Australia and New Zealand Banking Group Ltd. — Audit Report / Information 2019

Feb 18, 2019

2018 BASEL III PILLAR 3 DISCLOSURE

APS 330: PUBLIC DISCLOSURE

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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) ADI Prudential Standard (APS) 330: Public Disclosure.

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ANZ Basel III Pillar 3 Disclosure

December 2018

Table 3 Capital adequacy - Capital ratios and Risk Weighted Assets[1]

	Dec 18	Sep 18	Jun 18
Risk Weighted Assets (RWA)	$M	$M	$M
Subject to Advanced Internal Rating Based (IRB) approach
Corporate	127,973	121,891	122,902
Sovereign	6,986	6,955	7,112
Bank	15,709	15,908	15,083
Residential Mortgage	101,320	97,764	99,257
Qualifying Revolving Retail	5,890	6,314	6,679
Other Retail	28,715	29,373	29,992
Credit risk weighted assets subject to Advanced IRB approach	286,593	278,205	281,025
**Credit Risk Specialised Lending exposures subject to slotting approach1 **	34,032	33,110	32,714
Subject to Standardised approach
Corporate	13,943	13,760	14,085
Residential Mortgage	336	327	326
Other Retail	84	88	95
Credit risk weighted assets subject to Standardised approach	14,363	14,175	14,506
Credit Valuation Adjustment and Qualifying Central Counterparties	7,629	7,344	7,633
Credit risk weighted assets relating to securitisation exposures	1,616	1,600	1,716
Other assets	3,437	3,146	3,310
Total credit risk weighted assets	347,670	337,580	340,904
Market risk weighted assets	5,797	6,808	7,181
Operational risk weighted assets	38,019	37,618	37,378
Interest rate risk in the banking book (IRRBB) risk weighted assets	6,957	8,814	8,988
Total Risk Weighted Assets	398,443	390,820	394,451
Capital ratios (%)
Level 2 Common Equity Tier 1 capital ratio	11.3%	11.4%	11.1%
Level 2 Tier 1 capital ratio	13.1%	13.4%	13.0%
Level 2 Total capital ratio	15.0%	15.2%	14.8%

Credit Risk Weighted Assets (CRWA)

Total CRWA increased $10.1 billion (3%) from September 2018 to $347.7 billion at December 2018. This was driven by an increase in Corporates under the Advanced IRB approach with CRWA increasing $6.1 billion predominantly from portfolio growth in the Institutional Business of $4.4 billion and foreign exchange movements of $1.6 billion. CRWA for Residential Mortgages under the Advanced IRB approach increased $3.6 billion predominately from the impact of regulatory determined adjustments.

Market Risk, Operational Risk and IRRBB Risk Weighted Assets (RWA)

Traded Market Risk RWA decreased $1 billion over the quarter driven by the release of additional market risk capital which was required to be held pending implementation of the upgraded market risk system which occurred during the quarter.

IRRBB RWA decreased $1.9 billion over the quarter due to a reduction in Repricing and Yield Curve 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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December 2018

Table 4 Credit risk exposures

Exposure at Default in Table 4 represents credit exposure net of offsets for credit risk mitigation such as guarantees, credit derivatives, netting and financial collateral. It includes Advanced IRB, Specialised Lending and Standardised exposures, however does not include Securitisation, Equities or Other Assets exposures.

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

Advanced IRB approach	Dec 18
	Risk Weighted Assets $M Exposure at Default $M Average Exposure at Default for three months $M Individual provision charge for three months $M Write-offs for three months $M
Corporate Sovereign Bank Residential Mortgage Qualifying Revolving Retail Other Retail	127,973 257,223 251,424 16 44 6,986 162,047 153,808 - - 15,709 51,086 51,225 - - 101,320 380,286 378,430 14 22 5,890 18,061 18,254 47 62 28,715 39,330 39,575 101 111
Total Advanced IRB approach	286,593 908,033 892,716 178 239
Specialised Lending	34,032 40,689 40,076 1 -
Standardised approach
Corporate Residential Mortgage Other Retail	13,943 15,071 15,068 7 17 336 717 711 - - 84 83 85 - 2
Total Standardised approach	14,363 15,871 15,864 7 19
Credit Valuation Adjustment and Qualifying Central Counterparties	7,629 12,727 12,065 - -
Total	342,617 977,320 960,721 186 258

2 Average Exposure at Default for quarter is calculated as the simple average of the balances at the start and the end of each three month period.

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December 2018

Table 4(a) part (i): Period end and average Exposure at Default (continued)

Advanced IRB approach	Sep 18
	Risk Weighted Assets $M Exposure at Default $M Average Exposure at Default for three months $M Individual provision charge for three months $M Write-offs for three months $M
Corporate Sovereign Bank Residential Mortgage Qualifying Revolving Retail Other Retail	121,891 245,625 243,675 (10) 56 6,955 145,569 146,142 - - 15,908 51,363 51,582 - - 97,764 376,573 376,580 27 27 6,314 18,447 18,742 42 63 29,373 39,819 40,201 112 135
Total Advanced IRB approach	278,205 877,396 876,922 171 281
Specialised Lending	33,110 39,462 39,386 2 3
Standardised approach
Corporate Residential Mortgage Other Retail	13,760 15,064 15,254 10 6 327 704 699 - 3 88 87 91 - 2
Total Standardised approach	14,175 15,855 16,044 10 11
Credit Valuation Adjustment and Qualifying Central Counterparties	7,344 11,402 11,134 - -
Total	332,834 944,115 943,486 183 295
Advanced IRB approach	Jun 18
	Risk Weighted Assets $M Exposure at Default $M Average Exposure at Default for three months $M Individual provision charge for three months $M Write-offs for three months $M
Corporate Sovereign Bank Residential Mortgage Qualifying Revolving Retail Other Retail	122,902 241,724 239,758 11 34 7,112 146,715 143,999 (3) - 15,083 51,800 50,234 - - 99,257 376,586 376,334 29 14 6,679 19,037 19,184 51 77 29,992 40,582 41,081 99 142
Total Advanced IRB approach	281,025 876,444 870,590 187 267
Specialised Lending	32,714 39,309 38,585 - 1
Standardised approach
Corporate Residential Mortgage Other Retail	14,085 15,444 15,836 (29) 9 326 694 688 1 - 95 94 98 1 1
Total Standardised approach	14,506 16,232 16,622 (27) 10
Credit Valuation Adjustment and Qualifying Central Counterparties	7,633 10,865 10,728 - -
Total	335,878 942,850 936,525 160 278

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December 2018

Table 4(a) part (ii): Exposure at Default by portfolio type[3]

				Average for the
				quarter ended
	Dec 18	Sep 18	Jun 18	Dec 18
**Portfolio Type **	**$M **	**$M **	**$M **	**$M **
Cash	73,193	57,604	62,107	65,399
Contingents liabilities, commitments, and other off-balance
sheet exposures	157,227	153,021	152,872	155,124
Derivatives	46,064	42,752	43,388	44,408
Settlement Balances	54	16	15	35
Investment Securities	72,240	73,296	72,907	72,768
Net Loans, Advances & Acceptances	604,579	592,967	587,547	598,773
Other assets	5,222	4,387	3,126	4,805
TradingSecurities	18,741	20,072	20,888	19,407
Total exposures	977,320	944,115	942,850	960,719

3 Average Exposure at Default for quarter is calculated as the simple average of the balances at the start and the end of each three month period.

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December 2018

Table 4(b): Impaired asset[4][5] , Past due loans[6] , Provisions and Write-offs

	Dec 18
	Impaired derivatives $M Impaired loans/ facilities $M Past due loans ≥ 90 days $M Individual provision balance $M Individual provision charge for three months $M Write- offs for three months **$M **
Portfolios subject to Advanced IRB approach
Corporate Sovereign Bank Residential Mortgage Qualifying Revolving Retail Other Retail	- 1,044 155 374 16 44 - - - - - - - - - - - - - 315 2,365 152 14 22 - 75 - - 47 62 - 486 360 254 101 111
Total Advanced IRB approach	- 1,920 2,880 780 178 239
Specialised Lending	- 43 48 7 1 -
Portfolios subject to Standardised approach
Corporate Residential Mortgage Other Retail	- 153 14 94 7 17 - 17 15 9 - - - 14 6 2 - 2
Total Standardised approach	- 184 35 105 7 19
Qualifying Central Counterparties	- - - - - -
Total	- 2,147 2,963 892 186 258

4 Impaired derivatives are net of credit valuation adjustment (CVA) of $20 million, being a market value based assessment of the credit risk of the relevant counterparties (September 2018: $27 million; June 2018: $36 million).

5 Impaired loans / facilities include restructured items of $265 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 2018: $269 million; June 2018: $78 million).

6 For regulatory reporting not well secured portfolio managed retail exposures have been reclassified from past due loans > 90 days to impaired loans / facilities

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December 2018

Table 4(b): Impaired asset, Past due loans , Provisions and Write-offs (continued)

	Sep 18
	Impaired derivatives $M Impaired loans/ facilities $M Past due loans ≥ 90 days $M Individual provision balance $M Individual provision charge for three months $M Write- offs for three months **$M **
Portfolios subject to Advanced IRB approach
Corporate Sovereign Bank Residential Mortgage Qualifying Revolving Retail Other Retail	- 1,051 161 394 (10) 56 - - - - - - - - - - - - - 304 2,291 160 27 27 - 76 - - 42 63 - 490 353 247 112 135
Total Advanced IRB approach	- 1,921 2,805 801 171 281
Specialised Lending	- 43 22 7 2 3
Portfolios subject to Standardised approach
Corporate Residential Mortgage Other Retail	- 150 17 101 10 6 - 20 12 9 - 3 - 15 6 2 - 2
Total Standardised approach	- 185 35 112 10 11
Qualifying Central Counterparties	- - - - - -
Total	- 2,149 2,862 920 183 295
	Jun 18
	Impaired derivatives $M Impaired loans/ facilities $M Past due loans ≥ 90 days $M Individual provision balance $M Individual provision charge for three months $M Write- offs for three months **$M **
Portfolios subject to Advanced IRB approach
Corporate Sovereign Bank Residential Mortgage Qualifying Revolving Retail Other Retail	- 920 151 431 11 34 - - - - (3) - - - - - - - - 301 2,351 161 29 14 - 85 - - 51 77 - 514 343 249 99 142
Total Advanced IRB approach	- 1,820 2,845 841 187 267
Specialised Lending	- 29 19 8 - 1
Portfolios subject to Standardised approach
Corporate Residential Mortgage Other Retail	- 155 29 96 (29) 9 - 24 14 11 1 - - 15 5 2 1 1
Total Standardised approach	- 194 48 109 (27) 10
Qualifying Central Counterparties	- - - - - -
Total	- 2,043 2,912 958 160 278

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December 2018

Table 4(c): Specific Provision Balance and General Reserve for Credit Losses[7][8]

	Dec 18
	Specific Provision Balance $M General Reserve for Credit Losses $M Total $M
Collectively Assessed Provisions for Credit Impairment Individually Assessed Provisions for Credit Impairment	358 2,974 3,332 892 - 892
Total Provision for Credit Impairment	1,250 2,974 4,224

	Sep 18
	Specific Provision Balance $M General Reserve for Credit Losses $M Total $M
Collective Provision Individual Provision	307 2,216 2,523 920 - 920
Total Provision for Credit Impairment	1,227 2,216 3,443
	Jun 18
	Specific Provision Balance $M General Reserve for Credit Losses $M Total $M
Collective Provision Individual Provision	326 2,215 2,541 958 - 958
Total Provision for Credit Impairment	1,284 2,215 3,499

7 Due to definitional differences, there is a variation in the split between ANZ’s Individually and Collectively Assessed Provisions for Credit Impairment 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 Individually and Collectively Assessed Provisions for Credit Impairment, for ease of comparison with other published results.

8 The Group has adopted AASB 9 Financial Instruments effective from 1 October 2018 which has resulted in an $813 million increase to Collectively Assessed Provisions for Credit Impairment.

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December 2018

Table 5 Securitisation

Table 5(a) part (i): Banking Book - Summary of current period’s activity by underlying asset type and facility[9]

Dec 18	Dec 18	Dec 18
Original value securitised Securitisation activity by underlying asset type ANZ Originated $M ANZ Self Securitised $M ANZ Sponsored $M		Recognised gain or loss on sale **$M **
Residential mortgage (66) 356 Credit cards and other personal loans - - Auto and equipment finance - - Commercial loans - - Other - -	- - - - -	- - - - -
Total (66) 356	-	-
Securitisation activity by facility provided		Notional amount **$M **
Liquidity facilities Funding facilities Underwriting facilities Lending facilities Credit enhancements Holdings of securities (excluding trading book) Other		- - - - - 97 -
Total		97

Sep 18	Sep 18
Original value securitised Securitisation activity by underlying asset type ANZ Originated $M ANZ Self Securitised $M ANZ Sponsored $M		Recognised gain or loss on sale **$M **
Residential mortgage (72) 781 Credit cards and other personal loans - - Auto and equipment finance - - Commercial loans - - Other - -	- - - - -	- - - - -
Total (72) 781	-	-
Securitisation activity by facility provided		Notional amount **$M **
Liquidity facilities Funding facilities Underwriting facilities Lending facilities Credit enhancements Holdings of securities (excluding trading book) Other		- 600 - - - (208) 5
Total		397

9 Activity represents net movement in outstanding.

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December 2018

Table 5(a) part (i): Banking Book - Summary of current period’s activity by underlying asset type and facility (continued)

Jun 18 Original value securitised Securitisation activity by underlying asset type ANZ Originated $M ANZ Self Securitised $M ANZ Sponsored $M	Jun 18 Original value securitised Securitisation activity by underlying asset type ANZ Originated $M ANZ Self Securitised $M ANZ Sponsored $M	Recognised gain or loss on sale **$M **
Residential mortgage (66) (875) Credit cards and other personal loans - - Auto and equipment finance - - Commercial loans - - Other - -	- - - - -	- - - - -
Total (66) (875)	-	-
Securitisation activity by facility provided		Notional amount **$M **
Liquidity facilities Funding facilities Underwriting facilities Lending facilities Credit enhancements Holdings of securities (excluding trading book) Other		(3) - - - - (236) -
Total		(239)

Table 5(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.

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December 2018

Table 5(b) part (i): Banking Book: Securitisation - Regulatory credit exposures by exposure type

Dec 18 Securitisation exposure type - On balance sheet **$M **	Sep 18 Jun 18 $M **$M **
Liquidity facilities - Funding facilities 6,939 Underwriting facilities - Lending facilities - Credit enhancements - Holdings of securities (excluding trading book) 1,818 Protection provided - Other 112	- - 6,924 7,173 - - - - - - 1,721 1,929 - - 104 116
Total 8,869	8,749 9,218
Dec 18 Securitisation exposure type - Off Balance Sheet **$M **	Sep 18 Jun 18 $M **$M **
Liquidity facilities 12 Funding facilities 1,291 Underwriting facilities - Lending facilities - Credit enhancements - Holdings of securities (excluding trading book) - Protection provided - Other -	13 13 1,362 1,624 - - - - - - - - - - - -
Total 1,303	1,375 1,637
Dec 18 Total Securitisation exposure type **$M **	Sep 18 Jun 18 $M **$M **
Liquidity facilities 12 Funding facilities 8,229 Underwriting facilities - Lending facilities - Credit enhancements - Holdings of securities (excluding trading book) 1,818 Protection provided - Other 112	13 13 8,286 8,797 - - - - - - 1,721 1,929 - - 104 116
Total 10,171	10,124 10,855

Table 5(b) part (ii): Trading Book: Securitisation – Regulatory credit exposures by exposure type

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

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December 2018

Table 18 Leverage ratio

The Leverage Ratio requirements are part of the Basel Committee on Banking Supervision (BCBS) Basel III capital framework. It is a simple, non-risk based supplement or backstop to the current risk based capital requirements and is intended to restrict the build-up of excessive leverage in the banking system.

Consistent with the BCBS definition, APRA’s Leverage Ratio compares Tier 1 Capital to the Exposure Measure (expressed as a percentage) as defined by APS 110. APRA has not finalised a minimum Leverage Ratio requirement for Australian ADIs, although the current BCBS requirement is for a minimum of 3%.

The following information is the short form data disclosure required to be published under paragraph 47 of APS 330.

		Dec 18	Sep 18	Jun 18	Mar 18
	Capital and total exposures	**$M **	**$M **	**$M **	**$M **
20	Tier 1 capital	52,356	52,218	51,158	51,125
21	Total exposures	992,720	954,957	956,377	942,291
	Leverage ratio
22	Basel III leverage ratio	5.3%	5.5%	5.3%	5.4%

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December 2018

Table 20 Liquidity Coverage Ratio disclosure template

			Dec 18		Sep 18		Jun 18
		Total	Total	Total	Total	Total	Total
		Unweighted	Weighted	Unweighted	Weighted	Unweighted	Weighted
		Value	Value	Value	Value	Value	Value
		**$M **	**$M **	**$M **	**$M **	**$M **	**$M **
	Liquid assets, of which:
1	High-quality liquid assets (HQLA)	-	142,176	-	143,308	-	140,961
2	Alternative liquid assets (ALA)	-	40,899	-	40,897	-	40,896
3	Reserve Bank of New Zealand (RBNZ)	-	5,699	-	10,672	-	11,554
	securities
	Cash outflows
4	Retail deposits and deposits from small	196,568	20,702	200,900	21,704	202,281	21,797
	business customers
5	of which: stable deposits	76,098	3,805	76,278	3,814	76,751	3,838
6	of which: less stable deposits	120,470	16,897	124,622	17,890	125,530	17,959
7	Unsecured wholesale funding	203,583	115,711	191,856	106,859	191,333	108,219
8	of which: operational deposits (all	57,906	13,820	57,716	13,760	57,657	13,787
	counterparties) and deposits in
	networks for cooperative banks
9	of which: non-operational deposits	134,548	90,762	121,176	80,135	121,593	82,349
	(all counterparties)
10	of which: unsecured debt	11,129	11,129	12,964	12,964	12,083	12,083
11	Secured wholesale funding	-	1,721	-	1,679	-	272
12	Additional requirements	136,658	37,934	142,461	42,596	143,057	43,349
13	of which: outflows related to	24,686	24,686	29,301	29,301	30,726	30,726
	derivatives exposures and other
	collateral requirements
14	of which: outflows related to loss of	-	-	-	-	-	-
	funding on debt products
15	of which: credit and liquidity facilities	111,972	13,248	113,160	13,295	112,331	12,623
16	Other contractual funding obligations	10,119	-	10,200	-	10,244	-
17	Other contingent funding obligations	70,557	4,723	66,375	3,872	73,918	4,571
18	Total cash outflows		180,791		176,710		178,208
	Cash inflows
19	Secured lending (e.g. reverse repos)	26,712	1,728	27,371	1,271	24,262	1,025
20	Inflows from fully performing exposures	29,119	19,000	29,633	19,433	30,890	20,646
21	Other cash inflows	16,829	16,829	19,211	19,211	20,789	20,789
22	Total cash inflows	72,660	37,557	76,215	39,915	75,941	42,460
23	Total liquid assets		188,774		194,877		193,411
24	Total net cash outflows		143,234		136,795		135,748
25	Liquidity Coverage Ratio (%)		131.8%		142.5%		142.5%
	Number of data points used (simple	Blank	66		65		65
	average)

Liquidity Coverage Ratio (LCR)

ANZ’s average LCR for the 3 months to 31 December 2018 was 131.8% with total liquid assets exceeding net outflows by an average of $45.5bn.

The main contributors to net outflows were modelled outflows associated with the bank’s corporate and retail deposit portfolios, offset by inflows from maturing loans. While cash outflows associated with derivatives are material, these are effectively offset by derivative cash inflows.

The composition of the liquid asset portfolio has remained relatively stable through the half, with HQLA securities and cash making up on average 75% of total liquid assets.

The reduction in the RBNZ securities in the December quarter is due to a methodology change (industry wide) to exclude surplus liquid assets held by ANZ Bank New Zealand Limited, from the Level 2 LCR. The ANZ Bank New Zealand Limited liquidity position was not materially changed.

ANZ has a well-diversified deposit and funding base avoiding undue concentrations by investor type, maturity, market source and currency.

ANZ monitors and manages its liquidity risk on a daily basis including LCR by geography and currency, ensuring ongoing compliance across the network.

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Glossary

ADI	Authorised Deposit-taking Institution.
Basel III Credit Valuation	CVA charge is an additional capital requirement under Basel III for bilateral derivative
Adjustment (CVA) capital	exposures. Derivatives not cleared through a central exchange/counterparty are
charge	subject to this additional capital charge and also receive normal CRWA treatment under
	Basel II principles.
Collectively Assessed	Collectively assessed provisions for credit impairment represent the Expected Credit
Provision for Credit	Loss (ECL) calculated in accordance with AASB 9 Financial Instruments (AASB 9).
Impairment	These incorporate forward looking information and do not require an actual loss event
	to have occurred for an impairment provision to be recognised.
Collective provision (CP)	Collective provision under AASB 139 Financial Instruments (AASB 139) 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.
Credit exposure	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	Over the life of a derivative instrument, ANZ uses a CVA model to adjust fair value to
(CVA)	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	Individual provision charge is the amount of expected credit losses on financial
(IPC)	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.
Individually Assessed	Individually assessed provisions for credit impairment are calculated in accordance with
Provisions for Credit	AASB 9 Financial Instruments (AASB 9). They are assessed on a case-by-case basis for
Impairment	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.
Individually Provision (IP)	Individual provisions under AASB 139 Financial Instruments (AASB 139) 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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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.
Qualifying Central	QCCP is a central counterparty which is an entity that interposes itself between
Counterparties (QCCP)	counterparties to derivative contracts. Trades with QCCP attract a more favorable risk
	weight calculation.
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 (both on and off-balance sheet) are risk weighted according to each asset’s
	inherent potential for default and what the likely losses would be in the case of default.
	In the case of non asset backed risks (i.e. market and operational risk), RWA is
	determined by multiplying the capital requirements for those risks by 12.5.
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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