ING MERCANTILE MUTUAL BANK LIMITED · During the reporting period total deposits for the Savings...

ING BANK (AUSTRALIA) LIMITED

A.C.N. 000 893 292

FINANCIAL REPORT

FOR THE YEAR ENDED

31 DECEMBER 2005

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Directors’ Report – 2005

The Directors of ING Bank (Australia) Limited (“the Bank”) submit their report for the year ended 31 December2005.

Directors

The names and details of the Directors of the Bank in office during the financial year and until the date of this reportare as follows. Directors were in office for this entire period unless otherwise stated.

Names and qualifications, experience and special responsibilities

P R Shirriff, BA, FCPA, FCIS, FCIM, AAII Appointed Director in July 1985 and Chairman on 19 May 2004. (Chairman) Director of ING Australia Limited. Formerly member of the ING Group

Executive Committee and Chief Executive for the Asia Pacific Region(1995-2003) and Managing Director ING Australia Limited (1985-1995).Director of ING (NZ) Limited and subsidiaries. Member of the Audit, theConduct Review and the Credit and Investment Committees.

A R Berg, BEc (Hons), MBA Appointed Director in April 2000 and was Chairman from July 2000 toMay 2002. Chairman of ING Australia Limited. Formerly ManagingDirector Boral Limited (1994-2000) and Managing Director MacquarieBank (1985-1993). Chairman of the Audit Committee and a member ofthe Conduct Review and the Credit and Investment Committees.

G N Brunsdon, BComm, CA, ASIA Appointed Director in April 2000. Resigned on 26 July 2005.

E Drok MEc, LLM Appointed Director in November 2005. Chief Executive Officer INGBank (Australia) Limited from 1 February 2006. Member of the ConductReview and the Credit and Investment Committees.

I Y L Lee, BA, Barrister-at-Law Appointed Director in December 2005. Director of QBE InsuranceGroup, Mariner Financial Limited, TEN Network Holdings Limited andRecord Investments Limited. Formerly Director of Beyond InternationalLimited, BioTech Capital Limited and Record Realty. Member of theAudit, the Conduct Review and the Credit and Investment Committees.

V N Richtor, BA (Hons), MCT Appointed Director in February 1995. Chief Executive Officer ING BankDip (Corp Fin), FAIBF, CFTP(Snr) (Australia) Limited until 31 January 2006. Chairman of the Credit and

Investment Committee and a member of the Audit and the ConductReview Committees.

E H Robles, MEc Appointed Director in May 2004. General Manager of ING Direct NV.

Chairman of the Conduct Review Committee and a member of the Auditand the Credit and Investment Committees.

H K Verkoren, MEc Appointed Director in December 1994. Chief Executive Officer of INGDirect NV and Member of the Executive Board, ING Group NV. Non-Executive Board Membership in the Netherlands of a number ofcompanies and other institutions (in the field of art, science and charity),as well as Member of the Board of Master Card Europe. Member of theAudit, the Conduct Review and the Credit and Investment Committees.

D H Harryvan, MEc Appointed Alternate Director for E H Robles in May 2002. GeneralManager of ING Direct NV.

A Derksen, MEc Appointed Alternate Director for H K Verkoren in November 2002.Resigned on 1 February 2005.

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Directors’ Report – 2005 (continued)

Corporate Information

Corporate Structure

ING Bank (Australia) Limited is a company incorporated and domiciled in Australia. The registered office andprincipal place of business of the Bank is Level 14, 140 Sussex Street, Sydney NSW 2000. Its ultimate parententity is ING Group NV. ING Bank (Australia) Limited is the legal entity and has three operating divisions: DirectSales and Operations (trading as “ING DIRECT”), Commercial Property Finance (trading as “ING Bank”) and RetailMortgage Group (trading as “ ING Bank”).

Nature of Operations and Principal Activities

The principal activity of the Bank during the year was the provision of banking and related services. There havebeen no significant changes in the nature of those activities during the year.

Employees

The Bank employed 639 employees as at 31 December 2005 (2004: 619 employees).

Operating and Financial Review

The Bank continued to make a significant impact on the Australian banking scene during 2005, having achieved anet profit after tax of $122.4 million for the year ended 31 December 2005. This compares with the 2004 net profitafter tax of $90.5 million.

The Bank’s continued success was reaffirmed in May when it was named “Best Foreign Bank” for the thirdconsecutive year by the Australian Banking & Finance Magazine. ING DIRECT also received the Call Centre of theYear Award (NSW – ATA Award); was named Best Online Savings Account (Personal Investor Magazine) andBest New Entrant (Hewitt Best Employer Award).

Despite an increasingly competitive market, the ING DIRECT customer base grew by 175,000 accounts in 2005.There are now more than 1 million Australians benefiting from ING DIRECT’s highly popular Savings Maximiser,offering a variable interest rate and a written guarantee of no bank fees ever. Savings Maximiser customers haveshared in a total of $2 billion in interest over the past six years.

During the reporting period total deposits for the Savings Products grew from $14.8 billion to $16.7 billion, anincrease of 13%.

Following its success in pioneering the savings category for consumers, ING DIRECT’s Business Optimiser ismeeting a strong demand by small to medium sized businesses and like the Savings Maximiser, offers a high rateof interest and the guarantee of no bank fees. Launched in April 2004, today more than 30,000 businesses andtrusts are benefiting from the Business Optimiser. Collectively they had deposited $1.9 billion by year end.

The Bank’s Retail Mortgage Group had a record year with loans and advances increasing by 27% from $16.4billion to $20.8 billion. During 2005, the loan portfolio passed $20 billion, representing a doubling of the portfolio in30 months. The Bank’s competitive pricing and range of popular loan products ensured this growth and proposedenhancements to the product offering in 2006 will help maintain this competitive position.

The Commercial Property Finance division also had a very strong year with an increase in loans from $1.3 billion to$1.8 billion.

Significant Events after Balance Date

There were no events after balance date that were significant.

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Likely Developments and Expected Results

In the opinion of the Directors, disclosure of any further information on likely developments in operations would beunreasonably prejudicial to the interests of the Bank.

Environmental Regulation and Performance

The Bank is not subject to any environmental regulation by the State or Federal governments but can incurenvironmental liability as a lender.

Indemnification and Insurance of Directors and Officers

The Articles of the Bank require it to indemnify all current and former officers of the Bank against:

(a) any liability for costs and expenses which may be incurred by that person in defending civil or criminalproceedings in which judgement is given in that person’s favour, or in which the person is acquitted, or inconnection with an application in relation to any such proceedings in which the court grants relief to theperson under the Corporations Act 2001; and

(b) a liability incurred by the person, as an officer of the Bank or a related body corporate, to another person(other than the Bank or a related body corporate) unless the liability arises out of conduct involving a lackof good faith.

During the reporting period, the Bank paid an insurance premium in respect of a contract insuring each of theDirectors of the Bank named earlier in this report and each full time executive officer, director and secretary. Theamount of the premium is, under the terms of the insurance contract, confidential. The liabilities insured includecosts and expenses that may be incurred in defending civil or criminal proceedings that may be brought against theofficers in their capacity as officers of the Bank or a related body corporate.

Directors’ Meetings

The number of directors’ and committee meetings held during the year to 31 December 2005 and the number ofmeetings attended by each director were as follows:

Directors’Meetings

AuditCommitteeMeetings

ConductReview

CommitteeMeetings

Credit &InvestmentCommitteeMeetings

Number of meetings held: 5 3 3 3

Number of meetings attended:Anthony Richard Berg 4 3 3 3

Eric Drok (Appointed November 2005) - - - -Irene Yun Llen Lee (Appointed December 2005) - - - -Vaughn Nigel Richtor 5 N/A 3 3Eric Henry Robles 4 2 2 2Phillip Robert Shirriff 5 3 3 3Hans Karel Verkoren 2 2 2 2

Auditors’ Independence Declaration

A copy of the auditors’ independence declaration, as required under section 307C of the Corporations Act 2001, isset out on page 5.

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Rounding

The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (whererounding is applicable) under the option available to the Bank under ASIC Class Order No. 98/0100. The Bank isan entity to which the Class Order applies.

Signed in accordance with a resolution of the Directors.

Sydney, 13 March 2006

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Corporate Governance Statement - 2005

The Board of Directors of ING Bank (Australia) Limited (“the Bank”) is responsible for corporate governance.

Composition of the Board

The Board comprises six Non-Executive Directors (three of which are representatives of ING Group NV) and oneExecutive Director. The Chairman is a Non-Executive Director. The Board generally meets five times a year with aminimum meeting requirement of at least three times a year. All Non-Executive Directors were also members of theAudit, Conduct Review and Credit and Investment Committees of the Board to ensure a regular and consistent flowof information between business units and all Directors. The Directors in office at the date of this statement are:

P R Shirriff (Chairman) V N Richtor A R Berg E H RoblesE Drok (Chief Executive Officer) H K VerkorenI Y L Lee D H Harryvan (Alternate Director)

Board Responsibilities

The Board acts on behalf of and is accountable to shareholders. Board members have the experience andqualifications to discharge this duty as set out in the Directors’ Report above. The Board is subject to the prudentialrequirements of the Australian Prudential Regulation Authority (APRA) and indeed seeks to identify and ensurecompliance with all regulatory and ethical expectations and obligations. In addition the Board is responsible foridentifying areas of significant business risk and ensuring arrangements are in place to manage those risks. TheBoard also reviews the corporate governance policies and procedures of the Bank at least once every year andhas external experts address it on best practice and developments in corporate governance, risk management andother issues of interest and concern to the Board.

To maintain director independence and objectivity a majority of directors are not executives of ING Bank (Australia)Limited. External directors are appointed for an initial term of four years and for a maximum of eight years.

The responsibility for the operation and administration of the Bank is delegated by the Board to the Chief ExecutiveOfficer, who is responsible for the Executive Team being appropriately qualified and experienced to discharge theirresponsibilities. The Board has in place procedures to assess the performance of the Chief Executive Officer andreviews the Chief Executive Officer’s performance and remuneration annually.

The Chief Executive Officer regularly attends Board meetings and provides information, analysis and commentaryto the Board. The Chief Executive Officer is entitled to one vote at directors’ meetings and participates at Boardmeetings in all matters other than where he has a conflict, for example where his performance or remuneration isbeing reviewed.

ING Group global succession planning procedures identify candidates to fill the position of Chief Executive Officer(if it becomes vacant) and provides other alternative candidates so there is continuity of leadership regardless ofthe circumstances.

The Board seeks to align management’s objectives and activities with the expectations and risks identified by theBoard. The Board has a number of mechanisms in place to achieve this. In addition to the establishment of theCommittees referred to below, the mechanisms include the following:

- Board monitoring performance against a strategic plan which encompasses the Bank’s vision, mission andstrategy statements, designed to meet shareholders’ needs, meet regulatory requirements and managebusiness risks. The strategic plan is a dynamic document and the Board is actively involved in developingand approving initiatives and strategies designed to foster the growth and success of the Bank.

- Development and implementation of operating plans and budgets by management and the Boardmonitoring progress against budget.

- Remuneration incentives align with the Medium Term Plan of the Bank.

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Corporate Governance Statement – 2005 (continued)

Board Responsibilities (continued)

To assist in the fulfilment of its responsibilities the Board has instituted a number of committees that operate undercharters approved by the Board. In particular there is an Audit Committee, a Conduct Review Committee and aCredit and Investment Committee. So that all relevant issues are addressed between meetings of the Board and itscommittees there are also various committees at a business unit level. These include a Credit Committee, an Assetand Liability Management Committee, an Operational Risk Committee and an Information Technology ProjectsSteering Committee. These business unit level committees are run by senior executives who report to the ChiefExecutive Officer.

Audit Committee

This committee, chaired by A R Berg from 30 November 2005 previously by G N Brunsdon, assists the Board withregard to its responsibility for overseeing that an effective internal control framework exists within the Bank. Thisincludes internal controls to deal with both the effectiveness and efficiency of significant business processes, whichinvolve safeguarding of assets, the maintenance of proper accounting records as well as non-financialconsiderations such as the benchmarking of operational key performance indicators. The committee assists theBoard in the establishment and maintenance of a framework of internal control and ethical standards for themanagement of the Bank. This committee generally meets 3 times a year in the first, second and fourth quarters ofthe calendar year.

The committee also provides the Board with additional assurance regarding the reliability of financial informationfor inclusion in the financial statements and is responsible for directing and monitoring the internal audit functionand reviewing the adequacy of the scope of the external audit. Further, this committee monitors that managementeffectively deals with issues raised by both internal and external audit and that the external auditors aresatisfactorily discharging their duties.

Conduct Review Committee

This committee, chaired by E H Robles from 30 November 2005 previously by A R Berg, meets at least 3 times ayear on the same day as, but prior to the meeting of the Board. It is responsible for appropriate programs being inplace to maintain compliance with legal and regulatory requirements and accepted codes of practice.

Further responsibilities of this committee include a broad range of corporate governance and performance,remuneration, education and succession issues in relation to the Board, management and staff. With this broadresponsibility this committee can assist the Board in a holistic approach to corporate governance issues. Thisapproach integrates and aligns the organisation’s culture, the compliance philosophy, training and remuneration sothat optimal long-term outcomes are achieved for all stakeholders in the Bank.

Credit and Investment Committee

This committee, chaired by V N Richtor from 30 November 2005 previously by E H Robles, was established toassist the Board with issues relating to credit and market risk, liquidity, the investment and return on capital and thefunding and investment strategy. The committee generally meets five times a year on the same day as andimmediately prior to the meeting of the Board.

Specifically the committee’s mandate encompasses the approval, review and monitoring of all policies andguidelines for the investment and management of the Bank’s funds. In addition to this, the committee alsoconsiders new products and instruments that are recommended from time to time by the Asset and LiabilityManagement Committee of the Bank. Further with respect to credit risk, the committee monitors the developmentof the retail and commercial property finance portfolios in general and in relation to any possible adverse macro-economic scenarios. With these responsibilities this committee provides the Board with an oversight of the use,sourcing and protection of the Bank’s funds. All committees also perform such additional functions as the Board of Directors may from time to time require, andsuch other functions as are required of the committee by applicable legislation or by any relevant regulatoryauthority and seek expert advice, when appropriate, including when material contentious items arise. With these

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three committees in place the Board can more effectively ensure the compliance, monitoring and review of allaspects of the Bank’s business.


INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2005

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2005

2004

Note $ 000 $ 000

Interest income 2 1,623,817 1,287,161Interest expense 2 (1,317,104) (986,894)

Net interest income 306,713 300,267Net non-interest income 2 9,228 18,833

Total income from ordinary activities 315,941 319,100

Employment expenses (52,267) (47,369)Advertising expenses (37,114) (23,316)Depreciation expenses (8,315) (8,679)Occupancy expenses (7,482) (6,260)Technology expenses (6,331) (5,981)Other expenses (22,954) (99,525)

Total expenses from ordinary activities 2 (134,463) (191,130)

Bad and doubtful debt (expense) / benefit 2 (5,992) 1,928

OPERATING PROFIT BEFORE INCOME TAX 175,486 129,898

Income tax expense 4 (53,070) (39,423)

Profit From Ordinary Activities After Income Tax 122,416 90,475


BALANCE SHEETAS AT 31 DECEMBER 2005

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2005 2004Note $ 000 $ 000

ASSETSCash 34,039 367,119Receivables due from other financial institutions 5 - 3,192,568Accrued interest receivables 22,740 29,253Investment securities 6 - 1,278,185Available for sale securities 7 4,592,108 -Available for sale securities at fair value through profit and loss 8 446,786 -Loans and advances 9 22,868,850 17,750,310Derivative assets 11 a) 26,202 -Other investments 12 - 13Property, plant and equipment 13 14,380 17,272Other assets 14 2,414 107,213Deferred tax asset 4 22,316 17,528

TOTAL ASSETS 28,029,835 22,759,461

LIABILITIESDeposits 15 16,740,960 14,793,934Deposits payable to other financial institutions 16 4,544,202 3,821,170Debt issues 17 3,509,598 2,952,070Debt issues at fair value through profit and loss 18 1,888,788 -Derivative liabilities 11 b) 8,637 -Creditors and other liabilities 19 95,312 94,801Deferred tax liability 4 41,578 50,972Income tax payable 21,840 -Provisions 20 4,338 3,846

TOTAL LIABILITIES 26,855,253 21,716,793

NET ASSETS 1,174,582 1,042,668

EQUITYContributed equity 21 849,000 849,000Reserves 22 22,619 -Retained profits 23 302,963 193,668

TOTAL EQUITY 1,174,582 1,042,668


STATEMENT OF CHANGES IN EQUITYAS AT 31 DECEMBER 2005

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2005

2004

$ 000 $ 000

Total Equity At The Beginning Of The Year 1,042,668 952,193

Adjustment on adoption of AASB 139 net of tax:

Retained profit (13,121) -

Reserves

- Cash flow hedge reserve 41,502 -

- Available for sale reserve 7,282 -

Total reserves 48,784 -

Total adjustments on adoption of AASB 139 net of tax 35,663-

Other movements in equity for the period: Available for sale investments, net of tax (4,180)

-

Cash flow hedges, net of tax (21,985)-

Total of the movement in equity for the period (26,165) -

Profit for the year 122,416 90,475

TOTAL EQUITY AT THE END OF THE YEAR 1,174,582 1,042,668


CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2005

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Note 2005 2004$ 000 $ 000

Cash Flows From Operating ActivitiesInterest received 1,688,705 1,211,330Interest and other cost of finance paid (1,359,180) (868,143)Fee and other non-interest income received 18,807 18,268Income tax paid (49,684) (53,469)Payments to suppliers and employees (168,412) (218,987)

Net cash flows from operating activities 25 c) 130,236 88,999

Cash Flows From Investing ActivitiesNet movement in investment securities - (778,617)Purchase of other securities and assets available for sale (564,167) -Net increase in receivables due from other financial institutions - (937,495)Net increase in loans and advances (5,006,675) (4,393,136)Purchase of property, plant and equipment (5,423) (6,825)Proceeds from sale of property, plant and equipment - 15

Net cash flows used in investing activities (5,576,265) (6,116,058)

Cash Flows From Financing ActivitiesNet movement in debt issue 1,765,098 1,536,188Net movement in debt issue at fair value through profit and loss 677,793 -Proceeds from issue of ordinary shares - 420,000Net increases in payables to other financial institutions 723,032 1,073,878Net increases in deposits 1,947,026 3,359,424

Net Cash Flows From Financing Activities 5,112,949 6,389,490

Net increase / (decrease) in cash (333,080) 362,431Cash and cash equivalent at the beginning of year 367,119 4,688

Cash and cash equivalent at the end of the financial year 25 a) 34,039 367,119


NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2005

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1. Summary of Significant Accounting PoliciesPresented below are the principal accounting policies adopted in preparing the accounts of ING Bank(Australia) Limited (“the Bank”).

(a) Basis of preparationThe financial report is a general purpose financial report, which has been prepared in accordance with therequirements of the Corporations Act 2001 and Australian Accounting Standards. The financial report has alsobeen prepared on a historical cost basis, except for derivative financial instruments and available for salefinancial assets that have been measured at fair value.

The carrying value of recognised assets and liabilities that are hedged with fair value hedges are adjusted torecord changes in the fair value attributable to the risks that are being hedged.

The financial report is presented in Australian dollars and all values are rounded to the nearest thousanddollars ($ 000) unless otherwise stated under the option available to the Bank under ASIC Class Order No.98/0100. The Bank is an entity to which the Class Order applies.

(b) Statement of complianceThe financial report complies with Australian Accounting Standards (“AAS”), which include Australianequivalents to International Financial Reporting Standards (“AIFRS”). Compliance with AIFRS ensures that thefinancial statements and notes thereto, comply with International Financial Reporting Standards (“IFRS”).

This is the first financial report prepared based on AIFRS and comparatives for the year ended 31 December2004 have been restated accordingly except for the adoption of AASB 132 Financial Instruments: Disclosureand Presentation (“AASB 132”) and AASB 139 Financial Instruments: Recognition and Measurement (“AASB139”). Reconciliation of AIFRS equity and profit for 31 December 2004 to the balance reported in the 31December 2004 financial report are detailed in Note 1(u) below.

Application of AASB 1: First-time adoption of Australian Equivalents to International Financial ReportingStandardsFinancial reports of the Bank until 31 December 2004 had been prepared in accordance with previousAustralian Generally Accepted Accounting Principles (“previous AGAAP”). AGAAP differs in certain respectsfrom AIFRS. When preparing the Bank’s financial reports, management has amended certain accounting andvaluation methods applied in the previous AGAAP financial statements to comply with AIFRS. The Bank hastaken the exemption available under AASB 1: First time adoption of Australian Equivalents to InternationalFinancial Reporting Standards (“AASB 1”), to apply AASB 132 and AASB 139 only from 1 January 2005. As aresult of this exemption comparative figures for the year ended 31 December 2004 did not need to beadjusted.

(c) Foreign currenciesBoth the functional and presentation currency of the Bank is Australian dollars.

Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates rulingat the date of the transaction. Monetary assets and liabilities denominated in foreign currencies areretranslated at the rate of exchange ruling at the balance sheet date.

(d) CashFor the purposes of the statement of cash flows, cash includes cash on hand and in banks, net of outstandingbank overdrafts and 11am Call Deposits.

(e) Financial assetsFrom 1 January 2004 to 31 December 2004The Bank has used the exemption available under AASB 1 to apply AASB 132 and AASB 139 from 1 January2005. The Bank has applied previous AGAAP in the comparative information on financial instruments withinthe scope of AASB 132 and AASB 139. Previous AGAAP required that financial assets are brought to accountat the gross value of the outstanding balance and interest is taken to profit when earned.

Adjustments on transition date: 1 January 2005



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The nature of the main adjustments to comply with AASB 132 and AASB 139 are that, with the exception ofloans and advances, fair value would have been the measurement basis. At the date of transition, changes tothe carrying amount were recognised directly in retained earnings or reserves.



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1. Summary of Significant Accounting Policies (continued)Financial assets (continued)From 1 January 2005With the exception of derivatives which are classified separately in the balance sheet, all remaining financialassets are classified into the following categories: available for sale securities, available for sale securities atfair value through profit and loss and loans and advances. The classification depends on the purpose forwhich the investment was acquired, which is determined at initial recognition and, except for fair value throughprofit and loss, is re-evaluated at each reporting date.

Investment securitiesFrom 1 January 2004 to 31 December 2004Investment securities are securities purchased with the intent of being held to maturity. Investment securitiesare short and long term, public, bank and other securities and include mortgage backed securities, assetbacked securities, notes and loans. Bonds and securities are included at amortised value. The premium ordiscount on purchase of these securities is amortised to profit and loss so that the redemption value isrecorded by the maturity date. On sale, any difference between book value and proceeds is taken to profit andloss. The Company will continue to review the level of investment security holdings in light of its business plan,capital and liquidity requirements and prevailing market conditions.

Long term investments are stated at cost. Where the cost exceeds the recoverable amount, the investment hasbeen written down to this recoverable amount.

From 1 January 2005Investment securities are classified as available for sale securities, available for sale securities at fair valuethrough profit and loss and loans and advances.

Available for sale securitiesAvailable for sale securities consist of securities that are not actively traded and are intended to be held for anindefinite period of time. Such securities are available for sale and may be sold should the need arise,including capital and liquidity needs or changes in market conditions.

Available for sale securities are initially carried at fair value plus transaction costs. Gains and losses arisingfrom subsequent changes in fair value are recognised directly in the available for sale reserve in equity untilthe asset is derecognised or impaired, at which time the cumulative gain or loss will be recognised in theincome statement. Fair values of quoted investments in active markets are based on current bid prices.

Available for sale securities at fair value through profit and lossThis category includes those available for sale securities which have been designated by management at fairvalue through profit and loss on initial recognition. The policy of management is to designate a financial assetas such if the asset is hedged with a derivative and forms a fair value hedge relationship.

The hedged portion of the fair value need only be recognised in profit and loss. The Bank has only hedged theinterest rate risk on the available for sale securities. Therefore the fair value related to changes in interestrates is recognised in profit and loss and the fair value related to changes in the credit margin (the unhedgedportion) is recognised in equity.

Loans and advancesLoan assets are stated at their amortised amount. In determining the amortised amount, expected net cashflows have not been discounted. Loans include all secured loans made to retail and commercial borrowers,inter bank loans and leverage leases.

(f) Derivative financial instrumentsDerivative financial instruments entered into are interest rate swaps and they are used for the riskmanagement of existing financial assets and liabilities.



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1. Summary of Significant Accounting Policies (continued)Derivative financial instruments (continued)From 1 January 2004 to 31 December 2004To be effective as hedges, the derivatives are identified and allocated against the underlying hedged item orclass of items and generally modify the interest rate of the hedged asset or liability. Interest rate swap receiptsand payments are accrued to profit as interest of the hedged item over the term for which the swap is effectiveas a hedge of that designated item. Premiums or discounts to market interest rates, which are received ormade in advance are deferred and amortised to profit over the term for which the swap is effective as a hedgeof the underlying hedged item or class of items.

The Bank has used the exemption available under AASB 1 to apply AASB 132 and AASB 139 from 1 January2005. The Bank has applied previous AGAAP in the comparative information on financial instruments withinthe scope of AASB 132 and AASB 139.

Adjustments on transition date: 1 January 2005The nature of the main adjustments to comply with AASB 132 and AASB 139 are that derivatives bemeasured on a fair value basis. Changes in fair value would have been taken either to the income statementor an equity reserve. At the date of transition, changes in the carrying amount of derivatives are taken toretained earnings or reserves depending on whether the criteria for hedge accounting are satisfied at thetransition date.

From 1 January 2005 Derivatives are initially recognised at fair value on the date a derivative contract is entered into andsubsequently remeasured to their fair value. Fair values are obtained from quoted market prices in activemarkets, including recent market transactions and valuation techniques, including discounted cash flowmodels. Movements in the carrying amount of derivatives are recognised in the income statement unless thederivative meets the requirements for hedge accounting.

Cash flow hedgesFor a derivative designated as hedging a cash flow exposure arising from a recognised asset or liability, thegain or loss on the derivative associated with the effective portion of the hedge is initially recognised in equityin the cash flow hedge reserve and reclassified into the income statement when the hedge item is brought toaccount. The gain or loss relating to the ineffective portion of the hedge is recognised immediately in theincome statement.

Fair value hedgesFor a derivative designated as hedging a fair value exposure arising from a recognised asset or liability, thegain or loss on the derivative is recognised in the income statement together with any changes in the fair valueof the hedged asset or liability that are attributed to the hedged risk.

(g) LeasesLeases are classified at their inception as either operating or finance leases based on the economicsubstance of the agreement so as to reflect the risks and benefits incidental to ownership. Leverage leasereceivables are recorded as loans and advances which reflect the equity participation in the lease.

(h) Provision for impairmentProvision for credit losses are maintained at an amount adequate to cover anticipated credit related lossesarising from loans and investments.

From 1 January 2004 to 31 December 2004Specific provision is made for all identified doubtful debts and is recognised when there is reasonable doubtover the collectability of principal and interest in accordance with the loan agreement. All bad debts are writtenoff against the specific provision in the periods in which they are classified as irrecoverable.

General provision for bad and doubtful debts is maintained to cover non identified probable losses and latentrisks inherent in the overall portfolio of loans. The Bank uses a dynamic provisioning model for the calculationof the general provision. The provision is determined having regard to the general risk profile of the creditportfolio, historical loss experience, economic conditions and a range of other criteria. The general provisionfor doubtful debts has been tax effected.



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1. Summary of Significant Accounting Policies (continued)Provision for impairment (continued)The amounts required to bring the provision for impairment to their assessed levels are taken to profit. Thebalance of provisions for impairment and movements therein are set out in Note 10.

Facilities are classified as non-accrual if the following events occur: - Payments of principal, interest, commissions and fees are past due for 90 days or more, unless there is

adequate realisable security coverage to meet all the borrower’s continuing obligations; or- The borrower’s ability to pay principal, interest, commissions and fees in full is doubtful.

The interest on these facilities is only taken to profit when received in cash.

From 1 January 2005The Bank is recognising loan impairment when objective evidence is available that a loss event has occurredand as a consequence the Bank is not likely to receive all amounts owed to it.

Collective provision for bad and doubtful debts is maintained at the overall portfolio level to cover nonidentified losses and risks. Objective evidence of impairment will be based on historical experience for suchportfolios, adjusted to reflect the effects of current conditions at each balance date.

Specific provision is made for significant loans and is individually assessed for impairment.

(i) Recoverable amount of assetsAt each reporting date the Bank assesses whether there is any indication that an asset may be impaired.Where an indication of impairment exists, the Bank makes a formal estimate of recoverable amount. Wherethe carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and iswritten down to its recoverable amount.

(j) Property, plant and equipmentProperty, plant and equipment are measured at historical cost and are depreciated on a straight-line basis.Depreciation rates used have been calculated to allocate the cost over the useful life of the assets.

Major depreciation periods 2005 2004• Computer Software 2.5 years 2.5 years• Computer Hardware 4 years 4 years• Leasehold Improvements 5 years 5 years• Personal Computers 3 years 3 years

The carrying value of plant and equipment is reviewed for impairment when events or changes incircumstances indicate the carrying value may not be recoverable.

For an asset that does not generate largely independent cash flows, the recoverable amount is determined forthe cash-generating unit to which the asset belongs. If any such indication exists and where the carryingvalues exceed the estimated recoverable amount, the assets or cash-generating units are written down totheir recoverable amount.

Impairment losses are recognised in profit and loss.

(k) DepositsDeposits include term deposits and at call deposits. They are brought to account at the value of theoutstanding balance. Interest is taken to account as accrued.

(l) Deposits payable to other financial institutionsDeposits payable to other financial institutions are brought to account at the gross value of the outstandingbalance. Interest is taken to account when incurred.

(m) Debt issuesDebt issues are short and long term debt issues of the Bank including subordinated debt and medium termnotes.



20

1. Summary of Significant Accounting Policies (continued)Debt issues (continued)From 1 January 2004 to 31 December 2004Debt issues in the comparative information have been recognised at amortised cost. The Bank has used theexemption available under AASB 1 to apply AASB 132 and AASB 139 from 1 January 2005. The Bank hasapplied previous AGAAP in the comparative information on financial instruments within the scope of AASB132 and AASB 139.

Adjustments on transition date: 1 January 2005The nature of the main adjustments to comply with AASB 132 and AASB 139 are that fair value would havebeen the measurement basis for those debt issues which formed a fair value hedge. At the date of transition,changes to the carrying amount of these debt issues were recognised directly in retained earnings.

From 1 January 2005Debt issues are classified into the following categories: debt issues and debt issues at fair value through profitand loss. This category includes all medium term debt issues that have not been hedged, such as floating ratenote issues, which are measured at amortised cost.

Debt issues at fair value through profit and loss This category includes all fixed rate medium term debt issues that have been hedged, such as corporate bondissues. These securities have been designated by management at fair value through profit and loss on initialrecognition. The policy of management is to designate a financial liability as such if the liability is hedged witha derivative and forms a fair value hedge.

The hedged portion of the fair value need only be recognised on balance sheet. The Bank has only hedgedthe interest rate risk on the debt issues. Therefore only the fair value related to changes in interest rates ismeasured and recognised in profit and loss. The fair value related to changes in the credit margin (theunhedged portion) is not measured.

(n) Deferred lending expensesFrom 1 January 2004 to 31 December 2004 In some instances fees are paid to introducers for new loans proceeding to drawdown. These fees representan acquisition of business cost to the Bank. These acquisition costs are deferred and amortised to profit andloss on a straight line basis over the anticipated duration of the lender/borrower relationship.

From 1 January 2005In accordance with the effective interest rate method, deferred lending expenses are classified as loans andadvances and amortised to profit and loss on a straight line basis over the anticipated duration of thelender/borrower relationship.

(o) TaxationDeferred income tax is provided on all temporary differences between the tax bases of assets and liabilitiesand their carrying amounts for financial reporting purposes at the balance sheet date.

Deferred income tax liabilities are recognised for all taxable temporary differences except when the deferredincome tax liability arises from the initial recognition of an asset or liability in a transaction that is not abusiness combination and that, at the time of the transaction, affects neither the accounting profit nor taxableprofit or loss.

Deferred income tax assets are recognised for all deductible temporary differences to the extent that it isprobable that taxable profit will be available against which the deductible temporary differences can be utilisedexcept when the deferred income tax asset arises from the initial recognition of an asset or liability in atransaction that is not a business combination and that, at the time of the transaction, affects neither theaccounting profit nor taxable profit or loss.

The carrying amount of deferred income tax assets is reviewed periodically and reduced to the extent that it isno longer probable that sufficient taxable profit will be available to allow all or part of the deferred income taxasset to be utilised.



21

1. Summary of Significant Accounting Policies (continued)Taxation (continued)Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the yearwhen the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enactedor substantively enacted at the balance sheet date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in the incomestatement.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set offcurrent tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the sametaxable entity and the same taxation authority.

Other taxesRevenues, expenses and assets are recognised net of the amount of GST except:• when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority,

in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expenseitem as applicable; and

• receivables and payables, which are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part ofreceivables or payables in the balance sheet.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, thetaxation authority.

Tax consolidationFor income tax purposes, effective 1 January 2004, the Bank and other 100% owned subsidiaries of INGGroup NV in Australia implemented the tax consolidation regime. Tax consolidation results in the subsidiarymembers being treated as part of the Head Company as a single entity rather than as separate taxpayers.The Head Company of the tax consolidated group is ING Australia Holdings Limited and the other eligiblemembers are ING Real Estate Development Australia Pty Limited, BBL Australia Limited, ING REDA HoldingsPty Limited and ING Real Estate Investment Management Australia Pty Limited.

Members of the tax-consolidated group have entered into a tax sharing deed in order to allocate income taxpayable to group members. The Bank recognises amounts receivable or payable under a tax sharing deedwith group members separately as tax-related amounts receivable or payable.

(p) Employee entitlementsProvision is made for employee benefits accumulated as a result of employees rendering services up to thereporting date. These benefits include wages and salaries, annual leave, sick leave and long service leave.

Liabilities arising in respect of wages and salaries, annual leave, sick leave and any other employee benefitsexpected to be settled within twelve months of the reporting date are measured at their nominal amountsbased on remuneration rates which are expected to be paid when the liability is settled. All other employeebenefit liabilities are measured at the present value of the estimated future cash outflow to be made in respectof services provided by employees up to the reporting date. In determining the present value of future cashoutflows, the market yield as at the reporting date on national government bonds, which have terms tomaturity approximating the terms of the related liability, are used.

(q) Contributed equityIssued and paid up capital represents the consideration received by the Bank. Transaction costs (if any)arising on issue of ordinary shares are recognised in the value of share capital.

(r) Share-based payment transactionsThe Bank provides benefits to key personnel in the form of cash-settled share-based payments (share optionsand performance units). The settlement amount is determined by reference to movements in the exercisableprice of the shares and the price on the date the options are exercised of the ultimate parent company INGGroup NV.



22

1. Summary of Significant Accounting Policies (continued)Share-based payment transactions (continued)The cost of cash-settled transactions is measured initially at fair value at the grant date using the Black-Scholes formula taking into account the term and conditions upon which the instruments were granted (Note28). This fair value is expensed over the period until vesting with recognition of a corresponding liability. Theliability is remeasured to fair value at each balance sheet date up to and including the settlement date withchanges in fair value recognition in profit and loss.

(s) Income recognitionFrom 1 January 2004 to 31 December 2004Interest income on secured loans and finance lease contracts is brought to account as it accrues on theunderlying loan or lease balance. Interest on non-performing loans and leases is not brought to account until itis received, in accordance with industry convention.Income recognition (continued)Fee income (comprising establishment, commitment and credit facility fees) is taken to profit and lossimmediately except where material, in which case the amount is deferred and amortised to profit and loss on astraight line basis over the period of the loan.

From 1 January 2005Interest income arising from loans is brought to account using the effective interest rate method. Interest incomeon secured loans is brought to account as it accrues on the underlying loan.

Fees earned from the origination of loans are taken to profit and loss immediately and recognised as interestincome. Quarterly testing is performed to demonstrate that the immediate recognition of these fees in profit andloss is not materially different to the effective interest rate method.

Transactions costs associated with the origination of loans are capitalised and included in the interest incomeand are recognised over the life of the loan. These transaction costs are amortised on a straight line basis tointerest income. Quarterly testing is performed to demonstrate that the straight line amortisation is immateriallydifferent to the effective yield method.

On transition to AASB 139, origination fees previously recognised as income were deferred in the balance sheetwith a corresponding adjustment to retained earnings.

All fee income other than that derived from the origination of a loan is recognised in non-interest income.

(t) Explanation of transition to Australian equivalents to IFRS (“AIFRS”)As stated in Note 1(b), these are the Bank’s first financial statements prepared in accordance with Australianequivalents to IFRS

In accordance with AIFRS, the comparative information has been restated using the new accountingstandards from 1 January 2004, with the exception of AASB 132 and AASB 139. As permitted by thetransitional provision of AASB 1, management has elected not to apply AASB 132 and AASB 139 to thecomparative information and therefore apply these standards from 1 January 2005. Comparative informationfor financial instruments has been prepared on the basis of the Bank’s accounting policies under previousAGAAP. Adjustments required on transition to AIFRS have been made retrospectively, mainly against openingretained earnings, at the respective dates.

AIFRS has not changed the economics of the business, or the risk being carried, or affected the Bank’s abilityto borrow funds or make dividend distributions.

(u) Impact of adoption of AIFRSThe impact of adopting AIFRS on the total equity and profit after tax as reported under previous AGAAP areillustrated below.

i) Reconciliation of total equity as presented under previous AGAAP to that under AIFRSThe Bank has taken the exemption available under AASB1 to apply AASB 132 and AASB 139 from 1 January2005. This exemption has meant that total equity as at 1 January 2004 and 31 December 2004 is identicalunder previous AGAAP and AIFRS.



23



24

1. Summary of Significant Accounting Policies (continued)Impact of adoption of AIFRS (continued)ii) Reconciliation of profit before tax under previous AGAAP to that under AIFRSThe Bank has taken the exemption available under AASB1 to apply AASB 132 and AASB 139 from 1 January2005. This exemption has meant that total profit as at 1 January 2004 and 31 December 2004 is identicalunder previous AGAAP and AIFRS.

iii) Explanation of material adjustments to the cash flow statementsThe Bank has taken the exemption available under AASB1 to apply AASB 132 and AASB 139 from 1 January2005. This exemption has meant that total cash flow as at 1 January 2004 and 31 December 2004 is identicalunder AGAAP and AIFRS.

(v) Regulatory capitalThe Australian Prudential Regulation Authority (“APRA”) issued the first of two consultation packages outliningits proposed prudential response to the adoption of IFRS in Australia on 29 November 2005. The consultationpackage includes draft Authorised Deposit Taking Institutions (“ADI”) prudential standards, guidance notesand prudential reporting forms. Comments on the proposed ADI prudential standards, guidance notes andreporting forms were invited by 16 January 2006. The standards will come into force from 1 July 2006 withtransition arrangements where appropriate.

Under The Transitional Reporting Arrangements during Adoption of IFRS, APRA has granted the Bankapproval to start reporting under AIFRS on 1 January 2006 as this is the start of the Bank’s financial reportingperiod. The Bank’s initial review indicates the draft prudential standards will not have a significant impact.

(w) Accounting Standards DevelopmentsAustralian Accounting Standards that have recently been issued or amended but are not yet effective have notbeen adopted for the reporting period ending 31 December 2005. The potential impact of these recentlyissued or amended standards are not expected to have a material impact on the Bank.



25

Note 2005 2004$ 000 $ 000

2. Profit from Ordinary Activities

Profit from ordinary activities before income tax has been determined as follows:

Income from ordinary activities

Interest incomeCash 5,865 4,027Receivables due from other financial institutions - 130,061Investment securities- Related bodies corporate - 8,107- Other persons/corporations - 72,625Available for sale securities- Other persons/corporations 271,521 -Loans and advances- Related bodies corporate 8,155 -- Other persons/corporations 1,338,276 1,072,341Total interest income 1,623,817 1,287,161

Interest expenseDeposits- Other persons/corporations 846,485 651,451Deposits payable to other financial institutions- Other persons/corporations 234,439 221,678Debt issues and debt issues at fair value through profit and loss- Related bodies corporate 31,503 20,437- Other persons/corporations 204,677 93,328Total interest expense 1,317,104 986,894Net interest income 306,713 300,267

Non-interest incomeAccount fees 5,072 13,966Management and service fees 897 1,080Discharge fees & penalties 3,197 2,558Proceeds from sale of investments 50 468Other 12 761Net non-interest income 9,228 18,833Total income from ordinary activities 315,941 319,100

Other expenses from ordinary activities Bad and doubtful debts expense Collective provisions 2,151 (3,181)Specific provisions 3,283 1,168Bad debts recognised directly through profit and loss 558 85Total bad and doubtful debts expense 5,992 (1,928)



26

Note 2005 2004$ 000 $ 000

2. Profit from Ordinary Activities (continued)

Other expenses from ordinary activitiesFees and commissions 5,874 86,683Employee benefits expense- Wages and salaries 48,492 44,273- Workers compensation costs 238 167- Superannuation costs 3,537 2,929Advertising 37,114 23,316Depreciation - Computer hardware 2,274 2,786- Computer software 3,954 3,953- Leasehold improvements 2,065 1,919- Motor vehicles 22 21Occupancy expenses 7,482 6,260Technology expenses 6,331 5,981Stationery and printing 481 663Management costs - Parent company 4,484 2,840- Related entities 188 229Telephone and communication 3,777 3,291Other 8,150 5,819Total other expenses from ordinary activities 134,463 191,130

3. Average Balance and Related Interest The following table shows the average balance for each of the major categories of interest bearing assets andliabilities, the amount of interest revenue or expense and the average interest rate. Average balances arecalculated from monthly balances unless otherwise disclosed.

AverageBalance

2005

Interest AverageRate for

2005

AverageBalance

2004

Interest AverageRate for

2004$ 000 $ 000 % $ 000 $ 000 %

Interest incomeCash 111,714 5,865 5.25% 76,705 4,027 5.25%Receivables due from other financialinstitutions - - - 2,380,694 130,061 5.46%Investment securities - - - 1,380,206 80,732 5.85%Available for sale securities 4,752,719 271,521 5.71% - - -Loans and advances 20,218,921 1,346,431 6.66% 15,455,010

1,072,341

6.94%

25,083,354 1,623,817 6.47% 19,292,6151,287,16

1

6.67%

Interest expense Deposits 15,767,699 846,485 5.37% 12,531,692 651,451 5.20%Deposits payables due to otherfinancial institutions 4,193,568 234,439 5.59% 4,043,240 221,678 5.48%Debt issues 3,986,174 236,180 5.92% 1,997,127 113,765 5.70%

23,947,441 1,317,104 5.50% 18,572,059 986,894 5.31%



27

2005 2004$ 000 $ 000

4. Income Tax Expense

Major components of income tax expense for the years ended 31 December 2004 and 2005 are:

Income Statement

Current income taxCurrent income tax charge 59,648 43,492

Deferred income taxRelating to origination and reversal of temporary differences (6,578) (4,069)Income tax expense reported in income statement 53,070 39,423

Statement of changes in equity

Current income taxCurrent income tax on interest rate swap (2,043) -

Deferred income tax

Opening adjustments to equity Revaluation of cash-flow hedge 11,702 -Realised gain on cash-flow hedge 6,085 -Revaluation of available for sale securities 3,121 -Opening adjustment to retained earnings (5,054) -

Current year adjustments through equity Revaluation of cash-flow hedge (7,380) -Revaluation of available for sale securities (2,158) -

Income tax expense reported in equity 4,273 -

A reconciliation of income tax expense applicable to accounting profit before income tax at the statutory incometax rate to income tax expense at the Bank’s effective income tax rate for the year ended 31 December 2004 and2005 is as follows:

Accounting profit before tax from continuing operations 175,486 129,898

Prima facie tax on operating profit at 30% (2004: 30%) 52,646 38,969Adjustments in respect of current income tax of previous years - 295Expenditure not allowable for income tax purposes 424 159

Income tax expense reported in income statement 53,070 39,423



28

Balance Sheet Income Statement2005 2004 2005 2004$ 000 $ 000 $ 000 $ 000

4. Income Tax Expense (continued)

Deferred income tax

Deferred income tax at 31 December relates to the following:

Deferred income tax liabilitiesAmortisation of discount securities (1,929) (3,206) (1,276) (855)Deferred lending expenses (25,480) (21,159) 4,320 (3,408)Revaluation of available for sale securities (947) - 96 -Revaluation of cash flow hedge (6,869) - (5) -Revaluation of fair value hedge (992) - 992 -Leveraged leases (4,721) (12,425) (7,703) 1,519Others (640) (263) 483 (2,533)Gross deferred income tax liabilities (41,578) (37,053)

Deferred income tax assetsDepreciation 1,660 868 (792) 398Provisions for impairment 4,704 2,750 (1,954) (604)Deferred lending income 4,143 1,212 2,124 -Revaluation of debt issues 1,027 - (1,027) -Revaluation of cash flow hedge 2,551 - - -Revaluation of fair value hedge 40 - (40) -Realised gain on cash flow hedge - 6,085 - 4,719Others 8,191 6,613 (1,796) 4,833Gross deferred income tax asset 22,316 17,528

Deferred income tax charge (6,578) 4,069

Tax Consolidation

For the purpose of income taxation, the Bank is part of a tax consolidated group. Members of the group haveentered into a tax sharing and tax funding agreement in order to allocate income tax payable to group members.The Head Company of the tax consolidated group is ING Australia Holdings Limited and the other eligiblemembers are ING Real Estate Development Australia Pty Limited, BBL Australia Limited, ING REDA Holdings PtyLimited and ING Real Estate Investment Management Australia Pty Limited.

Deferred tax assets will only be obtained if:

a) future assessable income is derived of a nature and of an amount sufficient to enable the benefit to berealised; and

b) the conditions for deductibility imposed by tax legislation continue to be complied with.

Dividend Franking Account

As the Bank had entered tax consolidation, all of the Bank’s franking credits are held by the Head Company in theconsolidated group, ING Australia Holdings Limited. As a result and in accordance with an agreement between theBank and the Head Company, it is anticipated that franking credits generated by past and future tax payments bythe Bank, will be used by the Head Company at it’s discretion to pay franked dividends to its parent. The effectivedate of the tax consolidation is 1 January 2004.



29

Note 2005 2004$ 000 $ 000

5. Receivables due from Other Financial Institutions

Not longer than 3 months - 2,116,204Longer than 3 months and not longer than 12 months - 272,361Longer than 1 year and not longer than 5 years - 804,003Longer than 5 years - -Total receivables due from other financial institutions - 3,192,568

6. Investment Securities

Mortgage backed securities - 1,064,151Bonds - 2,471Other securities - 1,606Government bonds - 59,957Other securities – parent entity - 150,000Total investment securities - 1,278,185

Maturity Analysis of Investment SecuritiesNot longer than 3 months - 53,705Longer than 3 months and not longer than 12 months - 206,904Longer than 1 year and not longer than 5 years - 867,576Longer than 5 years - 150,000Total - 1,278,185

7. Available for Sale Securities

Discount securities 2,407,328 -Mortgage backed securities 1,489,572 -Government bonds 60,320 -Other securities 634,888 -Total available for sale securities 4,592,108 -

Maturity Analysis of Available for Sale SecuritiesNot longer than 3 months 2,410,843 -Longer than 3 months and not longer than 12 months 372,648 -Longer than 1 year and not longer than 5 years 1,808,176 -Longer than 5 years - -No maturity specified 441 -Total 4,592,108 -



30

Note 2005 2004$ 000 $ 000

8. Available for Sale Securities at Fair Value through Profit &Loss

Corporate bonds 138,615 -Government bonds 302,052 -Other securities 6,119 -Total available for sale securities at fair value through profit & loss 446,786 -

Maturity Analysis of Available for Sale Securities at FV through P&LNot longer than 3 months 2,499 -Longer than 3 months and not longer than 12 months - -Longer than 1 year and not longer than 5 years 444,287 -Longer than 5 years - -Total 446,786 -

9. Loans and Advances

Retail loans 20,906,662 16,433,854Commercial loans 1,827,867 1,325,623Other loans – parent entity 150,000 -Gross loans and advances 22,884,529 17,759,477Specific provision for impairment 10 (7,058) (2,148)

22,877,471 17,757,329Collective provision for impairment 10 (8,621) (7,019)Total loans and advances 22,868,850 17,750,310

Maturity Analysis of Loans and AdvancesNot longer than 3 months 107,625 108,763Longer than 3 months and not longer than 12 months 464,929 331,952Longer than 1 year and not longer than 5 years 1,652,075 1,374,623Longer than 5 years 17,540,420 14,798,570No maturity specified 3,119,480 1,145,569Total 22,884,529 17,759,477

10. Provisions for Impairment

Specific provisionsOpening balance 2,148 980Charges against profit 5,239 240Transfer from collective provisions 614 1,501Write-back of provisions no longer required (232) (330)

7,769 2,391Bad debts written off (711) (243)Closing balance 7,058 2,148

Collective provisionsOpening balance 7,019 10,200New and increased provisioning 2,216 (1,680)Transfer to specific provisions (614) (1,501)Closing balance 8,621 7,019



31

Total provision for impairment 15,679 9,167



32

Note 2005 2004$ 000 $ 000

10. Provisions for Impairment (continued)

Non accrual loansWith provisions 3,832 1,234Specific provisions on non accrual loans (3,832) (1,234)Total non accrual loans without provisions - -

Past due loans balancePast due loans represent loans which are in arrears over 90 days 63,740 33,546

11. a) Derivative Assets

Fair value hedge 3,306 -Cash flow hedge 22,896 -Total derivative assets 26,202 -

Maturity Analysis of Derivative AssetsNot longer than 3 months 490 -Longer than 3 months and not longer than 12 months 197 -Longer than 1 year and not longer than 5 years 26,990 -Longer than 5 years (1,475) -Total 26,202 -

11. b) Derivative Liabilities

Fair value hedge 132 -Cash flow hedge 8,505 -Total derivative liabilities 8,637 -

Maturity Analysis of Derivative LiabilitiesNot longer than 3 months 23 -Longer than 3 months and not longer than 12 months 952 -Longer than 1 year and not longer than 5 years 7,662 -Total 8,637 -

Amounts recognised in equity (pre tax) 14,408 -Loss recognised in profit and loss (pre tax) 3,157 -

12. Other Investments

Investments at cost comprise:Shares – listed - 13Total other investments - 13



33

Note 2005 2004$ 000 $ 000

13. Property, Plant and Equipment

Property, plant and equipment at cost 63,880 58,456Accumulated depreciation (49,500) (41,184)Total property, plant and equipment 14,380 17,272

Mainframe Computers & Computer EquipmentCarrying amount at the beginning 1,322 2,138Additions 2,265 1,280Depreciation (1,673) (2,096)Closing balance 1,914 1,322

Personal ComputersCarrying amount at the beginning 1,816 2,046Additions 389 460Depreciation (601) (690)Closing balance 1,604 1,816

Computer SoftwareCarrying amount at the beginning 6,741 7,250Additions 1,486 3,444Depreciation (3,955) (3,953)Closing balance 4,272 6,741

Leasehold ImprovementsCarrying amount at the beginning 7,251 7,529Additions 1,269 1,641Depreciation (2,065) (1,919)Closing balance 6,455 7,251

Motor VehiclesCarrying amount at the beginning 142 183Additions 15 -Disposals - (20)Depreciation (22) (21)Closing balance 135 142

14. Other Assets

Deferred lending expenses - 102,652Sundry debtors 524 16Other 1,890 4,545Total other assets 2,414 107,213



34

Note 2005 2004$ 000 $ 000

15. Deposits

Deposits on demand and short term deposits 16,740,960 14,793,934Total deposits 16,740,960 14,793,934

Maturity Analysis of DepositsAt call 16,377,196 14,623,704Due in less than 3 months 316,524 160,715Due after 3 months through to 1 year 43,983 6,466Due after 1 year through to 5 years 3,257 3,049Total 16,740,960 14,793,934

16. Deposits Payable to other Financial Institutions

Certificate of deposits - Related bodies corporate 117,413 87,596- Other persons/corporations 4,285,086 3,232,494

4,402,499 3,320,090Deposits – due to other financial institutions- Related bodies corporate 27,924 354,125- Other persons/corporations 113,779 146,955

141,703 501,080Total deposits payable to other financial institutions 4,544,202 3,821,170

Maturity Analysis of Deposits Payable to other FinancialInstitutions At call 90,452 61,565Due in less than 3 months 4,234,647 3,545,092Due after 3 months through to 1 year 218,383 211,297Due after 1 year through to 5 years 720 3,216Total 4,544,202 3,821,170



35

Note 2005 2004$ 000 $ 000

17. Debt Issues

Short Term – with less than 1 year to maturityCorporate bonds - 20,000Floating rate notes 845,000 20,000Total short term debt issues 845,000 40,000

Long TermSubordinated debt- Related bodies corporate 526,000 396,000Corporate bonds - 1,187,570Floating rate notes 2,138,598 1,328,500Total long term debt issues 2,664,598 2,912,070Total debt issues 3,509,598 2,952,070

Issued to Face Value Issue Date Maturity InterestRate

Subordinated DebtING Bank NV AUD 40 million 30 January 2001 31 January 2011 6.30%ING Bank NV AUD 32.5 million 28 May 2001 30 May 2011 6.23%ING Bank NV AUD 32.5 million 30 August 2001 31 August 2011 6.23%

ING Bank NV AUD 25 million 30 November 2001 01 December 2011 6.31%

ING Bank NV AUD 35 million 29 May 2002 30 May 2012 6.23%ING Bank NV AUD 51 million 07 January 2003 08 January 2013 6.28%ING Bank NV AUD 78 million 26 March 2004 27 March 2014 6.11%ING Bank NV AUD 42 million 16 July 2004 17 July 2014 6.07%ING Bank NV AUD 20 million 22 December 2004 23 December 2014 5.98%ING Bank NV AUD 20 million 23 December 2004 24 December 2014 5.98%ING Bank NV AUD 65 million 27 January 2005 28 January 2015 5.98%ING Bank NV AUD 65 million 9 February 2005 10 February 2015 5.96%ING Bank NV AUD 10 million 26 July 2005 27 July 2015 5.97%ING Bank NV AUD 10 million 22 November 2005 23 November 2015 5.89%Total subordinated debt AUD 526 million

Floating Rate NotesAUD 70 million 12 March 2003 13 March 2006 5.75%AUD 100 million 4 February 2005 10 April 2006 5.63%AUD 225 million 25 July 2003 25 July 2006 5.80%AUD 400 million 29 August 2005 29 August 2006 5.73%AUD 50 million 03 September 2004 04 September 2006 5.69%AUD 45 million 10 September 2002 10 September 2007 5.82%AUD 80 million 17 September 2002 17 September 2007 5.83%

AUD 225 million 16 November 2004 16 November 2007 5.76%AUD 62.5 million 17 December 2004 17 December 2007 5.77%AUD 21 million 22 January 2003 22 January 2008 5.84%AUD 50 million 24 November 2003 24 November 2008 5.79%AUD 500 million 28 May 2004 28 May 2009 5.82%AUD 300 million 9 March 2005 15 March 2010 5.81%AUD 50 million 6 June 2005 15 March 2010 5.81%AUD 450 million 6 July 2005 7 July 2010 5.79%



36

AUD 80 million 15 September 2005 15 March 2010 5.81%AUD 275 million 16 December 2005 16 December 2010 5.79%

Total floating rate notes AUD 2,983.5 million

2005 2004 $ 000 $ 000

18. Debt Issues at Fair Value through Profit and Loss

Short term – with less than 1 year to maturityCorporate bonds 184,413 -Total short term debt issues at fair value through profit and loss 184,413 -

Long termCorporate bonds 1,704,375 -Total long term debt issues at fair value through profit and loss 1,704,375 -Total debt issues at fair value through profit and loss 1,888,788 -

Issued to Face Value Issue Date Maturity InterestRate

Corporate BondsAUD 125 million 24 July 2003 25 July 2006 5.16%AUD 60 million 06 October 2004 06 October 2006 5.65%AUD 300 million 02 May 2002 02 May 2007 6.29%AUD 375 million 16 November 2004 16 November 2007 5.85%

AUD 150 million 24 November 2003 24 November 2008 6.30%

AUD 180 million 28 May 2004 28 May 2009 6.38%

AUD 150 million 6 July 2005 7 July 2010 5.75%AUD 400 million 26 September 2005 27 September 2012 5.78%AUD 150 million 16 December 2005 27 September 2012 6.04%

Total corporate bonds AUD 1,890million

2005 2004 $ 000 $ 000

19. Creditors and Other Liabilities

Accrued Interest Payable- Related bodies corporate 3,879 2,582- Other persons/corporations 63,914 65,790

67,793 68,372Other- Other persons/corporations Accrued expenses 17,744 14,878 Prepaid interest 3,388 2,330 Commitment fees 1,877 884 Other 4,510 8,337

27,519 26,429Total creditors and other liabilities 95,312 94,801

20. Provisions

Annual leave 2,570 2,683Long service leave 1,768 1,163Total provisions 4,338 3,846



37

Provisions expected to be paid in next 12 months 2,570 2,683



38

2005 2004 $ 000 $ 000

21. Contributed Equity

Issued and Paid Up Capital799,000,000 Ordinary Voting Shares of $1 each 799,000 799,00050,000,004 Ordinary Non-Voting Shares of $1 each 50,000 50,000Total contributed capital 849,000 849,000

Shares issued during the yearNo shares were issued during the year

Terms and Conditions of EquityOrdinary Voting Shares and Ordinary Non-Voting Shares have the right to receive dividends as declared and inthe event of winding up of the Bank, to participate in the proceeds of sale of all surplus assets in proportion tothe number and amounts paid up on shares held. Ordinary Voting Shares entitle their holder to one vote, eitherin person or by proxy, at a meeting of the Bank. Ordinary Non-Voting Shares have no such right to vote.

22. Reserves

Available for sale reserveOpening balance - -Adjustment on adoption of AASB 132 and AASB 139, net of tax (referto summary of significant accounting policies Note 1(u)) 7,282 -Restated opening balance 7,282 -Revaluation movement for the year, net of tax (4,180) -Transfer to net profit - -Total available for sale reserve 3,102 -

Gains and losses arising from subsequent changes in fair value are recognised directly in the available for salereserve in equity until the asset is derecognised or impaired, at which time the cumulative gain or loss will berecognised in the income statement. Fair values of quoted investments in active markets are based on current bidprices.

Cash flow hedging reserveOpening balance - -Adjustment on adoption of AASB 132 and AASB 139, net of tax (referto summary of significant accounting policies Note 1(u)) 41,502 -Restated opening balance 41,502 -Revaluation movement for the year, net of tax (21,985) -Transfer to net profit - -Total cash flow hedging reserve 19,517 -Total reserves 22,619 -

For a derivative designated as hedging a cash flow exposure arising from a recognised asset or liability, the gainor loss on the derivative associated with the effective portion of the hedge is initially recognised in equity in thecash flow hedge reserve and reclassified into the income statement when the hedge item is brought to account.The gain or loss relating to the ineffective portion of the hedge is recognised immediately in the income statement.



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2005 2004 $ 000 $ 000

23. Retained Profits

Opening balance 193,668 103,193Adjustment on adoption of AASB 132 and AASB 139 (13,121) -Profit for the year 122,416 90,475Closing balance 302,963 193,668

24. Capital Adequacy Requirements

Under the Banking Act 1959, as an Authorised Deposit Taking Institution, the Bank is subject to PrudentialStandards. Under these standards the Bank must satisfy the Australian Prudential Regulation Authority of itscompliance with the Capital Adequacy Standards. Capital Adequacy Details

Qualifying CapitalTier 1Total Equity 1,079,044 974,228Total Tier 1 Qualifying Capital 1,079,044 974,228

Tier 2

Collective provision for doubtful debts 8,621 7,019Term subordinated debt 526,000 396,000Total Tier 2 Qualifying Capital 534,621 403,019Total Qualifying Capital 1,613,665 1,377,247

Total Risk Adjusted Assets and Off Balance Sheet Exposure 15,927,630 12,411,167

Risk Weighted Capital Ratio 10.13% 11.10%

25. Statement of Cash Flows

(a) Reconciliation of cash

Cash balance comprises:Cash and cash equivalents 34,039 367,119

34,039 367,119

(b) Cash flows presented on a net basis

The following items in the Statement of Cash Flows are presented on a net basis:

(i) customer deposits to and withdrawals from money market deposit accounts and issues and redemptions ofcertificates of deposit;

(ii) sales and purchases of bank bills and deposits and repayments into/from the regulatory deposit; and(iii) customer loans and leases advanced and repaid .



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2005 2004 $ 000 $ 000

25. Statement of Cash Flows (continued)

(c) Reconciliation of profit from ordinary activities after tax to net cash provided by operating activities.

Profit from ordinary activities 122,416 90,475Adjustments for non-cash itemsDepreciation of non-current assets 8,315 8,679Loss on disposal of non current assets - 3Provision for doubtful debts 6,512 (2,011)IFRS adjustment through profit and loss (2,221) -IFRS adjustment through balance sheet (5,054) -Changes in Assets and Liabilities (Increase) in other assets (14,906) (24,034)(Increase) / decrease in accrued interest receivable 6,512 (8,971)(Increase) in deferred tax asset (16,807) (9,346)Increase in creditors and other liabilities 511 38,329Increase / (decrease) in deferred tax liability 24,466 (4,700)Increase in provisions – employee entitlements 492 575Net Cash Flows From Operating Activities 130,236 88,999

(d) Financing facilities available 2005 2004

$ 000 $ 000Credit Facilities provided are as follows: Unused Available Unused AvailableRelated Entities 350,000 350,000 350,000 350,000Foreign Banks 50,000 50,000 50,000 50,000Total Financing Facilities 400,000 400,000 400,000 400,000

26. Segmental Information

The Bank operates only within Australia in a single business segment, being the provision of banking and financialservices.

27. Auditors’ Remuneration

Amounts paid or due and payable for audit and review of the financial report by:Ernst & Young 309,000 232,000

Amounts paid or due and payable for other services to Ernst & Young:Accounting and reporting services 321,304 108,470

Regulatory services 328,821 28,500

Taxation services 26,800 95,092676,925 232,062

Total Remuneration of Auditors 985,925 464,062

28. Share Based Payment Plan

Employee Share Option Plan



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Share options are granted to key personnel by the ultimate parent company ING Group NV. These options areexercisable 3 years from the issue date at an exercise price of 23.28 Euro. All options must be exercised by nolater than 10 years from the issue date.28. Share Based Payment Plan (continued)

Employee Performance Share PlanDuring the year key personnel were issued with performance units. These performance units vest after 3 years,provided that the employee remains in the Bank’s employment and the awarded shares will be multiplied with acertain factor depended on ING‘s total shareholders return within a peer group of 19 other financial institutions.

The following tables illustrate the number (No) and weighted average exercise prices (WAEP) in Euro of, andmovements in share options issued during the year. The expenses related to share based payments arerecognised in Note 2 as part of Employee benefit expenses.

Share Options2005

No2005

WAEP2004

No2004

WEAPOutstanding at the beginning of the year 28,750 €18.71 - -Granted during the year 48,300 €23.28 32,000 €18.71Lapsed during the year 1,450 €21.15 3,250 €18.71Exercised during the year - - - -Outstanding at the end of the year 75,600 €21.58 28,750 €18.71

Exercisable at the end of the year - - - -

Performance UnitsOutstanding at the beginning of the year 9,584 €18.71 - -Granted during the year 8,782 €23.28 10,667 €18.71Lapsed during the year 368 €20.49 1,083 €18.71Exercised during the year - - - -Outstanding at the end of the year 17,998 €20.90 9,584 €18.71

Exercisable at the end of the year - - - -

The outstanding balance as at 31 December 2005 is:

• 28,075 options in the ultimate parent entity, ING Group NV granted in March 2004, exercisable 3 years fromthe issue date at an exercise price of 18.71 Euro.

• 47,525 options in the ultimate parent entity, ING Group NV granted in March 2005, exercisable 3 years fromthe issue date at an exercise price of 28.28 Euro.

• 9,359 performance units in the ultimate parent entity, ING Group NV granted in March 2004, exercisable 3years from the issue date at an exercise price of 18.71 Euro.

• 8,639 performance units in the ultimate parent entity, ING Group NV granted in March 2005, exercisable 3years from the issue date at an exercise price of 23.28 Euro.

29. Compensation of Key Management Personnel

(a) The key management personnel of the Bank during the year were:

Specified Executives:Simon Patrick Andrews Head of Direct Sales and Operations – relocated to ING UK June 2005Glenn Lawrence Baker Chief Investment OfficerLisa Dominique Claes Executive Director Sales and OperationsJohn Blaine Empey Executive Director Retail MortgagesJohn Keith Horn Chief Operations OfficerAmanda Jane Houlihan Executive Director Marketing and CommunicationsAlex Lowy Chief Financial OfficerJohn Philip Moore Executive Director Commercial Property Finance



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Mark Frederick Mullington Executive Director Credit and Market RiskPatricia Anne Myers Executive Director Information TechnologyGillian Taylor Executive Director Human Resources



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2005 2004$ 000 $ 000

29. Compensation of Key Management Personnel (continued)

Specified Directors:Anthony Richard Berg Director (Non-Executive)Geoffrey Norman Brunsdon Director (Non-Executive) - resigned 26 July 2005Vaughn Nigel Richtor Chief Executive OfficerEric Henry Robles Director (Non-Executive)Phillip Robert Shirriff Director (Non-Executive)Hans Karel Verkoren Director (Non-Executive)

(b) The compensation paid to key management personnel of the Bank for the year:

Short-term employee benefits 4,910 4,454Post-employment benefits - -Other long-term benefits 724 729Termination benefits - -Share based payments 215 148Total Compensation 5,849 5,331

(b) Employee Share Option Plan:

Employees received no other payments or benefits other than the ones disclosed in Notes 28 to 30.

30. Related Party Disclosure

(a) Loans to entities in the wholly owned group:

Aggregate amounts receivable comprise term loans. Interest received was charged on normal commercial termsthroughout the year. No security or guarantee has been provided and no bad and doubtful debt provisions wereraised during the year.

Aggregate amounts receivable from the ultimate controlling entity 150,059 150,000Aggregate amounts receivable from related parties in the wholly owned group 203 277Total aggregate amounts receivable from entities in the wholly owned group 150,262 150,277

(b) Loans from entities in the wholly owned group:

Aggregate amounts payable comprise subordinated debt, certificates of deposit, accrued interest and inter-company balances. Interest was charged on subordinated debt and certificates of deposits on normal commercialterms throughout the year. No security or guarantee has been provided and no bad and doubtful debt provisionswere raised during the year.

Aggregate amounts payable at balance date to the ultimate controlling entity 568 345Aggregate amounts payable at balance date to related parties in the wholly ownedgroup

697,099 854,351

Total aggregate amounts payable to entities in the wholly owned group 697,667 854,696

(c) Other transactions with entities in the wholly owned group:

• The Bank recognised as income fees for portfolio management of loans for related entities and for themanaged investment product.

Amounts received / receivable during the year from related parties in the wholly ownedgroup

897 1,080

• The Bank paid fees for expenses incurred for services rendered on behalf of the Bank.

Amounts paid / payable during the year to the ultimate controlling entity 4,672 3,069



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Amounts paid / payable during the year to related parties in the wholly owned group 286 374Total amounts paid to entities in the wholly owned group 4,958 3,443 30. Related Party Disclosure (continued)

(d) Loans to key management personnel and related entities:

During 2005 no loans were provided to key management personnel and / or their related entities (2004: Nil).

(e) Other transactions with key management personnel and related entities:

Key management personnel and / or their related entities have entered into transactions of a domestic nature withthe Bank or related bodies corporate. These transactions include entering into insurance contracts and placingmoney market deposits and are on normal commercial terms.

31. Ultimate Holding Entity

ING Bank (Australia) Limited is the ultimate Australian holding company and its ultimate controlling entity is INGGroup NV which is incorporated in The Netherlands.

32. Risk Management

The management of risk is a crucial part of the functioning of any banking or finance business. In order to ensure itmaintains an appropriate level of risk within the business, the Bank has invested in building sound governance andmanagement structures, integrated policy structures and broadly based reporting and monitoring systems. TheBoard has a central role in the setting and monitoring of the Bank’s risk profile. The Board Committees, particularlythe Credit and Investment Committee and the Conduct Review Committee, play an active part in this process.They are supported by the mandated management committees, which are the Asset and Liability ManagementCommittee, Local Credit Committee and Operational Risk Committee. The Bank’s risk management framework isunderpinned by a culture of risk awareness and responsibility across the entire business.

The key areas of risk managed within the framework are as follows:

Credit RiskCredit risk is the risk that moneys owed to the Bank by another person/entity will not be paid due to the inability orunwillingness of that party to do so. The Board is responsible for establishing policies for the management of creditrisk in the business. Certain authorities are delegated to the Local Credit Committee and then to individuals in theorganisation to allow the efficient day to day operation of the business. The governance of credit risk alsoincorporates approval from head office (ING Direct Market and Credit Risk Committee) whenever exposuresoutside local authority require approval.

Liquidity RiskLiquidity risk is the risk that the Bank will be unable to meet all its obligations, or be unable to take advantage ofinvestment opportunities due to the inability to access funds when required. The Funding and Investment Divisionis responsible for ensuring the Bank has continuous access to funds in accordance with policies established andmonitored by the Board, the Credit and Investment Committee and the Asset and Liability Management Committee.Satisfactory liquidity is achieved through a combination of holdings of highly liquid assets, diverse funding sources,and external standby arrangements. The liquidity position of the Bank is monitored constantly against the expectedposition and crisis scenarios.

Currency RiskCurrency risk is the risk of loss of earnings due to adverse movements in exchange rates. Company policy requiresthat all currency risks are neutralised through full hedging.



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2005 2004$ 000 $ 000

32. Risk Management (continued)

Interest Rate RiskInterest rate risk is the risk of loss of earnings due to unexpected adverse movements in interest rates. The Bank’sactivities give rise to mismatches in interest rates due to differences in the duration and maturity of various assets,liabilities and commitments. This mismatch position is actively managed to contain any negative impact fromadverse movements in interest rates within agreed limits. The Board and the Credit and Investment Committee hasresponsibility for the management of interest rate risk, which it delegates to the Asset and Liability ManagementCommittee. The level of interest rate risk is monitored using specialised software designed to enable thequantification of risk and also modelling of various interest rate scenarios. Interest rate swaps are the principalinstruments by which interest rate risk is managed to agreed limits.

Operational RiskOperational risk is the risk of loss resulting from failed or inadequate processes, people or systems or from externalevents. Key areas of operational risk for the Bank include fraud risk, information security risk, physical security riskand process breakdown. The Bank has implemented a framework that facilitates the identification, assessment,measurement and control of operational risk across the business. The Board and the Conduct Review Committeeis responsible for establishing policy in this area and for the ongoing management of operational risk. This processis supported by the Operational Risk Committee.

Capital ManagementThe Bank carries capital to provide for the risks arising from its business. The broad descriptions of thesecategories of risks has been outlined above. The Australian Prudential Regulation Authority has set minimumregulatory capital ratios based on the level of on and off balance sheet assets weighted for risk. In addition theBank complies with certain internal limits set by head office relating to capital allocation.

33. Contingencies and Commitments

(a) Commitments to Extend Credit

Irrevocable commitments to extend credit include all obligations on the part of the Bank to provide credit facilitiesand bank accepted guarantees represent unconditional undertakings by the Bank to support the obligations of itscustomers to third parties.

- irrevocable commitments to extend credit 2,300,957 1,914,023 - bank accepted guarantees 40,370 19,481Total commitments to extend credit 2,341,327 1,933,504

(b) Operating Leases - Land & Buildings

Operating Leases are the leases of the premises the Bank occupies at 140 Sussex Street Sydney, Reliance DriveTuggerah, 13 London Circuit Canberra, 140 Queen Street and 570 Bourke Street Melbourne, 6-12 Hurtle ParadeMawson Adelaide, 100 Edward Street Brisbane and 28B Railway Parade Subiaco Perth.

- not later than 1 year 6,308 7,751 - later than 1 year and less than 5 years 15,226 26,489 - later than 5 years 1,248 1,109Total minimum lease payments 22,782 35,349

(c) Litigation

The Bank is not engaged in any litigation or claim which is likely to have a materially adverse effect on thebusiness, financial condition or operating results of the Bank. Where some loss is probable an appropriateprovision has been made.



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34. Disclosures about Fair Value of Financial instruments

Set out below is a comparison by category of the carrying amounts and fair values of all of the Bank’s financialinstruments.

The methodology and assumptions used in determining fair values are as below:

Cash at bankThe carrying amount of Cash at Bank is an approximation of fair value.

Receivables due from other financial institutionsFrom 1 December 2004 to 31 December 2004For at call receivables the carrying amount is an approximation of fair value. The net fair value for fixed receivablesis based upon the discounted amount of estimated future cash flows.

From 1 January 2005Receivables due from other financial institutions are classified as available for sale securities, available for salesecurities at fair value through profit and loss and loans and advances.

Accrued interest receivableThe carrying amount of accrued interest receivable is an approximation of fair value.

Investment securitiesFrom 1 December 2004 to 31 December 2004The net fair value of investment securities is determined by reference to quoted market prices at balance date.

From 1 January 2005Investment securities are classified as available for sale securities, available for sale securities at fair value throughprofit and loss and loans and advances.

Available for sale securitiesThe net fair value of available for sale securities is initially recognised at fair value plus transaction costs. Fair valuesof quoted investments in active markets are based on current bid prices.

Available for sale securities at fair value through profit and lossThe net fair value of available for sale securities at fair value through profit and loss is initially recognised at fair valueplus transaction costs. Fair values of quoted investments in active markets are based on current bid prices.

Loans and advancesThe carrying value of loans and advances is net of general and specific provisions for doubtful debts. For variableloans the carrying amount is an approximation of fair value. The net fair value for fixed loans is based upon thediscounted amount of estimated future cash flows.

Derivative assets The estimated net fair value of swaps is based upon the discounted amount of estimated future cash flows.

DepositsFor at call deposits, the carrying amount is an approximation of fair value. The net fair value for fixed deposits andpayables is based upon the discounted amount of estimated future cash flows.

Deposits payables to other financial institutionsThe estimated net fair value of payables due to other financial institutions is based upon the discounted amount ofestimated future cash flows.

Debt issuesThe estimated net fair value of debt issues is based upon the discounted amount of estimated future cash flows.



47

34. Disclosures about Fair Value of Financial instruments (continued)

Debt issues at fair value through profit and lossThe estimated net fair value of debt issues at fair value through profit and loss is based upon the discounted amountof estimated future cash flows.

Derivative liabilities The estimated net fair value of swaps is based upon the discounted amount of estimated future cash flows.

Creditors and other liabilitiesThe carrying amount of creditors and other liabilities is an approximation of fair value.

SummaryThe following table provides comparison of carrying and net fair values for each item discussed above, whereapplicable:

Carryingamount

Fair value Carryingamount

Fair value

2005$ 000

2005$ 000

2004$ 000

2004$ 000

Recognised Financial AssetsCash 34,039 34,039 367,119 367,119Receivables due from other Financial institutions - - 3,192,568 3,216,910Accrued interest receivable 22,740 22,740 29,253 29,253Investment securities - - 1,278,185 1,290,927Available for sale securities 4,592,108 4,592,108 - -Available for sale securities at fair valuethrough profit and loss 446,786 446,786

- -

Loans and advances 22,868,850 22,883,596 17,750,310 17,761,960Derivative assets 26,202 26,202 - -

Recognised Financial LiabilitiesDeposits 16,740,960 16,741,863 14,793,934 14,793,934Deposits payables to other Financial institutions 4,544,202 4,544,101 3,821,170 3,826,235Debt issues 3,509,598 3,514,186 2,952,070 2,992,145Debt issues at fair value through profitand loss 1,888,788 1,892,158 - -Derivative liabilities 8,637 8,637 - -Creditors and other liabilities 95,312 95,312 94,801 94,801

Unrecognised Financial Assets And Liabilities Off Balance Sheet Instruments Swaps unrealised gain (unrealisedloss)

- - - 47,205



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35. Financial Risk Management

(a) Interest Rate Risk

Interest rate risk is defined as the risk of loss to the Bank arising from adverse movements in market interest rates.

Sensitivity to interest rates arises from the structure and characteristics of the Bank’s assets, liabilities and equityand in the mismatches in repricing of assets and liabilities. These mismatches are managed within policyguidelines for gap positions and value at risk limits.

The Bank’s exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities,both recognised and unrecognised at the date of the statement of financial position, are as follows. The followingmismatches reflect contractual repricing periods. The Bank does not use this contractual repricing information tomanage its interest rate risk.

The Interest Rate profile for 2005 is:

FinancialInstruments

(2005)

Floatinginterest

rate

Fixed interest rate maturing in Noninterestbearing

Total carryingamount as perthe statement

of financialposition

WeightedAverage

Rate as atYear-End

$ 000 1 year orless

Over 1 to5 years

More than5 years

AssetsCash 34,039 34,039 5.25%Available for salesecurities 4,431,227 160,440 441 4,592,108 5.62%Available for salesecurities at fairvalue

8,618 438,168 446,786 6.13%

Loans andadvances 18,303,814 781,737 3,513,594 150,000 119,705 22,868,850 6.71%Derivative assets 687 26,990 (1,475) 26,202Non interestbearing assets 61,850 61,850Total Assets 18,337,853 5,222,269 4,139,192 148,525 181,996 28,029,835 6.52%

LiabilitiesDeposits 16,157,529 580,174 3,257 16,740,960 5.41%Deposits payable toother financialinstitutions

90,452 4,453,030 720 4,544,202 5.62%

Debt issues 3,509,598 3,509,598 5.63%Debt issued at fairvalue through p&l 184,413 1,158,878

545,497 1,888,788 5.88%

Derivative liabilities 975 7,662 8,637Non interestbearing liabilities 163,068 163,068Total Liabilities 16,247,981 8,728,190 1,170,517 545,497 163,068 26,855,253 5.51%



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35. Financial Risk Management (continued)

(a) Interest Rate Risk (continued)

Comparative interest rate profile for 2004 is:

Financial Instruments (2004)

Floatinginterest

rate

Fixed interest rate maturing in Noninterestbearing

Total carryingamount as per

the statement offinancialposition

WeightedAverage

Rate as atYear-End

$ 000 1 year orless

Over 1 to5 years

Morethan 5years

AssetsCash 367,119 367,119 5.25%Receivables duefrom other financialinstitutions

2,753,586 438,982 3,192,568 5.67%

Investmentsecurities

902,679 225,506 150,000 1,278,185 5.48%

Loans andadvances

15,148,374 627,212 1,974,205 519 17,750,310 6.83%

Non interest bearingassets

171,279 171,279

Total Assets 15,515,493 4,283,477 2,638,693 150,519 171,279 22,759,461 6.56%

LiabilitiesDeposits 14,623,704 167,181 3,049 14,793,934 5.25%

Deposits payableto other financialinstitutions

61,565 3,756,389 3,216 3,821,1705.43%

Non interestbearingLiabilities

149,619 149,619

Debt Issues 1,764,500 1,187,570 2,952,070 5.63%Total Liabilities 14,685,269 5,688,070 1,193,835 149,619 21,716,793 5.33%

Off Balance SheetInterest rate swaps (6,924,993) 3,651,343 3,274,187 (537)



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35. Financial Risk Management (continued)

(b) Credit Risk

Credit risk arises from the potential inability of a debtor or counterparty to meet their contractual obligations.Credit risk is monitored, reviewed and reported to the local, regional and head office credit committees and theBoard of Directors on a monthly basis.

Maximum exposure

The maximum credit exposure of the Bank is as follows:

Financial Asset2005$ 000

2004$ 000

Receivables due from other financial institutions - 3,192,568Accrued interest receivable 22,740 29,253Investment securities - 1,278,185Available for sale securities 4,592,108 -Available for sale securities at fair value through profit and loss 446,786 -Loans and advances - 17,750,310Loan assets held at amortised cost 22,868,850 -Derivative assets 26,202 -Other investments - 13

Off Balance SheetContingent liabilities 1,299,853 1,041,057Swaps - 121,113Total maximum credit exposure 29,256,539 23,412,499

Credit equivalent amount All Off Balance Sheet exposures which give rise to credit risk are converted into credit equivalent amounts inaccordance with APRA capital adequacy guidelines. Concentration of credit riskConcentration of credit risk exists if a number of counterparts have similar economic characteristics that wouldcause their ability to meet contractual obligations to be similarly affected by changes in economic or otherconditions.

Industry 2005 2004$ 000 $ 000

Finance and Insurance 6,645,826 5,698,934Residential Mortgage (1) 20,160,202 15,828,130Commercial Mortgage (2) 2,450,511 1,885,435

Total 29,256,539 23,412,499(1) Secured against residential property(2) Secured against commercial and non residential property

36. Subsequent Events After Balance Date

There were no events after balance date that were significant.

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Directors’ DeclarationIn accordance with a resolution of the Directors of ING Bank (Australia) Limited, we state that -

1) In the opinion of the Directors:

a) the financial statements and notes of the Bank are in accordance with the Corporations Act 2001,including

i) giving a true and fair view of the Bank’s financial position as at 31 December 2005 and of itsperformance for the year ended on that date; and

ii) complying with Accounting Standards and Corporations Regulations 2001; and

b) there are reasonable grounds to believe that the Bank will be able to pay its debts as and when theybecome due and payable.

On behalf of the Board

Sydney, 13 March 2006

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