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MarketScreener Homepage  >  Equities  >  Australian Stock Exchange  >  Australia and New Zealand Banking Group Limited    ANZ   AU000000ANZ3

AUSTRALIA AND NEW ZEALAND BANKING GROUP

(ANZ)
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Australia and New Zealand Banking : APS 330 Pillar 3 Disclosure at 31 December 2019

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02/19/2020 | 06:17pm EDT

20 February 2020

Market Announcements Office

ASX Limited

Level 4

20 Bridge Street

SYDNEY NSW 2000

APS 330 Pillar 3 Disclosure at 31 December 2019

Australia and New Zealand Banking Group Limited (ANZ) today releases its APS 330 Pillar 3 Disclosure at 31 December 2019.

This has been approved for distribution by ANZ's Continuous Disclosure Committee.

Yours faithfully

Simon Pordage

Company Secretary

Australia and New Zealand Banking Group Limited

Australia and New Zealand Banking Group Limited ABN 11 005 357 522

ANZ Centre Melbourne, Level 9A, 833 Collins Street, Docklands VIC 3008

2019 BASEL III PILLAR 3 DISCLOSURE

AS AT 31 DECEMBER 2019

APS 330:

PUBLIC DISCLOSURE

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.

1

ANZ Basel III Pillar 3 Disclosure

December 2019

Table 3

Capital adequacy - Capital Ratios and Risk Weighted Assets1

Dec 19

Sep 19

Jun 19

Risk Weighted Assets (RWA)

$M

$M

$M

Subject to Advanced Internal Rating Based (IRB) approach

Corporate

139,134

136,885

128,949

Sovereign

6,169

6,199

7,560

Bank

16,357

15,968

14,915

Residential Mortgage

106,549

105,491

101,452

Qualifying Revolving Retail

5,101

5,255

5,522

Other Retail

25,678

26,258

27,451

Credit risk weighted assets subject to Advanced IRB approach

298,988

296,056

285,849

Credit Risk Specialised Lending exposures subject to slotting approach1

37,085

36,318

36,384

Subject to Standardised approach

Corporate

13,557

11,645

11,819

Residential Mortgage

214

216

335

Other Retail

48

50

78

Credit risk weighted assets subject to Standardised approach

13,819

11,911

12,232

Credit Valuation Adjustment and Qualifying Central Counterparties

7,817

8,682

6,489

Credit risk weighted assets relating to securitisation exposures

1,880

1,859

1,851

Other assets

4,603

3,280

3,307

Total credit risk weighted assets

364,192

358,106

346,112

Market risk weighted assets

5,728

5,307

5,292

Operational risk weighted assets

46,773

46,626

37,789

Interest rate risk in the banking book (IRRBB) risk weighted assets

7,461

6,922

7,150

Total Risk Weighted Assets

424,154

416,961

396,343

Capital ratios (%)

Dec 19

Sep 19

Jun 19

Level 2 Common Equity Tier 1 capital ratio

10.9%

11.4%

11.8%

Level 2 Tier 1 capital ratio

12.8%

13.2%

13.8%

Level 2 Total capital ratio

15.2%

15.3%

15.5%

Basel III APRA level 2 CET1

Dec 19

Sep 19

Common Equity Tier 1 Capital

46,359

47,355

Total Risk Weighted Assets

424,154

416,961

Common Equity Tier 1 capital ratio

10.9%

11.4%

Basel III APRA level 1 Extended licensed entity CET1

Dec 19

Sep 19

Common Equity Tier 1 Capital

41,849

43,095

Total Risk Weighted Assets

383,575

379,539

Common Equity Tier 1 capital ratio

10.9%

11.4%

Credit Risk Weighted Assets (CRWA)

Total CRWA increased $6.1 billion (1.7%) from Sep 2019 to $364.2 billion at Dec 2019. The increase is driven by lending growth in the Corporate asset class in the Institutional business across both Advanced IRB and exposures receiving Standardised treatment. CRWA on Other assets increased $1.3 billion mainly due to recognition of on balance sheet of right of use lease assets following implementation of IFRS 16 Leases on 1 October 2019.

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

Traded Market Risk RWA increased $0.4 billion (7.9%) over the quarter due to increase in Stress VaR.

IRRBB RWA Increased due to a deterioration in embedded gains and an increase 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.

2

ANZ Basel III Pillar 3 Disclosure

December 2019

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

Dec 19

Risk

Average

Individual

Exposure at

provision

Write-offs

Weighted

Exposure at

Default for

charge for

for three

Advanced IRB approach

Assets

Default

three months

three months

months

$M

$M

$M

$M

$M

Corporate

139,134

280,704

278,651

38

22

Sovereign

6,169

166,395

159,668

-

-

Bank

16,357

55,170

55,158

-

-

Residential Mortgage

106,549

378,944

376,160

15

27

Qualifying Revolving Retail

5,101

16,327

16,487

39

57

Other Retail

25,678

35,754

36,038

82

101

Total Advanced IRB approach

298,988

933,294

922,162

174

207

Specialised Lending

37,085

43,903

43,626

-

-

Standardised approach

Corporate

13,557

14,831

13,915

(9)

-

Residential Mortgage

214

442

444

-

-

Other Retail

48

47

48

-

-

Total Standardised approach

13,819

15,320

14,407

(9)

-

Credit Valuation Adjustment and

Qualifying Central Counterparties

7,817

8,133

8,741

-

-

Total

357,709

1,000,650

988,936

165

207

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.

3

ANZ Basel III Pillar 3 Disclosure

December 2019

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

Sep 19

Average

Individual

Risk

Exposure at

provision

Write-offs

Weighted

Exposure at

Default for

charge for

for three

Advanced IRB approach

Assets

Default

three months

three months

months

$M

$M

$M

$M

$M

Corporate

136,885

276,599

269,091

25

43

Sovereign

6,199

152,940

154,017

-

-

Bank

15,968

55,145

53,877

-

-

Residential Mortgage

105,491

373,376

374,775

(3)

33

Qualifying Revolving Retail

5,255

16,647

16,870

35

61

Other Retail

26,258

36,322

36,957

81

137

Total Advanced IRB approach

296,056

911,029

905,587

138

274

-

-

Specialised Lending

36,318

43,348

43,375

(2)

1

Standardised approach

Corporate

11,645

12,998

13,052

2

19

Residential Mortgage

216

445

583

2

1

Other Retail

50

49

63

-

1

Total Standardised approach

11,911

13,492

13,698

4

21

Credit Valuation Adjustment and

8,682

9,348

11,544

-

-

Qualifying Central Counterparties

Total

352,967

977,217

974,204

140

296

Jun 19

Average

Individual

Risk

Exposure at

provision

Write-offs

Weighted

Exposure at

Default for

charge for

for three

Advanced IRB approach

Assets

Default

three months

three months

months

$M

$M

$M

$M

$M

Corporate

128,949

261,582

259,794

50

46

Sovereign

7,560

155,094

152,377

-

-

Bank

14,915

52,608

53,819

-

-

Residential Mortgage

101,452

376,173

377,843

40

34

Qualifying Revolving Retail

5,522

17,092

17,341

52

65

Other Retail

27,451

37,592

38,067

106

127

Total Advanced IRB approach

285,849

900,141

899,241

248

272

Specialised Lending

36,384

43,402

43,032

-

-

Standardised approach

Corporate

11,819

13,106

13,313

9

7

Residential Mortgage

335

720

718

1

-

Other Retail

78

77

79

-

3

Total Standardised approach

12,232

13,903

14,110

10

10

Credit Valuation Adjustment and

6,489

13,740

13,135

-

-

Qualifying Central Counterparties

Total

340,954

971,186

969,518

258

282

4

ANZ Basel III Pillar 3 Disclosure

December 2019

Table 4(a) part (ii): Exposure at Default by portfolio type3

Average for the

quarter ended

Dec 19

Sep 19

Jun 19

Dec 19

Portfolio Type

$M

$M

$M

$M

Cash

69,471

55,083

60,996

62,277

Contingents liabilities, commitments, and other off-balance

sheet exposures

164,703

160,293

160,633

162,498

Derivatives

48,818

53,716

46,354

51,267

Settlement Balances

1

26

28

14

Investment Securities

77,758

82,289

77,739

80,024

Net Loans, Advances & Acceptances

607,801

597,084

597,877

602,443

Other assets

4,608

4,627

4,914

4,618

Trading Securities

27,490

24,099

22,645

25,795

Total exposures

1,000,650

977,217

971,186

988,936

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.

5

ANZ Basel III Pillar 3 Disclosure

December 2019

Table 4(b): Impaired asset4 5, Past due loans6, Provisions and Write-offs

Dec 19

Individual

Write-

Impaired

Past due

Individual

provision

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

-

1,013

201

390

38

22

Sovereign

-

-

-

-

-

-

Bank

-

-

-

-

-

-

Residential Mortgage

-

489

2,743

130

15

27

Qualifying Revolving Retail

-

66

-

-

39

57

Other Retail

-

415

401

223

82

101

Total Advanced IRB approach

-

1,983

3,345

743

174

207

Specialised Lending

-

30

31

5

-

-

Portfolios subject to Standardised approach

Corporate

-

125

16

80

(9)

-

Residential Mortgage

-

9

6

7

-

-

Other Retail

-

20

1

-

-

-

Total Standardised approach

-

154

23

87

(9)

-

Qualifying Central Counterparties

-

-

-

-

-

-

Total

-

2,167

3,399

835

165

207

  1. Impaired derivatives are net of credit valuation adjustment (CVA) of $4 million, being a market value based assessment of the credit risk of the relevant counterparties (September 2019: $7 million; June 2019: $6 million).
  2. Impaired loans / facilities include restructured items of $222 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 2019: $267 million; June 2019: $230 million).
  3. For regulatory reporting not well secured portfolio managed retail exposures have been reclassified from past due loans ≥ 90 days to impaired loans / facilities.

6

ANZ Basel III Pillar 3 Disclosure

December 2019

Table 4(b): Impaired asset, Past due loans, Provisions and Write-offs (continued)7

Sep 19

Individual

Write-

Impaired

Past due

Individual

provision

offs for

Impaired

loans/

loans ≥

provision

charge for

three

derivatives

facilities

90 days

balance

three months

months

$M

$M

$M

$M

$M

$M

Portfolios subject to Advanced IRB approach

Corporate

-

1,038

248

369

25

43

Sovereign

-

-

-

-

-

-

Bank

-

-

-

-

-

-

Residential Mortgage

-

438

2,943

137

(3)

33

Qualifying Revolving Retail

-

69

-

-

35

61

Other Retail

-

442

379

221

81

137

Total Advanced IRB approach

-

1,987

3,570

727

138

274

Specialised Lending

-

31

33

5

(2)

1

Portfolios subject to Standardised approach

Corporate

-

106

14

75

2

19

Residential Mortgage

-

10

6

7

2

1

Other Retail

-

15

1

-

-

1

Total Standardised approach

-

131

21

82

4

21

Qualifying Central Counterparties

-

-

-

-

-

-

Total

-

2,149

3,624

814

140

296

Jun 19

Individual

Write-

Impaired

Past due

Individual

provision

offs for

Impaired

loans/

loans ≥

provision

charge for

three

derivatives

facilities

90 days

balance

three months

months

$M

$M

$M

$M

$M

$M

Portfolios subject to Advanced IRB approach

Corporate

-

1,018

205

386

50

46

Sovereign

-

-

-

-

-

-

Bank

-

-

-

-

-

-

Residential Mortgage

-

476

2,869

168

40

34

Qualifying Revolving Retail

-

80

-

-

52

65

Other Retail

-

493

376

255

106

127

Total Advanced IRB approach

-

2,067

3,450

809

248

272

Specialised Lending

-

33

31

6

-

-

Portfolios subject to Standardised approach

Corporate

-

125

13

88

9

7

Residential Mortgage

-

18

13

9

1

-

Other Retail

-

16

7

-

-

3

Total Standardised approach

-

159

33

97

10

10

Qualifying Central Counterparties

-

-

-

-

-

-

Total

-

2,259

3,514

912

258

282

7 In the September 2019 half, ANZ implemented a revised process for the identification of impaired assets, and a more market responsive collateral valuation methodology for the home loan portfolio in Australia which increased the number of home loans being classified as impaired rather than past due. Comparative information has not been restated for the change in methodology. Additional refinement to underlying processes and associated data resulted in the transfer of loans from past due and sub-standard categories into impaired assets. Comparative information has been restated with a transfer of $144 million at June 2019.

7

ANZ Basel III Pillar 3 Disclosure

December 2019

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

Dec 19

Specific Provision

General Reserve for

Total

Balance

Credit Losses

$M

$M

$M

Collectively Assessed Provisions for Credit Impairment

425

2,902

3,327

Individually Assessed Provisions

835

-

835

Total Provision for Credit Impairment

1,260

2,902

4,162

Sep 19

Specific Provision

General Reserve for

Total

Balance

Credit Losses

$M

$M

$M

Collectively Assessed Provisions for Credit Impairment

435

2,941

3,376

Individually Assessed Provisions

814

-

814

Total Provision for Credit Impairment

1,249

2,941

4,190

Jun 19

Specific Provision

General Reserve for

Total

Balance

Credit Losses

$M

$M

$M

Collectively Assessed Provisions for Credit Impairment

417

2,915

3,332

Individually Assessed Provisions

912

-

912

Total Provision for Credit Impairment

1,329

2,915

4,244

8 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

ANZ Basel III Pillar 3 Disclosure

December 2019

Table 5 Securitisation

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

Dec 19

Original value securitised

ANZ Self

Recognised gain

Securitisation activity by underlying asset

ANZ Originated

Securitised

ANZ Sponsored

or loss on sale

type

$M

$M

$M

$M

Residential mortgage

(143)

(6,221)

-

-

Credit cards and other personal loans

-

-

-

-

Auto and equipment finance

-

-

-

-

Commercial loans

-

-

-

-

Other

-

-

-

-

Total

(143)

(6,221)

-

-

Notional amount

Securitisation activity by facility provided

$M

Liquidity facilities

-

Funding facilities

585

Underwriting facilities

-

Lending facilities

-

Credit enhancements

-

Holdings of securities (excluding trading book)

654

Other

25

Total

1,264

Sep 19

Original value securitised

ANZ Self

Recognised gain

Securitisation activity by underlying asset

ANZ Originated

Securitised

ANZ Sponsored

or loss on sale

type

$M

$M

$M

$M

Residential mortgage

(152)

(1,032)

-

-

Credit cards and other personal loans

-

-

-

-

Auto and equipment finance

-

-

-

-

Commercial loans

-

-

-

-

Other

-

-

-

-

Total

(152)

(1,032)

-

-

Notional amount

Securitisation activity by facility provided

$M

Liquidity facilities

-

Funding facilities

35

Underwriting facilities

-

Lending facilities

-

Credit enhancements

-

Holdings of securities (excluding trading book)

104

Other

71

Total

210

9 Activity represents net movement in outstanding.

9

ANZ Basel III Pillar 3 Disclosure

December 2019

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

Jun 19

Original value

securitised

ANZ Self

Recognised gain

Securitisation activity by underlying asset

ANZ Originated

Securitised

ANZ Sponsored

or loss on sale

type

$M

$M

$M

$M

Residential mortgage

1,429

441

-

-

Credit cards and other personal loans

-

-

-

-

Auto and equipment finance

-

-

-

-

Commercial loans

-

-

-

-

Other

-

-

-

-

Total

1,429

441

-

-

Notional amount

Securitisation activity by facility provided

$M

Liquidity facilities

15

Funding facilities

1,100

Underwriting facilities

-

Lending facilities

-

Credit enhancements

-

Holdings of securities (excluding trading book)

59

Other

82

Total

1,256

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.

10

ANZ Basel III Pillar 3 Disclosure

December 2019

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

Dec 19

Sep 19

Jun 19

Securitisation exposure type - On balance sheet

$M

$M

$M

Liquidity facilities

-

-

-

Funding facilities

7,052

7,679

7,619

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

Holdings of securities (excluding trading book)

2,577

1,923

1,819

Protection provided

-

-

-

Other

338

437

261

Total

9,967

10,039

9,699

Dec 19

Sep 19

Jun 19

Securitisation exposure type - Off Balance Sheet

$M

$M

$M

Liquidity facilities

23

25

26

Funding facilities

1,735

1,598

1,979

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

Holdings of securities (excluding trading book)

-

-

-

Protection provided

-

-

-

Other

-

-

-

Total

1,758

1,623

2,005

Dec 19

Sep 19

Jun 19

Total Securitisation exposure type

$M

$M

$M

Liquidity facilities

23

25

26

Funding facilities

8,787

9,277

9,598

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

Holdings of securities (excluding trading book)

2,577

1,923

1,819

Protection provided

-

-

-

Other

338

437

261

Total

11,725

11,662

11,704

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.

11

ANZ Basel III Pillar 3 Disclosure

December 2019

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 they have proposed a minimum of 3.5% for internal ratings based approach ADIs.

The following information is the short form data disclosure required to be published under paragraph 49 of APS 330.

Dec 19

Sep 19

Jun 19

Mar 19

Capital and total exposures

$M

$M

$M

$M

20

Tier 1 capital

54,172

55,221

54,614

53,075

21

Total exposures

1,022,701

989,225

996,557

985,583

Leverage ratio

22

Basel III leverage ratio

5.3%

5.6%

5.5%

5.4%

12

ANZ Basel III Pillar 3 Disclosure

December 2019

Table 20

Liquidity Coverage Ratio disclosure template

Dec 19

Sep 19

Jun 19

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)

-

158,981

-

144,200

-

137,770

2

Alternative liquid assets (ALA)

-

41,402

-

41,400

-

41,815

3

Reserve Bank of New Zealand (RBNZ)

-

5,872

-

4,997

-

5,150

securities

Cash outflows

4

Retail deposits and deposits from small

211,449

21,852

202,675

20,702

196,242

19,932

business customers

5

of which: stable deposits

81,912

4,096

78,262

3,913

76,070

3,804

6

of which: less stable deposits

129,537

17,756

124,413

16,789

120,172

16,128

7

Unsecured wholesale funding

211,756

115,753

208,233

114,820

199,950

110,313

8

of which: operational deposits (all

65,792

15,856

64,317

15,552

60,514

14,670

counterparties) and deposits in

networks for cooperative banks

9

of which: non-operational deposits

135,907

89,840

132,524

87,876

127,266

83,473

(all counterparties)

10

of which: unsecured debt

10,057

10,057

11,392

11,392

12,170

12,170

11

Secured wholesale funding

1,412

513

168

12

Additional requirements

140,594

38,768

143,054

40,181

139,289

37,855

13

of which: outflows related to

22,915

22,915

24,736

24,736

22,724

22,724

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

117,679

15,853

118,318

15,445

116,565

15,131

16

Other contractual funding obligations

10,661

-

10,892

-

11,403

-

17

Other contingent funding obligations

75,473

4,813

66,370

3,985

67,841

4,795

18

Total cash outflows

182,598

180,201

173,063

Cash inflows

19

Secured lending (e.g. reverse repos)

27,329

1,480

30,556

1,901

28,145

1,732

20

Inflows from fully performing exposures

29,791

19,130

37,335

26,443

37,147

25,744

21

Other cash inflows

16,031

16,031

18,235

18,235

16,680

16,680

22

Total cash inflows

73,151

36,641

86,126

46,579

81,972

44,156

23

Total liquid assets

206,255

190,597

184,735

24

Total net cash outflows

145,957

133,622

128,907

25

Liquidity Coverage Ratio (%)

141.3%

142.6%

143.3%

Number of data points used (simple average)

66

66

65

Liquidity Coverage Ratio (LCR)

ANZ's average LCR for the 3 months to 31 December 2019 was 141.3% with total liquid assets exceeding net outflows by an average of $60.3b.

The main contributors to net cash 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 quarter, with HQLA securities and cash making up on average 77% of total liquid assets.

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.

13

ANZ Basel III Pillar 3 Disclosure

December 2019

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.

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

Provisions for Credit

with AASB 9 Financial Instruments (AASB 9).

They are assessed on a case-by-case

Impairment

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.

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

14

ANZ Basel III Pillar 3 Disclosure

December 2019

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.

15

ANZ Basel III Pillar 3 Disclosure

December 2019

This page has been intentionally left blank

16

Disclaimer

ANZ - Australia & New Zealand Banking Group Ltd. published this content on 20 February 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 February 2020 23:16:05 UTC

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