities reclassified as held for sale from continuing and discontinued operations.
GROUP RESULTS
38
Earnings Related Hedges – continuing operations
Where it is considered appropriate, the Group takes out economic hedges against larger foreign exchange denominated revenue streams (primarily New
Zealand Dollar, US Dollar and US Dollar correlated). New Zealand Dollar exposure relates to the New Zealand geography and USD exposures relate to
Asia, Pacific, Europe & America. Details of these hedges are set out below.
Half Year
NZD Economic hedges
Mar 19
$M
Sep 18
$M
Mar 18
$M
Net open NZD position (notional principal)
1
3,361 2,076 2,669
Amount taken to income (pre-tax statutory basis)
2
(105) 63 (50)
Amount taken to income (pre-tax cash basis)
3
(25) (2) 7
USD Economic hedges
Net open USD position (notional principal)
1
561 174 -
Amount taken to income (pre-tax statutory basis)
2
(2) 2 -
Amount taken to income (pre-tax cash basis)
3
- - -
1.
Value in AUD at contracted rate.
2.
Unrealised valuation movement plus realised revenue from matured or closed out hedges.
3.
Realised revenue from closed out hedges.
As at 31 March 2019, the following hedges were in place to partially hedge future earnings against adverse movements in exchange rates:
NZD 3.6 billion at a forward rate of approximately NZD 1.06/AUD.
USD 0.4 billion at a forward rate of approximately USD 0.71/AUD.
During the March 2019 half:
NZD 0.9 billion of economic hedges matured and a realised loss of $24.5 million (pre-tax) was recorded in cash profit.
USD 0.1 billion of economic hedges matured and a realised gain of $0.2 million (pre-tax) was recorded in cash profit.
An unrealised loss of $82 million (pre-tax) on the outstanding NZD and USD economic hedges were recorded in the statutory Income Statement
during the year. This unrealised loss has been treated as an adjustment to statutory profit in calculating cash profit as these are hedges of future
NZD and USD revenues.
Earnings per Share - continuing operations
Half Year
Movement
Mar 19 Sep 18 Mar 18
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Cash earnings per share (cents) from continuing operations
Basic
124.8 103.9 119.4 20% 5%
Diluted
118.4 100.0 113.4 18% 4%
Cash weighted average number of ordinary shares (M)
1
Basic 2,856.9 2,882.2 2,924.6 -1% -2%
Diluted
3,125.8 3,132.3 3,204.3 0% -2%
Cash profit from continuing operations ($M) 3,564 2,994 3,493 19% 2%
Cash profit from continuing operations used in calculating diluted cash earnings per share ($M)
3,701 3,132 3,634 18% 2%
1.
Cash weighted average number of ordinary shares includes treasury shares held in Wealth Australia, which will form part of continuing operations post completion of the Successor Fund
Transfer (SFT) performed in preparation for the disposal of discontinued operations.
GROUP RESULTS
39
Dividends - continuing operations
Half Year
Movement
Dividend per ordinary share (cents) - continuing operations
Mar 19 Sep 18 Mar 18
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Interim (fully franked)
1
80 - 80
n/a 0%
Final (fully franked)
- 80 - n/a n/a
Ordinary share dividends used in payout ratio ($M)
2
2,267 2,295 2,317 -1% -2%
Cash profit from continuing operations ($M)
3,564 2,994 3,493 19% 2%
Ordinary share dividend payout ratio (cash basis)
2
63.6% 76.7% 66.3%
1.
Interim dividend for 2019 is proposed.
2.
Dividend payout ratio is calculated using proposed 2019 interim dividend of $2,267 million, which is based on the forecast number of ordinary shares on issue at the dividend record date.
Dividend payout ratios for the September and March 2018 halves were calculated using actual dividend paid of $2,295 million and $2,317 million respectively.
The Directors propose an interim dividend of 80 cents be paid on each eligible fully paid ANZ ordinary share on 1 July 2019. The proposed 2019 interim
dividend will be fully franked for Australian tax purposes. New Zealand imputation credits of NZD 9 cents per ordinary share will also be attached.
Economic Profit - continuing operations
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Statutory profit attributable to shareholders of the Company from continuing
operations
3,243 3,172 3,923
2% -17%
Adjustments between statutory profit and cash profit from continuing operations
321 (178) (430) large large
Cash profit from continuing operations
3,564 2,994 3,493 19% 2%
Economic credit cost adjustment (316) (434) (369) -27% -14%
Imputation credits
601 529 600 14% 0%
Economic return from continuing operations
3,849 3,089 3,724 25% 3%
Cost of capital (2,862) (2,825) (2,762) 1% 4%
Economic profit from continuing operations
987 264 962 large 3%
Economic profit is a risk adjusted profit measure used to evaluate business unit performance. This is used for internal management purposes and is not
subject to review.
Economic profit is calculated via a series of adjustments to cash profit. The economic credit cost adjustment replaces the accounting credit loss charge
with internal expected loss based on the average long-run loss rate per annum on the portfolio over an economic cycle. The benefit of imputation credits
is recognised, measured at 70% of Australian tax. The cost of capital is a major component of economic profit. At an ANZ Group level, this is calculated
using average ordinary shareholders’ equity (excluding non-controlling interests), multiplied by the cost of capital rate (currently 10% and applied across
comparative periods). At a business unit level, capital is allocated based on Regulatory Capital, whereby higher risk businesses attract higher levels of
capital. The basis of allocation was changed from Economic Capital to Regulatory Capital in the current period and comparative information has been
restated. This method is designed to help drive appropriate risk management and ensure business returns align with the level of risk. Key risks covered
include credit risk, operational risk, market risk and other risks.
Economic profit increased $25 million (+3%) against the March 2018 half driven by higher cash profit and lower economic credit costs, partly offset by
higher cost of capital.
Economic profit increased $723 million against the September 2018 half mainly driven by higher cash profit, lower economic credit costs and higher
imputation credits on higher Australian profits, partly offset by higher cost of capital.
GROUP RESULTS
40
Condensed Balance Sheet - including discontinued operations
As at
Movement
Assets
Mar 19
$B
Sep 18
$B
Mar 18
$B
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Cash / Settlement balances owed to ANZ / Collateral paid 109.9 98.0 98.0 12% 12%
Trading and investment securities/available-for-sale assets
1
121.8
112.0 115.3 9% 6%
Derivative financial instruments
79.4 68.4 70.9 16% 12%
Net loans and advances
609.3 604.4 589.5 1% 3%
Assets held for sale
43.5 45.2 45.3 -4% -4%
Other
16.4 15.2 16.7 8% -2%
Total assets
980.3 943.2 935.7 4% 5%
Liabilities
Settlement balances owed by ANZ / Collateral received 18.1 18.3 20.0 -1% -9%
Deposits and other borrowings
635.0 618.2 616.2 3% 3%
Derivative financial instruments
80.9 69.7 70.6 16% 15%
Debt issuances
129.7 121.2 114.9 7% 13%
Liabilities held for sale
46.6 47.2 44.8 -1% 4%
Other
10.0 9.2 9.7 9% 3%
Total liabilities
920.3 883.8 876.2 4% 5%
Total equity 60.0 59.4 59.5 1% 1%
1.
On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets were revised. Available-for-sale classification used in comparative periods ceases to
exist under AASB 9 and a new classification of investment securities was introduced. Refer to Note 1 for further details. Comparative information has not been restated.
March 2019 v March 2018
Cash/Settlement balances owed to ANZ/Collateral paid increased $11.9 billion (+12%) primarily driven by an increase in short term reverse
repurchase agreements in Markets, increased overnight bank deposits in Treasury, and the impact of foreign currency translation movements.
Trading and investment securities/available-for-sale assets increased $6.5 billion (+6%) primarily driven by an increase in liquid assets in
Markets and the impact of foreign currency translation movements.
Derivative financial assets and liabilities increased $8.5 billion (+12%) and $10.3 billion (+15%) respectively as interest rate movements resulted
in higher derivative volumes and fair values, particularly in interest rate swap products.
Net loans and advances increased $19.8 billion (+3%) primarily driven by lending growth in the Institutional division (+$10.9 billion), growth in
home loans in the New Zealand division (+$5.2 billion), UDC net loans and advances no longer being classified as held for sale (+3.3 billion) and
the impact of foreign currency translation movements, partially offset by the decrease in home loans in the Australia division (-$3.9 billion).
Assets held for sale decreased $1.8 billion primarily driven by UDC no longer being classified as held for sale, partially offset by reclassification
of Cambodia JV and PNG Retail, Commercial & SME to held for sale. Liabilities held for sale increased $1.8 billion primarily due to the
reclassification of Cambodia JV and PNG Retail, Commercial & SME to held for sale and an increase of $0.8 billion in payables relating to the
IOOF secured note, partially offset by UDC no longer being classified as held for sale.
Deposits and other borrowings increased $18.8 billion (+3%) primarily driven by increase in deposits from banks and repurchase agreements
(+$19.6 billion), growth in customer deposits in the New Zealand division (+$4.5 billion) and the impact of foreign currency translation
movements. This was partially offset by reduction in certificates of deposit and commercial paper issued (-$16.6 billion).
Debt issuances increased $14.8 billion (+13%) primarily driven by senior debt issuances and the impact of foreign currency translation
movements.
March 2019 v September 2018
Cash/Settlement balances owed to ANZ/Collateral paid increased $11.9 billion (+12%) primarily driven by an increase in short term reverse
repurchase agreements in Markets, increased overnight bank deposits in Treasury, and the impact of foreign currency translation movements.
Trading and investment securities/available-for-sale assets increased $9.8 billion (+9%) primarily driven by an increase in liquid assets in
Markets and the impact of foreign currency translation movements.
Derivative financial assets and liabilities increased $11.0 billion (+16%) and $11.2 billion (+16%) respectively as interest rate movements
resulted in higher derivative volumes and fair values, particularly in interest rate swap products.
Net loans and advances increased $4.9 billion (+1%) primarily driven by growth in home loans in the New Zealand division (+2.4 billion), lending
growth in the Institutional division (+$1.0 billion) and the impact of foreign currency translation movements, partially offset by a decrease in home
loans in the Australia division (-$4.7 billion).
Assets and liabilities held for sale decreased $1.7 billion and $0.6 billion respectively, primarily driven by the sale completion of OnePath Life
(NZ). The decrease in liabilities held for sale was partially offset by an increase in payables relating to the IOOF secured note.
Deposits and other borrowings increased $16.8 billion (+3%) primarily driven by increase in deposits from banks and repurchase agreements
(+$20.0 billion), growth in customer deposits in the New Zealand division (+$1.9 billion) and the impact of foreign currency translation
movements. This was partially offset by reduction in customer deposits in the Institutional division (-$21.7 billion) and commercial paper issued
(-$2.5 billion).
Debt issuances increased $8.5 billion (+7%) primarily driven by senior debt issuances and the impact of foreign currency translation movements.
GROUP RESULTS
41
Liquidity Risk - including discontinued operations
Liquidity risk is the risk that the Group is unable to meet its payment obligations as they fall due, including repaying depositors or maturing wholesale
debt, or that the Group has insufficient capacity to fund increases in assets. The timing mismatch of cash flows and the related liquidity risk is inherent in
all banking operations and is closely monitored by the Group and managed in accordance with the risk appetite set by the Board.
The Group’s approach to liquidity risk management incorporates two key components:
Scenario modelling of funding sources
ANZ’s liquidity risk appetite is defined by the ability to meet a range of regulatory requirements and internal liquidity metrics mandated by the Board.
The metrics cover a range of scenarios of varying duration and level of severity. The objective of this framework is to:
Provide protection against shorter term extreme market dislocation and stress.
Maintain structural strength in the balance sheet by ensuring that an appropriate amount of longer-term assets are funded with longer-term
funding.
Ensure that no undue timing concentrations exist in the Group’s funding profile.
A key component of this framework is the Liquidity Coverage Ratio (LCR), which is a severe short term liquidity stress scenario mandated by banking
regulators including APRA. As part of meeting LCR requirements, ANZ has a Committed Liquidity Facility (CLF) with the Reserve Bank of Australia
(RBA). The CLF has been established to offset the shortage of available High Quality Liquid Assets (HQLA) in Australia and provides an alternative
form of contingent liquidity. The total amount of the CLF available to a qualifying ADI is set annually by APRA.
From 1 January 2019, ANZ’s CLF is
$48.0 billion (2018 calendar year end: $46.9 billion).
Liquid assets
The Group holds a portfolio of high quality unencumbered liquid assets in order to protect the Group’s liquidity position in a severely stressed
environment, as well as to meet regulatory requirements. High Quality Liquid Assets comprise three categories, with the definitions consistent with
Basel 3 LCR:
Highest-quality liquid assets (HQLA1): Cash, highest credit quality government, central bank or public sector securities eligible for repurchase
with central banks to provide same-day liquidity.
High-quality liquid assets (HQLA2): High credit quality government, central bank or public sector securities, high quality corporate debt securities
and high quality covered bonds eligible for repurchase with central banks to provide same-day liquidity.
Alternative liquid assets (ALA): Assets qualifying as collateral for the CLF and other eligible securities listed by the Reserve Bank of New
Zealand (RBNZ).
The Group monitors and manages the size and composition of its liquid assets portfolio on an ongoing basis in line with regulatory requirements and
the risk appetite set by the Board.
Half Year Average
Movement
Mar 19
$B
Sep 18
$B
Mar 18
$B
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Market Values Post Discount
1
HQLA1 134.5 137.0 131.8
-2% 2%
HQLA2
7.6 5.1 4.9
49% 55%
Internal Residential Mortgage Backed Securities
2
34.2 38.9 37.8
-12% -10%
Other ALA
3
12.9 13.1 13.8
-2% -7%
Total liquid assets
189.2 194.1 188.3 -3% 0%
Cash flows modelled under stress scenario
Cash outflows 176.3 177.5 180.5 -1% -2%
Cash inflows
38.6 41.2 40.4 -6% -4%
Net cash outflows
137.7 136.3 140.1 1% -2%
Liquidity Coverage Ratio
4
137% 142% 134% -5% 3%
1.
Half year average basis, calculated as prescribed per APRA Prudential Regulatory Standard (APS 210 Liquidity) and consistent with APS 330 requirements.
2.
In accordance with APRA requirement, March 2019 NZD denominated liquid asset balances beyond that required to achieve 100% NZD LCR must be considered not transferrable and thus
excluded from Level 2 LCR.
3.
Comprised of assets qualifying as collateral for the CLF, excluding internal RMBS, up to approved facility limit; and any liquid assets contained in the RBNZ's Liquidity Policy - Annex:
Liquidity Assets - Prudential Supervision Department Document BS13A12.
4.
All currency Level 2 LCR.
GROUP RESULTS
42
Funding - including discontinued operations
ANZ targets a diversified funding base, avoiding undue concentrations by investor type, maturity, market source and currency.
$15.3 billion of term wholesale debt with a remaining term greater than one year as at 31 March 2019 was issued during the half year ended 31 March
2019.
The following table shows the Group’s total funding composition:
As at Movement
Mar 19
$B
Sep 18
$B
Mar 18
$B
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Customer deposits and other liabilities
Australia 203.4 202.7 204.2 0% 0%
Institutional
205.4 205.8 190.7 0% 8%
New Zealand
85.4 79.8 79.2 7% 8%
Pacific
3.5 3.5 3.4 0% 3%
TSO and Group Centre
1
(4.3) (4.5) (4.7) -4% -9%
Customer deposits
493.4 487.3 472.8 1% 4%
Other funding liabilities
2,3
8.6 8.6 8.5 0% 1%
Total customer liabilities (funding)
502.0 495.9 481.3 1% 4%
Wholesale funding
Debt issuances 113.4 105.3 97.5 8% 16%
Subordinated debt
16.3 15.9 17.2 3% -5%
Certificates of deposit
43.6 42.7 50.3 2% -13%
Commercial paper
14.7 17.0 24.1 -14% -39%
Other wholesale borrowings
4,5
100.1 86.8 84.4 15% 19%
Total wholesale funding
288.1 267.7 273.5 8% 5%
Shareholders' equity 60.0 59.4 59.5 1% 1%
Total funding 850.1 823.0 814.3 3% 4%
1.
Includes term deposits, other deposits and an adjustment recognised in Group Centre to eliminate Wealth Australia investments in ANZ deposit products.
2.
Includes interest accruals, payables and other liabilities, provisions and net tax provisions, excluding other liabilities in Wealth Australia.
3.
Excludes liability for acceptances as they do not provide net funding.
4.
Includes borrowings from banks, securities sold under repurchase agreements, net derivative balances, special purpose vehicles and other borrowings.
5.
Includes RBA open repo arrangement netted down by the exchange settlement account cash balance.
Net Stable Funding Ratio
The following table shows the Level 2 Net Stable Funding Ratio (NSFR) composition:
As at Movement
Mar 19
$B
Sep 18
$B
Mar 18
$B
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Required Stable Funding
1
Retail & small and medium enterprises, corporate loans <35% risk weight
2
182.9 183.9 184.0 -1% -1%
Retail & small and medium enterprises, corporate loans >35% risk weight
2
189.1 182.6 177.2 4% 7%
Other lending
3
23.2 23.2 19.1 0% 21%
Liquid assets
10.7 9.8 9.7 9% 10%
Other assets
4
40.2 36.6 38.4 10% 5%
Total Required Stable Funding
446.1 436.1 428.4 2% 4%
Available Stable Funding
1
Retail & small and medium enterprise customer deposits 236.6 231.7 233.4 2% 1%
Corporate, public sector entities & operational deposits
91.5 91.8 83.4 0% 10%
Central bank & other financial institution deposits
6.1 5.3 4.2 15% 45%
Term funding
101.2 96.3 94.0 5% 8%
Short term funding & other liabilities
3.7 1.3 2.7 large 37%
Capital
73.9 73.3 74.4 1% -1%
Total Available Stable Funding
513.0 499.7 492.1 3% 4%
Net Stable Funding Ratio 115% 115% 115% 0% 0%
1.
NSFR factored balance as per APRA Prudential Regulatory Standard APS 210 Liquidity.
2.
Risk weighting as per APRA Prudential Regulatory Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk.
3.
Includes financial institution and central bank loans.
4.
Includes off-balance sheet items, net derivatives and other assets.
GROUP RESULTS
43
Capital Management - including discontinued operations
As at
APRA Basel 3 Internationally Comparable Basel 3
1
Mar 19 Sep 18 Mar 18 Mar 19 Sep 18 Mar 18
Capital Ratios
Common Equity Tier 1 11.5% 11.4% 11.0% 16.9% 16.8% 16.3%
Tier 1
13.4% 13.4% 12.9% 19.3% 19.2% 18.7%
Total capital
15.3% 15.2% 14.9% 21.7% 21.6% 21.3%
Risk weighted assets ($B)
396.3 390.8 395.8 310.9 305.6 311.5
1.
Internationally Comparable methodology aligns with APRA’s information paper entitled “International Capital Comparison Study” (13 July 2015)
APRA Basel 3 Common Equity Tier 1 (CET1 ratio) - March 2019 v September 2018
1.
Excludes large/notable items for the purposes of Regulatory Capital Management attribution. Refer to pages 14 to 18.
2.
Capital deductions represent the movement in retained earnings in deconsolidated entities, capitalised software, expected losses in excess of eligible provision shortfall and other intangibles
in the period.
March 2019 v September 2018
ANZ’s CET1 ratio increased 5 bps to 11.5% during the March 2019 half. Key drivers of the movement in the CET1 ratio were:
Net organic capital generation of 84 bps. This was primarily driven by cash profit (excluding large/notable items), a net reduction in underlying
RWA (excluding foreign currency translation movements, regulatory changes and other one-offs), partially offset by growth in other business
capital deductions.
Payment of the September 2018 final dividend (net of BOP issuance, neutralised DRP) reduced the CET1 ratio by 58 bps.
Capital benefits from asset disposals (OnePath Life (NZ) and Paymark) increased the CET1 ratio by 17 bps.
Group on-market share buy-back of $1.1 billion decreased the CET1 ratio by 29 bps.
Other impacts include RWA modelling changes, large/notable items affecting the March 2019 half cash earnings, movements in non-cash
earnings, impact of AASB 9 transition and net foreign currency translation movements.
Total Risk Weighted Assets As at Movement
Mar 19
$B
Sep 18
$B
Mar 18
$B
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Credit RWA 345.5 337.6 342.8 2% 1%
Market risk and IRRBB RWA
13.1 15.6 15.6 -16% -16%
Operational RWA
37.7 37.6 37.4 0% 1%
Total RWA
396.3 390.8 395.8 1% 0%
GROUP RESULTS
44
Total Risk Weighted Assets (RWA) - March 2019 v September 2018
March 2019 v September 2018
Total RWA increased by $5.5 billion. Excluding the impact of foreign currency translation movements and other non-recurring CRWA changes,
underlying CRWAs (divisional lending and risk migration) increased by $1.6 billion, mainly driven by lending growth in the Institutional division. Other
CRWA changes reflect net impacts from RWA modelling changes. The decrease in non-CRWA of $2.4 billion was mainly driven by a lower risk
profile for Market Risk & IRRBB RWA.
APRA to Internationally Comparable
1
Common Equity Tier 1 (CET1 ratio) as at 31 March 2019
1.
ANZ’s interpretation of the regulations documented in the Basel Committee publications: “Basel 3: A global regulatory framework for more resilient banks and banking systems” (June 2011)
and “International Convergence of Capital Measurement and Capital Standards” (June 2006). Also includes differences identified in APRA’s information paper entitled “International Capital
Comparison Study” (13 July 2015).
The above provides a reconciliation of the CET1 ratio under APRA’s Basel 3 prudential capital standards to Internationally Comparable Basel 3
standards. APRA views the Basel 3 reforms as a minimum requirement and hence has not incorporated some of the concessions proposed in the Basel
3 rules and has also set higher requirements in other areas. As a result, Australian banks’ Basel 3 reported capital ratios will not be directly comparable
with international peers. The International Comparable Basel 3 CET1 ratio incorporates differences between APRA and both the Basel Committee Basel
3 framework (including differences identified in the March 2014 Basel Committee’s Regulatory Consistency Assessment Programme (RCAP) on Basel 3
implementation in Australia) and its application in major offshore jurisdictions.
The material differences between APRA Basel 3 and Internationally Comparable Basel 3 ratios include:
Deductions
Investments in insurance and banking associates - APRA requires full deduction against CET1. On an Internationally Comparable basis, these
investments are subject to a concessional threshold before a deduction is required.
Deferred tax assets - A full deduction is required from CET1 for deferred tax assets (DTA) relating to temporary differences. On an Internationally
Comparable basis, this is first subject to a concessional threshold before the deduction is required.
Risk Weighted Assets (RWA)
Mortgages RWA - APRA imposes a floor of 20% on the downturn Loss Given Default (LGD) used in credit RWA calculations for residential
mortgages. The Internationally Comparable Basel 3 framework requires a downturn LGD floor of 10%. Additionally, from July 2016, APRA requires a
higher correlation factor than the Basel framework.
IRRBB RWA - APRA requires inclusion of Interest Rate Risk in the Banking Book (IRRBB) within the RWA base for the CET1 ratio calculation. This
is not required on an Internationally Comparable basis.
Specialised lending - APRA requires the supervisory slotting approach to be used in determining credit RWA for specialised lending exposures. The
Internationally Comparable basis allows for the advanced internal ratings based approach to be used when calculating RWA for these exposures.
Unsecured Corporate Lending LGD - an adjustment to align ANZ’s unsecured corporate lending LGD to 45% to be consistent with banks in other
jurisdictions. The 45% LGD rate is also used in the Foundation Internal Ratings-Based approach (FIRB).
Undrawn Corporate Lending Exposure at Default (EAD) - an adjustment to ANZ’s credit conversion factors (CCF) for undrawn corporate loan
commitments to 75% (used in FIRB approach) to align with banks in other jurisdictions.
GROUP RESULTS
45
Leverage Ratio - including discontinued operations
At 31 March 2019, the Group’s APRA Leverage Ratio was 5.4% which is above the 3.5% APRA proposed minimum for internal ratings-based approach
ADI (IRB ADI) which includes ANZ. The following table summarises the Group’s Leverage Ratio calculation:
As at Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Tier 1 Capital (net of capital deductions)
1
53,075 52,218 51,125 2% 4%
On-balance sheet exposures (excluding derivatives and securities financing transaction
exposures)
810,915 785,405 780,272 3% 4%
Derivative exposures
31,439 30,676 32,747 2% -4%
Securities financing transaction exposures
37,287 36,066 29,351 3% 27%
Other off-balance sheet exposures
105,942 102,810 99,921 3% 6%
Total exposure measure
985,583 954,957 942,291 3% 5%
APRA Leverage Ratio 5.4% 5.5% 5.4%
Internationally Comparable Leverage Ratio 6.0% 6.1% 6.1%
1.
Prior period numbers have not been restated for the impact of AASB 15 to align with previously reported regulatory returns.
March 2019 v September 2018
APRA leverage ratio decreased 8 bps in the March 2019 half. Key drivers of the movement were:
Net organic capital generation of 10 bps from cash profit (excluding large/notable items) less dividends paid.
Exposure growth primarily from growth in liquids, trading securities, and securities financing transactions decreased the leverage ratio by 11 bps.
Benefits from asset divestments increased the leverage ratio by 7 bps (cash settlement of OnePath Life (NZ) and Paymark). This was offset by
the impact of $1.1 billion Group on-market share buy-back during the March 2019 half (-12 bps).
Other impacts (-2 bps) mainly driven by non-cash adjustments (-3 bps), large/notable items affecting the March 2019 half cash earnings (-2 bps),
offset by deferred tax asset benefits (+2 bps) and other (+1 bps).
GROUP RESULTS
46
Capital Management - Other Regulatory Developments
Financial System Inquiry (FSI)
The Australian Government completed a comprehensive inquiry into Australia’s financial system in 2014 which included a number of key
recommendations that may have an impact on regulatory capital levels. APRA initiatives in support of the FSI are:
In July 2017, APRA released an information paper outlining its assessment on the additional capital required for the Australian banking sector to
be considered ‘unquestionably strong’ as originally outlined in the FSI final report in December 2014. APRA indicated that “in the case of the four
major Australian banks, this equated to a benchmark CET1 capital ratio, under the current capital adequacy framework, of at least 10.5 percent.
APRA also stated that the major banks should meet this benchmark by 1 January 2020 at the latest”.
In February 2018, APRA released a discussion paper that commenced their consultation on the revisions to the capital framework that will
produce ‘unquestionably strong’ capital ratios. The discussion paper summarises APRA’s proposal regarding risk-based capital approach for
credit, market and operational risk following finalisation of these requirements by the BCBS in December 2017. While the final forms of these
proposals will only be determined later in 2020, the Group expects the implementation of any revisions to the current requirements will result in
further changes to the risk weighting framework for certain asset classes and other risk types (such as market and operational risks). APRA has
announced that it does not expect that the changes to the risk weights will necessitate further increases in capital for ADIs, although this could
vary by ADI depending on the final requirements.
APRA released a discussion paper in August 2018 on adjustments to the overall design of the capital framework to improve transparency,
international comparability and flexibility of the ADI capital framework. The focus of the proposals is on the presentation of the capital ratios to
facilitate comparability whilst recognising the relative capital strength of ADIs and measures to enhance supervisory flexibility in times of financial
stress. APRA’s consultation for the above is currently taking place with final prudential standards planned to be made available by 2020.
In relation to Leverage Ratio, APRA released draft prudential standards in November 2018 proposing to set the Leverage Ratio minimum for
Internal Ratings-Based (IRB) ADI at 3.5%, in addition to other changes to the calculation of the Exposure Measure. These changes are not
expected to have a material impact to the Group.
APRA’s consultation for the above is currently taking place with target implementation by 2022 without any phase-in arrangements.
On 8 November 2018, APRA released a discussion paper titled “Increasing the loss-absorbing capacity of ADIs to support orderly resolution”. The
paper is in response to recommendation three of the final report of the FSI. The paper proposes an increase in loss-absorbing capacity of between
4% and 5% of RWA for domestic systemically important banks (D-SIBs), and therefore includes ANZ. The Group is currently consulting with APRA
on the proposals.
Given the number of items that are currently open for consultation with APRA, the final outcome of the FSI including any further changes to APRA’s
prudential standards or other impacts on the Group remains uncertain.
Level 3 Conglomerates (Level 3)
APRA is extending its prudential supervision framework to Conglomerate Groups via the Level 3 framework which will regulate a bancassurance
group such as ANZ as a single economic entity with minimum capital requirements and additional monitoring of risk exposure levels.
In August 2016, APRA confirmed the deferral of capital requirements for Conglomerate Groups. This is to allow for the final capital requirements
arising from FSI recommendations and from international initiatives to be determined.
The non-capital components of the Level 3 framework relating to group governance, risk exposures, intragroup transactions and other risk
management and compliance requirements came into effect on 1 July 2017. These have had no material impact on the Group’s capital position.
The Reserve Bank of New Zealand (RBNZ) review of capital requirements
In December 2018, the Reserve Bank of New Zealand (RBNZ) released a consultation paper titled “Capital Review Paper 4”. This paper relates to
possible additional RBNZ capital requirements in relation to ANZ’s New Zealand assets, which are separate to the Group’s capital measurement and
minimum requirements set by APRA. The consultation paper sets out amongst other things:
potential increases in the risk weighting applied to the assets of banks in New Zealand; and
potential increases to the percentage of capital held against those risk weights in New Zealand.
The proposed implementation period is five years from the date the requirements are finalised. Based on the potential changes set out in the
consultation paper, and ANZ Bank New Zealand Limited’s (ANZ New Zealand) balance sheet as at 30 September 2018, the changes imply a
potential capital increase in New Zealand of NZ$6 billion to NZ$8 billion (A$5.7 billion to A$7.7 billion). ANZ New Zealand currently has
approximately NZ$12.5 billion of Tier 1 capital (A$11.9 billion).
The overall impact on the Group depends on a number of factors. These include the outcome of the consultation, ANZ New Zealand’s balance sheet
at the time of implementation, and the outcome of other reviews currently underway by APRA.
Responses to the consultation paper are due on 17 May 2019. ANZ will engage with RBNZ and APRA on these throughout the consultation period.
GROUP RESULTS
47
Revisions to the related entities framework for ADI (APS222)
In July 2018, APRA released a consultation paper and draft prudential standards on proposed revisions to its existing related entities framework,
which also incorporated changes to its large exposures framework finalised and published in December 2017. APRA’s proposals include revisions to:
The definition of related entities;
The measurement of exposures to related entities by aligning with requirements in the revised large exposures framework;
The prudential limits on exposures to related entities. APRA is proposing to align the capital base used in limit calculations to Level 1 Tier 1
Capital (capital base used in the revised large exposures framework) and to reduce the individual and aggregate limits of exposures to individual
related ADIs; and
The extended licensed entity (ELE) framework by amending the criteria for a subsidiary to be consolidated in an ADI’s ELE.
APRA is currently consulting on the proposed changes. The impact on the Group and its subsidiaries will not be known until APRA finalises its
review. APRA intends to have the revised related entities framework implemented by in the first half of 2020.
GROUP RESULTS
48
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DIVISIONAL RESULTS
49
CONTENTS Page
Divisional Performance - continuing operations 50
Australia - continuing operations 55
Institutional - continuing operations 59
New Zealand - continuing operations 66
Wealth Australia - continuing operations 71
Pacific - continuing operations 71
Technology, Services & Operations (TSO) and Group Centre - continuing operations 71
DIVISIONAL RESULTS
50
Divisional Performance - continuing operations
The Group operates on a divisional structure with six continuing divisions: Australia, Institutional, New Zealand, Wealth Australia, Pacific, and
Technology, Services & Operations (TSO) and Group Centre. For further information on the composition of divisions, refer to the Definitions on page 137.
The presentation of divisional results has been impacted by a number of methodology and structural changes during the period. Prior period
comparatives have been restated as follows:
The methodology for allocating earnings on capital at a business unit level has changed from Economic Capital to Regulatory Capital. While neutral
at a Group level, this change has impacted net interest income at the divisional level;
The residual Asia Retail and Wealth businesses have been transferred from the former Asia Retail and Pacific division to TSO and Group Centre
division. The remaining segment has been renamed Pacific division; and
ANZ’s lenders mortgage insurance, share investing and general insurance distribution businesses which were previously part of the continuing
operations of Wealth Australia now form part of the Australia division (ANZ’s financial planning business continues to be part of the continuing
operations of the Wealth Australia division).
The divisional results were also impacted by the adoption of two new accounting standards:
AASB 9 - the Group implemented an expected credit loss methodology for impairment of financial assets, and revised the classification and
measurement of certain financial assets from 1 October 2018. Consequently, the Group increased its provision for credit impairment by $813 million
through opening retained earnings. Comparative information has not been restated.
AASB 15 - the main impact of adoption is that certain items previously netted are now presented gross in operating income and operating expenses.
Comparative information has been restated which increased total operating income for the September 2018 half by $91 million (Mar 18 half: $62
million) and increased total operating expenses by the same amount.
Other than those described above, there have been no other significant changes.
The Divisional Results section is reported on a cash profit basis for continuing operations. For information on discontinued operations please
refer to the Guide to Half Year Results on page 8.
The divisions reported are consistent with internal reporting provided to the chief operating decision maker, being the Chief Executive Officer.
DIVISIONAL RESULTS
51
Cash profit by division - March 2019 Half Year v March 2018 Half Year
March 2019 Half Year
Australia
$M
Institutional
$M
New Zealand
$M
Wealth
Australia
$M
Pacific
$M
TSO and
Group
Centre
$M
Group
$M
Net interest income
4,091 1,579 1,385 1 68 175 7,299
Other operating income
625 1,126 302 26 50 318 2,447
Operating income
4,716 2,705 1,687 27 118 493 9,746
Operating expenses (1,843) (1,320) (612) (70) (70) (450) (4,365)
Profit before credit impairment and income tax
2,873 1,385 1,075 (43) 48 43 5,381
Credit impairment (charge)/release (396) 35 (30) - (2) - (393)
Profit/(Loss) before income tax
2,477 1,420 1,045 (43) 46 43 4,988
Income tax expense and non-controlling interests (744) (408) (292) 13 (13) 20 (1,424)
Cash profit/(loss) from continuing operations
1,733 1,012 753 (30) 33 63 3,564
March 2018 Half Year
Australia
$M
Institutional
$M
New Zealand
$M
Wealth
Australia
$M
Pacific
$M
TSO and
Group
Centre
$M
Group
$M
Net interest income 4,325 1,480 1,309 1 65 170 7,350
Other operating income 728 1,031 343 48 47 323 2,520
Operating income 5,053 2,511 1,652 49 112 493 9,870
Operating expenses (1,905) (1,373) (592) (85) (63) (455) (4,473)
Profit before credit impairment and income tax 3,148 1,138 1,060 (36) 49 38 5,397
Credit impairment (charge)/release (312) (49) (20) - (2) (25) (408)
Profit/(Loss) before income tax 2,836 1,089 1,040 (36) 47 13 4,989
Income tax expense and non-controlling interests (853) (322) (291) 10 (14) (26) (1,496)
Cash profit/(loss) from continuing operations 1,983 767 749 (26) 33 (13) 3,493
March 2019 Half Year vs March 2018 Half Year
Australia Institutional New Zealand
Wealth
Australia Pacific
TSO and
Group
Centre Group
Net interest income -5% 7% 6% 0% 5% 3% -1%
Other operating income -14% 9% -12% -46% 6% -2% -3%
Operating income -7% 8% 2% -45% 5% 0% -1%
Operating expenses -3% -4% 3% -18% 11% -1% -2%
Profit before credit impairment and income tax -9% 22% 1% 19% -2% 13% 0%
Credit impairment charge/(release) 27% large 50% n/a 0% -100% -4%
Profit/(Loss) before income tax -13% 30% 0% 19% -2% large 0%
Income tax expense and non-controlling interests -13% 27% 0% 30% -7% large -5%
Cash profit/(loss) from continuing operations -13% 32% 1% 15% 0% large 2%
DIVISIONAL RESULTS
52
Cash profit by division - March 2019 Half Year v September 2018 Half Year
March 2019 Half Year
Australia
$M
Institutional
$M
New Zealand
$M
Wealth
Australia
$M
Pacific
$M
TSO and
Group
Centre
$M
Group
$M
Net interest income
4,091 1,579 1,385 1 68 175 7,299
Other operating income
625 1,126 302 26 50 318 2,447
Operating income
4,716 2,705 1,687 27 118 493 9,746
Operating expenses (1,843) (1,320) (612) (70) (70) (450) (4,365)
Profit before credit impairment and income tax
2,873 1,385 1,075 (43) 48 43 5,381
Credit impairment (charge)/release (396) 35 (30) - (2) - (393)
Profit/(Loss) before income tax
2,477 1,420 1,045 (43) 46 43 4,988
Income tax expense and non-controlling interests (744) (408) (292) 13 (13) 20 (1,424)
Cash profit/(loss) from continuing operations
1,733 1,012 753 (30) 33 63 3,564
September 2018 Half Year
Australia
$M
Institutional
$M
New Zealand
$M
Wealth
Australia
$M
Pacific
$M
TSO and
Group
Centre
$M
Group
$M
Net interest income 4,122 1,513 1,342 1 66 120 7,164
Other operating income 722 1,035 328 12 53 183 2,333
Operating income 4,844 2,548 1,670 13 119 303 9,497
Operating expenses (1,990) (1,575) (613) (95) (65) (590) (4,928)
Profit before credit impairment and income tax 2,854 973 1,057 (82) 54 (287) 4,569
Credit impairment (charge)/release (386) 93 14 - (1) - (280)
Profit/(Loss) before income tax 2,468 1,066 1,071 (82) 53 (287) 4,289
Income tax expense and non-controlling interests (742) (353) (299) 25 (14) 88 (1,295)
Cash profit/(loss) from continuing operations 1,726 713 772 (57) 39 (199) 2,994
March 2019 Half Year vs September 2018 Half Year
Australia Institutional New Zealand
Wealth
Australia Pacific
TSO and
Group
Centre Group
Net interest income -1% 4% 3% 0% 3% 46% 2%
Other operating income -13% 9% -8% large -6% 74% 5%
Operating income -3% 6% 1% large -1% 63% 3%
Operating expenses -7% -16% 0% -26% 8% -24% -11%
Profit before credit impairment and income tax 1% 42% 2% -48% -11% large 18%
Credit impairment charge/(release) 3% -62% large n/a 100% n/a 40%
Profit/(Loss) before income tax 0% 33% -2% -48% -13% large 16%
Income tax expense and non-controlling interests 0% 16% -2% -48% -7% -77% 10%
Cash profit/(loss) from continuing operations 0% 42% -2% -47% -15% large 19%
DIVISIONAL RESULTS
53
Cash profit by division (excluding large/notable items
1
) - March 2019 Half Year v March 2018 Half Year
The Group cash profit results include a number of items collectively referred to as large/notable items. While these items form part of cash profit they
have been excluded from the tables below given their nature and significance.
1.
Refer to pages 14 to 18 for a description of large/notable items.
March 2019 Half Year
Australia
$M
Institutional
$M
New Zealand
$M
Wealth
Australia
$M
Pacific
$M
TSO and
Group
Centre
$M
Group
$M
Net interest income
4,113 1,579 1,381 1 68 178 7,320
Other operating income
656 1,126 280 37 50 84 2,233
Operating income
4,769 2,705 1,661 38 118 262 9,553
Operating expenses (1,787) (1,313) (604) (71) (70) (415) (4,260)
Profit before credit impairment and income tax
2,982 1,392 1,057 (33) 48 (153) 5,293
Credit impairment (charge)/release (396) 35 (30) - (2) - (393)
Profit/(Loss) before income tax
2,586 1,427 1,027 (33) 46 (153) 4,900
Income tax expense and non-controlling interests (777) (410) (288) 10 (13) 56 (1,422)
Cash profit/(loss) from continuing operations
1,809 1,017 739 (23) 33 (97) 3,478
March 2018 Half Year
Australia
$M
Institutional
$M
New Zealand
$M
Wealth
Australia
$M
Pacific
$M
TSO and
Group
Centre
$M
Group
$M
Net interest income 4,342 1,480 1,302 1 65 124 7,314
Other operating income 744 1,026 282 50 47 47 2,196
Operating income 5,086 2,506 1,584 51 112 171 9,510
Operating expenses (1,831) (1,365) (571) (67) (63) (397) (4,294)
Profit before credit impairment and income tax 3,255 1,141 1,013 (16) 49 (226) 5,216
Credit impairment (charge)/release (312) (49) (20) - (2) 1 (382)
Profit/(Loss) before income tax 2,943 1,092 993 (16) 47 (225) 4,834
Income tax expense and non-controlling interests (885) (325) (278) 4 (14) 71 (1,427)
Cash profit/(loss) from continuing operations 2,058 767 715 (12) 33 (154) 3,407
March 2019 Half Year vs March 2018 Half Year
Australia Institutional New Zealand
Wealth
Australia Pacific
TSO and
Group
Centre Group
Net interest income -5% 7% 6% 0% 5% 44% 0%
Other operating income -12% 10% -1% -26% 6% 79% 2%
Operating income -6% 8% 5% -25% 5% 53% 0%
Operating expenses -2% -4% 6% 6% 11% 5% -1%
Profit before credit impairment and income tax -8% 22% 4% large -2% -32% 1%
Credit impairment charge/(release) 27% large 50% n/a 0% -100% 3%
Profit/(Loss) before income tax -12% 31% 3% large -2% -32% 1%
Income tax expense and non-controlling interests -12% 26% 4% large -7% -21% 0%
Cash profit/(loss) from continuing operations -12% 33% 3% 92% 0% -37% 2%
DIVISIONAL RESULTS
54
Cash profit by division (excluding large/notable items
1
) - March 2019 Half Year v September 2018 Half Year
1.
Refer to pages 14 to 18 for a description of large/notable items.
March 2019 Half Year
Australia
$M
Institutional
$M
New Zealand
$M
Wealth
Australia
$M
Pacific
$M
TSO and
Group
Centre
$M
Group
$M
Net interest income
4,113 1,579 1,381 1 68 178 7,320
Other operating income
656 1,126 280 37 50 84 2,233
Operating income
4,769 2,705 1,661 38 118 262 9,553
Operating expenses (1,787) (1,313) (604) (71) (70) (415) (4,260)
Profit before credit impairment and income tax
2,982 1,392 1,057 (33) 48 (153) 5,293
Credit impairment (charge)/release (396) 35 (30) - (2) - (393)
Profit/(Loss) before income tax
2,586 1,427 1,027 (33) 46 (153) 4,900
Income tax expense and non-controlling interests (777) (410) (288) 10 (13) 56 (1,422)
Cash profit/(loss) from continuing operations
1,809 1,017 739 (23) 33 (97) 3,478
September 2018 Half Year
Australia
$M
Institutional
$M
New Zealand
$M
Wealth
Australia
$M
Pacific
$M
TSO and
Group
Centre
$M
Group
$M
Net interest income 4,196 1,513 1,345 1 66 127 7,248
Other operating income 787 1,046 270 44 53 113 2,313
Operating income 4,983 2,559 1,615 45 119 240 9,561
Operating expenses (1,794) (1,335) (583) (65) (65) (466) (4,308)
Profit before credit impairment and income tax 3,189 1,224 1,032 (20) 54 (226) 5,253
Credit impairment (charge)/release (386) 93 14 - (1) - (280)
Profit/(Loss) before income tax 2,803 1,317 1,046 (20) 53 (226) 4,973
Income tax expense and non-controlling interests (844) (394) (295) 6 (14) 51 (1,490)
Cash profit/(loss) from continuing operations 1,959 923 751 (14) 39 (175) 3,483
March 2019 Half Year vs September 2018 Half Year
Australia Institutional New Zealand
Wealth
Australia Pacific
TSO and
Group
Centre Group
Net interest income -2% 4% 3% 0% 3% 40% 1%
Other operating income -17% 8% 4% -16% -6% -26% -3%
Operating income -4% 6% 3% -16% -1% 9% 0%
Operating expenses 0% -2% 4% 9% 8% -11% -1%
Profit before credit impairment and income tax -6% 14% 2% 65% -11% -32% 1%
Credit impairment (charge)/release 3% -62% large n/a 100% n/a 40%
Profit/(Loss) before income tax -8% 8% -2% 65% -13% -32% -1%
Income tax expense and non-controlling interests -8% 4% -2% 67% -7% 10% -5%
Cash profit/(loss) from continuing operations -8% 10% -2% 64% -15% -45% 0%
DIVISIONAL RESULTS
Australia - continuing operations
Mark Hand
55
Divisional performance was impacted by a number of large/notable items. Refer to pages 14 to 18 and pages 53 to 54 for details.
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net interest income 4,091 4,122 4,325
-1% -5%
Other operating income
625 722 728
-13% -14%
Operating income
4,716 4,844 5,053
-3% -7%
Operating expenses (1,843) (1,990) (1,905)
-7% -3%
Profit before credit impairment and income tax
2,873 2,854 3,148
1% -9%
Credit impairment charge (396) (386) (312)
3% 27%
Profit before income tax
2,477 2,468 2,836
0% -13%
Income tax expense and non-controlling interests (744) (742) (853)
0% -13%
Cash profit
1,733 1,726 1,983
0% -13%
Balance Sheet
Net loans and advances 336,584 341,310 340,446
-1% -1%
Other external assets
4,120 4,097 4,519
1% -9%
External assets
340,704 345,407 344,965
-1% -1%
Customer deposits 203,366 202,732 204,165
0% 0%
Other external liabilities 9,603 10,387 10,869
-8% -12%
External liabilities
212,969 213,119 215,034
0% -1%
Risk weighted assets 159,279 159,281 161,283
0% -1%
Average gross loans and advances 341,282 342,757 339,631
0% 0%
Average deposits and other borrowings
202,765 202,530 203,239
0% 0%
Ratios
Return on average assets 1.01% 1.00% 1.16%
Net interest margin 2.61% 2.60% 2.78%
Operating expenses to operating income 39.1% 41.1% 37.7%
Operating expenses to average assets 1.08% 1.15% 1.12%
Individually assessed credit impairment charge/(release) 350 375 337
-7% 4%
Individually assessed credit impairment charge/(release) as a % of average GLA 0.21% 0.22% 0.20%
Collectively assessed credit impairment charge/(release) 46 11 (25)
large large
Collectively assessed credit impairment charge/(release) as a % of average GLA
1
0.03% 0.01% (0.01%)
Gross impaired assets 1,357 1,285 1,114
6% 22%
Gross impaired assets as a % of GLA
0.40% 0.37% 0.33%
Total full time equivalent staff (FTE) 13,020 13,039 13,914
0% -6%
1.
Credit impairment charge used in the ratio relates to gross loans and advances and off-balance sheet commitments - undrawn and contingent liabilities.
Performance March 2019 v March 2018
Lending volumes decreased from lower system credit growth, asset
competition and more conservative home loan origination risk settings. This
was partly offset by growth in Business & Private Bank.
Net interest margin decreased as a result of increased funding costs, home
loan mix changes and higher discounting, the regulatory impact on credit
card pricing, and higher customer remediation. This was partially offset by
higher deposit margins and home loans re-pricing.
Other operating income decreased as the result of higher customer
remediation, and lower fee income due to the removal of fees and lower
volumes.
Operating expenses decreased due to a reduction in FTE and related
costs, lower redundancy expenses and consultancy spend. This was
partially offset by higher customer remediation and inflation.
Credit impairment charges increased as a result of a weakening Australian
economic outlook, and an increase in individually assessed provisions for
business and small business banking.
Cash Profit March 2019 v March 2018
DIVISIONAL RESULTS
Australia - continuing operations
Mark Hand
56
Collectively assessed credit impairment charge/(release)
Half Year Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Retail 35 (27) (10) large large
Home Loans
49 21 8 large large
Cards and Personal Loans
(16) (45) (18) -64% -11%
Deposits and Payments
1
2 (3) - large n/a
Business & Private Bank
11 38 (15) -71% large
Business Banking
4 43 (8) -91% large
Small Business Banking
5 (5) (7) large large
Private Bank
2 - - n/a n/a
Collectively assessed credit impairment charge/(release)
46 11 (25) large large
Individually assessed credit impairment charge/(release)
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Retail 195 229 198 -15% -2%
Home Loans
45 55 44 -18% 2%
Cards and Personal Loans
147 167 144 -12% 2%
Deposits and Payments
1
3 7 10 -57% -70%
Business & Private Bank
155 146 139 6% 12%
Business Banking
57 50 44 14% 30%
Small Business Banking
98 96 95 2% 3%
Private Bank
- - - n/a n/a
Individually assessed credit impairment charge/(release)
350 375 337 -7% 4%
Net loans and advances As at
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Retail 279,483 283,088 282,748 -1% -1%
Home Loans
269,020 272,007 271,146 -1% -1%
Cards and Personal Loans
9,574 10,128 10,595 -5% -10%
Deposits and Payments
1
42 62 67 -32% -37%
Wealth
847 891 940 -5% -10%
Business & Private Bank
57,101 58,222 57,698 -2% -1%
Business Banking
40,805 41,277 40,777 -1% 0%
Small Business Banking
14,265 15,002 15,345 -5% -7%
Private Bank
2,031 1,943 1,576 5% 29%
Net loans and advances
336,584 341,310 340,446 -1% -1%
Customer deposits
As at Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Retail
117,374 119,763 120,990 -2% -3%
Home Loans
2
26,915 27,639 27,488 -3% -2%
Cards and Personal Loans
240 263 242 -9% -1%
Deposits and Payments
90,219 91,861 93,260 -2% -3%
Business & Private Bank
85,992 82,969 83,175 4% 3%
Business Banking
19,797 19,191 19,558 3% 1%
Small Business Banking
40,614 39,976 38,920 2% 4%
Private Bank
25,581 23,802 24,697 7% 4%
Customer deposits
203,366 202,732 204,165 0% 0%
1.
Net loans and advances for the deposits and payments business represent amounts in overdraft.
2.
Customer deposit amounts for the home loans business represent balances in offset accounts.
DIVISIONAL RESULTS
Australia - continuing operations
Mark Hand
57
March 2019 Half Year
Retail
$M
B&PB
$M
Australia
Total
$M
Net interest income
2,738 1,353 4,091
Other operating income
400 225 625
Operating income
3,138 1,578 4,716
Operating expenses (1,243) (600) (1,843)
Profit before credit impairment and income tax
1,895 978 2,873
Credit impairment (charge)/release (230) (166) (396)
Profit before income tax
1,665 812 2,477
Income tax expense and non-controlling interests (500) (244) (744)
Cash profit
1,165 568 1,733
Individually assessed credit impairment charge/(release) (195) (155) (350)
Collectively assessed credit impairment charge/(release)
(35) (11) (46)
Net loans and advances
279,483 57,101 336,584
Customer deposits
117,374 85,992 203,366
Risk weighted assets
107,257 52,022 159,279
March 2018 Half Year
Net interest income 2,984 1,341 4,325
Other operating income 484 244 728
Operating income 3,468 1,585 5,053
Operating expenses (1,338) (567) (1,905)
Profit before credit impairment and income tax 2,130 1,018 3,148
Credit impairment (charge)/release (188) (124) (312)
Profit before income tax 1,942 894 2,836
Income tax expense and non-controlling interests (583) (270) (853)
Cash profit 1,359 624 1,983
Individually assessed credit impairment charge/(release) (198) (139) (337)
Collectively assessed credit impairment charge/(release) 10 15 25
Net loans and advances 282,748 57,698 340,446
Customer deposits 120,990 83,175 204,165
Risk weighted assets 107,514 53,769 161,283
March 2019 Half Year vs March 2018 Half Year
Net interest income -8% 1% -5%
Other operating income -17% -8% -14%
Operating income -10% 0% -7%
Operating expenses -7% 6% -3%
Profit before credit impairment and income tax -11% -4% -9%
Credit impairment (charge)/release 22% 34% 27%
Profit before income tax -14% -9% -13%
Income tax expense and non-controlling interests -14% -10% -13%
Cash profit -14% -9% -13%
Individually assessed credit impairment charge/(release) -2% 12% 4%
Collectively assessed credit impairment charge/(release) large large large
Net loans and advances -1% -1% -1%
Customer deposits -3% 3% 0%
Risk weighted assets 0% -3% -1%
DIVISIONAL RESULTS
Australia - continuing operations
Mark Hand
58
March 2019 Half Year
Retail
$M
B&PB
$M
Australia
Total
$M
Net interest income
2,738 1,353 4,091
Other operating income
400 225 625
Operating income
3,138 1,578 4,716
Operating expenses (1,243) (600) (1,843)
Profit before credit impairment and income tax
1,895 978 2,873
Credit impairment (charge)/release (230) (166) (396)
Profit before income tax
1,665 812 2,477
Income tax expense and non-controlling interests (500) (244) (744)
Cash profit
1,165 568 1,733
Individually assessed credit impairment charge/(release) (195) (155) (350)
Collectively assessed credit impairment charge/(release)
(35) (11) (46)
Net loans and advances
279,483 57,101 336,584
Customer deposits
117,374 85,992 203,366
Risk weighted assets
107,257 52,022 159,279
September 2018 Half Year
Net interest income 2,746 1,376 4,122
Other operating income 493 229 722
Operating income 3,239 1,605 4,844
Operating expenses (1,385) (605) (1,990)
Profit before credit impairment and income tax 1,854 1,000 2,854
Credit impairment (charge)/release (202) (184) (386)
Profit before income tax 1,652 816 2,468
Income tax expense and non-controlling interests (496) (246) (742)
Cash profit 1,156 570 1,726
Individually assessed credit impairment charge/(release) (229) (146) (375)
Collectively assessed credit impairment charge/(release) 27 (38) (11)
Net loans and advances 283,088 58,222 341,310
Customer deposits 119,763 82,969 202,732
Risk weighted assets 105,889 53,392 159,281
March 2019 Half Year vs September 2018 Half Year
Net interest income 0% -2% -1%
Other operating income -19% -2% -13%
Operating income -3% -2% -3%
Operating expenses -10% -1% -7%
Profit before credit impairment and income tax 2% -2% 1%
Credit impairment (charge)/release 14% -10% 3%
Profit before income tax 1% 0% 0%
Income tax expense and non-controlling interests 1% -1% 0%
Cash profit 1% 0% 0%
Individually assessed credit impairment charge/(release) -15% 6% -7%
Collectively assessed credit impairment charge/(release) large -71% large
Net loans and advances -1% -2% -1%
Customer deposits -2% 4% 0%
Risk weighted assets 1% -3% 0%
DIVISIONAL RESULTS
Institutional - continuing operations
Mark Whelan
59
Divisional performance was impacted by a number of large/notable items. Refer to pages 14 to 18 and pages 53 to 54 for details.
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net interest income 1,579 1,513 1,480
4% 7%
Other operating income
1,126 1,035 1,031
9% 9%
Operating income
2,705 2,548 2,511
6% 8%
Operating expenses (1,320) (1,575) (1,373)
-16% -4%
Profit before credit impairment and income tax
1,385 973 1,138
42% 22%
Credit impairment (charge)/release 35 93 (49)
-62% large
Profit before income tax
1,420 1,066 1,089
33% 30%
Income tax expense and non-controlling interests (408) (353) (322)
16% 27%
Cash profit
1,012 713 767
42% 32%
Balance Sheet
1
Net loans and advances 152,522 150,108 138,179
2% 10%
Other external assets
307,198 276,607 281,079
11% 9%
External assets
459,720 426,715 419,258
8% 10%
Customer deposits 205,364 205,809 190,733
0% 8%
Other deposits and borrowings 79,148 67,374 68,190
17% 16%
Deposits and other borrowings
284,512 273,183 258,923
4% 10%
Other external liabilities 119,327 104,836 109,032
14% 9%
External liabilities
403,839 378,019 367,955
7% 10%
Risk weighted assets 167,406 163,713 165,614
2% 1%
Average gross loans and advances 153,982 144,488 137,864
7% 12%
Average deposits and other borrowings
281,770 269,578 257,874
5% 9%
Ratios
1
Return on average assets 0.44% 0.32% 0.36%
Net interest margin 0.85% 0.86% 0.89%
Net interest margin (excluding Markets) 2.10% 2.12% 2.09%
Operating expenses to operating income 48.8% 61.8% 54.7%
Operating expenses to average assets 0.58% 0.72% 0.65%
Individually assessed credit impairment charge/(release) (12) (52) 28
-77% large
Individually assessed credit impairment charge/(release) as a % of average GLA
2
(0.02%) (0.07%) 0.04%
Collectively assessed credit impairment charge/(release) (23) (41) 21
-44% large
Collectively assessed credit impairment charge/(release) as a % of average GLA
2
(0.03%) (0.06%) 0.03%
Gross impaired assets 373 442 626
-16% -40%
Gross impaired assets as a % of GLA
0.24% 0.29% 0.45%
Total full time equivalent staff (FTE) 6,085 6,188 6,505
-2% -6%
1.
Balance Sheet amounts include asset and liabilities reclassified as held for sale from continuing operations.
2.
Credit impairment charge used in the ratio relates to gross loans and advances and off-balance sheet commitments - undrawn and contingent liabilities.
Performance March 2019 v March 2018
Lending volumes grew across Loans & Specialised Finance and
Transaction Banking. Customer deposits grew in Markets and
Transaction Banking.
Net interest margin ex-Markets increased due to higher deposit margins,
partially offset by a reduction in lending margins.
Other operating income increased as a result of higher Markets income
from Franchise Sales and Trading, partially offset by lower Balance
Sheet income.
Operating expenses decreased due to a reduction in FTE and related
costs, and lower ongoing software amortisation charges. This was
partially offset by inflation.
Credit impairment charges decreased primarily due to a reduction in
collectively and individually assessed provisions in Loans & Specialised
Finance, partially offset by lower write-backs.
Cash Profit March 2019 v March 2018
DIVISIONAL RESULTS
Institutional - continuing operations
Mark Whelan
60
Institutional by Geography
1
Half Year
Movement
Australia
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net interest income 874 843 821
4% 6%
Other operating income
484 511 453
-5% 7%
Operating income
1,358 1,354 1,274
0% 7%
Operating expenses (606) (625) (616)
-3% -2%
Profit before credit impairment and income tax
752 729 658
3% 14%
Credit impairment (charge)/release 5 66 (18)
-92% large
Profit before income tax
757 795 640
-5% 18%
Income tax expense and non-controlling interests (227) (238) (190)
-5% 19%
Cash profit
530 557 450
-5% 18%
Individually assessed credit impairment charge/(release) (1) (28) (18)
-96% -94%
Collectively assessed credit impairment charge/(release)
(4) (38) 36
-89% large
Net loans and advances
84,634 85,243 78,197
-1% 8%
Customer deposits
71,623 78,562 77,466
-9% -8%
Risk weighted assets
84,617 82,993 85,181
2% -1%
Asia, Pacific, Europe, and America
Net interest income 546 520 515
5% 6%
Other operating income
535 414 444
29% 20%
Operating income
1,081 934 959
16% 13%
Operating expenses (633) (864) (675)
-27% -6%
Profit before credit impairment and income tax
448 70 284
large 58%
Credit impairment (charge)/release 31 25 13
24% large
Profit before income tax
479 95 297
large 61%
Income tax expense and non-controlling interests (129) (65) (90)
98% 43%
Cash profit
350 30 207
large 69%
Individually assessed credit impairment charge/(release) (6) (25) 3
-76% large
Collectively assessed credit impairment charge/(release)
(25) - (16)
n/a 56%
Net loans and advances
60,456 58,282 52,760
4% 15%
Customer deposits
116,080 111,717 97,869
4% 19%
Risk weighted assets
71,248 70,456 69,565
1% 2%
New Zealand
Net interest income 159 150 144
6% 10%
Other operating income
107 110 134
-3% -20%
Operating income
266 260 278
2% -4%
Operating expenses (81) (86) (82)
-6% -1%
Profit before credit impairment and income tax
185 174 196
6% -6%
Credit impairment (charge)/release (1) 2 (44)
large -98%
Profit before income tax
184 176 152
5% 21%
Income tax expense and non-controlling interests (52) (50) (42)
4% 24%
Cash profit
132 126 110
5% 20%
Individually assessed credit impairment charge/(release) (5) 1 43
large large
Collectively assessed credit impairment charge/(release)
6 (3) 1
large large
Net loans and advances
7,432 6,583 7,222
13% 3%
Customer deposits
17,661 15,530 15,398
14% 15%
Risk weighted assets
11,541 10,264 10,868
12% 6%
1.
Balance Sheet amounts include asset and liabilities reclassified as held for sale from continuing operations.
DIVISIONAL RESULTS
Institutional - continuing operations
Mark Whelan
61
Individually assessed credit impairment charge/(release)
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Transaction Banking
(3) (6) 11
-50% large
Loans & Specialised Finance
(10) (45) 17
-78% large
Markets
- (3) (1)
-100% -100%
Central Functions
1 2 1
-50% 0%
Individually assessed credit impairment charge/(release)
(12) (52) 28
-77% large
Collectively assessed credit impairment charge/(release)
Half Year Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Transaction Banking
6 (5) (7)
large large
Loans & Specialised Finance
(22) (35) 26
-37% large
Markets
(6) - 1
n/a large
Central Functions
(1) (1) 1
0% large
Collectively assessed credit impairment charge/(release)
(23) (41) 21
-44% large
Net loans and advances
1
As at Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Transaction Banking 18,177 17,318 16,701
5% 9%
Loans & Specialised Finance
107,759 101,157 94,416
7% 14%
Markets
25,902 31,201 26,612
-17% -3%
Central Functions
684 432 450
58% 52%
Net loans and advances
152,522 150,108 138,179
2% 10%
Customer deposits
1
As at Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Transaction Banking 99,479 99,519 95,707
0% 4%
Loans & Specialised Finance
925 1,289 1,336
-28% -31%
Markets
102,411 102,490 91,237
0% 12%
Central Functions
2,549 2,511 2,453
2% 4%
Customer deposits
205,364 205,809 190,733
0% 8%
1.
Balance Sheet amounts include asset and liabilities reclassified as held for sale from continuing operations.
DIVISIONAL RESULTS
Institutional - continuing operations
Mark Whelan
62
March 2019 Half Year
1
Transaction
Banking
$M
Loans &
Specialised
Finance
$M
Markets
$M
Central
Functions
$M
Institutional
Total
$M
Net interest income
531 742 280 26 1,579
Other operating income
363 77 667 19 1,126
Operating income
894 819 947 45 2,705
Operating expenses (406) (322) (550) (42) (1,320)
Profit/(Loss) before credit impairment and income tax
488 497 397 3 1,385
Credit impairment (charge)/release (3) 32 6 - 35
Profit/(Loss) before income tax
485 529 403 3 1,420
Income tax expense and non-controlling interests (133) (142) (120) (13) (408)
Cash profit/(loss)
352 387 283 (10) 1,012
Individually assessed credit impairment charge/(release) (3) (10) - 1 (12)
Collectively assessed credit impairment charge/(release)
6 (22) (6) (1) (23)
Net loans and advances
18,177 107,759 25,902 684 152,522
Customer deposits
99,479 925 102,411 2,549 205,364
Risk weighted assets
25,475 93,198 47,902 831 167,406
March 2018 Half Year
Net interest income 452 644 355 29 1,480
Other operating income 362 90 552 27 1,031
Operating income 814 734 907 56 2,511
Operating expenses (407) (322) (619) (25) (1,373)
Profit/(Loss) before credit impairment and income tax 407 412 288 31 1,138
Credit impairment (charge)/release (4) (43) - (2) (49)
Profit/(Loss) before income tax 403 369 288 29 1,089
Income tax expense and non-controlling interests (116) (101) (77) (28) (322)
Cash profit 287 268 211 1 767
Individually assessed credit impairment charge/(release) 11 17 (1) 1 28
Collectively assessed credit impairment charge/(release) (7) 26 1 1 21
Net loans and advances 16,701 94,416 26,612 450 138,179
Customer deposits 95,707 1,336 91,237 2,453 190,733
Risk weighted assets 25,726 87,881 51,084 923 165,614
March 2019 Half Year vs March 2018 Half Year
Net interest income 17% 15% -21% -10% 7%
Other operating income 0% -14% 21% -30% 9%
Operating income 10% 12% 4% -20% 8%
Operating expenses 0% 0% -11% 68% -4%
Profit/(Loss) before credit impairment and income tax 20% 21% 38% -90% 22%
Credit impairment (charge)/release -25% large n/a -100% large
Profit/(Loss) before income tax 20% 43% 40% -90% 30%
Income tax expense and non-controlling interests 15% 41% 56% -54% 27%
Cash profit/(loss) 23% 44% 34% large 32%
Individually assessed credit impairment charge/(release) large large -100% 0% large
Collectively assessed credit impairment charge/(release) large large large large large
Net loans and advances 9% 14% -3% 52% 10%
Customer deposits 4% -31% 12% 4% 8%
Risk weighted assets -1% 6% -6% -10% 1%
1.
Balance Sheet amounts include asset and liabilities reclassified as held for sale from continuing operations.
DIVISIONAL RESULTS
Institutional - continuing operations
Mark Whelan
63
March 2019 Half Year
1
Transaction
Banking
$M
Loans &
Specialised
Finance
$M
Markets
$M
Central
Functions
$M
Institutional
Total
$M
Net interest income
531 742 280 26 1,579
Other operating income
363 77 667 19 1,126
Operating income
894 819 947 45 2,705
Operating expenses (406) (322) (550) (42) (1,320)
Profit/(Loss) before credit impairment and income tax
488 497 397 3 1,385
Credit impairment (charge)/release (3) 32 6 - 35
Profit/(Loss) before income tax
485 529 403 3 1,420
Income tax expense and non-controlling interests (133) (142) (120) (13) (408)
Cash profit/(loss)
352 387 283 (10) 1,012
Individually assessed credit impairment charge/(release) (3) (10) - 1 (12)
Collectively assessed credit impairment charge/(release)
6 (22) (6) (1) (23)
Net loans and advances
18,177 107,759 25,902 684 152,522
Customer deposits
99,479 925 102,411 2,549 205,364
Risk weighted assets
25,475 93,198 47,902 831 167,406
September 2018 Half Year
1
Net interest income 475 710 303 25 1,513
Other operating income 359 82 577 17 1,035
Operating income 834 792 880 42 2,548
Operating expenses (418) (316) (561) (280) (1,575)
Profit/(Loss) before credit impairment and income tax 416 476 319 (238) 973
Credit impairment (charge)/release 11 80 3 (1) 93
Profit/(Loss) before income tax 427 556 322 (239) 1,066
Income tax expense and non-controlling interests (121) (147) (82) (3) (353)
Cash profit/(loss) 306 409 240 (242) 713
Individually assessed credit impairment charge/(release) (6) (45) (3) 2 (52)
Collectively assessed credit impairment charge/(release) (5) (35) - (1) (41)
Net loans and advances 17,318 101,157 31,201 432 150,108
Customer deposits 99,519 1,289 102,490 2,511 205,809
Risk weighted assets 25,717 87,472 49,658 866 163,713
March 2019 Half Year vs September 2018 Half Year
Net interest income 12% 5% -8% 4% 4%
Other operating income 1% -6% 16% 12% 9%
Operating income 7% 3% 8% 7% 6%
Operating expenses -3% 2% -2% -85% -16%
Profit/(Loss) before credit impairment and income tax 17% 4% 24% large 42%
Credit impairment (charge)/release large -60% 100% -100% -62%
Profit/(Loss) before income tax 14% -5% 25% large 33%
Income tax expense and non-controlling interests 10% -3% 46% large 16%
Cash profit/(loss) 15% -5% 18% -96% 42%
Individually assessed credit impairment charge/(release) -50% -78% -100% -50% -77%
Collectively assessed credit impairment charge/(release) large -37% n/a 0% -44%
Net loans and advances 5% 7% -17% 58% 2%
Customer deposits 0% -28% 0% 2% 0%
Risk weighted assets -1% 7% -4% -4% 2%
1.
Balance Sheet amounts include asset and liabilities reclassified as held for sale from continuing operations.
DIVISIONAL RESULTS
Institutional - continuing operations
Mark Whelan
64
Analysis of Markets operating income
1
Half Year Movement
Composition of Markets operating income by business activity
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Franchise Sales
2
465 455 438
2% 6%
Franchise Trading
3
226 151 177
50% 28%
Balance Sheet
4
256 274 292
-7% -12%
Markets operating income
947 880 907
8% 4%
Includes:
Derivative valuation adjustments (10) 52 11
large large
1.
Markets operating income includes net interest income and other operating income.
2.
Franchise Sales represents direct client flow business on core products such as fixed income, foreign exchange, commodities and capital markets.
3.
Franchise Trading primarily represents management of the Group’s strategic positions and those taken as part of direct client sales flow. Franchise Trading also includes the impact of
valuation adjustments made when determining the fair value of derivatives (includes credit and funding adjustments, bid-offer adjustments and associated hedges).
4.
Balance Sheet represents hedging of interest rate risk on the Group’s loan and deposit books and the management of the Group’s liquidity portfolio.
Half Year
Movement
Composition of Markets operating income by geography
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Australia 312 347 306
-10% 2%
Asia, Pacific, Europe & America
507 408 456
24% 11%
New Zealand
128 125 145
2% -12%
Markets operating income
947 880 907
8% 4%
DIVISIONAL RESULTS
Institutional - continuing operations
Mark Whelan
65
Market risk
Traded market risk
Below are aggregate Value at Risk (VaR) exposures at 99% confidence level covering both physical and derivatives trading positions for the Bank’s
principal trading centres.
99% confidence level (1 day holding period)
High for Low for Avg for
High for Low for Avg for
As at period period period
As at year year year
Mar 19
$M
Mar 19
$M
Mar 19
$M
Mar 19
$M
Sep 18
$M
Sep 18
$M
Sep 18
$M
Sep 18
$M
Value at Risk at 99% confidence
Foreign exchange
3.6 9.5 2.0 4.8 3.7 10.3 1.7 4.2
Interest rate
5.1 10.4 4.3 6.6 8.4 16.0 4.9 7.9
Credit
4.1 4.4 1.2 2.4 2.5 6.5 2.3 4.0
Commodities
2.3 3.9 1.4 2.1 3.7 4.5 1.4 3.1
Equity
- - - - - - - -
Diversification benefit
(8.3) n/a n/a (7.5) (10.5) n/a n/a (8.1)
Total VaR
6.8 13.4 5.8 8.4 7.8 19.9 6.9 11.1
Non-traded interest rate risk
Non-traded interest rate risk is managed by Markets and relates to the potential adverse impact of changes in market interest rates on future net interest
income for the Group. Interest rate risk is reported using various techniques including VaR and scenario analysis based on a 1% shock.
99% confidence level (1 day holding period)
High for Low for Avg for
High for Low for Avg for
As at period period period As at year year year
Mar 19
$M
Mar 19
$M
Mar 19
$M
Mar 19
$M
Sep 18
$M
Sep 18
$M
Sep 18
$M
Sep 18
$M
Value at Risk at 99% confidence
Australia
17.2 18.3 16.4 17.4 21.9 32.7 20.3 23.6
New Zealand
8.1 8.1 7.1 7.6 6.8 7.1 5.6 6.6
Asia, Pacific, Europe & America
16.9 17.7 12.9 15.5 15.1 15.1 12.5 13.7
Diversification benefit
(14.1) n/a n/a (14.0) (16.1) n/a n/a (14.4)
Total VaR
28.1 28.1 25.2 26.5 27.7 36.4 26.0 29.5
Impact of 1% rate shock on the next 12 months’ net interest income margin
As at
Mar 19 Sep 18
1
As at period end 0.45% 1.21%
Maximum exposure
0.94% 1.79%
Minimum exposure
0.32% 0.77%
Average exposure (in absolute terms)
0.63% 1.11%
1.
Prior period numbers have been restated to reflect IRR model enhancements.
DIVISIONAL RESULTS
New Zealand - continuing operations
David Hisco
66
Divisional performance was impacted by a number of large/notable items. Refer to pages 14 to 18 and pages 53 to 54 for details (in AUD).
Table reflects NZD for New Zealand (AUD results shown on page 70)
Half Year Movement
Mar 19
NZD M
Sep 18
NZD M
Mar 18
NZD M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net interest income 1,464 1,455 1,430
1% 2%
Other operating income
1
300 293 308
2% -3%
Net income from insurance business
2
19 62 66
-69% -71%
Operating income
1,783 1,810 1,804
-1% -1%
Operating expenses (647) (664) (646)
-3% 0%
Profit before credit impairment and income tax
1,136 1,146 1,158
-1% -2%
Credit impairment (charge)/release (31) 16 (22)
large 41%
Profit before income tax
1,105 1,162 1,136
-5% -3%
Income tax expense and non-controlling interests (309) (325) (318)
-5% -3%
Cash profit
796 837 818
-5% -3%
Balance Sheet
3
Net loans and advances 124,024 121,550 118,596
2% 5%
Other external assets
3,549 4,515 4,910
-21% -28%
External assets
127,573 126,065 123,506
1% 3%
Customer deposits 89,096 87,101 84,372
2% 6%
Other deposits and borrowings 2,240 2,486 2,555
-10% -12%
Deposits and other borrowings
91,336 89,587 86,927
2% 5%
Other external liabilities 23,554 24,591 22,939
-4% 3%
External liabilities
114,890 114,178 109,866
1% 5%
Risk weighted assets 62,260 62,463 61,332
0% 2%
Average gross loans and advances 123,000 120,587 118,091
2% 4%
Average deposits and other borrowings
91,231 88,052 87,027
4% 5%
Net funds management income
113 113 108
0% 5%
Funds under management 31,403 30,665 29,185
2% 8%
Average funds under management
30,389 30,132 29,195
1% 4%
Ratios
3
Return on average assets 1.26% 1.34% 1.35%
Net interest margin 2.39% 2.41% 2.43%
Operating expenses to operating income 36.3% 36.7% 35.8%
Operating expenses to average assets 1.03% 1.06% 1.07%
Individually assessed credit impairment charge/(release) 37 16 36
large 3%
Individually assessed credit impairment charge/(release) as a % of average GLA
4
0.06% 0.03% 0.06%
Collectively assessed credit impairment charge/(release) (6) (32) (14)
-81% -57%
Collectively assessed credit impairment charge/(release) as a % of average GLA
4
(0.01%) (0.05%) (0.02%)
Gross impaired assets 249 258 260
-3% -4%
Gross impaired assets as a % of GLA
0.20% 0.21% 0.22%
Total full time equivalent staff (FTE) 6,003 6,165 6,319
-3% -5%
1.
Includes net funds management income previously reported under net funds management and insurance income.
2.
Relates to OnePath Life (NZ) Limited, a controlled entity, which was sold on 30 November 2018.
3.
Balance Sheet amounts include asset and liabilities reclassified as held for sale from continuing operations.
4.
Credit impairment charge used in the ratio relates to gross loans and advances and off-balance sheet commitments - undrawn and contingent liabilities.
Performance March 2019 v March 2018
Lending and customer deposit volumes grew across all portfolios and funds
under management increased during the period.
Net interest margin decreased as a result of home loan and deposit portfolio
mix changes.
Operating income decreased primarily due to the loss of income as the result
of the OnePath Life (NZ) divestment, and a one-off insurance recovery in the
prior period.
Operating expenses remained flat due to increased business investment and
inflation, mostly offset by lower expenses as the result of the OnePath Life (NZ)
divestment and reduced FTE driven by customer migration to lower cost
channels.
Credit impairment charges increased marginally, primarily due to the Agri
economic cycle release in the prior period.
Cash Profit March 2019 v March 2018
DIVISIONAL RESULTS
New Zealand - continuing operations
David Hisco
67
Individually assessed credit impairment charge/(release) Half Year
Movement
Mar 19
NZD M
Sep 18
NZD M
Mar 18
NZD M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Retail 24 27 23
-11% 4%
Home Loans
- 2 -
100% -
Other
24 25 23
-4% 4%
Commercial
13 (11) 13 large 0%
Individually assessed credit impairment charge/(release)
37 16 36 large 3%
Collectively assessed credit impairment charge/(release) Half Year
Movement
Mar 19
NZD M
Sep 18
NZD M
Mar 18
NZD M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Retail 5 (10) 8
large -38%
Home Loans
4 (1) 3
large 33%
Other
1 (9) 5
large -80%
Commercial
(11) (22) (22) -50% -50%
Collectively assessed credit impairment charge/(release)
(6) (32) (14) -81% -57%
Net loans and advances
1
As at Movement
Mar 19
NZD M
Sep 18
NZD M
Mar 18
NZD M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Retail 81,108 79,090 77,106
3% 5%
Home Loans
77,851 75,685 73,651
3% 6%
Other
3,257 3,405 3,455
-4% -6%
Commercial
42,916 42,460 41,490 1% 3%
Net loans and advances
124,024 121,550 118,596
2% 5%
Customer deposits
1
As at Movement
Mar 19
NZD M
Sep 18
NZD M
Mar 18
NZD M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Retail 71,882 70,260 67,735
2% 6%
Commercial
17,214 16,841 16,637 2% 3%
Customer deposits
89,096 87,101 84,372
2% 6%
1.
Balance Sheet amounts include asset and liabilities reclassified as held for sale from continuing operations.
DIVISIONAL RESULTS
New Zealand - continuing operations
David Hisco
68
March 2019 Half Year
Retail
NZD M
Commercial
NZD M
Central
Functions
NZD M
New Zealand
Total
NZD M
Net interest income
940 517 7 1,464
Other operating income
1
291 10 (1) 300
Net income from insurance business
2
19 - - 19
Operating income
1,250 527 6 1,783
Operating expenses (514) (128) (5) (647)
Profit before credit impairment and income tax
736 399 1 1,136
Credit impairment (charge)/release (29) (2) - (31)
Profit before income tax
707 397 1 1,105
Income tax expense and non-controlling interests (197) (111) (1) (309)
Cash profit
510 286 - 796
Individually assessed credit impairment charge/(release) 24 13 - 37
Collectively assessed credit impairment charge/(release)
5 (11) - (6)
Net loans and advances
81,108 42,916 - 124,024
Customer deposits
71,882 17,214 - 89,096
Risk weighted assets
29,897 31,344 1,019 62,260
March 2018 Half Year
Net interest income 929 495 6 1,430
Other operating income
1
280 10 18 308
Net income from insurance business
2
67 - (1) 66
Operating income 1,276 505 23 1,804
Operating expenses (516) (126) (4) (646)
Profit before credit impairment and income tax 760 379 19 1,158
Credit impairment (charge)/release (31) 9 - (22)
Profit before income tax 729 388 19 1,136
Income tax expense and non-controlling interests (204) (109) (5) (318)
Cash profit 525 279 14 818
Individually assessed credit impairment charge/(release) 23 13 - 36
Collectively assessed credit impairment charge/(release) 8 (22) - (14)
Net loans and advances
3
77,106 41,490 - 118,596
Customer deposits
3
67,735 16,637 - 84,372
Risk weighted assets
3
29,441 30,748 1,143 61,332
March 2019 Half Year vs March 2018 Half Year
Net interest income 1% 4% 17% 2%
Other operating income
1
4% 0% large -3%
Net income from insurance business
2
-72% n/a -100% -71%
Operating income -2% 4% -74% -1%
Operating expenses 0% 2% 25% 0%
Profit before credit impairment and income tax -3% 5% -95% -2%
Credit impairment (charge)/release -6% large n/a 41%
Profit before income tax -3% 2% -95% -3%
Income tax expense and non-controlling interests -3% 2% -80% -3%
Cash profit -3% 3% -100% -3%
Individually assessed credit impairment charge/(release) 4% 0% n/a 3%
Collectively assessed credit impairment charge/(release) -38% -50% n/a -57%
Net loans and advances
3
5% 3% n/a 5%
Customer deposits
3
6% 3% n/a 6%
Risk weighted assets
3
2% 2% -11% 2%
1.
Includes net funds management income previously reported under net funds management and insurance income.
2.
Relates to OnePath Life (NZ) Limited, a controlled entity, which was sold on 30 November 2018.
3.
Balance Sheet amounts include asset and liabilities reclassified as held for sale from continuing operations.
DIVISIONAL RESULTS
New Zealand - continuing operations
David Hisco
69
March 2019 Half Year
Retail
NZD M
Commercial
NZD M
Central
Functions
NZD M
New Zealand
Total
NZD M
Net interest income
940 517 7 1,464
Other operating income
1
291 10 (1) 300
Net income from insurance business
2
19 - - 19
Operating income
1,250 527 6 1,783
Operating expenses (514) (128) (5) (647)
Profit/(Loss) before credit impairment and income tax
736 399 1 1,136
Credit impairment (charge)/release (29) (2) - (31)
Profit/(Loss) before income tax
707 397 1 1,105
Income tax expense and non-controlling interests (197) (111) (1) (309)
Cash profit/(Loss)
510 286 - 796
Individually assessed credit impairment charge/(release) 24 13 - 37
Collectively assessed credit impairment charge/(release)
5 (11) - (6)
Net loans and advances
81,108 42,916 - 124,024
Customer deposits
71,882 17,214 - 89,096
Risk weighted assets
29,897 31,344 1,019 62,260
September 2018 Half Year
Net interest income 943 509 3 1,455
Other operating income
1
284 10 (1) 293
Net income from insurance business
2
63 - (1) 62
Operating income 1,290 519 1 1,810
Operating expenses (523) (132) (9) (664)
Profit/(Loss) before credit impairment and income tax 767 387 (8) 1,146
Credit impairment (charge)/release (17) 33 - 16
Profit/(Loss) before income tax 750 420 (8) 1,162
Income tax expense and non-controlling interests (209) (118) 2 (325)
Cash profit/(Loss) 541 302 (6) 837
Individually assessed credit impairment charge/(release) 27 (11) - 16
Collectively assessed credit impairment charge/(release) (10) (22) - (32)
Net loans and advances 79,090 42,460 - 121,550
Customer deposits 70,260 16,841 - 87,101
Risk weighted assets 30,043 31,264 1,156 62,463
March 2019 Half Year vs September 2018 Half Year
Net interest income 0% 2% large 1%
Other operating income
1
2% 0% 0% 2%
Net funds management and insurance income
2
-70% n/a -100% -69%
Operating income -3% 2% large -1%
Operating expenses -2% -3% -44% -3%
Profit/(Loss) before credit impairment and income tax -4% 3% large -1%
Credit impairment (charge)/release 71% large n/a large
Profit/(Loss) before income tax -6% -5% large -5%
Income tax expense and non-controlling interests -6% -6% large -5%
Cash profit/(Loss) -6% -5% -100% -5%
Individually assessed credit impairment charge/(release) -11% large n/a large
Collectively assessed credit impairment charge/(release) large -50% n/a -81%
Net loans and advances
3
3% 1% n/a 2%
Customer deposits
3
2% 2% n/a 2%
Risk weighted assets
3
0% 0% -12% 0%
1.
Includes net funds management income previously reported under net funds management and insurance income.
2.
Relates to OnePath Life (NZ) Limited, a controlled entity, which was sold on 30 November 2018.
3.
Balance Sheet amounts include asset and liabilities reclassified as held for sale from continuing operations.
DIVISIONAL RESULTS
New Zealand - continuing operations
David Hisco
70
Table reflects AUD for New Zealand
NZD results shown on page 66
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net interest income
1,385 1,342 1,309
3% 6%
Other operating income
1
284 271 283
5% 0%
Net income from insurance business
2
18 57 60
-68% -70%
Operating income
1,687 1,670 1,652
1% 2%
Operating expenses (612) (613) (592)
0% 3%
Profit before credit impairment and income tax
1,075 1,057 1,060
2% 1%
Credit impairment (charge)/release (30) 14 (20)
large 50%
Profit before income tax
1,045 1,071 1,040
-2% 0%
Income tax expense and non-controlling interests (292) (299) (291)
-2% 0%
Cash profit
753 772 749
-2% 1%
Consisting of:
Retail 482 498 481
-3% 0%
Commercial
271 279 255
-3% 6%
Central Functions
- (5) 13
-100% -100%
Cash profit
753 772 749
-2% 1%
Balance Sheet
3
Net loans and advances 118,840 111,333 111,360
7% 7%
Other external assets
3,401 4,136 4,611
-18% -26%
External assets
122,241 115,469 115,971
6% 5%
Customer deposits 85,372 79,780 79,225
7% 8%
Other deposits and borrowings 2,146 2,277 2,398
-6% -11%
Deposits and other borrowings
87,518 82,057 81,623
7% 7%
Other external liabilities 22,570 22,524 21,540
0% 5%
External liabilities
110,088 104,581 103,163
5% 7%
Risk weighted assets 59,658 57,213 57,590
4% 4%
Average gross loans and advances 116,278 111,218 108,107
5% 8%
Average deposits and other borrowings
86,244 81,214 79,669
6% 8%
Net funds management income
107 105 99
2% 8%
Funds under management 30,090 28,087 27,404
7% 10%
Average funds under management
29,119 27,791 26,727
5% 9%
Ratios
3
Return on average assets
1.26% 1.34% 1.35%
Net interest margin
2.39% 2.41% 2.43%
Operating expenses to operating income
36.3% 36.7% 35.8%
Operating expenses to average assets
1.03% 1.06% 1.07%
Individually assessed credit impairment charge/(release)
35 15 34
large 3%
Individually assessed credit impairment charge/(release) as a % of average GLA
4
0.06% 0.03% 0.06%
Collectively assessed credit impairment charge/(release)
(5) (29) (14)
-83% -64%
Collectively assessed credit impairment charge/(release) as a % of average
GLA
4
(0.01%) (0.05%) (0.03%)
Gross impaired assets
238 236 244
1% -2%
Gross impaired assets as a % of GLA
0.20% 0.21% 0.22%
Total full time equivalent staff (FTE)
6,003 6,165 6,319
-3% -5%
1.
Includes net funds management income previously reported under net funds management and insurance income.
2.
Relates to OnePath Life (NZ) Limited, a controlled entity, which was sold on 30 November 2018.
3.
Balance Sheet amounts include asset and liabilities reclassified as held for sale from continuing operations.
4.
Credit impairment charge used in the ratio relates to gross loans and advances and off-balance sheet commitments - undrawn and contingent liabilities.
DIVISIONAL RESULTS
Wealth Australia - continuing operations
Alexis George
71
Divisional performance was impacted by a number of large/notable items. Refer to pages 14 to 18 and pages 53 to 54 for details.
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net interest income 1 1 1
0% 0%
Other operating income
26 12 48
large -46%
Operating income
27 13 49
large -45%
Operating expenses (70) (95) (85)
-26% -18%
Profit before credit impairment and income tax
(43) (82) (36)
-48% 19%
Credit impairment (charge)/release - - -
n/a n/a
Profit before income tax
(43) (82) (36)
-48% 19%
Income tax expense and non-controlling interests 13 25 10
-48% 30%
Cash profit from continuing operations
(30) (57) (26)
-47% 15%
Total full time equivalent staff (FTE)
1
640 692 759
-8% -16%
1.
FTE are allocated between continuing and discontinued operations. The actual FTE that will transfer to IOOF or Zurich on sale completion or at a later date is currently being determined.
Pacific - continuing operations
David Hisco
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net interest income 68 66 65
3% 5%
Other operating income
50 53 47 -6% 6%
Operating income
118 119 112 -1% 5%
Operating expenses (70) (65) (63) 8% 11%
Profit/(Loss) before credit impairment and income tax
48 54 49 -11% -2%
Credit impairment (charge)/release (2) (1) (2) 100% 0%
Profit/(Loss) before income tax
46 53 47 -13% -2%
Income tax expense and non-controlling interests (13) (14) (14) -7% -7%
Cash profit/(loss)
33 39 33 -15% 0%
Balance Sheet
Net loans and advances 2,135 2,114 2,166 1% -1%
Customer deposits
3,474 3,467 3,370 0% 3%
Risk weighted assets
3,840 3,915 3,827 -2% 0%
Total full time equivalent staff (FTE)
1,096 1,125 1,172 -3% -6%
TSO and Group Centre - continuing operations
Divisional performance was impacted by a number of large/notable items. Refer to pages 14 to 18 and pages 53 to 54 for details of these items.
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Share of associates profit 126 92 87 37% 45%
Operating income (other)
367 211 406 74% -10%
Operating income
493 303 493 63% 0%
Operating expenses (450) (590) (455) -24% -1%
Profit/(Loss) before credit impairment and income tax
43 (287) 38 large 13%
Credit impairment (charge)/release - - (25) n/a -100%
Profit/(Loss) before income tax
43 (287) 13 large large
Income tax expense and non-controlling interests 20 88 (26) -77% large
Cash profit/(loss)
63 (199) (13) large large
Risk weighted assets 5,594 6,230 7,033 -10% -20%
Total full time equivalent staff (FTE)
1
10,520 10,651 10,986 -1% -4%
1.
FTE are allocated between continuing and discontinued operations. The actual FTE that will transfer to IOOF or Zurich on sale completion or at a later date is currently being determined.
DIVISIONAL RESULTS
72
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PROFIT RECONCILIATION
73
CONTENTS Page
Adjustments between statutory profit and cash profit 74
Explanation of adjustments between statutory profit and cash profit - continuing operations 74
Explanation of adjustments between statutory profit and cash profit - discontinued operations 75
Reconciliation of statutory profit to cash profit 76
PROFIT RECONCILIATION
74
Non-IFRS information
The Group provides additional measures of performance in the Consolidated Financial Report & Dividend Announcement which are prepared on a basis
other than in accordance with accounting standards. The guidance provided in ASIC’s Regulatory Guide 230 has been followed when presenting this
information.
Adjustments between statutory profit and cash profit
Cash profit represents ANZ’s preferred measure of the result of the ongoing business activities of the Group, enabling readers to assess Group and
Divisional performance against prior periods and against peer institutions. To calculate cash profit, the Group excludes non-core items from statutory
profit (refer to Definitions for further details). The adjustments made in arriving at cash profit are included in statutory profit which is subject to review
within the context of the external auditor’s review of the Condensed Consolidated Financial Statements. Cash profit is not subject to review by the
external auditor. The external auditor has informed the Audit Committee that cash profit adjustments have been determined on a consistent basis across
each period presented.
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Statutory profit attributable to shareholders of the Company from continuing
operations
3,243 3,172 3,923 2% -17%
Adjustments between statutory profit and cash profit from continuing operations
Revaluation of policy liabilities
77 (4) (10) large large
Economic hedges
185 (124) (124) large large
Revenue and expense hedges
60 (49) 40 large 50%
Structured credit intermediation trades
(1) (1) (3) 0% -67%
Sale of SRCB
- - (333) n/a -100%
Total adjustments between statutory profit and cash profit from continuing operations
321 (178) (430) large large
Cash profit from continuing operations 3,564 2,994 3,493 19% 2%
Statutory profit attributable to shareholders of the Company from discontinued
operations
(70) (95) (600) -26% -88%
Adjustments between statutory profit and cash profit from discontinued operations
Treasury shares adjustment
(18) 30 (23) large -22%
Revaluation of policy liabilities
38 - 6 n/a large
Total adjustments between statutory profit and cash profit from discontinued operations
20 30 (17) -33% large
Cash profit/(loss) from discontinued operations (50) (65) (617) -23% -92%
Cash profit
3,514 2,929 2,876 20% 22%
Explanation of adjustments between statutory profit and cash profit - continuing operations
Revaluation of policy liabilities - New Zealand division
When calculating policy liabilities, the projected future cash flows on insurance contracts are discounted to reflect the present value of the obligation,
with the impact of changes in the market discount rate each period being reflected in the Income Statement. ANZ includes the impact on the re-
measurement of the insurance contract attributable to changes in market discount rates as an adjustment to statutory profit to remove the volatility
attributable to changes in market interest rates which reverts to zero over the life of the insurance contract. With the sale completion of the OnePath
Life (NZ) Ltd business, the March 2019 half includes the reversal of the life-to-date cash profit adjustments on the revaluation of policy liabilities sold.
Economic and revenue and expense hedges
The Group enters into economic hedges to manage its interest rate and foreign exchange risk which, in accordance with accounting standards, result
in fair value gains and losses being recognised within the Income Statement. ANZ removes the fair value adjustments from cash profit since the profit
or loss resulting from the hedge transactions will reverse over time to match with the profit or loss from the economically hedged item as part of cash
profit. This includes gains and losses arising from approved classes of derivatives not designated in accounting hedge relationships but which are
considered to be economic hedges, including hedges of larger foreign exchange denominated revenue and expense streams, primarily NZD and
USD (and USD correlated), as well as ineffectiveness from designated accounting hedges.
Economic hedges comprise:
Funding related swaps (primarily cross currency interest rate swaps) used to convert the proceeds of foreign currency debt issuances into
floating rate Australian dollar and New Zealand dollar debt. As these swaps do not qualify for hedge accounting, movements in the fair values
are recorded in the Income Statement. The main drivers of these fair values are currency basis spreads and Australian dollar and New Zealand
dollar fluctuations against other major funding currencies.
Economic hedges of select structured finance and specialised leasing transactions that do not qualify for hedge accounting. The main drivers of
these fair value adjustments are movements in the Australian and New Zealand term structure of interest rates.
Ineffectiveness from designated accounting hedge relationships.
PROFIT RECONCILIATION
75
In the March 2019 half, the majority of the loss on economic hedges adjusted from cash profit relates to funding related swaps, principally from
narrowing basis spreads on NZD/USD and USD/EUR currency pairs.
The loss on revenue and expense hedges adjusted from cash profit in the March 2019 half was due to the weakening of the AUD against the NZD.
Half Year
Mar 19
$M
Sep 18
$M
Mar 18
$M
Economic hedges
260 (174) (175)
Revenue and expense hedges
85 (69) 57
Increase/(decrease) to cash profit before tax 345 (243) (118)
Increase/(decrease) to cash profit after tax 245 (173) (84)
Structured credit intermediation trades
ANZ entered into a series of structured credit intermediation trades prior to the Global Financial Crisis with eight US financial guarantors. This
involved selling credit default swaps (CDSs) as protection over specific debt structures and purchasing CDS protection over the same structures.
ANZ has subsequently exited its positions with six US financial guarantors and is monitoring the remaining two portfolios with a view to reducing the
exposures when ANZ deems it cost effective relative to the perceived risk associated with a specific trade or counterparty.
The notional value of outstanding bought and sold CDSs at 31 March 2019 amounted to $0.3 billion (Sep 18: $0.3 billion; Mar 18: $0.3 billion). While
both the bought and sold CDSs are measured at fair value through profit and loss, the associated fair value movements do not fully offset due to the
impact of credit risk on the bought CDSs which is driven by market movements in credit spreads and AUD/USD and NZD/USD rates. The fair value
of the CDSs (excluding CVA) is $20 million (Sep 18: $26 million; Mar 18: $27 million) with CVA on the bought protection of $4 million (Sep 18: $4
million; Mar 18: $5 million).
The profit and loss associated with the bought and sold protection is included as an adjustment to cash profit as it relates to a legacy business where,
unless terminated early, the fair value movements are expected to reverse to zero in future periods.
Sale of Shanghai Rural Commercial Bank (SRCB)
On 3 January 2017, the Group announced that it had agreed to sell its 20% stake in Shanghai Rural Commercial Bank (SRCB).
The impact of SRCB has been treated as an adjustment between statutory profit to cash profit. The rationale being the loss on reclassification to held
for sale was expected to be largely offset by the release of reserve gains on sale completion within the 2017 full year. The transaction was
subsequently completed in the March 2018 half and the entire impact of the transaction was recognised in cash profit.
Credit risk on impaired derivatives (nil profit after tax impact)
Derivative credit valuation adjustments on defaulted and impaired derivative exposures are reclassified to cash credit impairment charges to reflect
the manner in which the defaulted and impaired derivatives are managed.
Explanation of adjustments between statutory profit and cash profit - discontinued operations
Treasury shares adjustment
ANZ shares held by the Group in Wealth Australia (Mar 19: 15.5 million shares; Sep 18: 15.5 million shares; Mar 18: 14.8 million shares) are deemed
to be Treasury shares for accounting purposes. Dividends and realised and unrealised gains and losses from these shares are reversed as these are
not permitted to be recognised as income for statutory reporting purposes. In deriving cash profit, these earnings are included to ensure there is no
asymmetrical impact on the Group’s profits because the Treasury shares are held to support policy liabilities which are revalued through the Income
Statement.
Revaluation of policy liabilities - Wealth Australia division
When calculating policy liabilities, the projected future cash flows on insurance contracts are discounted to reflect the present value of the obligation,
with the impact of changes in the market discount rate each period being reflected in the Income Statement. ANZ includes the impact on the re-
measurement of the insurance contract attributable to changes in market discount rates as an adjustment to statutory profit to remove the volatility
attributable to changes in market interest rates which reverts to zero over the life of the insurance contract.
PROFIT RECONCILIATION
76
Adjustments to statutory profit
Statutory profit
Treasury
shares
adjustment
Revaluation
of policy
liabilities
Economic
hedges
Revenue and
expense
hedges
Structured
credit
intermediation
trades
Credit risk
on impaired
derivatives
Sale of
Shanghai Rural
Commercial
Bank
Total
adjustments to
statutory profit
Cash profit
$M $M $M $M $M $M $M $M $M $M
March 2019 Half Year
Net interest income
7,299
-
-
-
-
-
-
-
-
7,299
Net income from insurance business
77
-
(7)
-
-
-
-
-
(7)
70
Other
1,917
-
115
260
85
(1)
1
-
460
2,377
Other operating income
1,994
-
108
260
85
(1)
1
-
453
2,447
Operating income
9,293
-
108
260
85
(1)
1
-
453
9,746
Operating expenses
(4,365)
-
-
-
-
-
-
-
-
(4,365)
Profit before credit impairment and tax
4,928
-
108
260
85
(1)
1
-
453
5,381
Credit impairment charge
(392)
-
-
-
-
-
(1)
-
(1)
(393)
Profit before income tax
4,536
-
108
260
85
(1)
-
-
452
4,988
Income tax expense
(1,284)
-
(31)
(75)
(25)
-
-
-
(131)
(1,415)
Non-controlling interests
(9)
-
-
-
-
-
-
-
-
(9)
Profit after tax from continuing operations
3,243
-
77
185
60
(1)
-
-
321
3,564
Profit/(Loss) after tax fr
om discontinued operations
(70)
(18)
38
-
-
-
-
-
20
(50)
Profit after tax
3,173
(18)
115
185
60
(1)
-
-
341
3,514
September 2018 Half Year Net interest income
7,164 - - - - - - - - 7,164
Net income from insurance business
133
-
(6)
-
-
-
-
-
(6)
127
Other
2,450
-
-
(174)
(69)
(1)
-
-
(244)
2,206
Other operating income
2,583
-
(6)
(174)
(69)
(1)
-
-
(250)
2,333
Operating income
9,747
-
(6)
(174)
(69)
(1)
-
-
(250)
9,497
Operating expenses
(4,928) - - - - - - - - (4,928)
Profit before credit impairment and tax
4,819
-
(6)
(174)
(69)
(1)
-
-
(250)
4,569
Credit impairment charge
(280) - - - - - - - - (280)
Profit before income tax
4,539
-
(6)
(174)
(69)
(1)
-
-
(250)
4,289
Income tax expense
(1,358)
-
2
50
20
-
-
-
72
(1,286)
Non-controlling interests
(9) - - - - - - - - (9)
Profit after tax from conti
nuing operations
3,172
-
(4)
(
124) (49) (1) -
- (178) 2,994
Profit/(Loss) after tax from discontinued operations
(95)
30
-
-
-
-
-
-
30
(65)
Profit after tax
3,077
30
(4)
(124)
(49)
(1)
-
-
(148)
2,929
PROFIT RECONCILIATION
77
Adjustments to statutory profit
Statutory profit
Treasury
shares
adjustment
Revaluation
of policy
liabilities
Economic
hedges
Revenue and
expense
hedges
Structured
credit
intermediation
trades
Credit risk
on impaired
derivatives
Sale of
Shanghai Rural
Commercial
Bank
Total
adjustments to
statutory profit
Cash profit
$M $M $M $M $M $M $M $M $M $M
March 2018 Half Year Net interest income
7,350 - - - - - - - - 7,350
Net income from insurance business
140
-
(14)
-
-
-
-
-
(14)
126
Other
2,747
-
- (175) 57 (4)
- (231) (353) 2,394
Other operating income
2,887
-
(14)
(175)
57
(4)
-
(231)
(367)
2,520
Operating income
10,237
-
(14)
(175)
57
(4)
-
(231)
(367)
9,870
Operating expenses
(4,473) - - - - - - - - (4,473)
Profit before credit impairment and tax
5,764
-
(14)
(175)
57
(4)
-
(231)
(367)
5,397
Credit impairment charge
(408) - - - - - - - - (408)
Profit before income tax
5,356
-
(14)
(175)
57
(4)
-
(231)
(367)
4,989
Income tax expense
(1,426)
-
4
51
(17)
1
-
(102)
(63)
(1,489)
Non-controlling interests
(7) - - - - - - - - (7)
Profit after tax from continui
ng operations
3,923
-
(10)
(124)
40
(3)
-
(333)
(430)
3,493
Profit/(Loss) after tax from discontinued operations
(600)
(23)
6
-
-
-
-
-
(17)
(617)
Profit after tax
3,323
(23)
(4)
(124)
40
(3)
-
(333)
(447)
2,876
PROFIT RECONCILIATION
78
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CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - TABLE OF CONTENTS
79
CONTENTS Page
Condensed Consolidated Income Statement 81
Condensed Consolidated Statement of Comprehensive Income 82
Condensed Consolidated Balance Sheet 83
Condensed Consolidated Cash Flow Statement 84
Condensed Consolidated Statement of Changes in Equity 85
Notes to Condensed Consolidated Financial Statements 86
Directors’ Declaration 120
Auditor’s Review Report and Independence Declaration 121
DIRECTORS’ REPORT
80
The Directors present their report on the Condensed Consolidated Financial Statements for the half year ended 31 March 2019.
Directors
The names of the Directors of the Company who held office during and since the end of the half year are:
Mr DM Gonski, AC Chairman
Mr SC Elliott Director and Chief Executive Officer
Ms IR Atlas Director
Ms PJ Dwyer Director
Ms SJ Halton, AO PSM Director
Mr Lee Hsien Yang Director, retired on 19 December 2018
Mr GR Liebelt Director
Rt Hon Sir JP Key, GNZM AC Director
Mr JT MacFarlane Director
Result
The consolidated profit attributable to shareholders of the Company was $3,173 million, and consolidated profit attributable to shareholders of the
Company from continuing operations was $3,243 million. Further details are contained in Group Results on pages 21 to 47 which forms part of this report,
and in the Condensed Consolidated Financial Statements.
Review of operations
A review of the operations of the Group during the half year and the results of those operations are contained in the Group Results on pages 21 to 47
which forms part of this report.
Lead auditor’s independence declaration
The lead auditor’s independence declaration given under section 307C of the Corporations Act 2001 (as amended) is set out on page 121 which forms
part of this report.
Rounding of amounts
The amounts contained in these Condensed Consolidated Financial Statements have been rounded to the nearest million dollars, except where
otherwise indicated, as permitted by ASIC Corporations Instrument 2016/191.
Significant events since balance date
There have been no significant events from 31 March 2019 to the date of signing of this report.
Signed in accordance with a resolution of the Directors.
David M Gonski, AC Shayne C Elliott
Chairman Director
30 April 2019
CONDENSED CONSOLIDATED INCOME STATEMENT
Australia and New Zealand Banking Group Limited
81
Half Year
1
Movement
Note
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Interest income
15,970 15,478 14,849
3% 8%
Interest expense
(8,671) (8,314) (7,499)
4% 16%
Net interest income
2 7,299 7,164 7,350
2% -1%
Other operating income
2 1,786 2,355 2,659
-24% -33%
Net income from insurance business
2 77 133 140
-42% -45%
Share of associates' profit 2, 17
131 95 88
38% 49%
Operating income
9,293 9,747 10,237
-5% -9%
Operating expenses 3 (4,365) (4,928) (4,473)
-11% -2%
Profit before credit impairment and income tax
4,928 4,819 5,764
2% -15%
Credit impairment charge 9 (392) (280) (408)
40% -4%
Profit before income tax
4,536 4,539 5,356
0% -15%
Income tax expense 4 (1,284) (1,358) (1,426)
-5% -10%
Profit after tax from continuing operations
3,252 3,181 3,930
2% -17%
Profit/(Loss) after tax from discontinued operations 11 (70) (95) (600)
-26% -88%
Profit for the period
3,182 3,086 3,330
3% -4%
Comprising:
Profit attributable to shareholders of the Company 3,173 3,077 3,323
3% -5%
Profit attributable to non-controlling interests
9 9 7
0% 29%
Earnings per ordinary share (cents) including discontinued
operations
Basic
6 111.7 107.3 114.2
4% -2%
Diluted
6 106.4 103.2 108.6
3% -2%
Earnings per ordinary share (cents) from continuing operations
Basic
6 114.1 110.6 134.8
3% -15%
Diluted
6 108.7 106.2 127.4
2% -15%
Dividend per ordinary share (cents) 5
80 80 80
0% 0%
1.
On adoption of AASB 15, the Group reclassified certain items previously netted which are now presented gross in operating income and operating expenses. Comparative information has
been restated accordingly which increased total operating income and total operating expenses by $91 million for the September 2018 half and $62 million for the March 2018 half.
The notes appearing on pages 86 to 119 form an integral part of the Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Australia and New Zealand Banking Group Limited
82
As at
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v Sep 18
Mar 19
v Mar 18
Profit for the period from continuing operations 3,252 3,181 3,930 2% -17%
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Investment securities - equity securities at FVOCI
1
176 - - n/a n/a
Other reserve movements
11 5 27 large -59%
Items that may be reclassified subsequently to profit or loss
Foreign currency translation reserve
2
834 (238) 460 large 81%
Other reserve movements
1
517 (37) 174 large large
Income tax attributable to the above items (187) 3 (121) large 55%
Share of associates' other comprehensive income
3
13 30 (5) -57% large
Other comprehensive income after tax from continuing operations
1,364 (237) 535 large large
Profit/(Loss) after tax from discontinued operations (70) (95) (600) -26% -88%
Other comprehensive income after tax from discontinued operations 42 8 10 large large
Total comprehensive income for the period
4,588 2,857 3,875 61% 18%
Comprising total comprehensive income attributable to:
Shareholders of the Company 4,578 2,841 3,865 61% 18%
Non-controlling interests
10 16 10 -38% 0%
1.
On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets were revised. Available-for-sale classification used in comparative periods ceases to exist
under AASB 9 and a new classification of investment securities was introduced. Refer to Note 1 and Note 21 for further details. Comparative information has not been restated.
2.
Includes foreign currency translation differences attributable to non-controlling interests of $1 million gain (Sep 18 half: $7 million gain; Mar 18 half: $3 million gain).
3.
Share of associates’ other comprehensive income includes an FVOCI reserve gain of $5 million (available-for-sale revaluation reserve: Sep 18 half: $30 million gain; Mar 18 half: $2 million
loss), defined benefits gain of $7 million (Sep 18 half: nil; Mar18 half: nil) and a foreign currency translation reserve gain of $1 million (Sep 18 half: nil; Mar18 half: $3 million loss) that may
be reclassified subsequently to profit or loss.
The notes appearing on pages 86 to 119 form an integral part of the Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEET
Australia and New Zealand Banking Group Limited
83
As At Movement
Assets Note
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Cash and cash equivalents
1
93,996 84,636 82,071 11% 15%
Settlement balances owed to ANZ
4,041 2,319 5,037 74% -20%
Collateral paid
11,860 11,043 10,863 7% 9%
Trading securities
42,857 37,722 45,058 14% -5%
Derivative financial instruments
79,375 68,423 70,915 16% 12%
Investment securities
2
78,882 - - n/a n/a
Available-for-sale assets
2
- 74,284 70,239 -100% -100%
Net loans and advances
3
8 609,255 604,438 589,468 1% 3%
Regulatory deposits
944 882 1,229 7% -23%
Assets held for sale 11
43,549 45,248 45,278 -4% -4%
Investment in associates
2,737 2,553 2,481 7% 10%
Current tax assets
500 268 15 87% large
Deferred tax assets
1,146 900 840 27% 36%
Goodwill and other intangible assets
5,017 4,930 5,338 2% -6%
Premises and equipment
1,863 1,833 1,892 2% -2%
Other assets
4,222 3,677 4,946 15% -15%
Total assets
980,244 943,156 935,670 4% 5%
Liabilities
Settlement balances owed by ANZ 12,371 11,810 10,577 5% 17%
Collateral received
5,726 6,542 9,395 -12% -39%
Deposits and other borrowings 10
634,989 618,150 616,230 3% 3%
Derivative financial instruments
80,871 69,676 70,624 16% 15%
Current tax liabilities
159 300 371 -47% -57%
Deferred tax liabilities
48 69 268 -30% -82%
Liabilities held for sale 11
46,555 47,159 44,773 -1% 4%
Payables and other liabilities
7,641 6,894 7,542 11% 1%
Provisions
2,221 1,972 1,532 13% 45%
Debt issuances 12
129,692 121,179 114,836 7% 13%
Total liabilities
920,273 883,751 876,148 4% 5%
Net assets 59,971 59,405 59,522 1% 1%
Shareholders' equity
Ordinary share capital 15 26,048 27,205 27,933 -4% -7%
Reserves 15
1,709 323 541 large large
Retained earnings 15
32,064 31,737 30,922 1% 4%
Share capital and reserves attributable to shareholders of the Company
59,821 59,265 59,396 1% 1%
Non-controlling interests 15 150 140 126 7% 19%
Total shareholders' equity
59,971 59,405 59,522 1% 1%
1.
Includes settlement balances owed to ANZ that meet the definition of cash and cash equivalents.
2.
On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets were revised. Available-for-sale classification used in comparative periods ceases to exist
under AASB 9 and a new classification of investment securities was introduced. Refer Note 1 and 21 for further details. Comparative information has not been restated.
3.
On adoption of AASB 9 on 1 October 2018, the Group increased the collectively assessed provisions by $813 million. Comparative information has not been restated. Refer to Note 1 and 21 for
further details.
The notes appearing on pages 86 to 119 form an integral part of the Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Australia and New Zealand Banking Group Limited
84
The Condensed Consolidated Cash Flow Statement includes discontinued operations. Please refer to Note 11 for cash flows associated with discontinued
operations and cash and cash equivalents reclassified as held for sale.
Half Year
1
Mar 19
$M
Sep 18
$M
Mar 18
$M
Profit after income tax 3,182 3,086 3,330
Adjustments to reconcile to net cash flow from operating activities:
Provision for credit impairment charge 391 280 408
Depreciation and amortisation
428 714 485
(Profit)/loss on sale of premises and equipment
(1) (4) -
Net derivatives/foreign exchange adjustment
1,614 5,818 903
(Gain)/loss on sale from divestments
(118) (125) (469)
(Gain)/loss on reclassification of businesses to held for sale
- 61 632
Other non-cash movements
(61) 52 (107)
Net (increase)/decrease in operating assets:
Collateral paid (643) 77 (1,725)
Trading securities
(5,525) 9,713 (1,148)
Loans and advances
1,071 (13,808) (11,431)
Investments backing policy liabilities
2
(211) (3,033) (881)
Other assets
(1,103) (330) (643)
Net increase/(decrease) in operating liabilities:
Deposits and other borrowings 9,056 (1,816) 14,023
Settlement balances owed by ANZ
443 1,257 596
Collateral received
(924) (3,114) 3,300
Life insurance contract policy liabilities
2
110 3,133 1,130
Other liabilities
(126) (292) 494
Total adjustments
4,401 (1,417) 5,567
Net cash inflows/(outflows) from operating activities
3
7,583 1,669 8,897
Cash flows from investing activities
Investment securities/available-for-sale assets:
4
Purchases (16,999) (10,323) (13,483)
Proceeds from sale or maturity
13,508 7,922 12,670
Proceeds from divestments
706 104 2,044
Proceeds from Zurich reinsurance arrangement
- 1,000 -
Proceeds from IOOF secured notes
800 - -
Other assets
(396) (162) 394
Net cash inflows/(outflows) from investing activities
(2,381) (1,459) 1,625
Cash flows from financing activities
Debt issuances:
5
Issue proceeds 16,982 10,383 14,692
Redemptions
(10,781) (6,154) (9,744)
Dividends paid
6
(2,242) (2,267) (2,296)
On market purchase of treasury shares
(112) - (114)
Share buy-back
6
(1,120) (748) (1,132)
Net cash inflows/(outflows) from financing activities
2,727 1,214 1,406
Net increase in cash and cash equivalents 7,929 1,424 11,928
Cash and cash equivalents at beginning of period 84,964 82,076 68,048
Effects of exchange rate changes on cash and cash equivalents
1,370 1,464 2,100
Cash and cash equivalents at end of period
7
94,263 84,964 82,076
1.
As a result of restatements impacting prior period balance sheet items, certain items in the Cash Flow Statement have restated accordingly. Refer Note 21 for further information.
2.
Investments backing policy liabilities and life insurance contract policy liabilities have been reclassified as held for sale.
3.
Net cash inflows/(outflows) from operating activities includes income taxes paid of $1,935 million (Sep 18 half: $1,858 million; Mar 18 half: $1,515 million).
4.
On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets were revised. Available-for-sale classification used in comparative periods ceases to exist
under AASB 9 and a new classification of investment securities was introduced. Refer Note 1 and 21 for further details.
5.
Non-cash changes in debt issuances includes fair value hedging loss of $1,459 million (Sep 18 half: $570 million gain; Mar 18 half: $873 million gain) and foreign exchange losses of $1,104
million (Sep 18 half: $2,732 million loss; Mar 18 half: $2,980 million loss).
6.
Shares purchased to satisfy the dividend reinvestment plan in the March 2018 half were reclassified from Share buy-back to Dividends paid to conform with current period presentation.
7.
Includes cash and cash equivalents recognised on the face of balance sheet of $93,996 million (Sep 18: $84,636 million; Mar 18: $82,071 million) and amounts recorded as part of assets
held for sale of $267 million (Sep 18: $328 million; Mar 18: $5 million).
The notes appearing on pages 86 to 119 form an integral part of the Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Australia and New Zealand Banking Group Limited
85
Ordinary
share
capital
1
Reserves
Retained
earnings
Share capital
and reserves
attributable to
shareholders of
the Company
Non-
controlling
interests
Total
shareholders'
equity
$M $M $M $M $M $M
As at 1 October 2017 29,088 37 29,834 58,959 116 59,075
Impact on transition to AASB 15 - - 22 22 - 22
Profit or loss from continuing operations - - 3,923 3,923 7 3,930
Profit or loss from discontinued operations - - (600) (600) - (600)
Other comprehensive income for the period from continuing operations - 511 21 532 3 535
Other comprehensive income for the period from discontinued operations - 10 - 10 - 10
Total comprehensive income for the period - 521 3,344 3,865 10 3,875
Transactions with equity holders in their capacity as equity holders:
2
Dividends paid - - (2,308) (2,308) - (2,308)
Dividend income on treasury shares held within the Group's
life insurance statutory funds
- - 12 12 - 12
Group share buy-back
3
(1,132) - - (1,132) - (1,132)
Other equity movements:
2
Treasury shares Wealth Australia adjustment 20 - - 20 - 20
Group employee share acquisition scheme (43) - - (43) - (43)
Other items - (17) 18 1 - 1
As at 31 March 2018 27,933 541 30,922 59,396 126 59,522
Profit or loss from continuing operations - - 3,172 3,172 9 3,181
Profit or loss from discontinued operations - - (95) (95) - (95)
Other comprehensive income for the period from continuing operations - (247) 3 (244) 7 (237)
Other comprehensive income for the period from discontinued operations - 8 - 8 - 8
Total comprehensive income for the period - (239) 3,080 2,841 16 2,857
Transactions with equity holders in their capacity as equity holders:
2
Dividends paid - - (2,277) (2,277) (2) (2,279)
Dividend income on treasury shares held within the Group's
life insurance statutory funds
- - 12 12 - 12
Group share buy-back
3
(748) - - (748) - (748)
Other equity movements:
2
Treasury shares Wealth Australia adjustment (22) - - (22) - (22)
Group employee share acquisition scheme 42 - - 42 - 42
Other items - 21 - 21 - 21
As at 30 September 2018 27,205 323 31,737 59,265 140 59,405
Impact on transition to AASB 9 - 14 (624) (610) - (610)
Profit or loss from continuing operations - - 3,243 3,243 9 3,252
Profit or loss from discontinued operations - - (70) (70) - (70)
Other comprehensive income for the period from continuing operations - 1,351 12 1,363 1 1,364
Other comprehensive income for the period from discontinued operations - 42 - 42 - 42
Total comprehensive income for the period - 1,393 3,185 4,578 10 4,588
Transactions with equity holders in their capacity as equity holders:
2
Dividends paid - - (2,254) (2,254) - (2,254)
Dividend income on treasury shares held within the Group's
life insurance statutory funds
- - 12 12 - 12
Group share buy-back
3
(1,120) - - (1,120) - (1,120)
Other equity movements:
2
Treasury shares Wealth Australia adjustment - - - - - -
Group employee share acquisition scheme (37) - - (37) - (37)
Other items - (21) 8 (13) - (13)
As at 31 March 2019 26,048 1,709 32,064 59,821 150 59,971
1.
No new shares were issued under the Dividend Reinvestment Plan (DRP) for the 2018 final dividend (nil shares for the 2018 Interim dividend; nil shares for the 2017 final dividend) as the
shares were purchased on-market and provided directly to the shareholders participating in the DRP. On-market share purchases for the DRP in the March 2019 half were $199 million (Sep
18 half: $200 million; Mar 18 half: $192 million).
2.
Current period and prior periods include discontinued operations.
3.
The Company has completed its $3.0 billion on-market share buy-back of ANZ ordinary shares purchasing $1,120 million worth of shares in the March 2019 half (Sep 18 half: $748 million;
Mar 18 half: $1,132 million) resulting in 42.0 million shares being cancelled in the March 2019 half (Sep 18 half: 26.6 million; Mar 18 half: 40.1 million).
The notes appearing on pages 86 to 119 form an integral part of the Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
86
1. Basis of preparation
These Condensed Consolidated Financial Statements:
have been prepared in accordance with the recognition and measurement requirements of Australian Accounting Standards (AASs);
should be read in conjunction with ANZ’s Annual Financial Statements for the year ended 30 September 2018 and any public announcements made
by the Parent Entity and its controlled entities (the Group) for the half year ended 31 March 2019 in accordance with the continuous disclosure
obligations under the Corporations Act 2001 and the ASX Listing Rules;
do not include all notes of the type normally included in ANZ’s Annual Financial Report;
are presented in Australian dollars unless otherwise stated; and
were approved by the Board of Directors on 30 April 2019.
i) Statement of Compliance
These Condensed Consolidated Financial Statements have been prepared in accordance with the Corporations Act 2001 and AASB 134 Interim
Financial Reporting which ensures compliance with IAS 34 Interim Financial Reporting.
ii) Accounting policies
These Condensed Consolidated Financial Statements have been prepared on the basis of accounting policies and using methods of computation
consistent with those applied in the 2018 ANZ Annual Financial Report with the exception of policies associated with new standards adopted during the
period as discussed below.
Discontinued operations are excluded from the results of the continuing operations and are presented as a single line item ‘profit/(loss) after tax from
discontinued operations’ in the Condensed Consolidated Income Statement. Notes to the Condensed Consolidated Income Statement have been
presented on a continuing basis. Assets and liabilities of discontinued operations have been presented as held for sale in the Condensed Consolidated
Balance Sheet as at 31 March 2019.
New standards adopted during the period
AASB 9 Financial Instruments (AASB 9)
The Group has applied AASB 9 effective from 1 October 2018 (with the exception of the ‘own credit’ requirements relating to financial liabilities
designated as measured at fair value, which were early adopted by the Group effective from 1 October 2013). In addition the Group chose to early adopt
AASB 2017-6 Amendments to Australian Accounting Standards – Prepayment Features with Negative Compensation (AASB 2017-6) effective from 1
October 2018.
AASB 9 and AASB 2017-6 stipulate new requirements for the impairment of financial assets, classification and measurement of financial assets and
financial liabilities and general hedge accounting. Details of the key new requirements are outlined below, and a reconciliation of the transitional impact at
1 October 2018 is set out in Note 21.
Impairment
AASB 9 introduces a new impairment model based on expected credit losses (ECL). This model is applied to:
Financial assets measured at amortised cost;
Debt instruments measured at fair value through other comprehensive income (FVOCI);
Lease receivables; and
Loan commitments and financial guarantees not measured at fair value through profit or loss (FVTPL).
Expected credit loss impairment model
The measurement of expected credit losses reflects an unbiased, probability weighted prediction which evaluates a range of scenarios and takes into
account the time value of money, past events, current conditions and forecasts of future economic conditions.
Expected credit losses are either measured over 12 months or the expected lifetime of the financial asset, depending on credit deterioration since
origination, according to the following three-stage approach:
Stage 1: At the origination of a financial asset, and where there has not been a significant increase in credit risk since origination, a provision
equivalent to 12 months ECL is recognised reflecting the expected credit losses resulting from default events that are possible within the next 12
months from the reporting date. For instruments with a remaining maturity of less than 12 months, expected credit losses are estimated based on
default events that are possible over the remaining time to maturity.
Stage 2: Where there has been a significant increase in credit risk since origination, a provision equivalent to lifetime ECL is recognised reflecting
expected credit losses resulting from all possible default events over the expected life of a financial instrument. If credit risk were to improve in a
subsequent period such that the increase in credit risk since origination is no longer considered significant, the exposure returns to a Stage 1
classification and a 12 month ECL applies.
Stage 3: Where there is objective evidence of impairment, a provision equivalent to lifetime ECL is recognised.
Expected credit losses are estimated on a collective basis for exposures in Stage 1 and Stage 2, and on either a collective or individual basis when
transferred to Stage 3.
Significant increase in credit risk (SICR)
Stage 2 assets are those that have experienced a significant increase in credit risk (SICR) since origination. In determining w
hat constitutes a SICR, the
Bank considers both qualitative and quantitative information:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
87
i. Internal credit rating grade
For the majority of portfolios, the primary indicator of a SICR is a significant deterioration in the internal credit rating grade of a facility since
origination and is measured by application of thresholds.
For non-retail portfolios, a SICR is determined by comparing the Customer Credit Rating (CCR) applicable to a facility at reporting date to the CCR at
origination of that facility. A CCR is assigned to each borrower which reflects the probability of default of the borrower and incorporates both
borrower and non-borrower specific information, including forward looking information. CCRs are subject to review at least annually or more
frequently when an event occurs which could affect the credit risk of the customer.
For retail portfolios, a SICR is determined by comparing each facility’s scenario weighted lifetime probability of default at the reporting date to the
scenario weighted lifetime probability of default at origination. The scenario weighted lifetime probability of default may increase significantly if:
there has been a deterioration in the economic outlook, or an increase in economic uncertainty; or
there has been a deterioration in the customer’s overall credit position, or ability to manage their credit obligations.
ii. Backstop criteria
The Bank uses 30 days past due arrears as a backstop criteria for both non-retail and retail portfolios. For retail portfolios only, facilities are required
to demonstrate three to six months of good payment behaviour prior to being allocated back to Stage 1.
Measurement of expected credit loss
ECL is calculated as the product of the following credit risk factors at a facility level, discounted to incorporate the time value of money:
Probability of default (PD) - the estimate of the likelihood that a borrower will default over a given period;
Exposure at default (EAD) - the expected balance sheet exposure at default taking into account repayments of principal and interest, expected
additional drawdowns and accrued interest; and
Loss given default (LGD) - the expected loss in the event of the borrower defaulting, expressed as a percentage of the facility's EAD, taking into
account direct and indirect recovery costs.
These credit risk factors are adjusted for current and forward looking information through the use of macro-economic variables.
Forward looking information
In applying forward looking information for estimating ECL, the Bank considers four probability-weighted forecast economic scenarios as follows:
(i) Base case scenario
The base case scenario is ANZ’s view of the most likely future macro-economic conditions. It reflects management’s assumptions used for strategic
planning and budgeting, and also informs the Group Internal Capital Adequacy Assessment Process (ICAAP) which is the process the Bank applies
in strategic and capital planning over a 3 year time horizon;
(ii) Upside and (iii) Downside scenarios
The upside and downside scenarios are fixed by reference to average economic cycle conditions (that is, they are not based on the economic
conditions prevailing at balance date) and are based on a combination of more optimistic (in the case of the upside) and pessimistic (in the case of
the downside) economic events and uncertainty over long term horizons; and
(iv) Severe downside scenario
The severe downside scenario is fixed by reference to average economic cycle conditions and accounts for the potentially severe impact of less likely
extremely adverse economic conditions. It reflects macro-economic conditions of a downturn economic event with a probability of occurrence once
every 25 years.
The four scenarios are described in terms of macro-economic variables used in the PD, LGD and EAD models (collectively the ECL models) depending
on the portfolio and country of the borrower. Examples of the variables include unemployment rates, GDP growth rates, house price indices, commercial
property price indices and consumer price indices.
Probability weighting each scenario is determined by management by considering risks and uncertainties surrounding the base case scenario, as well as
specific portfolio considerations where required. The Group’s Credit and Market Risk Committee (CMRC) is responsible for reviewing and approving
forecast economic scenarios and the associated probability weights applied to each scenario.
Where applicable, adjustments may be made to account for situations where known or expected risks have not been adequately addressed in the
modelling process. CMRC is responsible for approving such adjustments.
Expected Life
When estimating ECL for exposures in Stage 2 and 3, the Bank considers the expected lifetime over which it is exposed to credit risk.
For non-retail portfolios, the Bank uses the maximum contractual period as the expected lifetime for non-revolving credit facilities. For non-retail revolving
credit facilities, such as corporate lines of credit, the expected life reflects the Bank’s contractual right to withdraw a facility as part of a contractually
agreed annual review, after taking into account the applicable notice period.
For retail portfolios, the expected lifetime is determined using behavioural term, taking into account expected prepayment behaviour and substantial
modifications.
Definition of default, credit impaired and write-offs
The definition of default used in measuring expected credit losses is aligned to the definition used for internal credit risk management purposes across all
portfolios. This definition is also in line with the regulatory definition of default. Default occurs when there are indicators that a debtor is unlikely to fully
satisfy contractual credit obligations to the Group, or the exposure is 90 days past due.
Financial assets, including those that are well secured, are considered credit impaired for financial reporting purposes when they default.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
88
When there is no realistic probability of recovery, loans are written off against the related impairment allowance on completion of the Bank’s internal
processes and when all reasonably expected recoveries have been collected. In subsequent periods, any recoveries of amounts previously written-off are
credited to credit impairment charge in the income statement.
Modified financial assets
If the terms of a financial asset are modified or an existing financial asset is replaced with a new one for either credit or commercial reasons, an
assessment is made to determine if the changes to the terms of the existing financial asset are considered substantial. This assessment considers both
changes in cash flows arising from the modified terms as well as changes in the overall instrument risk profile; for example, changes in the principal
(credit limit), term, or type of underlying collateral. Where a modification is considered non-substantial, the existing financial asset is not derecognised
and its date of origination continues to be used to determine SICR. Where a modification is considered substantial, the existing financial asset is
derecognised and a new financial asset is recognised at its fair value on the modification date, which also becomes the date of origination used to
determine SICR for this new asset.
Classification and measurement
Financial assets - general
There are three measurement classifications for financial assets under AASB 9: amortised cost, fair value through profit or loss (FVTPL) and fair value
through other comprehensive income (FVOCI). Financial assets are classified into these measurement classifications on the basis of two criteria:
the business model within which the financial asset is managed; and
the contractual cash flow characteristics of the financial asset (specifically whether the contractual cash flows represent solely payments of principal
and interest).
The resultant financial asset classifications are as follows:
Amortised cost: Financial assets with contractual cash flows that comprise solely payments of principal and interest only and which are held in a
business model whose objective is to collect their cash flows;
FVOCI: Financial assets with contractual cash flows that comprise solely payments of principal and interest only and which are held in a business
model whose objective is to collect their cash flows or to sell; and
FVTPL: Any other financial assets not falling into the categories above are measured at FVTPL.
Fair Value Option for Financial Assets
A financial asset may be irrevocably designated at fair value through profit or loss on initial recognition when the designation eliminates or significantly
reduces an accounting mismatch that would otherwise arise.
Financial assets - equity instruments
Non-traded equity investments may be designated at FVOCI on an instrument by instrument basis. If this election is made, gains or losses are not
reclassified from other comprehensive income to profit or loss on disposal of the investment. However, gains or losses may be reclassified within equity.
Financial liabilities
The classification and measurement requirements for financial liabilities under AASB 9 are largely consistent with AASB 139 Financial Instruments:
Recognition and Measurement (AASB 139) with the exception that for financial liabilities designated as measured at fair value, gains or losses relating to
changes in the entity’s own credit risk are included in other comprehensive income, except where doing so would create or enlarge an accounting
mismatch in profit or loss. This part of the standard was early adopted by the Group on 1 October 2013.
Financial liabilities are measured at amortised cost, or fair value through profit or loss (when they are held for trading). Additionally, financial liabilities can
be designated at FVTPL where:
The designation eliminates or significantly reduces an accounting mismatch which would otherwise arise; or
A group of financial liabilities are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk
management strategy; or
The financial liability contains one or more embedded derivatives unless:
a) the embedded derivative does not significantly modify the cash flows that otherwise would be required by the contract, or
b) the embedded derivative is closely related to the host financial liability.
General hedge accounting
AASB 9 introduces new hedge accounting requirements which more closely align accounting with risk management activities undertaken when hedging
financial and non-financial risks. The Group has exercised an accounting policy choice to continue to apply the AASB 139 hedge accounting
requirements until the International Accounting Standards Board’s ongoing Dynamic Risk Management (macro hedging) project is completed.
AASB 15 Revenue from Contracts with Customers (AASB 15)
The Group adopted AASB 15 from 1 October 2018 which resulted in changes in accounting policies and adjustments to amounts recognised in the half
year condensed consolidated financial statements. The standard requires identification of distinct performance obligations within a contract, and
allocation of the transaction price of the contract to those performance obligations. Revenue is then recognised as each performance obligation is
satisfied. The standard also provides guidance on whether an entity is acting as a principal or an agent which impacts the presentation of revenue on a
gross or net basis. In accordance with the transitional provisions of AASB 15, the Group has adopted the full retrospective transition approach. Under this
approach, the cumulative effect of initially applying the standard has been recognised as an adjustment to opening retained earnings as at 1 October
2017 and comparative information for the 2018 reporting period has been restated.
The adoption of AASB 15 resulted in the following changes in accounting policy:
i) Recognition of trail commission revenue: trail commission revenue previously recognised over time is now recognised at the time the Group initially
distributes the underlying product to the customer where it is highly probable the revenue will not need to be reversed in future periods.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
89
This policy change resulted in an adjustment to the opening balances of Other assets $32 million, Deferred tax liabilities $10 million and Retained
earnings $22 million as at 1 October 2017 to recognise revenue that qualifies for upfront recognition under AASB 15 but was not previously
recognised under AASB 118 Revenue (AASB 118). The change did not impact net profit or earnings per share in the comparative periods.
ii) Presentation: Certain credit card loyalty costs and other costs will be presented as operating expenses where the Group has assessed that it is
acting as principal (rather than an agent). Previously these costs were presented as a reduction of other operating income. In addition, certain
incentives received from card scheme providers related to card marketing activities will be presented as operating income where the Group has
assessed that it is acting as principal (rather than an agent). Previously these incentives were presented as a reduction of operating expenses.
The presentation of these costs under AASB 15 increased other operating income and operating expenses by $91 million and $62 million in the
comparative periods ending 30 September 2018 and 31 March 2018 respectively. The changes did not impact net profit or earnings per share in the
comparative periods.
iii) Basis of measurement
The financial information has been prepared in accordance with the historical cost basis except that the following assets and liabilities are stated at their
fair value:
derivative financial instruments as well as, in the case of fair value hedging, the fair value adjustment on the underlying hedged exposure;
financial assets and liabilities held for trading;
financial assets and liabilities designed at fair value through profit and loss;
available-for-sale financial assets (applicable prior to 1 October 2018);
financial assets at fair value through other comprehensive income (applicable from 1 October 2018);
assets and liabilities held for sale (except those at carrying value as per Note 11).
In accordance with AASB 1038 Life Insurance Contracts, life insurance liabilities are measured using the Margin on Services model.
In accordance with AASB 119 Employee Benefits, defined benefit obligations are measured using the Projected Unit Credit method.
iv) Use of estimates, assumptions and judgements
The preparation of these Condensed Consolidated Financial Statements requires the use of management judgement, estimates and assumptions that
affect reported amounts and the application of accounting policies. Discussion of the critical accounting estimates and judgements, which include
complex or subjective decisions or assessments are provided in Note 1 of the 2018 ANZ Annual Financial Report. Such estimates and judgements are
reviewed on an ongoing basis.
Investments in associates
At 31 March 2019, the impairment assessment of non-lending assets identified that one of the Group’s associate investments AMMB Holdings Berhad
(AmBank) had indicators of impairment. Although its market value (based on share price) was below its carrying value, no impairment was recognised as
the carrying value was supported by its value in use (VIU).
The VIU calculation is sensitive to a number of key assumptions, including discount rates, long term growth rates, future profitability and capital levels. A
change in key assumptions could have an adverse impact on the recoverable amount of the investment. The key assumptions used in the VIU
calculations are outlined below:
As at 31 Mar 19
AmBank
Carrying value supported by VIU calculation ($m)
1,497
Post-tax discount rate
11.2%
Terminal growth rate
4.8%
Expected NPAT growth (compound annual growth rate - 5 years)
4.5%
Core equity tier 1 ratio
11.8% to 12.5%
Investment securities (comparative information shown in available-for-sale assets)
As a result of persistent illiquidity of the quoted share price of Bank of Tianjin (BoT), the Group determines the fair value based on a valuation model
using comparable bank pricing multiples. Judgement is required in both the selection of the model and inputs used.
Customer remediation provision
At 31 March 2019, the Group has recognised provisions of $698 million (Sep 18: $602 million; Mar 18: $141 million) in respect of customer remediation
and related costs.
Determining the amount of the provisions, which represent management’s best estimate of the cost of settling the identified matters, requires the exercise
of significant judgement. It will often be necessary to form a view on a number of different assumptions, including the number of impacted customers, the
average refund per customer and the associated remediation costs.
Consequently, the appropriateness of the underlying assumptions is reviewed on a regular basis against actual experience and other relevant evidence,
and adjustments are made to the provisions where appropriate.
Assets and liabilities held for sale
When classifying assets and liabilities as held for sale, judgement is required when assessing whether it is highly probable that contracted sales will
complete within 12 months after balance date, particularly when the sale is subject to third party approvals. Management constantly reviews the status of
each sale transaction to ensure the classification remains appropriate.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
90
Management is required to exercise significant judgement when assessing the fair value less costs to sell for assets and liabilities held for sale. The
judgemental factors include determining: costs to sell, allocation of goodwill, indemnities provided under the sale contract and consideration received -
particularly where elements of consideration are contingent in nature. Any impairment we record is based on the best available evidence of fair value
compared to the carrying value before the impairment. The final sale price may be different to the fair value we estimate when recording the impairment.
Management regularly assess the appropriateness of the underlying assumptions against actual outcomes and other relevant evidence and adjustments
are made to fair value where appropriate.
Useful lives of software
Management judgement is used to assess the useful life of software assets. A number of factors can influence the useful lives of software assets,
including changes to business strategy, significant divestments and the underlying pace of technological change.
The Group reassess the useful lives of software assets on an annual basis. During the September 2018 half, certain software assets in the Institutional
and Australia divisions had their useful life reassessed.
iv) Rounding of amounts
The amounts contained in these Condensed Consolidated Financial Statements have been rounded to the nearest million dollars, except where
otherwise indicated, as permitted by Australian Securities and Investments Commission Corporations Instrument 2016/191.
v) Future accounting developments
General hedge accounting
AASB 9 introduces new hedge accounting requirements which more closely align accounting with risk management activities undertaken when hedging
financial and non-financial risks.
AASB 9 provides the Group with an accounting policy choice to continue to apply the AASB 139 Financial Instruments: Recognition and Measurement
(AASB 139) hedge accounting requirements until the International Accounting Standards Board’s ongoing project on macro hedge accounting is
completed.
AASB 16 Leases (AASB 16)
The final version of AASB 16 was issued in February 2016 and is not effective for the Group until 1 October 2019. AASB 16 requires a lessee to
recognise its:
right to use the underlying leased asset, as a right-of-use asset; and
obligation to make lease payments as a lease liability.
AASB 16 substantially carries forward the lessor accounting requirements in AASB 117 Leases.
The Group is in the process of assessing the impact of the application of AASB 16 and is not yet able to reasonably estimate the impact on its financial
statements.
AASB 17 Insurance Contracts (AASB 17)
The final version of AASB 17 was issued in July 2017 and is not effective for the Group until 1 October 2021. It will replace AASB 4 Insurance Contracts,
AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts. AASB 17 establishes principles for the recognition, measurement,
presentation and disclosure of insurance contracts.
The measurement, presentation and disclosure requirements under AASB 17 are significantly different from current accounting standards. Although the
overall profit recognised in respect of insurance contracts will not change, it is expected that the timing of profit recognition will change.
The Group anticipates that this standard will impact profit measurement of businesses being sold which form part of discontinued operations. This
standard is not expected to have a material impact on continuing operations.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
91
2. Income
Half Year
1
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Interest income 15,970 15,478 14,849 3% 8%
Interest expense
(8,493) (8,136) (7,322) 4% 16%
Major bank levy
(178) (178) (177) 0% 1%
Net interest income
7,299 7,164 7,350 2% -1%
i) Fee and commission income
Lending fees
2
303 309 343 -2% -12%
Non-lending fees
1,507 1,529 1,525 -1% -1%
Commissions
48 46 46 4% 4%
Funds management income
128 108 140 19% -9%
Fee and commission income
1,986 1,992 2,054 0% -3%
Fee and commission expense (721) (663) (673) 9% 7%
Net fee and commission income
1,265 1,329 1,381 -5% -8%
ii) Other income
Net foreign exchange earnings and other financial instruments income
3
380 896 770 -58% -51%
Sale of Asia Retail and Wealth businesses
- - 99 n/a -100%
Sale of SRCB
- - 233 n/a -100%
Sale of MCC
- 121 119 -100% -100%
Sale of Cambodia JV
- (42) - -100% n/a
Sale of PNG Retail, Commercial & SME
- (19) - -100% n/a
Sale of OPL NZ
82 (3) - large n/a
Sale of Paymark
37 - - n/a n/a
Other
4
22 73 57 -70% -61%
Other income
521 1,026 1,278 -49% -59%
Other operating income 1,786 2,355 2,659 -24% -33%
iii) Net income from insurance business
Investment income - (1) 1 -100% -100%
Insurance premium income
91 155 141 -41% -35%
Commission expense
4 2 6 100% -33%
Claims
(26) (36) (31) -28% -16%
Changes in policy liabilities
8 13 23 -38% -65%
Net income from insurance business
77 133 140 -42% -45%
iv) Share of associates' profit 131 95 88 38% 49%
Operating income
5
9,293 9,747 10,237 -5% -9%
1.
On adoption of AASB 15, the Group reclassified certain items previously netted which are now presented gross in operating income and operating expenses. Comparative information has
been restated accordingly which increased total operating income by $91 million for the September 2018 half and $62 million for the March 2018 half.
2.
Lending fees exclude fees treated as part of the effective yield calculation in interest income.
3.
Includes fair value movements (excluding realised and accrued interest) on derivatives not designated as accounting hedges entered into to manage interest rate and foreign exchange risk
on funding instruments, ineffective portions of cash flow hedges, and fair value movements in financial assets and liabilities designated at fair value through profit and loss.
4.
Other income includes external dividend income of nil (Sep 18 half: $39 million; Mar 18 half: nil).
5.
Includes charges associated with customer remediation of $64 million for the March 2019 half (Sep 18 half: $196 million; Mar 18 half: $32 million).
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
92
3. Operating expenses
Half Year
1
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
i) Personnel
Salaries and related costs
2,127 2,092 2,133 2% 0%
Superannuation costs
146 141 149 4% -2%
Other
97 123 120 -21% -19%
Personnel expenses
2,370 2,356 2,402 1% -1%
ii) Premises
Rent 232 236 232 -2% 0%
Other
174 180 163 -3% 7%
Premises expenses
406 416 395 -2% 3%
iii) Technology
Depreciation and amortisation
337 371 368 -9% -8%
Licences and outsourced services
333 348 327 -4% 2%
Accelerated amortisation
2
- 251 - -100% n/a
Other
94 114 120 -18% -22%
Technology expenses
764 1,084 815 -30% -6%
iv) Restructuring 51 149 78 -66% -35%
v) Other
Advertising and public relations
97 140 108 -31% -10%
Professional fees
229 286 244 -20% -6%
Freight, stationery, postage and communication
107 107 116 0% -8%
Royal Commission legal costs
13 39 16 -67% -19%
Other
328 351 299 -7% 10%
Other expenses
774 923 783 -16% -1%
Operating expenses
3
4,365 4,928 4,473 -11% -2%
1.
On adoption of AASB 15, the Group reclassified certain items previously netted which are now presented gross in operating income and operating expenses. Comparative information has
been restated accordingly which increased total operating expense by $91 million for the September 2018 half and $62 million for the March 2018 half.
2.
Accelerated amortisation charge relates to certain software assets in the Institutional and Australia divisions following the reassessment of their useful lives.
3.
Includes customer remediation expenses of $36 million for the March 2019 half (Sep 18 half: $156 million; Mar 18 half: $35 million).
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
93
4. Income tax expense
Reconciliation of the prima facie income tax expense on pre-tax profit with the income tax expense recognised in the profit and loss.
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Profit before income tax from continuing operations 4,536 4,539 5,356
0% -15%
Prima facie income tax expense at 30%
1,361 1,362 1,607
0% -15%
Tax effect of permanent differences:
Sale of SRCB
- - (84)
n/a -100%
Sale of MCC
- (41) (37)
-100% -100%
Sale of Cambodia JV
- 13 -
-100% n/a
Sale of PNG Retail, Commercial & SME
- 8 -
-100% n/a
Sale of OPL NZ
(10) - -
n/a n/a
Sale of Paymark
(10) - -
n/a n/a
Share of associates' profit
(39) (29) (26)
34% 50%
Interest on convertible instruments
33 33 34
0% -3%
Overseas tax rate differential
(64) (13) (45)
large 42%
Provision for foreign tax on dividend repatriation
9 27 5
-67% 80%
Tax provisions no longer required
- (18) (23)
-100% -100%
Other
- 13 (5) -100% -100%
Subtotal
1,280 1,355 1,426 -6% -10%
Income tax (over)/under provided in previous years 4 3 - 33% n/a
Income tax expense
1,284 1,358 1,426 -5% -10%
Australia 771 850 949 -9% -19%
Overseas 513 508 477 1% 8%
Income tax expense
1,284 1,358 1,426 -5% -10%
Effective tax rate 28.3% 29.9% 26.6%
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
94
5. Dividends
Dividend per ordinary share (cents) - including discontinued operations
Half Year Movement
Mar 19 Sep 18 Mar 18
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Interim (fully franked) 80 - 80 n/a 0%
Final (fully franked)
- 80 - n/a n/a
Total
80 80 80 0% 0%
Ordinary share dividend ($M)
1
Interim dividend
- 2,317 - n/a n/a
Final dividend
2,295 - 2,350 n/a -2%
Bonus option plan adjustment
(41) (40) (42) 3% -2%
Total
2,254 2,277 2,308 -1% -2%
Ordinary share dividend payout ratio
(%)
2
71.4% 74.6% 69.7%
1.
Dividends paid to ordinary equity holders of the Company. Excludes dividends paid by subsidiaries of the Group to non-controlling equity holders (Mar 19 half: nil, Sep 18 half: $1.6 million,
Mar 18 half: nil).
2.
Dividend payout ratio is calculated using the proposed 2019 interim dividend of $2,267 million (not shown in the above table). The proposed 2019 interim dividend of $2,267 million is based
on the forecast number of ordinary shares on issue at the dividend record date. Dividend payout ratios for the September 2018 and March 2018 halves were calculated using actual
dividend paid of $2,295 million and $2,317 million respectively.
Ordinary Shares
The Directors propose that an interim dividend of 80 cents be paid on each eligible fully paid ANZ ordinary share on 1 July 2019. The proposed 2019
interim dividend will be fully franked for Australian tax purposes. New Zealand imputation credits of NZ 9 cents per ordinary share will also be attached.
ANZ has a Dividend Reinvestment Plan (DRP) and a Bonus Option Plan (BOP) that will operate in respect of the proposed 2019 interim dividend.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
95
6. Earnings per share
Half Year Movement
Mar 19 Sep 18 Mar 18
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Earnings Per Share (EPS) - Basic
Earnings Per Share (cents)
111.7 107.3 114.2 4% -2%
Earnings Per Share (cents) from continuing operations
1
114.1 110.6 134.8 3% -15%
Earnings Per Share (cents) from discontinued operations
(2.4) (3.3) (20.6) -27% -88%
Earnings Per Share (EPS) - Diluted
Earnings Per Share (cents)
106.4 103.2 108.6 3% -2%
Earnings Per Share (cents) from continuing operations
1
108.7 106.2 127.4 2% -15%
Earnings Per Share (cents) from discontinued operations
(2.3) (3.0) (18.8) -23% -88%
Reconciliation of earnings used in earnings per share calculations
Basic:
Profit for the period ($M)
3,182 3,086 3,330 3% -4%
Less: Profit attributable to non-controlling interests ($M)
9 9 7 0% 29%
Earnings used in calculating basic earnings per share ($M)
3,173 3,077 3,323 3% -5%
Less: Profit/(Loss) after tax from discontinued operations ($M)
(70) (95) (600) -26% -88%
Earnings used in calculating basic earnings per share from continuing
operations ($M)
3,243 3,172 3,923 2% -17%
Diluted:
Earnings used in calculating basic earnings per share ($M)
3,173 3,077 3,323 3% -5%
Add: Interest on convertible subordinated debt ($M)
137 138 141 -1% -3%
Earnings used in calculating diluted earnings per share ($M)
3,310 3,215 3,464 3% -4%
Less: Profit/(Loss) after tax from discontinued operations ($M)
(70) (95) (600) -26% -88%
Earnings used in calculating diluted earnings per share from
continuing operations ($M)
3,380 3,310 4,064 2% -17%
Reconciliation of weighted average number of ordinary shares
(WANOS) used in earnings per share calculations
1,2
WANOS used in calculating basic earnings per share (M)
2,841.3 2,867.1 2,909.6 -1% -2%
Add: Weighted average dilutive potential ordinary shares (M)
Convertible subordinated debt (M)
260.5 240.6 269.7 8% -3%
Share based payments (options, rights and deferred shares) (M)
8.4 9.5 10.0 -12% -16%
WANOS used in calculating diluated earnings per share (M)
3,110.2 3,117.2 3,189.3 0% -2%
1.
Post completion of the successor funds transfer performed in preparation for the sales of the Group’s wealth businesses to Zurich and IOOF (see Note 11), Treasury shares held in Wealth
Australia will cease to be eliminated in the Group’s consolidated financial statements and will be included in the denominator used in calculating earnings per share. If the weighted average
number of Treasury shares held in Wealth Australia was included in the denominator used in calculating earnings per share from continuing operations for the half year ended 31 March
2019, basic earnings per share from continuing operations would have been 113.5 cents (Sep 18 half: 110.1 cents; Mar 18 half: 134.1 cents) and diluted earnings per share from continuing
operations would have been 108.1 cents (Sep 18 half: 105.7 cents; Mar 18 half: 126.8 cents).
2.
Weighted average number of ordinary shares excludes the weighted average number of Treasury shares held in ANZEST and Wealth Australia as summarised in the table below:
Mar 19 half
(Million)
Sep 18 half
(Million)
Mar 18 half
(Million)
ANZEST Pty Ltd 4.9 5.5 6.3
Wealth Australia 15.6 15.1 15.0
Total Treasury shares 20.5 20.6 21.3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
96
7. Segment analysis
i) Description of segments
The Group operates on a divisional structure with six continuing divisions: Australia, New Zealand, Institutional, Pacific, Wealth Australia, and TSO and
Group Centre. For further information on the composition of divisions refer to the Definitions on page 137.
The presentation of divisional results has been impacted by a number of methodology and structural changes during the period. Prior period
comparatives have been restated as follows:
The methodology for allocating earnings on capital at a business unit level has changed from Economic Capital to Regulatory Capital. While neutral
at a Group level, this change has impacted net interest income at the divisional level;
The residual Asia Retail and Wealth businesses have been transferred from the former Asia Retail and Pacific division to TSO and Group Centre
division. The remaining segment has been renamed Pacific division; and
ANZ’s lenders mortgage insurance, share investing and general insurance distribution businesses which were previously part of the continuing
operations of Wealth Australia now form part of the Australia division (ANZ’s financial planning business continues to be part of the continuing
operations of the Wealth Australia division).
The divisional results were also impacted by the adoption of two new accounting standards:
AASB 9 - the Group implemented an expected credit loss methodology for impairment of financial assets, and revised the classification and
measurement of certain financial assets from 1 October 2018. Consequently, the Group increased its provision for credit impairment by $813 million
through opening retained earnings. Comparative information has not been restated.
AASB 15 - the main impact of adoption is that certain items previously netted are now presented gross in operating income and operating expenses.
Comparative information has been restated which increased total operating income for the September 2018 half by $91 million (Mar 18 half: $62
million) and increased total operating expenses by the same amount.
Other than those described above, there have been no other significant changes. The divisions reported below are consistent with internal reporting
provided to the chief operating decision maker, being the Chief Executive Officer.
ii) Operating segments
ANZ measures the performance of continuing segments on a cash profit basis. To calculate cash profit, certain non-core items are removed from
statutory profit. Details of these items are included in the ‘Other items’ section of this note. Transactions between divisions across segments within ANZ
are conducted on an arm’s-length basis and disclosed as part of the income and expenses of these segments.
For information on discontinued operations please refer to Note 11.
Australia
$M
Institutional
$M
New
Zealand
$M
Wealth
Australia
$M
Pacific
$M
TSO and
Group
Centre
$M
Other
items
1
$M
Group
Total
$M
March 2019 Half Year
Net interest income 4,091 1,579 1,385 1 68 175 - 7,299
Net fee and commission income
- Lending fees 144 144 8 - 7 - - 303
- Non-lending fees
708 435 354 - 20 (10) - 1,507
- Commissions
22 - 21 18 - (13) - 48
- Funds management income
2 1 120 8 - (3) - 128
- Fee and commission expense
(322) (168) (227) - (4) - - (721)
Net income from insurance business
52 - 18 - - - 7 77
Other income
18 714 4 - 27 218 (460) 521
Share of associates’ profit
1 - 4 - - 126 - 131
Operating income
2
4,716 2,705 1,687 27 118 493 (453) 9,293
Profit after tax from continuing operations 1,733 1,012 753 (30) 33 63 (321) 3,243
Profit/(Loss) after tax from discontinued operations - - - (17) - (33) (20) (70)
Profit after tax attributable to shareholders
1,733 1,012 753 (47) 33 30 (341) 3,173
1.
In evaluating the performance of the operating segments, certain items are removed from statutory profit where they are not considered integral to the ongoing performance of the segment
and are evaluated separately.
2.
On adoption of AASB 15, the Group reclassified certain items previously netted which are now presented gross in operating income and operating expenses. Comparative information has
been restated accordingly which increased total operating income by $91 million for the September 2018 half and $62 million for the March 2018 half.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
97
Australia
$M
Institutional
$M
New
Zealand
$M
Wealth
Australia
$M
Pacific
$M
TSO and
Group
Centre
$M
Other
items
1
$M
Group
Total
$M
September 2018 Half Year
Net interest income 4,122 1,513 1,342 1 66 120 - 7,164
Net fee and commission income
- Lending fees 158 136 8 - 7 - - 309
- Non-lending fees 768 409 326 - 20 6 - 1,529
- Commissions 18 - 23 21 - (16) - 46
- Funds management income - 2 118 (8) - (4) - 108
- Fee and commission expense (300) (147) (210) - (4) (2) - (663)
Net income from insurance business 70 1 57 - - - 5 133
Other income 9 634 2 (1) 30 107 245 1,026
Share of associates’ profit (1) - 4 - - 92 - 95
Operating income
2
4,844 2,548 1,670 13 119 303 250 9,747
Profit after tax from continuing operations 1,726 713 772 (57) 39 (199) 178 3,172
Profit/(Loss) after tax from discontinued operations - - - (51) - (14) (30) (95)
Profit after tax attributable to shareholders 1,726 713 772 (108) 39 (213) 148 3,077
March 2018 Half Year
Net interest income 4,325 1,480 1,309 1 65 170 - 7,350
Net fee and commission income
- Lending fees 195 133 7 - 7 1 - 343
- Non-lending fees 726 423 331 - 19 26 - 1,525
- Commissions 21 - 19 23 - (17) - 46
- Funds management income 6 3 112 24 - (5) - 140
- Fee and commission expense (309) (142) (207) - (4) (11) - (673)
Net income from insurance business 57 - 60 (1) - 10 14 140
Other income 32 614 20 2 25 232 353 1,278
Share of associates’ profit - - 1 - - 87 - 88
Operating income
2
5,053 2,511 1,652 49 112 493 367 10,237
Profit after tax from continuing operations 1,983 767 749 (26) 33 (13) 430 3,923
Profit/(Loss) after tax from discontinued operations - - - (585) - (32) 17 (600)
Profit after tax attributable to shareholders 1,983 767 749 (611) 33 (45) 447 3,323
1.
In evaluating the performance of the operating segments, certain items are removed from statutory profit where they are not considered integral to the ongoing performance of the segment
and are evaluated separately.
2.
On adoption of AASB 15, the Group reclassified certain items previously netted which are now presented gross in operating income and operating expenses. Comparative information has
been restated accordingly which increased total operating income by $91 million for the September 2018 half and $62 million for the March 2018 half.
iii) Other items
The table below sets out the profit after tax impact of other items which are removed from statutory profit to reflect the cash profit of each segment.
Half Year Movement
Item gains/(losses) Related segment
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Revaluation of policy liabilities New Zealand, TSO and Group Centre (77) 4 10
large large
Economic hedges Institutional, TSO and Group Centre
(185) 124 124 large large
Revenue and expense hedges TSO and Group Centre
(60) 49 (40) large 51%
Structured credit intermediation trades Institutional
1 1 3 0% -67%
Sale of SRCB TSO and Group Centre
- - 333 n/a -100%
Total profit after tax from continuing operations (321) 178 430 large large
Treasury shares adjustment Wealth Australia 18 (30) 23 large -22%
Revaluation of policy liabilities Wealth Australia (38) - (6) n/a large
Total profit after tax from discontinued operations (20) (30) 17 -33% large
Total profit after tax (341) 148 447 large large
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
98
8. Net loans and advances
As at Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Australia
Overdrafts 5,832 5,741 5,843 2% 0%
Credit cards outstanding
8,168 8,372 8,629 -2% -5%
Commercial bills outstanding
6,441 6,861 7,467 -6% -14%
Term loans - housing
268,766 271,554 270,631 -1% -1%
Term loans - non-housing
132,733 134,503 125,901 -1% 5%
Lease receivables
966 1,059 1,080 -9% -11%
Hire purchase contracts
561 548 893 2% -37%
Total Australia
423,467 428,638 420,444 -1% 1%
Asia, Pacific, Europe & America
Overdrafts 611 491 538 24% 14%
Credit cards outstanding
12 12 13 0% -8%
Term loans - housing
770 767 729 0% 6%
Term loans - non-housing
61,405 59,446 53,971 3% 14%
Lease receivables
305 180 210 69% 45%
Other
13 14 17 -7% -24%
Total Asia, Pacific, Europe & America
63,116 60,910 55,478 4% 14%
New Zealand
Overdrafts 1,040 829 809 25% 29%
Credit cards outstanding
1,552 1,506 1,558 3% 0%
Term loans - housing
79,410 73,833 73,751 8% 8%
Term loans - non-housing
42,930 40,456 41,306 6% 4%
Lease receivables
162 168 182 -4% -11%
Hire purchase contracts
1,592 1,473 1,411 8% 13%
Total New Zealand
126,686 118,265 119,017 7% 6%
Sub-total 613,269 607,813 594,939 1% 3%
Unearned income (446) (430) (441) 4% 1%
Capitalised brokerage/mortgage origination fees
1
947 997 1,044 -5% -9%
Gross loans and advances (including assets reclassified as held for sale)
613,770 608,380 595,542 1% 3%
Allowance for expected credit losses (refer to Note 9)
2,3,4
(3,627) (2,943) (3,073) 23% 18%
Net loans and advances (including assets reclassified as held for sale)
610,143 605,437 592,469 1% 3%
Net loans and advances held for sale (refer to Note 11) (888) (999) (3,001) -11% -70%
Net loans and advances
609,255 604,438 589,468 1% 3%
1.
Capitalised brokerage/mortgage origination fees are amortised over the expected life of the loan.
2.
On adoption of AASB 9 on 1 October 2018, the Group increased the collectively assessed provision by $813 million. Comparative information has not been restated. Refer to Note 21 for
further details.
3.
$500 million of collectively assessed provisions for credit impairment attributable to off-balance sheet credit related commitments at 30 September 2018 (Mar 18: $522 million) were
reclassified from Net loans and advances at amortised cost to Other provisions to enhance comparability with current period presentation.
4.
Provision for credit impairment includes individually assessed provisions against off balance-sheet credit exposures of $26 million as at 31 March 2019 (Sep 18: $26 million; Mar 18: $26
million).
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
99
9. Allowance for expected credit losses
As described in Note 1, the Group adopted AASB 9 effective from 1 October 2018 which resulted in the application of an expected credit loss (ECL)
model for measuring impairment of financial assets and amendments to the presentation of credit impairment information for the March 2019 half.
Comparative information has not been restated.
The following tables present the movement in the allowance for ECL (including allowance for ECL reclassified as held for sale) for the March 2019 half.
Net loans and advances - at amortised cost
Allowance for ECL is included in Net loans and advances.
Stage 3
Stage 1
$M
Stage 2
$M
Collectively
assessed
$M
Individually
assessed
$M
Total
$M
As at 1 October 2018 920 1,391 359 894 3,564
Transfer between stages 133 (228) (53) 148 -
New and increased provisions (net of releases)
(124) 244 74 475 669
Write-backs
- - - (152) (152)
Bad debts written off (excluding recoveries)
- - - (498) (498)
Foreign currency translaton and other movements
11 8 1 (2) 18
As at 31 March 2019
940 1,415 381 865 3,601
Investment securities - debt securities at amortised cost
Allowance for ECL is included in Investment securities.
Stage 3
Stage 1
$M
Stage 2
$M
Collectively
assessed
$M
Individually
assessed
$M
Total
$M
As at 1 October 2018 9 2 - - 11
Transfer between stages - - - - -
New and increased provisions (net of releases)
2 (1) - - 1
Write-backs
- - - - -
Bad debts written off (excluding recoveries)
- - - - -
Foreign currency translation and other movements
- - - - -
As at 31 March 2019
11 1 - - 12
Investment securities - debt securities at FVOCI
Allowance for ECL does not change the carrying amount which remains at fair value. Instead, the allowance for ECL is recognised in Other
Comprehensive Income (OCI), with a corresponding charge to profit or loss.
Stage 3
Stage 1
$M
Stage 2
$M
Collectively
assessed
$M
Individually
assessed
$M
Total
$M
As at 1 October 2018 14 - - - 14
Transfer between stages - - - - -
New and increased provisions (net of releases)
(3) - - - (3)
Write-backs
- - - - -
Bad debts written off (excluding recoveries)
- - - - -
Foreign currency translation and other movements
- - - - -
As at 31 March 2019
11 - - - 11
Off-balance sheet commitments - undrawn and contingent facilities
The collectively assessed allowance for ECL is included in Provisions. The individually assessed allowance for ECL is included in Net loans and
advances.
Stage 3
Stage 1
$M
Stage 2
$M
Collectively
assessed
$M
Individually
assessed
$M
Total
$M
As at 1 October 2018 474 166 15 26 681
Transfer between stages 19 (19) - - -
New and increased provisions (net of releases)
(34) 3 (1) 1 (31)
Write-backs
- - - - -
Bad debts written off (excluding recoveries)
- - - - -
Foreign currency translation and other movements
5 2 - (1) 6
As at 31 March 2019
464 152 14 26 656
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
100
9. Allowance for expected credit losses, cont’d
2018 Provision for credit impairment disclosures under AASB 139
The below disclosure does not reflect the adoption of AASB 9 and are prepared under the requirements of the previous AASB 139.
Half Year
Sep 18
$M
Mar 18
$M
Individually assessed provision
Balance at start of period 1,016 1,136
New and increased provisions 716 728
Write-backs (234) (191)
Adjustment for foreign currency translation movements and transfers 5 1
Discount unwind (10) (7)
Bad debts written-off (573) (651)
Total individually assessed provision 920 1,016
Collectively assessed provision
Balance at start of period 2,579 2,662
Charge/(release) to Income Statement (63) (22)
Adjustment for foreign currency translation movements and transfers 7 18
Asia Retail and Wealth businesses divestment - (79)
Total collectively assessed provision 2,523 2,579
Unfunded portion reclassified to provisions
1
(500) (522)
Total collectively assessed provision 2,023 2,057
Total provision for credit impairment 2,943 3,073
1.
$500 million of collectively assessed provisions for credit impairment attributable to off-balance sheet credit related commitments at 30 September 2018 (Mar 18: $522 million) were
reclassified from Net loans and advances at amortised cost to Other provisions to enhance comparability with current period presentation.
Credit impairment charge/(release) analysis under AASB 9
Half Year
Mar 19
$M
New and increased provisions (net of releases)
- Collectively assessed 12
- Individually assessed
624
Write-backs
(152)
Recoveries of amounts previously written off
(93)
Total credit impairment charge
391
Less: credit impairment charge/(release) from discontinued operations (1)
Total credit impairment charge from continuing operations
392
2018 Credit impairment charge/(release) analysis under AASB 139
The below disclosures do not reflect the adoption of AASB 9 and are prepared under the requirements of the previous AASB 139.
Half Year
Sep 18
$M
Mar 18
$M
New and increased individual provisions 716 728
Write-backs (234) (191)
Recoveries of amounts previously written off (139) (107)
Individually assessed credit impairment charge 343 430
Collectively assessed credit impairment charge/(release) (63) (22)
Credit impairment charge 280 408
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
101
10. Deposits and other borrowings
As at Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Australia
Certificates of deposit 39,481 39,671 43,157 0% -9%
Term deposits
77,714 75,551 75,116 3% 3%
On demand and short term deposits
180,863 189,287 190,473 -4% -5%
Deposits not bearing interest
12,202 11,931 11,303 2% 8%
Deposits from banks and securities sold under repurchase agreements
49,964 41,480 37,718 20% 32%
Commercial paper
12,530 14,742 21,658 -15% -42%
Total Australia
372,754 372,662 379,425 0% -2%
Asia, Pacific, Europe & America
Certificates of deposit 3,215 2,242 5,234 43% -39%
Term deposits
94,396 92,145 77,335 2% 22%
On demand and short term deposits
19,930 18,056 19,557 10% 2%
Deposits not bearing interest
5,234 4,993 4,362 5% 20%
Deposits from banks and securities sold under repurchase agreements
34,705 30,738 30,756 13% 13%
Total Asia, Pacific, Europe & America
157,480 148,174 137,244 6% 15%
New Zealand
Certificates of deposit 874 833 1,897 5% -54%
Term deposits
50,890 46,986 44,810 8% 14%
On demand and short term deposits
41,011 38,106 39,580 8% 4%
Deposits not bearing interest
10,383 9,365 9,334 11% 11%
Deposits from banks and securities sold under repurchase agreements
245 473 1,543 -48% -84%
Commercial paper and other borrowings
2,896 3,130 3,297 -7% -12%
Total New Zealand
106,299 98,893 100,461 7% 6%
Total deposits and other borrowings (including liabilities reclassified as held for sale) 636,533 619,729 617,130 3% 3%
Deposits and other borrowings held for sale (refer to Note 11) (1,544) (1,579) (900) -2% 72%
Total deposits and other borrowings
634,989 618,150 616,230 3% 3%
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
102
11. Discontinued operations and assets and liabilities held for sale
i) Discontinued operations
On 17 October 2017, the Group announced it had agreed to sell its OnePath pensions and investments (OnePath P&I) business and aligned dealer
groups (ADG) businesses to IOOF Holdings Limited (IOOF). The sale of the aligned dealer groups business completed on 1 October 2018. The
completion of the remaining OnePath P&I business, which is dependent on the receipt of all necessary approvals, is expected to occur before the end of
the March 2020 half.
On 12 December 2017, ANZ announced that it had agreed to the sale of its life insurance business to Zurich Financial Services Australia (Zurich) and
regulatory approval was obtained on 10 October 2018. The transaction is subject to closing conditions and ANZ expects it to complete in the first half of
the 2019 calendar year.
As a result of the sale transactions outlined above, the financial results of the businesses to be divested and associated Group reclassification and
consolidation impacts are treated as discontinued operations from a reporting perspective. This impacts the current and comparative financial information
for Wealth Australia and TSO and Group Centre divisions.
Details of the financial performance and cash flows of discontinued operations are shown below.
Income Statement
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net interest income (57) - -
n/a n/a
Other operating income
1,2
199 310 (229)
-36% large
Operating income
142 310 (229)
-54% large
Operating expenses
2
(221) (301) (243)
-27% -9%
Profit/(Loss) before credit impairment and income tax
(79) 9 (472)
large -83%
Credit impairment (charge)/release 1 - -
n/a n/a
Profit/(Loss) before income tax
(78) 9 (472)
large -83%
Income tax expense
2
8 (104) (128)
large large
Profit/(Loss) for the period attributable to shareholders of the Company
2
(70) (95) (600)
-26% -88%
1.
Includes a $632 million loss recognised on the reclassification of Wealth Australia businesses to held for sale in the March 2018 half.
2.
Includes customer remediation of $53 million post-tax recognised in the March 2019 half (Sep 18 half: $127 million; Mar 18 half: nil) comprising $55 million of customer remediation
recognised in other operating income (Sep 18 half: $106 million; Mar 18 half: nil), $20 million of remediation costs recognised in operating expenses (Sep 18 half: $75 million; Mar 18 half:
nil), and a $22 million benefit in income tax expense (Sep 18 half: $54 million; Mar 18 half: nil).
Cash Flow Statement
Half Year
Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net cash provided by/(used in) operating activities
(589) 2,065 924
large large
Net cash provided by/(used in) investing activities
803 (1,311) (1,133)
large large
Net cash provided by/(used in) financing activities
(219) (754) 179
-71% large
Net increase/(decrease) in cash and cash equivalents
(5) - (30)
n/a -83%
ii) Assets and liabilities held for sale
At 31 March 2019, assets and liabilities held for sale were re-measured at the lower of their carrying amount and fair value less costs to sell, except for
assets such as deferred tax assets, financial assets and contractual rights under insurance contracts, which are specifically exempt from this requirement
and continue to be recognised at their existing carrying value.
In addition to the assets and liabilities associated with the Group’s discontinued operations, assets and liabilities held for sale contain the assets and
liabilities of other assets or disposal groups, subject to sale, which do not meet the criteria to classify as a discontinued operation under the accounting
standards.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
103
Assets and liabilities held for sale
1
As at 31 March 2019
As at 30 September 2018
As at 31 March 2018
Discontinued
operations
$M
Cambodia JV
$M
PNG Retail,
Commercial &
SME
$M
Total
$M
Discontinued
operations
$M
Cambodia JV
$M
OPL NZ
$M
PNG Retail,
Commercial &
SME
$M
Total
$M
Discontinued
operations
$M
UDC
and Paymark
$M
Metrobank
Card
Corporation
$M
Total
$M
Cash and cash equivalents
-
267
-
267
5 323 -
-
328
5 - -
5
Derivative financial instruments
-
1
-
1
- 3 - -
3
1 - -
1
Available-for-sale assets
-
-
-
-
1,079 - - -
1,079
1,040 - -
1,040
Investment securities
1,167
-
-
1,167
- - - -
-
- - -
-
Net loans and advances
43
700
145
888
46 806 - 147
999
118 2,883
-
3,001
Regulatory deposits
-
145
-
145
- 146 -
-
146
- - -
-
Investment in associates
-
-
-
-
1 1 - -
2
1 7 60
68
Deferred tax assets
97
2
-
99
102 2 - -
104
72 - -
72
Goodwill and other intangible assets
1,138
-
-
1,138
1,155 - 93 -
1,248
946 124
-
1,070
Investments backing policy liabilities
2
39,191
-
-
39,191
40,054 - - -
40,054
38,803 - -
38,803
Premises and equipment
2
5
6
13
4 6 - 6
16
5 - -
5
Other assets
590
50
-
640
450 92 727 -
1,269
1,198 15 -
1,213
Total assets held for sale
42,228
1,170
151
43,549 42,896 1,379 820 153 45,
248 42,189 3,029 60 45,278
Deposits and other borrowings
-
1,064
480
1,544
- 1,067
- 512
1,579
- 900
-
900
Derivative financial instruments
-
-
-
-
- 1 - -
1
- - -
-
Current tax liabilities
(192)
4
-
(188)
(33) 8 15 -
(10)
(158) 36 -
(122)
Deferred tax liabilities
338
1
-
339
160 1 160 -
321
387 (9) -
378
Policy liabilities
2
38,787
-
-
38,787
39,607 - - -
39,607
38,381 - -
38,381
External unit holder liabilities
2
4,590
-
-
4,590
4,712 - - -
4,712
4,618 - -
4,618
Payables and other liabilities
1,349
53
-
1,402
644 98 130 -
872
560 28 -
588
Provisions
35
42
4
81
28 43 - 6
77
29 1 -
30
Total liabilities held for sale
44,907
1,164
484
46,555 45,118 1,218 305 518
47,159 43,817 956
- 44,773
1.
Amounts in the table above are shown net of intercompany balances.
2.
The Group completed the Successor Fund Transfer (SFT) on 13 April 2019 which separated the Life Insurance and Pensions and Inv
estments businesses. On completion of the SFT, the Group reduced external unit holders liabilities by circa $4.6 billion, polic
y liabilities by circa $36.1 billion and
investments backing policy liabilit
ies by circa $37.1 billion within assets and liabilities held for sale. The Group also cease
d elimination of intercompany balances increasing liabilities and equity not held for sale by circa $3.2 billion and circa $0.4
billion respectively.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
104
11. Discontinued operations and assets and liabilities held for sale, cont’d
Other strategic divestments not classified as discontinued operations but have been presented as held for sale:
UDC Finance and Paymark Limited (UDC and Paymark) – New Zealand division
On 11 January 2017, the Group announced that it had entered into a conditional agreement to sell UDC to HNA Group (HNA). On 21 December
2017, the Group announced that it had been informed that New Zealand’s Overseas Investment Office had declined HNA’s application to acquire
UDC and the agreement with HNA was terminated in January 2018. The assets and liabilities of UDC were no longer classified as held for sale at
September 2018.
On 17 January 2018, the Group entered into an agreement to sell its 25% shareholding in Paymark to Ingenico Group. The transaction was
completed on 11 January 2019.
Metrobank Card Corporation (MCC) – TSO and Group Centre division
On 18 October 2017, the Group announced it had entered into a sale agreement with its joint venture partner Metropolitan Bank & Trust Company
(Metrobank) in relation to its 40% stake in the Philippines based Metrobank Card Corporation (MCC). The Group sold its 40% stake in two equal
tranches in January and September 2018.
ANZ Royal Bank (Cambodia) Ltd (Cambodia JV) – Institutional division
On 17 May 2018, the Group announced it had reached an agreement to sell its 55% stake in Cambodia JV ANZ Royal Bank to J Trust, a Japanese
diversified financial holding company listed on the Tokyo Stock Exchange. The transaction is subject to closing conditions and regulatory approval
and ANZ expects it to close in the 2019 financial year.
OnePath Life (NZ) Ltd (OPL NZ) – New Zealand division
On 30 May 2018, the Group announced that it had agreed to sell OPL NZ to Cigna Corporation and the final regulatory approval was obtained on 29
October 2018. The transaction was completed on 30 November 2018.
Papua New Guinea Retail, Commercial and Small-Medium Sized Enterprise businesses (PNG Retail, Commercial & SME) – Institutional
division
On 25 June 2018, the Group announced it had entered into an agreement to sell its Retail, Commercial and Small-Medium Sized Enterprise (SME)
banking businesses in Papua New Guinea to Kina Bank. The transaction is subject to closing conditions and ANZ expects it to close by late 2019
calendar year.
Income Statement impact relating to assets and liabilities held for sale
During the March 2019 half, the Group recognised the following impacts in relation to assets and liabilities held for sale:
$69 million gain after tax relating to the sale of the OPL NZ business, comprising a $56 million gain on sale, a $26 million release from the foreign
currency translation reserve and a $13 million income tax expense. The gain was recognised in continuing operations.
$37 million gain after tax relating to the sale of the Paymark. The gain was recognised in continuing operations.
During the September 2018 half, the Group recognised the following impacts in relation to assets and liabilities held for sale:
$42 million loss after tax relating to the reclassification of the Cambodia JV to held for sale, comprising a $27 million impairment and $15 million of
costs associated with the sale. The loss was recognised in continuing operations.
$21 million loss after tax relating to the reclassification of the PNG Retail, Commercial and SME businesses to held for sale, comprising a $12 million
impairment of goodwill, $7 million costs associated with the sale and a $2 million tax expense. The loss was recognised in continuing operations.
$3 million loss after tax relating to OPL NZ transaction costs. The loss was recognised in continuing operations.
$126 million gain after tax relating to MCC comprising a $138 million gain on sale of the second 20% stake, $14 million of foreign exchange losses,
$3 million loss on release of reserves and a $5 million tax benefit. This gain was recognised in continuing operations.
During the March 2018 half, the Group recognised the following impacts in relation to assets and liabilities held for sale:
$632 million loss after tax recognised on the reclassification of the Wealth Australia businesses to held for sale. This loss was recognised in
discontinued operations.
$85 million gain after tax comprising $99 million relating to the sale of the remaining Asia Retail and Wealth businesses, net of costs associated with
the sale and a $14 million tax expense. This gain was recognised in continuing operations.
$18 million gain after tax relating to UDC comprising a cost recovery in respect of the terminated transaction process. This gain was recognised in
continuing operations.
$247 million gain after tax relating to SRCB comprising a $289 million gain on release of reserves, $56 million of foreign exchange losses and other
costs, and a $14 million tax benefit. This gain was recognised in continuing operations.
$121 million gain after tax relating to MCC comprising a $121 million gain on sale of the first 20% stake, $1 million of foreign exchange gains, $3
million loss on release of reserves, and a $2 million tax benefit. This gain was recognised in continuing operations.
The impacts on continuing operations are shown in the relevant Income Statement categories and items relating to discontinued operations are included
in Profit/(Loss) after tax from discontinued operations.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
105
12. Debt issuances
Half Year Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Total unsubordinated debt 113,424 105,271 97,576 8% 16%
Additional Tier 1 Capital (perpetual subordinated securities)
1
ANZ Capital Notes (ANZ CN)
2
ANZ CN1 1,118 1,117 1,117 0% 0%
ANZ CN2
1,606 1,605 1,604 0% 0%
ANZ CN3
965 965 961 0% 0%
ANZ CN4
1,611 1,610 1,609 0% 0%
ANZ CN5
925 924 924 0% 0%
ANZ Capital Securities
3
1,336 1,240 1,188 8% 12%
ANZ NZ Capital Notes
4
478 456 467 5% 2%
Tier 2 Capital
Perpetual subordinated notes
5
423 416 1,174 2% -64%
Term subordinated notes
6
7,806 7,575 8,216 3% -5%
Total subordinated debt
16,268 15,908 17,260 2% -6%
Total debt issuances 129,692 121,179 114,836 7% 13%
1.
ANZ Capital Notes, ANZ Capital Securities and the ANZ NZ Capital Notes are Basel 3 compliant instruments.
2.
Each of the ANZ Capital Notes will convert into a variable number of ANZ ordinary shares on a specified mandatory conversion date at a 1% discount (subject to certain conditions being
satisfied). If ANZ’s Common Equity Tier 1 capital ratio is equal to or less than 5.125%, or ANZ receives a notice of non-viability from APRA, then the notes will immediately convert into ANZ
ordinary shares at a 1% discount subject to a maximum conversion number. Subject to certain conditions, the notes are redeemable or convertible to ANZ ordinary shares (on similar terms
to mandatory conversion) by ANZ at its discretion on early redemption or conversion date.
Issuer Issue date Issue Amount
$M
Early redemption or conversion date Mandatory conversion date
CN1 ANZ 7 Aug 2013 1,120 1 Sep 2021 1 Sep 2023
CN2 ANZ 31 Mar 2014 1,610 24 Mar 2022 24 Mar 2024
CN3 ANZ, acting through its New Zealand branch 5 Mar 2015 970 24 Mar 2023 24 Mar 2025
CN4 ANZ 27 Sep 2016 1,622 20 Mar 2024 20 Mar 2026
CN5 ANZ 28 Sep 2017 931 20 Mar 2025 20 Mar 2027
3.
On 15 June 2016, ANZ acting through its London branch issued fully-paid perpetual subordinated contingent convertible securities (ANZ Capital Securities). If ANZ’s Common Equity Tier 1
capital ratio is equal to or less than 5.125%, or ANZ receives a notice of non-viability from APRA, then the securities will immediately convert into ANZ ordinary shares at a 1% discount
subject to a maximum conversion number. Subject to certain conditions, on the First Reset Date (15 June 2026) and each 5 year anniversary, ANZ has the right to redeem all of the
securities at its discretion.
4.
On 31 March 2015, ANZ Bank New Zealand Limited (ANZ Bank NZ) issued convertible notes (ANZ NZ Capital Notes) which will convert into ANZ ordinary shares on 25 May 2022 at a 1%
discount (subject to certain conditions being satisfied). If ANZ or ANZ Bank NZ’s Common Equity Tier 1 capital ratio is equal to or less than 5.125%, ANZ receives a notice of non-viability
from APRA, ANZ Bank NZ receives a direction from RBNZ or a statutory manager is appointed to ANZ Bank NZ and makes a determination, then the notes will immediately convert into
ANZ ordinary shares at a 1% discount subject to a maximum conversion number. Subject to certain conditions, on 25 May 2020 the notes are redeemable or convertible into ANZ ordinary
shares (on similar terms to the mandatory conversion) by ANZ Bank NZ.
5.
The USD 300 million perpetual subordinated notes have been granted Basel 3 transitional capital treatment until the end of the transition period in December 2021.
6.
All the term subordinated notes are convertible and are Basel 3 compliant instruments, except ANZ’s EUR 750 million subordinated notes due in September 2019 which have been granted
Basel 3 transitional capital treatment until their maturity. If ANZ receives a notice of non-viability from APRA, then the convertible subordinated notes will immediately convert into ANZ
ordinary shares at a 1% discount subject to a maximum conversion number.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
106
13. Credit risk
The Group has adopted AASB 9 effective from 1 October 2018 which has resulted in changes to the classification and measurement of financial assets,
including the impairment of financial assets. The presentation of credit risk information for the March 2019 half has been amended with no restatement of
comparatives. For further details on key requirements and impacts of the changes described above refer to Note 1.
Maximum exposure to credit risk
For financial assets recognised on the balance sheet, the maximum exposure to credit risk is the carrying amount. In certain circumstances there may be
differences between the carrying amounts reported on the balance sheet and the amounts reported in the tables below. Principally, these differences
arise in respect of financial assets that are subject to risks other than credit risk, such as equity instruments which are primarily subject to market risk, or
bank notes and coins.
For undrawn facilities, this maximum exposure to credit risk is the full amount of the committed facilities. For contingent exposures, the maximum
exposure to credit risk is the maximum amount the group would have to pay if the instrument is called upon.
The table below shows the maximum exposure to credit risk of on-balance sheet, and off-balance sheet, positions before taking account of any collateral
held or other credit enhancements:
Reported
Excluded/Other
1,2
Maximum Exposure to Credit Risk
As at
As at
As at
On-balance sheet positions
3
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
$M
Sep 18
$M
Mar 18
$M
Net loans and advances 610,143 605,437 592,469
(26) (26) (26)
610,169 605,463 592,495
Investment securities
4
- debt securities at amortised cost 6,176 - -
- - -
6,176 - -
- debt securities at FVOCI
72,555 - -
- - -
72,555 - -
- equity securities at FVOCI
1,318 - -
1,318 - -
- - -
Available-for-sale assets
- 75,363 71,279
- 1,095 1,052
- 74,268 70,227
Other financial assets
276,973 249,406 258,086
49,466 47,434 49,472
227,507 201,972 208,614
Total on-balance sheet positions
967,165 930,206 921,834
50,758 48,503 50,498
916,407 881,703 871,336
Off-balance sheet commitments
Undrawn and contingent facilities
5
245,311 244,608 233,005
26 26 26
245,285 244,582 232,979
Total
1,212,476 1,174,814 1,154,839
50,784 48,529 50,524
1,161,692 1,126,285 1,104,315
1.
Excluded comprises bank notes and coins and cash at bank within liquid assets, investments relating to the insurance business where the credit risk is passed onto the policy holder. Equity
securities and precious metal exposures recognised as trading securities have been excluded as they do not have credit exposure. Equity securities within investment securities – equity
securities at FVOCI/available-for-sale financial assets were also excluded as they do not have credit exposure.
2.
Other relates to the transfer of individual provisions related to off-balance sheet facilities held in net loans and advances. The provisions are transferred for the purposes of showing the
maximum exposure to credit risk by relevant facility type in this and the following tables.
3.
On-balance sheet position includes assets and liabilities reclassified as held for sale.
4.
On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets were revised. Available-for-sale classification used in comparative periods ceases to exist
under AASB 9 and a new classification of investment securities was introduced. Refer to Note 1 for further details. Comparative information has not been restated.
5.
Undrawn facilities and contingent facilities includes guarantees, letters of credit and performance related contingencies, net of collectively assessed allowance for expected credit losses.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
107
13. Credit risk, cont’d
Credit Quality
The Group’s internal Customer Credit Rating (CCR) is used to manage the credit quality of financial assets. To enable wider comparisons, the Group’s
CCRs are mapped to external rating agency scales as follows:
Credit Quality
Description
Internal CCR ANZ Customer Requirement
Moody's
Rating
Standard &
Poor's
Rating
Strong CCR 0+ to 4-
Demonstrated superior stability in their operating and financial performance over the
long-term, and whose earnings capacity is not significantly vulnerable to foreseeable
events.
Aaa – Baa3 AAA – BBB-
Satisfactory CCR 5+ to 6-
Demonstrated sound operational and financial stability over the medium to long term
even though some may be susceptible to cyclical trends or variability in earnings.
Ba1 – B1 BB+ – B+
Weak CCR 7+ to 8=
Demonstrated some operational and financial instability, with variability and
uncertainty in profitability and liquidity projected to continue over the short and
possibly medium term.
B2 - Caa B - CCC
Defaulted CCR8- to 10
When doubt arises as to the collectability of a credit facility, the financial instrument
(or ‘the facility’) is classified as defaulted.
N/A N/A
Net loans and advances
As at Mar 19
Stage 3
Stage 1 Stage 2
Collectively
assessed
Individually
assessed Total
$M $M $M $M $M
Strong
444,556 10,273 - - 454,829
Satisfactory 112,984 19,843 - - 132,827
Weak
8,808 9,775 - - 18,583
Defaulted
- - 4,078 1,961 6,039
Gross loans and advances at amortised cost
566,348 39,891 4,078 1,961 612,278
Provision for credit impairment 940 1,415 381 865 3,601
Net loans and advances at amortised cost
565,408 38,476 3,697 1,096 608,677
Coverage ratio 0.17% 3.55% 9.34% 44.11% 0.59%
Loans and advances at fair value through profit or loss 991
Unearned income (446)
Capitalised brokerage/mortgage origination fees
947
Net carrying amount
610,169
Investment securities - debt securities at amortised cost
As at Mar 19
Stage 3
Stage 1 Stage 2
Collectively
assessed
Individually
assessed Total
$M $M $M $M $M
Strong
4,751 - - - 4,751
Satisfactory 666 771 - - 1,437
Weak
- - - - -
Defaulted
- - - - -
Gross investment securities - debt securities at amortised cost
5,417 771 - - 6,188
Provision for credit impairment 11 1 - - 12
Net investment securities - debt securities at amortised cost
5,406 770 - - 6,176
Coverage ratio 0.20% 0.13% - - 0.19%
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
108
13. Credit risk, cont’d
Investment securities - debt securities at FVOCI
As at Mar 19
Stage 3
Stage 1 Stage 2
Collectively
assessed
Individually
assessed Total
$M $M $M $M $M
Strong
72,401 - - - 72,401
Satisfactory 154 - - - 154
Weak
- - - - -
Defaulted
- - - - -
Investment securities - debt securities at FVOCI
72,555 - - - 72,555
Loss allowances recognised in other comprehensive income 11 - - - 11
Coverage ratio
0.02% - - - 0.02%
Other financial assets
As at Mar 19
Total
$M
Strong
215,464
Satisfactory 11,596
Weak
447
Defaulted
-
Total carrying amount
227,507
Off-balance sheet commitments - undrawn and contingent facilities
As at Mar 19
Stage 3
Stage 1 Stage 2
Collectively
assessed
Individually
assessed Total
$M $M $M $M $M
Strong
158,599 1,977 - - 160,576
Satisfactory 23,519 3,894 - - 27,413
Weak
395 957 - - 1,352
Defaulted
- - 96 61 157
Gross undrawn and contingent facilities subject to ECL
182,513 6,828 96 61 189,498
Allowance for ECL included in Provisions 464 152 14 26 656
Net undrawn and contingent facilities subject to ECL
182,049 6,676 82 35 188,842
Coverage ratio 0.25% 2.23% 14.58% 42.62% 0.35%
Undrawn and contingent facilities not subject to ECL
1
56,443
Net undrawn and contingent facilities 245,285
1.
Commitments that can be unconditionally cancelled at any time without notice.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
109
13. Credit risk, cont’d
2018 Credit Risk Disclosures
The below disclosures do not reflect the adoption of AASB 9 and have been prepared under the requirements of the previous AASB 139.
Credit Quality
The table below provides an analysis of the credit quality of the maximum exposure to credit risk split by:
Neither past due nor impaired assets by credit quality
The credit quality of financial assets is managed by the Group using internal customer credit ratings (CCRs) based on their current probability of
default. The Group’s masterscales are mapped to external rating agency scales, to enable wider comparisons.
Past due but not impaired assets by ageing
Ageing analysis of past due loans is used by the Group to measure and manage emerging credit risks. Financial assets that are past due but not
impaired include those which are assessed, approved and managed on a portfolio basis within a centralised environment (for example credit cards
and personal loans) that can be held on a productive basis until they are 180 days past due, as well as those which are managed on an individual
basis. A large portion of retail credit exposures, such as residential mortgages, are generally well secured. That is, the value of supporting collateral
is sufficient to cover amounts outstanding.
Restructured and impaired assets presented as gross amounts and net of individually assessed provisions
ANZ regularly reviews its portfolio and monitors adherence to contractual terms. When doubt arises as to the collectability of a credit facility, the
financial instrument (or ‘the facility’) is classified and reported as individually impaired and an individually assessed provision is allocated against it.
As described in the summary of significant accounting policies in the 2018 Annual Financial Report, impairment provisions are created for financial
instruments that are reported on the balance sheet at amortised cost. For instruments reported at fair value, impairment provisions are treated as part
of overall change in fair value and directly reduce the reported carrying amounts.
Loan advances
As at
Other financial assets
As at
Off balance sheet credit
related commitments
As at
Total
As at
Sep 18
$M
Mar 18
$M
Sep 18
$M
Mar 18
$M
Sep 18
$M
Mar 18
$M
Sep 18
$M
Mar 18
$M
Neither past due nor impaired
Strong credit profile 445,997 427,729 272,110 274,815
206,859 194,393
924,966 896,937
Satisfactory risk 127,384 131,229 4,014 3,859
36,037 36,756
167,435 171,844
Sub-standard but not past due or impaired 15,567 16,767 116 167
1,644 1,761
17,327 18,695
Subtotal 588,948 575,725 276,240 278,841 244,540 232,910 1,109,728 1,087,476
Past due but not impaired
1-29 days 8,958 8,974 - - - - 8,958 8,974
30-59 days 2,240 2,576 - - - - 2,240 2,576
60-89 days 1,268 1,233 - - - - 1,268 1,233
>90 days 2,998 3,038 - - - - 2,998 3,038
Subtotal 15,464 15,821 - - - - 15,464 15,821
Restructured and impaired
Impaired loans 1,676 1,863 - - - - 1,676 1,863
Restructured items
1
269 76 - - - - 269 76
Non-performing commitment and contingencies - - - - 68 95 68 95
Gross impaired financial assets 1,945 1,939
- -
68 95
2,013 2,034
Individually assessed provisions (894) (990) - - (26) (26) (920) (1,016)
Subtotal 1,051 949 - - 42 69 1,093 1,018
Total 605,463 592,495 276,240 278,841 244,582 232,979 1,126,285 1,104,315
1.
Restructured items are facilities in which the original contractual terms have been modified for reasons related to the financial difficulties of the customer. Restructuring may consist of
reduction of interest, principal or other payments legally due, or an extension in maturity materially beyond those typically offered for new facilities with similar risk.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
110
14. Fair value measurement
The Group carries a significant number of financial instruments on the balance sheet at fair value. In addition, the Group also holds assets classified as
held for sale which are measured at fair value less costs to sell. The fair value is the best estimate of the price that would be received to sell an asset, or
paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
i) Assets and liabilities measured at fair value on the balance sheet
a) Valuation
The Group has an established control framework, including appropriate segregation of duties, to ensure that fair values are accurately determined,
reported and controlled. The framework includes the following features:
products are approved for transacting with external customers and counterparties only where fair values can be appropriately determined;
when using quoted prices to value an instrument, these are independently verified from external pricing providers;
fair value methodologies and inputs are evaluated and approved by a function independent of the party that undertakes the transaction;
movements in fair values are independently monitored and explained by reference to underlying factors relevant to the fair value; and
valuation adjustments (such as funding valuation adjustments, credit valuation adjustments and bid-offer adjustments) are independently validated
and monitored.
If the Group holds offsetting risk positions, then the Group uses the portfolio exception in AASB 13 Fair Value Measurement (AASB 13) to measure the
fair value of such groups of financial assets and financial liabilities. We measure the portfolio based on the price that would be received to sell a net long
position (an asset) for a particular risk exposure, or to transfer a net short position (a liability) for a particular risk exposure.
b) Fair value approach and valuation techniques
We use valuation techniques to estimate the fair value of assets and liabilities for recognition, measurement and disclosure purposes where no quoted
price in an active market for that asset or liability exists. This includes the following:
Asset or Liability Fair Value Approach
Financial instruments classified as:
- trading securities
- securities sold short
- derivative financial assets and liabilities
- investment securities (under AASB 9)
- available-for-sale assets (under AASB 139)
- other assets
Valuation techniques are used that incorporate observable market inputs for securities
with similar credit risk, maturity and yield characteristics. Equity instruments that are not
traded in active markets may be measured using comparable company valuation
multiples.
Financial instruments classified as:
- net loans and advances
- deposits and other borrowings
- debt issuances
Discounted cash flow techniques are used whereby contractual future cash flows of the
instrument are discounted using discount rates incorporating wholesale market interest
rates, or market borrowing rates for debt with similar maturities or with a yield curve
appropriate for the remaining term to maturity.
Assets and liabilities held for sale Valuation based on the agreed sale price before transaction costs.
Details of significant unobservable inputs used in measuring fair values are described in (ii)(a).
c) Fair value hierarchy categorisation
The Group categorises financial assets and liabilities carried at fair value into a fair value hierarchy as required by AASB 13 based on the observability of
inputs used to measure the fair value:
Level 1 - valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - valuations using inputs other than quoted prices included within Level 1 that are observable for a similar asset or liability, either directly or
indirectly; and
Level 3 - valuations where significant unobservable inputs are used to measure the fair value of the asset or liability.
d) Fair value hierarchy disclosure
The following table presents assets and liabilities carried at fair value in accordance with the fair value hierarchy:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
111
14. Fair value measurement, cont’d
Fair value measurements
As at March 2019
Level 1
$M
Level 2
$M
Level 3
$M
Total
$M
Assets
Trading securities
1
35,967 6,890 - 42,857
Derivative financial instruments
331 78,991 53 79,375
Investment securities
2
71,001 393 1,312 72,706
Net loans and advances (measured at fair value)
- 991 - 991
Assets held for sale
3
- 43,673 - 43,673
Total
107,299 130,938 1,365 239,602
Liabilities
Deposits and other borrowings (designated at fair value) - 2,169 - 2,169
Derivative financial instruments
508 80,320 43 80,871
Liabilities held for sale
3
- 46,538 - 46,538
Payables and other liabilities
4
2,125 42 - 2,167
Debt issuances (designated at fair value)
- 2,414 - 2,414
Total
2,633 131,483 43 134,159
As at September 2018
Assets
Trading securities 30,855 6,867 - 37,722
Derivative financial instruments 647 67,717 59 68,423
Available-for-sale assets
2
69,508 3,695 1,081 74,284
Net loans and advances (measured at fair value) - 133 - 133
Assets held for sale
3
- 44,623 - 44,623
Total 101,010 123,035 1,140 225,185
Liabilities
Deposits and other borrowings (designated at fair value) - 2,332 - 2,332
Derivative financial instruments 1,680 67,952 44 69,676
Liabilities held for sale
3
- 46,829 - 46,829
Payables and other liabilities
4
1,159 12 - 1,171
Debt issuances (designated at fair value) - 1,442 - 1,442
Total 2,839 118,567 44 121,450
As at March 2018
Assets
Trading securities 38,517 6,541 - 45,058
Derivative financial instruments 259 70,593 63 70,915
Available-for-sale assets
2
63,283 5,921 1,035 70,239
Net loans and advances (measured at fair value) - 145 - 145
Assets held for sale
3
- 42,544 - 42,544
Other assets 4 139 - 143
Total 102,063 125,883 1,098 229,044
Liabilities
Deposits and other borrowings (designated at fair value) - 2,470 - 2,470
Derivative financial instruments 1,008 69,570 46 70,624
Liabilities held for sale
3
- 43,817 - 43,817
Payables and other liabilities
4
1,884 161 - 2,045
Debt issuances (designated at fair value) - 1,785 - 1,785
Total 2,892 117,803 46 120,741
1.
During the March 2019 half, there were no material transfers from Level 2 to Level 1 (Sep 18: $200 million, Mar 18: $753 million) in Trading securities. Transfers from Level 1 to Level 2 for
March 2019 half and previous periods are immaterial. Transfers into and out of levels are measured at the beginning of the reporting period in which the transfer occurred.
2.
On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets was revised. The available-for-sale classification used in comparative periods no longer
exists under AASB 9 and a new classification of investment securities was introduced. Refer to Note 1 for further details about the adoption of AASB 9. Comparative information has not
been restated.
3.
The amounts reclassified as assets and liabilities held for sale relate to assets and liabilities measured at fair value less costs to sell in accordance with AASB 5 Non-current Assets Held for
Sale and Discontinued Operations. The amounts presented reflect fair value excluding cost to sell but including intercompany eliminations.
4.
Payables and other liabilities relates to securities sold short which are classified as held for trading are measured at fair value through profit or loss.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
112
14. Fair value measurement, cont’d
ii) Details of fair value measurements that incorporate unobservable market data
a) Level 3 fair value measurements
The net balance of Level 3 financial instruments is an asset of $1,322 million (Sep 18: $1,096 million; Mar 18: $1,052 million). The assets and liabilities
which incorporate significant unobservable inputs primarily include:
equities for which there is no active market or traded prices cannot be observed;
structured credit products for which credit spreads and default probabilities relating to the reference assets and derivative counterparties cannot be
observed; and
other derivatives referencing market rates that cannot be observed primarily due to lack of market activity.
Movements in the Level 3 balance are due to the revaluation of the Group’s investment in Bank of Tianjin.
There were no other material transfers in or out of Level 3 during the period.
Bank of Tianjin (BoT)
The investment is valued based on comparative price-to-book (P/B) multiples (a P/B multiple is the ratio of the market value of equity to the book value of
equity). The extent of judgment applied in determining the appropriate multiple and comparator group from which the multiple is derived are non-
observable inputs which have resulted in the Level 3 classification.
b) Sensitivity to Level 3 data inputs
When we make assumptions due to significant inputs not being directly observable in the market place (Level 3 inputs), then changing these assumptions
changes the Group’s estimate of the instrument’s fair value. Favourable and unfavourable changes are determined by changing the primary
unobservable parameter used to derive the valuation.
Bank of Tianjin (BoT)
The valuation of the BoT investment is sensitive to the selected unobservable input, being the P/B multiple. If the P/B multiple was increased or
decreased by 10% it would result in a $121 million increase or decrease to the fair value of the investment (Sep 18: $102 million; Mar 18: $98 million),
which would be recognised in shareholders’ equity.
Other
The remaining Level 3 balance is immaterial and changes in the Level 3 inputs have a minimal impact on net profit and net assets of the Group.
c) Deferred fair value gains and losses
When fair values are determined using unobservable inputs significant to the fair value of a financial instrument, the Group does not immediately
recognise the difference between the transaction price and the amount we determine based on the valuation technique (day one gain or loss) in profit or
loss. After initial recognition, we recognise the deferred amount in profit or loss over the life of the transaction on a straight line basis or until all inputs
become observable.
The day one gains and losses deferred are not material.
iii) Financial assets and liabilities not measured at fair value
The classes of financial assets and liabilities listed in the table below are generally carried at amortised cost on the Group’s balance sheet. Whilst this is
the value at which we expect the assets will be realised and the liabilities settled, the Group provides an estimate of the fair value of these financial
assets and liabilities at balance date in the table below.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
113
14. Fair value measurement, cont’d
Carrying amount in the balance sheet Fair Value
As at March 2019
At amortised
cost
$M
At fair
value
$M
Total
$M
$M
Financial assets
Net loans and advances
1
608,264 1,879 610,143 610,983
Investment securities
1, 2
6,176 73,873 80,049 80,044
Total
614,440 75,752 690,192 691,027
Financial liabilities
Deposits and other borrowings
1
632,820 3,713 636,533 637,009
Debt issuances
127,278 2,414 129,692 130,558
Total
760,098 6,127 766,225 767,567
As at September 2018
Financial assets
Net loans and advances
1
604,305 1,132 605,437 605,911
Financial liabilities
Deposits and other borrowings
1
615,818 3,911 619,729 619,895
Debt issuances 119,737 1,442 121,179 122,060
Total 735,555 5,353 740,908 741,955
As at March 2018
Financial assets
Net loans and advances
1
592,206 263 592,469 592,875
Financial liabilities
Deposits and other borrowings
1
614,660 2,470 617,130 617,254
Debt issuances 113,051 1,785 114,836 115,811
Total 727,711 4,255 731,966 733,065
1.
Net loans and advances, investment securities and deposits and other borrowings include amounts reclassified to assets and liabilities held for sale. Refer to Note 11.
2.
Investment securities under AASB 9 includes securities measured at amortised cost, fair value through other comprehensive income and fair value through P&L. Refer to Note 1.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
114
15. Shareholders’ equity
Issued and quoted securities
Half Year
Ordinary shares
Mar 19
No.
Sep 18
No.
Mar 18
No.
Closing balance 2,833,175,579 2,873,618,118 2,898,758,978
Issued/(Repurchased) during the period
1
(40,442,539) (25,140,860) (38,656,349)
1.
The Company issued 1.6 million shares under the Bonus Option Plan (BOP) for the 2018 final dividend (1.4 million shares for the 2018 interim dividend; 1.5 million shares for the 2017 final
dividend). No new shares were issued under the Dividend Reinvestment Plan (DRP) for the 2018 final dividend (nil shares for the 2018 interim dividend; nil shares for the 2017 final
dividend) as the shares were purchased on-market and provided directly to the shareholders participating in the DRP. On-market purchases for the DRP in the March 2019 half were $199
million (Sep 18 half: $200 million, Mar 18 half: $192 million). The Company has completed its $3.0 billion on-market share buy-back of ANZ ordinary shares purchasing $1,120 million in the
March 2019 half (Sep 18 half: $748 million, Mar 18 half: $1,132 million) resulting in 42.0 million ANZ ordinary shares being cancelled in the March 2019 half (Sep 18 half: 26.6 million; Mar
18 half: 40.1 million).
Half Year Movement
Shareholders' equity
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Ordinary share capital
26,048 27,205 27,933
-4% -7%
Reserves
Foreign currency translation reserve
846 12 257
large large
Share option reserve
71 92 70 -23% 1%
Available-for-sale revaluation reserve
1
- 113 119 -100% -100%
FVOCI reserve
1
370 - - n/a n/a
Cash flow hedge reserve
444 127 117 large large
Transactions with non-controlling interests reserve
(22) (21) (22)
5% 0%
Total reserves
1,709 323 541
large large
Retained earnings
32,064 31,737 30,922
1% 4%
Share capital and reserves attributable to shareholders of the Company
59,821 59,265 59,396 1% 1%
Non-controlling interests
150 140 126 7% 19%
Total shareholders' equity
59,971 59,405 59,522
1% 1%
1.
On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets were revised. Available-for-sale classification used in comparative periods ceases to exist
under AASB 9 and a new classification of investment securities was introduced. Refer to Note 1 for further details. Comparative information has not been restated.
16. Changes in composition of the Group
The Group disposed of the aligned dealer groups and OnePath Life (NZ) Ltd in the half year ended 31 March 2019. There were no other acquisitions or
disposals of material controlled entities during the period.
17. Investments in Associates
Half Year
Movement
Mar 19 Sep 18 Mar 18
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Share of associates' profit 131 95 88 38% 49%
Contributions to profit
1
Contribution to
Group profit after tax
Ownership interest
held by Group
Associates
Half Year As at
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
%
Sep 18
%
Mar 18
%
P.T. Bank Pan Indonesia
70 44 45 39 39 39
AMMB Holdings Berhad
56 48 42 24 24 24
Other associates
5 3 1 n/a n/a n/a
Share of associates' profit
131 95 88
1.
Contributions to profit reflect the IFRS equivalent results adjusted to align with the Group’s financial year end which may differ from the published results of these entities. Excludes gains or
losses on disposal or valuation adjustments.
18. Related party disclosure
There have been no transactions with related parties that are significant to understanding the changes in financial position and performance of the Group
since 30 September 2018.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
115
19. Contingent liabilities and contingent assets
There are outstanding court proceedings, claims and possible claims for and against the Group. Where relevant, expert legal advice has been obtained
and, in the light of such advice, provisions and/or disclosures as deemed appropriate have been made. In some instances we have not disclosed the
estimated financial impact of the individual items either because it is not practicable to do so or because such disclosure may prejudice the interests of
the Group.
Refer to note 33 of the 2018 ANZ Annual Financial Report for a description of contingent liabilities and contingent assets as at 30 September 2018. A
summary of some of those contingent liabilities and new contingent liabilities that have arisen during the current reporting period is set out below.
Bank fees litigation
A litigation funder commenced a class action against the Company in 2010, followed by a second similar class action in March 2013. The applicants
contended that certain exception fees (honour, dishonour and non-payment fees on transaction accounts and late payment and over-limit fees on
credit cards) were unenforceable penalties and that various of the fees were also unenforceable under statutory provisions governing unconscionable
conduct, unfair contract terms and unjust transactions. The claims in the March 2013 class action failed and have been dismissed.
The original claims in the 2010 class action have been dismissed. In 2017, a new claim was added to the 2010 class action, in relation to the
Company’s entitlement to charge certain periodical payment non-payment fees. An agreement to settle the claim was reached in December 2018.
The settlement is subject to court approval.
Benchmark/rate actions
In July and August 2016, class action complaints were brought in the United States District Court against local and international banks, including the
Company - one action relating to the bank bill swap rate (BBSW), and one action relating to the Singapore Interbank Offered Rate (SIBOR) and the
Singapore Swap Offer Rate (SOR). The class actions are expressed to apply to persons and entities that engaged in US-based transactions in
financial instruments that were priced, benchmarked, and/or settled based on BBSW or SIBOR. The claimants seek damages or compensation in
amounts not specified, and allege that the defendant banks, including the Company, violated US anti-trust laws and (in the BBSW case only) anti-
racketeering laws, the Commodity Exchange Act, and unjust enrichment principles. The Company is defending the proceedings. The matters are at
an early stage.
In February 2017, the South African Competition Commission commenced proceedings against local and international banks including the Company
alleging breaches of the cartel provisions of the South African Competition Act in respect of trading in the South African rand. The potential civil
penalty or other financial impact is uncertain. The matter is at an early stage.
Capital raising actions
In June 2018, the Commonwealth Director of Public Prosecutions commenced criminal proceedings against the Company and a senior employee
alleging that they were knowingly concerned in cartel conduct by the joint lead managers of the Company’s August 2015 underwritten institutional
equity placement of approximately 80.8 million ordinary shares. The matter is at an early stage. The Company and its senior employee are defending
the allegations.
In September 2018, the Australian Securities and Investments Commission (ASIC) commenced civil penalty proceedings against the Company
alleging failure to comply with continuous disclosure obligations in connection with the Company’s August 2015 underwritten institutional equity
placement. ASIC alleges the Company should have advised the market that the joint lead managers took up approximately 25.5 million ordinary
shares of the placement. The matter is at an early stage. The Company is defending the allegations.
Franchisee litigation
In February 2018, two related class actions were brought against the Company alleging breaches of contract and unconscionable conduct in relation
to lending to 7-Eleven franchisees. An agreement to settle the claims against the Company was reached in March 2019. The settlement is subject to
court approval.
Regulatory and customer exposures
In recent years there has been an increase in the number of matters on which ANZ engages with its regulators. There have been significant
increases in the nature and scale of regulatory investigations and reviews, civil and criminal enforcement actions (whether by court action or
otherwise) and the quantum of fines issued by regulators, particularly against financial institutions both in Australia and globally. The nature of these
interactions can be wide ranging and, for example, currently include a range of matters including responsible lending practices, product suitability and
distribution, interest and fees and the entitlement to charge them, wealth advice, insurance distribution, pricing, competition, conduct in financial
markets and capital market transactions, reporting and disclosure obligations and product disclosure documentation. ANZ has received various
notices and requests for information from its regulators as part of both industry-wide and ANZ-specific reviews and has also made disclosures to its
regulators at its own instigation. There may be exposures to customers which are additional to any regulatory exposures. These could include class
actions, individual claims or customer remediation or compensation activities. The outcomes and total costs associated with such reviews and
possible exposures remain uncertain.
Royal Commission
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was established on 14 December 2017. The
Commission’s final report was released publicly on 4 February 2019. The Commission may result in additional costs and may lead
to further
exposures, including exposures associated with further regulator activity or potential customer exposures such as class actions, individual claims or
customer remediation or compensation activities. The outcomes and total costs associated with these possible exposures remain uncertain.
Security recovery actions
Various claims have been made or are anticipated, arising from security recovery actions taken to resolve impaired assets. These claims will be
defended.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
116
Warranties and Indemnities
The Group has provided warranties, indemnities and other commitments in favour of the purchaser and other persons in connection with various
disposals of businesses and assets and other transactions, covering a range of matters and risks. It is exposed to potential claims under those
warranties, indemnities and commitments.
20. Significant Events Since Balance Date
There have been no significant events from 31 March 2019 to the date of signing this report.
21. Adoption of new accounting standards and other changes to comparatives
i) Changes to comparatives including the impact of AASB 15 Revenue from Contracts with Customers (AASB 15)
The following table summarises the changes to comparatives resulting from the application of AASB 15, and other reclassification adjustments to
enhance comparability with current period presentation.
Reported as at
30 Sep 18
Impact of
application of
AASB 15
Other
reclassification
adjustment
Restated as at
30 Sep 18
$M $M $M $M
Net loans and advances
1
603,938 - 500 604,438
Other assets
2
3,645 32 - 3,677
Other non-impacted balance sheet line items 335,041 - - 335,041
Total assets 942,624 32 500 943,156
Deferred tax liabilities
2
59 10 - 69
Payables and other liabilities
3
6,788 106 - 6,894
Provisions
1,3
1,578 (106) 500 1,972
Other non-impacted balance sheet line items 874,816 - - 874,816
Total liabilities 883,241 10 500 883,751
Retained earnings
2
31,715 22 - 31,737
Other non-impacted balance sheet line items 27,528 - - 27,528
Share capital and reserves attributable to shareholders of the Company
2
59,243 22 - 59,265
Non-controlling interests 140 - - 140
Total shareholders’ equity
2
59,383 22 - 59,405
Reported as at
31 Mar 18
Impact of
application of
AASB 15
Other
reclassification
adjustment
Restated as at
31 Mar 18
$M $M $M $M
Net loans and advances
1
588,946 - 522 589,468
Other assets
2
4,914 32 - 4,946
Other non-impacted balance sheet line items 341,256 - - 341,256
Total assets 935,116 32 522 935,670
Deferred tax liabilities
2
258 10 - 268
Payables and other liabilities
3
7,442 100 7,542
Provisions
1,3
1,110 (100) 522 1,532
Other non-impacted balance sheet line items 866,806 - - 866,806
Total liabilities 875,616 10 522 876,148
Retained earnings
2
30,900 22 - 30,922
Other non-impacted balance sheet line items 28,474 - - 28,474
Share capital and reserves attributable to shareholders of the Company
2
59,374 22 - 59,396
Non-controlling interests 126 - - 126
Total shareholders’ equity
2
59,500 22 - 59,522
1.
$500 million of collectively assessed provisions for credit impairment attributable to off-balance sheet credit related commitments at 30 September 2018 (Mar 18: $522 million) were
reclassified from Net loans and advances at amortised cost to Other provisions to enhance comparability with current period presentation.
2.
The Group adopted AASB 15 in this reporting period with comparatives restated. This policy change resulted in an adjustment to the opening balance of $32 million to Other assets, $10
million to Deferred tax liabilities and $22 million to Retained earnings as at 1 October 2017 to recognise revenue that qualifies for upfront recognition under AASB 15 but was not previously
recognised under AASB 118.
3.
Upon adoption of AASB 15, certain liabilities associated with credit card loyalty programs have been reclassified from Provisions to Other Liabilities. In addition, certain items previously
netted are now presented gross in operating income and operating expenses. Comparative information has been restated which increased total operating income and total operating
expenses by $91 million for the September 2018 half and $62 million for the March 2018 half.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
117
ii) Impact of the transition to AASB 9 Financial Instruments (AASB 9)
Allowance for expected credit losses
The table below reconciles the closing provisions for credit impairment for financial assets determined in accordance with AASB 139, and provisions for
loan commitments and financial guarantee contracts determined in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets
as at 30 September 2018, and the opening provisions for credit impairment determined in accordance with AASB 9 as at 1 October 2018.
As at 30 Sep 18 As at 1 Oct 18
Provision for
credit impairment
under AASB 139
or AASB 137
$M
Incremental
allowance for ECL
under AASB 9
$M
Allowance for ECL
under AASB 9
$M
Loans and advances - at amortised cost 2,943 647 3,590
Investment securities - debt securities at amortised cost - 11 11
Off-balance sheet commitments - undrawn and contingent facilities
1
500 155 655
Total provisions for credit impairment 3,443 813 4,256
Loss allowances recognised in other comprehensive income:
Investment securities - debt securities at FVOCI
2
- 14 14
Total loss allowance recognised in other comprehensive income - 14 14
1.
The collectively assessed allowance for ECL is included in Provisions. The individually assessed allowance for ECL is included in Net loans and advances.
2.
Allowance for ECL does not change the carrying amount which remains at fair value. Instead, the allowance for ECL is recognised in OCI, with a corresponding charge to profit or loss.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
118
The following table summarises the adjustments arising on adoption of AASB 9.
Consolidated balance sheet reconciliation
Reference
AASB 139
measurement
category
AASB 9
measurement
category
Restated as at
30 Sep 18
$M
AASB 9
reclassification
impact
$M
AASB 9
Remeasurement
impact (excl.
impairment)
$M
AASB 9
credit impairment
impact
$M
Revised carrying
amount as at
1 Oct 18
$M
Trading securities
1,2
FVTPL FVTPL 37,722 (993)
-
-
36,729
Investment securities: - debt securities at amortised cost
2,6,7
N/A Amortised cost
-
6,158
2
(11)
6,149
- debt securities at FVOCI
1, 2
N/A FVOCI - 70,938 - -
70,938
- equity securities at FVOCI
2
N/A FVOCI - 1,087 - -
1,087
Available-for-sale assets (AFS)
2
AFS N/A 74,284 (74,284) -
-
-
Net loans and advances - at amortised cost
3,6,7,8
Loans and
receivables
Amortised cost
604,305
(4,470)
15
(647)
599,203
- at FVTPL
3,8
FVTPL FVTPL
133 1,564
(23)
-
1,674
Investment in associates
5
N/A N/A 2,553
-
- (65)
2,488
Deferred tax assets
1,2,4,6
N/A N/A 900
- 15 234
1,149
Other non-impacted balance sheet line items
N/A N/A 223,259 - - - 223,259
Total assets
943,156 - 9 (489) 942,676
Current tax liabilities
1,3,4
N/A N/A 300 - 30 - 330
Provisions
6
N/A N/A 1,972
-
- 155 2,127
Debt issuances:
-
- at amortised cost
4
Amortised cost
Amortised cost
119,737
(879)
-
-
118,858
- at FVTPL
4
FVTPL FVTPL 1,442
879
(55)
- 2,266
Other non-impacted balance sheet line items
N/A N/A 760,300 - - - 760,300
Total liabilities
883,751 - (25) 155 883,881
Ordinary share capital
27,205 - - - 27,205
Reserves
1,2,6 323 1 3 10 337
Retained earnings
1,2,3,4,5,6 31,737 (1) 31 (654) 31,113
Share capital and reserves attributable
to shareholders of the Company
59,265 - 34 (644) 58,655
Non-controlling interests
140 - - - 140
Total shareholders’ equity
59,405 - 34 (644) 58,795
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
119
Reference 1. On initial application of AASB
9, a portfolio of bonds with a
fair value of $1,000 million wa
s transferred fr
om Trading secu
rities to Investment securities - debt securities at FVOCI as the applicable business model was held to collect
and sell. Cumulative fair value gains/(losses) on this portfolio of $2 million (after tax) were transferred from Retained earni
ngs to the FVOCI reserve. Additionally, the reclassification resulted in a reduction in deferred tax assets and
current tax liabilities of $1 million.
2. The Available-for-sale classification is no longer applicable under AASB 9. Accordingly, on transition:
$69,938 million of Available-for-sale debt instruments were reclassified to Investment securities – debt securities measured a
t FVOCI due to the business model being held to collect and sell. There was no re-measurement
impact associated with this reclassification;
$3,252 million of Available-for-sale debt instruments were reclassified to Investment securities – debt securities at amortise
d cost due to the business model being held to collect at 1 October 2018. This reclassification resulted in
re-measurement of a $2 million increase to the carrying amount arising from reversal of the previous available-for-sale revalua
tion reserve. Additionally, a deferred tax asset of $1 million associated with the previous available-for-
sale revaluation was reversed;
the Group made irrevocable elections to designate $1,087 million of non-traded Available-for-sale equity securities as Investm
ent securities - equity securities at FVOCI; and
$7 million of Available-for-sale equity securities were reclassified to Trading securities and the related reserve balance of
$1 million was reclassified to Retained earnings.
3. Certain loans with contractual cash flow characteristics that are not solely payments of principal and interest were reclass
ified from Net loans and advances at amortised cost to Net Loans and advances at FVTPL. The loans had an
amortised cost carrying amount of $224 million and a fair valu
e of $201 million at 30 September 2018. The associated re-measure
ment of $23 million was recognised in Retained earnings offset by a decrease in current tax liabilities
of $7 million. In addition, one of the loans was previously in a fair value hedge relationship which was discontinued effective
1 October 2018. Accordingly, changes in the fair value due to changes in the hedged risk which were
previously recognised as a reduction to the carrying value of the loan amounting to $15 million were written back to Retained e
arnings offset by an increase in current tax liabilities of $4 million.
4. The Group elected to designate certain financial liabilities (bonds included within Debt issuances) as measured at fair valu
e through profit or loss effective from 1 October 2018 to reduce an accounting mismatch. The bonds had an
amortised cost carrying amount of $879 million and a fair value
of $824 million at 30 September 2018. The difference of $55 mil
lion (comprising a $109 million decrease in fair value before own credit, offset by a $54 million increase in
fair value attributable to own credit) offset by a net tax impact of $17 million (increase in deferred tax asset of $17 million
and an increase in current tax liability of $34 million) was recognised in Retained earnings.
5. The Group recognised a decrease of $65 million to the carrying value of Investments in associates with a corresponding decre
ase to Retained earnings reflecting the Group’s share of the estimated initial application impact of IFRS 9
(the international equivalent of AASB 9).
6. The initial application of the expected credit loss requirements of AASB 9, resulted in increases in provisions for credit i
mpairment attributable to the following:
On-balance sheet loans and advances of $647 million reflected in the Net loans and advances at amortised cost;
Investment securities measured at amortised cost of $11 million reflected in the Investment securities – debt securities at am
ortised cost; and
Off-balance sheet credit related commitments of $155 million reflected in the Provisions.
The total impact of $813 million was recognised as a reduction to Retained earnings, offset by an increase of $234 million rela
ted to deferred tax. Additionally, loss allowances of $10 million (after-tax) attributable to Investment
securities – debt securities at FVOCI have been recognised in Reserves with a corresponding adjustment to Retained earnings. Th
e debt securities remain at fair value on the face of the Balance Sheet.
7. On initial application of AASB
9, a portfolio of Negotiable Certificates of
Deposit with a carrying
amount of $2,906 million
was reclassified from Net loans and advances at amortised cost to Investment Securities at amortised cost.
There was no re-measurement impact associated with this reclassification.
8. On initial application of AASB 9, loans with a carrying amount and fair value of $1,340 million that were in the process of
being syndicated were reclassified from Net loans and advances at amortised cost to Net Loans and advances
at FVTPL on the basis that the applicable business model is held-to-sell. There was no re-measurement impact associated with th
is reclassification.
DIRECTORS’ DECLARATION
120
Directors’ Declaration
The Directors of Australia and New Zealand Banking Group Limited declare that:
1. in the Directors’ opinion the Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial Statements are in
accordance with the Corporations Act 2001, including:
section 304, that they comply with the Australian Accounting Standards and any further requirements in the Corporations Regulations 2001;
and
section 305, that they give a true and fair view of the financial position of the Group as at 31 March 2019 and of its performance for the half
year ended on that date; and
2. in the Directors’ opinion as at the date of this declaration there are reasonable grounds to believe that the Company will be able to pay its debts as
and when they become due and payable.
Signed in accordance with a resolution of the Directors.
David M Gonski, AC Shayne C Elliott
Chairman Director
30 April 2019
AUDITOR’S REVIEW REPORT AND INDEPENDENCE DECLARATION
121
Independent Auditor’s Review Report to the shareholders of Australia and New Zealand Banking Group Limited
Report on the half year Condensed Consolidated Financial Statements
Conclusion
We have reviewed the accompanying Condensed Consolidated Financial Statements of Australia and New Zealand Banking Group Limited (the Group).
The Group comprises Australia and New Zealand Banking Group Limited (the Company) and the entities it controlled at the half year’s end or from time to
time during the half year.
The Condensed Consolidated Financial Statements comprise:
The condensed consolidated balance sheet as at 31 March 2019;
The condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated statement
of changes in equity, and condensed consolidated cash flow statement for the half year ended on that date;
Notes 1 to 21 comprising a summary of significant accounting policies and other explanatory information; and
The Directors’ Declaration.
Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the Condensed Consolidated Financial
Statements of Australia and New Zealand Banking Group Limited are not in accordance with the Corporations Act 2001, including:
i) giving a true and fair view of the Group’s financial position as at 31 March 2019 and of its performance for the half year ended on that date; and
ii) complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.
Responsibilities of the Directors for the Condensed Consolidated Financial Statements
The Directors of the Company are responsible for:
the preparation of the Condensed Consolidated Financial Statements that give a true and fair view in accordance with Australian Accounting
Standards and the Corporations Act 2001;
such internal control as the Directors determine is necessary to enable the preparation of the Condensed Consolidated Financial Statements that
are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility for the review of the Condensed Consolidated Financial Statements
Our responsibility is to express a conclusion on the Condensed Consolidated Financial Statements based on our review. We conducted our review in
accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity,
in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the Condensed
Consolidated Financial Statements are not in accordance with the Corporations Act 2001 including: giving a true and fair view of the Group’s financial
position as at 31 March 2019 and its performance for the half year ended on that date, and complying with Australian Accounting Standard AASB 134
Interim Financial Reporting and the Corporations Regulations 2001. As auditor of Australia and New Zealand Banking Group Limited, ASRE 2410 requires
that we comply with the ethical requirements relevant to the audit of the annual financial report.
A review of Condensed Consolidated Financial Statements consists of making enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian
Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified
in an audit. Accordingly, we do not express an audit opinion.
In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.
KPMG
Melbourne
Alison Kitchen
Partner
30 April 2019
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
To the Directors of Australia and New Zealand Banking Group Limited
I declare that, to the best of my knowledge and belief, in relation to the review of Australia and New Zealand Banking Group Limited for the half-year
ended 31 March 2019, there have been:
(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and
(ii) no contraventions of any applicable code of professional conduct in relation to the review.
KPMG
Melbourne
Alison Kitchen
Partner
30 April 2019
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (”KPMG International”), a Swiss entity.
Liability limited by a scheme approved under Professional Standards Legislation.
AUDITOR’S REVIEW REPORT AND INDEPENDENCE DECLARATION
122
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SUPPLEMENTARY INFORMATION
123
CONTENTS Page
Capital management - including discontinued operations 124
Average balance sheet and related interest - including discontinued operations 128
Select geographical disclosures – including discontinued operations 131
Exchange rates 132
Derivative financial instruments 133
SUPPLEMENTARY INFORMATION
124
Capital management - including discontinued operations
ANZ provides information as required under APRA’s prudential standard APS 330: Public Disclosure. This information is located in the Regulatory
Disclosures section of ANZ’s website: shareholder.anz.com/pages/regulatory-disclosure.
As at
Movement
Qualifying Capital
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Tier 1
Shareholders' equity and non-controlling interests
1
59,971 59,383 59,500 1% 1%
Prudential adjustments to shareholders' equity Table 1
(43) (322) (394) -87% -89%
Gross Common Equity Tier 1 capital
59,928 59,061 59,106 1% 1%
Deductions Table 2 (14,400) (14,370) (15,399) 0% -6%
Common Equity Tier 1 capital
45,528 44,691 43,707 2% 4%
Additional Tier 1 capital Table 3 7,547 7,527 7,418 0% 2%
Tier 1 capital
53,075 52,218 51,125 2% 4%
Tier 2 capital Table 4 7,569 7,291 8,040 4% -6%
Total qualifying capital
60,644 59,509 59,165 2% 2%
Capital adequacy ratios
Common Equity Tier 1 11.5% 11.4% 11.0%
Tier 1
13.4% 13.4% 12.9%
Tier 2
1.9% 1.9% 2.0%
Total capital ratio
15.3% 15.2% 14.9%
Risk weighted assets Table 5
396,291 390,820 395,777 1% 0%
1.
Prior period numbers have not been restated for the impact of AASB 15 to align with previously reported regulatory returns.
SUPPLEMENTARY INFORMATION
125
Capital management - including discontinued operations, cont’d
As at Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Table 1: Prudential adjustments to shareholders' equity
Treasury shares attributable to ANZ Wealth Australia policyholders
328 328 306 0% 7%
Accumulated retained profits and reserves of insurance and funds
management entities
(213) (509) (608) -58% -65%
Deferred fee revenue including fees deferred as part of loan yields
143 132 135 8% 6%
Reserves attributable to investment securities/
available-for-sale assets related to deconsolidated subsidiaries
1
(139) (99) (91) 40% 53%
Other
(162) (174) (136) -7% 19%
Total
(43) (322) (394) -87% -89%
Table 2: Deductions from Common Equity Tier 1 capital
Unamortised goodwill & other intangibles (excluding ANZ Wealth Australia and
New Zealand)
(3,865) (3,776) (3,638) 2% 6%
Intangible component of investments in ANZ Wealth Australia and New
Zealand
(1,494) (1,629) (1,634) -8% -9%
Capitalised software
(1,360) (1,421) (1,745) -4% -22%
Capitalised expenses including loan and lease origination fees
(1,019) (1,077) (1,133) -5% -10%
Applicable deferred net tax assets
(1,162) (1,118) (869) 4% 34%
Expected losses in excess of eligible provisions Table 8
(42) (609) (686) -93% -94%
Investment in other insurance and funds management subsidiaries
(270) (270) (274) 0% -1%
Investment in ANZ Wealth Australia and New Zealand
(735) (750) (1,751) -2% -58%
Investment in banking associates and minority interests
(2,501) (2,333) (2,272) 7% 10%
Other deductions
(1,952) (1,387) (1,397) 41% 40%
Total
(14,400) (14,370) (15,399) 0% -6%
Table 3: Additional Tier 1 capital
ANZ Capital Notes 1
1,118 1,117 1,117 0% 0%
ANZ Capital Notes 2
1,606 1,605 1,604 0% 0%
ANZ Capital Notes 3
965 965 961 0% 0%
ANZ Capital Notes 4
1,611 1,610 1,609 0% 0%
ANZ Capital Notes 5
925 924 924 0% 0%
ANZ Bank NZ Capital Notes
478 456 467 5% 2%
ANZ Capital Securities
1,336 1,240 1,188 8% 12%
Regulatory adjustments and deductions
(492) (390) (452) 26% 9%
Total
7,547 7,527 7,418 0% 2%
Table 4: Tier 2 capital
General reserve for impairment of financial assets
307 119 123 large large
Perpetual subordinated notes
423 416 390 2% 8%
Term subordinated debt notes
7,806 7,575 8,216 3% -5%
Regulatory adjustments and deductions
(967) (819) (689) 18% 40%
Total
7,569 7,291 8,040 4% -6%
1.
On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets were revised. Available-for-sale classification used in comparative periods ceases to exist
under AASB 9 and a new classification of investment securities was introduced. Comparative information has not been restated.
SUPPLEMENTARY INFORMATION
126
Capital management - including discontinued operations, cont’d
As at Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Table 5: Risk weighted assets
On balance sheet
264,405 255,196 257,304 4% 3%
Commitments
53,079 52,408 53,644 1% -1%
Contingents
12,149 11,938 12,333 2% -1%
Derivatives
15,890 18,038 19,541 -12% -19%
Total credit risk weighted assets Table 6
345,523 337,580 342,822 2% 1%
Market risk - Traded 5,790 6,808 6,558 -15% -12%
Market risk - IRRBB
7,245 8,814 9,019 -18% -20%
Operational risk
37,733 37,618 37,378 0% 1%
Total risk weighted assets
396,291 390,820 395,777 1% 0%
As at Movement
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Table 6: Credit risk weighted assets by Basel asset class
Subject to Advanced IRB approach
Corporate
127,989 121,891 123,253
5% 4%
Sovereign
7,016 6,955 6,896
1% 2%
Bank
15,511 15,908 15,129
-2% 3%
Residential mortgage
101,469 97,764 99,560
4% 2%
Qualifying revolving retail (credit cards)
5,795 6,314 6,845
-8% -15%
Other retail
28,029 29,373 30,769
-5% -9%
Credit risk weighted assets subject to Advanced IRB approach
285,809 278,205 282,452
3% 1%
Credit risk specialised lending exposures subject to slotting criteria
35,696 33,110 32,065
8% 11%
Subject to Standardised approach
Corporate
12,252 13,760 15,105
-11% -19%
Residential mortgage
331 327 321
1% 3%
Other retail (includes credit cards)
81 88 102
-8% -21%
Credit risk weighted assets subject to Standardised approach
12,664 14,175 15,528
-11% -18%
Credit Valuation Adjustment and Qualifying Central Counterparties
6,217 7,344 7,864
-15% -21%
Credit risk weighted assets relating to securitisation exposures
1,558 1,600 1,728
-3% -10%
Other assets
3,579 3,146 3,185
14% 12%
Total credit risk weighted assets
345,523 337,580 342,822
2% 1%
SUPPLEMENTARY INFORMATION
127
Capital management - including discontinued operations, cont’d
Collectively and Individually
Assessed Provision
Basel Expected Loss
1
Table 7: Total provision for credit impairment and Basel expected
loss by division
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
$M
Sep 18
$M
Mar 18
$M
Australia 2,420 1,694 1,690
2,460 2,428 2,499
Institutional
1,340 1,324 1,421
1,041 1,052 1,097
New Zealand
442 360 421
696 664 725
Pacific
67 61 59
8 9 8
TSO and Group Centre
- 4 4
1 - -
Total provision for credit impairment and expected loss
4,269 3,443 3,595
4,206 4,153 4,329
1.
Only applicable to Advanced Internal Ratings based portfolios.
As at Movement
Table 8: APRA Expected loss in excess of eligible provisions
Mar 19
$M
Sep 18
$M
Mar 18
$M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
APRA Basel 3 expected loss: non-defaulted 2,675 2,664 2,826 0% -5%
Less: Qualifying collectively assessed provision
Collectively assessed provision (3,378) (2,523) (2,579) 34% 31%
Non-qualifying collectively assessed provision
395 307 312 29% 27%
Standardised collectively assessed provision
151 119 123 27% 23%
Non-defaulted excess included in deduction
- 567 682 -100% -100%
APRA Basel 3 expected loss: defaulted 1,531 1,489 1,503 3% 2%
Less: Qualifying individually assessed provision
Individually assessed provision (891) (920) (1,016) -3% -12%
Additional individually assessed provision for partial write offs
(310) (325) (301) -5% 3%
Standardised individually assessed provision
85 79 108 8% -21%
Collectively assessed provision on advanced defaulted
(373) (281) (290) 33% 29%
42 42 4 0% large
Shortfall in expected loss not included in deduction - - 5 n/a -100%
Defaulted excess included in deduction
42 4 9 large large
Gross deduction 42 609 686 -93% -94%
SUPPLEMENTARY INFORMATION
128
Average balance sheet and related interest
1, 2
– including discontinued operations
Half Year Mar 19 Half Year Sep 18 Half Year Mar 18
Avg bal Int Rate Avg bal Int Rate Avg bal Int Rate
$M $M % $M $M % $M $M %
Loans and advances
Home loans
322,407 7,396 4.6% 319,241 7,336 4.6% 313,971 7,296 4.7%
Consumer finance
17,876 887 10.0% 18,024 930 10.3% 16,975 944 11.2%
Business lending
246,530 5,570 4.5% 236,199 5,113 4.3% 231,556 4,739 4.1%
Individual provisions for credit impairment
(902) - n/a (959) - n/a (1,057) - n/a
Total (continuing operations)
585,911 13,853 4.7% 572,505 13,379 4.7% 561,445 12,979 4.6%
Non-lending interest earning assets
Cash and other liquid assets 110,337 710 1.3% 101,825 593 1.2% 90,591 438 1.0%
Trading and investment securities/available-for-sale assets
3
114,169 1,317 2.3% 109,101 1,392 2.5% 111,734 1,271 2.3%
Other assets
1,111 91 n/a 1,070 114 n/a 1,416 161 n/a
Total (continuing operations)
225,617 2,118 1.9% 211,996 2,099 2.0% 203,741 1,870 1.8%
Total interest earning assets (continuing operations)
4
811,528 15,971 3.9% 784,501 15,478 3.9% 765,186 14,849 3.9%
Non-interest earning assets (continuing operations) 120,099 126,817 126,546
Total average assets (continuing operations) 931,627 911,318 891,732
Total average assets (discontinued operations) 42,564 42,859 42,263
Total average assets
974,191 954,177 933,995
Deposits and other borrowings
Certificates of deposit
43,592 505 2.3% 47,855 541 2.3% 51,748 529 2.1%
Term deposits
217,887 2,783 2.6% 207,804 2,503 2.4% 200,255 2,185 2.2%
On demand and short term deposits
215,957 1,892 1.8% 218,847 1,883 1.7% 221,781 1,843 1.7%
Deposits from banks and securities sold under agreement to
repurchase
81,748 913 2.2% 71,952 722 2.0% 65,455 508 1.6%
Commercial paper and other borrowings
22,127 309 2.8% 22,653 230 2.0% 21,359 208 2.0%
Total (continuing operations)
581,311 6,402 2.2% 569,111 5,879 2.1% 560,598 5,273 1.9%
Non-deposit interest bearing liabilities
Collateral received and settlement balances owed by ANZ 11,603 51 0.9% 12,652 55 0.9% 12,060 48 0.8%
Debt issuances & subordinated debt
120,454 2,060 3.4% 116,634 2,070 3.5% 109,020 1,858 3.4%
Other liabilities
2,465 159 n/a 1,977 310 n/a 4,050 320 n/a
Total (continuing operations)
134,522 2,270 3.4% 131,263 2,435 3.7% 125,130 2,226 3.6%
Total interest bearing liabilities (continuing operations)
4
715,833 8,672 2.4% 700,374 8,314 2.4% 685,728 7,499 2.2%
Non-interest bearing liabilities (continuing operations) 153,751 150,335 145,695
Total average liabilities (continuing operations) 869,584 850,709 831,423
Total average liabilities (discontinued operations) 45,412 44,469 43,573
Total average liabilities
914,996 895,178 874,996
Total average shareholders' equity 59,195 58,999 58,999
1.
Averages used are predominantly daily averages.
2.
Assets and liabilities held for sale are included in continuing operations balance sheet categories and discontinued operations.
3.
On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets were revised. Available-for-sale classification used in comparative periods cease to exist
under AASB 9 and a new classification of investment securities was introduced. Comparative information has not been restated.
4.
Intra-group interest earning assets and interest income and Intra-group interest earning liabilities and interest expense have been eliminated.
SUPPLEMENTARY INFORMATION
129
Average balance sheet and related interest
1, 2
– including discontinued operations (cont’d)
Half Year Mar 19 Half Year Sep 18 Half Year Mar 18
Avg bal Int Rate Avg bal Int Rate Avg bal Int Rate
$M $M % $M $M % $M $M %
Loans and advances
Australia
401,296 9,507 4.8% 395,442 9,404 4.7% 389,907 9,273 4.8%
Asia, Pacific, Europe & America
61,248 1,456 4.8% 58,826 1,158 3.9% 56,019 977 3.5%
New Zealand
123,367 2,890 4.7% 118,237 2,817 4.8% 115,519 2,729 4.7%
Total (continuing operations)
585,911 13,853 4.7% 572,505 13,379 4.7% 561,445 12,979 4.6%
Trading and investment securities/available-for-sale
assets
3
Australia 58,709 684 2.3% 59,075 833 2.8% 62,044 740 2.4%
Asia, Pacific, Europe & America
41,171 455 2.2% 36,135 379 2.1% 35,399 344 1.9%
New Zealand
14,289 178 2.5% 13,891 180 2.6% 14,291 187 2.6%
Total (continuing operations)
114,169 1,317 2.3% 109,101 1,392 2.5% 111,734 1,271 2.3%
Total interest earning assets
4
Australia 505,654 10,633 4.2% 495,373 10,605 4.3% 484,628 10,346 4.3%
Asia, Pacific, Europe & America
163,810 2,206 2.7% 152,803 1,827 2.4% 146,690 1,533 2.1%
New Zealand
142,064 3,132 4.4% 136,325 3,046 4.5% 133,868 2,970 4.4%
Total (continuing operations)
811,528 15,971 3.9% 784,501 15,478 3.9% 765,186 14,849 3.9%
Total average assets
Australia
588,469 583,016 571,245
Asia, Pacific, Europe & America
188,160 178,007 172,390
New Zealand
154,998 150,295 148,097
Total average assets (continuing operations)
931,627 911,318 891,732
Total average assets (discontinued operations) 42,564 42,859 42,263
Total average assets
974,191 954,177 933,995
Interest bearing deposits and
other borrowings
Australia
334,952 3,716 2.2% 336,275 3,568 2.1% 334,390 3,382 2.0%
Asia, Pacific, Europe & America
150,989 1,554 2.1% 142,316 1,237 1.7% 137,993 855 1.2%
New Zealand
95,370 1,132 2.4% 90,520 1,074 2.4% 88,215 1,036 2.4%
Total (continuing operations)
581,311 6,402 2.2% 569,111 5,879 2.1% 560,598 5,273 1.9%
Total interest bearing liabilities
4
Australia 421,237 5,296 2.5% 417,551 5,306 2.5% 408,953 4,880 2.4%
Asia, Pacific, Europe & America
176,119 1,864 2.1% 168,840 1,536 1.8% 165,303 1,182 1.4%
New Zealand
118,477 1,512 2.6% 113,983 1,472 2.6% 111,472 1,437 2.6%
Total (continuing operations)
715,833 8,672 2.4% 700,374 8,314 2.4% 685,728 7,499 2.2%
Total average liabilities
Australia
528,775 522,945 508,875
Asia, Pacific, Europe & America
201,315 193,712 191,147
New Zealand
139,494 134,052 131,401
Total average liabilities (continuing operations)
869,584 850,709 831,423
Total average liabilities (discontinued operations) 45,412 44,469 43,573
Total average liabilities
914,996 895,178 874,996
Total average shareholders' equity
Ordinary share capital, reserves, retained earnings and non-
controlling interests
59,195 58,999 58,999
Total average shareholders' equity
59,195 58,999 58,999
Total average liabilities and shareholder's equity 974,191 954,177 933,995
1.
Averages used are predominantly daily averages.
2.
Assets and liabilities held for sale are included in continuing operations balance sheet categories and discontinued operations.
3.
On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets were revised. Available-for-sale classification used in comparative periods cease to exist
under AASB 9 and a new classification of investment securities was introduced. Comparative information has not been restated.
4.
Intra-group interest earning assets and interest income and Intra-group interest earning liabilities and interest expense have been eliminated.
SUPPLEMENTARY INFORMATION
130
Half Year
Gross earnings rate
1
Mar 19
%
Sep 18
%
Mar 18
%
Australia
4.38 4.46 4.49
Asia, Pacific, Europe & America
2.71 2.41 2.12
New Zealand
4.42 4.46 4.45
Group
3.95 3.94 3.89
Net interest spread and net interest margin analysis as follows:
Half Year
2
Australia
1
Mar 19
%
Sep 18
%
Mar 18
%
Net interest spread
1.75 1.81 1.99
Interest attributable to net non-interest bearing items
0.35 0.31 0.28
Net interest margin - Australia
2.10 2.12 2.27
Asia, Pacific, Europe & America
1
Net interest spread
0.58 0.60 0.68
Interest attributable to net non-interest bearing items
0.13 0.10 0.08
Net interest margin - Asia, Pacific, Europe & America
0.71 0.70 0.76
New Zealand
1
Net interest spread
1.82 1.83 1.83
Interest attributable to net non-interest bearing items
0.35 0.33 0.33
Net interest margin - New Zealand
2.17 2.16 2.16
Group
Net interest spread
1.50 1.57 1.70
Interest attributable to net non-interest bearing items
0.30 0.25 0.23
Net interest margin
1.80 1.82 1.93
Net interest margin (excluding Markets) 2.50 2.49 2.60
1.
Geographic gross earnings rate, net interest spread and net interest margin are calculated gross of intra-group items (Intra-group interest earning assets and associated interest income and
intra-group interest bearing liabilities and associated interest expense).
2.
In the March 2019 half, the methodology for allocating earnings on capital at a business unit level has changed from Economic Capital to Regulatory Capital. While neutral at a Group level,
this change has impacted net interest income at the business unit level and comparative information has been restated accordingly.
SUPPLEMENTARY INFORMATION
131
Select geographical disclosures – including discontinued operations
The following divisions operate across the geographic locations illustrated below:
• Institutional division - International, New Zealand and Australia
• Pacific division - International
• New Zealand division - New Zealand
The International geography includes Asia, Pacific, Europe & America
Australia
$M
New Zealand
$M
International
$M
Total
$M
March 2019 Half Year
Statutory profit attributable to shareholders of the company 1,750 877 546 3,173
Cash profit
1,902 1,052 560 3,514
Net loans and advances
1
421,261 126,279 62,603 610,143
Customer deposits
1
270,779 103,034 119,560 493,373
Risk weighted assets
1
249,777 71,322 75,192 396,291
September 2018 Half Year
Statutory profit attributable to shareholders of the company 1,890 939 248 3,077
Cash profit 1,804 885 240 2,929
Net loans and advances
1
427,097 117,927 60,413 605,437
Customer deposits
1
276,769 95,310 115,194 487,273
Risk weighted assets
1
248,504 67,627 74,689 390,820
March 2018 Half Year
Statutory profit attributable to shareholders of the company 1,984 880 459 3,323
Cash profit 1,583 860 433 2,876
Net loans and advances
1
418,916 118,610 54,943 592,469
Customer deposits
1
276,892 94,623 101,249 472,764
Risk weighted assets
1
253,491 68,559 73,727 395,777
1.
Balance Sheet amounts include assets and liabilities held for sale.
New Zealand geography (in NZD)
Half Year
Movement
Mar 19
NZD M
Sep 18
NZD M
Mar 18
NZD M
Mar 19
v. Sep 18
Mar 19
v. Mar 18
Net interest income 1,626 1,605 1,572
1% 3%
Other operating income
654 475 540
38% 21%
Operating income
2,280 2,080 2,112
10% 8%
Operating expenses (735) (761) (742)
-3% -1%
Profit before credit impairment and income tax
1,545 1,319 1,370
17% 13%
Credit impairment (charge)/release (32) 17 (70)
large -54%
Profit before income tax
1,513 1,336 1,300
13% 16%
Income tax expense and non-controlling interests (399) (373) (359)
7% 11%
Cash profit
2
1,114 963 941
16% 18%
Adjustments between statutory profit and cash profit (185) 59 23
large large
Statutory profit
2
929 1,022 964
-9% -4%
Individually assessed credit impairment charge/(release) - cash 32 17 84
88% -62%
Collectively assessed credit impairment charge/(release) - cash
- (34) (14)
-100% -100%
Net loans and advances
1
131,788 128,749 126,316
2% 4%
Customer deposits
1
107,528 104,055 100,771
3% 7%
Risk weighted assets
1
74,433 73,833 73,014
1% 2%
Tot
[TRUNCATED]
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.
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