ANZ Covered Bond Guide

ANZ Covered Bond Guide November 2013 AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

Contents Covered Bond Programme Overview Mortgage Portfolio and Cover Pool Cover Pool and Mortgage Portfolio Policy Framework 2

Covered Bond Programme Overview

Australian Covered Bond Legislation Structure Priority Cover pool Enabling legislation (to amend the Banking Act 1959) passed the Australian Federal Parliament and became law in October 2011 ADIs to be covered bond issuer, with dual recourse to issuer and cover pool Guarantee provided by an SPV, used for segregation of cover pool assets and provides legal certainty of a priority claim over the cover pool Bondholders have priority against a cover pool of financial assets Demand loan structure regulates priority and size of cover pool and use of the issuance limit. APRA has limited powers with respect to assets in the cover pool Australian assets only - includes cash, Australian Government bonds, State-Government bonds, <100 day bank debt (up to 15%), residential or commercial mortgage loans and derivatives ANZ pool will limit State-Government Bonds to less than 15% and will not include commercial mortgage loans. Minimum level of over-collateralisation of 3% (with contractual OC in addition) where value is only provided up to 80% LVR for residential loans Issuance Limits Issuance not permitted if cover pool assets > 8% of ADI s Australian assets Supervision APRA has prudential supervision responsibilities Defined role of independent cover pool monitor e.g. audit firm 4

ANZ legislative covered bond programme Issuer Issuer Rating Programme Size Rating Australia & New Zealand Banking Group Limited AA-/A1+ (S&P), Aa2/P-1 (Moody s), AA-/F1+ (Fitch) US$30,000,000,000 Aaa (Moody s) / AAA (Fitch) Covered Bond Guarantor ANZ Residential Covered Bond Trust Covered Bond Guarantee Cover Pool Over-collateralisation LVR Cap Governing Law Listing Guarantees payments of interest and principal, secured over a cover pool Australian, first ranking residential mortgages and Authorised Investments ring fenced in the ANZ Residential Covered Bond Trust Maximum Asset Percentage 95% and current minimum Asset Percentage 87% Contractual Overcollateralisation of 14.94% is the inverse of Asset Percentage Monthly Asset Coverage Test (ACT) to ensure cover pool is sufficient to secure the outstanding covered bonds per minimum contractual OC Legislative requirement includes maximum 80% LVR for 103% minimum legislative OC requirement Asset and security documents Australian Bond documentation for European Issuance English Bond distribution documentation for US Issuance New York London Stock Exchange for European issuance 5

Parties to the ANZ programme Issuer and Seller ANZ Banking Group Limited (ANZBGL) Additional Roles include: Residual Income & Capital Beneficiary Calculation Manager and Servicer Currency & Interest Rate Swap Provider Interest Rate Swap Provider Contingent CB Swap Provider Account Bank Covered Bond Guarantor The Trust Trust Manager Bond Trustee Security Trustee UK Paying Agent Asset Monitor Programme Arrangers Perpetual Trustee Company Limited ANZ Residential Covered Bond Trust ANZ Capel Court Limited (ANZCC) Deutsche Trustee Company Limited* P.T. Limited Deutsche Bank AG, London Branch KPMG (performed on at least a semi-annual basis) ANZ Securities and UBS * Some of the functions have been outsourced to Perpetual Trustee Company Limited 6

Programme structure ANZBGL Ccy and Interest Rate Swap Provider ANZBGL Interest Rate Swap Provider ANZBGL Contingent Covered Bond Swap Provider ANZBGL Issuer Demand Loan and Intercompany Loan ANZ Residential Covered Bond Trust Covered Bond Guarantor Mortgages and Related Security Consideration ANZBGL Seller Covered Bonds Covered Bond Proceeds Guarantee Security Agreement Covered Bondholders Secured Creditors P.T. Limited Security Trustee AUSTRALIA DIVISION 7

Programme structural enhancements Over- Collateralisation Indexation Prior to a Notice to Pay, the Asset Coverage Test is performed on the Determination Date to ensure sufficient assets to support the value of outstanding covered bonds After a Notice to Pay, the Amortisation Test is performed on each Determination Date to ensure sufficient cash to pay any maturing bonds The nominal value of assets in the collateral pool will be adjusted to reflect changes in house prices using a reliable and widely used measure such as RP Data-Rismark Home Value Index The Asset Coverage Test and Amortisation Test require the use of the Indexed Valuation for each property Indexing is applied using a similar procedure to UK programmes, with 100% of any loss and 85% of any gain applied Housing Loans in arrears by more than 90 days receive zero value Interest Rate Swap Covered Bond Swap Hedges interest flows on the cover pool for a spread over 1 month BBSW + margin to cover the payment obligations of the Trust, including interest on the Intercompany Loan and Demand Loan and expenses of the trust. Provided by ANZBGL and will be required to post collateral, obtain guarantees or be replaced if specified rating triggers AUSTRALIA occur DIVISION Where covered bonds are issued in a currency and/or interest basis different to the Interest Rate Swap, the Covered Bond Guarantor will enter into a Forward Starting Covered Bond Swap Provided by ANZBGL and will be required to post collateral, obtain guarantees and/or be replaced if specified rating triggers occur 8

Programme structural enhancements ratings triggers (if any of the following occur) Pre Maturity Test Moody s: below P-1 Fitch: below F1+ / A+ For Hard Bullet Covered Bonds maturing within the next 12 months, Pre-Maturity Ledger must be funded by the A$ Equivalent of the Required Redemption Amount. Failure to remedy a breach of the Pre-Maturity Test within the required timeframe will cause an Issuer Event of Default to occur. Reserve Fund Moody s: below P-1 Fitch: below F1+ An amount equal to the A$ equivalent of three months interest and expenses must be credited to the Reserve Fund. Swap Collateralisation & Replacement Transfer Trust Bank Account Servicer Downgrade Fitch: below F1/ A Moody s: below P-1 / A2 Moody s: below P-1 Fitch: below F1 / A Moody s: below P-1 Fitch: below F1 / A Swaps must be cash-collateralised (one-way CSA) within 14 calendar days of a ratings trigger event. ANZ must replace itself as swap counterparty if ANZ s Fitch rating falls below F2 / BBB+. Swaps must be cash-collateralised (one-way CSA) within 30 business days of a ratings trigger event. ANZ must replace itself as swap counterparty if ANZ s Moody s rating falls below P2 / A3. The Covered Bond Guarantor must transfer it s bank account from ANZ to a third party. ANZ will be required to transfer all collections to the GIC Account within 2 local business days (and must replace itself as Servicer if ANZ s rating falls below Baa3/BBB-). 9

Cover pool and the Demand Loan structure Senior Demand Loan OC Above Minimum Contractual Amount The Asset Coverage Test ( ACT ) is an ongoing test to ensure Adjusted Aggregate Receivable Amount ( AARA ) is equal to or greater than AUD equivalent of Covered Bonds outstanding Nominal value of Cover Pool Subordinated Demand Loan Intercompany Loan Minimum Contractual OC AUD Equivalent of Covered Bonds Outstandin g Effect of Asset Coverage Test Excess over Required AARA Minimum AARA The AARA is determined by applying a collateral haircut using the Asset Percentage which corresponds to the contractual minimum overcollateralisation The minimum AARA is for the benefit of bondholders and APRA has no rights with respect to this portion of the cover pool The cash equivalent of the excess AARA over the minimum AARA represents voluntary overcollateralisation, and is funded through the senior demand loan The senior demand loan can be called by the issuer, or if directed by APRA, for immediate repayment 10

Asset Coverage Test ( ACT ) Tested monthly on every Determination Date prior to the service of a Notice to Pay The ACT is designed to protect Covered Bondholders by ensuring that the value of housing loans, cash, and other eligible assets is greater than the AUD equivalent of outstanding Covered Bonds. The excess is funded by the senior ranking portion of the demand loan. Failure of the ACT on the next Determination Date after the service of an ACT Breach Notice will constitute an Issuer Event of Default and prompt an acceleration of the Covered Bonds against the Issuer Asset Coverage Test For each Housing Loan that is not a Defaulted Housing Loan, the lesser of: (i) Outstanding Current Principal Balance of the Housing Loan; and A Lower of: (ii) 100% of the Latest Valuation = (ii) 80% of the Indexed + for the Property; Valuation for the Property; For each Housing Loan that is a Defaulted Housing Loan, zero. MINUS LOANS IN BREACH OF Representations and Warranties or breach of Servicing Agreement For each Housing Loan that is not a Defaulted Housing Loan, the lesser of: (i) Outstanding Current Principal Balance of the Housing Loan; and For each Housing Loan that is a Defaulted Housing Loan, zero. MINUS LOANS IN BREACH OF Representations and Warranties or breach of Servicing Agreement The result of which is multiplied by the Asset Percentage B Unused Term Advances and Demand Loan Advances + C Substitution Assets and Authorised Investments + D Housing Loan Principal Receipts in the GIC Account + E Sales Proceeds credited to GIC plus surplus principal receipts credited to GIC AUD Equivalent of Covered Bonds Outstanding - Weighted average remaining maturity of all Covered Bonds outstanding (yrs) x A$ equivalent of Principal Amount Outstanding of all Covered Bonds x Zero if the Interest Rate Swap is in place or (B+C+D+E)/ (A+B+C+D+E) x Negative Carry Factor 11

Amortisation Test Tested monthly on every Determination Date after the service of a Notice to Pay. The Amortisation Test is designed to ensure the Covered Bond Guarantor has sufficient assets to meet its obligations under the Covered Bond Guarantee. A failure of the Amortisation Test will constitute a Covered Bond Guarantor Event of Default and prompt an acceleration of the Covered Bonds against the Covered Bond Guarantor. A For each Housing Loan, the product of: Amortisation Test (i) The lesser of: (i) The outstanding Current Principal Balance of the Housing Loan; and (ii) 80% of the Indexed Valuation (ii) M, where, = + (i) For each Housing Loan that is not a Defaulted Housing Loan, M = 1.0; (ii) For each Housing Loan that is a Defaulted Housing Loan, M = zero; B Cash in the GIC Account and Authorised Investments + C Substitution Assets AUD Equivalent of Covered Bonds Outstanding - Weighted average remaining maturity of all Covered Bonds outstanding (yrs) x A$ equivalent of Principal Amount Outstanding of all Covered Bonds x Zero if the interest Rate Swap is in place or (B+C)/(A+B+C) x Negative Carry Factor 12

Pre-Acceleration priority of payments Revenue Priority of Payments $1,000 to the Residual Income Unitholder Amounts due to Covered Bond Guarantor as trustee, the Bond Trustee, the Security Trustee, Agents, other third parties and taxes Any remuneration due to the Servicer, Calculation Manager, Account Bank, Asset Monitor and the Trust Manager Amount due and payable to the Interest Rate Swap Provider or Total Return Swap Provider Amounts (other than principal) due to the Covered Bond Swap Provider and Interest due to the Intercompany Loan Provider If the Pre-Maturity Test has been breached, then to the Pre-Maturity Ledger The Reserve Ledger amount up to the Reserve Fund Required Amount If Servicer Termination Event has occurred, all remaining funds to be deposited into the GIC Account Excluded Swap Termination Amounts due and payable by the Covered Bond Guarantor Indemnity Amount due to the Asset Monitor Interest due and payable on the senior and subordinated portion of the Demand Loan Residual Income Unitholder Principal Priority of Payments Repay senior portion outstanding of Demand Loan If Pre-Maturity Test has been breached, deposit to the GIC of A$ Equivalent of the Required Redemption Amount for each Series of Hard Bullet Covered Bonds in respect of which the Pre-Maturity Test has been breached less amounts standing to the credit of the Pre-Maturity Ledger Allocate as Available Revenue Receipts if the Pre- Maturity Ledger balance is equal to amount required To reimburse the Seller for any Redraws or Further Advances that the Trustee has agreed may remain in the Purchased Receivables Acquisition of New Housing Loans and/or to acquire Substitution Assets to ensure compliance with ACT To deposit the remaining Available Principal Receipts into the GIC Account, to ensure compliance with ACT Principal due and payable to the Covered Bond Swap Provider and to the Intercompany Loan Provider To pay the Purchase Price for New Housing Loans subject to certain conditions if the Trust Manager considers that should be done Principal outstanding that is payable to the subordinated portion of the Demand Loan Deposit to the GIC Account or if no Covered Bonds are outstanding to the Residual Income Unitholder. 13

Issuer Event of Default and covered bond guarantee Issuer Events of Default Include: Default in principal or interest for 7 days Fail to perform obligations for 30 days Winding up, encumbrancer takes possession of all assets Bankruptcy proceedings An uncured breach of ACT Following an Issuer Event of Default Activation of the Covered Bond Guarantee Service of an Issuer Acceleration Notice to the Issuer will accelerate claims against the Issuer but not the Guarantor. The bonds do not accelerate. Bondholders may immediately claim against the Issuer for the full Early Termination Amount and rank pari passu with ANZ s senior unsecured debt Any money obtained under that claim is paid to the Guarantor for payment on bonds as they fall due Following an Issuer Acceleration Notice, the Trustee may serve a Notice to Pay on the Covered Bond Guarantor Investors receive payment of interest and principal under the Covered Bond Guarantee according to the original payment schedule as if no Issuer Event of Default had occurred To the extent the Covered Bond Guarantor has insufficient funds to repay in full Covered Bonds on the Maturity Date, the unpaid amount of Covered Bonds will be deferred and shall be due and payable 12 months later (or earlier if the CB Guarantor has sufficient funds). This provision does not apply to Hard Bullet Covered Bonds. 14

Payment waterfall following Issuer Event of Default Guarantee Priority of Payments $1,000 to the Residual Income Unitholder Expenses due to Bond Trustee, Security Trustee and Covered Bond Guarantor as trustee of the Trust Expenses due to Agents, third parties and taxes Expenses due to Servicer, Calculation Manager, Account Bank, Trust Manager and Asset Monitor Amounts due and payable to Interest Rate Swap Provider Interest and then principal due to Demand Loan Provider in respect of senior portion outstanding Amounts (other than principal) due to Covered Bond Swap Provider and Scheduled Interest that is Due for Payment under the Covered Bond Guarantee Principal payable to Covered Bond Swap Provider and Scheduled Principal that is Due for Payment under the Covered Bond Guarantee Any other amounts due and payable to Covered Bond Swap Provider and the Final Redemption Amount not paid on the applicable Extension Determination Date All remaining funds to be deposited into the GIC Account until the Covered Bonds have been fully repaid or provided for Excluded Swap Termination Amount Any amounts due under Intercompany Loan Agreement Indemnity and other expenses to the Asset Monitor Any subordinated amounts payables in respect of the Demand Loan Residual Income Unitholder 15

Mortgage Market Characteristics

The structure of the Australian mortgage market has resulted in very low losses through various cycles Full Recourse All mortgage lending is full recourse Investment loans are also secured by mortgage over primary residence Variable rate Most mortgage lending in variable rate format Direct transmission for monetary policy Low LVRs Loans with LVR > 80% require mortgage insurance No sub prime market Limited tax advantages Mortgage debt on owner occupied homes is not tax deductible Results in high prepayment levels Consequently mortgage debt as proportion of housing stock is low Originate to hold model Mortgages typically retained on balance sheet Last RMBS by ANZ was in 2004 17

Cover Pool and Mortgage Portfolio Policy Framework

Ongoing cover pool repurchase and exclusion rules While ANZ is not obliged to repurchase loans other than as a result of breach of reps and warranties, from an operations perspective, a number of additional repurchase and exclusion rules including, but not limited to the following list will be applied to identify loans to be removed from the cover pool: If the loan has been paid off There has been a change in loan product type (e.g. variable to fixed rate) There has been a change in relation to the security (e.g. partial release) Certain events occur with respect to the loan/security/customer linkages A transaction has been raised in relation to further advances The loan number remains the same but there has been a change in relation to loan terms & conditions that is considered to be a credit event (e.g. extension of loan term) Reps & warranties relating to a loan are incorrect Loan performance e.g. the loan is in an arrears position > 90 days A provision or write off on a loan has been raised 19

ANZ mortgage underwriting framework Activity Description Policy Credit Bureau All applications subject to Credit Bureau check Credit Scorecard Serviceability Deposit Documentation Valuation ANZ Proprietary system used in determining a customer s credit score Assessed on uncommitted monthly income 225 bps interest rate sensitivity buffer Serviceability assessment Require 5% genuine savings Require pay slips / tax statements No No doc loans Low doc loans for self employed borrowers up to 60% LVR (require tax statements) Type of valuation depends on type of loan Full valuations done for higher LVR and luxury property loans Process Underwriting Regardless of origination channel, all credit assessment and underwriting is conducted by ANZ Collections Portfolio oversight from Day 1 Process outlined on next page 20

ANZ collections management process Early Arrears Days 1 59 Treatment actions including SMS payment reminders Past due notices/letters Automated voice calling Human voice calling Action taken based on customer risk profile Customers with high risk profile are transfer to Late Stage earlier If still in arrears at 60 days past due, account transferred to Late Stage Late Stage Days 61-90 Strategies & arrangements implemented based on account conduct and customer risk profile Resolution types: Exit via Arrangement / No contact / No resolution / Borrower Sale; Excessive number of broken promises to pay Contact obtained through phone calls, letters, field agents and skip traces Days 90+ Valuation of the security obtained and provision for any shortfall raised where required File referred to solicitors for litigation actions where account has no resolution or no contact Enforcement of security 21

Key contacts Australia and New Zealand Banking Group Limited Level 9, 833 Collins Street Docklands VIC 3008 Australia Group Treasurer Rick Moscati Phone: +61 (3) 8654 5404 Mobile: +61 (0) 412 809 814 e-mail: rick.moscati@anz.com Head of Group Funding Luke Davidson Phone: +61 (3) 8654 5140 Mobile: +61 (0) 413 019 349 e-mail: luke.davidson@anz.com Head of Structured Funding John Needham Phone: +61 (3) 8654 5373 Mobile: +61 (0) 411 149 158 e-mail: john.needham@anz.com Head of Debt Investor Relations David Goode Phone: +61 (3) 8654 5357 Mobile: +61 (0) 410 495 399 e-mail: david.goode@anz.com

Disclaimer The material in this presentation is general background information about the Bank s activities current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice when deciding if an investment is appropriate. This presentation may contain forward-looking statements including statements regarding our intent, belief or current expectations with respect to ANZ s business and operations, market conditions, results of operations and financial condition, capital adequacy, specific provisions and risk management practices. When used in this presentation, the words estimate, project, intend, anticipate, believe, expect, should and similar expressions, as they relate to ANZ and its management, are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Such statements constitute forward-looking statements for the purposes of the United States Private Securities Litigation Reform Act of 1995. ANZ does not undertake any obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof to reflect the occurrence of unanticipated events.