Finanical report-1999

ME43515 AR_99_ver.FINANCEcover 17/11/99 12:31 PM Page 2

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

1999 FINANCIAL STATEMENTS

AR_Financial Report. 4 17/11/99 11:07 AM Page 1

Ta b l e o f C o n t e n t s
Page Page

ALPHABETICAL INDEX 2 30 Average balance sheet and related interest ..............35
31 Interest sensitivity gap ..............................................38
PROFIT AND LOSS ACCOUNTS 3
32 Net fair value of financial instruments........................41
BALANCE SHEETS 4 33 Segment analysis ......................................................43
34 Notes to the statements of cash flows ....................47
STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY 5 35 Controlled entities ......................................................49
36 Associates ..................................................................50
STATEMENTS OF CASH FLOWS 6
37 Commitments ............................................................50
NOTES TO THE FINANCIAL STATEMENTS 38 Derivative financial instruments ................................50
1 Accounting policies ..........................................................7 39 Contingent liabilities and
2 Income ..........................................................................10 credit related commitments ..................................56
3 Expenses........................................................................10 40 Superannuation commitments ..................................58
4 Remuneration of auditors ..............................................12 41 Fiduciary activities ......................................................59
5 Abnormal items..............................................................12 42 Employee share purchase and
6 Income tax expense ......................................................13 share option schemes ............................................60
7 Dividends ......................................................................13 43 Related party disclosures ..........................................62
8 Earnings per ordinary share ..........................................15 44 Remuneration of directors..........................................64
9 Liquid assets ..................................................................16 45 Remuneration of executives ......................................65
10 Due from other financial institutions..............................16 46 US GAAP reconciliation ..............................................66
11 Trading securities ..........................................................17 47 Exchange rates ..........................................................71
12 Investment securities ....................................................18 48 Events since the end of the financial year ................71
13 Net loans and advances ................................................21
14 Impaired assets..............................................................24 DIRECTORS’ DECLARATION 72

15 Provisions for doubtful debts ........................................26 AUDITORS’ REPORT 73
16 Customers’ liabilities for acceptances ..........................27
RISK MANAGEMENT 74
17 Regulatory deposits ......................................................28
18 Shares in controlled entities and associates..................28 FINANCIAL INFORMATION
19 Other assets ..................................................................29 1 Capital adequacy ........................................................76
20 Premises and equipment ..............................................30 2 Interest spreads and net interest
21 Due to other financial institutions ..................................30 average margins......................................................78
22 Deposits and other borrowings ....................................31 3 Cross border outstandings ........................................79
23 Income tax liability ........................................................31 4 Certificates of deposit and term
24 Creditors and other liabilities ........................................32 deposit maturities ..................................................79
25 Provisions ......................................................................32 5 Volume and rate analysis............................................80
26 Bonds and notes ............................................................32 6 Concentrations of credit risk ......................................82
27 Loan capital ....................................................................33 7 Doubtful debts - industry analysis ..............................84
28 Share capital ..................................................................34 8 Short term borrowings ..............................................85
29 Outside equity interests ................................................34
GLOSSARY 86

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Alphabetical Index
Page Page
Abnormal items ..................................................................12 Income tax liability ..............................................................31
Accounting policies ..............................................................7 Interest sensitivity gap ......................................................38
Associates ..........................................................................50 Interest spreads and net interest average margins............78
Auditors’ report ..................................................................73 Investment securities ........................................................18
Average balance sheet and related interest ......................35 Liquid assets ......................................................................16
Balance sheets ....................................................................4 Loan capital ........................................................................33
Bonds and notes ................................................................32 Net fair value of financial instruments................................41
Capital adequacy ................................................................76 Net loans and advances......................................................21
Certificates of deposit and term deposit maturities ..........79 Notes to the financial statements ........................................7
Commitments ....................................................................50 Notes to the statements of cash flows..............................47
Concentrations of credit risk ..............................................82 Other assets ......................................................................29
Contingent liabilities and credit related commitments ......56 Outside equity interests ....................................................34
Controlled entities ..............................................................49 Premises and equipment....................................................30
Creditors and other liabilities ..............................................32 Profit and loss accounts ......................................................3
Cross border outstandings ................................................79 Provisions ..........................................................................32
Customers’ liabilities for acceptances ................................27 Provisions for doubtful debts..............................................26
Deposits and other borrowings ..........................................31 Regulatory deposits ............................................................28
Derivative financial instruments ........................................50 Related party disclosures ..................................................62
Directors’ declaration..........................................................72 Remuneration of auditors ..................................................12
Dividends ............................................................................13 Remuneration of directors..................................................64
Doubtful debts - industry analysis ......................................84 Remuneration of executives ..............................................65
Due from other financial institutions ..................................16 Risk Management ..............................................................74
Due to other financial institutions ......................................30 Segment analysis................................................................43
Earnings per ordinary share ................................................15 Share capital ......................................................................34
Employee share purchase and share option schemes ......60 Shares in controlled entities and associates ......................28
Events since the end of the financial year ........................71 Short term borrowings ......................................................85
Exchange rates ..................................................................71 Statements of cash flows ..................................................6
Expenses ............................................................................10 Statements of changes in shareholders’ equity ..................5
Fiduciary activities ..............................................................59 Superannuation commitments ..........................................58
Glossary ..............................................................................86 Trading securities................................................................17
Impaired assets ..................................................................24 US GAAP reconciliation ......................................................66
Income................................................................................10 Volume and rate analysis ....................................................80
Income tax expense ..........................................................13

2


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

Consolidated The Company
1999 1998 1997 1999 1998
Note $M $M $M $M $M

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

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

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

Operating profit before
debt provision and abnormal items 2,672 2,208 2,045 1,931 1,956
Provision for doubtful debts 15 (510) (487) (400) (245) (326)

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

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

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

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

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

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

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

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

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

Earnings per ordinary share (cents) 8
Basic
Before abnormal items 90.6 77.2 78.4 n/a n/a
After abnormal items 90.6 72.6 68.6 n/a n/a
Diluted
Before abnormal items 90.3 76.9 78.2 n/a n/a
After abnormal items 90.3 72.4 68.4 n/a n/a
The notes appearing on pages 7 to 71 form an integral part of these financial statements
n/a Not applicable

3


Balance Sheets as at 30 September 1999

1999 1998 1999 1998
Note $M $M $M $M

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

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

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

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

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

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

Share capital and reserves attributable to
members of the Company 9,403 8,335 9,326 8,337
Outside equity interests 29 26 56 – –

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

Commitments 37
Derivative financial instruments 38
Contingent liabilities and credit related
commitments 39

4


Statements of Changes in Shareholders’ Equity for the year ended 30 September 1999

1999 1998 1997 1999 1998
Note $M $M $M $M $M

Share capital
Balance at start of year 5,226 4,335 4,115 5,226 4,335
Ordinary shares
Dividend reinvestment plan 176 218 180 176 218
Group employee share acquisition scheme 4 5 27 4 5
Group share option scheme 9 22 11 9 22
Group share purchase scheme # 1 1 # 1
Directors’ share and option purchase scheme – # 1 – #
Preference shares 28 500 645 – 500 645

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

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

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

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

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

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

Total general reserve 539 485 708 55 55

Capital reserve 149 149 149 – –

Total reserves 536 697 778 1,609 1,794

Retained profits
Balance at start of year 2,412 1,830 1,583 1,317 733
attributable to members of the Company 1,480 1,106 1,024 1,299 1,331

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

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

Total shareholders’ equity attributable to
members of the Company 9,403 8,335 6,943 9,326 8,337
# Amounts less than $500,000

5


Statements of Cash Flows for the year ended 30 September 1999

1999 1998 1997 1999 1998
Note $M $M $M $M $M

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

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

Cash flows from investing activities
Net decrease (increase)
Due from other financial institutions 616 2,299 1,840 506 2,126
Regulatory deposits 828 (308) (14) 700 (105)
Loans and advances (12,936) (9,680) (8,029) (10,775) (7,916)
Shares in controlled entities – – – (1,308) (991)
Investment securities
Purchases (5,527) (5,490) (3,140) (1,817) (1,178)
Proceeds from sale or maturity 4,670 5,279 2,803 1,340 1,649
Controlled entities and associates 34(c)
Purchased (net of cash acquired) (2) (8) (11) – –
Proceeds from sale (net of cash disposed) – – 41 – –
Transferred from controlled entities to associates (net of cash) (94) – – – –
Premises and equipment
Purchases (177) (143) (219) (170) (143)
Proceeds from sale 142 75 47 4 10
Other (610) 1,483 1,389 (83) 1,381

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

Cash flows from financing activities
Net (decrease) increase
Due to other financial institutions (779) (2,047) (2,787) (317) (2,091)
Deposits and other borrowings 5,202 2,131 7,861 405 1,656
Due from/to controlled entities – – – 2,942 2,974
Creditors and other liabilities 743 (288) 425 991 (613)
Bonds and notes
Issue proceeds 4,330 802 973 4,172 802
Redemptions (479) (2,174) (1,434) (479) (2,174)
Loan capital
Issue proceeds – 559 323 – 559
Redemptions (256) (273) (851) (256) (273)
Decrease in outside equity interests (1) (3) (3) – –
Dividends paid (671) (491) (478) (599) (491)
Share capital issues 591 714 39 591 714

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

Net cash provided by operating activities 3,694 2,257 2,033 3,587 1,839
Net cash (used in) investing activities (13,090) (6,493) (5,293) (11,603) (5,167)
Net cash provided by (used in) financing activities 8,680 (1,070) 4,068 7,450 1,063
Net (decrease) increase in cash and cash equivalents (716) (5,306) 808 (566) (2,265)
Cash and cash equivalents at beginning of year 8,981 12,456 11,246 5,183 6,993
Foreign currency translation on opening balances (1,631) 1,831 402 (440) 455

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

6


Notes to the Financial Statements
1: Accounting Policies Where controlled entities and associates have been sold or
acquired during the year, their operating results have been
(i) Bases of preparation included to the date of disposal or from the date of
acquisition.
This general purpose financial report complies with the
accounts provisions of the Banking Act, applicable The Group adopts the equity method of accounting for
Australian Accounting Standards, the accounts provisions associates. Shares in associates are stated in the
of the Corporations Law, Urgent Issues Group Consensus consolidated balance sheet at cost plus the Group’s share of
Views and other authoritative pronouncements of the post acquisition net assets. The Group’s share of results of
Australian Accounting Standards Board. The accounting associates is included in the profit and loss account.
policies are consistent with those of the previous year (iv) Goodwill
except for the changes disclosed in note (ii).
Goodwill, representing the excess of the purchase
Certain disclosures required by the United States consideration over the fair value of the identifiable net
Securities and Exchange Commission in respect of foreign assets of a controlled entity at the date of gaining control,
registrants have also been included in this report. is recognised as an asset and amortised on a straight line
The financial report has been prepared in accordance with basis over the period during which the benefits are
the historical cost convention as modified by the expected to arise, not exceeding 20 years.
revaluation of certain properties, trading instruments and The unamortised balance of goodwill and the period of
shares in controlled entities. amortisation are reviewed annually. Where the balance
The Company is a company of the kind referred to in the exceeds the value of expected future benefits, the
Australian Securities and Investments Commission class difference is charged to the profit and loss account.
order 98/100, dated 10 July 1998. Consequently, amounts
in the financial report have been rounded to the nearest (v) Foreign currency
million dollars except where otherwise indicated. Revenues and expenses of overseas branches and
All amounts are expressed in Australian dollars, unless controlled entities are translated at average exchange rates
otherwise stated. Where necessary, amounts shown for the for the year, while assets and liabilities are translated at the
previous year have been reclassified to facilitate mid-point rates of exchange ruling at balance date.
comparison. Net translation differences arising from the translation of
overseas branches and controlled entities considered to be
(ii) Changes in accounting policy self-sustaining operations are included in the foreign
(a) Effective 1 October 1998, costs incurred in developing, currency translation reserve, after allowing for those
acquiring and enhancing application software are positions hedged by foreign exchange contracts and related
capitalised and amortised over the estimated useful life currency borrowings.
which generally ranges from 3 to 5 years. The Group Assets and liabilities denominated in foreign currencies are
previously expensed these costs. The change results translated into Australian dollars at the rates of exchange
from adoption of the US Statement of Position 98-1 ruling at balance date.
“Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use”. (vi) Fee Income
The impact on the profit and loss after tax for the year Fee income is brought to account on an accruals basis.
ended 30 September 1999 is $39 million. Yield-related front-end application fees received are
(b) The class of assets “Investments in Controlled Entities” deferred and accrued to income as an adjustment of yield
in the Company’s financial statements have not been over the period of the loan. Non yield-related application
revalued. In previous years the controlled entities were and activation lending fees received are recognised as
revalued to net tangible asset value. The value in the income no later than when the loan is disbursed or the
1999 Company financial statements is disclosed in the commitment to lend expires. Fees received on an ongoing
Company’s balance sheet at directors’ valuation, being basis that represent the recoupment of the costs of
the carrying value as at 30 September 1998. providing service (for example, maintaining and
The carrying value of the controlled entities does not administering existing facilities) are taken to income when
exceed their recoverable amount. the fees are receivable.
The change in policy has no profit or loss impact for (vii) Net loans and advances
the year ended 30 September 1999. Net loans and advances include direct finance provided to
customers such as bank overdrafts, credit cards, term loans,
(iii) Consolidation
lease finance, hire purchase finance and commercial bills.
The financial statements consolidate the financial
statements of Australia and New Zealand Banking Group Overdrafts, credit cards and term loans are carried at
Limited (the Company) and its controlled entities. principal balances outstanding. Interest on amounts
outstanding is accounted for on an accruals basis.

7


Finance leases and hire purchase contracts are accounted for (x) Trading securities
using the finance method whereby income is taken to Securities held for trading purposes are recorded at
account progressively over the life of the lease or the market value. Unrealised gains and losses on revaluation
contract in proportion to the outstanding investment are taken to the profit and loss account.
balance. Investments in leveraged leases are recorded at an
amount equal to the investment participation, and income is (xi) Investment securities
taken to account on an actuarial basis over the term of each Investment securities are those which the Group intends
lease. and has the ability to hold until maturity. Such securities
Customer financing through redeemable preference shares are recorded at cost or at cost adjusted for amortisation of
is included within net loans and advances. Dividends premiums or discounts.
received on redeemable preference shares are taken to the Premiums and discounts are capitalised and amortised
profit and loss account as part of interest income. from the date of purchase to maturity. Interest and
All loans are subject to regular scrutiny and graded dividend income is accrued. Changes in market values of
according to the level of credit risk. Loans are classified as securities are not taken into account unless there is
either productive or non-accrual. The Group has adopted considered to be a permanent diminution in value.
the Australian Prudential Regulation Authority Impaired
Assets Guidelines in assessing non-accrual loans. Non- (xii) Repurchase agreements
accrual loans include loans where the accrual of interest Securities sold under repurchase agreements are retained
and fees has ceased due to doubt as to full recovery, and in the financial statements and a counterparty liability is
loans that have been restructured with an effective yield disclosed under the classifications of Due to other
below the Group’s average cost of funds at the date of financial institutions or Deposits and other borrowings.
restructuring. A specific provision is raised to cover the The difference between the sale price and the repurchase
expected loss, where full recovery of principal is doubtful. price is amortised over the life of the repurchase
agreement and charged to interest expense in the profit
Restructured loans are loans with an effective yield above and loss account.
the Group’s cost of funds and below the yield applicable to
a customer of equal credit standing. Securities purchased under agreements to resell are
recorded as Liquid assets, Net loans and advances, or Due
Cash receipts on non-accrual loans are, in the absence of a
from other financial institutions, depending on the term
contrary agreement with the customer, applied as income
of the agreement and the counterparty.
or fees in priority to being applied as a reduction in
principal, except where the cash receipt relates to proceeds (xiii) Derivative financial instruments
from the sale of security.
Derivative financial instruments (derivatives) are contracts
(viii) Bad and doubtful debts whose value is derived from one or more underlying
Specific provisions are maintained to cover identified financial instruments or indices. They include swaps,
doubtful debts. All known bad debts are written off in the forward rate agreements, futures, options and
year in which they are identified. combinations of these instruments.
Trading derivatives, comprising derivatives entered into
The Group’s annual debt provision charge represents the
for customer-related or proprietary reasons or for hedging
expected average annual loss on principal over the
the trading portfolio, are measured at fair value and all
economic cycle for the lending portfolio. The debt
gains and losses are taken to the profit and loss account.
provision charge is credited to the general provision.
Fair value losses arising from trading derivatives are not
The specific provision requirement (representing new and offset against fair value gains unless a legal right of set-off
increased specific provisions less specific provision releases) exists.
is transferred from the general provision to the specific Derivatives designated, and effective, as hedges of
provision. Recoveries, representing excess transfers to the underlying non-trading exposures are accounted for on
specific provision, are credited to the general provision. the same basis as the underlying exposures. To be
Provisions for doubtful debts are deducted from loans and designated as a hedge, the fair value of the hedge must
advances in the balance sheet. move inversely with changes in the fair value of the
underlying exposure.
(ix) Acceptances Gains and losses resulting from the termination of a
Commercial bills accepted but not held in portfolio are derivative that was designated as a hedge of non-trading
accounted for and disclosed as a liability with a exposures are deferred and amortised over the remaining
corresponding contra asset. period of the original term covered by the terminated
The Group’s own acceptances discounted are held as part instrument where the underlying exposure still exists.
of either the trading securities portfolio or the loan Where the underlying exposure no longer exists, the gains
portfolio, depending on whether, at the time of such and losses are recognised in the profit and loss account.
discount, the intention was to hold the acceptances for
resale or until maturity.

8


Gains and losses on derivatives related to hedging Provision for Australian income tax is made where the
exposures arising from anticipated transactions are earnings of overseas controlled entities are subjected to
deferred and recognised in the financial statements when Australian tax under the attribution rules for the taxation
the anticipated transaction occurs. of foreign sourced income.
These gains and losses are deferred only to the extent that Otherwise, no provision is made for overseas withholding
there is an offsetting unrecognised (unrealised) gain or loss tax or Australian income tax which may arise on
on the exposures being hedged. Deferred gains and losses repatriation of earnings from overseas controlled entities,
are amortised over the expected term of the hedged where it is expected these earnings will be retained by
exposure. those entities to finance their ongoing business.
(xiv) Premises and equipment (xvi) Life insurance business
Premises and equipment (including computer equipment) The Group conducts life insurance business through ANZ
are carried at cost less depreciation or amortisation, or at Life Assurance Company Limited (ANZ Life). The
valuation. Any surplus on revaluation of a class of assets is Group’s financial statements include its interest in the
credited directly to the asset revaluation reserve except to actuarially assessed surplus of ANZ Life’s statutory funds
the extent that it reverses a revaluation decrement for the year, after allowing for increases in policyholder
previously taken to profit and loss. Where a deficit arises, reserves determined under the margin on services
this is debited to the asset revaluation reserve to the methodology. The net result for the year of $54 million
extent of any previous revaluation surplus for that class, (1998: $50 million) has been included in the profit and
and the excess debited to the profit and loss account. loss account and then transferred to the general reserve,
Potential capital gains tax arising from revaluations is not until available for distribution under the requirements and
taken into account unless the Group intends to dispose of restrictions of the Life Insurance Act 1995 and statutory
the properties. accounting practices.
Profit or loss on the disposal of premises and equipment is The Group’s interest in the accumulated retained earnings
determined as the difference between the carrying of the life insurance statutory funds of $267 million
amount of the assets at the time of disposal and the (1998: $213 million), together with the net assets of the
proceeds of disposal, and is included in the results of the shareholders’ funds of ANZ Life, are included within the
Group in the year of disposal. balance sheet of the Group.
Assets other than freehold land are depreciated at rates Due to the provisions of the Life Insurance Act 1995, the
based upon their expected useful lives to the Group, using assets of the life insurance statutory funds attributable to
the straight line method. The depreciation rates used for policyholders of ANZ Life do not form part of the assets
each class of asset are: to which the Group is entitled and are therefore not
consolidated.
Buildings 1%
Building integrals 10% (xvii) Employee entitlements
Furniture & equipment 10% The amounts expected to be paid in respect of employees’
Computer & office equipment 12.5% to 20% entitlements to annual leave are accrued at current salary
Leasehold improvements are amortised on a straight line rates including on-costs. Liability for long service leave is
basis over the remaining period of each lease. accrued in respect of all applicable employees at the
present value of future amounts expected to be paid.
The carrying values of all non-current assets have been
assessed and are not in excess of their recoverable amounts. (xviii) Superannuation commitments
In assessing recoverable amounts, the relevant cash flows Contributions, which are determined on an actuarial basis,
have not been discounted to their present value. to superannuation schemes are charged to personnel
expenses in the profit and loss account.
(xv) Income tax
Any aggregate deficiencies arising from the actuarial
The Group adopts the liability method of tax effect valuations of the Group’s defined benefit schemes have
accounting whereby income tax expense is calculated been provided for in the financial statements.
based on accounting profit adjusted for permanent
differences. Permanent differences are items of revenue The assets and liabilities of the schemes have not been
and expense which are recognised in the profit and loss consolidated as the Company does not have direct or
account but are not part of taxable income or vice versa. indirect control of the schemes.
Future tax benefits and deferred tax liabilities relating to (xix) Leasing
timing differences and tax losses are carried forward at tax
Leases entered into by the Group as lessee are
rates applicable to future periods. These future tax
predominantly operating leases, and the operating lease
benefits are not brought to account unless realisation of
payments are included in the profit and loss account in
the asset is assured beyond reasonable doubt. Future tax
equal instalments over the lease term.
benefits relating to tax losses are only carried forward
where realisation of the benefit is considered virtually
certain.
9


1999 1998 1997 1999 1998
$M $M $M $M $M

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

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

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

Other operating income
(i) Fee income
Lending 679 592 570 563 487
Other including commissions1 1,075 982 889 616 568

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

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

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

Total other income 567 525 651 791 1,012

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

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

Total income3 10,995 11,528 11,710 7,852 8,299
1 Includes commissions from funds management business. Comparatives have been restated
2 Gross proceeds on sale of premises and equipment is $142 million (1998: $75 million)
3 Includes dividend income of $157 million (1998: $152 million) for the Group and $615 million (1998: $945 million) for the Company.
The Company’s dividends include dividends received from controlled entities of $491 million (1998: $825 million)

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

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

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

10


1999 1998 1997 1999 1998
$M $M $M $M $M

3: Expenses (continued)
Operating expenses
(i) Personnel
Employee taxes
Payroll 63 69 76 61 65
Fringe benefits tax 38 44 46 35 39
Pension fund 95 88 114 72 64
Provision for employee entitlements 33 29 19 29 28
Salaries and wages 1,237 1,427 1,453 937 1,057
Other 266 197 241 209 157

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

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

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

Total premises expenses 314 347 362 249 280

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

Total computer expenses 344 341 330 227 223

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

Total other expenses 813 776 771 517 612

(v) Restructuring1 91 120 90 75 95

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

Total expenses 8,323 9,390 9,520 5,921 6,413
1 In addition, restructuring costs of nil (Company nil) have been treated as abnormal (1998: Group $32 million, Company $15 million), (1997: Group
$327 million, Company $214 million). Refer note 5

11


1999 1998 1997 1999 1998
$’000 $’000 $’000 $’000 $’000

4: Remuneration of Auditors
Amounts received and due and receivable
Auditing the accounts
By KPMG 3,312 3,445 3,771 1,389 1,413
By other Group auditors 36 13 11 21 –

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

Other services
By KPMG
Audit related services1 2,162 1,947 2,008 835 704
Accounting 321 140 120 136 60
Consulting2 13,552 24,525 20,657 12,782 24,286
Taxation 510 240 90 467 163
By other Group auditors 51 100 59 22 39

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

Total remuneration of auditors 19,944 30,410 26,716 15,652 26,665
1 Audit related services are services other than those relating to the audit or review of the statutory financial statements of the Group. These services include
prudential supervision reviews for central banks, prospectus reviews, trust audits and other audits required for local statutory purposes
2 Prior years include fees paid to KPMG Barents (a wholly owned entity of the USA practice of KPMG) for consultancy work principally in connection
with the ANZ Global Project (1998: $23,146,000, 1997: $20,326,000)

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

1999 1998 1997 1999 1998
$M $M $M $M $M

5: Abnormal Items
Profit before tax
Interest on National Housing Bank deposit – – 145 – –
(Loss) before tax
Restructuring costs – – (327) – –
Costs of exiting businesses
Restructuring – (32) – – (15)
Write down of residual emerging markets
securities portfolio – (70) – – (70)

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

Income tax (expense) benefit applicable to
Interest on National Housing Bank deposit – – (80) – –
Restructuring costs – – 115 – –
Costs of exiting businesses
Restructuring – 11 – – 5
Write down of residual emerging markets
securities portfolio – 22 – – 22

Total abnormal tax benefit – 33 35 – 27

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

12


1999 1998 1997 1999 1998
$M $M $M $M $M

6: Income Tax Expense
Reconciliation of the prima facie income tax payable
on operating profit and abnormal items with the income
tax expense charged in the profit and loss account
Operating profit before income tax and
abnormal items 2,162 1,721 1,645 1,686 1,630

Prima facie income tax at 36% 778 620 593 607 587
Tax effect of permanent differences
Overseas tax rate differential 2 14 12 11 9
Other non–assessable income (37) (45) (25) – (8)
Rebateable and non–assessable dividends (55) (55) (117) (221) (340)
Non–allowable depreciation and amortisation – – 3 – –
Other (2) 3 10 (3) (5)

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

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

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

Prima facie income tax at 36% – (37) (65) – (31)
Tax effect of permanent differences
Overseas tax rate differential – 4 30 – 4

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

Total income tax expense 676 504 431 387 214

1999 1998 1997 1999 1998
$M $M $M $M $M

7: Dividends
Ordinary dividends
Interim dividend 404 366 329 404 366
Proposed final dividend 470 431 392 470 431
Bonus option plan adjustment (60) (50) (26) (60) (50)

Dividends on ordinary shares 814 747 695 814 747

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

Preference dividends
Dividends on preference shares 72 – – – –

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

13


7: Dividends (continued)

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

Restrictions which Limit the Payment of Dividends
There are presently no significant restrictions on the payment of dividends from controlled entities to the Company.
Various capital adequacy, liquidity, statutory reserve and other prudential requirements must be observed by certain
controlled entities and the impact on these requirements caused by the payment of cash dividends is monitored. In
practice however, there are significant tax considerations associated with the receipt of dividends from controlled
entities by a company. Payment of dividends from domestic controlled entities constitutes assessable income to a
recipient Australian company. The recipient company is generally entitled to a rebate of tax otherwise payable on the
assessable dividend. Should the recipient company’s total assessable income be less than the dividend income, or it be in
a tax loss position, the rebate will reduce or be eliminated. The Group therefore acts to preserve the availability of
rebates by avoiding the payment of dividends by domestic controlled entities in this situation.
Payments of dividends from overseas controlled entities may attract withholding taxes which have not been provided
for in these financial statements.
There are presently no restrictions on payment of dividends by the Company. Reductions of shareholders’ equity
through payment of cash dividends is monitored having regard to the regulatory requirements to maintain a specified
capital adequacy ratio. In particular, the Australian Prudential Regulation Authority has advised Australian banks that a
bank under its supervision must consult with it before declaring a dividend if the bank has incurred a loss, or proposes
to pay dividends which exceed the level of profits earned.

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

Bonus Option Plan
Dividends paid during the year have been reduced by way of certain shareholders participating in the Bonus Option
Plan and forgoing all or part of their right to dividends in return for the receipt of bonus shares.
During the year, 2,492,395 ordinary shares were issued at $10.78 per share, and 3,020,767 ordinary shares at $10.95 per
share, under the Bonus Option Plan.

Declared Bonus options Amount
dividend exercised paid
$M $M $M

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

835 (60) 775

14


Consolidated
1999 1998 1997
$M $M $M

8: Earnings per Ordinary Share
Before abnormal items
Basic
attributable to shareholders of the Company 1,480 1,106 1,024
Abnormal items after tax – 69 147

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

Operating profit after income tax and preference share
dividend before abnormal items 1,408 1,175 1,171
Weighted average number of ordinary shares (millions) 1,553.5 1,522.9 1,492.9

Basic earnings per share (cents) 90.6 77.2 78.4

Diluted
Operating profit after income tax and preference share
dividend before abnormal items 1,408 1,175 1,171
Add: notional interest earned on capital raised from
exercise of options 2 2 2

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

Add: potential dilution of options to ordinary shares 7.5 6.6 7.2

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

Diluted earnings per share (cents) 90.3 76.9 78.2

After abnormal items
Basic


Basic earnings per share (cents) 90.6 72.6 68.6

Diluted
Add: notional interest earned on capital raised from
exercise of options 2 2 2

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

Add: potential dilution of options to ordinary shares 7.5 6.6 7.2

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

Diluted earnings per share (cents) 90.3 72.4 68.4

15


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

9: Liquid Assets
Australia
Coins, notes and cash at bankers 540 830 442 765
Money at call 170 176 115 116
Securities purchased under agreement to
resell less than 90 days 960 1,211 937 1,211
Bills receivable and remittances in transit 400 686 400 676

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

Overseas
Coins, notes and cash at bankers 312 242 28 25
Money at call 494 476 5 38
Other banks’ certificates of deposit 1,427 1,614 1,174 1,064
Securities purchased under agreement to
resell less than 90 days 224 1,038 – 602
Bills receivable and remittances in transit 756 1,254 463 (31)

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

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

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

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

10: Due from Other Financial Institutions
Australia 1,620 433 1,137 433
Overseas 1,852 3,725 1,075 2,314

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

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

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

16


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

11: Trading Securities
Trading securities are allocated between Australia and
Overseas based on the domicile of the issuer
Listed – Australia
Commonwealth securities 223 640 223 640
Local and semi-government securities 63 193 63 193
Other securities and equity securities 86 55 – –

372 888 286 833

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

717 1,132 2 532

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

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

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

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

441 817 2 298

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

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

17

Finanical report-1999

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