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Concise Annual Report 2006 - Part 2 of 2 - Annual Review

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Australia and New Zealand Banking Group Limitedwww.anz.com ABN 11 005 357 522

ContentsGuide to Concise Report 54

Corporate Governance Report 56

Directors’ Report 67

Discussion and Analysis 67

PrincipalActivities 67

Result 67

StateofAffairs 67

Dividends 67

ReviewofOperations 67

EventsSincetheEndofthe FinancialYear 67

FutureDevelopments 67

EnvironmentalRegulation 68

Directors’Qualifications,Experience andSpecialResponsibilities 68

CompanySecretaries’Qualifications andExperience 68

Non-AuditServices 68

Auditor’sIndependenceStatement 69

DirectorsandOfficersWhoWere PreviouslyPartnersoftheAuditor 69

ChiefExecutiveOfficer/ChiefFinancial OfficerDeclaration 69

Directors’andOfficers’Indemnity 69

RoundingofAmounts 69

ExecutiveOfficers’andEmployeeShareOptions 69

Remuneration Report 70

Directors’Remuneration 70

ExecutiveRemuneration 72

ChiefExecutiveOfficer’sRemuneration 78

DisclosedExecutives’ContractTerms 80

EquityInstrumentsRelatingto

DisclosedDirectorsandExecutives 82

Financial Statements 92 ConsolidatedIncomeStatement 92 ConsolidatedBalanceSheet 93 StatementofRecognisedIncomeandExpense 94 ConsolidatedStatementofCashFlow 95 NotestotheConciseFinancialStatements 96 Directors’Declaration 102 IndependentAuditReport 102

Shareholder Information 103

Glossary of Financial Terms 106

guide to the concise report

ConCIse AnnuAl RepoRt Contents TheANZConciseAnnualReporthastwomainsections–the2006AnnualReviewandtheConciseReport.Thefrontsection,theAnnualReview,containsinformationaboutsignificantmattersthatimpactedthemanagementandperformanceofANZduringtheyear,includingdiscussionandanalysisofthefinancialresults,updatesonthespecialistbusinessunitsandGroup-wideprograms,thetenyearsummaryandinformationonthedirectors.

TheConciseReportcontainsinformationrequiredbytheCorporationsAct2001(asamended),including:

aConciseFinancialReport,drawnupinaccordancewithapplicableAustralianAccountingStandards,includingtheConsolidatedIncomeStatement,BalanceSheet,StatementofRecognisedIncomeandExpense,andStatementofCashFlow.

theDirectors’Report,includingtheRemunerationReport.

theIndependentAuditReport;and

theCorporateGovernanceReport,asrecommendedbytheASXCorporateGovernanceCouncil’sPrinciplesofGoodCorporateGovernanceandBestPracticeRecommendations.

ThesestatementshavebeenreviewedbyANZ’sAuditCommitteeandapprovedbytheBoard.

TheANZConciseAnnualReportisaconcisereportforthepurposesofsection314(2)oftheCorporationsAct2001andcomprisestwoparts:Part1(AnnualReview)andPart2(ConciseReport).Thetwopartsaredistributedtogetherasonedocumentandshouldbereadtogether.ThesedocumentsmayonlybedistributedbyapersononthebasisthatPart1(AnnualReview)andPart2(ConciseReport)aredistributedtogether.

TheConciseAnnualReportPart2of2cannotbeexpectedtoprovideasfullanunderstandingofthefinancialperformance,financialposition,andfinancingandinvestingactivitiesoftheGroupastheANZFinancialReport.AcopyoftheFinancialReportfortheyearended30September2006fortheGroup,includingtheindependentAuditor’sReport,isavailabletoallmembers,andwillbesenttoamemberwithoutchargeuponrequest.TheFinancialReportcanberequestedbytelephone(Australia1800113399Overseas+61394154010),byemailatinvestor.relations@anz.comorvieweddirectlyontheInternetatanz.com

ANZpresentstworeports,theANZConciseAnnualReport(thisdocument)andtheANZFinancialReport.BothreportsshowhowANZperformedduringtheyearended30September2006andtheoverallfinancialpositionoftheGroupattheendoftheyear.TheANZConciseAnnualReportPart2of2includesFinancialStatementswhichareanextractofandhavebeenderivedfromtheANZFinancialReport.ANZalsopublishesanannouncementtothemarketeachhalfyear.Allthesedocumentsareonanz.com.ANZpreparesitsfinancialreportsinaccordancewithapplicableAustralianAccountingStandards.ParticulartermsrequiredbytheStandardsmaynotbefamiliartosomereaders.ThisguideandtheGlossaryofFinancialTerms(onpages106and107)aredesignedtoassistreaderstounderstandtheConciseAnnualReport.

GuidetotheConciseReport5554ANZConciseAnnualReport2006

CoRpoRAte GoveRnAnCe RepoRtToensurethereaderisup-to-datewithANZ’scorporategovernancepractices,thisreportprovidesinformationontheGroup’sgovernanceframework,alignmentwithAustralianandoverseasgovernanceissues,theBoardanditsproceduresaswellasGroupcodes,policiesandrelatedprocesses.

DIReCtoRs’ RepoRt ThisreportispreparedinaccordancewiththerequirementsoftheCorporationsActandprovidesinformationonhowthebusinessisperformingandincludesdetailsabouttheGroup’sprincipalactivitiesandtheDirectorsandCompanySecretaries.Detailsaboutthenon-auditservicesandtheAuditor’sindependencestatementalsoformpartofthisreport.Inaddition,itcontainsremunerationinformationontheDirectorsandseniorexecutives,anddetailsofdeclarationsareprovidedbytheChiefExecutiveOfficerandtheChiefFinancialOfficer.

ConsolIDAteD InCoMe stAteMent TheIncomeStatementprovidesANZ’sprofitfortheyearincluding:

thesourcesofANZ’sincomesplitbetweennetinterestincomeandotherincome;

theexpensesincurredbyANZduringtheyear;

provisionforcreditimpairment;and

ANZ’staxexpensefortheyear.

TheresultsofcontrolledcompaniesareincludedintheconsolidatedresultsoftheGroup.

ConsolIDAteD BAlAnCe sHeet TheBalanceSheetisasummaryoftheassets,liabilitiesandshareholders’equityasat30September2006.ItshowswhatANZasaGroupownsasassets,whatitowesasliabilitiesanditsnetassets.Netassetsareequaltototalshareholders’equity.Theassetsandliabilitiesarelistedinorderofliquidity,withthoseassetsrepresentingcashshownfirstandthosehardesttoconverttocash,suchaspremises,last.

TheassetsandliabilitiesofcontrolledcompaniesareincludedwithintheconsolidatedBalanceSheetoftheGroup.

stAteMent oF ReCoGnIseD InCoMe AnD eXpense TheStatementofRecognisedIncomeandExpensesummarisestheGroup’sincomeandexpenseitems,otherthanthosearisingfromtransactionswithequityholders,whicharerecogniseddirectlyinequityasrequiredbyAustralianAccountingStandards.

ConsolIDAteD stAteMent oF CAsH FloWTheConsolidatedStatementofCashFlowsummarisestheGroup’scashpaymentsandcashreceiptsforthefinancialyear.ThevaluesmaydifferfromthoseshownintheConsolidatedIncomeStatementbecausetheConsolidatedIncomeStatementispreparedonanaccrualaccountingbasis.CashinthisStatementreferstocashonhand,bankdepositsandotherformsofhighlyliquidinvestmentsthatcanreadilybeconvertedtocash.

notes to tHe ConCIse FInAnCIAl stAteMentsThesenotesprovidedetailsonthebasisofpreparationoftheConciseFinancialReportincludingdetailsoncriticalaccountingestimatesandjudgements,segmentanalysisanddividends.

DIReCtoRs’ DeClARAtIon ThisdeclarationispreparedinaccordancewiththerequirementsoftheCorporationsActandcontainsthedirectors’sign-offthattheConciseFinancialReportcomplieswithAustralianAccountingStandards.

AuDItoR’s RepoRt TheindependentauditreportistheexternalandindependentopinionontheConciseFinancialReport.

sHAReHolDeR InFoRMAtIon AnD stepsInformationisprovidedonordinarysharesincludingthetwentylargestholdersandthedistributionofholdings.Italsoincludeson-marketbuy-backinformation,detailsonvotingrightsforordinarysharesandANZStEPS,employeeshareholderinformationandinformationrelatingtoStockExchanges,ANZStEPS,AmericanDepositaryReceiptsandEuroTrustSecurities.

GlossARy oF FInAnCIAl teRMs Theglossaryoffinancialtermsonpages106and107containsanexplanationofkeyfinancialterms.

GuidetotheConciseReport5554ANZConciseAnnualReport2006

CorporateGovernance5756ANZConciseAnnualReport2006 CorporateGovernance5756ANZConciseAnnualReport2006

ANZ’sshareholdersdependontheCompany’sBoardforstrategicguidanceandoversightoftheCompanyassetoutintheBoardCharter(anz.com).TheBoardrecognisesitsoverridingresponsibilitytoacthonestly,fairly,diligentlyandprogressively,inaccordancewiththelaw,inservingtheinterestsofANZ’sshareholdersandotherstakeholders.

CorporategovernanceisanimportantfocusfortheBoard.Goodcorporategovernancemeetsethicalandstewardshipresponsibilities,andgivesANZastrongcommercialadvantage.

Itreceivesclosescrutiny,particularlysincetheestablishmentoftheBoard’sGovernanceCommitteein2002.

ANZhasequitysecuritieslistedontheAustralian(ASX),NewZealand(NZX)andNewYork(NYSE)StockExchangesandhasdebtsecuritieslistedontheseandotheroverseasStockExchanges.Assuch,ANZmustcomplywitharangeoflistingrequirementsfrombothAustraliaandoverseas.

Ingeneral,theBoardseeks:

toembraceprinciplesconsideredtobebestpracticeacrossthejurisdictions;

tobean‘earlyadopter’,wherepossible,bycomplyingbeforeapublishedlaworrecommendationtakeseffect;and totakeanactiveroleindiscussions

regardingbestpracticeincorporategovernanceinAustraliaandoverseas.

Consequently,theBoardcontinuallymonitorsgovernancedevelopmentstoalignANZ’spracticeswithbestpracticestandards.Duringtheyear,theBoardcontinuedtoworkcloselywithmanagementtoreviewandupdateANZpoliciesandproceduresinlightofchangestoregulations,legislationandguidelinesacrossrelevantjurisdictions.

ThisreportsetsouttheCompany’scorporategovernanceframework.Furtherdetailiscontainedonanz.com>aboutanz>corporategovernance.ThiswebsiteisregularlyupdatedtoensureitreflectstheCompany’smostrecentcorporategovernanceinformation.

corporate governanceASOLIDFOUNDATIONATANZ

B CoM (Hons), MBA, Hon LLD (MeLB), Hon LLD (MonAsH)

Non-executivedirectorsinceJuly1991.MrGoodewasappointedChairmaninAugust1995andisanexofficiomemberofallBoardCommittees.

skills, experience and expertise MrGoodehasabackgroundinthefinance

andresourcesindustriesandhasbeenaprofessionalnon-executivedirectorsince1989.MrGoodebringsawiderangeofskillsandsignificantexperienceofthefinanceindustrytohisroleasChairmanoftheBoard.

Current directorships Chairman:WoodsidePetroleumLimited(Directorfrom1988),AustralianUnited

InvestmentCompanyLimited(Directorfrom1990),DiversifiedUnitedInvestmentLimited(Directorfrom1991),andTheIanPotterFoundationLtd(Directorfrom1987).

Former Directorships include FormerDirector:SingaporeAirlinesLimited(from1999–2006).

Age68.ResidenceMelbourne.

DIRECTORS

Mr C B Goode, AC Chairman, Independent non-executive Director

MA, MBA, sFFIn, FsI, FHKIB, FRsA

ChiefExecutiveOfficersinceOctober1997.MrMcFarlaneisalsoaDirectorofANZ’slargestsubsidiary,ANZNationalBankLimitedinNewZealand.

skills, experience and expertiseMrMcFarlanebringsbroadleadership,managementandbankingskillsfollowinga31-yearcareerinbanking.MrMcFarlaneisaformerGroupExecutiveDirector,StandardCharteredPlc,HeadofCitibankintheUnited

KingdomandManagingDirectorofCiticorpInvestmentBankLtd.

Current DirectorshipsDirector:FinancialMarketsFoundationforChildren(from1999)andAustralianBusinessArtsFoundation(from2000).Member:ForeignAffairsCouncil(from2005),BusinessRegulationAdvisoryGroup(from2002),FinancialLiteracyFoundationAdvisoryBoard(from2005),theCounciloftheAustralianBankersAssociation(from

1997,includingtermasChairman)andtheAsiaBusinessCouncil(from2004).

Former Directorships includeFormerDirector:TheInternationalMonetaryConference(2001–2006,includingtermasPresident),BusinessCouncilofAustralia(1999 –2003),AustralianGraduateSchoolofManagementLtd(1999 –2003)andTheLondonStockExchange(1989 –1991).


Mr J McFarlane OBE Chief executive officer


PHD, BsC (Hons), FAP, FTse

Non-executivedirectorsinceFebruary2004.DrClarkisamemberoftheGovernanceCommittee.

skills, experience and expertise DrClarkisPrincipalofClarkCapitalPartners,aUSbasedfirmthatadvisesinternationallyontechnologyandthetechnologymarketplace.Previouslyheheldseniorexecutive

positionsinIBM,NewsCorporationandLoralSpaceandCommunications.HebringstotheBoardinternationalbusinessexperienceandadistinguishedcareerinmicro-electronics,computingandcommunications.

Current DirectorshipsDirector:Babcock&BrownCapitalLimited(from2006)andKaCommCommunicationsPtyLtd(from2006).

Former Directorships include FormerDirector:JamesHardieIndustriesNV(2002–2006),Digex(2000 –2002)andActonSemiconductorPtyLimited(2001–2005).

Age63.ResidenceBasedinNewYork,UnitedStatesofAmericabutalsoresidesinSydney.

Dr G J Clark Independent non-executive Director, Chairman of the technology Committee

MA, FAICD, Hon FIe AUsT, FAUs IMM, FTse, Hon DR enG (CQU)

Non-executivedirectorsinceOctober1995.MrEllisisamemberoftheAuditCommittee.MrEllis’termasChairmanoftheRiskCommitteeendedon30September2006andhewillcontinueasamemberoftheRiskCommittee.

skills, experience and expertiseAtrainedengineer,MrEllisbringstotheBoardhisanalyticalskillstogetherwithhispracticalunderstandingofoperationalissues,investmentsandacquisitions

acrossarangeofsectorsincludingnaturalresources,manufacturing,biotechnologyandeducation.

Current DirectorshipsChairman:PacificaGroupLimited(Directorfrom1999),FutureDirectionsInternationalPtyLtd(from2003),LandcareAustraliaLimited(from2004),GolfAustralia(from2005),andtheEarthResourcesDevelopmentCouncil(from2006).Chancellor:MonashUniversity(from1999).Consultant:MonashEnergyAdvisoryBoard(from2006).

Former Directorships includeFormerChairman:BrokenHillProprietaryCompanyLimited(1997–1999),BlackRangeMineralsLimited(2000–2004),Australia-JapanFoundation(1999–2005)andNationalOccupationalHealth&SafetyCommission(2003–2005).FormerDirector:AustralianMinerals&EnergyEnvironmentFoundation(1999–2003)andGroPepLimited(2000–2005).


Mr J K Ellis Independent non-executive Director

B CoM, LLB, s.I.A. (AFF), FAICD, FCPA

Non-executivedirectorsinceFebruary2002.MrGonskiisamemberoftheRiskCommittee.

skills, experience and expertise Alawyer,MrGonskihasabroadexperienceacrossbusiness,thelawandinvestmentbanking.HealsobringstohisroleontheBoardanappreciationforthecommunitythroughhisworkintheartsandthenot-for-profitsector.

Current Directorships Chairman:CocaColaAmatilLimited(Directorfrom1997),theInvestecGroupinAustralia(Directorfrom2001),SydneyGrammarSchoolTrust(from1993)andUniversityofNewSouthWalesFoundationLimited(from2006).

Chancellor:UniversityofNewSouthWales(from2005).

Director:TheWestfieldGroup(from1985)andSingaporeAirlinesLimited(from2006).

President:BoardofTrusteesofArtGalleryofNSW(from1997).

Former Directorships include FormerChairman:MorganStanleyAustraliaLimited(1999–2002),NationalInstituteofDramaticArt(2001–2005)andAustraliaCouncilfortheArts(2002–2006).

FormerDirector:JohnFairfaxHoldingsLimited(1993–2005)andINGAustraliaLimited(2002–2005).

Age53.ResidenceSydney.

Mr D M Gonski, AO Independent non-executive Director, Chairman of the Governance Committee

B eC, MBA, Hon LLD (MonAsH), FAICD, FCA

Non-executivedirectorsinceMarch1994.MsJacksonisamemberoftheAuditCommittee.

skills, experience and expertiseACharteredAccountant,withsignificantfinancialexpertise,MsJacksonhasbroadindustrialandcommercialexperienceincludingherinvolvementintransportation,mining,themedia,manufacturingandinsurance.Thisexpertisecoupledwithher

workinhealthandeducationcontributetoherroleontheBoard.

Current DirectorshipsChairman:QantasAirwaysLimited(Directorfrom1992)andAsiaPacificBusinessCoalitiononHIV/AIDS(from2006).Director:BillabongInternationalLimited(from2000)andBrainResearchInstitute(from2006).Member:ExecutiveCommitteeAustralia-JapanBusinessCo-operation(from2002)andBusinessCouncilofAustraliaChairman’sPanel(from2002).

Former Directorships includeFormerDeputyChairman:SouthcorpLimited(2004–2005).

FormerCo-Chairman:AustraliaNZLeadershipForum(2003–2006).

FormerDirector:JohnFairfaxHoldingsLimited(2003 –2004)andHowardFloreyInstituteofExperimentalPhysiologyandMedicine(1998–2006).

FormerPartner:ConsultingDivisionofKPMGPeatMarwick(1991–1992).


Ms M A Jackson, AC Independent non-executive Director, Chairman of the people Committee


BOARDRESPONSIBILITYANDDELEGATIONOFAUTHORITYTheBoardisresponsibletoshareholdersforthegovernanceoftheGroup,andoverseesitsoperationsandfinancialperformance.Tothisend,itsetsthestrategicdirectionandfinancialobjectives,andmonitorsoperationalperformance.Italsomonitorscomplianceintermsofethicalstandardsandregulatoryrequirements.TheBoardalsoappointsandregularlyreviewstheperformanceoftheChiefExecutiveOfficer.

TheANZBoardischairedbyanindependentnon-executivedirector.ItsstructureprovidesforadivisionofresponsibilitybetweentheChairmanandtheChiefExecutiveOfficer.ThisissupportedbytheANZBoardCharterwhichstatesthattheChairmanmustbeanindependentnon-executivedirectorandthatthemajorityoftheBoardmustcompriseindependentnon-executivedirectors.

TheBoardCharterclearlysetsouttheBoard’spurpose,powers,andspecificresponsibilities.ThebusinessofANZismanagedunderthedirectionoftheBoard.TheBoarddelegatestotheChiefExecutiveOfficer,andthroughtheChiefExecutiveOfficertootherseniormanagement,theauthorityandresponsibilityformanagingtheeverydayaffairsoftheCompany.TheBoardmonitorsmanagementandperformanceonbehalfofshareholders.

ROLEOFTHECHAIRMANTheChairmanplaysanimportantleadershiprolewithANZandisinvolvedin:

chairingmeetingsofshareholdersandBoardmeetings;

monitoringtheperformanceoftheBoardandthemixofskillsandeffectivenessofindividualcontributions;

maintainingongoingdialoguewiththeChiefExecutiveOfficerandappropriatementoringandguidance;

overseeingBoardreviewprocesses;and

ongoingmentoringofindividualdirectors.

BOARDCOMPOSITION,SELECTIONANDAPPOINTMENTTheBoardstrivestoachieveabalanceofskills,knowledge,experience,tenureandperspectiveamongitsdirectors.Detailsregardingtheskills,experienceandexpertiseofeachdirectorinofficeatthedateofthisConciseAnnualReportcanbefoundonpages56to58.

TheGovernanceCommittee(seepage61)isdelegatedresponsibilityforthenominationsprocess.TheCommitteeregularlyreviewsthesizeandcompositionoftheBoardandCommitteesandwhetherthereisaneedforanynewnon-executivedirectorappointments.Nominationsmaybeprovidedfromtimetotimetothe

ChairmanoftheGovernanceCommittee.TheCommitteeassessesthepotentialcandidatesagainstBoardapprovedselectioncriteriaincludingintegrity,fitnessandpropriety,skills,qualifications,experience,communicationcapabilitiesandcommunitystanding.Iffoundsuitable,andwherethereisaneedforanynewappointments,candidatesarerecommendedtotheBoard.Otherwise,theChairmanoftheCommitteemaintainsnamesofsuitablecandidatesforsuccessionpurposes.TheChairmanoftheBoard,unlessotherwiseagreed,isresponsibleforapproachingpotentialcandidates.TheBoardselectioncriteriaandaboveprocessarereviewedbytheCommitteeonaregularbasis.

Anewdirectorreceivesanappointmentletter.Inaddition,theappointmentprocessincludesthefollowingkeyelements:

Receipt of appointment-related documents

Directors’Handbook–TheHandbookincludesinformationonabroadrangeofmattersrelatingtotheroleofadirector.

Directors’Deed–EachdirectorsignsaDeedintheformapprovedbyshareholdersatthe2005AnnualGeneralMeetingwhichcoversanumberofissuesincludingindemnity,directors’andofficers’liabilityinsurance,therighttoobtainindependentadviceandrequirementsconcerningconfidentialinformation.

B CoM, DIP. eD, FCPA, FAICD, FAIM

Non-executivedirectorsinceOctober2004.MrMeiklejohnisamemberoftheGovernanceCommitteeandtheRiskCommittee.

skills, experience and expertise MrMeiklejohnhasastrongbackgroundinfinanceandaccounting.HealsobringstotheBoardhisexperienceacrossanumberof

directorshipsofmajorAustraliancompaniesspanningarangeofindustries.

Current DirectorshipsChairman:PaperlinXLimited(from1999).Director:CocaColaAmatilLimited(from2005)andMirrabookaInvestmentsLimited(from2006).VicePresident:MelbourneCricketClub(from1987).

Former Directorships includeFormerChairman:SPCArdmonaLimited(2002–2005)andformerDeputyChairmanofGasNetAustraliaLimited(2001–2004).FormerDirector:WMCResourcesLimited(2002–2005)andOneSteelLimited(2000–2005).DirectorandChiefFinancialOfficerAmcorLimited(1985–2000).


Mr D E Meiklejohn Independent non-executive Director, Chairman of the Audit Committee

DIPQs, FAIM

Non-executivedirectorsinceOctober2004.MrMorschelisamemberoftheRiskCommitteeand,on1October2006,becameitsChairman.HeisalsoamemberofthePeopleCommittee.

skills, experience and expertiseMrMorschelhasastrongbackgroundin

bankingandfinancialservices,andbringstheexperienceofbeingadirectorofmajorAustralianandinternationalcompanies.

Current DirectorshipsChairman:RinkerGroupLimited(from2003).Director:SingaporeTelecommunicationsLimited(from2001),TenixPtyLimited(from1998)andGiffordCommunicationsPtyLimited(from2000).

Former Directorships includeFormerDirector:RioTintoPlc(1998–2005),RioTintoLimited(1998–2005),CSRLimited(1996–2003),LeightonHoldingsLimited(2001–2004)andWestpacBankingCorporation(1993–2001).

Age63.ResidenceSydney.

Mr J P Morschel Independent non-executive Director, Chairman of the Risk Committee


undertaking induction training–NewdirectorstakepartinaformalinductionprogramwhichensurestheyhavededicatedsessionswithANZdirectors,executivesandotherkeystaffmembersregardingANZ’svaluesandculture,theGroup’sgovernanceframework,theDirectors’CodeofConductandDirectorrelatedpolicies,BoardandCommitteepolicies,processesandkeyissues,financialmanagementandbusinessoperations.

Inaddition,eachnewCommitteememberparticipatesinCommittee-specificeducationalsessionswiththerelevantCommitteechairmanandANZexecutives.

Meeting share qualification–Non-executivedirectorsarerequiredtoaccumulateovertimeaholdinginsharesintheCompanythatisequivalenttoatleast100%ofanon-executivedirector’sbasefee(and200%ofthisfeeinthecaseoftheChairman).

election at next Annual General Meeting–SubjecttotheprovisionsofANZ’sConstitutionandtheCorporationsAct2001,theBoardmayappointapersonasadirectorofANZatanytimebutthatpersonmustretire,andmayseekelectionbyshareholders,atthenextAnnualGeneralMeeting.

FITANDPROPERANZhasaneffectiveandrobustframeworkinplacetoensurethatindividualsappointedtorelevantseniorpositionswithintheANZGrouphavetheappropriatefitnessandproprietytoproperlydischargetheirprudentialresponsibilitiesonappointmentandduringthecourseoftheirappointment.Theframework,setoutinANZ’sFitandProperPolicy,addressestherequirementsofAPRA’snewFitandProperPrudentialStandard(APS520).Itinvolvesregularassessmentsbeingcarriedoutforeachdirector,relevantseniorexecutiveandtheexternalauditorusingrole-specificcompetenciesasabenchmark,aswellasassessmentspriortotheappointmentofanewdirector,relevantseniorexecutiveorexternalauditor.

INDEPENDENCEANDMATERIALITYUnderANZ’sBoardCharter,amajorityofnon-executivedirectorsmustsatisfyANZ’scriteriaforindependence.TheBoardChartersetsoutindependenceparametersinordertoestablishwhetheranon-executivedirectormayhavearelationshipwithANZwhichcould(orcouldbeperceivedto)impedetheirdecision-making.

Allnon-executivedirectorsarerequiredtonotifytheChairmanofapotentialchangeinhis/heroutsideBoardappointments.TheChairmanreviewstheproposedappointmentsandwillconsultwithotherdirectorsastheChairmandeemsappropriate.

Inthe2006financialyear,theBoardconducteditsannualreviewofcriteriaforindependenceagainstinternationalbestpracticesincludingtheASXCorporateGovernanceCouncil’sBestPracticeRecommendations,NZXandNYSECorporateGovernanceStandards,andtheUSSarbanes-OxleyActof2002.ANZ’scriteriaaremorerigidthanthosesetinmostjurisdictionsincludingcriteriastipulatedspecificallyforauditcommittees.ThecriteriaandprocessarebothsetoutonANZ’swebsite.

TheBoardappliesthefollowingtestinmakingitsdeterminationastotheexistenceofamaterialrelationship:doesthenon-executivedirector(orarelatedparty)havearelationshipaseitheranacquirerfromorsuppliertotheBankthatinthemindofareasonablepersonwouldinfluencethenon-executivedirectorinmakingadecisiononmatterslikelytocomebeforetheBoardoritsCommittees?

During2006,theBoardconsideredeachnon-executivedirector’sindependenceandconcludedthattheindependencecriteriaweremetbyeachnon-executivedirector.

TheBoardnotedsomecorporatecustomers/supplierswereassociatedwithtwonon-executivedirectorsasfollows:

MrGonskiisadirectorofWestfieldHoldingsLtd.ANZleasespropertiesfromWestfieldforitsbranchnetworkinAustralia.

MsJacksonisChairmanofQantasAirwaysLimited.ANZhascommercialrelationshipswithQantasasapartnerintheco-brandedANZFrequentFlyerVisaCards,andasanacquireroftravelservicesforANZpeople.

Ineachcase,theBoardconcludedthathavingregardtothenatureandvalueofthecommercialrelationshipandthematerialitycriteriadescribedabove,bothMrGonskiandMsJacksonareindependent.

Directorsdonotparticipateinanydecisionsregardingtransactionswithorganisationswithwhichtheyareassociatedasacquirerorsupplier(seeConflictofInterestonthispage).Directors’biographiesonpages56to58andonanz.comhighlighttheirassociationsoutsideofANZ.

CONFLICTOFINTERESTOverandabovetheissueofindependence,eachdirectorhasacontinuingresponsibilitytodeterminewhetherheorshehasapotentialoractualconflictofinterestinrelationtoanymaterialmatterwhichcomesbeforetheBoard.Suchasituationmayarisefromexternalassociations,interestsorpersonalrelationshipswhichmightaffect,orbeseenpotentiallytoaffect,thedirector’spositiontoactinthebestinterestofANZ.

UndertheDirectors’DisclosureofInterestPolicyandPolicyforHandlingConflictsofInterest(seepage64andanz.com),adirectormaynotexerciseanyinfluenceovertheBoardifapotentialconflictofinterestexists.Insuchcircumstances,thedirectormaynotreceiverelevantBoardpapers,maynotbepresentforBoarddeliberationsonthesubject,andmaynotvoteonanyrelatedBoardresolutions.Thesematters,shouldtheyoccur,arerecordedintheBoardminutes.

TENUREANDRETIREMENTANZ’sConstitutionprovidesthatanelectionofdirectorsmustbeheldateachannualgeneralmeeting.Eachnon-executivedirectormustretirefromofficeatthethirdannualgeneralmeetingafterbeingelectedorlastre-elected,andmayseekre-election.

AnappointeewhoisfillingacasualvacancyhastostandforelectionatthefirstAnnualGeneralMeetingaftertheirappointment.ThisrequirementdoesnotapplytotheChiefExecutiveOfficer.

IntheopinionoftheBoard,thelengthofserviceofanon-executivedirectorisnotadisablingcriterionaffectingthatdirector’sindependence.Duringtheyear,theBoardresolvedthatthemajorityofthenon-executivedirectorsservingontheBoardwillcomprisenon-executivedirectorswhohaveservedlessthan9years,exceptincircumstancesofanevennumberofnon-executivedirectorsinwhichcaseitwillbefiftypercentormore.TheBoardmaintainsthathavingsomeBoardmemberswithalengthofservicegreaterthan9yearsisbeneficialincomplexorganisationsthataresubjecttosignificanteconomiccycles.

ItisalsoBoardpolicythatdirectorsappointedsinceJuly1993will,exceptinunusualcircumstances,retireafter15yearsofserviceasadirectorofANZ.

During2006,DrDeane,whoservedfor12years,retiredfromtheBoard.


PERFORMANCEEVALUATIONSPerformanceevaluationsareconductedinternallyandcovertheBoard,eachnon-executivedirectorandBoardCommittees.

BoARD AnD InDIvIuAl DIReCtoRs

Theframeworkusedtoassessthedirectorsisbasedontheexpectationtheyareperformingtheirdutiesinamannerwhichshouldcreateandcontinuetobuildsustainablevalueforshareholders,andinaccordancewiththedutiesandobligationsimposeduponthembytheANZConstitutionandthelaw.

Theperformancecriteriatakeintoaccounteachdirector’scontributionto:

thechartingofdirection,strategyandfinancialobjectivesforANZ;

themonitoringofcompliancewithregulatoryrequirementsandethicalstandards;

themonitoringandassessingofmanagementperformanceinachievingstrategiesandbudgetsapprovedbytheBoard;

thesettingofcriteriafor,andevaluationof,theChiefExecutiveOfficer’sperformance;and

theregularandcontinuingreviewofexecutivesuccessionplanningandexecutivedevelopmentactivities.

Boardandnon-executiveperformanceevaluationsareconductedintwoways:

Annual review–Onanannualbasis,ormorefrequentlyifappropriate,theChairmanhasaone-on-onemeetingwitheachdirectorspecificallyaddressingtheperformancecriteriaincludingcompliancewiththeDirectors’CodeofConduct.Inaddition,theydiscusstheeffectivenessoftheBoardandrelatedissuesincludingtheBoard’soversightandcontributiontotheCompany,Boarddiscussion(includingtheperformanceofthenon-executivedirectorsandtheChairman),Boardmemberships,Committees,andotherrelevantissues.TheyalsodiscusstheperformanceoftheBoardagainstitsCharterandgoalssetfortheyear.TheChairmanprovidesareporttotheBoardontheoutcomeofthesemeetings.

Re-election statement–Directorswhennominatingforre-electionarerequiredtosubmitawrittenororalstatementtotheBoardsettingoutthereasonswhytheyseekre-election.Inthedirector’sabsence,theBoardevaluatesthisstatement(having

regardtotheperformancecriteria)andresolveswhethertoendorsetherelevantdirector’sre-election.

BoARD CoMMItteesEachofthefivemainBoardCommitteesconductsaself-evaluationatleastannually(seeBoardCommitteesonthispage)andreportstheoutcometotheBoard(seepages60to62).

ADDItIonAl evAluAtIonInadditiontotheaboveevaluations,eachdirectorisalsoaskedtocompleteaquestionnairesettingouttheirviewsontherolesandresponsibilitiesoftheBoard,theChairmanandthedirectorsaswellastheeffectivenessandperformanceoftheBoard,theChairman,individualdirectors,theBoard’sCommitteesandeachCommitteeChairman.ThequestionnairesarereturnedtotheChairmanoftheGovernanceCommitteewhopresentsthefindingstotheBoard.

INDEPENDENTADVICEInordertoassistdirectorstofulfilltheirresponsibilities,eachdirectorhastheright(withthepriorapprovaloftheChairman)toseekindependentprofessionaladviceregardinghis/herresponsibilitiesattheexpenseoftheGroup.InadditiontheBoardandeachCommittee,attheexpenseoftheGroup,mayobtainwhateverprofessionaladviceitrequirestoassistinitswork.

BOARDCOMMITTEESEachofthefiveprincipalBoardCommitteesiscomprisedsolelyofindependentnon-executivedirectors,hasitsownBoardapprovedCharterandhasthepowertoinitiateanyspecialinvestigationsitdeemsnecessary.Committeemembershipisreviewedannually.Membershipcriteriaarebasedonadirector’sskillsandexperience,aswellashis/herabilitytoaddvalueandcommittimetotheCommittee.BoardCommitteeattendanceiscontainedonpage47.

TheChairmanisanex-officiomemberofallCommittees.TheChiefExecutiveOfficer,MrMcFarlane,isinvitedtoattendCommitteemeetings,asappropriate.Hispresenceisnotautomatic,however,andhedoesnotattendanymeetingwherehisremunerationisconsideredordiscussed.Non-executivedirectorsmayattendanymeetingofaCommittee.

TheprincipalBoardCommitteesengageinextensivemeetingplanning,following

aprocessapprovedbytheBoard.AnnualcalendarsofbusinessarepreparedinvolvingrelevantstakeholdersandsetbyeachCommittee.TheexecutiveswhoareappointedtoassisteachCommitteereviewanypotentialgapsandoverlapsbetweentheCommittees.Anyissuesarisingfromthisarereportedto,andresolvedby,therelevantCommitteeChairmen.TheresultsofthisprocessarethenreportedtotheBoardtoassisttheminfulfillingtheiroversightresponsibilitiesinrespectofthedelegationstheyhavemadetothevariousCommittees.ChangestoCommitteecalendarsmustbeapprovedbytheCommitteeChairmenandcommunicatedtotheCommitteemembers.CommitteesreporttotheBoardthroughtheCommitteeChairmenfollowingeachCommitteemeeting.Whenthereisacross-Committeeitem,theCommitteeswillcommunicatewitheachotherthroughtheirChairmen.Throughouttheyear,CommitteeChairmenalsoconductagendaplanningmeetingsinvolvingrelevantstakeholderstotakeaccountofemergingissues.

Committeeperformanceself-evaluationsareconductedannuallytoreviewperformanceagainstitsCharterandgoalssetfortheyear.ThesuitabilityoftheCharterandanyareasforimprovementarealsoassessed.ThereviewandstatedobjectivesforthenewfinancialyeararesubmittedtothefullBoardfordiscussionandapproval.

AcopyofeachCommitteeCharterandStandingRulesapplicabletoeachCommitteecanbefoundonANZ’swebsite.

TheAudit Committeeisresponsibleforoversightandmonitoringof: theCompany’sfinancialreporting

principlesandpolicies,controlsandprocedures; theworkofInternalAuditwhichreports

directlyandsolelytotheChairmanoftheAuditCommittee(refertoInternalAuditonpage63formoreinformation); theAuditCommitteesofsubsidiary

companiessuchasANZNationalBankLimited;and theintegrityoftheCompany’sfinancial

statements,compliancewithregulatoryrequirementsandtheindependentauditthereof.

TheAuditCommitteeisalsoresponsiblefor: theappointment,evaluationandoversight

oftheexternalauditor; compensationoftheexternalauditor;and whereappropriate,replacementofthe

externalauditor.


UndertheCommitteeCharter,allmembersoftheAuditCommitteemustbefinanciallyliterateandatleastonememberoftheCommitteemustbea“financialexpert”asdefinedintheUSSarbanes-OxleyAct.

MrMeiklejohnandMsJacksonweredesignatedastheAuditCommittee’s‘financialexperts’forthispurposeforthe2006financialyear.Refertopages57and58fortheirqualifications.

TheAuditCommitteemeetswiththeexternalauditorwithoutmanagementbeingpresent.TheChairmanoftheAuditCommitteemeetsseparatelyandregularlywiththeGroupGeneralManagerAudit,theexternalauditorandmanagement.

Somekey2006financialyearactivitiesincluded:

ReviewofthetransitiontoAustralianEquivalentsofInternationalFinancialReportingStandards(AIFRS)–TheCommitteemonitoredtheGroup’spreparationsfortransitiontothenewstandardsincludingstaffeducationandskillenhancement,systemsmodifications,newsystemsdevelopmentandfinancialreportingchanges.TheGroupreportedinaccordancewiththesestandardsforthe2006financialyear.

AddressingANZFinancestaff–TheChairmanoftheAuditCommitteeaddressedANZFinancestaffontheimportanceofinternalcontrolsoverfinancialreportingandalsoprovidedinsightsandguidanceonwhattheCommitteeexpectsfromFinance.

Overseeingthecontrolsoverfinancialreporting–TheCommitteeoversawthecontrolsoverfinancialreportingasrequiredbySection404oftheUSSarbanesOxleyAct.

TheGovernance CommitteeidentifiesandrecommendsprospectiveBoardmembers

andsuccessionplanningfortheChairman(seepage58),recommendsprocessesforBoardperformanceevaluations(seepage60),corporategovernanceprinciplesandpractices,andmonitorsthedirectionandcontrolofcorporateresponsibilityforANZ.


Boardoversightreview–TheCommitteeconductedareviewofBoardoversightandreporteditsfindingstotheBoard.

Monitoringchangestodomesticandoverseaslegislationandregulations–TheCommitteereceivedregularupdatesonchangestorelevantlegislationandregulationsandconsideredpotentialimpactsonANZ’scustomers,staff,operationsandthecommunity.TheCommitteeoverseesrelatedchangestorelevantCodes,Charters,policiesandproceduresreportingthesetotheBoard.

EndorsementofShareholderCharter–TheCommitteeoversawthedevelopmentandendorsedANZ’sShareholderCharter.

Thepeople CommitteeisresponsibleforrecommendationstotheBoardinrespectoftheGroup’scompensationprogramincludinganyequity-basedprograms(detailsintheRemunerationReportonpages70to91).ItalsoevaluatestheperformanceofandapprovesthecompensationforBoardappointees(includingtheChiefExecutiveOfficer)andapprovescompensationlevelsandpolicyguidelines(detailsintheRemunerationReportonpages70to91).


Annualreviewofremunerationfornon-executivedirectors,theChiefExecutiveOfficeranddirectreportstoChiefExecutive

Officerandreviewoftherewardstructurefortheseniorexecutivepopulation.

Reviewofsuccessionplans–TheCommitteeconductedreviewsofthecurrentsuccessionplansfortheChiefExecutiveOfficer,ChiefExecutiveOfficer’sdirectreportsandotherbusiness-criticalroles.

Preparationofthe2005RemunerationReportonwhichshareholderswereaskedtovoteforthefirsttime(non-binding)atthe2005AnnualGeneralMeeting.

ReviewofGlobalSuperannuationarrangements,HealthandSafety,andDiversityatANZ.

TheRisk Committeeisresponsibleforoverseeing,monitoringandreviewingtheGroup’sriskmanagementprinciplesandpolicies,strategies,processandcontrolsincludingcredit,market,balancesheet,operationalriskandcompliance.Itmayapprovecredittransactionsandothermattersbeyondtheapprovaldiscretionofexecutivemanagement.


Greaterstrategicfocusinriskmanagement–TheCommitteereviewed,endorsedandmonitoredanumberofriskframeworkandpolicyenhancements,designedtoenabletheCommitteetobetteranticipateandmonitorriskinaforwardlookingmanner.Theseincludedriskappetiteframework,capitaladequacyandstresstestingcapabilities.

ContinuedoversightofBaselII–TheGroupisprogressingwellinitspreparationfortheBaselAccordimplementationinJanuary2008includingtheaccreditationsubmission.Inaddition,theCommitteetookpartinanumberofdedicatedBaselIIeducationsessions.

AnZ BoARD CoMMIttee MeMBeRsHIps – from 1 october 2005 – 30 september 2006

Audit Governance People Risk Technology

DavidMeiklejohnFE,C

MargaretJacksonFE

JerryEllis

CharlesGoode(ex-Officio)

DavidGonskiC

GregoryClark

DavidMeiklejohn


MargaretJacksonC

JohnMorschel

RoderickDeane(retired30June2006)


JerryEllisC

JohnMorschel▲

DavidGonski

DavidMeiklejohn(commenced1February2006)


GregoryClarkC

RoderickDeane(retired30June2006)


C–Chairman,FE–FinancialExpert(forthepurposesoftheUSSarbanes-OxleyActrequirements)▲–MrMorschelreplacedMrEllisasChairmanoftheRiskCommitteeon1October2006,althoughMrEllisremainsasamemberoftheCommittee.


RegularGovernanceandOversight–TheCommitteereceivedregularreportsontheGroup’scompliancepositions,andManagement’sresponsestoensureastrongcultureofcompliance.Inaddition,theCommitteereceivedreportsonnewandemergingriskissuesandManagement’sresponsesnecessarytoensuretimelyandnecessarymitigation.

Thetechnology CommitteeassiststheBoardofDirectorsintheeffectivedischargeofitsresponsibilitiesinrelationtotechnologyandoperationsrelatedmatters.TheCommitteeisresponsiblefortheoversightandevaluationofnewprojectsintechnologyabove$50millionandsecurityissuesrelevanttoANZ’stechnologyprocessesandsystems.Itisalsoresponsibleforthereviewandapprovalofmanagement’srecommendationsforlong-termtechnologyandoperationsplanningandtheoverallframeworkforthemanagementoftechnologyrisk.


Reviewoftechnologysystems–ToenhanceunderstandingoftheGroup’ssystems,theCommitteetookpartinsitevisitsofkeyoperationsandpartnerfacilities.Inaddition,theCommitteereceivedseveralreportsontechnologysystemsandreviewedfuturetechnologystrategy.

Oversightofinformationsecurity–ThekeydriversofinformationsecuritywerereviewedbytheCommittee,andemergingtechnologyrisksandmanagement’sresponsesnecessarytoensurepropermitigationweremonitored.

MonitoringofNewZealandsystemsintegration–TheCommitteeoversawthesuccessfulintegrationofourNewZealandtechnologyoperationsintotheGroup.

ADDITIONALCOMMITTEESInadditiontothefiveprincipalBoardCommittees,theBoardhasconstitutedaSharesCommitteeandanExecutiveCommittee,eachcomprisedsolelyofdirectors,toassistincarryingoutspecifictasks.

TheExecutiveCommitteehasthefullpoweroftheBoardandisconvenedasnecessarybetweenregularlyscheduledBoardmeetings.TheSharesCommitteehasthepowertoadministerANZ’sEmployeeSharePlanandEmployeeShareOptionPlan.TheBoardalsoformsanddelegatesauthoritytoadhocCommitteesoftheBoardasandwhenneededtocarryoutitsfunctions.

DIRECTORS’MEETINGSThenumberofBoardmeetingsandCommitteemeetingsheldduringtheyearendedSeptember30,2006andattendedbyeachdirectoraresetoutinthetableonpage47.

CONTINUINGEDUCATIONANZdirectorstakepartinarangeoftrainingandcontinuingeducationprograms.Inadditiontoaformalinductionprogram(seepage59),continuingeducationsessionsareheldthroughouttheyearfocusingonarangeoftopicswhichmayincludeaccountingstandards,corporateresponsibility,taxaccounting,payments,remuneration,economicdevelopments,pendinglegislation,riskmanagementandcorporategovernance.

Directorsalsoreceiveaquarterlynewsletterdesignedtokeepthemabreastofmattersrelatingtotheirdutiesandresponsibilitiesasdirectors.

InadditiontoformalBoard-wideworkshops,eachCommitteeconductsitsowncontinuingeducationsessions.Internaland/orexternalexpertsareengagedtoconductalleducationsessions.

DirectorsalsoreceiveregularDivisionalbriefingsatBoardmeetings.ThesebriefingsprovidedirectorswithaninsightintoeachareaoftheCompany,inparticular,performance,keyissues,risksandstrategyforgrowth.Inaddition,directorsparticipateinsitevisitsfromtimetotimewhichprovidethemwiththeopportunitytomeetwithstaffandcustomers.

ROLEOFCOMPANYSECRETARYTheBoardisresponsiblefortheappointmentofANZ’sCompanySecretaries.CurrentlytherearethreepeopleappointedasCompanySecretary.

TheGroupGeneralCounselandCompanySecretaryisnormallyinattendanceatallBoardandCommitteemeetings.HepreparesminutesandprovideslegaladvicetotheBoardifandwhenrequired.HeworkscloselywiththeChairmanoftheGovernanceCommitteetodevelopandmaintainANZ’scorporategovernanceprinciples.HeisresponsibletotheBoardfortheCompanySecretary’sOfficefunction.

TheCompanySecretaryisresponsibleforday-to-dayoperationsoftheCompanySecretary’sOfficeincludinglodgementswithrelevantstockexchanges,theadministrationofBoardandCommitteemeetings,themanagementofdividend

payments,theadministrationoftheGroup’sAustraliansubsidiariesandtherelationshipwiththeshareregistryprovider.TheChiefFinancialOfficerisalsoappointedasCompanySecretary.

ProfilesofANZ’sCompanySecretariescanbefoundintheDirectors’Reportonpage68.

RISKMANAGEMENTANDCOMPLIANCEANZ’sbusinesscontrolsaregovernedbyanongoingfocusonriskandcomplianceissueswithintheframeworkoftheCompany’soverallstrategy.ANZhasestablishedacomprehensiveriskandcompliancemanagementframeworktoensurebestpracticealignment.

TheBoardisprincipallyresponsibleforestablishingrisktolerance,approvingrelatedstrategiesandpolicies,monitoringandassessingtheactivitiesofmanagement,overseeingpolicycomplianceandtheeffectivenessoftherisksystemsandpoliciestomeettherequirementsofapplicableregulationsandtheinterestsofshareholders,customersandstaff.

TheRiskCommitteeoftheBoardoverseestheGroup’sriskmanagementpoliciesandcontrols,andmayapprovecredittransactionsandothermattersbeyondtheapprovaldiscretionofexecutivemanagement.

Onaday-to-daybasis,thevariousrisksinherentinANZ’soperationsaremanagedbybothGroupRiskManagementandeachbusinessunit.

Forfurtherinformationonriskmanagement,pleaseseepages18to19andanz.com.

FINANCIALCONTROLSAspreviouslynoted,theAuditCommitteeoftheBoardoverseestheCompany’sfinancialreportingpoliciesandcontrols,theintegrityoftheCompany’sfinancialstatements,therelationshipwiththeexternalauditor,theworkofInternalAudit,andtheAuditCommitteesofthesubsidiarycompanies.

ANZisregisteredwiththeSecuritiesandExchangeCommission(SEC)asaForeignPrivateIssuerofsecuritiesintheUnitedStates.Assuch,ANZisrequiredtocomplywithSection404oftheSarbanesOxleyActwith2006beingthefirstyearofcompliance.Compliancewillberepresentedintheformofamanagementreportoninternalcontroloverfinancialreporting,whichwillbeincludedinANZ’sAnnualReportonForm20-FtobefiledwiththeSEClaterin2006.


Withinthismanagementreport,ANZintendstoinclude:(1)astatementofmanagement’sresponsibilityforestablishingandmaintainingadequateinternalcontroloverfinancialreportingfortheCompany;(2)management’sassessmentoftheeffectivenessoftheCompany’sinternalcontroloverfinancialreportingasat30September2006;(3)astatementidentifyingtheframeworkusedbymanagementtoevaluatetheeffectivenessoftheCompany’sinternalcontrolsoverfinancialreporting;and(4)astatementthattheCompany’sexternalauditor,KPMG,willissueanattestationreportonmanagement’sassessmentoftheCompany’sinternalcontrolsoverfinancialreporting.

AUDITInteRnAl AuDItInternalAuditprovidesindependentassurancethatthedesignandoperationoftheriskandcontrolframeworkacrosstheGroupiseffective.ItoperatesunderaCharterfromtheAuditCommitteethatgivesitunrestrictedaccesstoreviewallactivitiesoftheGroup.TheGroupGeneralManagerAuditreportstotheChairmanoftheAuditCommittee.

TheAuditCommitteereviewstheperformanceoftheGroupGeneralManagerAudit.

Arisk-basedauditapproachisusedtoensurethatthehigherriskactivitiesineachbusinessareauditedeachyear.Allauditsareconductedinamannerthatconformstointernationalauditingstandards.Auditresultsalsoinfluenceincentivecompensationofbusinessheads.

InternalAuditplaysanactiveroleinensuringcompliancewiththerequirementsofsupervisoryregulatoryauthorities.InternalAuditalsoworkscollaborativelywiththeexternalauditortoensureacomprehensiveauditscope.

TheAuditCommitteeplaysanactiveroleinreviewingsignificantissuesarisingfromtheworkperformedbyInternalAudit.Thereisarobustprocessforensuringpromptresolutionofauditissues,whichincludesregularreviewsofprogressbytheChiefExecutiveOfficerandtheChairmanoftheAuditCommittee.

TheAuditCommitteealsoreceivesformalreportsonsignificantissuestoensurethatanyremedialactionisundertakenpromptly.

eXteRnAl AuDItTheexternalauditor’sroleistoprovideanindependentopinionthatANZ’sfinancial

reportsaretrueandfairandcomplywithapplicableregulations.TheexternalauditorperformsanindependentauditinaccordancewithAustralianandUnitedStatesAuditingStandards.

TheAuditCommitteeoverseesANZ’sPolicyonRelationshipwithExternalAuditor.Underthepolicy,theAuditCommitteeisresponsiblefortheappointment(subjecttoratificationbyshareholders),compensation,retentionandoversightoftheexternalauditor.

ThepolicyalsostipulatesthattheAuditCommittee:

pre-approvesallauditandnon-auditservices;

regularlyreviewstheindependenceoftheexternalauditor;and

evaluatestheeffectivenessoftheexternalauditor.

Detailsofnon-auditservices,togetherwiththestatementfromtheBoardastotheirsatisfactionwithKPMG’scompliancewiththerelatedindependencerequirementsoftheCorporationsAct2001,areintheDirectorsReportonpages68to69.

Inaddition,ANZrequiresatwo-yearperiodbeforeanyformerpartneroremployeeoftheexternalauditorisappointedasadirectororseniorexecutiveofANZ.

TheleadpartneroftheexternalauditorisrequiredtorotateofftheANZauditafterfiveyearsandcannotreturnforafurtherfiveyears.Certainotherseniorauditstaffarerequiredtorotateoffafteramaximumofsevenyears.

Anypotentialappointmentsofex-partnersorex-employeesoftheexternalauditorasANZfinancestaff,atseniormanagementlevelorhigher,mustbepre-approvedbytheChairmanoftheAuditCommittee.

Asdisclosedinthe2004and2005ConciseAnnualReports,theUSSecuritiesandExchangeCommission(SEC)commencedaninquiryintonon-auditservicesprovidedbyANZ’sauditor,KPMG.ANZhasprovidedtheinformationrequestedbytheSEC.Thisinquiryhasnotconcluded.ShouldtheSECdeterminethatservicesprovidedbyKPMGdidnotcomplywiththeUSauditorindependencerules,theSECmayseeksanctions,thenatureandamountofwhicharenotknown.WhilstANZcannotpredicttheoutcomeoftheinquiry,basedoninformationcurrentlyavailable,ANZdoesnotbelieveitwillhaveamaterialadverseeffectontheCompany.

ETHICALANDRESPONSIBLEDECISION-MAKINGTheBoardencouragesmanagementtopromoteandmaintainaculturewithinANZwhichdrawsuponasetofunifyingvaluestoguidetheactionsanddecisionsoftheBoardandallemployees(seeanz.com>sustainability>ourvalues).

Morethan26,000ANZemployeeshaveparticipatedintheBreakoutculturedevelopmentprogram.Theprogramincludesworkshopstohelpstafftoapplyvalues-baseddecision-making,andtobalancethecompetingneedsofstaff,shareholders,customersandthecommunityintheirrolesandactivities.Toassistdirectorsandstaffintheirunderstandingofthecultureoftheorganisation,ANZhasthreemaincodesofconductwhichalsoguideeverydaybusinesspracticeanddecision-makingthroughouttheGroup.Thesearedetailedbelow.

CODESOFCONDUCTANDPOLICIESBelowisanoverviewofANZ’skeycodesandpolicieswhichapplytodirectorsandemployees.Summariesoftheseandothercompanypoliciescanbefoundonanz.com.

Codes of Conduct for Directors and for employees–Thesepoliciessetouttheethicalstandardstowhichdirectorsandemployeesareexpectedtoadhere.TheCodesrequirethatdirectorsandemployeesadheretothelaw,discloseanyrelevantinterests,andacthonestlyandethicallyinalltheirdealings.Thecodesalsocovertheconfidentialityofinformation,limitsonacceptanceofgiftsorentertainmentandonuseofANZgoods,servicesandfacilities.Keycontact–GroupGeneralCounselandCompanySecretary.

Code of Conduct for Financial officers–(adoptedfromtheGroupof100CodeofConductforCFOsandSeniorFinancialOfficers).TheCoderequiresthatchieffinancialofficersandotherfinancestaffinfluencingfinancialreportingadheretoprinciplesofhonestyandintegrity,respectconfidentialityofinformation,declareconflictsofinterest,maintaintransparencyinreporting,exercisediligenceandgoodfaith,ensuresoundinternalcontrolsandsetastandardforotherfinancialprofessionals.Keycontact–ChairmanoftheAuditCommittee.


Continuous Disclosure policy–ANZiscommittedtoachievingbestpracticeintheareaofcontinuousdisclosure.ThepolicyisdesignedtoensurethatthereisfullandtimelydisclosureofANZ’sactivitiestoshareholdersandthemarket.ThepolicyrequiresthatinformationdisclosedtotherelevantstockexchangesisplacedonANZ’swebsite.Keycontacts–HeadofInvestorRelations,HeadofMediaRelationsandGroupGeneralCounselandCompanySecretary.

Critical Accounting policies–Detailsofthecriticalaccountingpoliciesandanychangesinaccountingpoliciesmadesincethedateofthe2005AnnualReportaresetoutonpage96inthisConciseAnnualReportandinthe2006FinancialReport.Keycontact–GroupGeneralManagerFinance.

Directors’ Disclosure of Interest policy and policy for Handling Conflicts of Interest–TheBoardhasadoptedapolicyondisclosureofinterestsrequiringthatdirectorsdisclosecertaininterestsandsettingoutaprocessfordealingwithactualorpotentialconflictsofinterest.Keycontact–GroupGeneralCounselandCompanySecretary.

employee Indemnity policy–ThispolicyprovidesthattheGroupwillindemnifyemployeesagainstanyliabilitythattheyincurincarryingouttheirrolesubjecttomeetingcertainrequirements.Furtherdetailsonthispolicyandonindemnitiesgiventocertainemployeescanbefoundonpage69ofthisConciseAnnualReport.Keycontact–GeneralManagerOperationalandTechnologyRisk.

Fit and proper policy–TheBoardadoptedthispolicyaspartoftheframeworkwhichaimstoensureindividualsappointedtorelevantseniorpositionswithinANZhavetheappropriatefitnessandproprietytoproperlydischargetheirprudentialresponsibilitiesonappointmentandduringthecourseoftheirappointment.Thepolicysetsouttheassessmentproceduresforthedeterminationoffitnessandproprietyofdirectors,seniorexecutivesandtheexternalauditor.Thepolicyissupportedbyrole-specificcompetencies.Keycontacts–GroupGeneralCounselandCompanySecretaryandGroupGeneralManager,PeopleCapitalandBreakout.

policy on the prevention of Money laundering, Criminal and terrorist Financing–ThispolicycoversAnti-MoneyLaunderingandAnti-Terrorismlawsandregulations.It

setsoutprinciplesrelatedtoidentificationandrecordkeepingprocedures,theneedforstaffawarenessandrelatedtraining,andannualrequirementsforindependenttestingandcompliancereporting.ThepolicyisaimedatensuringthatANZisabletoprotectitsreputation,integrity,assets,liabilitiesandshareholderfunds.Keycontacts–GeneralManagerOperationalandTechnologyRiskandGeneralManagerGroupCompliance.

policy on Relationship with external Auditor–TheBoardandtheAuditCommittee’spolicyonauditandnon-auditservicesregulatestheaudit-relatedandnon-auditservicesthatmaybeconductedbyANZ’sexternalauditor.Itsetsinplaceaformalapprovalprocessregardingtheprovisionofauditandnon-auditservices.ThisapprovalprocessistheresponsibilityoftheAuditCommittee.Inadditionitsetsouttherotationrequirementsfortheleadpartnerandothermembersoftheauditteam,andprocessesrelatedtothepotentialappointmentofex-partnersorex-employeesoftheexternalauditor.Keycontact–ChairmanoftheAuditCommittee.

securities trading policy–ThepolicyprohibitstradinginANZsecuritiesorthesecuritiesofothercompaniesforallemployees,contractorsandconsultantsengagedbyANZwhoareawareofunpublishedprice-sensitiveinformation.Inaddition,thepolicyspecificallyprohibitsrestrictedemployeestradinginANZsecuritiesduring‘blackoutperiods’,whicharethesixweeksleadinguptothedayfollowingthehalf-yearlyandannualresultsannouncements.Non-executivedirectorsarerequiredtoseekapprovalfromtheChairmaninadvanceofanytradinginANZsecurities.TheChairmanoftheBoardisrequiredtoseekapprovalfromtheChairmanoftheGovernanceCommittee.Withrespecttotradinginnon-ANZsecurities,aprocessisinplacewhichenablesnon-executivedirectorstorequesttheGroupGeneralCounselandCompanySecretarytomakeappropriateenquirieswithinANZastowhetheranyconfidentialinformationisinANZ’spossessionthatwouldcausethedirectoranyriskoftradinginsecuritieswithinsiderknowledge.Keycontacts–GeneralManagerGroupComplianceandGroupGeneralCounselandCompanySecretary.

Whistleblower policy(formerlyknownasSeriousComplaintsPolicy)–The

WhistleblowerProcessisanadditionalmechanismbywhichANZstaff,contractorsandconsultantsmayvoiceanyconcernstheymayhaveregardinganymalpracticeorimproprietythattheyfindwithinANZ.Itrequiresthatprotectionbegiventoemployeesagainstdismissalorpenaltyasaresultofdisclosingconcernsingoodfaith.Keycontacts–ChairmanoftheAuditCommittee,GroupGeneralManagerAudit,andGroupGeneralCounselandCompanySecretary.

new Zealand policies–RecognisingtheimportanceofANZ’spresenceinNewZealandandtherequirementsoftheReserveBankofNewZealand,theANZNationalBankLimitedBoardreviewsandapprovesallANZgovernanceandriskmanagementpolicesbeforetheyareadoptedbyANZNationalBankLimitedtoensurethattheymeetallNewZealandregulatoryrequirements.Keycontact–GeneralCounselandCompanySecretary,ANZNationalBankLimited.

COMMITMENTTOSHAREHOLDERCOMMUNICATIONShareholdersaretheownersofANZ,andtheCompany’sstatedaimisto‘performandgrowtocreatevalueforourshareholders’.

InordertomakeinformeddecisionsaboutANZ,andtocommunicateviewstotheCompany,shareholdersneedanunderstandingoftheCompany’sbusinessoperationsandperformance.

ANZencouragesshareholderstotakeanactiveinterestintheCompany,andseekstoprovideshareholderswithqualityinformationinatimelyfashiongenerallythroughANZ’sreportingofresults,theCompany’sConciseAnnualandFinancialReports,briefings,halfyearlynewslettersandviaitsdedicatedshareholdersiteonanz.com.

ANZstrivesfortransparencyinallitsbusinesspractices.TheCompanyrecognisestheimpactofqualitydisclosureonthetrustandconfidenceoftheshareholder,thewidermarketandthecommunity.

Shouldshareholdersrequireanyinformation,theyarealsoprovidedwithrelevantcontactdetailsforANZandrelevantshareregistriesinthehalf-yearlyshareholdernewsletters,theConciseAnnualReport(underInformationforShareholders)andanz.com.


ACCESSTODIRECTORSManagementisabletoconsultdirectorsasrequiredonaregularbasis.EmployeeshaveaccesstothedirectorsdirectlyorthroughtheCompanySecretary.Shareholderswhowishtocommunicatewiththedirectorsmaydirectcorrespondencetoaparticulardirector,ortothenon-executivedirectorsasawhole.

UPHOLDINGSHAREHOLDERRIGHTSANZupholdsshareholderrightsandprovidesshareholderswiththeopportunitytobeinvolvedinshareholdermeetings.

Toallowasmanyshareholdersaspossibletohaveanopportunitytoattendameeting,ANZrotatesshareholdermeetingsaroundcapitalcitiesandmakesthemavailabletobeviewedonlineusingWebcasttechnology.Furtherdetailsonmeetingsandpresentationsheldthroughoutthisfinancialyearareavailableonanz.com>shareholders>presentations.

PriortotheAnnualGeneralMeeting,shareholdersaregiventheopportunitytosubmitanyquestionstheyhavefortheChairmanorChiefExecutiveOfficertoenablekeycommonthemestobeconsidered.

TheexternalauditorispresentatANZAnnualGeneralMeetingsandavailabletoanswershareholderquestions.Theauditorcanrespondonanybusinessitemthatconcernsthemintheircapacityasauditor.

ShareholdershavetherighttovoteonvariousresolutionsrelatedtoCompanymatters.Ifshareholdersareunabletoattendameetingtheycansubmittheirproxiesviapostorelectronicallythroughanz.com.Wherevotesaretakenonapoll,ANZappointsanindependentpartytoverifytheresults,whicharereportedtotheASXandpostedonanz.com.

CONTINUOUSDISCLOSUREANZ’spracticeistoreleaseallprice-sensitiveinformationinatimelymannerandasrequiredundertheASXlistingrules:

toallrelevantstockexchangesonwhichANZ’ssecuritiesarelisted;and

tothemarketandcommunitygenerallythroughANZ’smediareleases,websiteandotherappropriatechannels.ANZ-relatedreleasesarepostedonanz.com.

ThroughANZ’sContinuousDisclosurePolicy(seepage64andanz.com)theCompanydemonstratesitscommitmenttocontinuousdisclosure.Thepolicyreflectsrelevant

obligationsunderapplicablestockexchangelistingrulesandlegislation.

Forreportingpurposes,price-sensitiveinformationisinformationthatareasonablepersonwouldexpecttohaveamaterialeffectonthepriceorvalueofANZ’ssecurities.

Designateddisclosureofficershaveresponsibilityforreviewingproposeddisclosuresandmakingdecisionsinrelationtowhatinformationcanbeorshouldbedisclosedtothemarket.AllANZstaffarerequiredtoinformadisclosureofficerregardinganypotentiallyprice-sensitiveinformationconcerningANZassoonastheybecomeawareofit.

ALIGNMENTWITHAUSTRALIANANDOVERSEASCORPORATEGOVERNANCEISSUES

InteRnAtIonAl Australian equivalents to International

Financial Reporting standards–(AIFRS)–ANZcompliedwithAustralianequivalentstoIFRSasissuedbytheInternationalAccountingStandardsBoardwhenitreporteditsresultsforthehalf-yearended31March2006andthefullyearended30September2006.SubsequentreportingoftheCompany’sresultswillcontinueinaccordancewiththeAustralianequivalents. Basel II–Worktowardscompliancewith

theBaselIICapitalAccordcontinueswithinANZ,withfullimplementationofthenewAccordscheduledforJanuary2008.ANZ’sprogramisaimedatensuringtheCompanyachievesaccreditationattheadvancedlevelsforbothcreditandoperationalriskunderBaselII.ManyofthetoolsandprocessesthatmeettheaccreditationdemandsofBaselIIareinplaceandinusethroughouttheGroup.

AustRAlIA AsX Corporate Governance Council–

PrinciplesofGoodCorporateGovernanceandBestPracticeRecommendations–ANZconsiderstheseprinciplesimportant,includingthe“ifnot,whynot”disclosureapproachtogovernance,andhascompliedwitheachoftherecommendationsthroughoutthefinancialyear.

neW ZeAlAnD nZX Corporate Governance Rules and

principles–AsanoverseaslistedissuerontheNZX,ANZisdeemedtocomplywiththe

NZXListingRulesprovidedthatitremainslistedontheASX,complieswiththeASXlistingrulesandprovidestheNZXwithalltheinformationandnoticesthatitprovidestheASX.

TheAustralianStockExchange(ASX)corporategovernancerulesandprinciplesmaymateriallydifferfromtheNewZealandStockExchange’s(NZX)corporategovernancerulesandtheprinciplesoftheNZX’sCorporateGovernanceBestPracticeCode.MoreinformationaboutthecorporategovernancerulesandprinciplesoftheASXcanbefoundatwww.asx.comand,inrespectoftheNZX,atwww.nzx.com.Irrespectiveofanydifferences,ANZcomplieswithallapplicablegovernanceprinciplesandrequirementsbothinAustraliaandNewZealand.

otHeR JuRIsDICtIons united states of America–Asa‘foreign

privateissuer’registeredwiththeSECwithsecuritieslistedontheNYSE,ANZisrequiredtocomplywithcertaincorporategovernancerequirementscontainedinUSsecuritieslaws,includingapplicablesectionsoftheSarbanes-OxleyActof2002andapplicableNewYorkStockExchange(NYSE)ListingStandards.UndertheNYSEListingStandards,ANZisrequiredtoprovideabriefdescriptionofthesignificantdifferencesbetweenitscorporategovernancepracticesandcorporategovernancerequirementsforUSlistedcompaniesundertheNYSEListingStandardsontheGroup’swebsite(anz.com).InformationwillalsobeprovidedintheCompany’sUSForm20-F2006AnnualReportandavailableonANZ’swebsite(anz.com).

united Kingdom and other jurisdictions–ANZmonitorsbestpracticedevelopmentsincorporategovernanceacrossotherrelevantjurisdictions.

POLITICALDONATIONSIntheyearto30September2006,ANZdonated$100,000totheLiberalPartyand$50,000totheAustralianLaborParty.

Directors’Report6766ANZConciseAnnualReport2006 Directors’Report6766ANZConciseAnnualReport2006

FOCUS&PRINCIPLE ANZ’SCOMPLIANCE3

1 Lay solid foundation for management and oversight

1.1 FormalisethefunctionsreservedtotheBoardandthosedelegatedtomanagement Pg58 3

2 Structure the board to add value

2.1 ThemajorityoftheBoardshouldbeindependentdirectors Pg58 3

2.2 Thechairpersonshouldbeanindependentdirector Pg58 3

2.3 TherolesoftheChairpersonandChiefExecutiveOfficershouldnotbeexercisedbythesameperson Pg58 3

2.4 TheBoardshouldestablishanominationcommittee Pg61 3

2.5 Providerelateddisclosures Seeabove 3

3 Promote ethical and responsible decision-making

3.1 Establishacodeofconducttoguidethedirectors,theChiefExecutiveOfficer,theChiefFinancialOfficerandanyotherkeyexecutivesasto:3.1.1thepracticesnecessarytomaintainconfidenceinthecompany’sintegrity Pg63 3

3.1.2theresponsibilityandaccountabilityofindividualsforreportingandinvestigatingreportsofunethicalpractices Pg63,64 3

3.2 Disclosethepolicyconcerningtradingincompanysecuritiesbydirectors,officersandemployees Pg64 3


4 Safeguard integrity of financial reporting

4.1 RequiretheChiefExecutiveOfficerandtheChiefFinancialOfficertostateinwritingtotheBoardthatthecompany’sfinancialreportspresentatrueandfairview,inmaterialrespects,ofthecompany’sconditionandoperationalresultsandareinaccordancewithaccountingstandards

Pg69 3

4.2 Theboardshouldestablishanauditcommittee Pg60 3

4.3 Structuretheauditcommitteesothatitconsistsof onlynon-executivedirectors amajorityofindependentdirectors anindependentchairperson,whoisnotchairpersonoftheBoard atleastthreemembers

Pg60 3

4.4 Theauditcommitteeshouldhaveaformalcharter Pg60 3


5 Making timely and balanced disclosure

5.1 EstablishwrittenpoliciesandproceduresdesignedtoensurecompliancewithASXListingRuledisclosurerequirementsandtoensureaccountabilityataseniormanagementlevelforthatcompliance

Pg63,65 3


6 Respect the rights of shareholders

6.1 Designanddiscloseacommunicationsstrategytopromoteeffectivecommunicationwithshareholdersandencourageeffectiveparticipation

Pg64 3

6.2 RequesttheexternalauditortoattendtheAGMandbeavailabletoanswershareholderquestionsabouttheconductoftheauditandthepreparationandcontentoftheauditor’sreport

Pg65 3

7 Recognise & manage risk

7.1 TheBoardorappropriatecommitteesshouldestablishpoliciesonriskoversightandmanagement Pg62 3

7.2 TheChiefExecutiveOfficerandtheChiefFinancialOfficershouldstatetotheBoardinwritingthat

7.2.1thestatementgiveninaccordancewithbestpracticerecommendation4.1isfoundedonasoundsystemofriskmanagementandinternalcomplianceandcontrolwhichimplementsthepolicesadoptedbytheBoard

Pg69 3

7.2.2thecompany’sriskmanagementandinternalcomplianceandcontrolsystemisoperatingeffectivelyandefficientlyinallmaterialrespects

Pg69 3


8 Encourage enhanced performance

8.1 DisclosetheprocessforperformanceevaluationoftheBoard,itscommittees,individualdirectorsandkeyexecutives Pg59,60 3

9 Remunerate fairly and responsibly

9.1 Providedisclosureinrelationtothecompany’sremunerationpoliciestoenableinvestorstounderstandthecostsandbenefitsofthepolicies,andthelinkbetweenremunerationpaidtothedirectorsandkeyexecutivesandcorporateperformance

Pg70to91 3

9.2 TheBoardshouldestablisharemunerationcommittee Pg61 3

9.3 Clearlydistinguishthestructureofnon-executivedirectorsremunerationfromthatofexecutives Pg70to91 3

9.4 Ensurethatpaymentofequity-basedexecutiveremunerationismadeinaccordancewiththresholdssetinplansapprovedbyshareholders

Pg70to91 3


10 Recognise the legitimate interests of stakeholders

10.1 Establishanddiscloseacodeofconducttoguidecompliancewithlegalandotherobligationstolegitimatestakeholders Pg63 3

ANZ’scompliancewiththeASXCorporateGovernancePrinciples


discussion and analysisPRINCIPALACTIVITIESTheprincipalactivitiesoftheGroupduringtheyearweregeneralbanking,mortgagelending,leasing,hirepurchaseandgeneralfinance,internationalandinvestmentbanking,nomineeandcustodianservices,executorandtrusteeservices,lifeinsuranceandfundsmanagementactivitiesthroughtheINGAustraliaLimited(INGA)jointventure.

TherehasbeennosignificantchangeinthenatureoftheprincipalactivitiesoftheGroupduringthefinancialyear.

At30September2006,theGrouphad1,265pointsofrepresentation.

RESULTConsolidatednetprofitafterincometaxattributabletoshareholdersoftheCompanywas$3,688million,anincreaseof16%overtheprioryear.

Theincreaseinconsolidatednetprofitafterincometaxattributabletoshareholdersispredominatelyduetoanincreaseinnetinterestincomeof19%to$6,943million.Thisincreasewasdrivenmainlybygrowthinaverageinterestearningassetsandaveragedeposits.

Theprovisionforcreditimpairmentchargedecreasedby30%to$407million.ThedecreaseisprincipallyduetoareductioninboththeindividualandcollectiveprovisionchargesdrivenbyfavourableeconomicconditionsaswellastheGroup’sstrengtheningriskprofile.

OneofthekeydriversoftheGroup’sperformancehasbeenstrongoverallbalancesheetgrowthoverthepast12months.ThemajorcomponentsoftheGroup’sbalancesheetandtherelatedmovementsfromtheprioryearareasfollows: Netloansandadvancesincreasedby10%

from$232,490millionto$255,410million,primarilyduetogrowthinmortgageandinstitutionallendinginAustralia. Depositsandotherborrowingsincreased

by8%from$190,322millionto$204,794millionprincipallytofundbusinessgrowth.

Bondsandnotesincreasedby28%from$39,073millionto$50,050millionprimarilytofundassetgrowth.

STATEOFAFFAIRSInthedirectors’opinion,therehavebeennosignificantchangesinthestateofaffairsoftheGroupduringthefinancialyear,otherthan: simplified Divisional structure–From1May

2006theGroupsimplifieditsstructureintothefollowingdivisions;Personal,Institutional,NewZealandandPartnerships&PrivateBank. Adoption of Australian equivalents to

International Financial Reporting standards (AIFRs)–2006isthefirstfinancialyeartobepresentedunderAIFRS.ThisrepresentsamajorchangetotheGroup’saccountingpoliciesandbasisofreporting. Growth in Asia–ANZacquireda20%stake

inTianjinCityCommercialBankinChina,10%stakeinSacombankinVietnamandopenedtheGroup’sthirdofficeinmainlandChina.

FurtherreviewofmattersaffectingtheGroup’sstateofaffairsarealsocontainedinthisConciseAnnualReportPart1of2undertheChiefExecutiveOfficer’sReportonpage13.

DIVIDENDSThedirectorsproposethatafinalfullyfrankeddividendof69centsperfullypaidordinaryshareshallbepaidon15December2006.Theproposedpaymentamountstoapproximately$1,267million.

Duringthefinancialyear,thefollowingfullyfrankeddividendswerepaidonfullypaidordinaryshares:

Type

Centsper

share

Amountbeforebonusoptionplanadjustment

$mDateof

payment

Final2005

59

1,078

16December2005

Interim2006 56 1,024 3July2006

Theproposedfinaldividendof69centstogetherwiththeinterimdividendof56centsbringsthedividendsinrelationtotheyearended30September2006to125centsfullyfranked.

REVIEWOFOPERATIONSOverthepastdecadeANZhasimprovedfinancialperformance,productivityandreturnstoshareholders.Focushasincreasedonourcustomers,ourpeopleandourcommunities.

The30September2006financialyearhasproducedastrongresultbasedonsolidbusinessperformance.DivisionalperformanceshowedgoodgrowthintheGroup’sthreemainsegments;Personal,InstitutionalandNewZealand.

AdditionalreviewoftheoperationsoftheGroupduringthefinancialyearincludinganassessmentofthebusinessstrategiesoftheGroupiscontainedintheChiefExecutiveOfficer’sReportonpage13ofPart1of2ofthisConciseAnnualReport.

EVENTSSINCETHEENDOFTHEFINANCIALYEARDetailsofsignificanteventsthathavearisenbetween30September2006anddateofthisreportcanbefoundonpage101ofthisConciseAnnualReport.

FUTUREDEVELOPMENTSTheGroupplanstoenhancefutureshareholderreturnsanddistinguishitselffromotherbanksthrough: Investingtoincreaserevenuegrowth; Improvingcostandcapitalproductivity;andAdvancingstakeholderfoundations.

TheGroup’smajorobjectiveistobuildonthestrongbasecreatedtodateandtobeabankthattrulydifferentiatesitselfintheeyesofshareholders,customers,employees,anditsvariouscommunities.

Inadditiontotheabove,detailsoflikelydevelopmentsintheoperationsoftheGroupanditsprospectsinfuturefinancialyearsarecontainedinPart1of2ofthisConciseAnnualReportundertheChiefExecutiveOfficer’sReportonpage13.Intheopinionofthedirectors,disclosureofanyfurtherinformationwouldbelikelytoresultinunreasonableprejudicetotheGroup.

directors’ report

ThedirectorspresenttheirreporttogetherwiththeConciseFinancialReportoftheconsolidatedentity(theGroup),beingAustraliaandNewZealandBankingGroupLimited(theCompany)anditscontrolledentities,fortheyearended30September2006andtheIndependentAuditors’Reportthereon.TheinformationisprovidedinconformitywiththeCorporationsAct2001.


ENVIRONMENTALREGULATIONANZrecognisesourobligationtoourstakeholders–customers,shareholders,staffandthecommunity–tooperateinawaythatadvancessustainabilityandmitigatesourenvironmentalimpact.Ourcommitmenttoimproveourenvironmentalperformanceisintegraltoour“makingasustainablecontributiontosociety”.

Weacknowledgethatwehaveanimpactontheenvironment:

directlythroughtheconductofourbusinessoperations;and

indirectlythroughtheproductsandservicesweprovidetoourcustomers.

Assuch,ANZhasestablishedanEnvironmentCharter,strategyandinternalresponsibilitiesforreducingtheimpactofouroperationsandbusinessactivitiesontheenvironment.

TheoperationsoftheGrouparenotsubjecttoanyparticularandsignificantenvironmentalregulationunderalawoftheCommonwealthorofaStateorTerritory.However,theoperationsoftheGroupmaybecomesubjecttoenvironmentalregulationwhenenforcingsecuritiesoverland.ANZhasdevelopedpoliciestomanagesuchenvironmentalrisks.Havingmadedueenquiry,tothebestofourknowledgenomemberoftheGrouphasincurredanyenvironmentalliabilityduringtheyear.

DIRECTORS’QUALIFICATIONS,EXPERIENCEANDSPECIALRESPONSIBILITIESAt1October2005,theBoardcomprised8non-executivedirectorsandoneexecutivedirector,theChiefExecutiveOfficer.DrRoderickDeaneretiredon30June2006.

Atthedateofthisreport,theBoardcomprises7non-executivedirectorswhohaveadiversityofbusinessandcommunityexperienceandoneexecutivedirector,theChiefExecutiveOfficer,whohasextensivebankingexperience.Thenamesofdirectorsanddetailsoftheirskills,qualificationsandexperiencearecontainedonpages56to58ofthisConciseAnnualReportandonanz.com.

DetailsofthenumberofBoardandBoardCommitteemeetingsheldduringtheyear,directors’attendanceatthosemeetings,anddetailsofdirectors’specialresponsibilitiesareshownonpage47ofthisConciseAnnualReport.

Forthosedirectorsinofficeat30September2006,detailsofthedirectorshipsofotherlistedcompaniesheldbyeachdirectorinthe3yearspriortotheendofthe2006financialyeararelistedinthisConciseAnnualReportonpages56to58.

COMPANYSECRETARIES’QUALIFICATIONSANDEXPERIENCECurrentlytherearethreepeopleappointedasCompanySecretaryoftheCompany.Detailsoftheirrolesarecontainedonpage62.Theirqualificationsareasfollows:

TimL’Estrange,LLB,BCom,ANZGroupGeneralCounselandCompanySecretary

MrL’Estrangehasalong-standinglegalcareerspanning27years.Hehassignificantexperienceincorporatelaw.MrL’EstrangejoinedANZin2003.PriortoANZ,heworkedcloselywithboardsandseniormanagementofmajorcorporations,banksandfinancialinstitutions.MrL’EstrangewastheNationalExecutivePartner,LitigationandDisputeResolutionofAllensArthurRobinsonandamemberoftheBoardofManagementofthatfirm.HewasalsoManagingPartnerofAllenAllen&Hemsley.MrL’EstrangeisalsoamemberofCharteredSecretariesAustralia.

PeterMarriott,BEc(Hons),ANZChiefFinancialOfficer.

MrMarriotthasbeeninvolvedinthefinanceindustryformorethan25years.MrMarriottjoinedANZin1993.PriortohiscareeratANZ,MrMarriottwasaPartnerintheMelbourneofficeofthethenKPMGPeatMarwick.HeisaFellowofanumberofprofessionalorganisationsincludingtheInstituteofCharteredAccountantsinAustraliaandtheAustralianInstituteofBankingandFinance.HeisalsoaMemberoftheAustralianInstituteofCompanyDirectors.

JohnPriestley,BEc,LLB,FCIS,ANZCompanySecretary.

MrPriestley,aqualifiedlawyer,joinedANZin2004.PriortoANZ,hehadalongcareerwithMayneGroupandheldpositionswhichincludedresponsibilityforthelegal,companysecretarial,complianceandinsurancefunctions.HeisaFellowofCharteredSecretariesAustraliaandalsoamemberofCharteredSecretariesAustralia’sLegislationReviewCommittee.

NON-AUDITSERVICESTheCompany’sRelationshipwithExternalAuditorPolicy(whichincorporatesrequirementsoftheCorporationsAct2001

andapplicablerequirementsforcompanieslistedintheUnitedStates)statesthattheexternalauditormaynotprovideservicesthatareperceivedtobeinconflictwiththeroleoftheauditor.Theseincludeconsultingadviceandsub-contractingofoperationalactivitiesnormallyundertakenbymanagement,andengagementswheretheauditormayultimatelyberequiredtoexpressanopiniononitsownwork.

Specificallythepolicy: limitsthenon-auditservicesthatmay

beprovided; requiresthatauditandpermitted

non-auditservicesmustbepre-approvedbytheAuditCommittee,orpre-approvedbytheChairmanoftheAuditCommitteeandnotifiedtotheAuditCommittee;and requirestheexternalauditortonot

commenceanauditengagement(orpermittednon-auditservice)fortheGroup,untiltheGrouphasconfirmedthattheengagementhasbeenpre-approved.

TheAuditCommitteehasreviewedasummaryofnon-auditservicesprovidedbytheexternalauditorfor2006,andhasconfirmedthattheprovisionofnon-auditservicesfor2006isconsistentwiththeCompany’sRelationshipwithExternalAuditorPolicyandcompatiblewiththegeneralstandardofindependenceforauditorsimposedbytheCorporationsAct2001.ThishasbeenformallyadvisedtotheBoardofDirectors.

TheexternalauditorhasconfirmedtotheAuditCommitteethattheyhavecompliedwiththeCompany’sRelationshipwithExternalAuditorPolicyontheprovisionofnon-auditservicesbytheexternalauditorfor2006.

Thenon-auditservicessuppliedtotheGroupbytheGroup’sexternalauditor,KPMG,andtheamountpaidorpayablebytheGroupbytypeofnon-auditserviceduringtheyearended30September2006areasfollows:

Amountpaid/payable$’000s

Non-auditservice 2006 2005

Taxcomplianceand relatedservicesControlsandprocessreviewsUSSarbanes-Oxley1

AccountingadviceSustainabilityreviewTrainingcoursesOther

––––

20344

–

4

254885

7482

–6

Total 247 1,305

1 Treatedasauditfeesin2006.2005workrelatedtothe compliancetrial.


Forthereasonssetoutabove,thedirectorsaresatisfiedthattheprovisionofnon-auditservicesbytheexternalauditorduringtheyearended30September2006iscompatiblewiththegeneralstandardofindependenceforauditorsimposedbytheCorporationsAct2001.

AUDITOR’SINDEPENDENCESTATEMENTTheleadauditor’sindependencestatementgivenpursuanttoClassOrder05/910issetoutonpage102andformspartoftheDirectors’Reportfortheyearended30September2006.

DIRECTORSANDOFFICERSWHOWEREPREVIOUSLYPARTNERSOFTHEAUDITORThefollowingpersonswereduringthefinancialyearandarecurrentlydirectorsorofficersoftheGroupandwerepartnersofKPMGatatimewhenKPMGwastheauditorofAustraliaandNewZealandBankingGroupLimited: MsMargaretJackson,Non-executive

director(leftKPMGinJune1992);and MrPeterMarriott,ChiefFinancialOfficer

(leftKPMGinJanuary1993).

CHIEFEXECUTIVEOFFICER/CHIEFFINANCIALOFFICERDECLARATIONTheChiefExecutiveOfficerandtheChiefFinancialOfficerhavegivenadeclarationtotheBoardconcerningtheGroup’sfinancialstatementsundersection295A(2)oftheCorporationsAct2001andrecommendations4.1and7.2oftheASXCorporateGovernanceCouncilPrinciplesofGoodCorporateGovernanceandBestPracticeRecommendations.

DIRECTORS’ANDOFFICERS’INDEMNITYTheCompany’sConstitution(Rule11.1)permitstheCompanytoindemnifyeachofficeroremployeeoftheCompanyagainstliabilities(sofarasmaybepermittedunderapplicablelaw)incurredintheexecutionanddischargeoftheofficer’soremployee’sduties.ItistheCompany’spolicythatitsemployeesshouldnotincuranyliabilityforactinginthecourseoftheiremploymentlegally,withinthepoliciesoftheCompanyandprovidedtheyactingoodfaith.

Underthepolicy,theCompanywillindemnifyemployeesagainstanyliabilitytheyincurincarryingouttheirrole.Theindemnityprotectsemployeesandformeremployees

whoincuraliabilitywhenactingasanemployee,trusteeorofficeroftheCompany,orasubsidiaryoftheCompanyattherequestoftheCompany.

Theindemnityissubjecttoapplicablelawandwillnotapplyinrespectofanyliabilityarisingfrom: aclaimbytheCompany; aclaimbyarelatedbodycorporate; alackofgoodfaith; illegalordishonestconduct;or non-compliancewiththeCompany’s

policiesordiscretions.

TheCompanyhasenteredintoIndemnityDeedswitheachofitsdirectors,withcertainsecretariesoftheCompany,andwithcertainemployeesandotherindividualswhoactasdirectorsorofficersofrelatedbodycorporatesorofanothercompany.Totheextentpermittedbylaw,theCompanyindemnifiestheindividualforallliabilities,includingcosts,damagesandexpensesincurredintheircapacityasanofficerofthecompanytowhichtheyhavebeenappointed.

TheCompanyhasindemnifiedthetrusteesandformertrusteesofcertainoftheCompany’ssuperannuationfundsanddirectors,formerdirectors,officersandformerofficersoftrusteesofvariousCompanysponsoredsuperannuationschemesinAustralia.UndertherelevantDeedsofIndemnity,theCompanymustindemnifyeachindemnifiedpersoniftheassetsoftherelevantfundareinsufficienttocoveranyloss,damage,liabilityorcostincurredbytheindemnifiedpersoninconnectionwiththefund,beingloss,damage,liabilityorcostsforwhichtheindemnifiedpersonwouldhavebeenentitledtobeindemnifiedoutoftheassetsofthefundinaccordancewiththetrustdeedandtheSuperannuationIndustry(Supervision)Act1993.Thisindemnitysurvivestheterminationofthefund.SomeoftheindemnifiedpersonsareorweredirectorsorexecutiveofficersoftheCompany.

TheCompanyhasalsoindemnifiedcertainemployeesoftheCompany,beingtrusteesandadministratorsofatrust,fromandagainstanyloss,damage,liability,tax,penalty,expenseorclaimofanykindornaturearisingoutoforinconnectionwiththecreation,operationordissolutionofthetrustoranyactoromissionperformedoromittedbythemingoodfaithandinamannerthattheyreasonablybelievedtobewithinthescopeoftheauthorityconferredbythetrust.

Exceptfortheabove,neithertheCompanynoranyrelatedbodycorporateoftheCompanyhasindemnifiedormadeanagreementtoindemnifyanypersonwhoisorhasbeenanofficerorauditoroftheCompanyorofarelatedbodycorporate.

Duringthefinancialyear,andagainsincetheendofthefinancialyear,theCompanyhaspaidapremiumforaninsurancepolicyforthebenefitofthedirectors,secretaries,andseniormanagersoftheCompany,anddirectors,secretariesandseniormanagersofrelatedbodiescorporateoftheCompany.Inaccordancewithcommoncommercialpractice,theinsurancepolicyprohibitsdisclosureofthenatureoftheliabilityinsuredagainstandtheamountofthepremium.

ROUNDINGOFAMOUNTSTheCompanyisacompanyofthekindreferredtoinAustralianSecuritiesandInvestmentsCommissionclassorder98/100(asamended)pursuanttosection341(1)oftheCorporationsAct2001.

Asaresult,amountsinthisDirectors’Reportandtheaccompanyingfinancialstatementshavebeenroundedtothenearestmilliondollarsexceptwhereotherwiseindicated.

EXECUTIVEOFFICERS’ANDEMPLOYEESHAREOPTIONSDetailsofshareoptionsissuedoverunissuedsharesgrantedtotheChiefExecutiveOfficeranddisclosedexecutives,andonissueasatthedateofthisreportaredetailedintheRemunerationReport.

DetailsofshareoptionsissuedoverunissuedsharesgrantedtoemployeesandonissueasatthedateofthisreportaredetailedinNote47ofthe2006ANZFinancialReport.

Nopersonentitledtoexerciseanyoptionhasorhad,byvirtueofanoption,arighttoparticipateinanyshareissueofanyotherbodycorporate.ThenamesofallpersonswhocurrentlyholdoptionsareenteredintheregisterkeptbytheCompanypursuanttosection170oftheCorporationsAct2001.Thisregistermaybeinspectedfreeofcharge.


IntroductionThisRemunerationReportdetailsANZ’sremunerationpolicieswhichapplytokeymanagementpersonnel(KMP)andANZ’sseniorexecutives.ThereportidentifiesthelinkbetweenremunerationandANZ’sperformance,andindividualoutcomesrelatingtoremunerationandequityforANZ’sdirectorsandtopexecutives(asrequiredbyAASB124andtheCorporationsAct2001).

ThisreportcoverstheKMPoftheCompanyandtheGroup(whichincludesthedirectorsoftheparent)andthefivehighestpaidexecutivesintheCompanyandtheGroup.

KMPwereselectedaccordingtothefollowingcriteria: AlldirectorsoftheANZBoard:BasedonresponsibilityforprovidingdirectioninrelationtothemanagementofANZ.TheBoardCharter

clearlysetsouttheBoard’spurpose,powers,andspecificresponsibilities.

SectionA:RemunerationTablesSHORT-TERM

EMPLOYEEBENEFITSPOST-

EMPLOYMENTLONGTERM

EMPLOYEEBENEFITSSHARE-BASEDPAYMENTS5

TABLE 1: DIRECTOR REMUNERATIONFortheyearended30September2006,remunerationdetailsoftheKMPidentifiedasdirectorsoftheCompany,aresetoutbelow:

FinancialYear

Cashsalary/fees

$

Valueofsharesacquiredinlieuofcashsalary/fees1

$

AssociatedentityBoard

fees(cash)$

Committeefees(cash)

$

Valueofsharesacquired

inlieuofcashincentive1,2

$Other

$Total

$

Supercontributions3

$

Retirementbenefitaccrued

duringyear4

$

Longserviceleaveaccrued

duringtheyear$

Totalamortisation

valueofLTIshares

$

Totalamortisation

valueofLTIoptions

$

TotalRemuneration6

$

Current Non-Executive DirectorsC Goode (Appointed director July 1991; appointed Chairman August 1995)IndependentNonExecutiveDirector,Chairman

20062005

78,72479,415

621,118420,585

––

––

n/an/a

––

699,842500,000

12,27611,723

–243,284

n/an/a

n/an/a

n/an/a

712,118755,007

G Clark (Appointed February 2004)IndependentNonExecutiveDirector

20062005

137,250130,000

45,738–

––

34,80825,440

n/an/a

––

217,796155,440

12,27611,723

–50,189

n/a n/a n/a 230,072217,352

J Ellis (Appointed October 1995)IndependentNonExecutiveDirector

20062005

144,426103,000

38,55127,000

––

65,50042,250

n/an/a

––

248,477172,250

12,27611,723

–110,981

n/an/a

n/an/a

n/an/a

260,753294,954

D Gonski (Appointed February 2002)IndependentNonExecutiveDirector

20062005

122,52188,970

60,44641,030

–22,150

46,77522,512

n/an/a

––

229,742174,662

12,27611,723

–104,001

n/an/a

n/an/a

n/an/a

242,018290,386

M Jackson (Appointed March 1994)IndependentNonExecutiveDirector

20062005

183,000130,000

––

––

65,50042,250

n/an/a

––

248,500172,250

12,27611,723

–122,008

n/an/a

n/an/a

n/an/a

260,776305,981

D Meiklejohn (Appointed October 2004)IndependentNonExecutiveDirector

20062005

183,000130,000

––

––

66,86631,027

n/an/a

––

249,866161,027

12,27611,723

–64,781

n/an/a

n/an/a

n/an/a

262,142237,531

J Morschel (Appointed October 2004)IndependentNonExecutiveDirector

20062005

149,526111,723

45,73830,000

––

40,00019,500

n/an/a

––

235,264161,223

––

–60,459

n/an/a

n/an/a

n/an/a

235,264221,682

Former Non-Executive DirectorsR Deane (Appointed September 1994; retired 30 June 2006)IndependentNonExecutiveDirector

20062005

137,250130,000

––

122,1417

122,38421,02517,618

n/an/a

1,6008

–282,016270,002

9,10411,723

–49,169

n/an/a

n/an/a

n/an/a

291,120330,894

J Dahlsen (Appointed May 1985; retired 3 February 2005)IndependentNonExecutiveDirector 2005 44,417 – – 18,809 n/a – 63,226 4,423 111,303 n/a n/a n/a 178,952B Scott (Appointed August 1985; retired 23 April 2005)IndependentNonExecutiveDirector 2005 72,857 – 28,516 17,234 n/a – 118,607 6,803 127,089 n/a n/a n/a 252,499Total of all Non-Executive Directors 2006

20051,135,6971,020,382

811,591518,615

122,141173,050

340,474236,640

n/an/a

1,600–

2,411,5031,948,687

82,76093,287

–1,043,264

n/an/a

n/an/a

n/an/a

2,494,2633,085,238

Executive DirectorJ McFarlane (Appointed October 1997)9,10

ChiefExecutiveOfficer20062005

5044

2,071,1921,882,896

––

––

2,420,0052,100,004

219,37011,12

4,031124,710,6173,986,975

428,700417,000

––

59,37631,242

1,310,649982,987

756,3111,791,718

7,265,6537,209,922

Total of all Directors 20062005

1,135,7471,020,426

2,882,7832,401,511

122,141173,050

340,474236,640

2,420,0052,100,004

220,9704,031

7,122,1205,935,662

511,460510,287

–1,043,264

59,37631,242

1,310,649982,987

756,3111,791,718

9,759,91610,295,160

CoMMentARy on CHAnGes BetWeen 2005 & 2006

Non-Executive DirectorsAsaresultoftheclosureoftheANZDirectors’RetirementSchemeasat30September2005,Non-executiveDirectors’feeswereadjustedbasedonanindependentactuarialvaluationofthescheme.Asubsequentmarketadjustmentwasalsoappliedtofees.RefertoSectionB1forfurtherdetails.

Executive Director (Chief Executive Officer)AsaresultofanindependentmarketanalysisonthecompetitivenessofJMcFarlane’sremunerationagainstothermajorcompanies,theBoardapproveda$200,000increasetoJMcFarlane’sfixedremuneration(effective1October2005).Thelastfixedremunerationincreaseoccurred1October2003.IncreasingJMcFarlane’sfixedremunerationto$2.2malsoupliftshistargetincentiveto$2.2m(100%ofhisfixedremuneration).Hisactualincentivepaymentforthefinancialyearended30September2006was$2.4m(comparedto$2.1min2005)reflectingtheBoard’s

assessmentofhisperformanceagainstagreedbalancedscorecardobjectiveswhichincludeANZ’sfinancialperformanceanditsperformanceagainstspecifiedmeasuresforshareholders,customers,staffandthecommunity.ThelastLongTermIncentive(LTI)allocationissuedinDecember2004,wasapprovedbyshareholdersatthe2004AGM.TherearenofurtherLTIallocationsunderJMcFarlane’sexistingemploymentcontractwhichhasresultedinareductioninamortisedLTIequityforthe2006year(comparedwith2005).

remuneration report


Executives:BasedondirectreportsoftheCEOwithkeyresponsibilityforthestrategicdirectionandmanagementofamajorrevenue-generatingdivisionorwhocontrolsmaterialrevenueandexpenses.

The people CommitteehasresponsibilityformakingrecommendationstotheBoardforbothdirectorandexecutiveremunerationandexecutivesuccession(refertopage61oftheCorporateGovernanceReportformoredetailsabouttheCommittee’srole,andanz.com>aboutANZ(listingattopofscreen)>CorporateGovernance>ANZPeopleCommitteeCharter,whichdetailsthetermsofreferenceunderwhichtheCommitteeoperates).Onanumberofoccasionsthroughouttheyear,boththePeopleCommitteeandmanagementreceivedexternaladviceonmattersrelatingtoremuneration.Thefollowingadvisorswereused:BlakeDawsonWaldron,Ernst&Young,HayGroup,Greenwoods&Freehills,andPricewaterhouseCoopers.

SectionA:RemunerationTablesSHORT-TERM

EMPLOYEEBENEFITSPOST-

EMPLOYMENTLONGTERM

EMPLOYEEBENEFITSSHARE-BASEDPAYMENTS5

TABLE 1: DIRECTOR REMUNERATIONFortheyearended30September2006,remunerationdetailsoftheKMPidentifiedasdirectorsoftheCompany,aresetoutbelow:

FinancialYear

Cashsalary/fees

$

Valueofsharesacquiredinlieuofcashsalary/fees1

$

AssociatedentityBoard

fees(cash)$

Committeefees(cash)

$

Valueofsharesacquired

inlieuofcashincentive1,2

$Other

$Total

$

Supercontributions3

$


duringyear4

$


duringtheyear$

Totalamortisation

valueofLTIshares

$

Totalamortisation

valueofLTIoptions

$

TotalRemuneration6

$

Current Non-Executive DirectorsC Goode (Appointed director July 1991; appointed Chairman August 1995)IndependentNonExecutiveDirector,Chairman

20062005

78,72479,415

621,118420,585

––

––

n/an/a

––

699,842500,000

12,27611,723

–243,284

n/an/a

n/an/a

n/an/a

712,118755,007

G Clark (Appointed February 2004)IndependentNonExecutiveDirector

20062005

137,250130,000

45,738–

––

34,80825,440

n/an/a

––

217,796155,440

12,27611,723

–50,189

n/a n/a n/a 230,072217,352

J Ellis (Appointed October 1995)IndependentNonExecutiveDirector

20062005

144,426103,000

38,55127,000

––

65,50042,250

n/an/a

––

248,477172,250

12,27611,723

–110,981

n/an/a

n/an/a

n/an/a

260,753294,954

D Gonski (Appointed February 2002)IndependentNonExecutiveDirector

20062005

122,52188,970

60,44641,030

–22,150

46,77522,512

n/an/a

––

229,742174,662

12,27611,723

–104,001

n/an/a

n/an/a

n/an/a

242,018290,386

M Jackson (Appointed March 1994)IndependentNonExecutiveDirector

20062005

183,000130,000

––

––

65,50042,250

n/an/a

––

248,500172,250

12,27611,723

–122,008

n/an/a

n/an/a

n/an/a

260,776305,981

D Meiklejohn (Appointed October 2004)IndependentNonExecutiveDirector

20062005

183,000130,000

––

––

66,86631,027

n/an/a

––

249,866161,027

12,27611,723

–64,781

n/an/a

n/an/a

n/an/a

262,142237,531

J Morschel (Appointed October 2004)IndependentNonExecutiveDirector

20062005

149,526111,723

45,73830,000

––

40,00019,500

n/an/a

––

235,264161,223

––

–60,459

n/an/a

n/an/a

n/an/a

235,264221,682

Former Non-Executive DirectorsR Deane (Appointed September 1994; retired 30 June 2006)IndependentNonExecutiveDirector

20062005

137,250130,000

––

122,1417

122,38421,02517,618

n/an/a

1,6008

–282,016270,002

9,10411,723

–49,169

n/an/a

n/an/a

n/an/a

291,120330,894

J Dahlsen (Appointed May 1985; retired 3 February 2005)IndependentNonExecutiveDirector 2005 44,417 – – 18,809 n/a – 63,226 4,423 111,303 n/a n/a n/a 178,952B Scott (Appointed August 1985; retired 23 April 2005)IndependentNonExecutiveDirector 2005 72,857 – 28,516 17,234 n/a – 118,607 6,803 127,089 n/a n/a n/a 252,499Total of all Non-Executive Directors 2006

20051,135,6971,020,382

811,591518,615

122,141173,050

340,474236,640

n/an/a

1,600–

2,411,5031,948,687

82,76093,287

–1,043,264

n/an/a

n/an/a

n/an/a

2,494,2633,085,238

Executive DirectorJ McFarlane (Appointed October 1997)9,10

ChiefExecutiveOfficer20062005

5044

2,071,1921,882,896

––

––

2,420,0052,100,004

219,37011,12

4,031124,710,6173,986,975

428,700417,000

––

59,37631,242

1,310,649982,987

756,3111,791,718

7,265,6537,209,922

Total of all Directors 20062005

1,135,7471,020,426

2,882,7832,401,511

122,141173,050

340,474236,640

2,420,0052,100,004

220,9704,031

7,122,1205,935,662

511,460510,287

–1,043,264

59,37631,242

1,310,649982,987

756,3111,791,718

9,759,91610,295,160

1 SharesacquiredthroughparticipationinDirectors’SharePlan(relatestoCEOonlyinrelationtohiscashincentive,asNon-executiveDirectors(NEDs)donotparticipateinshort-termincentive arrangements).Valuereflectsthepriceatwhichtheshareswerepurchasedonmarket(amortisationnotapplicable).SharepurchasesforNEDsweremadeon28October2004and4May2005 forthe2005yearandon31October2005and1May2006forthe2006year.2 100%oftheCEO’scashincentivevestedduringthefinancialyearthatperformancerelatesto.3 Includes$300,000additionalemployercontribution,agreedaspartoftheCEO’scontractextensionannounced26October2004(refertosectionD2).ForJMorschel,superannuationguarantee contributionspaidinrespectofeachotherNED,arepaidtohimascashinlieu.4 TheaccrualfortheANZDirectors’RetirementSchemerelatesonlytothe2005financialyear,duetoitsclosureasat30September2005.ThefollowingbenefitswerepaidundertheANZDirectors’ RetirementSchemetothefollowingformerdirectors:RDeane(retired30June2006)–$723,107;JDahlsen(retired3February2005)–$513,668;BScott(retired23April2005)–$516,214.The accruedentitlementsfixedundertheANZDirectors’RetirementSchemeasat30September2005areasfollows:CGoode–$1,312,539;GClark–$83,197;JEllis–$523,039;DGonski–$249,445; MJackson–$487,022;DMeiklejohn–$64,781;JMorschel–$60,459.5 InaccordancewiththerequirementsofAASB2Share-basedPayment,theamortisationvalueincludesaproportionofthefairvalue(takingintoaccountmarket-relatedvestingconditions)ofall equitythathadnotyetfullyvestedasatthecommencementofthefinancialyear.Itisassumedthattheoptionswillvestatthecommencementoftheirexerciseperiod(i.e.theshortestpossible vestingperiodisassumed)andthattheLTIperformanceshareswillvestafter3years.Thefairvalueisdeterminedatgrantdateandisallocatedonastraight-linebasisovertheexpectedvesting period.ThefairvalueforoptionsandperformanceshareswasdeterminedusingabinomialpricingmodelthatisexplainedinsectionF9foroptions,andF10forperformanceshares.Theamount includedasremunerationisnotrelatedtonorindicativeofthebenefit(ifany)thatmayultimatelyberealisedshouldtheoptionsbecomeexercisableortheperformancesharesvest.6 Amountsdisclosedforremunerationofdirectorsexcludeinsurancepremiumspaidbytheconsolidatedentityinrespectofdirectors’andofficers’liabilityinsurancecontractswhichcovercurrent andformerdirectorsandofficers,includingseniormanagersoftheentityanddirectors,seniormanagersandsecretariesofthecontrolledentities.Thetotalpremium,whichcannotbedisclosed becauseofconfidentialityrequirements,hasnotbeenallocatedtotheindividualscoveredbytheinsurancepolicyas,basedonallavailableinformation,thedirectorsbelievethatnoreasonable basisforsuchallocationexists.7 AmountspaidinNZDareconvertedtoAUDatanaverageratefortheyearof1.1433(1.0847in2005).8 OtherforRDeanerelatestoanon-monetarybenefitreceivedonretirementasagiftfromtheBoard.9 Amortisationvalueofoptionsasapercentageoftotalremuneration(asshownintheTotalcolumnabove)was10%in2006(25%in2005).10JMcFarlaneelectedtousealmostallofhiscashsalaryandincentivetopurchaseonmarketdeferredsharesundertheDirectors’SharePlan.Thepurchasedateswere28October2004,1February 2005,2May2005and8August2005forthe2005yearand31October2005,30January2006,1May2006and7August2006forthe2006year.11RelatestoreimbursementtoJMcFarlaneof$202,837fortheadditionaltaxliabilityonhisUKPensionPlanholdings,arisingasaresultofAustralianForeignInvestmentFundrules,andJMcFarlane’s continuingAustralianresidency(inaccordancewiththecontractualarrangementsdetailedinsectionD2).12Relatestoprofessionalservicesrenderedinrespectoftaxationmatters($16,533in2006).


SectionA:RemunerationTables(continued)

TABLE 2: EXECUTIVE KEY MANAGEMENT PERSONNEL REMUNERATION AND TOP 5 REMUNERATEDFortheyearended30September2006,remunerationdetailsoftheKMPidentifiedasexecutivesoftheGroup,(asrequiredunderAASB124),andthefivemosthighlyremuneratedexecutivesintheCompanyandtheGroup(asrequiredundertheCorporationsAct2001),otherthantheChiefExecutiveOfficer,aresetoutbelow:

SHORT-TERMEMPLOYEEBENEFITS

POST-EMPLOYMENT

LONG-TERMEMPLOYEEBENEFITS

SHARE-BASEDPAYMENTS5

FinancialYear

Cashsalary/fees

$

Nonmonetarybenefits1

$

Totalcashincentive2,3

$m

Total

$

Supercontributions

$


duringyear4$


duringtheyear$

Totalamortisationvalue

ofSTIshares$


ofLTIshares$


ofLTIoptions$


ofperformancerights

$

Totalamortisationofother

equityallocations6

$

TotalRemuneration7,14

$

Current ExecutivesR Edgar8

SeniorManagingDirector20062005

787,068727,696

14,78828,281

850,000800,000

1,651,8561,555,977

49,72546,800

–1,672

37,60713,928

108,692173,907

503,179555,470

181,819264,095

202,340–

––

2,735,2182,611,849

B HartzerGroupManagingDirector,PersonalDivision

20062005

883,626694,435

59,64061,542

1,300,0001,080,000

2,243,2661,835,977

58,50046,800

––

40,57519,469

94,597149,259

175,183237,943

174,542282,929

216,792–

––

3,003,4552,572,377

G Hodges9

ChiefExecutive,ANZNationalBankLimited(NewZealand)

20062005

841,866648,556

71,92011,465

895,000863,000

1,808,7861,523,021

7,45940,838

–1,635

48,44746,140

82,179131,825

150,066186,089

149,602218,920

202,340–

––

2,448,8792,148,468

P MarriottChiefFinancialOfficer

20062005

842,618748,700

6,3137,277

1,080,000920,000

1,928,9311,675,977

52,65046,800

––

34,83012,422

127,015208,525

206,816295,175

206,831317,175

209,566–

––

2,766,6392,556,074

S TargettGroupManagingDirectorInstitutional

20062005

936,600748,700

6,3137,277

1,000,000880,000

1,942,9131,635,977

58,50046,800

––

20,02012,497

––

44,85740,544

43,21539,059

216,795–

1,166,859789,238

3,493,1592,564,115

P Hodgson10

ChiefRiskOfficer2006 701,393 6,313 825,000 1,532,706 43,875 – 11,716 130,541 113,241 30,377 173,434 – 2,035,890

Former ExecutivesSir J Anderson (retired effective 31 December 2005)11,12

ChiefExecutive&Director,ANZNationalBankLimited(NewZealand) 2005 838,110 – 460,960 1,299,070 83,811 33,367 – – – – – 477,452 1,893,700

E Funke Kupper (resigned effective 1 February 2006)13

GroupManagingDirector,AsiaPacific20062005

234,483654,550

2,1107,277

–770,000

236,5931,431,827

14,66340,950

––

–10,860

104,930184,924

146,895221,068

147,119239,523

152,622–

––

802,8222,129,152

Total of all Executive KMPs 20062005

4,526,2615,060,747

161,084123,119

5,125,0005,773,960

9,812,34510,957,826

241,497352,799

–36,674

181,479115,316

517,413848,440

1,226,9961,536,289

903,1281,361,701

1,200,455–

1,166,8591,266,690

15,250,17216,475,735

Total of all Disclosed Executives 20062005

5,227,6545,060,747

167,397123,119

5,950,0005,773,960

11,345,05110,957,826

285,372352,799

–36,674

193,195115,316

647,954848,440

1,340,2371,536,289

933,5051,361,701

1,373,889–

1,166,8591,266,690

17,286,06216,475,735

CoMMentARy on CHAnGes BetWeen 2005 & 2006Areviewof2005remuneration(basedonfixedremuneration,short-termincentivesandlong-termincentives)wasundertakentoassessthecompetitivenessofexecutiveremunerationrelativetothemarket.Toensureappropriaterecommendationsfromthisreview,ANZusedmultipledatasourcessuchasAnnualReportdisclosuresfromANZ’smajorcompetitors,andindependentfinancialservicesmarketdatasourcedexternally.Overall,itwasfoundthatrewardlevelswerenotmarketcompetitiveandbelowthemedianofthemarket.Asaresult,adjustmentstoindividualrewardmixesweremade.Theremunerationadjustments

wereassessedindividually,basedonmarketpositioning,rolechangesandmarketpressures.TheremunerationadjustmentsforANZ’sdisclosedexecutivescanbesummarisedasfollows:i)IncreasedFixedPayforBHartzerandSTargetttoreflectincreasedresponsibilitiesassociatedwithANZ’srestructureintothreebroaddivisions.ii)AcorrespondingincreaseintargetSTIamountsforBHartzerandSTargettduetotheiradjustedTEC.iii)IncreasedLTIallocationawardedtocurrentdisclosedexecutives.

Otheryearonyearvariationsinclude:i)AgreaterproportionofSTargett’samortisedsign-onequityfallingintothe2006financialyear(refertofootnote6).ii)Changeinposition(andresponsibility)

forGHodgesfromGroupManagingDirectorCorporateinthe2005financialyear,totheChiefExecutive,ANZNationalBankLimited,NewZealandin2006.iii)PHodgsonnotincludedin2005totalofalldisclosedexecutives(2006only).iv)2005disclosuresonlyforSirJAnderson,thereforenotincludedinthe2006totals.v)EFunkeKupper’sremunerationforthe2006yearisbasedonfourmonthsonly.


TABLE 2: EXECUTIVE KEY MANAGEMENT PERSONNEL REMUNERATION AND TOP 5 REMUNERATEDFortheyearended30September2006,remunerationdetailsoftheKMPidentifiedasexecutivesoftheGroup,(asrequiredunderAASB124),andthefivemosthighlyremuneratedexecutivesintheCompanyandtheGroup(asrequiredundertheCorporationsAct2001),otherthantheChiefExecutiveOfficer,aresetoutbelow:

SHORT-TERMEMPLOYEEBENEFITS

POST-EMPLOYMENT

LONG-TERMEMPLOYEEBENEFITS

SHARE-BASEDPAYMENTS5

FinancialYear

Cashsalary/fees

$

Nonmonetarybenefits1

$

Totalcashincentive2,3

$m

Total

$

Supercontributions

$


duringyear4$


duringtheyear$


ofSTIshares$


ofLTIshares$


ofLTIoptions$


ofperformancerights

$

Totalamortisationofother

equityallocations6

$

TotalRemuneration7,14

$

Current ExecutivesR Edgar8

SeniorManagingDirector20062005

787,068727,696

14,78828,281

850,000800,000

1,651,8561,555,977

49,72546,800

–1,672

37,60713,928

108,692173,907

503,179555,470

181,819264,095

202,340–

––

2,735,2182,611,849

B HartzerGroupManagingDirector,PersonalDivision

20062005

883,626694,435

59,64061,542

1,300,0001,080,000

2,243,2661,835,977

58,50046,800

––

40,57519,469

94,597149,259

175,183237,943

174,542282,929

216,792–

––

3,003,4552,572,377

G Hodges9

ChiefExecutive,ANZNationalBankLimited(NewZealand)

20062005

841,866648,556

71,92011,465

895,000863,000

1,808,7861,523,021

7,45940,838

–1,635

48,44746,140

82,179131,825

150,066186,089

149,602218,920

202,340–

––

2,448,8792,148,468

P MarriottChiefFinancialOfficer

20062005

842,618748,700

6,3137,277

1,080,000920,000

1,928,9311,675,977

52,65046,800

––

34,83012,422

127,015208,525

206,816295,175

206,831317,175

209,566–

––

2,766,6392,556,074

S TargettGroupManagingDirectorInstitutional

20062005

936,600748,700

6,3137,277

1,000,000880,000

1,942,9131,635,977

58,50046,800

––

20,02012,497

––

44,85740,544

43,21539,059

216,795–

1,166,859789,238

3,493,1592,564,115

P Hodgson10

ChiefRiskOfficer2006 701,393 6,313 825,000 1,532,706 43,875 – 11,716 130,541 113,241 30,377 173,434 – 2,035,890

Former ExecutivesSir J Anderson (retired effective 31 December 2005)11,12

ChiefExecutive&Director,ANZNationalBankLimited(NewZealand) 2005 838,110 – 460,960 1,299,070 83,811 33,367 – – – – – 477,452 1,893,700

E Funke Kupper (resigned effective 1 February 2006)13

GroupManagingDirector,AsiaPacific20062005

234,483654,550

2,1107,277

–770,000

236,5931,431,827

14,66340,950

––

–10,860

104,930184,924

146,895221,068

147,119239,523

152,622–

––

802,8222,129,152

Total of all Executive KMPs 20062005

4,526,2615,060,747

161,084123,119

5,125,0005,773,960

9,812,34510,957,826

241,497352,799

–36,674

181,479115,316

517,413848,440

1,226,9961,536,289

903,1281,361,701

1,200,455–

1,166,8591,266,690

15,250,17216,475,735

Total of all Disclosed Executives 20062005

5,227,6545,060,747

167,397123,119

5,950,0005,773,960

11,345,05110,957,826

285,372352,799

–36,674

193,195115,316

647,954848,440

1,340,2371,536,289

933,5051,361,701

1,373,889–

1,166,8591,266,690

17,286,06216,475,735

1 Non-monetarybenefitsconsistofsalarypackageditemssuchascarparking,novatedleasemotorvehiclesandGHodges’non-monetarybenefitsincludehousingandairfares.2 Totalcashincentiverelatestothefullincentiveamountforthefinancialyearthattheperformancerelatesto.3 100%ofthecashincentiveawardedinboth2005and2006vestedtothepersonintheapplicablefinancialyear.4 AccrualrelatestoRetirementAllowance.AsaresultofbeingemployedwithANZpriortoNovember1992,REdgarandGHodgesareeligibletoreceiveaRetirementAllowanceonretirement, retrenchment,death,orresignationforillness,incapacityordomesticreasons.TheRetirementAllowanceiscalculatedasfollows:3monthsofnotionalsalary(whichis65%offixedremuneration) plusanadditional3%ofnotionalsalaryforeachyearoffull-timeserviceabove10years,lessthetotalaccrualvalueoflongserviceleave(includingtakenanduntaken).5 InaccordancewiththerequirementsofAASB2,theamortisationvalueincludesaproportionofthefairvalue(takingintoaccountmarket-relatedvestingconditions)ofallequitythathadnotyetfully vestedasatthecommencementofthefinancialyear.Itisassumedthattheoptions/performancerightswillvestatthecommencementoftheirexerciseperiod(i.e.theshortestpossiblevesting periodisassumed)andthatdeferredshareswillvestafter3years.Thefairvalueisdeterminedatgrantdateandisallocatedonastraight-linebasisoverthe3-yearvestingperiod.Foroptions,the fairvalueisdeterminedusingaBinomialOptionPricing(BOP)model.ForperformancerightsamodifiedBlack-ScholesandaBOPmodelwereused.Thevaluationmodelsareexplainedinsection F9.Theamountincludedasremunerationisnotrelatedtonorindicativeofthebenefit(ifany)thatmayultimatelyberealisedshouldtheoptions/performancerightsbecomeexercisable.For deferredshares,thefairvalueisthevolumeweightedaveragepriceoftheCompany’ssharestradedontheASXonthedaythesharesweregranted.6 AmortisationofotherequityallocationsforSirJAndersonrelatestothegrantingofzeropricedoptions(ZPO).ZPOsweregrantedaspartofhisemploymentcontract.RefertosectionE2forfurther details.AmortisationofotherequityallocationsforSTargettrelatestothegrantofdeferredsharesbeginningon11May2004(fourtranchestothevalueof$700,000eachissuedat6month intervalsinMayandNovemberin2004and2005,subjecttoBoardapprovalandcontinuedemployment)andhurdledAoptions(refertosectionF11.1forperformancehurdledetails)to compensateSTargettforthelossofaccesstoequityasaresultofhisresignationfromhispreviousemployer.7 Remunerationamountsdisclosedexcludeinsurancepremiumspaidbytheconsolidatedentityinrespectofdirectors’andofficers’liabilityinsurancecontractswhichcovercurrentandformer directorsandofficers,includingseniormanagersoftheentityanddirectors,seniormanagersandsecretariesofthecontrolledentities.Thetotalpremium,whichcannotbedisclosedbecauseof confidentialityrequirements,hasnotbeenallocatedtotheindividualscoveredbytheinsurancepolicyas,basedonallavailableinformation,thedirectorsbelievethatnoreasonablebasisforsuch allocationexists.8 BEdgarwastheChiefOperatingOfficerpriortoOctober2005.9 PriortoNovember2005,GHodgeswastheGroupManagingDirectorCorporate.Between1November2005and31December2005,hewastheChiefExecutiveDesignate(NewZealand),withhis positionchangingtoChiefExecutive,ANZNationalBankLimited,NewZealandeffective1January2006.10PHodgsonisdisclosedasoneofthefivemosthighlyremuneratedexecutivesintheCompanyfor2006only(asrequiredundertheCorporationsAct2001).Therefore2005comparativeinformation hasnotbeenprovided,andhehasnotbeenincludedintheExecutiveKMPtotals.11AmountspaidtoSirJAndersoninNZDin2005wereconvertedtoAUDatanaveragerateforthe2005yearof1.0847.12SirJAndersonceasedemploymentduringtheyear,effective31December2005,andreceivedhisfixedpayduringtheperiod1October2005to31December2005ofNZ$250,250,aretirement gratuitypaymentofNZ$1,193,150aspartofhisemploymentcontract,apaymentinlieuofnoticeplusannualleaveentitlementstotallingNZ$437,109,apaymentinlieuofhisequityparticipation for2006ofNZ$250,000andapaymentinrelationtohis2006STIbonusofNZ$250,000.TotalpaymentNZ$2,380,509.13EFunkeKupperreceivedafinalpaymentonresignationof$165,554relatingtohisaccruedannualleaveandlongserviceleave.Withtheinclusionofthefinalpaymenthistotalremunerationfor 2006wouldbe$968,376.14Amortisationvalueofoptionsandrightsasapercentageoftotalremunerationwas:REdgar14%(2005:10%);BHartzer13%(2005:11%);GHodges14%(2005:10%);PMarriott15%(2005:12%); STargett15%(2005:11%);PHodgson10%.


SectionB.Non-executiveDirectors’Remuneration

B1. non-eXeCutIve DIReCtoRs’ ReMuneRAtIon polICyNon-executiveDirectors’(NEDs)feesarereviewedannuallyandaredeterminedbytheBoardofDirectorsbasedonadvicefromexternaladvisorsandwithreferencetofeespaidtootherNEDsofcomparablecompanies.

ThetotalofNEDs’fees(includingsuperannuationcontributions)arewithinthemaximumannualaggregatelimitagreedtobyshareholdersattheAnnualGeneralMeetingheldon16December2005($3million,excludingsuperannuationbenefitpayoutsandretirementbenefits),andaresetatlevelsthatfairlyrepresenttheresponsibilitiesof,andthetimespentbytheNEDsonGroupmatters.NEDsreceiveafeeforbeingadirectoroftheBoard,andadditionalfeesforeitherchairingorbeingamemberofacommittee.Workonspecialcommitteesmayattractadditionalfeesofanamountconsideredappropriateinthecircumstances.AnadditionalfeeisalsopaidifaNEDservesasadirectoronasubsidiaryboard.NEDsdonotreceiveanyperformance/incentivepaymentsandarenoteligibletoparticipateinanyoftheGroup’sincentivearrangements.

TocompensatefortheremovaloftheNon-ExecutiveDirectors’RetirementScheme(asat30September2005),NEDfeeswereincreasedby27.5%effective1October2005.ThisamountwasdeterminedbasedonanindependentactuarialvaluationoftheschemebyMercerFinanceandRiskConsultingandadvicefromexpertremunerationconsultantsPricewaterhouseCoopers.ThisincreaseisalsoinlinewithmarketpracticeinrelationtofeeincreasesduetotheremovalofDirectors’RetirementSchemes,whereincreaseshavetypicallyrangedfrom25%to30%.Marketadjustedfeeincreasesof~10%werealsoapprovedfor2006basedonmarketanalysisandindependentadvicethatmarketmovementsof10%to15%wereexpectedin2006.Committeemembershipfeesreceivedalargermarketadjustment(excludingGovernanceCommitteeandTechnologyCommittee)toensuremarketcompetitiveness.

ThefeestructureisillustratedinTable3below:

TABLE 3Breakdownof2005/2006Fees

Role2004/05Fees

$

IncreaserelatingtoclosureofRetirement

Scheme$

Increaserelatingtomarketadjustment

$

Total2005/06Fees

$

ChairmanNon-ExecutiveDirectorCommitteeChair1

CommitteeMember1

500,000130,000

32,5009,750

137,50035,750

8,9382,681

62,50017,250

4,0627,569

700,000183,000

45,50020,000

1 ExceptGovernanceCommitteeandTechnologyCommittee,wherethecurrentChairandMemberFeesare$26,775and$8,033respectively.These2005/2006feeamountsreflectthefeeincrease duetotheremovaloftheANZDirectors’RetirementScheme.Noadditionalmarketadjustmentwasapplied.

Fordetailsofremunerationpaidtodirectorsfortheyearended30September2006,refertoTable1insectionAofthisRemunerationReport.

neD sHAReHolDInG GuIDelInes

NEDshaveagreedtoaccumulateANZshares,overafive-yearperiod,tothevalueof100%(200%forChairman)ofthebaseannualNEDFeeandtomaintainthisshareholdingwhileadirectorofANZ.NEDshaveagreedtoapplyupto25%oftheirbasefeeannuallythroughtheDirectors’SharePlanorothermeans,towardsthepurchaseofANZsharesinordertoachieve/maintainthedesiredholdinglevel.ThisguidelinewasapprovedbytheBoardinSeptember2005.

B2. non-eXeCutIve DIReCtoRs’ RetIReMent polICyTheNEDretirementschemewasclosedeffective30September2005.

AccruedentitlementsrelatingtotheANZDirectors’RetirementSchemewerefixedat30September2005andwillbecarriedforwardtoretirement,andcollectedbytheNEDwhentheyretire(refertofootnote4inTable1forthefixedentitlementforeachNED).Basedonshareholderapprovalatthe2005AGM,NEDsnominatedtheproportionoftheiraccruedentitlementtobehelduntilretirementaseithercashorshares.Thoseelectingthecashalternativereceiveanadditionalamountrelatingtotheinterestaccruedatthe30daybankbillratefrom1October2005tothedateofretirement.Thoseelectingshareswillbeentitledtoreceivedividendsonthesharespurchased.Refertothe2005noticeofAGMforfurtherdetails.

B3. DIReCtoRs’ sHARe plAnTheDirectors’SharePlanisavailabletobothnon-executiveandexecutivedirectors.Directorsmayelecttoforegoremunerationtowhichtheymayhaveotherwisebecomeentitledandreceivesharestothevalueoftheremunerationforegone,andthereforethesharesacquiredarenotsubjecttoperformanceconditions.Participationintheplanisvoluntary.

Sharesacquiredundertheplanarepurchasedonmarketandareheldintrustforupto10years.Sharesaresubjecttoaminimum1yearrestriction,duringwhichthesharescannotbetraded,andaresubjecttoforfeitureforseriousmisconduct.AllcostsassociatedwiththeplanaremetbytheCompany.


SectionC.ExecutiveRemunerationStructure

C1. ReMuneRAtIon GuIDInG pRInCIples

ANZ’srewardpolicyapprovedbytheBoardshapestheGroup’sremunerationstrategiesandinitiatives.

ThefollowingprinciplesunderpinANZ’srewardpolicy:

1.FocusoncreatingandenhancingvalueforallANZstakeholders;

2.Differentiationofindividualrewardscommensuratewithcontributiontooverallresultsandaccordingtoindividualaccountability,performanceandpotential;

3.Significantemphasison“atrisk”componentsoftotalrewards;and

4.Theprovisionofacompetitiverewardpropositiontosuccessfullyattract,motivateandretainthehighestqualityindividualsrequiredtodeliverANZ’sbusinessandgrowthstrategies.

sHAReHolDInG GuIDelInes

DirectReportstotheCEOareexpectedtoaccumulateANZshares,overafiveyearperiod,tothevalueof200%oftheirFixedPayandtomaintainthisshareholdingwhileanexecutiveofANZ.OurnextmostseniorexecutivesareexpectedtoaccumulateANZsharestothevalueof100%oftheirFixedPayandtomaintainthisshareholdingwhileanexecutiveofANZ.ThisguidelinewasintroducedinJune2005.Newexecutiveswillbeexpectedtoaccumulatetherequiredholdingswithinfiveyearsofappointment.

C2. ReMuneRAtIon stRuCtuRe oveRvIeW

Theexecutiveremunerationprogram(whichincludestheremunerationofseniormanagers,thecompanysecretariesandotherKMP)aimstodifferentiateremunerationonthebasisofachievementagainstgroup,businessunitandindividualperformancetargetswhicharealignedtosustainedgrowthinshareholdervalueusingabalancedscorecardapproach.

Theprogramcomprisesthefollowingcomponents:

FixedPaycomponent:salary,non-monetarybenefitsandsuperannuationcontributions.(RefertoC3)

Variableor“atrisk”component(RefertoC4):

–Short-TermIncentive(STI);and

–Long-TermIncentive(LTI).

Dependingonthecompetitivemarket,theproportionofremuneration“atrisk”generallyincreasesforthemostseniororcomplexroles,orforthoseroleswherethereisstrongmarketpressuretoprovidegreaterlevelsofremuneration.Figure1belowshowstherelativemixofFixed,STIandLTIattargetpaymentlevels.

FixedPayissetatthemedianofthemarket.STIandLTIpaymentsforontargetperformancearealsosetatmarketmedian.Theplandesignallowsfortheopportunitytoearnupperquartiletotalremunerationforsignificantoutperformance,andsignificantlyreducedpaymentforunderperformance.Inthiswaytheremunerationstructureisheavilyweightedtowards“rewardforperformance”.

C3. FIXeD ReMuneRAtIon

Formostexecutives,FixedPaycomprisescashsalary,asuperannuationcontribution,andtheremainderasnominatedbenefits.Thetypesofbenefitsthatcanbepackagedbyexecutivesincludenovatedcarleases,additionalsuperannuationcontributions,carparking,childcare,laptopsandcontributionstowardstheEmployeeShareSaveScheme.

Executiveremunerationisreviewedannuallybasedonindividualperformanceandmarketdata.ANZoperateswithamidpointtargetedtothelocalmarketmedianbeingpaidin

thefinanceindustryintherelevantglobalmarketsinwhichANZoperates,andarangearoundthismidpoint.

C4. vARIABle ReMuneRAtIonVariableremunerationformsasignificantpartofexecutives’potentialremuneration,providinganat-riskcomponentthatisdesignedtodriveperformanceinboththeshort-term(annually)andinthemediumandlong-term(3yearsormore).

TheopportunitiesavailabletoexecutivesunderANZ’svariablerewardprogramsaredesignedtoreinforcetheachievementofshortandlongtermperformancetargetsandtoensureremunerationcompetitivenessintherelevantmarketsinwhichtheyoperate.

Mostexecutivesparticipateintheshort-termincentive(STI)plandetailedinsectionC4.1andthelong-termincentive(LTI)plandetailedinsectionC4.2.

EquityallocatedunderANZincentiveschemesremainsatriskuntilfullyvested(inthecaseofDeferredShares)orexercisable(inthecaseofOptionsorPerformanceRights).Assuch,it is a condition of grant that no schemes are entered into that specifically protect the unvested value of shares, options and performance rights allocated.Doingsowouldconstituteabreachofthegrantconditionsandwouldresultintheforfeitureoftherelevantsharesoroptions.Wealsoadvisethatallcurrentdiscloseddirectorsandexecutivesdidnotenterinto(andarenotcurrentlyinvolvedin)anyschemestoprotectthevalueoftheirinterestsinanyvestedANZsecurities.

Figure 1: Target reward mix

36% 36% 28%

Fixed pay %

STI %

LTI %

49% 33% 18%

61% 26% 13%

Disclosed Executives1

Larger Senior Executive Roles2

Smaller Senior Executive Roles2

1 2006disclosedexecutives’(currentemployeesonly)rewardmixpertains toDrREdgar,BHartzer,GHodges,PHodgson,PMarriottandSTargett.2 Therewardmixforlargerseniorexecutiverolesandsmallersenior executiverolesisbasedonaveragedata


C4.1 short-term Incentives

ANZ’sSTIapproachsupportsourstrategicobjectivesbyprovidingrewardsthataresignificantlydifferentiatedonthebasisofachievementagainstperformancetargets.Mostexecutivesparticipateintheplanexplainedbelow.AllSTIplansarereviewedandapprovedbythePeopleCommittee.

Determination of STI Levels Thesizeoftheoverallpoolavailableeachyearisbasedonperformanceagainstacashearningspershare(EPS)growthtarget.ThispoolisthenspreadbetweentheDivisionsbasedontheirperformanceagainstabalancedscorecardoffinancialandqualitativemeasures,andthendistributedtoindividualsbasedonrelativeperformance.TheBoardisrequiredtoapprovetheSTIGroupandDivisionoutcomesandthedistributionoftheSTIpoolamongsttheDivisions.

EachexecutivehasatargetSTIwhichisdeterminedaccordingtojobsizeandmarketrelativities.ThesizeoftheactualSTIpaymentmadeattheendofeachfinancialyeartoindividualsmaybeat,aboveorbelowthetargetandthiswillbedeterminedaccordingtoANZGroup,DivisionandIndividualPerformance.

IndividualperformanceobjectivesaresetandalignedatthestartofeachfinancialyearaccordingtoabalancedscorecardofmeasuresattheGroup,DivisionandIndividuallevel.ThesemeasuresarealignedwiththeachievementofANZ’soverallbalancedscorecard,andthereforeconsideredthemostappropriatemeasuresforaligningwithcompanyperformance.DivisionandIndividualobjectivesareasubsetoftheGroupobjectives,whichensuresthereisalignmentofobjectivesthroughouttheexecutivepopulation.

PerformanceobjectivesunderANZ’sbalancedscorecardincludeanumberofqualitativeandquantitativemeasureswhichinclude,butarenotlimitedto:

FinancialMeasuresincluding:EconomicValueAdded(EVATM);Revenue,EPSandNetProfitAfterTax

CustomerMeasuresincluding:CustomerSatisfactionandMarketShare

EmployeeEngagement,RiskManagementandComplianceMeasures

Environment,Health&SafetyandCommunityMeasures.

Performanceagainsttheseobjectivesisassessedattheendofthefinancialyearandrewardsaremadebasedonperformanceagainsttargets.

TheSTIispayable100%incash(exceptwherespecificbusinessplansrequireotherwise).ExecutivesareabletoelecttosacrificepartoralloftheirincentivetowardsthepurchaseofANZshareswhicharerestrictedfromsalefor12months,ortowardsadditionalsuperannuationcontributions.Astheincentiveamounthasalreadybeenearned,therearenoperformancemeasuresattachedtotheshares.

ThetargetSTIawardlevelfordisclosedexecutivesis100%ofTECin2006withamaximumSTIawardof150%ofTEC.ForlargerseniorexecutiverolesintheANZSTIplan,thetargetSTIis67%ofTEC,withamaximumof100%ofTEC,andforsmallerseniorexecutiverolesthetargetis43%ofTECandthemaximum65%ofTEC.Note,thetargetandmaximumSTIamountsforlargerandsmallerseniorexecutiverolesmayvaryforcustomisedincentiveschemes.

C4.2 long-term Incentives

Long-termincentives(LTIs)areusedasamechanismtolinkasignificantportionofexecutives’remunerationtotheattainmentofsustainedgrowthinshareholdervalue.LTIisdeliveredas100%PerformanceRights,withasinglelong-termperformancemeasure.

APerformanceRightisarighttoacquireashareatnilcost,subjecttomeetingtimeandperformancehurdles.PerformanceRightsaredesignedtorewardexecutivesforsharepricegrowthdependentupontheCompany’sTotalShareholderReturn(TSR)outperformingpeers.TSRrepresentsthechangeinthevalueofashareplusthevalueofreinvesteddividendspaid.TSRwaschosenasthemostappropriatecomparativemeasureasitfocusesonthedeliveryofshareholdervalueandisawellunderstoodandtestedmechanismtomeasureperformance.

TheconditionsunderwhichPerformanceRightsaregrantedareapprovedbytheBoardinaccordancewiththerulesoftheANZShareOptionPlan.

each performance Right has the following features Performancerightsheldbyeligible

executiveswillbetestedonceonlyagainsttheperformancehurdleattheendofthreeyears;

Subjecttotheperformancehurdlebeingmet,theexecutivehasatwo-yearexercise

periodthatcommencesthreeyearsafterthegrantdate;

Uponexercise,eachPerformanceRightentitlestheexecutivetooneordinaryshare;

Incaseofdismissalforseriousmisconduct,PerformanceRightsareforfeited;

Incaseofresignationorterminationonnotice,onlyPerformanceRightsthatbecomeexercisablebytheendofthenoticeperiodmaybeexercised;

Incaseofretrenchmentorretirement,thePerformanceRightswillgenerallybeperformancetestedatthedateoftermination,andwhereperformancehurdleshavebeenmet,PerformanceRightswillvestonapro-ratabasisandagraceperiodprovidedinwhichtoexercise;

Incaseofdeathortotal&permanentdisablement,theperformancehurdleiswaivedandagraceperiodisprovidedinwhichtoexerciseallPerformanceRights;and

Aperformancehurdleapplies,whichisexplainedbelow.

TheproportionofPerformanceRightsthatbecomeexercisablewilldependuponasinglepointtestingoftheTSRachievedbyANZrelativetothecompaniesinthecomparatorgroup(shownbelow)attheendofathree-yearperiod.AnaveragingcalculationwillbeusedforTSRovera90dayperiodforstartandendvaluesinordertoreducetheimpactofsharepricevolatility.

TSR Vesting Scale

RelativeTSRPerformance %Vesting

<50thpercentile50thto74thpercentile75thpercentileorabove

0%50%–98%100%

Wheremedianperformanceisachieved,executives’totalremunerationwilltypicallybebelowmarketmedianforthefinancialservicesindustry.75thpercentileperformanceisrequiredforfullvestingwhichenablesexecutivestoreceivethefullvalueoftheirLTI.ToensureanindependentTSRmeasurement,ANZengagestheservicesofanexternalorganisation(MacquarieFinancialServices)tocalculateANZ’sperformanceagainsttheTSRhurdle.

Comparator GroupThepeergroupofcompaniesagainstwhichANZ’sTSRperformanceismeasured,comprisesthefollowingcompanies:


AMPLimited

AXAAsiaPacificHoldingsLimited

CommonwealthBankofAustralia

InsuranceAustraliaGroupLimited

MacquarieBankLimited

NationalAustraliaBankLimited

QBEInsuranceGroupLimited

StGeorgeBankLimited

Suncorp-MetwayLimited

WestpacBankingCorporation

ThecompaniesinthiscomparatorgroupwerechosenbecausetheyrepresentANZ’skeycompetitorsinthefinancialservicesindustry,areanappropriatereferencegroupforinvestorsandareofsufficientsizebymarketcapitalizationandweightintheASXTop50.

RefertosectionF11fordetailspertainingtolegacyLTIequityvehicles(whichareyettovest).

Size of LTI GrantsThesizeofindividualLTIgrantsisdeterminedbyanindividual’slevelofresponsibility,performanceandtheassessedpotentialoftheexecutive.Typically,atthemostseniorlevelstheTargetLTIvaluewillrangefromaround13%to28%oftheindividual’stargetrewardmix,asshowninFigure1inSectionC2.

ExecutivesareadvisedoftheirLTIdollarvalue,whichisthenconvertedintoanumberofPerformanceRightsbasedonavaluation.ANZengagesexternalexperts(PricewaterhouseCoopersandMercerFinance&RiskConsulting)toindependentlyvaluethePerformanceRight,takingintoaccountfactors

includingtheperformanceconditions,lifeofinstrument,sharepriceatgrantdateetc.ThesevaluationsarethenreviewedbyKPMGandthehighestvalueisthenapprovedbytheBoardastheallocationvalue.LTIallocationsaremadeannuallyinoraroundNovember.

Example

ExecutivegrantedLTIvalueof$60,000

ApprovedAllocationValuationis$11.60perPerformanceRight

$60,000/$11.60=5,173PerformanceRightsallocatedtoexecutive

C5. peRFoRMAnCe oF AnZTable4showsANZ’sannualperformanceoverthefive-yearperiodspanning1October2002to30September2006.ThetableillustratestheimpactofANZ’sperformanceonshareholderwealth,takingintoaccountdividendpayments,sharepricechangesandothercapitaladjustmentsduringthefinancialyear.

Table 4 FY2002 FY2003 FY2004 FY2005 FY20061

BasicEarningsPerShare(EPS)NPAT($m)TotalDividend(cps)Sharepriceat30September($)TotalShareholderReturn(%)

141.42,322

8516.88

15.3

142.42,348

9517.17

6.7

153.12,815

10119.02

17.0

160.93,018

11024.00

32.6

200.03,688

12526.86

17.1

1 FiguresarebasedonAIFRSresults

Intable4,ANZ’sTotalShareholderReturn(TSR,whichincludessharepricegrowth,dividendsandothercapitaladjustments)hasbeenshownforeachindividualfinancialyearbetween2002and2006.Figure2comparesANZ’sTSRperformanceagainstthemedianTSRoftheLTIcomparatorgroupandtheS&P/ASX200BanksAccumulationIndexoverthe2002to2006measurementperiod.ThedifferencebetweentheS&P/ASX200BanksAccumulationIndexandthemedianofANZ’scomparatorgroupoverthe2005and2006financialyearsisduetotheweightingsintheIndexofthelargebankinginstitutionsthathaveunderperformedcomparativelyduringthisperiod;whereastheorganisationsinANZ’scomparatorgroupareweightedevenly.

180

160

200

220

240

140

120

100

80

Oct

01

Apr 0

2

Oct

02

Apr 0

3

Oct

03

Apr 0

4

Oct

04

Apr 0

5

Oct

05

Apr 0

6

Oct

06

Total shareholder return %

Performance period end date

ANZ TSR

Median of Peer Group

Upper Quartile of Peer Group

S&P/ASX 200 Banks

Accumulation Index

Figure 2: ANZ 5-Year Cumulative Total Shareholder Return Performance


SectionD.ChiefExecutiveOfficer’sremuneration

D1. CHIeF eXeCutIve oFFICeR (Ceo) ReMuneRAtIon oveRvIeWTheCEO(identifiedasaKMP)isANZ’sonlyexecutivedirector.ThestructureofJMcFarlane’sremuneration,whichisinaccordancewithhisemploymentagreement,isasfollows:

Fixed pay:Consistsofsalary,benefitsandsuperannuationcontributions.SinceOctober2003,JMcFarlanehaselectedtoreceivealmostallofhisFixedPayintheformofsharespurchasedundertheDirectors’SharePlan.ThesesharesarenotsubjecttoaperformanceconditionastheyareprovidedinplaceofcashremunerationattheCEO’schoice.However,theyaresubjecttoforfeitureincaseofterminationforseriousmisconduct.

short-term Incentive:TheBoardsetsJMcFarlane’sbalancedscorecardatthebeginningofthefinancialyear.TheBoardthenassessesperformanceagainsttheseobjectivesattheendoftheyeartodeterminetheappropriateincentive(relativetotarget).TheseobjectivesarealignedwiththeachievementofANZ’sbusinessplan,andarethemostappropriateindicatorsofperformance.Theseobjectivesincludeanumberofquantitativeandqualitativemeasures,whichinclude(butarenotlimitedto)financial,customer,people,environmentandcommunitymeasures.JMcFarlane’sSTImaybepaidincashorinsharespurchasedundertheDirectors’SharePlan.JMcFarlanehastypicallyelectedtoreceiveshares.

long-term Incentive:JMcFarlane’sLong-TermIncentiveismadeupofHurdledOptionsandPerformanceSharesasapprovedbyshareholdersatthe2001and2004AnnualGeneralMeetingsrespectively.NoequitywasissuedtoJMcFarlaneinthe2006financialyear.TheperformanceconditionspertainingtotheOptionsandPerformanceSharesissuedduringthe2005yearareindicatedinF11.1HurdledAoptionsandF11.3respectively.TheyarelinkedtoCompanyperformanceandincreasingshareholdervalue.TherearenofurtherLTIallocationsunderhisexistingemploymentcontract.

TheremunerationofJMcFarlanefortheyearended30September2006issetoutinTable1insectionAofthisRemunerationReport.ThemixofremunerationforJMcFarlaneunderhiscurrent contractismadeupasfollows:

FixedRemunerationof$2,200,000perannum;

TargetvariableShort-TermIncentiveof$2,200,000perannum;

Long-TermIncentiveof$2,600,000grantedon31December2004-oneallocationonlyin2005financialyear(basedonvaluationof175,000performancesharesatissue).Note,thefairvalueofLTIequitygrantedsinceDecember2003,andannualisedovertheperiodfromgrantdatetocontractenddateis$1,530,000.Thisamounthasbeenreflectedintherewardmixbarinfigure4below.

VariationstoJMcFarlane’sremunerationstructurewhichwillimpactremunerationinfutureperiods,requireBoardapproval.

shareholding Guideline

TheChiefExecutiveOfficerofANZisexpectedtoaccumulateANZshares,overafiveyearperiod,tothevalueof200%ofhisFixedRemunerationandtomaintainthisshareholdingwhileCEOofANZ.ThisshareholdingguidelinewasintroducedinSeptember2005.TheCEOiscurrentlycompliant,with1,973,422beneficiallyheldshares.

Figure 4: Target reward mix – Chief Executive Officer

37% 37% 26%

Fixed pay %

STI %

LTI %

02 03

2,089

2,308

04 05

2,858

3,133

06

3,560

Figure 3: ANZ–Cash Earnings & Average STI payments ($m)

Average STI payments against target

Cash earnings (AGAAP)1

Cash earnings (AIFRS)2

Target STI

100

125

75

% of target STI paidto executive directors

and disclosed executives

Figure3illustratestherelationshipbetweentheaverageactualSTIpaymentsagainsttargetandtheGroup’sperformancemeasuredusingcashearningsoverthelast5years.TheaverageSTIpaymentsforeachyeararebasedonthoseexecutives(includingtheCEO)disclosedineachrelevantreportingperiod.Asillustratedinthechart,theaverageSTIpaymentsaregenerallyinalignmentwiththecashearningstrend.

02 03

2,089

2,308

04 05

2,858

3,133

06

3,560

Figure 3: ANZ–Cash Earnings & Average STI payments ($m)

Average STI payments against target

Cash earnings (AGAAP)1

Cash earnings (AIFRS)2

Target STI

100

125

75

% of target STI paidto executive directors

and disclosed executives

1 Earningsexcludinggoodwill,significantitemsandNBNZincrementalintegrationcosts.2 Earningsadjustedfornon-coreitemsandAIFRS2005adjustments.


D2. Ceo’s ContRACt teRMs

On26October2004,theCompanyannouncedanextensiontoJMcFarlane’scontract:

Thetermofthecontractwasextendedbyoneyearto30September2007;

Inadditiontomandatorysuperannuationcontributions,theCompanymakesadditionalemployercontributionsof$300,000perannum(effectivefrom1October2003),paidquarterlytoJMcFarlane’schosensuperannuationfund;and

JMcFarlanewasgranted175,000PerformanceShareson31December2004.

Aseparateagreement,madeon23October2001,providesforreimbursementstoJMcFarlaneforanyadditionaltaxliabilitiesthatmayariseonhisUKPensionPlanholdingsasaresultofhiscontinuingAustralianresidency.Underthisagreement,ANZreimbursesJMcFarlaneforanyadditionaltaxliabilityincurredonhisUKPensionPlanduringhisemploymentwithANZ,arisingasaconsequenceofAustralianForeignInvestmentFundrules.IntheeventofdecreasedAustraliantaxliabilitiesduetoadecreasedvalueinJMcFarlane’sUKPensionPlan,thereducedliabilitywillbeusedtooffsetpotentialsubsequentreimbursements.

D3. Ceo’s RetIReMent AnD teRMInAtIon BeneFIts

JMcFarlanecanterminatehisemploymentagreementbyproviding12months’notice.ANZmayterminatetheemploymentagreementbyprovidingnoticeequaltotheunexpiredtermoftheemploymentagreement(whichendson30September2007).IfANZterminatestheemploymentagreementwithoutnoticeandthusbreachesitsobligationtoprovidetherequirednotice,ANZhasagreedwithJMcFarlanethatthedamagespayablebyANZforbreachofcontractwouldbeequaltotheTotalEmploymentCost(TEC)thatwouldotherwisebereceivedovertheremainderofthecontract(TECcomprisessalaryorfees,non-monetarybenefitsandmandatorysuperannuationcontributions).

Incircumstancesofseriousmisconduct,JMcFarlaneisonlyentitledtopaymentofTECuptothedateoftermination.Paymentofaccumulatedsuperannuationbenefitsplusstatutoryentitlementsoflongserviceleaveandannualleave(calculatedonthebasisofsalary)appliesinalleventsofseparation.

IntheeventofresignationnotapprovedbytheBoardordismissalforseriousmisconduct,allunexercisedoptionsandPerformanceShareswillbeforfeited.Intheeventofterminationonnoticeoragreedseparation,allvestedoptionsandPerformanceSharesmustbeexercisedwithin6monthsoftheterminationoragreedseparationdate,subjecttomeetingtherelevantperformancehurdles.Intheeventofseriousmisconduct,sharesheldintheDirectors’SharePlanwillbeforfeited.Onresignationorterminationonnotice,sharesheldundertheDirectorsSharePlanwillbereleased.

InaccordancewithJMcFarlane’scontractvariation(refersectionD2),JMcFarlane’snominatedsuperannuationfundreceives$300,000perannum(effectivefrom1October2003,paidquarterly)inadditiontomandatorysuperannuationcontributions.

D4. Ceo’s pARtICIpAtIon In eQuIty pRoGRAMs

Hurdled Options: Atthe2001AnnualGeneralMeeting,fourtranchesofoptionswereapprovedforgrantingbytheBoard:500,000in2001;1,000,000in2002;1,000,000in2003and500,000in2004.ForoptionsgrantedtotheCEO,theexercisepriceisequaltotheweightedaveragesharepriceontheASXduringthe5tradingdaysimmediatelybeforeoraftertheCompany’sAnnualGeneralMeetingthatimmediatelyprecedestheallocation.Theexerciseoftheseoptionsissubjecttoperformancehurdlesbeingsatisfied.JMcFarlane’sspecificperformancehurdlesareindicatedinsectionF11.1(HurdledA),andforPerformanceSharesinsectionF11.3.ForoptionsgrantedtotheCEO,thelifeandexerciseperiodmaydiffer,asdisclosedinF3.

Performance Shares: 175,000PerformanceShareswereissuedtoJMcFarlaneon31December2004aspartofhiscontractextension,asapprovedbyshareholdersatthe2004AnnualGeneralMeeting.Nodividendswillbepayableonthesharesuntiltheyvest.VestingwillbesubjecttotimeandperformancehurdlesbeingsatisfiedasdetailedinsectionF11.3.AsthesePerformanceSharesweregrantedaspartofJMcFarlane’scontractextensionto30September2007,asopposedtoanewcontract,theconditionsofgrantwerealigned

withthoseoftheoriginalcontract(egthevestingandexerciseperiod)apartfromtheapplicationofaTSRperformancehurdle.

GivenweexpectthedecisionsandactionsofJMcFarlanetobebasedonlong-termconsiderations(withtheimpactofdecisionsandactionstoextendwellbeyondtheendofhiscontract),theadoptionofanexerciseperiod(31December2006to31December2009)thatcommencesbeforeandextendsbeyondhiscontractenddateencouragesabalancedfocus.Theperformancehurdlesensurethatfullbenefitsarenotachievediftargetsarenotmet.

Directors’ Share PlanJMcFarlaneparticipatesintheDirectors’SharePlan,whichisexplainedinsectionB3.

PleaserefertosectionFfordetailsofgrantsandholdings.


SectionE.Disclosedexecutives’contracttermsContractualtermsaresimilar,butdo,onoccasion,varytosuitdifferentneeds.SectionE1detailsthecontractualtermsforthosedisclosedexecutiveswhoareonopen-endedcontracts.SectionE2detailsthecontractualtermsforSirJAnderson,whowasonafixedtermcontract.Note,thecontracttermsdetailthestructureofdisclosedexecutiveremuneration.Variationstotheremunerationstructurewhichwillimpactremunerationinfutureperiods,requiresBoardapproval.

e1. open-enDeD ContRACts: DR RJ eDGAR, e FunKe KuppeR, BC HARtZeR, GK HoDGes, pJ HoDGson, pR MARRIott AnD s tARGett

LengthofContract Open-ended.

FixedRemuneration Remunerationconsistsofsalary,mandatoryemployersuperannuationcontributionsandbenefits.

Short-TermIncentive Eligibletoparticipate.RefertosectionC4.1fordetailsofshort-termincentivearrangements.

Long-TermIncentive EligibletoparticipateattheBoard’sdiscretion–refertosectionC4.2forlong-termincentivearrangements.

Resignation Employmentmaybeterminatedbygiving6months’writtennotice.

Onresignationanyoptionsandunvesteddeferredshareswillbeforfeited.

Retirement Onretirement,sharesandoptionsarereleasedinfull.

TerminationonNoticebyANZ ANZmayterminatetheexecutive’semploymentbyproviding12months’writtennoticeorpaymentinlieuofthenoticeperiodbasedonFixedPay.

OnterminationonnoticebyANZanyoptionsorLTIdeferredsharesthathavevested,orwillvestduringthenoticeperiodwillbereleased,inaccordancewiththeANZShareOptionPlanRules.LTIsharesthathavenotyetvestedwillgenerallybeforfeited,althoughforsomeexecutives(EFunkeKupper,BCHartzerandPRMarriott)theseshareswillbereleasedinfull.DeferredsharesgrantedunderSTIarrangementswillvestinfullforallexecutives.

Thereisdiscretiontopayincentivesonapro-ratabasis(dependingonterminationdateandsubjecttobusinessperformance).

Redundancy IfANZterminatesemploymentforreasonsofbonafideredundancy,aseverancepaymentwillbemadethatisequalto12monthsFixedPay.

AllSTIdeferredsharesarereleased.Alloptionsgrantedsince24April2002arereleasedonapro-ratabasis.AllLTIdeferredsharesarereleasedonapro-ratabasis.

Thereisdiscretiontopayincentivesonapro-ratabasis(dependingonterminationdateandsubjecttobusinessperformance).

DeathorTotalandPermanentDisablement

Alloptionsandsharesarereleased;pro-ratashort-termincentive.

Terminationforseriousmisconduct

ANZmayimmediatelyterminatetheexecutive’semploymentatanytimeinthecaseofseriousmisconduct,andtheemployeewillonlybeentitledtopaymentofFixedPayuptothedateoftermination.Paymentofstatutoryentitlementsoflongserviceleave(onlyifminimum15yearsofservice)andannualleaveappliesinalleventsofseparation.

Onterminationforseriousmisconductanyoptionsandanydeferredsharesstillheldintrustwillbeforfeited.

OtherAspects STargett:SubjecttocontinuedemploymentandtheapprovaloftheBoard,fourtranchestothevalueof$700,000eachofdeferredsharestobegrantedatsixmonthintervalsinMayandNovemberin2004and2005,andHurdledOptionswiththevalueof$750,000grantedwithin3monthsofcommencementofemployment,tocompensateforthelossofequityfromSTargett’spreviousemployer.OnTerminationonNotice,sign-onoptionscanbeexercisedasapro-rataproportiontotheperiodofemployment.Sign-ondeferredshareswillvestinfull,includinganyscheduledtobegrantedduringthenoticeperiod.


e2. FIXeD teRM ContRACt (sIR J AnDeRson)

LengthofContract Contractwaseffectivefrom1December2003to30September2005,andextendedto15April2006.Retiredeffective31December2005.

FixedRemuneration TheFixedPaypackagewasNZD1,000,000perannumandwasinclusiveofemployercontributionstothesuperannuationfund.

Short-TermIncentive STIpaymentsweresubjecttobothbusinessandindividualperformance.Thetargetpaymentwas50%ofFixedPay.

EquityParticipation ZeroPricedOptions(ZPOs)weregrantedaspartofSirJAnderson’scontractundertheANZShareOptionPlan.AZPOisarighttoacquireashareatnilcost.TheyweredesignedtodeliverequitytotheCEOoftheNationalBankofNewZealand(NBNZ)andtomeettheparticularneedsandcircumstancesatthetimeoftheacquisitionofNBNZ.GrantswerefixedatNZD500,000worthofZPOsannually,grantedintwotranchesperannumandwithanilexerciseprice.TheZPOshadnotimebasedvestingcriteria,andsowereabletobeexercisedatanytimeduringemploymentandwithin6monthsoftheterminationofemployment.

Resignation SirJAndersonwasabletoterminatehisemploymentbygiving12months’writtennotice.OnresignationanyZPOsnotexercisedasattheterminationdatewouldlapse.

Retirement ApolicyforpaymentofretirementgratuitieswasinplacewithNBNZemployeespriortotheacquisitionbytheCompanyofNBNZ.ThispolicyhasbeencontinuedforeligiblestaffwhowereANZNationalBankLimitedemployeesasat1December2003,includingSirJAnderson.Underthispolicy,apaymentwasmadetoSirJAndersononhisretirementequaltothenumberoffullyears’servicedividedby35andmultipliedby85%offinishingsalary(wherefinishingsalaryisfixedremunerationlessanysuperannuationcontribution).

TerminationonNoticebyANZ TheemploymentcontractprovidedANZNationalBankLimitedwitharighttoterminateSirJAnderson’semploymentbyprovidingnoticeorpaymentinlieuofnoticeequaltotheunexpiredtermoftheemploymentagreement(whichhadanenddateof15April2006).Onterminationonnotice,anyoptionscouldbeexercisedinaccordancewiththeANZShareOptionPlanRules.

DeathorTotalandPermanentDisablement

ExerciseanyZPOs;prorataincentive.

Terminationforseriousmisconduct

TheemploymentcontractprovidedANZNationalBankLimitedwitharighttoterminateSirJAnderson’semploymentatanytimewithoutnoticeforseriousmisconduct,onthebasisthatSirJAndersonwouldhavebeenentitledtopaymentuptothedateoftermination.OnterminationforseriousmisconductanyZPOswhichhadnotbeenexercisedasattheterminationdatewouldlapse.

e3. pARtICIpAtIon In eQuIty pRoGRAMsAnumberofsharesandoptionsaregrantedtoexecutivesundertheremunerationprogramsdetailedinSectionC.Fordisclosedexecutives,detailsofallgrantsmadeduringtheyearandlegacyLTIprogramsarelistedinSectionF.Aggregateholdingsofsharesandoptionsarealsoshown.ThedeferredsharescomponentoftheLTIisadministeredundertheANZEmployeeShareAcquisitionPlan.Forexecutives,thesharesaredeferredforthreeyears.


SectionF.Equityinstrumentsrelatingtodiscloseddirectorsandexecutives

F1. sHAReHolDInGs oF non-eXeCutIve DIReCtoRs (InCluDInG MoveMents DuRInG tHe 2005 & 2006 yeARs)

2006 Financial Year

Name

Balanceofsharesasat

1Oct20051

Sharesacquiredduringtheyearinlieu

ofsalary2

Sharesresultingfromanyotherchangeduring

theyear3

Balanceofsharesheldas

at30Sept20061,4


atreportsign-offdate1

CBGoodeGClarkRSDeaneJKEllisDMGonskiMAJacksonDEMeiklejohnJPMorschel

535,6375,000

75,36491,19654,90493,297

5,1565,502

26,0461,920

–1,6142,534

––

1,920

65,345––

22,00011,510

–2,000

–

627,0286,920

75,364114,810

68,94893,297

7,1567,422

648,0038,501

75,364115,951

68,94893,297

7,1569,003

2005 Financial Year

Name

Balanceofsharesasat

1Oct20041

Sharesacquiredduringtheyearinlieu

ofsalary2


theyear3


at30Sept20051,5


atreportsign-offdate1

CBGoodeGClark6

JCDahlsen(retired3February2005)RSDeaneJKEllis7

DMGonski7

MAJacksonDEMeiklejohn8

JPMorschelBWScott(retired23April2005)

502,4642,000

121,91575,36484,47652,61293,297

2,6564,000

72,475

20,781–––

1,7032,055

––

1,502–

12,3923,000

(8,441)–

5,017237

–2,500

–(6,494)

535,6375,000

113,47475,36491,19654,90493,297

5,1565,502

65,981

559,4516,766

113,47475,364

115,04267,89293,297

6,3267,268

65,981

1 Balanceofsharesheldat1October2004/2005,30September2005/2006,2November2005and1November2006,includesdirectlyheldshares,nominallyheldsharesandsharesheldby relatedparties.2 AllsharesacquiredinlieuofsalaryweredonesoundertheDirectors’SharePlan(refertosectionB3ofthisRemunerationReportforanoverviewoftheDirectors’SharePlan).3 Othersharesresultingfromanyotherchangesduringtheyearincludethenetresultofanysharespurchased/soldoracquiredundertheDividendReinvestmentPlan.4 Thefollowingshareswerenominallyheldasat30September2006:CBGoode–408,553;GClark–1,920;RSDeane–73,000;JKEllis–47,898;DMGonski–66,076;MAJackson–10,632; DEMeiklejohn–4,654;JPMorschel–3,422.5 Thefollowingshareswerenominallyheldasat30September2005:CBGoode–141,860;RSDeane–73,000;JKEllis–23,900;DMGonski–52,159;MAJackson–10,632;DEMeiklejohn–2,656; JPMorschel–1,502.6 ShareholdingforGClarkincludes3,000sharesheldbyGClark’srelatedpartypreviouslyomitted.7 Balanceofsharesheldasatreportsign-offdate(2005)includessharespurchasedon27October2005undertheDirectors’RetirementBenefitschemepreviouslyomittedforJKEllisandDMGonski.8 ShareholdingexcludessharesheldthroughJBWereandRBCinvestmentproductspreviouslydisclosed.

F2. sHAReHolDInGs oF Ceo (InCluDInG MoveMents DuRInG tHe 2005 & 2006 yeARs)

Balanceofsharesas

at1Oct2005/2006 1

Sharesacquiredduringtheyearinlieuofsalary2

Performancesharesgrantedduringtheyear3,4

Valueofperformancesharesgrantedduringtheyear5

$

Sharesacquiredduringtheyear

throughtheexerciseofoptions6


theyear7


at30Sept2005/20061,8

Balanceofsharesheldasatreport

sign-offdate1

2006 1,819,715 81,118 – – 2,000,000 (1,927,411) 1,973,422 2,074,993

2005 1,690,507 89,995 175,000 2,628,500 500,000 (635,787) 1,819,715 1,820,056

1 Balanceofsharesheldat1October2004/2005,30September2005/2006,2November2005and1November2006includesdirectlyheldshares,nominallyheldsharesandsharesheldby relatedparties.2 AllsharesacquiredinlieuofsalaryweredonesoundertheDirectors’SharePlan(refertosectionB3ofthisRemunerationReportforanoverviewoftheDirectors’SharePlan).3 Thegrantofperformanceshareson31December2004wasapprovedbyshareholdersatthe2004AGM,withtheearliestvestingdatebeing31December2006.RefertosectionF11.3for furtherinformation.4 Nilperformancesharesforfeitedorvested.Themaximumamortisationbalanceis$331,263forsubsequentfinancialyears,howeverthevaluewillbeniliftheminimumperformancehurdleis notachieved.5 Thefairvalueofperformancesharesgrantedduringthe2005financialyear(andapprovedatthe2004AGM)isbasedonthefairvalueofthesharesasat31December2004($15.02)multiplied bythenumbergranted.6 Alloptionsheld/exercisedbytheCEOhavebeenapprovedbyshareholders(December1999andDecember2001).7 Othersharesresultingfromanyotherchangesduringthe2005/2006yearsincludethenetresultofanysharespurchased,sold,oracquiredundertheDividendReinvestmentPlan.For2005,it alsoincludesthosesharesreceivedon28October2004inregardstothe2004incentive(fortheperiodending30September2004),andfor2006itincludesthosesharesreceivedon31October 2005inregardstothe2005incentive(fortheperiodending30September2005)8 1,270,176shareswereheldnominallyasat30September2005and1,486,294sharesasat30September2006.


F3. optIons GRAnteD to Ceo1

FinancialYear 2005 2006

Typeofoptions Grantdate

Firstdateexercisable

Dateofexpiry4

Exerciseprice5

$Numbergranted6,7

Numbervestedduringthe

2005/2006FY

Percentagethatvestedduring

the2005/2006FY%

Vestedandexercisableas

at30Sept2005/2006

Vestedandunexercisableas

at30Sept2005/2006

Hurdled2 31-Dec-01 31-Dec-04 31-Dec-05 16.48 500,000 500,000 100 – –

HurdledA 31-Dec-01 31-Dec-03 31-Dec-07 16.80 500,000 – – 500,000 –

HurdledA 31-Dec-02 31-Dec-04 31-Dec-07 16.69 1,000,000 1,000,000 100 500,000 500,0008

HurdledA 31-Dec-03 31-Dec-05 31-Dec-08 17.48 1,000,000 1,000,000 100 – –

HurdledA3 31-Dec-04 31-Dec-06 31-Dec-08 20.49 500,000 – – – –

Total 3,500,000 2,500,000 1,000,000 500,000

1 AlloptionsgrantedtotheCEOhavebeenapprovedbyshareholders(December1999andDecember2001).2 Theoptionsmaybeexercisedonlyifthe“ANZAccumulationIndex”overtheperiodfromthedateonwhichtheoptionsaregrantedtothelasttradingdayofanymonthoccurringduringtherelevant exerciseperiodequalsorexceedsthe“ASX100AccumulationIndex”calculatedoverthesameperiod.RefertosectionF11.1forHurdledAdetails.3 Thefairvalueperoptionatthe31December2004grantdateis$1.98.RefertosectionF9fordetailsofthevaluationmethodologyandinputs.4 TreatmentofoptionsonterminationofemploymentisexplainedinsectionD3oftheRemunerationReport.5 Theexercisepriceisequaltotheweightedaveragesharepriceduringthe5tradingdaysimmediatelyaftertheCompany’sAnnualGeneralMeeting.Note,theoriginalexercisepriceofoptionsissued priortotheRenouncableRightsissueinNovember2003havebeenreducedby72cents,becauseofthedilutionofsharecapitalassociatedwiththeRenouncableRightsissue.6 Niloptionsforfeitedorexpiredduringtheperiod.7 Themaximumamortisationbalanceis$124,767forsubsequentfinancialyears,howeverthevaluewillbeniliftheminimumperformancehurdlesarenotachieved.8 Theoptionshavemetthetimevestinghurdle,howeveronly50%ofthe1milliongrantedhavepassedtheperformancehurdleatthisstage.

F4. optIon HolDInGs oF Ceo (InCluDInG MoveMents DuRInG tHe 2005 & 2006 yeARs)1

Typeofoptions

Balanceasat1Oct

2005/2006

Grantedduringthe

yearasremuneration1

Valueofoptions

grantedduring

theyear2

$

Exercisedduring

theyear

Dateofexerciseof

options

Numberofordinary

sharesissuedonexercise

ofoptions

Valueofoptions

exercisedduringthe

year3

$

Sharepriceondateof

exerciseofoptions

$

Amountpaidper

share$

Balanceasat

30Sept2005/2006

Totalvalueofoptions

grantedandexercised

duringtheyear

$

2006Hurdled 3,000,000 – – 500,000

500,0001,000,000

03-Jul-0604-Jul-06

31-Aug-06

500,000500,000

1,000,000

4,955,0005,030,0009,730,000

26.7126.7527.21

16.8016.6917.48

1,000,000 4,955,0005,030,0009,730,000

2005Hurdled 3,000,000 500,000 990,000 500,000 08-Aug-05 500,000 2,530,000 21.54 16.48 3,000,000 3,520,000

1 AlloptionsgrantedtotheCEOhavebeenapprovedbyshareholders(December1999andDecember2001).2 Thevalueofoptionsgrantedduringthe2005yearisbasedonthefairvalueoftheoption($1.98)multipliedbythenumbergranted.RefertosectionF9fordetailsofthevaluationmethodology andinputs.3 ThevalueperoptionusedinthiscalculationisbasedonthedifferencebetweenthevolumeweightedaveragepriceoftheCompany’ssharestradedontheASXonthedaytheoptionswere exercised,andtheexerciseprice.Thisisthenmultipliedbythenumbergranted.


F5. DeFeRReD sHARes GRAnteD to DIsCloseD eXeCutIves


LTIDeferredShares1

Name Grantdate VestingdateNumbergranted2,3

Valueofdeferredsharesgranted

duringthe2005or2006year4

$

Numberthatvestedduring

the2005or2006year


the2005or2006year

%

DrRJEdgar 24-Oct-01 24-Oct-04 2,700 2,700 10024-Apr-02 24-Apr-05 3,200 3,200 10023-Oct-02 23-Oct-05 7,600 7,600 100

20-May-03 20-May-06 8,500 8,500 10005-Nov-03 05-Nov-06 8,889 – –05-Nov-03 05-Nov-06 25,000 – –11-May-04 11-May-07 8,452 – –05-Nov-04 05-Nov-07 6,519 134,941 – –05-Nov-04 05-Nov-07 26,000 538,189 – –

Total 96,860 673,130 22,000 23EFunkeKupper 24-Oct-01 24-Oct-04 6,000 6,000 100

24-Apr-02 24-Apr-05 4,500 4,500 10023-Oct-02 23-Oct-05 8,000 8,000 100

20-May-03 20-May-06 6,800 6,800 10005-Nov-03 05-Nov-06 6,838 – –11-May-04 11-May-07 6,256 – –05-Nov-04 05-Nov-07 6,018 124,570 – –

Total 44,412 124,570 25,300 57BCHartzer 24-Oct-01 24-Oct-04 2,800 2,800 100

24-Apr-02 24-Apr-05 4,600 4,600 10023-Oct-02 23-Oct-05 6,600 6,600 100


Total 44,170 188,925 20,500 46GKHodges 24-Oct-01 24-Oct-04 1,000 1,000 100

24-Apr-02 24-Apr-05 1,400 1,400 10023-Oct-02 23-Oct-05 3,800 3,800 100


Total 32,507 155,702 12,700 39PJHodgson 24-Apr-02 24-Apr-05 800 800 100

23-Oct-02 23-Oct-05 900 900 10020-May-03 20-May-06 1,000 1,000 10005-Nov-03 05-Nov-03 1,097 – –11-May-04 11-May-07 1,111 – –05-Nov-04 05-Nov-07 1,974 40,822 – –08-Dec-04 08-Dec-07 12,481 248,402 – –

Total 19,363 289,224 2,700 14PRMarriott 24-Oct-01 24-Oct-04 5,700 5,700 100

24-Apr-02 24-Apr-05 5,500 5,500 10023-Oct-02 23-Oct-05 9,300 9,300 100


Total 56,923 175,429 29,600 52



LTIDeferredShares1(continued)




$


the2005or2006year


the2005or2006year

%

STargett 05-Nov-04 05-Nov-07 6,519 134,941 – –

1 LTIdeferredshareswerelastgrantedundertheANZLong-TermIncentivePrograminthe2005year,andthereforewerenotgrantedinthe2006year.LTIisnowdeliveredintheformofPerformance Rights(refertosectionC4.2).TheLTIdeferredsharesarerestrictedfor3yearsandmaybeheldintrustbeyondthistime.RefertosectionF11.2oftheRemunerationReportformoredetails.2 Nilsharesforfeitedduringthe2005&2006years.3 Themaximumamortisationbalanceforeachexecutiveforsubsequentfinancialyearsisasfollows:DrRJEdgar$296,805;BCHartzer$99,681;GKHodges$84,525;PJHodgson$118,134; PRMarriott$103,853;STargett$49,417.4 Thevalueofsharesgrantedduringthe2005yearisbasedonthevolumeweightedaveragepriceoftheCompany’ssharestradedontheASXonthedaythesharesweregranted,multipliedbythe numbergranted.

STIDeferredShares1


Valueofdeferredsharesgrantedduring

theyear$


the2005or2006year


the2005or2006year

%

DrRJEdgar 24-Oct-01 24-Oct-04 3,891 3,891 10024-Apr-02 24-Apr-05 4,302 4,302 10023-Oct-02 23-Oct-05 6,423 6,423 100

20-May-03 20-May-06 5,622 5,622 10005-Nov-03 05-Nov-06 6,781 – –11-May-04 11-May-07 7,683 – –

Total 34,702 – 20,238 58EFunkeKupper 24-Oct-01 24-Oct-04 6,510 6,510 100

24-Apr-02 24-Apr-05 5,724 5,724 10023-Oct-02 23-Oct-05 8,554 8,554 100


Total 39,624 – 24,936 63BCHartzer 24-Oct-01 24-Oct-04 7,058 7,058 100

24-Apr-02 24-Apr-05 6,364 6,364 10023-Oct-02 23-Oct-05 4,457 4,457 100


Total 34,437 – 19,871 58GKHodges 24-Oct-01 24-Oct-04 3,128 3,128 100

24-Apr-02 24-Apr-05 3,324 3,324 10023-Oct-02 23-Oct-05 4,761 4,761 100


Total 26,498 – 15,716 59PJHodgson 24-Apr-02 24-Apr-05 4,888 4,888 100

23-Oct-02 23-Oct-05 8,305 8,305 10020-May-03 20-May-06 4,776 4,776 10005-Nov-03 05-Nov-06 7,835 – –11-May-04 11-May-07 9,330 – –05-Nov-04 05-Nov-05 4,2624 4,262 100

Total 39,396 – 22,231 56PRMarriott 24-Oct-01 24-Oct-04 5,963 5,963 100

24-Apr-02 24-Apr-05 5,475 5,475 10023-Oct-02 23-Oct-05 8,527 8,527 100


Total 42,950 – 25,368 59

1 STIdeferredsharesissuedweregrantedunderahistoricalANZShort-TermIncentiveProgram.(STIisnowdeliveredgenerallyas100%cash,thereforenoSTIdeferredsharesweregrantedtothe Executivesduringtheyear.RefertosectionC4.1).STIdeferredsharesarerestrictedfor3yearsandmaybeheldintrustbeyondthistime.2 Nilsharesforfeitedduringthe2005&2006years.3 Themaximumamortisationbalanceforeachexecutiveforsubsequentfinancialyearsisasfollows:DrRJEdgar$32,162;BCHartzer$30,848;GKHodges$23,743;PJHodgson$38,831; PRMarriott$39,922.4 TheseSTIdeferredsharesweregrantedaspartoftheInstitutionalBonusSchemein2004.20%ofbonusamountsinexcessof$125,000weredeliveredasoneyeardeferredshares.


F5. DeFeRReD sHARes GRAnteD to DIsCloseD eXeCutIves (ContInueD)FinancialYear 2005 2006

OtherDeferredShares1




$

STargett 11-May-04 11-May-07 38,419 n/a05-Nov-04 05-Nov-07 35,105 726,65913-May-05 13-May-08 32,080 707,33907-Nov-05 07-Nov-08 29,838 703,282

Total 135,442 2,137,280

1 OthersharesissuedtoSTargettrelatetotheissueofdeferredshares(fourtranchestothevalueof$700,000eachissuedat6monthintervalsinMayandNovemberin2004and2005,subjectto Boardapprovalandcontinuingemployment)tocompensateSTargettforthelossofaccesstoequityasaresultofhisresignationfromhispreviousemployeruponcommencementwithANZ.2 Nilsharesforfeitedorvestedduringthe2005&2006years.3 Themaximumamortisationbalanceis$1,282,669forsubsequentfinancialyears.4 Thevalueofsharesgrantedduringthe2005yearisbasedonthevolumeweightedaveragepriceoftheCompany’ssharestradedontheASXonthedaythesharesweregranted,multipliedbythe numbergranted.

F6. sHAReHolDInGs oF DIsCloseD eXeCutIves (InCluDInG MoveMents DuRInG tHe 2005 & 2006 yeARs)

2006 Financial Year

Name

Balanceofsharesasat1Oct2005 1

Sharesgrantedduringtheyear

asremuneration

Numberofsharesacquiredduringtheyear

throughexerciseofoptions


theyear2

Balanceofshares

heldasat30Sept20061,3

DrRJEdgarEFunkeKupper5

BCHartzerGKHodgesPJHodgsonPRMarriottSTargett

421,733189,892

88,638171,919

59,557641,633113,123

––––––

29,838

–––

67,400–

168,000–

–(89,450)

7,445–

(5,798)(149,120)

–

421,733100,442

96,083239,319

53,759660,513142,961

2005 Financial Year

Name

Balanceofsharesasat1Oct2004 1

Sharesgrantedduringtheyear

asremuneration

Numberofsharesacquiredduringtheyear

throughexerciseofoptions


theyear2

Balanceofshares

heldasat30Sept20051,4

SirJAndersonDrRJEdgarEFunkeKupper5

BCHartzer6

GKHodgesPRMarriottSTargett

12,022384,214185,008

79,046164,397677,867

38,419

–32,519

6,0189,1277,5228,475

73,704

22,37075,000

134,000–

55,00080,000

–

–(70,000)

(135,134)465

(55,000)(124,709)

1,000

34,392421,733189,892

88,638171,919641,633113,123

1 Balanceofsharesheldat1October2004/2005and30September2005/2006,includedirectlyheldshares,nominallyheldsharesandsharesheldbyrelatedparties.2 Othersharesresultingfromanyotherchangesduringtheyearincludethenetresultofanysharespurchased,orsoldoranyacquiredundertheDividendReinvestmentPlan.3 Thefollowingshareswereheldnominallyasat30September2006:DrRJEdgar–213,510;EFunkeKupper–0;BCHartzer–78,607;GKHodges–104,012;PJHodgson–53,759; PRMarriott–177,930;STargett–141,961.4 Thefollowingshareswereheldnominallyasat30September2005:SirJAnderson–55;DrRJEdgar–213,510;EFunkeKupper–189,242;BCHartzer–78,607;GKHodges–104,012; PRMarriott–177,930;STargett–112,123.5 AmountsshowndonotincludeANZStapledExchangeablePreferredSecurities(ANZStEPS).ElmerFunkeKupperheld500ANZStEPSasat1October2005;thisholdingremainedunchanged uptoandincluding30September2006.NootherdisclosedexecutivesheldANZStEPS.6 ShareholdingforGKHodgesincludes25,000sharesheldbyGKHodges’srelatedpartypreviouslyomitted.

F7. optIons GRAnteD to DIsCloseD eXeCutIves1 FinancialYear 2005 2006

NameTypeofoptions2

Grantdate

Firstdate

exercisableDateofexpiry3

Exerciseprice4,5

$ Number

granted6,7

Numbervested

duringthe2005or

2006year


the2005or2006year

%

Vestedandexercisable

asat30Sept2005or2006

SirJAnderson Zero-Priced 05-Nov-04 05-Nov-04 04-Nov-06 – 11,699 11,699 100 –Zero-Priced 13-May-05 13-May-05 12-May-07 – 10,671 10,671 100 –

Total 22,370 22,370 100 –DrRJEdgar HurdledA 24-Oct-01 25-Oct-04 24-Oct-08 16.33 34,000 34,000 100 –

HurdledA 24-Apr-02 24-Apr-05 24-Apr-09 18.03 41,000 41,000 100 –IndexLinked 23-Oct-02 23-Oct-05 22-Oct-09 17.34 125,000 125,000 100 –IndexLinked 20-May-03 20-May-06 19-May-10 17.60 147,000 147,000 100 –HurdledA 05-Nov-03 05-Nov-06 04-Nov-10 17.55 66,666 – – –HurdledA 11-May-04 11-May-07 10-May-11 18.22 63,115 – – –HurdledB 05-Nov-04 05-Nov-07 04-Nov-11 20.68 52,000 – – –PerformanceRights 18-Nov-05 19-Nov-08 18-Nov-10 – 60,346 – – –

Total 589,127 347,000 59 –


F7. optIons GRAnteD to DIsCloseD eXeCutIves1 (ContInueD) FinancialYear 2005 2006

NameTypeofoptions2

Grantdate

Firstdate

exercisableDateofexpiry3

Exerciseprice4,5

$ Number

granted6,7

Numbervested

duringthe2005or

2006year


the2005or2006year

%

Vestedandexercisable

asat30Sept2005or2006

EFunkeKupper8 HurdledA 24-Oct-01 25-Oct-04 24-Oct-08 16.33 77,000 77,000 100 –HurdledA 24-Apr-02 24-Apr-05 24-Apr-09 18.03 57,000 57,000 100 –IndexLinked 23-Oct-02 23-Oct-05 22-Oct-09 17.34 131,000 131,000 100 –IndexLinked 20-May-03 20-May-06 19-May-10 17.60 119,000 119,000 100 –HurdledA 05-Nov-03 05-Nov-06 04-Nov-10 17.55 51,282 – – –HurdledA 11-May-04 11-May-07 10-May-11 18.22 46,722 – – –HurdledB 05-Nov-04 05-Nov-07 04-Nov-11 20.68 48,000 – – –PerformanceRights 18-Nov-05 19-Nov-08 18-Nov-10 0.00 45,518 – – –

Total 575,522 384,000 67 –BCHartzer HurdledA 24-Apr-01 25-Apr-04 24-Apr-08 12.98 42,000 – – 42,000

HurdledA 24-Oct-01 25-Oct-04 24-Oct-08 16.33 36,000 36,000 100 36,000HurdledA 24-Apr-02 24-Apr-05 24-Apr-09 18.03 59,000 59,000 100 59,000HurdledA 24-Apr-02 24-Apr-05 24-Apr-09 18.03 50,000 50,000 100 50,000IndexLinked 23-Oct-02 23-Oct-05 22-Oct-09 17.34 109,000 109,000 100 –IndexLinked 20-May-03 20-May-06 19-May-10 17.60 113,000 113,000 100 –HurdledA 05-Nov-03 05-Nov-06 04-Nov-10 17.55 55,555 – – –HurdledA 11-May-04 11-May-07 10-May-11 18.22 53,279 – – –HurdledB 05-Nov-04 05-Nov-07 04-Nov-11 20.68 72,800 – – –PerformanceRights 18-Nov-05 19-Nov-08 18-Nov-10 0.00 64,656 – – –

Total 655,290 367,000 56 187,000GKHodges HurdledA 24-Oct-01 25-Oct-04 24-Oct-08 16.33 13,000 13,000 100 –

HurdledA 24-Apr-02 24-Apr-05 24-Apr-09 18.03 17,400 17,400 100 17,400HurdledA 24-Apr-02 24-Apr-05 24-Apr-09 18.03 50,000 50,000 100 50,000IndexLinked 23-Oct-02 23-Oct-05 22-Oct-09 17.34 63,000 63,000 100 –IndexLinked 20-May-03 20-May-06 19-May-10 17.60 113,000 113,000 100 –HurdledA 05-Nov-03 05-Nov-06 04-Nov-10 17.55 42,735 – – –HurdledA 11-May-04 11-May-07 10-May-11 18.22 49,181 – – –HurdledB 05-Nov-04 05-Nov-07 04-Nov-11 20.68 60,000 – – –PerformanceRights 18-Nov-05 19-Nov-08 18-Nov-10 0.00 60,346 – – –

Total 468,662 256,400 55 67,400PJHodgson HurdledA 24-Oct-01 25-Oct-04 24-Oct-08 16.33 9,000 9,000 100 9,000

HurdledA 24-Apr-02 24-Apr-05 24-Apr-09 18.03 9,600 9,600 100 9,600IndexLinked 23-Oct-02 23-Oct-05 22-Oct-09 17.34 14,700 14,700 100 –IndexLinked 20-May-03 20-May-06 19-May-10 17.60 17,200 17,200 100 –HurdledA 05-Nov-03 05-Nov-06 04-Nov-10 17.55 8,221 – – –HurdledA 11-May-04 11-May-07 10-May-11 18.22 8,300 – – –HurdledB 05-Nov-04 05-Nov-07 04-Nov-11 20.68 15,750 – – –PerformanceRights 18-Nov-05 19-Nov-08 18-Nov-10 0.00 51,725 – – –

Total 134,496 50,500 38 18,600PRMarriott HurdledA 23-Feb-00 23-Feb-03 22-Feb-07 9.39 25,000 – – 25,000

HurdledA 21-Nov-00 22-Nov-03 21-Nov-07 13.62 170,000 – – 170,000HurdledA 24-Apr-01 25-Apr-04 24-Apr-08 12.98 80,000 – – –HurdledA 24-Oct-01 25-Oct-04 24-Oct-08 16.33 73,000 73,000 100 73,000HurdledA 24-Apr-02 24-Apr-05 24-Apr-09 18.03 70,000 70,000 100 70,000IndexLinked 23-Oct-02 23-Oct-05 22-Oct-09 17.34 153,000 153,000 100 –IndexLinked 20-May-03 20-May-06 19-May-10 17.60 158,000 158,000 100 –HurdledA 05-Nov-03 05-Nov-06 04-Nov-10 17.55 71,794 – – –HurdledA 11-May-04 11-May-07 10-May-11 18.22 69,263 – – –HurdledB 05-Nov-04 05-Nov-07 04-Nov-11 20.68 67,600 – – –PerformanceRights 18-Nov-05 19-Nov-08 18-Nov-10 0.00 62,501 – – –

Total 1,000,158 454,000 45 338,000STargett9 HurdledA 11-May-04 11-May-07 10-May-11 18.22 307,377 – – –

HurdledB 05-Nov-04 05-Nov-07 04-Nov-11 20.68 52,000 – – –PerformanceRights 18-Nov-05 19-Nov-08 18-Nov-10 0.00 64,657 – – –

Total 424,034 – – –

1 Optionsgrantedpertainstothoseoptionsgranted,vestedorexercisedduringtheyear,optionsyettovestandanyunexercisedoptions.2 RefertosectionF11.1formoredetailspertainingtohurdledA,hurdledBandindexlinkedoptions.RefertosectionE2forfurtherinformationonzeropricedoptionsgrantedtoSirJAnderson.3 TreatmentofoptionsonterminationofemploymentisexplainedinsectionEoftheRemunerationReport.4 TheexercisepriceforhurdledA&Boptionsandindexlinkedoptionsisequaltotheweightedaveragesharepriceoverthe5tradingdaysuptoandincludingthegrantdate.Theexercisepriceforzero-priced optionsandperformancerightsisnil.Note,theoriginalexercisepriceofoptionsissuedpriortotheRenouncableRightsissueinNovember2003havebeenreducedby72cents,becauseofthedilutionof sharecapitalassociatedwiththeRenouncableRightsissue.Givenindex-linkedoptionshaveadynamicexerciseprice,theoriginalexercisepriceisshowninF7(refertoF11.1formoredetails).5 RefertosectionF9fordetailsofthevaluationmethodologyandinputs.6 Forthe2005report,noadditionaloptionsweregrantedintheperioduptoandincluding2November2005.Forthe2006report,PerformanceRightsweregrantedon24October2006(beforethe reportsign-offdate).Theallocationpricewas$13.08withanexpirydateof5yearsfromthedateofgrant.ThenumberofPerformanceRightsgrantedtoeachdisclosedexecutiveisasfollows: DrRJEdgar45,872;BCHartzer64,985;GKHodges57,340;PJHodgson45,872;PRMarriott57,340;STargett57,340.Theseamountsrelatetothe2007financialyear.7 Themaximumamortisationbalanceforeachexecutiveforsubsequentfinancialyearsisasfollows:DrRJEdgar$584,181;BCHartzer$633,200;GKHodges$582,742;PJHodgson$447,821; PRMarriott$619,771;STargett$736,140.Thevaluewillbenilhowever,iftheminimumperformancehurdlesarenotachieved.8 EFunkeKupperforfeited441,522options(unexercisedoptionsgrantedfrom23October2002)in2006atthetimeofresignation.9 STargettwasgrantedHurdledOptionstocompensateforthelossofequityfromSTargett’spreviousemployer.


F8. optIon HolDInGs oF DIsCloseD eXeCutIves (InCluDInG MoveMents DuRInG tHe 2005 & 2006 yeARs)

2006 Financial Year

NameTypeofoptions

Balanceasat1Oct2005

Grantedduringtheyearas

remuneration

Resultingfromanyotherchange

duringyear2

Valueofoptionsgrantedduring

theyear1

$Exercisedduring

theyearDateofexercise

ofoptions

Numberofordinarysharesissuedon

exerciseofoptions

Valueofoptionsexercisedduring

theyear3

$

Sharepriceondateofexercise

ofoptions$

Amountpaidpershare

$Balanceasat30Sept20065

DrRJEdgar Hurdled

Index-LinkedPerformanceRights

181,781

272,000–

–

–60,346

–

––

–

––

––––

n/an/a

––

––––

n/an/a

––

n/an/a

––

n/an/a

––

181,781

272,00060,346

EFunkeKupper Hurdled


146,004

250,000–

–

–45,518

(146,004)

(250,000)(45,518)

–

––

––––

––––

––––

––––

––––

––––

––––

BCHartzer HurdledIndex-LinkedPerformanceRights

368,634222,000

–

––

64,656

–––

–––

–––

–––

–––

–––

–––

–––

368,634222,000

64,656

GKHodges Hurdled


219,316

176,000–

–

–60,346

–

––

–

––

17,40050,000

––

17-May-0617-May-06

––

17,40050,000

––

158,166454,500

––

27.1227.12

––

18.0318.03

––

151,916

176,00060,346

PJHodgson Hurdled


50,871

31,900–

–

–51,725

–

––

–

––

––––

––––

––––

––––

––––

––––

50,871

31,90051,725

PRMarriott Hurdled

Index-LinkedPerformanceRightsOther4

546,657

311,000–

11,442

–

–62,501

–

–

–––

–

–––

25,00073,00070,000

–––

10-Nov-0511-Nov-0511-Nov-05

–––

25,00073,00070,000

–––

342,000511,730371,700

–––

23.0723.3423.34

–––

9.3916.3318.03

–––

378,657––

311,00062,50111,442

STargett HurdledPerformanceRights

359,377–

–64,657

––

––

––

––

––

––

––

––

359,37764,657

2005 Financial Year

NameTypeofoptions

Balanceasat1Oct2004

Grantedduringtheyearas

remuneration

Resultingfromanyotherchange

duringyear

Valueofoptionsgrantedduring

theyear1

$Exercisedduring

theyearDateofexercise

ofoptions

Numberofordinarysharesissuedon

exerciseofoptions

Valueofoptionsexercisedduring

theyear3

$

Sharepriceondateofexercise

ofoptions$

Amountpaidpershare

$Balanceasat30Sept20056

SirJAnderson Zero-priced – 22,370 – 477,452 11,69910,671

10-Nov-0417-May-05

11,69910,671

233,515229,533

19.9621.51

00.0000.00

–

DrRJEdgar Hurdled

Index-Linked

204,781

272,000

52,000

–

–

–

130,000

–

34,00041,000

–

20-May-0520-May-05

–

34,00041,000

–

187,982156,984

–

21.8621.86

–

16.3318.03

–

181,781

272,000

EFunkeKupper Hurdled

Index-Linked

232,004

250,000

48,000

–

–

–

120,000

–

77,00057,000

–

27-Oct-0406-May-05

–

77,00057,000

–

264,403214,666

–

19.7621.80

–

16.3318.03

–

146,004

250,000

BCHartzer HurdledIndex-Linked

295,834222,000

72,800–

––

182,000–

––

––

––

––

––

––

368,634222,000

GKHodges Hurdled

Index-Linked

214,316

176,000

60,000

–

–

–

150,000

–

26,00016,00013,000

–

20-May-0520-May-0520-May-05

–

26,00016,00013,000

–

214,211142,062

71,875–

21.8621.8621.86

–

13.6212.9816.33

–

219,316

176,000

PRMarriott HurdledIndex-LinkedOther4

559,057311,000

11,000

67,600––

––

442

169,000––

80,000––

11-May-05––

80,000––

693,116––

21.64––

12.98––

546,657311,000

11,442

STargett Hurdled 307,377 52,000 – 130,000 – – – – – – 359,377

1 Thevalueofoptionsgrantedduringtheyearisbasedonthefairvalueoftheoptionmultipliedbythenumbergranted.RefertosectionF9fordetailsofthevaluationmethodologyandinputs.2 ReferstoforfeitureofoptionsuponresignationforEFunkeKupper.Valueofoptionsonforfeiturewas$2,229,912.3 ThevalueperoptionusedinthiscalculationisbasedonthedifferencebetweenthevolumeweightedaveragepriceoftheCompany’ssharestradedontheASXonthedaytheoptionswere exercised,andtheexerciseprice.Thisisthenmultipliedbythenumbergranted.4 Otherreferstoshareoptionsgrantedtoarelatedparty.11,000oftheseoptionswerevestedandexercisableasat30September2005and30September2006.5 Aggregatevalueofoptionsexercised,grantedandforfeitedduringthe2006yearforeachdisclosedexecutiveisasfollows:PRMarriott–$1,225,430;EFunkeKupper–$2,229,912; GKHodges–$612,666.6 Aggregatevalueofoptionsexercised,grantedandforfeitedduringthe2005yearforeachdisclosedexecutiveisasfollows:SirJAnderson–$940,500;DrRJEdgar–$474,966; EFunkeKupper–$599,069;BCHartzer–$182,000;GKHodges–$578,148;PRMarriott–$862,166;STargett–$130,000.


F11. leGACy lonG teRM InCentIve (ltI) pRoGRAMs

F11.1 options (Granted prior to october 2005)

Eachoptionhasthefollowingfeatures:

Anexerciseprice(orforindex-linkedoptions,theoriginalexerciseprice)thatissetequaltotheweightedaveragesalepriceofallfullypaidordinarysharesintheCompanysoldontheAustralianStockExchangeduringthe1weekpriortoandincludingthedateofgrant;

Amaximumlifeof7yearsandanexerciseperiodthatcommences3yearsafterthedateofgrant,subjecttoperformancehurdlesbeingcleared.Optionsarere-testedmonthly(ifrequired)afterthecommencementoftheexerciseperiod;

Uponexercise,eachoptionentitlestheoption-holdertooneordinaryshare;

Incaseofresignationorterminationonnoticeordismissalformisconduct:optionsareforfeited;

Incaseofredundancy:optionsarepro-ratedandagraceperiodisprovidedinwhichtoexercisetheremainingoptions(withhurdleswaived,ifapplicable);

Incaseofretirement,deathortotal&permanentdisablement:Agraceperiodisprovidedinwhichtoexercisealloptions(withhurdleswaived,ifapplicable);and

Performancehurdles,whichareexplainedbelowforeachtypeofoption.

Hurdled Options (Hurdled B) (Granted November 2004)InNovember2004hurdledoptionsweregrantedwitharelativeTSRperformancehurdleattached.

TheproportionofoptionsthatbecomeexercisablewilldependupontheTSRachievedbyANZrelativetothecompanies

inthecomparatorgroupshownbelow.PerformanceequaltothemedianTSRofthecomparatorgroupwillresultinhalftheoptionsbecomingexercisable.Performanceabovemedianwillresultinfurtheroptionsbecomingexercisable,increasingonastraight-linebasisuntilalloftheoptionsbecomeexercisablewhereANZ’sTSRisatorabovethe75thpercentileinthecomparatorgroup.

Comparator GroupAMPLimited







StGeorgeBankLimited



F9.OPTIONVALUATIONS

Optiontype Grantdate

Optionvalue1

$

Exerciseprice(5dayVWAP)

$

Sharepriceatgrant

$

ANZexpectedvolatility2

%

Optionterm

(years)

Vestingperiod(years)

Expectedlife

(years)

Expecteddividend

yield3

%

Riskfreeinterest

rate4

%

HurdledHurdled(CEO)Zero-pricedZero-pricedZero-pricedPerformanceRights

05-Nov-0431-Dec-0405-Nov-0413-May-0507-Nov-0518-Nov-05

2.621.98

20.7022.0523.5711.64

20.6820.49

––––

20.7720.5920.7722.1523.6024.05

18.5016.50

n/an/an/a

15.00

742215

32–––3

32

n/an/an/a

4

5.305.50n/an/an/a

5.00

5.245.16n/an/an/a

5.31

1 TheBinomialOptionPricingModel(“themodel”)isusedtoassessthevalueofANZ’soptionsandPerformanceRights(otherthanzeropricedoptionsgrantedtoSirJAnderson,forwhichthevalue isthevolumeweightedaveragepriceoftheCompany’ssharestradedontheASXonthedaytheoptionsweregranted).ThemodelutilisesprobabilitytheorytodeterminethevalueofanANZoption basedonlikelysharepricesattheexpirydateoftheoption.InaccordancewithAASB2,themodelreflectsboththeperformancehurdlesthatcurrentlyapplytotheHurdledOptionsandthenon transferabilityoftheoptions.UnderthetermsoftheOptions,thehurdleconditions(outlinedinsectionF11.1)mustbemetbeforetheoptionsmaybeexercisedduringtheexerciseperiod.2 ExpectedvolatilityrepresentsameasureoftheamountbywhichANZ’ssharepriceisexpectedtofluctuateoverthelifeoftheoptions.Themeasureofvolatilityusedinthemodelistheannualised standarddeviationofthecontinuouslycompoundedratesofreturnonthehistoricalsharepriceoveradefinedperiodoftimeprecedingthedateofgrant.Thishistoricalaverageannualisedvolatility isthenusedtoestimateareasonableexpectedvolatilityovertheexpectedlifeoftheoptions.3 InestimatingthefairvalueoftheANZoptiongrant,expecteddividendswereincludedintheapplicationofthemodel.Theexpecteddividendyieldappliedtothemodelwasbasedonananalysis ofANZ’shistoricaldividendpaymentsandyields.4 Therisk-freeinterestrateisbasedontheimpliedyieldcurrentlyavailableonzero-couponbondsissuedbytheAustraliangovernment,witharemainingtermequaltotheexpectedlifeof ANZ’soptions.

F10.PERFORMANCESHAREVALUATION

Sharetype Grantdate

Sharevalue1

$

Sharepriceatgrant

$

ANZexpectedvolatility2

%

Termofshares(years)

Vestingperiod(years)

Expectedlife

(years)

Expecteddividend

yield3

%

Riskfreeinterest

rate4

%

CEOPerformanceShares 31-Dec-04 15.02 20.59 16.50 5 2 2 5.40 5.00

1 TheBinomialPricingModel(“themodel”)isusedtoassessthevalueofthePerformanceShares.InaccordancewithAASB2,themodelutilisesprobabilitytheorytodeterminethevalueofthe performanceshareswhichalsoreflectstheperformancehurdle.Underthetermsoftheperformanceshares,thehurdleconditions(outlinedinsectionF11.3)mustbemetbeforetheshares canvest.2 ExpectedvolatilityrepresentsameasureoftheamountbywhichANZ’ssharepriceisexpectedtofluctuateoverthelifeoftheoptions.Themeasureofvolatilityusedinthemodelistheannualised standarddeviationofthecontinuouslycompoundedratesofreturnonthehistoricalsharepriceoveradefinedperiodoftimeprecedingthedateofgrant.Thishistoricalaverageannualisedvolatility isthenusedtoestimateareasonableexpectedvolatilityovertheexpectedlifeoftheperformanceshares.3 Inestimatingthefairvalueoftheperformanceshares,expecteddividendswereincludedintheapplicationofthemodel.Theexpecteddividendyieldappliedtothemodelwasbasedonananalysis ofANZ’shistoricaldividendpaymentsandyields.4 Therisk-freeinterestrateisbasedontheimpliedyieldcurrentlyavailableonzero-couponbondsissuedbytheAustraliangovernment,witharemainingtermequaltotheexpectedlifeofthe performanceshares.


Hurdled Options (Hurdled A) (Granted to Executives from February 2000 until July 2002, and from November 2003 until May 2004. Granted to CEO from December 2001 until December 2004.)UntilMay2004,hurdledoptionsweregrantedtoexecutiveswiththefollowingperformancehurdlesattached.ThefollowingperformancehurdlesalsopertaintotheoptionsgrantedtotheCEO:

1.HalftheoptionsmayonlybeexercisedonceANZ’sTSRexceedsthepercentagechangeintheS&P/ASX200Banks(IndustryGroup)AccumulationIndex,measuredoverthesameperiod(sinceissue)andcalculatedasatthelasttradingdayofanymonth(oncetheexerciseperiodhascommenced);and

2.TheotherhalfofhurdledoptionsmayonlybeexercisedoncetheANZTSRexceedsthepercentagechangeintheS&P/ASX100AccumulationIndex,measuredoverthesameperiod(sinceissue)andcalculatedasatthelasttradingdayofanymonth(oncetheexerciseperiodhascommenced).

Index-linked options (Granted from October 2002 to May 2003)Index-linkedoptionshaveadynamicexercisepricethatactsasabuilt-inperformancehurdle,i.e.theexercisepriceisadjustedinlinewiththemovementintheS&P/ASX200Banks(IndustryGroup)AccumulationIndex(excludingANZ).Asanadditionalconstraint,theadjustedexercisepricecanonlybesetatorabovetheoriginalexerciseprice.Theyareexercisablebetweenthe3rdand7thyearaftergrantdate,subjecttotheadjustedexercisepricebeingabovetheprevailingshareprice.

F11.2 Deferred shares (Granted from February 2000)

DeferredSharesgrantedundertheLTIarrangementsweredesignedtorewardexecutivesforsuperiorgrowthwhilstalsoencouragingexecutiveretentionandanincreaseintheCompany’sshareprice.

Sharesaresubjecttoatime-basedvestinghurdleof3years,duringwhichtimetheyareheldintrust;

Duringthedeferralperiod,theemployeeisentitledtoanydividendspaidontheshares;

Sharesissuedunderthisplanmaybeheldintrustbeyondthedeferralperiod;

ThevalueusedtodeterminethenumberofLTIdeferredsharestobeallocatedhasbeenbasedonthevolumeweightedaveragepriceofthesharestradedontheASXintheweekleadinguptoandincludingthedateofissue; Incaseofresignationorterminationon

noticeordismissalformisconduct:LTIsharesareforfeited; Incaseofredundancy:thenumberof

LTIsharesthatarereleasedisproratedaccordingtothetimeheldasaproportionofthevestingperiod;and Incaseofretirement,deathortotal&

permanentdisablement:LTIsharesarereleasedtoexecutives.

DeferredSharesnolongerformpartofANZ’sSeniorExecutiveLTIprogram,howevertheremaybecircumstances(suchasretention)wherethistypeofequity(includingDeferredShareRights)willbeissued.

F11.3 performance shares (Granted December 2004 to Ceo)

InDecember2004PerformanceSharesweregrantedtotheCEOofANZwitharelativeTSRperformancehurdleattached.TheproportionofsharesthatvestwilldependupontheTSRachievedbyANZrelativetothecompaniesinthecomparatorgroupshownbelow.PerformanceequaltothemedianTSRofthecomparatorgroupwillresultinhalfthePerformanceSharesbecomingexercisable.PerformanceabovemedianwillresultinfurtherPerformanceSharesbecomingexercisable,increasingonastraight-linebasisuntilallofthePerformanceSharesbecomeexercisablewhereANZ’sTSRisatorabovethe75thpercentileinthecomparatorgroup.Nodividendswillbepayableonthesharesuntiltheyvest,withtheearliestpossiblevestingdatebeing31December2006.

Comparator GroupAMPLimited







StGeorgeBankLimited



Signedinaccordancewitharesolutionofthedirectors

CharlesGoodeDirector

JohnMcFarlaneChiefExecutiveOfficer

1November2006

FinancialStatements9392ANZConciseAnnualReport2006 FinancialStatements9392ANZConciseAnnualReport2006

financial statements

AustRAlIA AnD neW ZeAlAnD BAnKInG GRoup lIMIteD AnD ContRolleD entItIes ConsolIDAteD InCoMe stAteMent FoR tHe yeAR enDeD 30 septeMBeR 2006

Consolidated

2006$m

20053

$m

Total income 25,510 21,297

InterestincomeInterestexpense

22,301(15,358)

17,719(11,901)

Netinterestincome 6,943 5,818

OtheroperatingincomeShareofjointventureprofitfromINGAustraliaandINGNewZealandShareofassociatesprofit

3,015138

56

3,377149

52

OperatingincomeOperatingexpenses

10,152(4,531)

9,396(4,418)

ProfitbeforecreditimpairmentandincometaxProvisionforcreditimpairment

5,621(407)

4,978(580)

Profit before income tax 5,214 4,398Incometaxexpense (1,522) (1,220)

Profit for the year 3,692 3,178

Profitattributabletominorityinterest 4 3

ProfitattributabletoshareholdersoftheCompany1,2 3,688 3,175

Earnings per ordinary share (cents)BasicDiluted

200.0194.0

169.5164.4

Thenotesappearingonpages96to101formanintegralpartofthesefinancialstatements.

1 Theresultsof2006includetheimpactofthesesignificantitems: SettlementofANZNationalBankLimitedclaims($14millionprofitaftertax);and SettlementofNHBinsuranceclaim($79millionprofitaftertax). Theresultsof2005includetheimpactofthesignificantitem: GainonsaleofNBNZLife($14millionprofitaftertax).2 IncludesNBNZincrementalintegrationcostsof$26million(2005:$52million)aftertax.3 The2005comparativeisnotrestatedforthefinancialinstrumentsstandardsbeingAASB132,AASB139andAASB4,aspermittedunderthefirsttimeadoptiontransitionalprovisions.


AustRAlIA AnD neW ZeAlAnD BAnKInG GRoup lIMIteD AnD ContRolleD entItIes ConsolIDAteD BAlAnCe sHeet As At 30 septeMBeR 2006

Consolidated

2006$m

20051

$m

AssetsLiquidassetsDuefromotherfinancialinstitutionsTradingsecurities2

DerivativefinancialinstrumentsAvailable-for-saleassets/investmentsecurities3

NetloansandadvancesCustomers’liabilitiesforacceptancesRegulatorydepositsShareofassociatesandjointventureentitiesDeferredtaxassetsGoodwillandotherintangibleassets4

OtherassetsPremisesandequipment

15,0199,6659,1799,164

10,653255,410

13,435205

2,2001,3843,3375,0111,109

11,6016,3486,2856,511

10,042232,490

13,449159

1,9261,3893,4586,1731,054

Total assets 335,771 300,885

LiabilitiesDuetootherfinancialinstitutionsDepositsandotherborrowingsDerivativefinancialinstrumentsLiabilityforacceptancesCurrenttaxliabilitiesDeferredtaxliabilitiesPayablesandotherliabilitiesProvisionsBondsandnotesLoancapital

14,118204,794

8,75313,435

5691,384

10,679957

50,05011,126

12,027190,322

7,00613,449

1991,6027,618

91439,073

9,137

Total liabilities 315,865 281,347

Net assets 19,906 19,538

Shareholders’ equity

OrdinarysharecapitalPreferencesharecapitalReservesRetainedearnings

8,271871

(354)11,084

8,0531,858

(46)9,646

SharecapitalandreservesattributabletoshareholdersoftheCompanyMinorityinterest

19,87234

19,51127

Total equity 19,906 19,538


1 The2005comparativeisnotrestatedforthefinancialinstrumentsstandardsbeingAASB132,AASB139andAASB4,aspermittedunderthefirsttimeadoptiontransitionalprovisions.2 Includesbillsheldinportfolio$1,569million(September2005:$1,182million).3 In2005available-for-saleassetswerereportedasinvestmentsecurities.4 ExcludesnotionalgoodwillrelatedtotheINGAustraliajointventureof$826million(September2005:$826million)andtheINGNewZealandjointventure$79million (September2005:$82million).


AustRAlIA AnD neW ZeAlAnD BAnKInG GRoup lIMIteD AnD ContRolleD entItIes stAteMent oF ReCoGnIseD InCoMe AnD eXpense FoR tHe yeAR enDeD 30 septeMBeR 2006

Consolidated

2006$m

2005$m

Items recognised directly in equity1

Currencytranslationadjustments Exchangedifferencesontranslationofforeignoperationstakentoequity (203) (443)

Available-for-saleassets Valuationgaintakentoequity Cumulative(gain)transferredtotheincomestatementonsale

20(8)

n/an/a

Cashflowhedges Valuationgaintakentoequity Transferredtoincomestatementfortheyear

121(56)

n/an/a

Actuarial(loss)/gainondefinedbenefitplans (55) 25

Netincome/(loss)recogniseddirectlyinequity (181) (418)

Profit for the year 3,692 3,178

Total recognised income and expense for the year 3,511 2,760

Totalrecognisedincomeandexpensefortheyearattributabletominorityinterest 4 3

TotalrecognisedincomeandexpensefortheyearattributabletoshareholdersoftheCompany 3,507 2,757

Effect of adoption of AASB 132 and AASB 139 on shareholders’ equity:2

Available-for-salereserve Cashflowhedgingreserve Retainedearnings

(10)162

(431)

(279)


1 Theseitemsaredisclosednetoftax.2 Noportionisattributabletominorityinterest.


AustRAlIA AnD neW ZeAlAnD BAnKInG GRoup lIMIteD AnD ContRolleD entItIes ConsolIDAteD stAteMent oF CAsH FloW FoR tHe yeAR enDeD 30 septeMBeR 2006

Consolidated

2006$m

2005$m

Inflows(Outflows)

Cash flows from operating activitiesInterestreceivedDividendsreceivedFeeincomereceivedOtherincomereceivedInterestpaidPersonnelexpensespaidPremisesexpensespaidOtheroperatingexpensespaidRecoveryfromNHBlitigationIncometaxespaid Australia OverseasGoodsandservicestaxreceived(paid)

23,01453

2,0821,057

(14,676)(2,737)

(379)(2,416)

114

(788)(437)

(18)

17,868144

2,3031,013

(11,414)(2,498)

(367)(2,144)

–

(572)(500)

18(Increase)/decreaseinoperatingassets Liquidassets–greaterthanthreemonths Duefromotherfinancialinstitutions Tradingsecurities Regulatorydeposits LoansandadvancesIncrease/(decrease)inoperatingliabilities Depositsandotherborrowings Duetootherfinancialinstitutions Payablesandotherliabilities

(1,300)1,318

(1,681)(42)

(26,848)

16,1291,859

541

(728)(371)(821)

5(28,788)

19,8564,972

(1,339)Net cash (used in) operating activities (5,155) (3,363)Cash flows from investing activitiesNetdecrease/(increase)Available-for-saleassets Purchases ProceedsfromsaleormaturityControlledentitiesandassociates Purchased(netofcashacquired) Proceedsfromsale(netofcashdisposed)Premisesandequipment Purchases ProceedsfromsaleOther

(15,480)16,239

(289)14

(250)19

1,697

(17,188)17,856

(208)360

(325)86

(1,719)Net cash provided by/(used in) investing activities 1,950 (1,138)Cash flows from financing activitiesNet(decrease)increaseBondsandnotes Issueproceeds RedemptionsLoancapital Issueproceeds RedemptionsChangeinminorityinterestDividendspaidSharecapitalissuesSharecapitalbuybackEuroTrustsecurityissueEuroTrustissuecosts

17,506(8,949)

1,248(656)

–(1,930)

147(146)

––

17,968(5,025)

1,225(93)

8(1,808)

120(204)875

(4)Net cash provided by financing activities 7,220 13,062Netcash(usedin)operatingactivitiesNetcashprovidedby/(usedin)investingactivitiesNetcashprovidedbyfinancingactivities

(5,155)1,9507,220

(3,363)(1,138)

13,062NetincreaseincashandcashequivalentsCashandcashequivalentsatbeginningofyearForeigncurrencytranslationonopeningbalances

4,01513,702

2,627

8,5617,854

(2,713)Cash and cash equivalents at end of year 20,344 13,702



NotestotheConciseFinancialStatements

1: BAsIs oF pRepARAtIon oF ConCIse FInAnCIAl RepoRt

ThisConciseFinancialReporthasbeenderivedfromtheGroup’s2006fullFinancialReportandispreparedinaccordancewiththeCorporationsAct2001andAustralianAccountingStandardAASB1039‘ConciseFinancialReports’.AcompletedescriptionoftheaccountingpoliciesadoptedbytheGroupisprovidedinthe2006ANZFinancialReport.

TheGroupreviseditsaccountingpolicieseffective1October2004toenablethepreparationoffinancialstatementsthatcomplywithAustralianEquivalentstoInternationalFinancialReportingStandards(AIFRS).AustralianAccountingStandardAASB1‘First-timeadoptionofAustralianEquivalentstoInternationalFinancialReportingStandards’hasbeenappliedinpreparingtheANZFinancialReport.

TheANZFinancialReportonwhichthisConciseFinancialReportisbasedisthefirstannualANZFinancialReporttobepreparedinaccordancewithAIFRS.WiththeexceptionofAustralianAccountingStandardAASB132‘FinancialInstruments:PresentationandDisclosure’,AustralianAccountingStandardAASB139‘FinancialInstruments:RecognitionandMeasurement’andAustralianAccountingStandardAASB4‘InsuranceContracts’,comparativefiguresfor2005havebeenrestated.TheGrouphastakentheexemptionavailableunderAASB1toapplyAASB132,AASB139andAASB4from1October2005.

ThepresentationcurrencyusedinthisconcisefinancialreportisAustralianDollars.

2: CRItICAl ACCountInG estIMAtes AnD JuDGeMentsTheGrouphasidentifiedthefollowingcriticalestimatesandjudgementsusedinapplyingaccountingpolicies:

Provisionsforcreditimpairment;

Specialpurposeandoff-balancesheetentities;

ValuationofinvestmentinINGAustraliaandING(NZ)HoldingsLimited;and

GoodwillandvaluationofgoodwillinANZNationalBankLimited.

Detailsofallsignificantaccountingpoliciesandcriticalaccountingestimatesandjudgementsarecontainedinthe2006ANZFinancialReportwhichcanbeobtainedfromanz.com.

3: MAJoR events tHIs FInAnCIAl yeAR simplified Divisional structure–From1May

2006theGroupsimplifieditsstructureintothefollowingdivisions;Personal,Institutional,NewZealandandPartnerships&PrivateBank.

Investment in China’s tianjin City Commercial Bank: DuringtheyearANZcompleteda20%(US$111.4million)investmentinChina’sTianjinCityCommercialBank.ANZisthefirstforeignbanktoowna20percentshareholdinginaChinesebank.

settlement of the nHB Insurance Claim: DuringtheyearANZsettledits$130millionclaimagainstanumberofreinsurersinrelationtotheNationalHousingBank(NHB)matter.$113millionpre-taxprofitwasrecoveredinrelationtothelongrunningdispute.

new property strategy: ANZmadeadecisionduringtheyeartoprogressanewpropertystrategywiththedevelopmentofapurpose-builtcampusinMelbournebytheyear2009.


4: ADoptIon oF AustRAlIAn eQuIvAlents to InteRnAtIonAl FInAnCIAl RepoRtInG stAnDARDsThe2006ANZFinancialReportistheGroup’sfirstannualreportpreparedinaccordancewithAIFRS.TheaccountingpolicieshavebeenconsistentlyappliedtoallperiodspresentedandtheopeningAIFRSbalancesheetasat1October2004,exceptinrelationtoAustralianAccountingStandardAASB132‘FinancialInstruments:PresentationandDisclosure’,AustralianAccountingStandardAASB139‘FinancialInstruments:RecognitionandMeasurement’,andAustralianAccountingStandardAASB4‘InsuranceContracts’.TheGrouphastakentheexemptionavailableunderAustralianAccountingStandardAASB1‘First-timeadoptionofAustralianEquivalentstoInternationalFinancialReportingStandards’toapplytheseaccountingstandardsfrom1October2005.

ReconciliationsanddescriptionsoftheeffectoftransitiontoAIFRSontheGroup’sreportedincomestatement,balancesheetandcashflowstatementaresetoutinNote51oftheANZFinancialReport.Asummaryofthisinformationissetoutbelowandonthefollowingpage.

effect of transition to AIFRs(i) Impact on the balance sheet 1Oct2005

$m30Sept2005

$m1Oct2004

$m

Total assets under AGAAP 295,9661 295,9661 259,345 Adjustmentsfrom1October2004 Adjustmentsfrom30September2005 Creditlossprovisioning Feerevenue Derivativereclassificationandaccounting Financialinstrumentsremeasurement ReclassificationofStEPS AccountingforINGA Goodwill Definedbenefitsuperannuationschemes Sharebasedpayments Securitisationvehicles Other

–4,919

184(276)

89(199)

7(138)

––––

(14)

5,090–––––––

224(7)5

(388)(5)

–––––––––

59–

5,0265

Total assets under AIFRS 300,538 300,885 264,435

Total liabilities under AGAAP 276,4781 276,4781 241,420 Adjustmentsfrom1October2004 Adjustmentsfrom30September2005 Derivativereclassificationandaccounting Financialinstrumentsremeasurement ReclassificationofStEPS Definedbenefitsuperannuationschemes Sharebasedpayments Securitisationvehicles Taxation Other

–4,869

81(145)

1,000––––6

5,286––––

(31)4

(388)–

(2)

–––––

20024

5,029(18)51

Total liabilities under AIFRS 282,289 281,347 246,706

Total equity under AGAAP 19,488 19,488 17,925 Adjustments to retained earnings From1October2004 From30September2005 Creditlossprovisioning Feerevenue Derivativeaccounting Financialinstrumentsremeasurement ReclassificationofStEPS AccountingforINGA Goodwill Definedbenefitsuperannuationschemes Sharebasedpayments Securitisationvehicles Resettingofreserves Taxation Other

–253207

(276)(153)

(37)(6)

(146)––––––

(20)

71–––––––

22424

(63)–––

(3)

–––––––––

(141)(4)(3)

24916

(46) Adjustments to reserves From1October2004 From30September2005 Creditlossprovisioning Derivativeaccounting Financialinstrumentsremeasurement AccountingforINGA Sharebasedpayments Resettingofreserves

–(182)

(23)161(17)

8––

(205)–––––

23–

––––––

44(249)

Adjustments to share capital From1October2004 From30September2005 ReclassificationofStEPS Sharebasedpayments Taxation

–(21)

(987)––

(62)––

41–

–––

(64)2

Total equity under AIFRS 18,249 19,538 17,729

1 Includesrestatementofderivativefinancialassetsandliabilitiesnotintendedtobesettledonanetbasis.


effect of transition to AIFRs (continued)

(ii) Impact on the income statement2005

$m

Profit attributable to shareholders under AGAAP 3,018

GoodwillamortisationSharebasedpaymentsOther

224(63)

(4)

Profit attributable to shareholders under AIFRS 3,175

(iii) Impact on the statement of cash flowsTheadoptionofAIFRShasnotresultedinanymaterialadjustmentstothestatementofcashflows.

5: DIvIDenDs

ordinary Dividends

2006$m

2005$m

InterimdividendFinaldividendBonusoptionplanadjustment

1,0241,0781

(34)

9309831

(36)

Dividends on ordinary shares 2,068 1,877

1 Dividendsarenotaccruedandarerecordedwhendetermined.Finaldividendof$1,267millionfor2006notincludedinabovetable.

Afullyfrankedfinaldividendof69cents,isproposedtobepaidoneachfullypaidordinaryshareon15December2006(2005:finaldividendof59cents,paidon16December2005,fullyfranked).The2006interimdividendof56cents,paid3July2006,wasfullyfranked(2005:interimdividendof51centspaidon1July2005,fullyfranked).

Thetaxrateapplicabletothefrankingcreditsattachedtotheinterimdividendandtobeattachedtotheproposedfinaldividendis30%(2005:30%).

Dividend Franking AccountTheamountoffrankingcreditsavailabletotheCompanyforthesubsequentfinancialyearis$341million(2005:$78million),afteradjustingforfrankingcreditsthatwillarisefromthepaymentoftaxonAustralianprofitsforthe2006financialyear,$543millionoffrankingcreditswhichwillbeutilisedinfrankingtheproposedfinaldividendandfrankingcreditsthatmaynotbeaccessiblebytheCompanyatpresent.

Restrictions which limit the payment of DividendsTherearepresentlynosignificantrestrictionsonthepaymentofdividendsfromcontrolledentitiestotheCompany.Variouscapitaladequacy,liquidity,statutoryreserveandotherprudentialrequirementsmustbeobservedbycertaincontrolledentitiesandtheimpactontheserequirementscausedbythepaymentofcashdividendsismonitored.

TherearepresentlynorestrictionsonpaymentofdividendsbytheCompany.Reductionsofshareholders’equitythroughpaymentofcashdividendsismonitoredhavingregardtotheregulatoryrequirementstomaintainaspecifiedcapitaladequacyratio.Inparticular,theAustralianPrudentialRegulationAuthorityhasadvisedthatabankunderitssupervisionmustconsultwithitbeforedeclaringacouponpaymentonaTier1instrument,includingadividendifthebankhasincurredaloss,orproposestopaycouponpaymentsonTier1instruments(includingdividends),whichexceedthelevelofcurrentyearprofits.

Dividend Reinvestment planDuringtheyear,3,545,901ordinaryshareswereissuedat$23.85pershare,and3,039,401ordinarysharesat$26.50pershare,underthedividendreinvestmentplan(2005:3,900,116ordinarysharesat$19.95pershare,and3,406,775ordinarysharesat$21.85pershare).Allshareholderscanelecttoparticipateinthedividendreinvestmentplan.

Bonus option planDividendspaidduringtheyearhavebeenreducedasaresultofcertainshareholdersparticipatinginthebonusoptionplanandforegoingallorpartoftheirrighttodividends.Theseshareholderswereissuedbonusshares.

Duringtheyear,1,384,144ordinaryshareswereissuedunderthebonusoptionplan(2005:1,749,584ordinaryshares).


preference Dividends

2006$m

2005$m

ANZStapledExchangeablePreferredSecurities(ANZStEPS)1

EuroTrustSecurities–

276618

Dividends on preference shares 27 84

1 UnderAIFRS,theANZStEPSissueisnowtreatedasloancapitalwithdistributionsbeingreportedasaninterestexpenseinthefinancialyearended30September2006.

AnZ stapled exchangeable preferred securities (AnZ steps)

On23September2003,theGroupissued10millionANZStEPSat$100each,raising$1billion($987millionnetofissuecostsof$13million).ANZStEPScomprise2fullypaidsecurities–aninterestpayingunsecurednoteissuedbyaNewZealandsubsidiary(ANZHoldings(NewZealand)Limited)whichisstapledtoafullypaidpreferenceshareissuedbytheCompany.

Dividendsarenotpayableonthepreferencesharewhileitisstapledtothenote.IfdistributionsarenotpaidonANZStEPS,theCompanymaynotpaydividendsorreturncapitalonitsordinarysharesoranyothersharecapitalorsecurityrankingequalorbelowthepreferencesharecomponentofANZStEPS.Distributionsarereportedasinterestexpensefrom1October2005duetothereclassificationofthepreferencesecuritiesasloancapitalunderAIFRS.

euro trust securities

On13December2004,theGroupissued500,000EuroFloatingRateNon-cumulativeTrustSecurities(‘EuroTrustSecurities’)at€1,000eachintotheEuropeanmarket,raising€500million(A$871millionatthespotrateatthedateofissue,netofissuecosts).TheEuroTrustSecuritiescomprise2fullypaidsecurities–aninterestpayingunsecurednoteissuedbyaUnitedKingdomsubsidiary(ANZJacksonFundingPLC)andafullypaid€1,000preferenceshareissuedbytheCompany,whicharestapledtogetherandissuedasaEuroTrustSecuritybyANZCapitalTrustIII.

DistributionsonEuroTrustSecuritiesarenon-cumulativeandarepayablequarterlyinarrears(on15March,15June,15September,15Decemberofeachyear)baseduponafloatingdistributionrateequalto3monthEURIBORrateplusa66basispointmargin.Ateachpaymentdatethe3monthEURIBORrateisresetforthenextquarter.Dividendsarenotpayableonthepreferencesharewhileitisstapledtothenote.IfdistributionsarenotpaidonEuroTrustSecurities,theCompanymaynotpaydividendsorreturncapitalonitsordinarysharesoranyothersharecapitalorsecurityrankingequalorbelowthepreferencesharecomponent.


6: seGMent AnAlysIsFormanagementpurposestheGroupisorganisedintothreemajorbusinesssegmentscomprisingPersonal,InstitutionalandNewZealandBusiness.Adescriptionofeachoftheoperatingbusinesssegments,includingthetypesofproductsandserviceseachsegmentprovidestocustomers,isdetailedinthe2006ANZFinancialReport.

Asthecompositionofsegmentshaschangedovertime,September2005comparativeshavebeenadjustedtobeconsistentwiththe2006segmentdefinitionsdetailedinthe2006ANZFinancialReport.September2005businesssegmentcomparativeshavenotbeenadjustedforAASB132andAASB139.

BusIness seGMent AnAlysIs1,2

ConsolidatedAt30September2006

Personal$m

Institutional$m

NewZealand

Businesses$m

Other3

$m

Consolidatedtotal

$m

ExternalinterestincomeExternalinterestexpenseNetintersegmentinterest

9,323(2,663)(3,647)

7,393(4,774)

(550)

5,421(3,450)

(452)

164(4,471)4,649

22,301(15,358)

–

NetinterestincomeOtherexternaloperatingincomeShareofnetprofit/lossofequityaccountedinvestmentsNetintersegmentincome

3,0131,180

734

2,0691,245

15(70)

1,519463

20(2)

342127152

38

6,9433,015

194–

Operating income 4,234 3,259 2,000 659 10,152

Profit after income tax 1,256 1,396 683 353 3,688

Total external assets 136,730 119,104 66,064 13,873 335,771

Total external liabilities 67,449 108,686 57,153 82,577 315,865

BusIness seGMent AnAlysIs1,2

ConsolidatedAt30September2005

Personal$m

Institutional$m

NewZealand

Businesses$m

Other3

$m

Consolidatedtotal

$m

ExternalinterestincomeExternalinterestexpenseAdjustforintersegmentinterest

7,996(2,294)(3,113)

4,603(3,721)

508

4,779(3,058)

(223)

341(2,828)2,828

17,719(11,901)

–

NetinterestincomeOtherexternaloperatingincomeShareofnetprofit/lossofequityaccountedinvestmentsNetintersegmentincome

2,5891,117

741

1,3901,680

5(75)

1,498530

84

34150

18130

5,8183,377

201–

Operating income 3,754 3,000 2,040 602 9,396

Profit after income tax 1,095 1,213 639 228 3,175

Total external assets 122,372 105,455 61,980 11,078 300,885

Total external liabilities 60,350 91,755 55,458 73,784 281,347

1 Resultsareequitystandardised.2 Intersegmenttransfersareaccountedforanddeterminedonanarm’slengthorcostrecoverybasis.3 IncludesPartnerships&PrivateBank,Treasury,Operations,TechnologyandSharedServices,CorporateCentre,RiskManagementandGroupFinancialManagement.AlsoincludestheLondon headquarteredprojectfinanceandcertainstructuredfinancetransactionsthatANZhasexitedaspartofitsde-riskingstrategy.


7: eXCHAnGe RAtesTheexchangeratesusedinthetranslationoftheresultsandtheassetsandliabilitiesofmajoroverseasbranchesandcontrolledentitiesare:

2006 2005

Closing Average Closing Average

EuroGreatBritishpoundNewZealanddollarUnitedStatesdollar

0.58820.39821.14550.7476

0.60710.41501.14330.7468

0.63250.43251.09980.7623

0.60240.41421.08470.7657

8: events sInCe tHe enD oF tHe FInAnCIAl yeAROn1September2006,theGroupannouncedthatithadagreedtosellEsandaFleetpartnersinAustraliaandNewZealandtoNikkoPrincipalInvestmentsAustralia,theAustralianprivateequityarmofNikkoCordialCorporationforapproximately$380million.Theprofitaftertaxonsaleisanticipatedtobeapproximately$130million.ThissalewascompletedduringOctober2006.EsandaFleetpartnerscontributedapproximately$20milliontotheGroup’snetprofitaftertaxfortheyearended30September2006.

Therehavebeennoothersignificanteventsfrom30September2006tothedateofthisreport.

ShareholderInformation103102ANZConciseAnnualReport2006

Directors’DeclarationThedirectorsofAustraliaandNewZealandBankingGroupLimiteddeclarethatintheiropiniontheaccompanyingConciseFinancialReportoftheConsolidatedGroupfortheyearended30September2006complieswithAustralianAccountingStandardAASB1039‘ConciseFinancialReports’andhasbeenderivedfrom,orisconsistentwith,thefullfinancialreportfortheyear.

InourdeclarationintheGroup’s2006FinancialReportrequiredbysection295(4)oftheCorporationsAct2001wedeclaredthat:

a)inthedirectors’opinion,thefinancialstatementsandnotesoftheCompanyandtheconsolidatedentityhavebeenpreparedinaccordancewiththeCorporationsAct2001,includingthatthey:

i)complywithapplicableAustralian AccountingStandards,andother mandatoryprofessionalreporting requirements;and

ii)giveatrueandfairviewofthe financialpositionoftheCompany andoftheconsolidatedentityas at30September2006andoftheir performanceasrepresentedbythe resultsoftheiroperationsandtheir cashflows,fortheyearendedon thatdate;and

b)inthedirectors’opinion,theremunerationdisclosuresthatarecontainedonpages70to91oftheRemunerationReportintheDirectors’ReportfoundinPart2of2oftheConciseAnnualReport2006complywithAustralianAccountingStandardAASB124‘RelatedPartyDisclosures’whenreadinconjunctionwiththeCorporationsAct2001;and

c)thedirectorshavereceivedthedeclarationsrequiredbysection295AoftheCorporationsAct2001;and

d)inthedirectors’opinion,therearereasonablegroundstobelievethattheCompanywillbeabletopayitsdebtsasandwhentheybecomedueandpayable.

Signedinaccordancewitharesolutionofthedirectors.

CharlesGoodeDirector

JohnMcFarlaneChiefExecutiveOfficer

1November2006

IndependentauditreportonconcisefinancialreporttothemembersofAustraliaandNewZealandBankingGroupLimited

sCopeWehaveauditedtheconcisefinancialreportofAustraliaandNewZealandBankingGroupLimitedanditscontrolledentitiesforthefinancialyearended30September2006,consistingoftheincomestatement,statementofrecognisedincomeandexpense,balancesheet,statementofcashflow,accompanyingnotes1to8andtheaccompanyingdiscussionandanalysisontheincomestatement,statementofrecognisedincomeandexpense,balancesheetandstatementofcashflowsetoutonpage67.WehaveauditedinformationdisclosedbytheCompany,aspermittedbytheCorporationsRegulations2001,abouttheremunerationofdirectorsandexecutives(‘remunerationdisclosures’),requiredbyAustralianAccountingStandardAASB124RelatedPartyDisclosures,undertheheading‘Remunerationreport’onpages70to91ofthedirectors’reportandnotintheconcisefinancialreport.Thecompany’sdirectorsareresponsiblefortheconcisefinancialreportandtheremunerationreport.Wehaveconductedanindependentauditoftheconcisefinancialreportandtheremunerationreportinordertoexpressanopiniononthemtothemembersofthecompany.

OuraudithasbeenconductedinaccordancewithAustralianAuditingStandardstoprovidereasonableassurancewhethertheconcisefinancialreportisfreeofmaterialmisstatement.WehavealsoperformedanindependentauditofthefullfinancialreportandtheremunerationreportofAustraliaandNewZealandBankingGroupLimitedanditscontrolledentitiesfortheyearended30September2006.Ourauditreportonthefullfinancialreportandtheremunerationreportwassignedon1November2006,andwasnotsubjecttoanyqualification.

Ourproceduresinrespectoftheauditoftheconcisefinancialreportincludedtestingthattheinformationintheconcisefinancialreportisconsistentwiththefullfinancialreportandexamination,onatestbasis,ofevidencesupportingtheamounts,discussionandanalysisandotherdisclosureswhichwerenotdirectlyderivedfromthefullfinancialreport.Theseprocedureshavebeenundertakentoformanopinionwhether,inallmaterialrespects,

theconcisefinancialreportispresentedfairlyinaccordancewithAustralianAccountingStandardAASB1039‘ConciseFinancialReports’.

Theauditopinionexpressedinthisreporthasbeenformedontheabovebasis.

AuDIt opInIonInouropiniontheconcisefinancialreportofAustraliaandNewZealandBankingGroupLimitedanditscontrolledentitiesfortheyearended30September2006complieswithAustralianAccountingStandardAASB1039‘ConciseFinancialReports’.

KPMGMelbourne

MichelleHinchliffePartner

1November2006

Copyoftheauditor’sindependencestatement

leAD AuDItoR’s InDepenDenCe stAteMentIstatethat,tothebestofmyknowledgeandbelief,inrelationtotheauditforthefinancialyearended30September2006therehavebeen:

a)nocontraventionsoftheauditorindependencerequirementsoftheCorporationsAct2001inrelationtotheaudit,otherthancontraventions(relatingtominormattersrectifiedwithin7daysandreportedtothedirectors)coveredbyASICClassOrder05/910;and

b)nocontraventionsofanyapplicablecodeofprofessionalconductinrelationtotheaudit.

KPMGMelbourne

MichelleHinchliffePartner

1November2006

ShareholderInformation103102ANZConciseAnnualReport2006

shareholder information

OrdinarysharesAt6October2006,thetwentylargestholdersofordinarysharesheld1,061,035,417ordinaryshares,equalto57.77%ofthetotalissuedordinarycapital.

Name Numberofshares % Name Numberofshares %

1 NATIONALNOMINEESLIMITED2 CHASEMANHATTANNOMINEESLTD3 WESTPACCUSTODIANNOMINEESLIMITED4 CITICORPNOMINEESPTYLIMITED5 ANZNOMINEESLIMITED6 RBCGLOBALSERVICESAUSTRALIA7 COGENTNOMINEESPTYLIMITED8 QUEENSLANDINVESTMENTCORPORATION9 HKBANOMINEESLIMITED10 AMPLIFELIMITED

224,059,389217,393,315193,204,045

93,182,83289,258,22852,179,53047,922,32634,152,56121,239,22819,410,884

12.2011.8410.52

5.074.862.842.611.861.161.06

11 WESTPACFINANCIALSERVICESLIMITED12 PSSBOARD13 POTTERWARBURGNOMINEESPTYLIMITED14 UBSNOMINEESPTYLTD15 SUNCORPCUSTODIANSERVICESPTYLIMITED16 ANZESTPTYLTD(DEFERREDSHAREPLANA/C)17 IAGNOMINEESPTYLIMITED18 VICTORIANWORKCOVERAUTHORITY19 ANZESTPTYLTD(ESAPSHAREPLANA/C)20 AUSTRALIANFOUNDATIONINVESTMENT COMPANYLIMITED

10,887,2499,222,0868,913,9147,250,0006,332,3356,083,1365,445,3525,126,3374,895,621

4,877,049

0.590.500.480.390.340.330.300.280.27

0.27

Total 1,061,035,417 57.77

Distribution of shareholdingsAt6October2006Rangeofshares Numberofholders %ofholders Numberofshares %ofshares

1to1,0001,001to5,0005,001to10,00010,001to100,000Over100,000

162,364103,346

15,5219,739

438

55.7235.46

5.333.340.15

71,650,288227,422,508108,433,556205,854,483

1,223,214,237

3.9012.38

5.9111.2166.60

Total 291,408 100 1,836,575,072 100

At6October2006: therewerenoentriesintheregisterofSubstantialShareholdings; theaveragesizeofholdingsofordinaryshareswas6,302(2005:6,927)shares;and therewere5,023holdings(2005:5,037holdings)oflessthanamarketableparcel(lessthan$500invalueor19sharesbasedonthemarketpriceof$27.42),whichislessthan1.73%ofthe

totalholdingsofordinaryshares.

voting rights of ordinary shares

TheConstitutionprovidesforvotestobecast:

i)onshowofhands,1voteforeachshareholder;and

ii)onapoll,1voteforeachfullypaidordinaryshare.

On-marketbuy-backTheGroupcommencedanon-marketbuybackof$350millionofordinaryequityon10January2005.Thebuy-backperiodwasextendedto30March2006.Thebuy-backwascompletedon14March2006andtheGrouphadrepurchased15.7millionsharesatanaveragecostof$22.26pershare.

ShareholderInformation105104ANZConciseAnnualReport2006 ShareholderInformation105104ANZConciseAnnualReport2006

PreferenceShares–ANZStapledExchangeablePreferredSecurities(ANZStEPS)At6October2006,thetwentylargestholdersofANZStEPSheld4,427,873securities,equalto44.28%ofthetotalissuedsecurities.

NameNumber

ofsecurities % NameNumber

ofsecurities %

1 ANZNOMINEESLIMITED2 NATIONALNOMINEESLIMITED3 CHASEMANHATTANNOMINEESLTD4 POTTERWARBURGNOMINEESPTYLIMITED5 CITICORPNOMINEESPTYLIMITED6 UBSNOMINEESPTYLTD7 UCACASHMANAGEMENTFUNDLTD8 WESTPACCUSTODIANNOMINEESLIMITED9 WOODROSSNOMINEESPTYLTD10 COGENTNOMINEESPTYLIMITED11 QUESTORFINANCIALSERVICESLIMITED (TPSRFA/C)12 RBCGLOBALSERVICESAUSTRALIA

935,718840,036768,498362,629325,124216,366152,500131,358101,185

93,646

62,56461,904

9.368.407.683.633.252.161.521.311.010.94

0.630.62

13 TRANSPORTACCIDENTCOMMISSION14 THEAUSTRALIANNATIONALUNIVERSITY15 AUSTRALIANEXECUTORTRUSTEESLIMITED (NO1ACCOUNT)16 SHAREDIRECTNOMINEESPTYLTD (GLOBALMARKETSACCOUNT)17 CAMBOOYAPTYLTD18 CITICORPNOMINEESPTYLIMITED (CFSILCWLTHSPEC5A/C)19 RBCDEXIAINVESTORSERVICESAUSTRALIA NOMINEESPTYLIMITED(GSJBWA/C)20 UOBKAYHIANPRIVATELIMITED (CLIENTSA/C)

60,00050,000

49,927

46,92245,269

42,880

40,807

40,540

0.600.50

0.50

0.470.45

0.43

0.41

0.41

Total 4,427,873 44.28

Distribution of AnZ steps holdingsAt6October2006Rangeofsecurities Numberofholders %ofholders Numberofsecurities %ofsecurities

1to1,0001,001to5,0005,001to10,00010,001to100,000Over100,000

11,344631

6047

9

93.825.220.500.390.07

2,984,5441,433,210

481,8211,267,0113,833,414

29.8514.33

4.8212.6738.33

Total 12,091 100 10,000,000 100

At6October2006:Therewere3holdings(2005:1holding)oflessthanamarketableparcel(lessthan$500invalueor5securitiesbasedonthemarketpriceof$102.00),whichislessthan0.03%ofthetotalholdingsofStEPS.

voting rights of AnZ steps

ApreferencesharedoesnotentitleitsholdertovoteatanygeneralmeetingofANZexceptinthefollowingcircumstances:

a)onaproposal:

i)toreducethesharecapitalofANZ;

ii)thataffectsrightsattachedtothepreferenceshares;

iii)towindupANZ;or

iv)forthedisposalofthewholeoftheproperty,businessandundertakingofANZ;

b)onaresolutiontoapprovethetermsofabuy-backagreement;

c)duringtheperiodinwhichadividendwhichhasbeendeclaredaspayableonadividendpaymentdatehasnotbeenpaidinfull;or

d)duringthewinding-upofANZ.

Ifapollisconductedonaresolutiononwhichaholderisentitledtovote,theholderhasonevoteforeachpreferenceshareheld.

ShareholderInformation105104ANZConciseAnnualReport2006 ShareholderInformation105104ANZConciseAnnualReport2006

EmployeeshareholderinformationAttheAnnualGeneralMeetinginJanuary1994,shareholdersapprovedanaggregatelimitof7%ofallclassesofsharesandoptions,whichremainsubjecttotherulesofarelevantincentiveplan,beingheldbyemployeesanddirectors.At30September2006participantsheld2.25%(2005:2.41%)oftheissuedsharesandoptionsofANZunderthefollowingincentiveplans:

ANZEmployeeShareAcquisitionPlan;

ANZEmployeeShareSaveScheme;

ANZShareOptionPlan;

ANZDirectors’SharePlan;and

ANZDirectors’RetirementBenefitPlan.

StockexchangeTheGroup’sordinarysharesarelistedontheAustralian stock exchangeandthenew Zealand stock exchange.

TheGroup’sotherstockexchangelistingsinclude:

Australian stock exchange –ANZStapledExchangeablePreferredSecurities(ANZStEPS)[ANZ Holdings (New Zealand) Limited and Australia and New Zealand Banking Group Limited];seniorandsubordinateddebt[Australia and New Zealand Banking Group Limited];

Channel Islands stock exchange – Subordinateddebt[ANZ Jackson Funding PLC];

london stock exchange –SeniorandsubordinateddebtsecuritiesissuedofftheEuroMediumTermNoteprogram[Australia and New Zealand Banking Group Limited and ANZ National (Int’l) Limited];seniordebtsecuritiesissuedofftheUSMediumTermNoteprogram[ANZ National (Int’l) Limited];

luxembourg stock exchange –Seniordebt[ANZ National Bank Limited]andseniorandsubordinateddebt[Australia and New Zealand Banking Group Limited];Non-cumulativeTrustSecurities[ANZ Capital Trust III];

new york stock exchange –AmericanDepositaryReceipts[Australia and New Zealand Banking Group Limited];

new Zealand stock exchange –Seniorandsubordinateddebt[ANZ National Bank Limited];and

swiss stock exchange –Seniordebt[Australia and New Zealand Banking Group Limited].

ANZStEPSInSeptember2003,10millionANZStapledExchangeablePreferredSecurities(ANZStEPS)wereissuedatanissuepriceof$100.00each.EachANZStEPSisastapledsecuritycomprisingaPreferenceShareinAustraliaandNewZealandBankingGroupLimitedandanunsecuredNoteissuedbyANZHoldings(NewZealand)Limited.ANZStEPSarequotedontheAustralianStockExchange.

AmericandepositaryreceiptsTheBankofNewYorkistheDepositaryforANZ’sAmericanDepositaryReceipt(ADR)programintheUnitedStatesofAmerica.TheADRsarelistedontheNewYorkStockExchange.ADRholdersshoulddealdirectlywiththeBankofNewYork,NewYorkonallmattersrelatingtotheirADRholdings,bytelephoneon1-888-269-2377(tollfreefordomesticcallers),1-610-382-7836(forinternationalcallers)[email protected].

EuroTrustSecuritiesInDecember2004,ANZissued500,000FloatingRateNon-cumulativeTrustSecuritiesatanissuepriceof€1,000eachthroughANZCapitalTrustIII.EachEuroTrustSecurityrepresentsaninterestinastapledsecuritycomprisingaPreferenceShareinAustraliaandNewZealandBankingGroupLimitedandanunsecuredNoteissuedbyANZJacksonFundingPLC.TheEuroTrustSecuritiesarequotedontheLuxembourgStockExchange,andtheunsecuredNoteislistedontheChannelIslandsStockExchangebutcannotbetradedseparatelyfromtheEuroTrustSecurities.

Adjustedcommonequity(ACE)–Tieronecapitallesspreferencesharesatcurrentrates,deductionsfromregulatorycapitalandtransitionalcapitalreliefasapprovedbytheAustralianPrudentialRegulationAuthority.

AIFRS–AustralianEquivalentstoInternationalFinancialReportingStandards.

Arrears–acontractuallydueandpayablesumwhichremainsoverdue/unpaid.

Assets–resourcescontrolledbytheGroup.Assetscanbeintheformofmoney,suchascashoramountsowed;theycanbefixedassetssuchaspropertyorequipment;ortheycanbeintangiblessuchasacompany’sgoodwill,trademarksandpatents.Foraccountingpurposes,assetsarefutureeconomicbenefitswhicharecontrolledbytheentityandresultfrompasttransactionsorevents.Forbanks,loansareassets.

Available-for-salesecurities–comprisenon-derivativefinancialassetswhichtheGroupconsiderstobe‘availableforsale’butwhicharenotconsideredtobetradingsecurities.

Bondsandnotes–theGroup’sliabilityforlong-termfinancingissuedinwholesalemarkets.

Capitaladequacyratio–ameasurethatcomparesourregulatorycapitalwithourrisk-weightedassets.

Cashearningspershare–earningspershareexcludingsignificantitemsandnon-coreitems.

Collectiveprovision–ProvisionforCreditLossesthatareinherentintheportfoliobutnotabletobeindividuallyidentified;presentlyunidentifiedimpairedassets.Acollectiveprovisionmayonlyberecognisedwhenalosseventhasalreadyoccurred.Lossesexpectedasaresultoffutureevents,nomatterhowlikely,arenotrecognised.

Consolidatedbalancesheet–afinancialstatementthatreportsacompany’sassetsorresourcesandtheclaimsagainstthem–includingliabilitiesorobligationsofabusinessandshareholders’equity.

Costtoincomeratio(CTI)–abusinessefficiencymeasure.It’stheratioofourexpensestoourincome.

Creditrating–ameasurementofthecredit-worthinessofabusiness.AAAisthetopcreditratingaccordedbyratingsagenciessuchasMoody’sInvestorsServiceandStandard&Poor’s.Thebetterourcreditrating,thecheaperwecanborrowmoneyfromcapitalmarkets.ANZ’slong-termcreditratingisAA–.

Creditrisk–thepotentialforlossarisingfromthefailureofacustomerorcounter-partytomeetitscontractualobligations.

Customers’liabilityforacceptances–theamountsowedtotheGroupfromcustomersforacceptances,aformoflending.

Deferredtaxassets–thefuturetaxsavingstotheGroupasaresultoftimingdifferencesthatariseduetodifferenttreatmentoftransactionsunderaccountingandtaxrules.

Depositsandotherborrowings–ANZ’slargestliability,thisrepresentsANZ’sobligationstoourdepositors.

Dividend(final)–theamountoftheCompany’saftertaxearningsdeterminedandpaidtoshareholdersonthedayoftheAnnualGeneralMeeting.

Dividend(interim)–theamountoftheCompany’safter-taxearningsdeterminedandpaidtoordinaryshareholdersatthebeginningofJuly.

Dividendpershare(DPS)–theamountoftheCompany’saftertaxearningsdeterminedandpaidtoordinaryshareholders.Itisusuallyexpressedasanumberofcentspershare,orasadividendpershare.

Duefromotherfinancialinstitutions–themoniesowedtoANZbyotherbanksandfinancialinstitutions.

Earningspershare(EPS)–theamount,indollars,ofearningsdividedbythenumberofshares.Forexample,iftheearningsare$2millionand1millionsharesareoutstanding,theearningspersharewouldbe$2.00($2million÷1millionshares=$2.00).Theearningsfigureisbasedonprofitaftertaxlesspreferencesharedividends.

Economicvalueadded(EVA™)–ameasureofrisk-adjustedaccountingprofit.Itisbasedonoperatingprofitaftertax,adjustedforone-offitems,thecostofcapital,imputationcreditsandeconomiccreditcosts.

Equity–theresidualinterestintheassetsofacompanyafterdeductingallliabilities.Asapubliclylistedcompany,ourshareholdersownthesenetassets.Thisiscalledshareholders’equity.

Equitystandardisation–EVA™principlesareinusethroughouttheGroup,wherebyriskadjustedcapitalisallocatedandchargedagainstBusinessUnits.Equitystandardisedprofitisdeterminedbyeliminatingtheimpactofearningsoneachbusinessunit’sbookcapitalandattributingearningsonthebusinessunit’sriskadjustedcapital.Thisenhancescomparabilityofbusinessunitperformance.Geographicresultsarenotequitystandardised.

Frankeddividends–dividendspaidbythecompanyoutofprofitsonwhichthecompanyhasalreadypaidAustraliantax.

Full-timeequivalent(FTE)–ourtotalstaffnumbersbasedontheworkingweek.Forexample,twopart-timestaffinAustraliaeachworking20hoursaweekwouldbedefinedasoneFTEastheirhoursaddupto40hoursaweek.

glossary of financial terms

GlossaryofFinancialTerms107106ANZConciseAnnualReport2006

Goodwill–theremainingamount,ofthehistoricexcessovernetassetvaluepaidbyANZfortheacquisitionofothercompanies.

Impairedassets–loansorothercreditfacilitieswherethereisreasonabledoubtaboutthecollectibilityofinterest,fees(pastandfuture)orprincipaloutstanding,orwhereconcessionaltermshavebeenprovidedbecauseofthefinancialdifficultiesofthecustomer.

Incometaxliabilities–theamountspayableinrespectofincometax.

Individualprovisioncharge–theamountofimpairmentofthoseloansandadvancesassessedforimpairmentonanindividualbasis(asopposedtoonacollectivebasis).

Interestmargin–ameasurewhichtellsushowmuchinterestwehavegeneratedbylendingmoneyafteraccountingforourcostsofborrowingthatmoney,eitherfromcustomersorfinancialmarkets.Theinterestmarginiscalculatedbydividingnetinterestbyaverageinterest-earningassets.Thisisexpressedasapercentage.

Liability–acompany’sobligationstoalender,supplierofgoodsandservices,ataxauthorityandothers.Foraccountingpurposes,liabilitiesarefuturesacrificesofeconomicbenefitsthatanentityisobligedtomakeasaresultofpasttransactionsorevents.ForANZ,liabilitiesarelargelymoneywehaveborrowedtofundourlendingactivities.

Liabilityforacceptances–theamountowedtocustomerswhohavepurchasedcustomeracceptancesfromtheGroup.

Liquidassets–thecashorcashequivalentsheldbyANZ.

Loancapital–thelong-termfundingthatwouldrankbehindothercreditors,andaheadofonlyshareholdersintheeventofawindingup.

Marketcapitalisationofordinaryshares–thestockmarket’sassessmentofacompany’svalue,calculatedbymultiplyingthenumberofsharesonissuebythecurrentshareprice.

Marketrisk–thepotentiallosstheGroupmayincurfromchangestointerestrates,foreignexchangeratesorthepricesofequitysharesandindices,commodities,debtsecuritiesandotherfinancialcontracts,includingderivatives.ItalsoincludestheriskthattheGroupwillincurduetoincreasedinterestexpensesarisingfromfundingrequirementsduringperiodsofpoormarketliquidity.

Netloansandadvances–ANZ’slargestassetbyvalue,thisconsistsoftheloansANZhasadvancedtoindividualsandorganisations,lessprovisionforcreditimpairment.

Netprofitaftertax(NPAT)–acompany’snetprofitafteralltaxes,expensesandprovisionforcreditimpairmenthavebeendeductedfromtheoperatingincome.

Nettangibleassets(NTA)–thesharecapitalandreservesattributabletoshareholdersofthecompanylesspreferenceshares,goodwillandotherintangibleassets.

Non-performingloans–loanswherethereisreasonabledoubtaboutthecollectibilityofinterest,fees(pastandfuture)orprincipaloutstanding,orwhereconcessionaltermshavebeenprovidedbecauseofthefinancialdifficultiesofthecustomer.

Non-interestincome–includesfees,profitsoncapitalmarketstrading,foreignexchangeearningsandanyotherrevenuethatisnotinterestincome.

Operatingrevenue–theincomeANZgeneratesfromitsactivities.Thisincludesnetinterest,feeincomeandearningsfromcapitalmarketsandforeignexchangedealings.

Operationalrisk–thedirectorindirectlossresultingfrominadequateorfailedinternalprocesses,systemsorfromexternalevents.

Ordinaryandpreferencesharecapital–theamountsreceivedwhenshareswereoriginallysubscribedfor.

Organicgrowth–wherewehavegrownassetsorliabilitiesthroughgrowthinourexistingbusinessesratherthanthroughacquisitionofanothercompany.

Otherassets–includesassetsthatdonotfitintothecategorieslistedincludinginterestaccruedandnotyetreceived.

Payablesandotherliabilities–includesvariousoperatingcreditorsandaccruedinterestpayable.

Premisesandequipment–thevalueofalltheland,buildings,furniture,equipment,etc.whichareownedbytheGroup.

Profitperfull-timeemployee–productivitymeasurethatshows,onaverage,howmuchprofitisearnedbyeachfull-timeequivalentemployee.

Provisions–theGroup’saccruedobligationsforlongserviceleave,annualleaveandotherobligations,whichalthoughknown,arenotyetpayable.

Regulatorydeposits–thecashANZhasdepositedatcentralbankstomeetregulatoryrequirements.

Reserves–retainedprofitsplussurplusesordeficitsarisingfrom,forexample,foreignexchangegainsorlossesonoffshoreoperations,available-for-salesecuritiesandcashflowhedging.

Retainedearnings–theamountofprofitsretainedbytheGroup.

Returnonequity(ROE)–acalculationwhichshowsthereturnthecompanyhasmadeonthemoneyordinaryshareholdershaveinvestedinANZ.Itisexpressedasapercentage.

Risk-weightedassets–theGroup’sassetsadjustedfortheriskofthecounter-party.Therelativeriskweightforeachcounter-partyisdeterminedbytheBankforInternationalSettlements.Forexample,amortgagewithaLVR(loantovaluationratio)below80percentcarriesariskweightingofjust50percent.

Servicetransferpricing–isusedtoallocateservicesthatareprovidedbycentralareasofthecompanytoeachofitsbusinessunits.

Sharesinassociates–ANZ’sinvestmentincompanieswheretheinterestislargeenoughtoprovideinfluenceratherthancontroloverthecompany.

Significantitems–eventswhichare‘one-off’andnotexpectedtoberepeated.Thesearedescribedindetailwithintheresults.Specialnotationsaremadeforanycalculationswhicheitherincludeorexcludethesetransactions.

Tieronecapital–consistsofShareholders’EquityplusHybridLoanCapital,lessspecificdeductions.Tieronecapitalbeforedeductionsisdividedinto“FundamentalCapital”(Shareholders’Equityplussomeexclusionsanddeductions)and“ResidualCapital”(HybridTieroneinstruments)withlimitsrequiredforeachcategory.

Tiertwocapital–consistsofUpperTiertwocapital,beingprovisionsforcreditimpairment,equityaccountedprofitsandreserves,andperpetualsubordinatednotes,andLowerTiertwocapitalwhichisdatedsubordinatednotes.Limitsapplytoeachcategoryandsub-categoryofTiertwocapital.

Totalshareholderreturn(TSR)–thepercentagereturntoordinaryshareholdersfromsharepricemovementsanddividends.

Tradingsecurities–thesecuritiesheldbyANZthatareregularlyboughtandsoldaspartofitsnormaltradingactivitieswithaviewtoshort-termprofittaking.

GlossaryofFinancialTerms107106ANZConciseAnnualReport2006

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