Australia and New Zealand Banking Group Ltd. — Audit Report / Information 2013

Feb 14, 2013

ANZ Basel II Pillar 3 disclosure

December 2012 2012 BASEL II BASEL II PILLAR 3 DISCLOSURE PILLAR 3 DISCLOSURE

QUARTER ENDED 31 December 2012 APS 330: CAPITAL ADEQUACY & RISK MANAGEMENT IN ANZ

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ANZ Basel II Pillar 3 disclosure

December 2012

Important notice

This document has been prepared by Australia and New Zealand Banking Group Limited (ANZ) to meet its disclosure obligations under the Australian Prudential Regulation Authority (APRA) Australian Prudential Standard (APS) 330 Capital Adequacy: Public Disclosure of Prudential Information.

This disclosure was prepared as at 31[st] December 2012. ANZ has a continuous disclosure policy, under which ANZ will immediately notify the market of any material price sensitive information concerning the Group, in accordance with legislative and regulatory disclosure requirements.

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ANZ Basel II Pillar 3 disclosure

December 2012

Scope of application

Top corporate entity

The top corporate entity in the reporting group is Australia and New Zealand Banking Group Limited.

Table 16 Capital adequacy - Capital ratios and Risk Weighted Assets[1 ]

			Dec 12	Sep 12	Jun 12
Risk weighted assets(RWA)			$M	$M	$M
Subject		to Advanced Internal Rating Based (IRB) approach
Corporate			113,027	111,796	103,738
Sovereign			4,615	4,088	4,503
Bank			11,079	10,964	10,579
Residential Mortgage			43,664	42,959	43,029
Qualifying Revolving Retail			7,028	7,092	7,396
Other Retail			22,511	21,277	20,984
Credit risk weighted assets subject to Advanced IRB approach			201,924	198,176	190,229
Credit risk Specialised Lending exposures subject to slotting approach			27,286	27,628	27,632
Subject		to Standardised approach
Corporate			17,339	18,281	26,261
Residential Mortgage			1,863	1,812	1,316
Qualifying Revolving Retail			2,112	2,028	2,007
Other Retail			1,354	1,165	1,328
Credit risk weighted assets subject to Standardised approach			22,668	23,286	30,912
Credit risk weighted assets relating to securitisation exposures			1,132	1,170	1,229
Credit risk weighted assets relating to equity exposures			918	1,030	1,211
Other assets			3,729	3,585	3,671
Total credit risk weighted assets			257,657	254,875	254,884
Market risk weighted assets			6,193	4,664	4,458
Operational risk weighted assets			28,124	28,125	20,072
Interest		rate risk in the banking book (IRRBB) risk weighted assets	11,634	12,455	11,276
Total risk weighted assets			303,608	300,119	290,690
Capital ratios (%)
Level	2 Total capital ratio		12.1%	12.2%	12.3%
Level	2 Tier 1 capital ratio		10.9%	10.8%	11.1%

Credit Risk Weighted Assets (CRWA)

Total CRWA increased $2.8 billion (1.1%) from September 2012 to $257.7 billion in December 2012. The majority of the increase was driven by growth in the Australia Commercial business and Institutional banking portfolios. IRB Residential Mortgages RWA also increased by $0.7 billion driven mainly by growth in the Australian portfolio.

Market Risk Weighted Assets (RWA)

Market RWA increased $1.5 billion during the quarter as portfolio diversification decreased from higher levels observed earlier in the year under the new Basel 2.5 Stressed VaR calculation.

Operational Risk Weighted Assets

Increase in Operational RWA by $8.1 billion (40.1%) in the September 2012 quarter includes operational model risk.

1 Specialised Lending exposures subject to supervisory slotting approach are those where the main servicing and repayment is from the asset being financed, and includes specified commercial property development / investment lending and project finance.

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ANZ Basel II Pillar 3 disclosure

December 2012

Table 17 Credit risk exposures

Table 17(a) part (i): Period end and average Exposure at Default[ 2][3][4]

			Dec 12
			Average	Individual
			Exposure	provision
	Risk Weighted	Exposure	at Default for	charge for	Write-offs for
	Assets	at Default	three months	three months	three months
Advanced IRB approach	$M	$M	$M	$M	$M
Corporate	113,027	192,141	191,884	109	127
Sovereign	4,615	73,109	68,511	2	-
Bank	11,079	47,252	45,352	-	-
Residential Mortgage	43,664	255,208	253,024	11	15
Qualifying Revolving Retail	7,028	20,835	20,874	61	79
Other Retail	22,511	34,599	33,277	57	80
Total Advanced IRB approach	201,924	623,144	612,918	240	301
Specialised Lending	27,286	31,568	31,536	35	85
Standardised approach
Corporate	17,339	17,084	17,508	9	19
Residential Mortgage	1,863	4,086	3,930	-	-
Qualifying Revolving Retail	2,112	2,105	2,063	(5)	2
Other Retail	1,354	1,337	1,242	6	6
Total Standardised approach	22,668	24,612	24,747	10	27
Total	251,878	679,324	669,201	285	413

2 Exposure at Default in Table 17(a) includes Advanced IRB, Specialised Lending and Standardised exposures, however does not include Securitisation, Equities or Other Assets exposures. Exposure at Default in Table 17(a) is net of credit risk mitigation such as guarantees, credit derivatives, netting and financial collateral.

3 Average Exposure at Default in Table 17(a) for quarter is calculated as the simple average of the balances at the start and the end of each three month period.

4 Some prior period comparatives have been restated to reflect reclassification between asset classes.

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ANZ Basel II Pillar 3 disclosure

December 2012

				Sep12
				Average	Individual
				Exposure	provision
		Risk Weighted	Exposure	at Default for	charge for		Write-offs for
		Assets	at Default	three months	three months		three months
	Advanced IRB approach	$M	$M	$M	$M		$M
	Corporate	111,796	191,628	185,457	284		307
	Sovereign	4,088	63,914	63,442	-		-
	Bank	10,964	43,451	42,955	-		-
	Residential Mortgage	42,959	250,839	249,878	17		14
	Qualifying Revolving Retail	7,092	20,912	21,007	63		77
	Other Retail	21,277	31,954	31,660	59		61
	Total Advanced IRB approach	198,176	602,698	594,399	423		459
	Specialised Lending	27,628	31,505	31,596	78		46
	Standardised approach
	Corporate	18,281	17,933	21,832	49		12
	Residential Mortgage	1,812	3,775	3,623	3		1
	Qualifying Revolving Retail	2,028	2,021	2,010	(4)		2
	Other Retail	1,165	1,146	1,227	4		5
	Total Standardised approach	23,286	24,875	28,692	52		20
	Total	249,090	659,078	654,687	553		525
				Jun 12
				Average	Individual
				Exposure	provision
		Risk Weighted	Exposure	at Default for	charge for		Write-offs for
		Assets	at Default	three months	three months		three months
	Advanced IRB approach	$M	$M	$M	$M		$M
	Corporate	103,738	179,286	177,379	169		78
	Sovereign	4,503	62,970	59,538	-		-
	Bank	10,579	42,458	41,851	-		-
	Residential Mortgage	43,029	248,917	246,555	16		21
	Qualifying Revolving Retail	7,396	21,102	21,244	70		84
	Other Retail	20,984	31,366	30,925	72		70
	Total Advanced IRB approach	190,229	586,099	577,492	327		253
	Specialised Lending	27,632	31,686	31,530	30		31
	Standardised approach
	Corporate	26,261	25,730	25,021	5		11
	Residential Mortgage	1,316	3,473	3,306	1		-
	Qualifying Revolving Retail	2,007	1,999	1,962	9		16
	Other Retail	1,328	1,307	1,205	(38)		5
	Total Standardised approach	30,912	32,509	31,494	(23)		32
	Total	248,773	650,294	640,516	334		316

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ANZ Basel II Pillar 3 disclosure

December 2012

Table 17(a) part (ii): Exposure at Default by portfolio type

					Average for the
					quarter ended
		Dec 12	Sep 12	Jun 12	Dec 12
Portfolio Type		$M	$M	$M	$M
Cash and liquid assets		33,133	26,435	24,862	29,784
Contingents liabilities, commitments, and other off-balance sheet exposures		125,808	121,752	119,559	123,780
Derivatives		27,375	27,339	27,243	27,357
Due from other financial institutions		15,898	8,721	13,907	12,310
Investment securities		17,905	18,116	17,675	18,011
Loans, advances and acceptances		430,836	426,803	421,299	428,820
Other assets		1,231	839	1,494	1,034
Trading securities		27,138	29,073	24,255	28,105
Total exposures		679,324	659,078	650,294	669,201

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ANZ Basel II Pillar 3 disclosure

December 2012

Table 17(b):[5] Impaired asset[6][7] , Past due loans[8] , Provisions and Write-offs

			Dec	12
					Individual
		Impaired	Past due Individual		provision	Write-offs
	Impaired	loans/	loans ≥	provision	charge for	for three
	derivatives	facilities	90 days	balance	three months	months
	$M	$M	$M	$M	$M	$M
Portfolios subject to Advanced IRB approach
Corporate	14	2,521	266	817	109	127
Sovereign	-	-	-	2	2	-
Bank	-	-	-	-	-	-
Residential Mortgage	-	454	883	154	11	15
Qualifying Revolving Retail	-	-	81	-	61	79
Other Retail	-	278	230	178	57	80
Total Advanced IRB approach	14	3,253	1,460	1,151	240	301
Specialised Lending	79	1,194	119	270	35	85
Portfolios subject to Standardised approach
Corporate	2	235	46	146	9	19
Residential Mortgage	-	26	4	17	-	-
Qualifying Revolving Retail	-	50	1	50	(5)	2
Other Retail	-	26	14	33	6	6
Total Standardised approach	2	337	65	246	10	27
Total	95	4,784	1,644	1,667	285	413

5 Some prior period comparatives have been restated to reflect reclassification between asset classes.

6 Impaired derivatives is net of credit valuation adjustment (CVA) of $117 million, being a market value based assessment of the credit risk of the relevant counterparties (September 2012: $105 million; June 2012: $57 million).

7 Impaired loans / facilities include restructured items of $524 million for customer facilities in which the original contractual terms have been modified for reasons related to the financial difficulties of the customer. Restructuring may consist of reduction of interest, principal or other payments legally due, or an extension in maturity materially beyond those typically offered to new facilities with similar risk (September 2012: $525 million; June 2012: $351million).

8 Past due loans ≥ 90 days includes $1,418 million well secured loans (September 2012: $1,475 million; June 2012: $1,664 million).

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ANZ Basel II Pillar 3 disclosure

December 2012

				Sep12	Sep12
						Individual
		Impaired	Past due		Individual	provision		Write-offs
	Impaired	loans/	loans ≥ 90		provision	charge for		for three
	derivatives	facilities		days	balance	three months		months
	$M	$M		$M	$M	$M		$M
Portfolios subject to Advanced IRB approach
Corporate	15	2,631		358	854	284		307
Sovereign	-	-		-	-	-		-
Bank	-	-		-	-	-		-
Residential Mortgage	-	468		898	163	17		14
Qualifying Revolving Retail	-	-		83	1	63		77
Other Retail	-	286		198	182	59		61
Total Advanced IRB approach	15	3,385	1,537		1,200	423		459
Specialised Lending	99	1,343		117	326	78		46
Portfolios subject to Standardised approach
Corporate	2	209		30	142	49		12
Residential Mortgage	-	23		4	17	3		1
Qualifying Revolving Retail	-	65		13	53	(4)		2
Other Retail	-	55		12	35	4		5
Total Standardised approach	2	352		59	247	52		20
Total	116	5,080	1,713		1,773	553		525
				Jun	12
						Individual
		Impaired	Past due Individual			provision		Write-offs
	Impaired	loans/	loans ≥		provision	charge for		for three
	derivatives	facilities	90	days	balance	three months		months
	$M	$M		$M	$M	$M		$M
Portfolios subject to Advanced IRB approach
Corporate	3	2,566		385	887	169		78
Sovereign	-	-		3	-	-		-
Bank	-	80		-	49	-		-
Residential Mortgage	-	486	1,021		164	16		21
Qualifying Revolving Retail	-	1		97	1	70		84
Other Retail	-	291		207	181	72		70
Total Advanced IRB approach	3	3,424	1,713		1,282	327		253
Specialised Lending	121	1414		62	282	30		31
Portfolios subject to Standardised approach
Corporate	-	130		78	62	5		11
Residential Mortgage	-	21		4	15	1		-
Qualifying Revolving Retail	-	70		16	70	9		16
Other Retail	-	43		9	36	(38)		5
Total Standardised approach	-	264		107	183	(23)		32
Total	124	5,102	1,882		1,747	334		316

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ANZ Basel II Pillar 3 disclosure

December 2012

Table 17(c): Specific Provision Balance and General Reserve for Credit Losses[9]

		Dec 12
	Specific Provision	General Reserve for
	Balance	Credit	Losses	Total
	$M		$M	$M
Collective Provision	330		2,448	2,778
Individual Provision	1,667		-	1,667
Total Provision for Credit Impairment				4,445
		Sep12
	Specific Provision	General Reserve for
	Balance	Credit	Losses	Total
	$M		$M	$M
Collective Provision	334		2,431	2,765
Individual Provision	1,773		-	1,773
Total Provision for Credit Impairment				4,538
		Jun 12
	Specific Provision	General Reserve for
	Balance	Credit	Losses	Total
	$M		$M	$M
Collective Provision	325		2,683 3,008
Individual Provision	1,747		-	1,747
Total Provision for Credit Impairment				4,755

9 Due to definitional differences, there is a variation in the split between ANZ’s Individual Provision and Collective Provision for accounting purposes and the Specific Provision and General Reserve for Credit Losses (GRCL) for regulatory purposes. This does not impact total provisions, and essentially relates to the classification of collectively assessed provisions on defaulted accounts. The disclosures in this document are based on Individual Provision and Collective Provision, for ease of comparison with other published results.

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ANZ Basel II Pillar 3 disclosure

December 2012

Table 18 Securitisation

Table 18(a) part (i): Banking Book - Summary of current period’s activity by underlying asset type and facility[10]

Dec 12	Dec 12
Original value securitised
Securitisation activitybyunderlyingasset type ANZ Originated $M ANZ Self Securitised $M ANZ Sponsored $M	Recognised gain or loss on sale $M
Residential mortgage - 566 -	-
Credit cards and other personal loans - - -	-
Auto and equipment finance - - -	-
Commercial loans - - -	-
Other - - -	-
Total - 566 -	-
Securitisation activitybyfacility provided
	Notional amount
	$M
Liquidity facilities - - -	-
Funding facilities - - -	450
Underwriting facilities - - -	-
Lending facilities - - -	-
Credit enhancements - - -	-
Holdings of securities (excluding trading book) - - -	201
Other - - -	-
Total - - -	651

Sep 12

	Original value securitised
Securitisation activitybyunderlyingasset type	ANZ Originated $M ANZ Self Securitised $M ANZ Sponsored $M	Recognised gain or loss on sale $M
Residential mortgage	- 11,640 -	-
Credit cards and other personal loans	- - -	-
Auto and equipment finance	- - -	-
Commercial loans	- - -	-
Other	- - -	-
Total	- 11,640 -	-
Securitisation activitybyfacility provided
		Notional amount
		$M
Liquidity facilities	- - -	-
Funding facilities	- - -	396
Underwriting facilities	- - -	-
Lending facilities	- - -	-
Credit enhancements	- - -	-
Holdings of securities (excluding trading book)	- - -	264
Other	- - -	-
Total	- - -	660

10 Activity represents net movement in outstandings.

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ANZ Basel II Pillar 3 disclosure

December 2012

Jun 12
Original value securitised
Securitisation activitybyunderlyingasset type ANZ Originated $M ANZ Self Securitised $M ANZ Sponsored $M	Recognised gain or loss on sale $M
Residential mortgage - 617 -	-
Credit cards and other personal loans - - -	-
Auto and equipment finance - - -	-
Commercial loans - - -	-
Other - - -	-
Total - 617 -	-
Securitisation activitybyfacility provided
	Notional amount
	$M
Liquidity facilities - - -	-
Funding facilities - - -	-
Underwriting facilities - - -	-
Lending facilities - - -	-
Credit enhancements - - -	-
Holdings of securities (excluding trading book) - - -	363
Other - - -	-
Total - - -	363

Table 18(a) part (ii): Trading Book - Summary of current period's activity by underlying asset type and facility

No assets from ANZ's Trading Book were securitised during the reporting period.

Securitisation activities:

ANZ’s key securitisation activities are:

• Securitisation of ANZ originated assets (including self-securitisation) – use of securitisation as a funding, liquidity and capital management tool which may or may not involve the transfer of credit risk i.e. may or may not provide regulatory capital relief.

• Securitisation of third-party originated assets.

• Provision of facilities and services to securitisations or resecuritisations (where the underlying assets may be ANZ or third-party originated) e.g. liquidity, funding derivatives and/or credit support, structuring and arranging services, conduit management and (via ANZ Capel Court Limited) trust management services.

• Investment in securities - ANZ may purchase notes issued by securitisation programmes.

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ANZ Basel II Pillar 3 disclosure

December 2012

Table 18(b) part (i): Banking Book – Exposure at Default by exposure type

Dec 12 Sep 12 Jun 12	Dec 12 Sep 12 Jun 12	Dec 12 Sep 12 Jun 12	Dec 12 Sep 12 Jun 12
Securitisation exposure type - On balance sheet $M $M $M
Liquidity facilities - 128 1,758
Funding facilities 5,384 5,007 3,198
Underwriting facilities - - -
Lending facilities - - -
Credit enhancements - - -
Holdings of securities (excluding trading book) 2,309 2,925 2,873
Protection provided - - -
Other - - -
Total 7,693 8,060 7,829
Dec 12 Sep 12 Jun 12
Securitisation exposure type - Off balance sheet $M $M $M
Liquidity facilities 234 233 344
Funding facilities 6 60 -
Underwriting facilities - - -
Lending facilities - - -
Credit enhancements - - -
Holdings of securities (excluding trading book) - - -
Protection provided - - -
Other - - -
Total 240 293 344
Dec 12 Sep 12 Jun 12
Total Securitisation exposure type $M $M $M
Liquidity facilities 234 361 2,102
Funding facilities 5,390 5,067 3,198
Underwriting facilities - - -
Lending facilities - - -
Credit enhancements - - -
Holdings of securities (excluding trading book) 2,309 2,925 2,873
Protection provided - - -
Other - - -
Total 7,933 8,353 8,173

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ANZ Basel II Pillar 3 disclosure

December 2012

Table 18(b) part (ii): Trading Book - Exposure at Default by exposure type

	Dec 12 Sep 12 Jun 12	Dec 12 Sep 12 Jun 12	Dec 12 Sep 12 Jun 12
Securitisation exposure type - On balance sheet	$M $M $M
Liquidity facilities	- - -
Funding facilities	- - -
Underwriting facilities	- - -
Lending facilities	- - -
Credit enhancements	- - -
Holdings of securities	26 10 24
Protection provided	- - -
Other	- - -
Total	26 10 24
	Dec 12 Sep 12 Jun 12
Securitisation exposure type - Off balance sheet	$M $M $M
Liquidity facilities	- - -
Funding facilities	- - -
Underwriting facilities	- - -
Lending facilities	- - -
Credit enhancements	- - -
Holdings of securities	- - -
Protection provided	- - -
Other	- - -
Total	- - -
	Dec 12 Sep 12 Jun 12
Total Securitisation exposure type	$M $M $M
Liquidity facilities	- - -
Funding facilities	- - -
Underwriting facilities	- - -
Lending facilities	- - -
Credit enhancements	- - -
Holdings of securities	26 10 24
Protection provided	- - -
Other	- - -
Total	26 10 24

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ANZ Basel II Pillar 3 disclosure

December 2012

Glossary

Collective provision (CP)

Credit exposure

Collective provision is the provision for credit losses that are inherent in the portfolio but not able to be individually identified. A collective provision may only be recognised when a loss event has already occurred. Losses expected as a result of future events, no matter how likely, are not recognised.

The aggregate of all claims, commitments and contingent liabilities arising from on- and off-balance sheet transactions (in the banking book and trading book) with the counterparty or group of related counterparties.

Credit risk The risk of financial loss resulting from the failure of ANZ’s customers and counterparties to honour or perform fully the terms of a loan or contract.

Credit Valuation Adjustment (CVA) Over the life of a derivative instrument, ANZ uses a CVA model to adjust fair value to take into account the impact of counterparty credit quality. The methodology calculates the present value of expected losses over the life of the financial instrument as a function of probability of default, loss given default, expected credit risk exposure and an asset correlation factor. Impaired derivatives are also subject to a CVA.

Days past due The number of days a credit obligation is overdue, commencing on the date that the arrears or excess occurs and accruing for each completed calendar day thereafter.

Exposure at Default (EAD) Exposure At Default is defined as the expected facility exposure at the date of default.

Impaired assets (IA) Facilities are classified as impaired when there is doubt as to whether the contractual amounts due, including interest and other payments, will be met in a timely manner. Impaired assets include impaired facilities, and impaired derivatives. Impaired derivatives have a credit valuation adjustment (CVA), which is a market assessment of the credit risk of the relevant counterparties.

Impaired loans (IL) Impaired loans comprise of drawn facilities where the customer’s status is defined as impaired.

Individual provision charge (IPC) Impaired provision charge is the amount of expected credit losses on financial instruments assessed for impairment on an individual basis (as opposed to on a collective basis). It takes into account expected cash flows over the lives of those financial instruments. Individual provisions (IP) Individual provisions are assessed on a case-by-case basis for all individually managed impaired assets taking into consideration factors such as the realisable value of security (or other credit mitigants), the likely return available upon liquidation or bankruptcy, legal uncertainties, estimated costs involved in recovery, the market price of the exposure in secondary markets and the amount and timing of expected receipts and recoveries.

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ANZ Basel II Pillar 3 disclosure

December 2012

Market risk The risk to ANZ’s earnings arising from changes in interest rates, currency exchange rates and credit spreads, or from fluctuations in bond, commodity or equity prices. ANZ has grouped market risk into two broad categories to facilitate the measurement, reporting and control of market risk: Traded market risk - the risk of loss from changes in the value of financial instruments due to movements in price factors for physical and derivative trading positions. Trading positions arise from transactions where ANZ acts as principal with clients or with the market. Non-traded market risk (or balance sheet risk) - comprises interest rate risk in the banking book and the risk to the AUD denominated value of ANZ’s capital and earnings due to foreign exchange rate movements. Operational risk The risk of loss resulting from inadequate or failed internal controls or from external events, including legal risk but excluding reputation risk. Past due facilities Facilities where a contractual payment has not been met or the customer is outside of contractual arrangements are deemed past due. Past due facilities include those operating in excess of approved arrangements or where scheduled repayments are outstanding but do not include impaired assets. Recoveries Payments received and taken to profit for the current period for the amounts written off in prior financial periods. Restructured items Restructured items comprise facilities in which the original contractual terms have been modified for reasons related to the financial difficulties of the customer. Restructuring may consist of reduction of interest, principal or other payments legally due, or an extension in maturity materially beyond those typically offered to new facilities with similar risk. Risk Weighted Assets (RWA) Assets which are weighted for credit risk according to a set formula (APS 112/113). Securitisation risk The risk of credit related losses greater than expected due to a securitisation failing to operate as anticipated, or of the values and risks accepted or transferred, not emerging as expected. Write-Offs Facilities are written off against the related provision for impairment when they are assessed as partially or fully uncollectable, and after proceeds from the realisation of any collateral have been received. Where individual provisions recognised in previous periods have subsequently decreased or are no longer required, such impairment losses are reversed in the current period income statement.

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