ANZ - 2021 Annual Report

Glossary AASs Australian Accounting Standards. AASB Australian Accounting Standards Board. The term ‘AASB’ is commonly used when identifying AASs issued by the AASB. In doing so, the term is used together with the AAS number. ADI Authorised Deposit-taking Institution. APRA Australian Prudential Regulation Authority. APS ADI Prudential Standard. BCBS Basel Committee on Banking Supervision. Cash and cash equivalents comprise coins, notes, money at call, balances held with central banks, liquid settlement balances (readily convertible to known amounts of cash which are subject to insignificant risk of changes in value) and securities purchased under agreements to resell (reverse repurchase agreements) in less than three months. Cash profit is an additional measure of profit which is prepared on a basis other than in accordance with accounting standards. Cash profit represents ANZ’s preferred measure of the result of the core business activities of the Group, enabling readers to assess Group and Divisional performance against prior periods and against peer institutions. To calculate cash profit, the Group excludes non- core items from statutory profit as noted below. These items are calculated consistently period on period so as not to discriminate between positive and negative adjustments. Gains and losses are adjusted where they are significant, or have the potential to be significant in any one period, and fall into one of three categories: 1. gains or losses included in earnings arising from changes in tax, legal or accounting legislation or other non-core items not associated with the core operations of the Group; 2. economic hedging impacts and similar accounting items that represent timing differences that will reverse through earnings in the future; and 3. accounting reclassifications between individual line items that do not impact reported results, such as credit risk on impaired derivatives. Cash profit is not a measure of cash flow or profit determined on a cash accounting basis. Collectively assessed allowance for expected credit loss represents the Expected Credit Loss (ECL), which incorporates forward-looking information and does not require an actual loss event to have occurred for a credit loss provision to be recognised. Coronavirus (COVID-19) is a respiratory illness which was declared a Public Health Emergency of International Concern. COVID-19 was characterised as a pandemic by the World Health Organisation on 11 March 2020. Covered bonds are bonds issued by an ADI to external investors secured against a pool of the ADI’s assets (the cover pool) assigned to a bankruptcy remote special purpose entity. The primary assets forming the cover pool are mortgage loans. The mortgages remain on the issuer’s balance sheet. The covered bond holders have dual recourse to the issuer and the cover pool assets. The mortgages included in the cover pool cannot be otherwise pledged or disposed of but may be repurchased and substituted in order to maintain the credit quality of the pool. The Group issues covered bonds as part of its funding activities. Credit risk is 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 risk weighted assets (CRWA) represent assets which are weighted for credit risk according to a set formula as prescribed in APS 112/113. Customer deposits represent term deposits, other deposits bearing interest, deposits not bearing interest and borrowing corporations’ debt excluding securitisation deposits. Customer remediation includes provisions for expected refunds to customers, remediation project costs and related customer and regulatory claims, penalties and litigation outcomes. Derivative credit valuation adjustment (CVA) Over the life of a derivative instrument, ANZ uses a 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. Dividend payout ratio is the total ordinary dividend payment divided by profit attributable to shareholders of the Company. Fair value is an amount at which an asset or liability could be exchanged between knowledgeable and willing parties in an arm’s length transaction. Funding for Lending Programme (FLP) refers to three-year funding announced by the RBNZ in November 2020 and offered to New Zealand banks, which aimed to lower the cost of borrowing for New Zealand businesses and households. Gross loans and advances (GLA) is made up of loans and advances, capitalised brokerage and other origination costs less unearned income. Group is Australia and New Zealand Banking Group Limited (the Company) and the entities it controlled at the year end and from time to time during the financial year (together, the Group). IFRS International Financial Reporting Standards. Impaired assets are those financial assets where doubt exists as to whether the full contractual amount will be received in a timely manner, or where concessional terms have been provided because of the financial difficulties of the customer. Financial assets are impaired if there is objective evidence of impairment as a result of a loss event that occurred prior to the reporting date, and that loss event has had an impact, which can be reliably estimated, on the expected future cash flows of the individual asset or portfolio of assets. 263 ANZ 2021 Annual Report