Strength. Momentum. Connectivity. 2011 ANNUAL REPORT BUILDING A BANK OF GLOBAL QUALITY WITH A REGIONAL FOCUS WHO WE ARE AND WHERE WE OPERATE OUR PROGRESS AANZ‘sNZ‘s historyhistory ofof expansionexpansion andand growthgrowth stretchesstretches overover 117575 yyears.ears. AANZNZ iiss tthehe oonlynly AAustralianustralian bbankank wwithith a cclearlylearly aarticulatedrticulated sstrategytrategy ttoo WWee hhaveave a sstrongtrong ffranchiseranchise iinn RRetail,etail, CommercialCommercial andand InstitutionalInstitutional ttakeake aadvantagedvantage ooff AAustraliaustralia aandnd NNewew Zealand’sZealand’s geographic,geographic, businessbusiness bbankinganking iinn oourur hhomeome mmarketsarkets ooff AAustraliaustralia aandnd NNewew ZealandZealand andand wewe aandnd cculturalultural linkageslinkages withwith Asia,Asia, thethe fastestfastest growinggrowing regionregion inin thethe world.world. hhaveave bbeeneen ooperatingperating inin AsiaAsia PPacifiacifi c cf oforr m omorere t hthanan 3 300 y eyears.ars. WWee hhaveave mmadeade ssignifiignifi c acantnt p rprogressogress i nin d edeliveringlivering o uourr s tstrategyrategy s sinceince TToday,oday, AANZNZ ooperatesperates iinn 3322 mmarketsarkets gglobally.lobally. WWee aarere tthehe tthirdhird llargestargest 22007007 aandnd ttodayoday ourour AsiaAsia PacifiPacifi cc,, EEuropeurope && AAmericamerica bbusinessusiness rrepresentsepresents bbankank iinn AAustralia,ustralia, tthehe llargestargest bbankinganking ggrouproup iinn NNewew ZealandZealand andand thethe 113%3% ooff GGrouproup profiprofi tt uupp ffromrom 7 7%% iinn 22007.007. PPacifiacifi c ,c, a nandd amamongong tthehe totopp 5 050 b abanksnks iinn t thehe woworld.rld. WWee hhaveave eestablishedstablished a leadershipleadership tteameam ooff iinternationalnternational bankersbankers wwithith a bbreadthreadth ooff eexperiencexperience aandnd a rrangeange ooff ccapabilitiesapabilities ttoo ggrowrow iinn OUR SUPER REGIONAL STRATEGY bbothoth oourur ddevelopedeveloped homehome marketsmarkets andand inin thethe emergingemerging mmarketsarkets ooff WWee aarticulatedrticulated oourur supersuper regionalregional strategystrategy inin latelate 2007.2007. TheThe rrationaleationale AAsia.sia. WWee ccreatedreated a nnewew businessbusiness structurestructure inin latelate 22008008 ffocusedocused oonn oourur bbehindehind oourur sstrategytrategy iiss ssimpleimple – ttoo ddelivereliver sshareholdershareholders llong-termong-term ccustomersustomers aandnd ccoreore ggeographieseographies ssupportedupported bbyy sstrongertronger ggovernanceovernance ggrowthrowth aandnd ddiffiff eerentiatedrentiated rreturnseturns tthroughhrough cconnectivityonnectivity wwithith thethe aandnd rriskisk ccontrolsontrols ssuiteduited ttoo oourur aaspirations.spirations. ggrowthrowth mmarketsarkets ooff AAsiasia – rreturnseturns wwee ddoo nnotot bbelieveelieve ttoo bbee aavailablevailable WWee hhaveave ccompletedompleted a nnumberumber ofof strategicstrategic aacquisitionscquisitions iinn AAsia,sia, tthroughhrough a ddomestic-onlyomestic-only sstrategy.trategy. AAustraliaustralia aandnd NNewew ZealandZealand whichwhich provideprovide uuss wwithith aann eenhancednhanced OOurur aaspirationspiration isis forfor AsiaAsia PacifiPacifi cc,, EuEuroperope & &A mAmericaerica s osourcedurced r erevenuesvenues toto nnetwork,etwork, bbroaderroader pproductroduct ccapabilitiesapabilities aandnd moremore ccustomerustomer ddriverive betweenbetween 2525 andand 30%30% ofof GroupGroup earningsearnings byby tthehe eendnd ooff 22017.017. rrelationshipselationships acrossacross tthosehose threethree ccoreore ggeographies.eographies. CConnectivityonnectivity isis atat thethe heartheart ofof ANZ’sANZ’s strategystrategy byby bbeingeing ppartart ooff tthehe AANZ’sNZ’s sstrategytrategy andand ourour fi nnancialancial sstrengthtrength pprovidesrovides uuss wwithith tthehe ggrowthrowth wwithinithin AAsiasia aandnd ssupportingupporting tthehe iincreasingncreasing ttrade,rade, iinvestmentnvestment oopportunitypportunity ttoo ccontinueontinue eexpandingxpanding tthehe ssupportupport wwee pproviderovide ttoo aandnd ppeopleeople linkslinks betweenbetween AsiaAsia andand ourour majormajor domesticdomestic marketsmarkets ccustomers,ustomers, ddrivingriving ssuperioruperior llong-termong-term ggrowthrowth aandnd ddiffiff eerentiatedrentiated iinn Australia,Australia, NNewew ZealandZealand andand thethe PacifiPacifi cc.. TThishis iiss rreflefl e cectedted i nin t hthee rreturns,eturns, aandnd ccreatingreating vvaluealue forfor ourour sshareholdershareholders andand thethe communitiescommunities aaspirationspiration wwithinithin oourur IInstitutionalnstitutional bbankinganking bbusinessusiness ttoo bbuilduild tthehe wwee wworkork iin.n. wworld’sorld’s bestbest bankbank forfor customerscustomers drivendriven byby ttraderade andand capitalcapital fl owowss iinn thethe AAsiasia PPacifiacifi c cr region,egion, pparticularlyarticularly i nin r eresources,sources, a gagribusinessribusiness aandnd iinfrastructure.nfrastructure. HHavingaving ggrownrown oourur AAsiasia PPacifiacifi c cb ubusinesssiness s isignifignifi ca ncantlytly si nsincece 20 02007,7, A NANZZ i sis nnowow wworkingorking ttoo rrealiseealise tthehe ffullull ppotentialotential ooff tthehe ssuperuper rregionalegional sstrategytrategy bbyy eexpandingxpanding oourur ggeographiceographic ffootprintootprint wwhilehile mmaintainingaintaining ourour strongstrong ddomesticomestic ffranchises,ranchises, iincreasingncreasing oourur mmanagementanagement bbenchench sstrength,trength, aandnd ccontinuingontinuing ttoo ffocusocus oonn sstrongtrong rriskisk pprocessesrocesses iinn oorderrder ttoo bbuilduild a bbalancedalanced eexposurexposure ttoo AAsia.sia. AAtt tthehe ssameame ttime,ime, wwee aarere ccontinuingontinuing ttoo iinvestnvest iinn oourur iinternationalnternational ttechnologyechnology andand operationsoperations hubshubs toto ssupportupport pproductivityroductivity ggainsains aacrosscross aallll oourur bbusinesses.usinesses. WWithith thethe structuralstructural shiftshift inin thethe worldworld economyeconomy asas economiceconomic growthgrowth sshiftshifts ffromrom tthehe WWestest ttoo tthehe EEast,ast, wwee bbelieveelieve wewe areare inin thethe rightright partpart ooff tthehe wworld,orld, withwith tthehe rightright strategy,strategy, aatt tthehe rrightight ttime.ime. Directors’ Report 1 2 ANZ Annual Report 2011 CONTENTS SECTION 1 SECTION 3 Financial Highlights 5 Financial Statements 86 Chairman’s Report 6 Notes to the Financial Statements 92 Chief Executive Offi cer’s Report 8 Directors’ Declaration 209 Directors’ Report 10 Independent Auditor’s Report 210 Remuneration Report 15 SECTION 4 Corporate Governance Statement 46 Financial Information 212 SECTION 2 Shareholder Information 220 Review of Operations 65 Glossary of Financial Terms 225 Principal Risks and Uncertainties 76 Alphabetical Index 228 Five Year Summary 84 ANZ Annual Report 2011 3 Financial Highlights 5 Chairman’s Report 6 Chief Executive Offi cer’s Report 8 Directors’ Report 10 Remuneration Report 15 Corporate Governance Statement 46 4 ANZ Annual Report 2011 Financial Highlights 2011 2010 Profi tability Profi t attributable to shareholders of the Company ($m) 5,355 4,501 Underlying profi t1 ($m) 5,652 5,025 Return on: Average ordinary shareholders’ equity2 15.3% 13.9% AAverageverage oordinaryrdinary sshareholders’hareholders’ eequityquity ((underlyingunderlying pprofirofi t basis)basis)11,2,2 116.2%6.2% 115.5%5.5% Average assets 0.95% 0.86% Total income 14.9% 14.3% Net interest margin 2.46% 2.47% Net interest margin (excluding Global Markets) 2.81% 2.74% Underlying profi t per average FTE ($)1 120,204 116,999 Effi ciency ratios Operating expenses to operating income 47.4% 46.5% Operating expenses to average assets 1.42% 1.39% Operating expenses to operating income (underlying)1 445.9%5.9% 444.2%4.2% Operating expenses to average assets (underlying)1 11.37%.37% 11.33%.33% Credit impairment provisioning Collective provision charge ($m) 7(4) Individual provision charge ($m) 1,230 1,791 Total provision charge ($m) 1,237 1,787 Individual provision charge as a % of average net advances 0.32% 0.51% Total provision charge as a % of average net advances 0.32% 0.50% Ordinary share dividends (cents) Interim – 100% franked (Mar 2010: 100% franked) 64 52 Final – 100% franked (Sep 2010: 100% franked) 76 74 Total dividend 140 126 Ordinary share dividend payout ratio3 68.5% 71.6% Underlying ordinary share dividend payout ratio3 64.9% 64.1% Preference share dividend ($m) Dividend paid4 12 11 1 Profit has been adjusted to exclude non-core items to arrive at underlying profit, the result for the ongoing business activities of the Group. These adjustments have been determined on a consistent basis with those made in prior periods. The adjustments made in arriving at underlying earnings are included in statutory profit, and are therefore subject to audit within the context of the Group statutory audit opinion. The external auditor has informed the Audit Committee that the adjustments are based on the guidelines released by the Australian Institute of Company Directors (AICD) and the Financial Services Institute of Australia (FINSIA), and consistent with prior period adjustments. 2 Average ordinary shareholders’ equity excludes non-controlling interests and preference shares. 3 The 2011 dividend payout ratio is calculated using the March 2011 interim and the proposed September 2011 final dividend. The 2010 dividend payout ratio is calculated using the March 2010 interim and September 2010 dividend.