ANZ - 2021 Annual Report

Impaired loans comprise drawn facilities where the customer’s status is defined as impaired. Individually assessed allowance for expected credit losses is 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. Interest rate risk in the banking book (IRRBB) relates to the potential adverse impact of changes in market interest rates on ANZ’s future net interest income. The risk generally arises from: 1. Repricing and yield curve risk – the risk to earnings or market value as a result of changes in the overall level of interest rates and/or the relativity of these rates across the yield curve; 2. Basis risk – the risk to earnings or market value arising from volatility in the interest margin applicable to banking book items; and 3. Optionality risk – the risk to earnings or market value arising from the existence of stand-alone or embedded options in banking book items. Internationally comparable ratios are ANZ’s interpretation of the regulations documented in the Basel Committee publications; ‘Basel III: A global regulatory framework for more resilient banks and banking systems’ (June 2011) and ‘International Convergence of Capital Measurement and Capital Standards’ (June 2006). They also include differences identified in APRA’s information paper entitled International Capital Comparison Study (13 July 2015). Level 1 in the context of APRA supervision, Australia and New Zealand Banking Group Limited consolidated with certain approved subsidiaries. Level 2 in the context of APRA supervision, the consolidated ANZ Group excluding associates, insurance and funds management entities, commercial non-financial entities and certain securitisation vehicles. Net interest margin is net interest income as a percentage of average interest earning assets. Net loans and advances represent gross loans and advances less allowance for expected credit losses. Net Stable Funding Ratio (NSFR) is the ratio of the amount of available stable funding (ASF) to the amount of required stable funding (RSF) defined by APRA. The amount of ASF is the portion of an ADI capital and liabilities expected to be a reliable source of funds over a one year time horizon. The amount of RSF is a function of the liquidity characteristics and residual maturities of an ADI’s assets and off-balance sheet activities. ADIs must maintain an NSFR of at least 100%. Net tangible assets equal share capital and reserves attributable to shareholders of the Company less unamortised intangible assets (including goodwill and software). RBA Reserve Bank of Australia, Australia’s central bank. RBNZ Reserve Bank of New Zealand, New Zealand’s central bank. Regulatory deposits are mandatory reserve deposits lodged with local central banks in accordance with statutory requirements. 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. Return on average assets is the profit attributable to shareholders of the Company, divided by average total assets. Return on average ordinary shareholders’ equity is the profit attributable to shareholders of the Company, divided by average ordinary shareholders’ equity. Risk weighted assets (RWA) 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. Settlement balances owed to/by ANZ represent financial assets and/or liabilities which are in the course of being settled. These may include trade dated assets and liabilities, vostro accounts and securities settlement accounts. Term Funding Facility (TFF) refers to three-year funding announced by the Reserve Bank of Australia (RBA) on 19 March 2020 and offered to ADIs in order to support lending to Australian businesses at low cost. Term Lending Facility (TLF) refers to three to five-year funding offered by the RBNZ between May 2020 and July 2021 to promote lending to New Zealand businesses. 264 OVERVIEW HOW WE CREATE VALUE PERFORMANCE OVERVIEW REMUNERATION REPORT DIRECTORS’ REPORT FINANCIAL REPORT SHAREHOLDER INFORMATION

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