FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Report of Foreign Private Issuer

 

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

 

 

 

 

 

For the month of November, 2002

 

Australia and New Zealand Banking Group Limited

(Translation of registrant’s name into English)

 

Level 6, 100 Queen Street Melbourne Victoria Australia

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F   ý             Form 40-F   o

 

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes   o              No   ý

 

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________

 



 

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

Australia and New Zealand
Banking Group Limited

 

 

 

 

 

 

 

(Registrant)

 

 

 

 

 

 

 

By:

 

/s/ Garry White

 

 

 

 

Assistant Company Secretary

 

 

 

 

 

 

 

 

 

 

 

 

Date: 10 December 2002

 



Creating the bank of tomorrow today

 

 

2002 Financial Report

 



 

Table of Contents

 

Statements of Financial Performance

Statements of Financial Position

Statements of Changes in Shareholders’ Equity

Statements of Cash Flows

 

Notes to the Financial Statements

1

Accounting Policies

2

Income

3

Expenses

4

Equity Instruments Issued to Employees

5

Remuneration of Auditors

6

Items Reported as Abnormal in Prior Periods

7

Income Tax Expense

8

Dividends

9

Earnings per Ordinary Share

10

Liquid Assets

11

Due from Other Financial Institutions

12

Trading Securities

13

Investment Securities

14

Net Loans and Advances

15

Impaired Assets

16

Provisions for Doubtful Debts

17

Customers’ Liabilities for Acceptances

18

Regulatory Deposits

19

Shares in Controlled Entities, Associates and Joint Venture Entities

20

Deferred Tax Assets

21

Goodwill

22

Other Assets

23

Premises and Equipment

24

Due to Other Financial Institutions

25

Deposits and Other Borrowings

26

Income Tax Liabilities

27

Payables and Other Liabilities

28

Provisions

29

Bonds and Notes

30

Loan Capital

31

Share Capital

32

Outside Equity Interests

33

Capital Adequacy

34

Average Balance Sheet and Related Interest

35

Interest Spreads and Net Interest Average Margins

36

Market Risk

37

Interest Sensitivity Gap

38

Net Fair Value of Financial Instruments

39

Derivative Financial Instruments

40

Securitisation

41

Life Insurance

42

Segment Analysis

43

Notes to the Statements of Cash Flows

44

Controlled Entitites

45

Associates

46

Interests in Joint Venture Entities

47

Commitments

48

Contingent Liabilities and Credit Related Commitments

49

Superannuation Commitments

50

Fiduciary Activities

51

Employee Share and Option Plans

52

Related Party Disclosures

53

Remuneration of Directors

54

Remuneration of Executives

55

US GAAP Reconciliation

56

Exchange Rates

57

Events Since the End of the Financial Year

 

Directors’ Declaration

Auditors’ Report

Critical Accounting Policies

 

Financial information

1

Cross Border Outstandings

2

Certificates of Deposit and Term Deposit Maturities

3

Volume and Rate Analysis

4

Concentrations of Credit Risk

5

Doubtful Debts – Industry Analysis

6

Short Term Borrowings

 

 

Glossary

Alphabetical Index

 



 

Statements of Financial Performance for the year ended 30 September 2002

 

 

 

 

 

Consolidated

 

The Company

 

 

 

Note

 

2002
$m

 

2001

 

2000
$m

 

2002
$m

 

2001
$m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Income

 

2

 

12,007

 

12,824

 

14,031

 

9,061

 

10,140

 

Interest income

 

2

 

9,037

 

10,251

 

10,241

 

6,426

 

7,479

 

Interest expense

 

3

 

(5,019

)

(6,418

)

(6,440

)

(3,813

)

(4,828

)

Net interest income

 

 

 

4,018

 

3,833

 

3,801

 

2,613

 

2,651

 

Proceeds, net of costs, on disposal of investments

 

 

 

566

 

 

 

780

 

 

Carrying amount of assets given up

 

 

 

(392

)

 

 

(588

)

 

Profit from disposal of investments

 

 

 

174

 

 

 

192

 

 

Other operating income

 

2

 

2,796

 

2,573

 

2,583

 

2,443

 

2,661

 

Prior period abnormal income

 

6

 

 

 

1,207

 

 

 

Operating income

 

 

 

6,988

 

6,406

 

7,591

 

5,248

 

5,312

 

Operating expenses

 

3

 

(2,905

)

(3,092

)

(3,314

)

(2,388

)

(2,641

)

Prior period abnormal expenses

 

6

 

 

 

(986

)

 

 

Profit before debt provision

 

 

 

4,083

 

3,314

 

3,291

 

2,860

 

2,671

 

Provision for doubtful debts

 

16

 

(860

)

(531

)

(502

)

(710

)

(414

)

Profit before income tax

 

 

 

3,223

 

2,783

 

2,789

 

2,150

 

2,257

 

Income tax expense

 

 

 

(898

)

(911

)

(863

)

(643

)

(647

)

Prior period abnormal tax

 

6

 

 

 

(177

)

 

 

Total income tax expense

 

7

 

(898

)

(911

)

(1,040

)

(643

)

(647

)

Profit after income tax

 

 

 

2,325

 

1,872

 

1,749

 

1,507

 

1,610

 

Net profit attributable to outside equity interests

 

 

 

(3

)

(2

)

(2

)

 

 

Net profit attributable to shareholders of the Company(1)

 

 

 

2,322

 

1,870

 

1,747

 

1,507

 

1,610

 

Currency translation adjustments, net of hedges after tax

 

 

 

(98

)

197

 

170

 

(214

)

195

 

Revaluation of properties

 

 

 

 

 

31

 

 

 

Total adjustments attributable to shareholders of the company recognised directly into equity

 

 

 

(98

)

197

 

201

 

(214

)

195

 

Total changes in equity other than those resulting from transactions with shareholders as owners

 

 

 

2,224

 

2,067

 

1,948

 

1,293

 

1,805

 

Earnings per ordinary share (cents)

 

9

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

147.3

 

117.4

 

106.8

 

n/a

 

n/a

 

Diluted

 

 

 

146.6

 

117.0

 

106.0

 

n/a

 

n/a

 

 

The notes appearing on pages 6 to 76 form an integral part of these financial statements

 


(1)     The results of 2002 include the impact of these significant transactions:

             The sale of businesses to ING joint venture (profit after tax of $170 million);

             National Housing Bank recovery ($159 million profit after tax); and

             Special general provision for doubtful debts ($175 million charge after tax)

 

Further details on these transactions are shown in notes 2, 3 and 16

 

 

2



 

Statements of Financial Position as at 30 September 2002

 

 

 

Consolidated

 

The Company

 

 

 

Note

 

2002
$m

 

2001
$m

 

2002
$m

 

2001
$m

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Liquid assets

 

10

 

7,410

 

7,794

 

5,994

 

5,981

 

Due from other financial institutions

 

11

 

3,815

 

4,829

 

2,649

 

4,234

 

Trading securities(1)

 

12

 

5,873

 

4,827

 

5,219

 

4,438

 

Investment securities

 

13

 

3,609

 

3,487

 

2,593

 

2,400

 

Net loans and advances

 

14

 

132,060

 

123,657

 

99,900

 

92,393

 

Customers’ liabilities for acceptances

 

17

 

13,796

 

14,324

 

13,796

 

14,324

 

Due from controlled entities

 

 

 

 

 

6,495

 

5,031

 

Life insurance investment assets

 

 

 

 

4,774

 

 

 

Regulatory deposits

 

18

 

178

 

133

 

138

 

98

 

Shares in controlled entities, associates and joint venture entities

 

19

 

1,692

 

64

 

6,256

 

6,101

 

Deferred tax assets

 

20

 

1,218

 

1,200

 

835

 

866

 

Goodwill

 

21

 

180

 

137

 

94

 

87

 

Other assets

 

22

 

11,810

 

18,906

 

9,603

 

16,774

 

Premises and equipment

 

23

 

1,464

 

1,361

 

866

 

731

 

Total assets

 

 

 

183,105

 

185,493

 

154,438

 

153,458

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Due to other financial institutions

 

24

 

10,860

 

12,690

 

10,372

 

11,961

 

Deposits and other borrowings

 

25

 

113,297

 

104,874

 

85,258

 

76,552

 

Liability for acceptances

 

 

 

13,796

 

14,324

 

13,796

 

14,324

 

Due to controlled entities

 

 

 

 

 

3,895

 

5,052

 

Income tax liabilities

 

26

 

1,340

 

1,335

 

921

 

899

 

Payables and other liabilities

 

27

 

12,450

 

15,948

 

10,703

 

13,874

 

Provisions

 

28

 

1,744

 

2,142

 

1,611

 

1,981

 

Life insurance policy liabilities

 

 

 

 

4,458

 

 

 

Bonds and notes

 

29

 

14,708

 

15,340

 

14,536

 

15,175

 

Loan capital

 

30

 

3,445

 

3,831

 

3,186

 

3,576

 

Total liabilities

 

 

 

171,640

 

174,942

 

144,278

 

143,394

 

Net assets

 

 

 

11,465

 

10,551

 

10,160

 

10,064

 

Shareholders’ equity

 

 

 

 

 

 

 

 

 

 

 

Ordinary share capital

 

31

 

3,939

 

3,733

 

3,939

 

3,733

 

Preference share capital

 

31

 

1,375

 

1,526

 

1,375

 

1,526

 

Reserves

 

 

 

534

 

717

 

875

 

1,089

 

Retained profits

 

 

 

5,600

 

4,562

 

3,971

 

3,716

 

Share capital and reserves attributable to shareholders of the Company

 

 

 

11,448

 

10,538

 

10,160

 

10,064

 

Outside equity interests

 

32

 

17

 

13

 

 

 

Total shareholders’ equity

 

 

 

11,465

 

10,551

 

10,160

 

10,064

 

Derivative financial instruments

 

39

 

 

 

 

 

 

 

 

 

Commitments

 

47

 

 

 

 

 

 

 

 

 

Contingent liabilities and credit related commitments

 

48

 

 

 

 

 

 

 

 

 

 

The notes appearing on pages 6 to 76 form an integral part of these financial statements

 


(1)  Includes bills held in portfolio (September 2002: $1,453 million; September 2001: $1,933 million)

 

3



 

Statements of Changes in Shareholders’ Equity for the year ended 30 September 2002

 

 

 

 

 

Consolidated

 

The Company

 

 

 

Note

 

2002
$m

 

2001
$m

 

2000
$m

 

2002
$m

 

2001
$m

 

Share capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary shares

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at start of year

 

 

 

3,733

 

4,028

 

4,770

 

3,733

 

4,028

 

Dividend reinvestment plan

 

 

 

94

 

86

 

236

 

94

 

86

 

Group employee share acquisition scheme

 

 

 

55

 

65

 

26

 

55

 

65

 

Group share option scheme

 

 

 

57

 

21

 

10

 

57

 

21

 

Group share purchase scheme

 

 

 

 

 

#

 

 

 

Small shareholder voluntary top up scheme

 

 

 

 

12

 

 

 

12

 

New Issues

 

 

 

 

16

 

 

 

16

 

Share buyback

 

31

 

 

(495

)

(1,014

)

 

(495

)

Balance at end of year

 

 

 

3,939

 

3,733

 

4,028

 

3,939

 

3,733

 

Preference shares

 

31

 

 

 

 

 

 

 

 

 

 

 

Balance at start of year

 

 

 

1,526

 

1,374

 

1,145

 

1,526

 

1,374

 

Retranslation of preference share issues

 

 

 

(151

)

152

 

229

 

(151

)

152

 

Balance at end of year

 

 

 

1,375

 

1,526

 

1,374

 

1,375

 

1,526

 

Total share capital

 

 

 

5,314

 

5,259

 

5,402

 

5,314

 

5,259

 

Asset revaluation reserve(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at start of year

 

 

 

31

 

31

 

 

401

 

401

 

Revaluation of properties

 

 

 

 

 

31

 

 

 

Total asset revaluation reserve

 

 

 

31

 

31

 

31

 

401

 

401

 

Foreign currency translation reserve(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at start of year

 

 

 

215

 

18

 

(152

)

633

 

438

 

Currency translation adjustments, net of hedges after tax

 

 

 

(98

)

197

 

170

 

(214

)

195

 

Total foreign currency translation reserve

 

 

 

117

 

215

 

18

 

419

 

633

 

General reserve(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at start of year

 

 

 

322

 

588

 

539

 

55

 

55

 

Transfers (to) from retained profits

 

 

 

(85

)

(266

)

49

 

 

 

Total general reserve

 

 

 

237

 

322

 

588

 

55

 

55

 

Capital reserve(3)

 

 

 

149

 

149

 

149

 

 

 

Total reserves

 

 

 

534

 

717

 

786

 

875

 

1,089

 

Retained profits

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at start of year

 

 

 

4,562

 

3,607

 

2,952

 

3,716

 

3,168

 

Net profit attributable to shareholders of the Company

 

 

 

2,322

 

1,870

 

1,747

 

1,507

 

1,610

 

Total available for appropriation

 

 

 

6,884

 

5,477

 

4,699

 

5,223

 

4,778

 

Transfers from (to) reserves

 

 

 

85

 

266

 

(49

)

 

 

Ordinary share dividends provided for or paid

 

8

 

(1,252

)

(1,062

)

(941

)

(1,252

)

(1,062

)

Preference share dividends paid

 

8

 

(117

)

(119

)

(102

)

 

 

Retained profits at end of year

 

 

 

5,600

 

4,562

 

3,607

 

3,971

 

3,716

 

Total shareholders’ equity attributable to shareholders of the Company

 

 

 

11,448

 

10,538

 

9,795

 

10,160

 

10,064

 

 

The notes appearing on pages 6 to 76 form an integral part of these financial statements

# Amounts less than $500,000

 


Nature and purpose of reserves

(1)          Asset revaluation reserve

Prior to 1 October 2000, the asset revaluation reserve was used to record certain increments and decrements on the revaluation of non-current assets. As the Group has elected to adopt deemed cost in accordance with AASB 1041, the balance of the reserve is not available for future non-current asset write downs while the Group remains on the deemed cost basis

(2)          Foreign currency translation reserve

Exchange differences arising on translation of foreign self-sustaining operations are taken to the foreign currency translation reserve, as described in accounting policy note 1

(3)          General reserve and Capital reserve

The balance of these reserves have resulted from prior period allocations of retained profits and maybe released to retained profits

 

4



 

Statements of Cash Flows for the year ended 30 September 2002

 

 

 

 

 

Consolidated

 

The Company

 

 

 

Note

 

2002
$m

 

2001
$m

 

2000
$m

 

2002
$m

 

2001
$m

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest received

 

 

 

10,148

 

11,054

 

9,916

 

6,723

 

7,683

 

Dividends received

 

 

 

3

 

75

 

192

 

67

 

565

 

Fees and other income received

 

 

 

2,919

 

2,783

 

2,460

 

2,689

 

2,230

 

Interest paid

 

 

 

(5,367

)

(6,703

)

(6,108

)

(4,158

)

(5,112

)

Personnel expenses paid

 

 

 

(1,900

)

(1,827

)

(1,735

)

(1,576

)

(1,466

)

Premises expenses paid

 

 

 

(268

)

(253

)

(283

)

(249

)

(245

)

Other operating expenses paid

 

 

 

(1,893

)

(1,775

)

(1,199

)

(913

)

(769

)

Income taxes paid

 

 

 

(853

)

(823

)

(754

)

(574

)

(667

)

Goods and services tax (paid) received

 

 

 

(28

)

(53

)

4

 

(8

)

(18

)

Net (increase) in trading securities

 

 

 

(1,030

)

(629

)

(25

)

(782

)

(987

)

Net cash provided by operating activities

 

43(a

)

1,731

 

1,849

 

2,468

 

1,219

 

1,214

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

Net decrease (increase)

 

 

 

 

 

 

 

 

 

 

 

 

 

Liquid assets-greater than three months

 

 

 

(442

)

983

 

(1,755

)

(416

)

(973

)

Due from other financial institutions

 

 

 

554

 

909

 

(792

)

557

 

263

 

Regulatory deposits

 

 

 

37

 

(27

)

(90

)

(47

)

(20

)

Loans and advances

 

 

 

(9,441

)

(4,829

)

(17,633

)

(9,216

)

(4,064

)

Shares in controlled entities and associates

 

 

 

(1

)

(36

)

(50

)

1,023

 

251

 

Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases

 

 

 

(2,851

)

(4,005

)

(8,109

)

(1,480

)

(2,319

)

Proceeds from sale or maturity

 

 

 

2,436

 

3,630

 

8,553

 

977

 

1,802

 

Controlled entities and associates

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased (net of cash acquired)

 

43(c

)

(1,050

)

(36

)

(43

)

(893

)

 

Proceeds from sale (net of cash disposed)

 

 

 

 

 

1,510

 

 

 

Premises and equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases

 

 

 

(385

)

(452

)

(275

)

(309

)

(218

)

Proceeds from sale

 

 

 

101

 

127

 

249

 

51

 

43

 

Recovery from NHB litigation

 

 

 

248

 

 

 

248

 

 

Other

 

 

 

201

 

(454

)

(1,405

)

50

 

794

 

Net cash (used in) investing activities

 

 

 

(10,593

)

(4,190

)

(19,840

)

(9,455

)

(4,441

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase

 

 

 

 

 

 

 

 

 

 

 

 

 

Due to other financial institutions

 

 

 

(1,211

)

(826

)

3,111

 

(917

)

(1,228

)

Deposits and other borrowings

 

 

 

9,152

 

890

 

12,763

 

9,888

 

463

 

Due from/to controlled entities

 

 

 

 

 

 

(2,907

)

1,159

 

Payables and other liabilities

 

 

 

362

 

581

 

(843

)

875

 

225

 

Bonds and notes

 

 

 

 

 

 

 

 

 

 

 

 

 

Issue proceeds

 

 

 

4,538

 

7,542

 

5,555

 

4,538

 

7,542

 

Redemptions

 

 

 

(3,519

)

(2,878

)

(1,341

)

(3,519

)

(2,878

)

Loan capital

 

 

 

 

 

 

 

 

 

 

 

 

 

Issue proceeds

 

 

 

759

 

 

152

 

500

 

 

Redemptions

 

 

 

(589

)

(244

)

(147

)

(398

)

(164

)

Decrease in outside equity interests

 

 

 

1

 

(1

)

(19

)

 

 

Dividends paid

 

 

 

(1,178

)

(1,028

)

(749

)

(1,061

)

(909

)

Share capital issues

 

 

 

112

 

114

 

36

 

112

 

114

 

Share buyback

 

 

 

 

(495

)

(1,014

)

 

(495

)

Net cash provided by financing activities

 

 

 

8,427

 

3,655

 

17,504

 

7,111

 

3,829

 

Net cash provided by operating activities

 

 

 

1,731

 

1,849

 

2,468

 

1,219

 

1,214

 

Net cash (used in) investing activities

 

 

 

(10,593

)

(4,190

)

(19,840

)

(9,455

)

(4,441

)

Net cash provided by financing activities

 

 

 

8,427

 

3,655

 

17,504

 

7,111

 

3,829

 

Net (decrease) increase in cash and cash equivalents

 

 

 

(435

)

1,314

 

132

 

(1,125

)

602

 

Cash and cash equivalents at beginning of year

 

 

 

9,071

 

6,462

 

6,634

 

6,747

 

4,724

 

Foreign currency translation on opening balances

 

 

 

(711

)

1,295

 

(304

)

(169

)

1,421

 

Cash and cash equivalents at end of year

 

43(b

)

7,925

 

9,071

 

6,462

 

5,453

 

6,747

 

 

The notes appearing on pages 6 to 76 form an integral part of these financial statements

 

5



 

Notes to the Financial Statements

 

Our critical accounting policies are described on page 79.

 

1:        Accounting Policies

 

(i)                                     Basis of preparation

 

This general purpose financial report complies with the accounts provisions of the Banking Act, applicable Australian Accounting Standards, the accounts provisions of the Corporations Act 2001, Urgent Issues Group Consensus Views and other authoritative pronouncements of the Australian Accounting Standards Board. The accounting policies are consistent with those of the previous year.

 

Certain disclosures required by the United States Securities and Exchange Commission in respect of foreign registrants have also been included in this report.

 

The financial report has been prepared in accordance with the historical cost convention as modified by the revaluation of trading instruments, life insurance assets and liabilities and the deemed cost of properties. The preparation of the financial report requires the use of management estimates. Such estimates may require review in future periods.

 

The Company is a company of the kind referred to in Australian Securities and Investments Commission class order 98/100, dated 10 July 1998. Consequently, amounts in the financial report have been rounded to the nearest million dollars except where otherwise indicated.

 

All amounts are expressed in Australian dollars, unless otherwise stated. Where necessary, amounts shown for the previous year have been reclassified to facilitate comparison.

 

(ii)                                  Consolidation

 

The financial statements consolidate the financial statements of Australia and New Zealand Banking Group Limited (the Company) and its controlled entities.

 

Shares in controlled entities are stated at deemed cost in the statement of financial position.

 

Where controlled entities and associates have been sold or acquired during the year, their operating results have been included to the date of disposal or from the date of acquisition.

 

The Group adopts the equity method of accounting for associates and the Group’s interest in joint venture entities. Shares in associates and joint venture entities are stated in the consolidated statement of financial position at cost plus the Group’s share of post acquisition net assets. The Group’s share of results of associates and joint venture entities is included in the consolidated statement of financial performance.

 

The Group may invest in or establish special purpose companies, or vehicles, to enable it to undertake specific types of transactions. Where the Group controls such vehicles, they are consolidated into the Group financial results.

 

(iii)                               Goodwill

 

Goodwill, representing the excess of the purchase consideration over the fair value of the identifiable net assets of a controlled entity at the date of gaining control, is recognised as an asset and amortised on a straight line basis over the period during which the benefits are expected to arise, not exceeding 20 years.

 

The unamortised balance of goodwill and the period of amortisation are reviewed annually. Where the balance exceeds the value of expected future benefits, the difference is charged to the statement of financial performance.

 

(iv)                              Foreign currency

 

Assets and liabilities denominated in foreign currencies are translated into Australian dollars at the rates of exchange ruling at balance date.

 

Revenues and expenses of overseas branches and controlled entities are translated at average exchange rates for the year.

 

Net translation differences arising from the translation of overseas branches and controlled entities considered to be self-sustaining operations are included in the foreign currency translation reserve, after allowing for those positions hedged by foreign exchange contracts and related currency borrowings.

 

(v)                                 Fee income

 

Fee and commission income are brought to account on an accruals basis. Yield-related front-end application fees received are deferred and accrued to income as an adjustment of yield over the period of the loan. Non yield-related application and activation lending fees received are recognised as income no later than when the loan is disbursed or the commitment to lend expires. Fees received on an ongoing basis that represent the recoupment of the costs of providing service (for example, maintaining and administering existing facilities) are taken to income when the fees are receivable.

 

(vi)                              Net loans and advances

 

Net loans and advances include direct finance provided to customers such as bank overdrafts, credit cards, term loans, lease finance, hire purchase finance and commercial bills.

 

Overdrafts, credit cards and term loans are carried at principal balances outstanding. Interest on amounts outstanding is accounted for on an accruals basis.

 

Finance leases and hire purchase contracts are accounted for using the finance method whereby income is taken to account progressively over the life of the lease or the contract in proportion to the outstanding investment balance.

 

Customer financing through redeemable preference shares is included within net loans and advances. Dividends received on redeemable preference shares are taken to the statement of financial performance as part of interest income.

 

All loans are subject to regular scrutiny and graded according to the level of credit risk. Loans are classified as either productive or non-accrual. The Group has adopted the Australian Prudential Regulation Authority Impaired Assets Guidelines in assessing non-accrual loans. Non-accrual loans include loans where the accrual of interest and fees has ceased due to doubt as to full recovery, and loans that have been restructured with an effective yield below the Group’s average cost of funds at the date of restructuring. A specific provision is raised to cover the expected loss, where full recovery of principal is doubtful.

 

Restructured loans are loans with an effective yield above the Group’s cost of funds and below the yield applicable to a customer of equal credit standing.

 

Cash receipts on non-accrual loans are, in the absence of a contrary agreement with the customer, applied as income or fees in priority to being applied as a reduction in principal, except where the cash receipt relates to proceeds from the sale of security.

 

(vii)                           Bad and doubtful debts

 

Each month the Group recognises an expense for credit losses based on the expected long term loss ratio for each part of the loan portfolio.  The monthly charge is transferred to the General Provision which is maintained to cover losses inherent within the Group’s existing loan portfolio.

 

The method used by the Group for determining this monthly expense charge is referred to as ‘economic loss provisioning’ (ELP).  The Group uses ELP models to calculate the expected loss by considering:

 

•     the history of credit loss for each type and risk grade of lending; and

 

•     the size, composition and risk profile of the current loan portfolio.

 

The Group regularly reviews the assumptions used in the ELP models.  These reviews are conducted in recognition of the subjective nature of ELP methodology.  Methodologies are updated as improved analysis becomes available. In addition, the robustness of outcomes is reviewed considering the Group’s actual loss experience, and losses sustained by other banks operating in similar markets.

 

To the extent that credit losses are not consistent with previous loss patterns used to develop the assumptions within the ELP methodology, the existing General Provision may be determined to be either in excess of or insufficient to cover credit losses not yet specifically identified.  As a result of the reassessments, ELP charge levels may be periodically increased or decreased.

 

Specific provisions are maintained to cover identified doubtful debts. All known bad debts are written off in the year in which they are identified. The specific provision requirement (representing new and increased specific provisions less specific provision releases) is transferred from the general provision to the specific provision. Recoveries, representing excess transfers to the specific provision, are credited to the general provision.

 

Provisions for doubtful debts are deducted from loans and advances in the statement of financial position.

 

(viii)                        Acceptances

 

Commercial bills accepted but not held in portfolio are accounted for and disclosed as a liability with a corresponding contra asset.

 

The Group’s own acceptances discounted are held as part of either the trading securities portfolio or the loan portfolio, depending on whether, at the time of such discount, the intention was to hold the acceptances for resale or until maturity.

 

(ix)                                Trading securities

 

Securities held for trading purposes are recorded at market value. Unrealised gains and net losses on revaluation are taken to the statement of financial performance.

 

(x)                                   Investment securities

 

Investment securities are those which the Group intends and has the ability to hold until maturity. Such securities are recorded at cost or at cost adjusted for amortisation of premiums or discounts.

 

Premiums and discounts are capitalised and amortised from the date of purchase to maturity. Interest and dividend income is accrued.  Changes in market values of securities are not taken into account  unless there is considered to be a permanent diminution in value.

 

(xi)                                Repurchase agreements

 

Securities sold under repurchase agreements are retained in the financial statements and a counterparty liability is disclosed under the classifications of Due to other financial institutions or Deposits and other borrowings. The difference between the sale price and the repurchase price is amortised over the life of the repurchase agreement and charged to interest expense in the statement of financial performance.

 

6



 

Securities purchased under agreements to resell are recorded as Liquid assets, Net loans and advances, or Due from other financial institutions, depending on the term of the agreement and the counterparty.

 

(xii)                             Derivative financial instruments

 

Derivative financial instruments (derivatives) are contracts whose value is derived from one or more underlying financial instruments or indices. They include swaps, forward rate agreements, futures, options and combinations of these instruments.

 

Trading derivatives, comprising derivatives entered into for customer-related or proprietary reasons or for hedging the trading portfolio, are measured at fair value and all gains and losses are taken to the statement of financial performance. Fair value losses arising from trading derivatives are not offset against fair value gains unless a legal right of set-off exists.

 

Derivatives designated, and effective, as hedges of underlying non-trading exposures are accounted for on the same basis as the underlying exposures. To be designated as a hedge, the fair value of the hedge must move inversely with changes in the fair value of the underlying exposure.

 

Gains and losses resulting from the termination of a derivative that was designated as a hedge of non-trading exposures are deferred and amortised over the remaining period of the original term covered by the terminated instrument where the underlying exposure still exists. Where the underlying exposure no longer exists, the gains and losses are recognised in the statement of financial performance.

 

Gains and losses on derivatives related to hedging exposures arising from anticipated transactions are deferred and recognised in the financial statements when the anticipated transaction occurs.

 

These gains and losses are deferred only to the extent that there is an offsetting unrecognised (unrealised) gain or loss on the exposures being hedged. Deferred gains and losses are amortised over the expected term of the hedged exposure.

 

Gains and losses that arise prior to and upon the maturity of transactions entered into under hedge rollover strategies are deferred and included in the measurement of the hedged anticipated transaction if the transaction is still expected to occur. If the forecasted transaction is no longer expected to occur, the gains and losses are recognised immediately in the statement of financial performance.

 

(xiii)                          Premises and equipment

 

Premises and equipment (including computer equipment) are carried at cost less depreciation or amortisation.

 

Profit or loss on the disposal of premises and equipment is determined as the difference between the carrying amount of the assets at the time of disposal and the proceeds of disposal, and is included in the results of the Group in the year of disposal.

 

Assets other than freehold land are depreciated at rates based upon their expected useful lives to the Group, using the straight line method. The depreciation rates used for each class of asset are:

 

Buildings

 

1

%

Building integrals

 

10

%

Furniture & equipment

 

10

%

Computer & office equipment

 

12.5% to 33

%

Software

 

14% to 33

%

 

Leasehold improvements are amortised on a straight line basis over the remaining period of each lease.

 

Costs incurred in acquiring and building software and computer systems are capitalised as fixed assets and expensed as depreciation over periods of between 3 and 5 years except for the branch front end applications where 7 years is used. Costs incurred in planning or evaluating software proposals, or in maintaining systems after implementation, are not capitalised.

 

The carrying values of all non-current assets have been assessed and are not in excess of their recoverable amounts. The expected net cash flows included in determining recoverable amounts of non-current assets are discounted to their present values using a market determined, risk adjusted discount rate. The discount rate used ranged from 9% to 15% depending on the nature of the assets.

 

(xiv)                         Income tax

 

The Group adopts the liability method of tax effect accounting whereby income tax expense is calculated based on accounting profit adjusted for permanent differences. Permanent differences are items of revenue and expense which are recognised in the statement of financial performance but are not part of taxable income or vice versa.

 

Future tax benefits and deferred tax liabilities relating to timing differences and tax losses are carried forward at tax rates applicable to future periods. These future tax benefits are not brought to account unless realisation of the asset is assured beyond reasonable doubt. Future tax benefits relating to tax losses are only carried forward where realisation of the benefit is considered virtually certain.

 

Provision for Australian income taxis made where the earnings of overseas controlled entities are subjected to Australian tax under the attribution rules for the taxation of foreign sourced income.

 

Otherwise, no provision is made for overseas withholding tax or Australian income tax which may arise on repatriation of earnings from overseas controlled entities, where it is expected these earnings will be retained by those entities to finance their ongoing business.

 

(xv)                            Employee entitlements

 

The amounts expected to be paid in respect of employees entitlements to annual leave are accrued at current salary rates including on-costs. Liability for long service leave is accrued in respect of all applicable employees at the present value of future amounts expected to be paid.

 

(xvi)                         Superannuation commitments

 

Contributions, which are determined on an actuarial basis, to superannuation schemes are charged to personnel expenses in the statement of financial performance.

 

Any aggregate deficiencies arising from the actuarial valuations of the Group’s defined benefit schemes have been provided for in the financial statements.

 

The assets and liabilities of the schemes have not been consolidated as the Company does not have direct or indirect control of the schemes.

 

(xvii)                      Leasing

 

Leases entered into by the Group as lessee are predominantly operating leases, and the operating lease payments are included in the statement of financial performance in equal instalments over the lease term.

 

(xviii)                   Goods and services tax

 

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the Australian Tax Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.

 

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as an other asset or liability in the statement of financial position.

 

Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.

 

(xix)                           Life insurance

 

The Group’s life insurance business was conducted through ANZ Life Assurance Company Limited until 30 April 2002 and its results consolidated until that date.

 

Components of life insurance margin on services operating income disclosed are premium revenue and related revenue, investment revenue, claims expense and insurance policy liabilities expense (refer note 41).

 

Premiums with no due date are recognised as revenue on a cash received basis. Premiums with a regular due date are recognised as revenue on an accruals basis. Unpaid premiums are only recognised as revenue during the days of grace or where secured by the surrender value of the policy and are included as “Other Assets” in the balance sheet.

 

Claims under investment-linked business are recognised when the policy ceases to participate in the earnings of the fund. Claims on non investment-linked business are recognised when the liability to the policyowner under the policy contract has been established or upon notification of the insured event depending on the type of claim.

 

Policy liabilities and other liabilities are measured at net present value of estimated future cash flows. Changes in net present values are recognised in the statement of financial performance as revenue or expenses in the financial year in which they occur.

 

All assets are measured at net market values as at the reporting date. Changes in the net market are recognised in the statement of financial performance as revenue or expenses in the financial year in which they occur.

 

On 1 May 2002 the Group’s life insurance business was transferred to a joint venture entity, (see note 46) which is accounted for in accordance with the equity method of accounting. The joint venture adopts similar accounting policies to those described here.

 

(xx)                              Capitalised expenses

 

Expenses related to the acquisition of interest earning assets are initially recognised as part of the cost of acquiring the asset and written-off as an adjustment to its yield over its expected life.  For assets subject to prepayment, expected life is determined on the basis of the historical behaviour of the asset portfolio, taking into account prepayments.

 

7



 

Notes to the Financial Statements

 

2:  Income

 

 

 

Consolidated

 

The Company

 

 

 

2002
$m

 

2001
$m

 

2000
$m

 

2002
$m

 

2001
$m

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

From other financial institutions

 

121

 

214

 

243

 

83

 

153

 

 

On regulatory deposits

 

1

 

1

 

5

 

1

 

1

 

 

On trading and investment securities

 

397

 

471

 

573

 

324

 

340

 

 

On loans and advances

 

8,245

 

9,122

 

8,930

 

5,733

 

6,613

 

 

Other

 

273

 

443

 

490

 

192

 

185

 

 

 

 

9,037

 

10,251

 

10,241

 

6,333

 

7,292

 

From controlled entities

 

 

 

 

93

 

187

 

Total interest income

 

9,037

 

10,251

 

10,241

 

6,426

 

7,479

 

Other operating income

 

 

 

 

 

 

 

 

 

 

 

(i)

Fee income

 

 

 

 

 

 

 

 

 

 

 

 

Lending

 

876

 

787

 

727

 

771

 

686

 

 

Other, commissions(1)

 

1,196

 

1,105

 

1,133

 

861

 

794

 

 

 

 

2,072

 

1,892

 

1,860

 

1,632

 

1,480

 

 

From controlled entities

 

 

 

 

284

 

372

 

 

Total fee income

 

2,072

 

1,892

 

1,860

 

1,916

 

1,852

 

(ii)

Other income

 

 

 

 

 

 

 

 

 

 

 

 

Significant transaction: Net profit before tax from sale of business to ING Australia joint venture

 

174

 

 

 

192

 

 

 

Foreign exchange earnings

 

365

 

348

 

342

 

264

 

279

 

 

Profit on sale of strategic investments

 

 

99

 

 

 

 

 

Hedge of TrUEPrs(2) Cash Flows

 

72

 

27

 

 

72

 

27

 

 

Life insurance margin on services operating income (refer note 41)

 

99

 

190

 

175

 

 

 

 

Profit on trading instruments

 

59

 

63

 

87

 

44

 

40

 

 

Profit on sale of premises(3)

 

5

 

3

 

13

 

2

 

3

 

 

Rental income

 

4

 

5

 

7

 

3

 

4

 

 

Share of associates: profit from ING joint venture

 

2

 

 

 

 

 

 

Share of associates profit (net of writeoffs)

 

29

 

(25

)

3

 

 

 

 

Dividend income from strategic investments

 

 

21

 

19

 

 

 

 

Write down of equity investments

 

 

(84

)

 

 

(41

)

 

Other

 

89

 

34

 

77

 

142

 

497

 

 

Total other income

 

898

 

681

 

723

 

719

 

809

 

Total other operating income(4)

 

2,970

 

2,573

 

2,583

 

2,635

 

2,661

 

Items reported as abnormal in prior periods (refer note 6)

 

 

 

1,207

 

 

 

Total income(5)

 

12,007

 

12,824

 

14,031

 

9,061

 

10,140

 

 


(1)               Includes commissions from funds management business (up to 30 April 2002)

(2)               Preference shares are issued via the TrUEPrs structure. This income is earnt on a fixed receive/floating pay swap of the fixed dividend commitments

(3)               Gross proceeds on sale of premises is $42 million (2001: $98 million, 2000: $164 million)

(4)               The Company’s ‘other income’ include dividends received from controlled entities of $65 million (2001: $516 million)

(5)               Includes external dividend income of $3 million (2001: $75 million, 2000: $192 million) for the Group and $2 million (2001: $47 million) for the Company

 

8



 

3:  Expenses

 

 

 

Consolidated

 

The Company

 

 

 

2002
$m

 

2001
$m

 

2000
$m

 

2002
$m

 

2001
$m

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

To other financial institutions

 

246

 

590

 

577

 

225

 

568

 

 

On deposits

 

3,019

 

3,597

 

4,082

 

2,371

 

2,860

 

 

On borrowing corporations’ debt

 

404

 

454

 

409

 

 

 

 

On commercial paper

 

251

 

584

 

486

 

46

 

211

 

 

On loan capital, bonds and notes

 

801

 

797

 

596

 

793

 

768

 

 

Other

 

298

 

396

 

290

 

210

 

224

 

 

 

 

5,019

 

6,418

 

6,440

 

3,645

 

4,631

 

To controlled entities

 

 

 

 

168

 

197

 

Total interest expense

 

5,019

 

6,418

 

6,440

 

3,813

 

4,828

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

(i)

Personnel

 

 

 

 

 

 

 

 

 

 

 

 

Employee taxes

 

 

 

 

 

 

 

 

 

 

 

 

Payroll

 

66

 

60

 

68

 

62

 

57

 

 

Fringe benefits tax

 

31

 

40

 

33

 

26

 

32

 

 

Pension fund

 

103

 

93

 

99

 

88

 

79

 

 

Provision for employee entitlements

 

32

 

31

 

33

 

29

 

30

 

 

Salaries and wages

 

1,134

 

1,124

 

1,201

 

892

 

893

 

 

Other

 

348

 

327

 

324

 

293

 

280

 

 

Total personnel expenses

 

1,714

 

1,675

 

1,758

 

1,390

 

1,371

 

(ii)

Premises

 

 

 

 

 

 

 

 

 

 

 

 

Amortisation of leasehold improvements

 

14

 

15

 

13

 

8

 

8

 

 

Depreciation of buildings and integrals

 

17

 

18

 

23

 

2

 

3

 

 

Rent

 

161

 

152

 

145

 

131

 

129

 

 

Utilities and other outgoings

 

92

 

89

 

101

 

70

 

70

 

 

Other

 

15

 

11

 

12

 

11

 

10

 

 

 

 

299

 

285

 

294

 

222

 

220

 

 

To controlled entities

 

 

 

 

37

 

34

 

 

Total premises expenses

 

299

 

285

 

294

 

259

 

254

 

(iii)

Computer

 

 

 

 

 

 

 

 

 

 

 

 

Computer contractors

 

34

 

44

 

34

 

29

 

50

 

 

Data communication

 

62

 

49

 

41

 

44

 

37

 

 

Depreciation and amortisation

 

140

 

108

 

96

 

112

 

62

 

 

Rentals and repairs

 

59

 

61

 

71

 

49

 

51

 

 

Other

 

129

 

102

 

101

 

99

 

87

 

 

Total computer expenses

 

424

 

364

 

343

 

333

 

287

 

(iv)

Other

 

 

 

 

 

 

 

 

 

 

 

 

Advertising and public relations

 

98

 

106

 

103

 

71

 

76

 

 

Amortisation of goodwill(2)

 

20

 

17

 

12

 

8

 

8

 

 

Audit fees (refer note 5)

 

3

 

3

 

3

 

2