AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED- ANZ NEW ZEALAND
REGISTERED BANK DISCLOSURE STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2016
NUMBER 32 | ISSUED NOVEMBER 2016

Australia and New Zealand Banking Group Limited - ANZ New Zealand

REGISTERED BANK DISCLOSURE STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2016

CONTENTS
Glossary of Terms
Consolidated Financial Statements
Income Statement
Statement of Comprehensive Income
Balance Sheet
Cash Flow Statement
Statement of Changes in Equity
Notes to the Financial Statements
Basis of Preparation
1. Significant Accounting Policies
2. Critical Estimates and Judgements Used in
Applying Accounting Policies

2

3
3
4
5
6

7
12

Financial Performance
3. Net Interest Income
4. Non Interest Income
5. Operating Expenses
6. Income Tax
7. Segment Analysis
8. Notes to the Cash Flow Statements

14
14
15
16
17
19

Financial Assets
9. Cash
10. Trading Securities
11. Derivative Financial Instruments
12. Available-for-sale Assets
13. Net Loans and Advances
14. Provision for Credit Impairment

20
20
20
22
22
23

Financial Liabilities
15. Deposits and Other Borrowings
16. Debt Issuances
17. Subordinated Debt

24
24
25

Financial Instrument Disclosures
18. Financial Risk Management
19. Classification of Financial Instruments and Fair Value
Measurements
20. Maturity Analysis of Assets and Liabilities
21. Assets Charged as Security for Liabilities and CollateralAccepted as Security for Assets
22. Offsetting
23. Credit Related Commitments, Guarantees andContingent Liabilities

27
41
43
44
45
46

Non-Financial Assets
24. Other Assets
25. Goodwill and Other Intangible Assets

47
47

Non-Financial Liabilities
26. Payables and Other Liabilities
27. Provisions

47
47

Equity28. Share Capital and Initial Head Office Account
29. Capital Adequacy

48
49

Consolidation and Presentation
30. Subsidiaries
31. Structured Entities, Transferred Financial Assets,
Fiduciary Activities and Insurance
Other Disclosures
32. Related Party Disclosures
33. Capital Expenditure and Operating Lease
Commitments
34. Compensation of Auditors
35. Concentrations of Credit Risk to IndividualCounterparties
36. Risk Management Framework
37. NZ Branch and Overseas Banking Group
Information
Other Registered Bank Disclosures
Historical Summary of Financial Statements
General Disclosures
Conditions of Registration
Directorate and Auditor
Directors’ and New Zealand Chief Executive Officer’s
S
Statement
Independent Auditor’s Report

51
52

54
56
56
56
57
58

59
60
62
63
65
66

Australia and New Zealand Banking Group Limited - ANZ New Zealand

2

GLOSSARY OF TERMS
In this Registered Bank Disclosure Statement (Disclosure Statement) unless the context otherwise requires:
Bank means ANZ Bank New Zealand Limited.
Banking Group means the Bank and all its controlled entities.
Immediate Parent Company means ANZ Funds Pty Limited, which is the immediate parent company of ANZ Holdings (New Zealand)
Limited.
Ultimate Parent Bank means Australia and New Zealand Banking Group Limited.
Overseas Banking Group means the worldwide operations of Australia and New Zealand Banking Group Limited including its controlled
entities.
New Zealand business means all business, operations, or undertakings conducted in or from New Zealand identified and treated as if itwere conducted by a company formed and registered in New Zealand.
NZ Branch means the New Zealand business of the Ultimate Parent Bank.
ANZ New Zealand means the New Zealand business of the Overseas Banking Group.
Registered Office is Level 10, 171 Featherston Street, Wellington, New Zealand, which is also ANZ New Zealand’s address for service.
RBNZ means the Reserve Bank of New Zealand.
APRA means the Australian Prudential Regulation Authority.
the Order means the Registered Bank Disclosure Statements (Overseas Incorporated Registered Banks) Order 2014.
Any term or expression which is defined in, or in the manner prescribed by, the Order shall have the meaning given in or prescribed by theOrder.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

3

INCOME STATEMENT
Year toYear to30/09/2015
NZ$m

Note

30/09/2016
NZ$mInterest income

3

6,770

7,417

Interest expense

3

3,741

4,537

3,029

2,880

Net interest income
Net trading gains

4

12

262

Net funds management and insurance income

4

414

385

Other operating income

4

401

505

Share of associates' profit
Operating income
Operating expenses

5

Profit before credit impairment and income tax
Credit impairment charge

14

Profit before income tax
Income tax expense
Profit after income tax

6

5

5

3,861

4,037

1,600

1,513

2,261

2,524

147

76

2,114

2,448

572

677

1,542

1,771

STATEMENT OF COMPREHENSIVE INCOME

Profit after income tax

Year toYear to30/09/2016

30/09/2015

NZ$m

NZ$m

1,542

1,771
(33)

Items that will not be reclassified to profit or loss
Actuarial gain / (loss) on defined benefit schemes

18

Income tax credit / (expense) relating to items not reclassified(5)

9

Total items that will not be reclassified to profit or loss

13

(24)

Items that may be reclassified subsequently to profit or loss
Unrealised gains recognised directly in equity

91

12

Realised losses / (gains) transferred to the income statement

9

(16)

Income tax credit / (expense) relating to items that may be reclassified

(28)

1

Total items that may be reclassified subsequently to profit or loss

72

(3)

1,627

1,744

Total comprehensive income for the year

The notes to the financial statements form part of and should be read in conjunction with these financial statements.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

4

BALANCE SHEET
Note

30/09/2016
NZ$m

30/09/2015
NZ$m

9

2,274

2,435

AssetsCash
Settlement balances receivable

396

309

Collateral paid

2,310

1,929

11,97912,139Trading securities

10

Investments backing insurance contract liabilities

119

151

Derivative financial instruments

11

20,96917,587Available-for-sale assets

12

2,859

1,428

Net loans and advances

13

120,651

114,376

Other assets

24

701

740

630

552

Life insurance contract assets
Investments in associates

74

Premises and equipment

387

388

Goodwill and other intangible assets

3,424

3,492

Total assets

25

166,706

155,530

Interest earning and discount bearing assets

140,524

132,869

1,554

1,469

Liabilities
Settlement balances payable
Collateral received

529

1,687

Deposits and other borrowings

15

106,908

99,736

Derivative financial instruments

11

22,39817,769Current tax liabilities

22

81

Deferred tax liabilities

6

147

124

Payables and other liabilities

26

1,137

1,527

Provisions

27

206

191

Debt issuances

16

20,014

19,403

Subordinated debt

17

2,624

2,683

Total liabilities (excluding head office account)

155,539

144,670

Net assets (excluding head office account)

11,167

10,860

8,055

8,058

EquityShare capital and initial head office account28

Reserves

62(10)

Retained earnings

3,050

2,812

Total equity & head office account

11,167

10,860Interest and discount bearing liabilities

123,145

118,026

For and on behalf of the Board of Directors:

David Gonski, AC
ChairmanAustralia and New Zealand Banking Group Limited
23 November 2016

Shayne Elliott
Executive Director
Australia and New Zealand Banking Group Limited
23 November 2016

The notes to the financial statements form part of and should be read in conjunction with these financial statements.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

5

CASH FLOW STATEMENT

Note

Year toYear to30/09/2016
NZ$m

30/09/2015
NZ$m

6,794

7,357

Cash flows from operating activities
Interest received
Dividends received
Net funds management and insurance income
Fees and other income received

2

89

332

303

624

627

Interest paid

(3,753)(4,482)

Operating expenses paid

(1,499)(1,390)

Income taxes paid

(641)

(589)

Cash flows from operating profits before changes in operating assets and liabilities

1,859

1,915

Net changes in operating assets and liabilities:
Change in settlements receivable

(19)

4

Change in collateral paid

(381)

(1,146)

Change in trading securities

164

(208)

Change in derivative financial instruments(2,320)2,498

Change in available-for-sale assets(1,381)(634)

Change in insurance investment assets

32

39

Change in loans and advances(6,643)(8,875)

Change in settlements payable

(67)

293

Change in collateral received(1,158)887

Change in deposits and other borrowings

8,180

5,205

(3,593)(1,937)(1,734)(22)

Proceeds from sale of premises and equipment

17-

Proceeds from sale of insurance policies

23-

Purchase of intangible assets

(29)

(73)

Purchase of premises and equipment

(71)

(59)

Net cash flows used in investing activities

(60)

(132)

Net changes in operating assets and liabilities
Net cash flows used in operating activities

8

Cash flows from investing activities

Cash flows from financing activities
Proceeds from issue of debt issuances

7,380

4,212

Proceeds from issue of subordinated debt

-

1,482

Proceeds from issue of preference shares-

675(4,477)(4,008)-(297)

Redemptions of debt issuances
Redemptions of subordinated debt
Redemptions of preference shares

-

(10)

Dividends paid

(1,320)(1,630)Net cash flows provided by financing activities

1,583

424

Net increase / (decrease) in cash and cash equivalents

(211)

270

Cash and cash equivalents at beginning of the year

2,526

2,256

2,315

2,526

Cash and cash equivalents at end of the year

The notes to the financial statements form part of and should be read in conjunction with these financial statements.

8

Australia and New Zealand Banking Group Limited - ANZ New Zealand

6

STATEMENT OF CHANGES IN EQUITY
Share capitaland initialhead
office account

Availablefor-salerevaluation
reserve

Cash flow
hedging
reserve

Retainedearnings

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

As at 1 October 2014

7,393

-

(7)

2,695

10,081

Profit after income tax

-

-

-

1,771

1,771

Unrealised gains recognised directly in equity

-

-

12

-

12

Realised gains transferred to the income statement

-

-

(16)

-

(16)

Actuarial loss on defined benefit schemes

-

-

-

(33)

(33)

Income tax credit on items recognised directly in equity

-

-

1

9

10

Total comprehensive income for the year

-

-

(3)

1,747

1,744
675

Note

Total equity

Preference shares issued

28

675

-

-

-

Preference shares redeemed

28

(10)

-

-

-

(10)

Ordinary dividend paid

28

-

-

-

(1,630)(1,630)As at 30 September 2015

8,058

-

(10)

2,812

10,860

Profit after income tax

-

-

-

1,542

1,542

Unrealised gains / (losses) recognised directly in equity

-

(2)

93

-

91

Realised losses transferred to the income statement

-

2

7

-

9

Actuarial gain on defined benefit schemes

-

-

-

18

18

Income tax expense on items recognised directly in equity

-

-

(28)

(5)

(33)
1,627

Total comprehensive income for the year

-

-

72

1,555

Shares cancelled on amalgamation

28

(3)

-

-

3

-

Ordinary dividend paid

28

-

-

-

(1,320)(1,320)

8,055

-

62

3,050

11,167As at 30 September 2016

The notes to the financial statements form part of and should be read in conjunction with these financial statements.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

7

NOTES TO THE FINANCIAL STATEMENTS
1.

SIGNIFICANT ACCOUNTING POLICIES(a)

Basis of preparation(i)

The effect of all transactions between entities in ANZ New
Zealand is eliminated.
Associates

Statement of compliance

ANZ New Zealand applies the equity method of accounting
for associates.

These financial statements have been prepared inaccordance with the requirements of the Financial Markets
Conduct Act 2013 and the Order. ANZ New Zealand’s
financial statements are for the Overseas Banking Group’s
consolidated New Zealand business, which includes its
subsidiaries and associates.

(vi) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of ANZ
New Zealand’s entities are measured using the currency ofthe primary economic environment in which the entity
operates (the functional currency).

These financial statements comply with:•New Zealand Generally Accepted Accounting Practice,as defined in the Financial Reporting Act 2013•
New Zealand equivalents to International Financial
Reporting Standards (NZ IFRS) and other applicable
Financial Reporting Standards, as appropriate forpublicly accountable profit-oriented entities•
International Financial Reporting Standards (IFRS).

ANZ New Zealand’s financial statements are presented in
New Zealand dollars, which is ANZ New Zealand’s functional
and presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into thefunctional currency using the exchange rates prevailing at
the dates of the transactions.

The principal accounting policies adopted in the preparationof these financial statements are set out below.
(ii)

Monetary assets and liabilities resulting from foreign
currency transactions are subsequently translated at the spot
rate at reporting date.

Use of estimates and assumptions

The preparation of these financial statements requires theuse of management judgements, estimates and assumptions
that affect reported amounts and the application of policies.
Discussion of the critical accounting estimates, which
include complex or subjective decisions or assessments, arecovered in note 2. Such estimates are reviewed on an
ongoing basis.
(iii)

Basis of measurement

The financial information has been prepared in accordancewith the historical cost basis except that the following assets
and liabilities are stated at their fair value:•
derivative financial instruments•
available-for sale financial assets•
financial instruments held for trading•
financial instruments designated at fair value throughprofit and loss.
(iv)

Rounding

The amounts in the financial statements have been rounded
to the nearest million dollars, except where otherwise stated.
(v)

Principles of consolidation

Subsidiaries
The consolidated financial statements of ANZ New Zealandcomprise the financial statements of the NZ Branch and all
the New Zealand businesses of all the subsidiaries of the
Ultimate Parent Bank. An entity, including a structured entity,
is considered a subsidiary of ANZ New Zealand when it isdetermined that control over the entity exists. Control isdeemed to exist when ANZ New Zealand is exposed, or has
rights, to variable returns from its involvement with theentity and has the ability to affect those returns through its
power over the entity. Power is assessed by examining
existing rights that give ANZ New Zealand the current ability
to direct the relevant activities of the entity.
At times, the determination of control can be judgemental.
Further detail on the judgements involved in assessing
control has been provided in note 2.

Exchange differences arising on the settlement of monetary
items or on translating monetary items at rates different tothose at which they were initially recognised or included in aprevious financial report, are recognised in the income
statement in the period in which they arise.
(b)

Income recognition(i)Interest income

Interest income is recognised as it accrues using the effective
interest method.
The effective interest method calculates the amortised costof a financial asset or financial liability and allocates theinterest income or interest expense, including any fees anddirectly related transaction costs that are an integral part ofthe effective interest rate, over the expected life of thefinancial asset or liability so as to achieve a constant yield on
the financial asset or liability.
For assets subject to prepayment, expected life isdetermined on the basis of the historical behaviour of theparticular asset portfolio, taking into account contractual
obligations and prepayment experience. This is assessed ona regular basis.
(ii)

Fee and commission income

Fees and commissions received that are integral to theeffective interest rate of a financial asset are recognised using
the effective interest method. For example, loan
commitment fees, together with related direct costs, aredeferred and recognised as an adjustment to the effective
interest rate on a loan once drawn.
Fees and commissions that relate to the execution of asignificant act (for example, advisory or arrangement
services, placement fees and underwriting fees) arerecognised when the significant act has been completed.
Fees charged for providing ongoing services (for example,
maintaining and administering existing facilities) are

Australia and New Zealand Banking Group Limited - ANZ New Zealand

8

NOTES TO THE FINANCIAL STATEMENTS
follow from the manner in which ANZ New Zealand, at thereporting date, recovers or settles the carrying amount of its
assets and liabilities.

recognised as income over the period the service isprovided.
(c)

Expense recognition
(i)

(iv)

Interest expense

Current and deferred tax assets and liabilities are offset only
to the extent that they relate to income taxes imposed by
the same taxation authority, there is a legal right andintention to settle on a net basis and it is allowed under the
tax law of the relevant jurisdiction.

Interest expense on financial liabilities measured atamortised cost is recognised in the income statement as it
accrues using the effective interest method.
(ii)

Loan origination expenses

Certain loan origination expenses are an integral part of theeffective interest rate of a financial asset measured atamortised cost. These loan origination expenses include:•
fees and commissions payable to brokers and certain
customer incentive payments in respect of originating
lending business•other expenses of originating lending business, suchas external legal costs and valuation fees, provided
these are direct and incremental costs related to theissue of a financial asset.
Such loan origination expenses are initially recognised aspart of the cost of acquiring the financial asset and amortisedas part of the effective yield of the financial asset over its
expected life using the effective interest method.
(d)Income tax(i)Income tax expense

Income tax on earnings for the year comprises current anddeferred tax and is based on the applicable tax law. It is
recognised in the income statement as tax expense, except
when it relates to items credited directly to equity, in whichcase it is recorded in equity.
(ii)

Current tax

Current tax is the expected tax payable on taxable income
for the year, based on tax rates (and tax laws) which areenacted or substantively enacted by the reporting date andincluding any adjustment for tax payable in previous periods.
Current tax for current and prior periods is recognised as aliability (or asset) to the extent that it is unpaid (orrefundable).
(iii)

Deferred tax

Deferred tax is accounted for using the comprehensive tax
balance sheet method. It is generated by temporary
differences between the carrying amounts of assets andliabilities for financial reporting purposes and their tax base.
Deferred tax assets, including those related to the tax effects
of income tax losses and credits available to be carriedforward, are recognised only to the extent that it is probablethat future taxable profits will be available against which the
deductible temporary differences or unused tax losses andcredit can be utilised.
Deferred tax liabilities are recognised for all taxable
temporary differences, other than those relating to taxable
temporary differences.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply to the period(s) when theasset and liability giving rise to them are realised or settled,based on tax rates and tax laws that have been enacted or
substantively enacted by the reporting date. The
measurement reflects the tax consequences that would

Offsetting(e)AssetsFinancial assets(i)Financial assets and liabilities at fair value throughprofit or loss

Purchases and sales of trading securities are recognised on
trade date.
Trading securities are financial instruments acquired
principally for the purpose of selling in the short-term or
which are a part of a portfolio which is managed for shortterm profit-taking. Trading securities are initially recognised
and subsequently measured in the balance sheet at their fairvalue.
Derivatives that are not effective accounting hedging
instruments are carried at fair value through profit or loss.
In addition, certain financial assets and liabilities aredesignated and measured at fair value through profit or loss
where any of the following applies:•
the asset represents investments backing insurance
policy liabilities•
doing so eliminates or significantly reduces ameasurement or recognition inconsistency that would
otherwise arise from measuring assets and liabilities, orrecognising the gains or losses thereon, on differentbases•
a group of financial assets or financial liabilities or both
is managed and its performance evaluated on a fairvalue basis•
the financial instrument contains an embedded
derivative, unless the embedded derivative does not
significantly modify the cash flows or it is clear, withlittle or no analysis, that it would not be separately
recorded.
Changes in the fair value (gains or losses) of these financial
instruments are recognised in the income statement in the
period in which they occur.
(ii)

Derivative financial instruments

Derivative financial instruments are contracts whose value isderived from one or more underlying price index or othervariables. They include swaps, forward rate agreements,
futures, options and combinations of these instruments.
Derivative financial instruments are entered into for trading
purposes (including customer-related reasons) or forhedging purposes (where the derivative instruments areused to hedge ANZ New Zealand’s exposures to interest raterisk, currency risk, price risk, credit risk and other exposuresrelating to non-trading positions).
Derivative financial instruments are recognised initially at fairvalue with gains or losses from subsequent measurement at

Australia and New Zealand Banking Group Limited - ANZ New Zealand

9

NOTES TO THE FINANCIAL STATEMENTS
fair value being recognised in the income statement.
Valuation adjustments are integral in determining the fairvalue of derivatives. This includes a credit valuation
adjustment (CVA) to reflect the credit worthiness of thecounterparty and funding valuation adjustment (FVA) toaccount for the funding cost inherent in the portfolio.
Where the derivative is effective as a hedging instrument
and designated as such, the timing of the recognition of any
resultant gain or loss in the income statement is dependent
on the hedging designation. These hedging designations
and associated accounting are as follows:
Fair value hedge
Where ANZ New Zealand hedges the fair value of arecognised asset or liability or firm commitment, changes in
the fair value of the derivative designated as a fair value
hedge are recognised in the income statement. Changes in
the fair value of the hedged item attributable to the hedged
risk are reflected in adjustments to the carrying value of thehedged item, which are also recognised in the income
statement.
Hedge accounting is discontinued when the hedge
instrument expires or is sold, terminated, exercised or nolonger qualifies for hedge accounting. The resulting
adjustment to the carrying amount of the hedged item
arising from the hedged risk is amortised to the income
statement over the period to maturity of the hedged item.
If the hedged item is sold or repaid, the unamortised fairvalue adjustment is recognised immediately in the income
statement.
Cash flow hedge
ANZ New Zealand designates derivatives as cash flow
hedges where the instrument hedges the variability in cash
flows of a recognised asset or liability, a foreign exchange
component of a firm commitment, or a highly probable
forecast transaction. For qualifying cash flow hedges, the fairvalue gain or loss associated with the effective portion of the
cash flow hedges is recognised initially in othercomprehensive income and then recycled to the income
statement in the periods when the hedged item will affectprofit or loss. Any ineffective portion is recognised
immediately in the income statement. When the hedging
instrument expires, is sold, terminated, exercised, or nolonger qualifies for hedge accounting, the cumulative
amount deferred in equity remains in the hedging reserve,
and is subsequently transferred to the income statement
when the hedged item is recognised in the income
statement.
When a forecast hedged transaction is no longer expected
to occur, the amount deferred in equity is recognised
immediately in the income statement.
Derivatives that do not qualify for hedge accounting
All gains and losses from changes in the fair value ofderivatives that are not designated in a hedging relationshipbut are entered into to manage the interest rate and foreignexchange risk of ANZ New Zealand are recognised in theincome statement. Under certain circumstances, thecomponent of the fair value change in the derivative which
relates to current period realised and accrued interest is
included in net interest income. The remainder of the fairvalue movement is included in other income.

(iii)

Available-for-sale assets

Purchases and sales of available-for-sale financial assets arerecognised on trade date, being the date on which ANZ New
Zealand commits to purchase or sell the asset.
Available-for-sale assets comprise non-derivative financial
assets which ANZ New Zealand designates as available-forsale but which are not deemed to be held principally fortrading purposes, and include equity investments and debt
securities.
They are initially recognised at fair value plus transaction
costs. Subsequent gains or losses arising from changes in fairvalue are included as a separate component of equity in theavailable-for-sale revaluation reserve. When the asset is sold,the cumulative gain or loss relating to the asset is transferredto the income statement.
(iv)

Net loans and advances

Net loans and advances are non-derivative financial assets
with fixed or determinable payments that are not quoted inan active market. They arise when ANZ New Zealandprovides money to a debtor with no intention of trading theloans and advances. The loans and advances are initiallyrecognised at fair value plus transaction costs that are
directly attributable to the issue of the loan or advance. They
are subsequently measured at amortised cost using theeffective interest method, unless specifically designated on
initial recognition at fair value through profit or loss.
All loans are graded according to the level of credit risk.
Net loans and advances include direct finance provided tocustomers such as bank overdrafts, credit cards, term loans
and finance lease receivables.
Impairment of loans and advances
Loans and advances are reviewed at least at each reporting
date for impairment.
Credit impairment provisions are raised for exposures thatare known to be impaired. Exposures are impaired andimpairment losses are recorded if, and only if, there is
objective evidence of impairment as a result of one or more
loss events, that occurred after the initial recognition of theloan and prior to the reporting date, and that loss event, or
events, has had an impact on the estimated future cash
flows of the individual loan or the collective portfolio of loansthat can be reliably estimated.
Impairment is assessed for assets that are individuallysignificant (or on a portfolio basis for small value loans) andthen on a collective basis for those exposures notindividually known to be impaired.
Exposures that are assessed collectively are placed in poolsof similar assets with similar risk characteristics. The required
provision is estimated on the basis of historical loss
experience for assets with credit risk characteristics similar to
those in the collective pool. The historical loss experience isadjusted based on current observable data such as changed
economic conditions. The provision also takes account of the
impact of inherent risk of large concentrated losses within
the portfolio and an assessment of the economic cycle.
The estimated impairment losses are measured as thedifference between the asset’s carrying amount and theestimated future cash flows discounted to their presentAustralia and New Zealand Banking Group Limited - ANZ New Zealand

10

NOTES TO THE FINANCIAL STATEMENTS
rewards are retained, the transferred assets are notderecognised from the balance sheet.

value. As this discount unwinds during the period between
recognition of impairment and recovery of the cash flow, it isrecognised in interest income.

In transactions where substantially all the risks and rewardsof ownership of a financial asset are neither retained nor
transferred, ANZ New Zealand derecognises the asset if
control over the asset is lost. In transfers where control over
the asset is retained, ANZ New Zealand continues torecognise the asset to the extent of its continuing
involvement, determined by the extent to which it is
exposed to changes in the value of the transferred asset. The
rights and obligations retained or created in the transfer are
recognised separately as assets and liabilities as appropriate.

Impairment of capitalised acquisition expenses is assessed
through comparing the actual behaviour of the portfolio
against initial expected life assumptions.
The provision for impairment loss (individual and collective)
is deducted from loans and advances in the balance sheet
and the movement for the reporting period is reflected in
the income statement.
When a loan is uncollectible, either partially or in full, it is
written off against the related provision for loan impairment.
Unsecured facilities are normally written-off when they
become 180 days past due or earlier in the event of thecustomer's bankruptcy or similar legal release from theobligation. However, a certain level of recoveries is expected
after the write-off, which is reflected in the amount of theprovision for credit losses. In the case of secured facilities,
remaining balances are written-off after proceeds from therealisation of collateral have been received, if there is a
shortfall.

Non-financial assets(viii) Goodwill
Goodwill represents the excess of the purchaseconsideration over the fair value of the identifiable net assets
of a controlled entity at the date of gaining control. Goodwill
is recognised as an asset and not amortised, but is assessed
for impairment at least annually or more frequently if there isan indication that the goodwill may be impaired. This
involves using the discounted cash flows methodology todetermine the expected future benefits of the cashgenerating units to which the goodwill relates. Where theassessment results in the goodwill balance exceeding thevalue of expected future benefits, the difference is charged
to the income statement. Any impairment of goodwill is not
subsequently reversed.

Where impairment losses recognised in previous periods
have subsequently decreased or no longer exist, such
impairment losses are reversed in the income statement.
A provision is also raised for off-balance sheet items such ascommitments that are considered to be onerous.
(v)

Lease receivables

Contracts to lease assets and hire purchase agreements areclassified as finance leases if they transfer substantially all therisks and rewards of ownership of the asset to the customer
or an unrelated third party. All other lease contracts areclassified as operating leases.
(vi)

Repurchase agreements

Securities sold under repurchase agreements are retained in
the financial statements where substantially all the risks andrewards of ownership remain with ANZ New Zealand, and acounterparty liability is disclosed under deposits and otherborrowings. The difference between the sale price and therepurchase price is accrued over the life of the repurchaseagreement and charged to interest expense in the income
statement.
Securities purchased under agreements to resell, where ANZ
New Zealand does not acquire the risks and rewards ofownership, are recorded as cash or net loans and advances if
original maturity is greater than 90 days. The security is notincluded in the balance sheet. Interest income is accrued on
the underlying loan amount.
Securities borrowed are not recognised in the balance sheet,
unless these are sold to third parties, at which point the
obligation to repurchase is recorded as a financial liability atfair value with fair value movements included in the income
statement.
(vii) Derecognition
ANZ New Zealand enters into transactions where it transfers
financial assets recognised on its balance sheet yet retains
either all or a portion of the risks and rewards of thetransferred assets. If all, or substantially all, the risks and(f)Liabilities
Financial liabilities(i)

Deposits and other borrowings

Deposits and other borrowings include certificates ofdeposit, interest bearing deposits, UDC secured investments,
commercial paper and other related interest and noninterest bearing financial instruments. Deposits and otherborrowings, excluding commercial paper, are initiallyrecognised at fair value plus transaction costs andsubsequently measured at amortised cost. The interest
expense is recognised using the effective interest method.
Commercial paper is designated at fair value through profit
or loss, with fair value movements recorded directly in theincome statement, which reflects the basis on which it ismanaged.
(ii)

Debt issuances and subordinated debt

Debt issuances and subordinated debt are accounted for in
the same way as deposits and other borrowings.
(iii)

Financial guarantee contracts

Financial guarantee contracts are contracts that require theissuer to make specified payments to reimburse the holder
for a loss it incurs because a specified debtor fails to makepayments when due. Financial guarantees are issued in theordinary course of business, consisting of letters of credit,
guarantees and acceptances. Financial guarantees are
initially recognised in the financial statements at fair value on
the date the guarantee was given; typically this is thepremium received. Subsequent to initial recognition, ANZ
New Zealand's liabilities under such guarantees aremeasured at the higher of their amortised amount and thebest estimate of the expenditure required to settle any
financial obligation arising at the balance sheet date. These

Australia and New Zealand Banking Group Limited - ANZ New Zealand

11

NOTES TO THE FINANCIAL STATEMENTS
estimates are determined based on experience of similartransactions and history of past losses.
(iv)

(g)

Derecognition

Accounting Standards not early adopted

The following standards were available for early adoption
but have not been applied in these financial statements.

EquityStandards and amendments effective for periods
commencing after 1 January 2018

SharesIssued shares are recognised at the amount paid per share
net of directly attributable issue costs.
(ii)

Reserves

Available-for-sale revaluation reserve
This reserve includes changes in the fair value of availablefor-sale financial assets, net of tax. These changes aretransferred to the income statement (in other operating
income) when the asset is derecognised or impaired.
Cash flow hedging reserve
This reserve includes the fair value gains and losses
associated with the effective portion of designated cash flow
hedging instruments. The cumulative deferred gain or loss
on the hedge is recognised in the income statement when
the hedged transaction impacts the income statement.
Presentation(i)

Offsetting of income and expenses

Income and expenses are not offset unless required or
permitted by an accounting standard. This generally arises ineither of the following circumstances:•where transaction costs form an integral part of theeffective interest rate of a financial instrument which ismeasured at amortised cost, these are offset against
the interest income generated by the financial
instrument•
where gains and losses arise from a group of similartransactions, such as foreign exchange gains andlosses.
(ii)

Offsetting of financial assets and liabilities

Assets and liabilities are offset and the net amount reported
in the balance sheet only where there is:•a current enforceable legal right to offset the asset andliability•
an intention to settle on a net basis, or to realise theasset and settle the liability simultaneously.
(iii)

Segment reporting

Operating segments are distinguishable components of ANZ
New Zealand that provide products or services that are
subject to risks and rewards that are different to those ofother operating segments. ANZ New Zealand operates
predominately in the banking industry within New Zealand.
ANZ New Zealand has very limited exposure to risk
associated with operating in different economic
environments or political conditions. On this basis nogeographical segment information is provided.
(i)

(ii)

Financial liabilities are derecognised when the obligation
specified in the contract is discharged, cancelled or expires.
(i)

(h)

ANZ New Zealand will be liable to settle the possible
obligation.

Other
(i)

Contingent liabilities

Contingent liabilities are not recognised in the balance sheet
but disclosed in note 23 unless it is considered remote that

NZ IFRS 9 Financial Instruments
The External Reporting Board (XRB) issued the final version of
NZ IFRS 9 Financial Instruments in September 2014. When
operative, this standard will replace NZ IAS 39 Financial
Instruments: Recognition and Measurement. NZ IFRS 9
addresses recognition and measurement requirements forfinancial assets and financial liabilities, impairment
requirements that introduce an expected credit loss
impairment model and general hedge accounting
requirements which more closely align with risk
management activities undertaken when hedging financial
and non-financial risks. NZ IFRS 9 is not mandatorily effective
for ANZ New Zealand until 1 October 2018. ANZ New
Zealand is in the process of assessing the impact ofapplication of NZ IFRS 9 and is not yet able to reasonably
estimate the impact on its financial statements.
Standards and amendments effective for periods
commencing after 1 January 2019
NZ IFRS 16 Leases
The XRB issued the final version of NZ IFRS 16 Leases in
February 2016. NZ IFRS 16 introduces a single lessee
accounting model and requires a lessee to recognise assets
and liabilities for all leases with a term of more than 12
months, unless the underlying asset is of low value. A lessee
is required to recognise a right-of-use asset representing its
right to use the underlying leased asset and a lease liability
representing its obligation to make lease payments. NZ IFRS
16 substantially carries forward the lessor accounting
requirements in NZ IAS 17 Leases. Accordingly, a lessor
continues to classify its leases as operating leases or financeleases, and to account for those two types of leases
differently. NZ IFRS 16 is not mandatorily effective for ANZ
New Zealand until 1 October 2019. ANZ New Zealand is in
the process of assessing the impact of application of NZ IFRS
16 and is not yet able to reasonably estimate the impact on
its financial statements.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

12

NOTES TO THE FINANCIAL STATEMENTS
2.

CRITICAL ESTIMATES AND JUDGEMENTS USED IN APPLYING ACCOUNTING POLICIESThere are a number of critical accounting treatments which
include complex or subjective judgements and estimates that
may affect the reported amounts of assets and liabilities in thefinancial statements. Estimates and judgements are continually
evaluated and are based on historical experience and otherfactors, including expectations of future events that are
believed to be reasonable under the circumstances.
An explanation of the judgements and estimates made by ANZ
New Zealand, in the process of applying its accounting policies,that have the most significant effect on the amounts
recognised in the financial statements is set out below.
Critical accounting estimates and assumptions
Credit provisioning
The accounting policy relating to measuring the impairment ofloans and advances requires ANZ New Zealand to assess
impairment at least at each reporting date. The credit provisions
raised (collective and individual) represent management's best
estimate of the losses incurred in the loan portfolio at balancedate based on their experienced judgement.
The collective provision is estimated on the basis of historicalloss experience for assets with credit characteristics similar to
those in the collective pool. The historical loss experience isadjusted based on current observable data and events and anassessment of the impact of model risk. The provision also takes
into account the impact of large concentrated losses within theportfolio and the economic cycle.
The use of such judgements and reasonable estimates is
considered by management to be an essential part of theprocess and does not impact on the reliability of the provision.
Individual and collective provisioning involves the use ofassumptions for estimating the amounts and timing of
expected future cash flows. The process of estimating theamount and timing of cash flows involves considerable
management judgement. These judgements are revised
regularly to reduce any differences between loss estimates andactual loss experience.
Refer to note 14 for details of credit impairment provisions.
Critical judgements in applying ANZ New Zealand’s
accounting policies
Financial instruments at fair value
ANZ New Zealand’s financial instruments measured at fair value
are stated in note 1(a)(iii). In estimating fair value ANZ New
Zealand uses, wherever possible, quoted market prices in an
active market for the financial instrument.
In the event that there is no active market for the instrument,
fair value is based on present value estimates or other market
accepted valuation techniques. The valuation models
incorporate the impact of bid/ask spread, counterparty credit
spreads and other factors that would influence the fair value
determined by a market participant. The selection of
appropriate valuation techniques, methodology and inputs
requires judgement. These are reviewed and updated as market
practice evolves.

Derivatives and hedging
ANZ New Zealand buys and sells derivatives as part of its
trading operations and to hedge its interest rate risk, currency
risk, price risk, credit risk and other exposures relating to nontrading positions.
A hedging instrument is a designated derivative whose fairvalue or cash flows are expected to offset changes in the fairvalue or cash flows of a designated hedged item. A hedged
item is an asset, liability, firm commitment or highly probable
forecast transaction that: (a) exposes ANZ New Zealand to therisk of changes in fair value or future cash flows; and (b) isdesignated as being hedged.
Judgement is required in selecting and designating hedging
relationships and assessing hedge effectiveness. NZ IAS 39
Financial Instruments: Recognition and Measurement does not
specify a single method for assessing hedge effectivenessprospectively or retrospectively. ANZ New Zealand adopts the
hypothetical derivative approach to determine hedge
effectiveness in line with current risk management strategies.
Hedge ineffectiveness can arise for a number of reasons andwhilst a hedge may pass the effectiveness tests above it may
not be perfectly effective, leaving some volatility in the income
statement.
The majority of outstanding derivative positions are transacted
over-the-counter and therefore need to be valued using
valuation techniques. Included in the determination of the fairvalue of derivatives is a credit valuation adjustment (CVA) toreflect the creditworthiness of the counterparty. This is
influenced by the mark-to-market of the derivative trades andby the movement in the market cost of credit. Further
adjustments are made to account for the funding costs inherent
in the derivative. Judgment is required to determine theappropriate cost of funding and the future expected cashflows
used in this funding valuation adjustment (FVA).
Structured entities
A structured entity is an entity in which voting or similar rights
are not the dominant factor in deciding who controls the entity,
such as when voting rights relate to administrative tasks only
and the relevant activities are directed by means of contractual
arrangements. Structured entities are generally created toachieve a narrow and well defined objective with restrictions
around their ongoing activities and are often thinly capitalisedwith a reliance on debt financing for support.
ANZ New Zealand assesses, at inception and periodically,
whether a structured entity should be consolidated based on
the accounting policy outlined in note 1. Such assessments are
predominantly securitisation activities and involvement withmanaged funds. When assessing whether ANZ New Zealandcontrols (and therefore consolidates) a structured entity,
judgement is required about whether ANZ New Zealand has
power over the relevant activities as well as exposure to variable
returns of the structured entity. All involvement, rights andexposure to returns are considered when assessing if control
exists.
ANZ New Zealand is deemed to have power over a managed
fund when it performs the function of Manager of thatmanaged fund. Whether ANZ New Zealand controls the
managed fund depends on whether it holds that power asAustralia and New Zealand Banking Group Limited - ANZ New Zealand

13

NOTES TO THE FINANCIAL STATEMENTS
principal, or as an agent for other investors. ANZ New Zealand isconsidered the principal, and thus controls the managed fund,when it cannot be easily removed from the position of Manager
by other investors and has variable returns through significant
aggregate economic interest in that managed fund. In all othercases ANZ New Zealand is considered to be acting in an agency
capacity and does not control the managed fund.
Structured entities are consolidated when control exists. In
other cases ANZ New Zealand may simply have an interest in or
may sponsor a structured entity but not consolidate it.
ANZ New Zealand considers itself the sponsor of an
unconsolidated structured entity where it is the primary party
involved in the design and establishment of that structured
entity and where any of the following apply:•
where ANZ New Zealand is the major user of thatstructured entity•
ANZ New Zealand’s name appears in the name of thatstructured entity or on its products•
ANZ New Zealand provides implicit or explicit guaranteesof that entity’s performance.
Goodwill
Refer to note 25 for details of goodwill held by ANZ New
Zealand.
The carrying value of goodwill is subject to an impairment test
to ensure that the current carrying value does not exceed its
recoverable value at the balance sheet date. Any excess ofcarrying value over recoverable amount is taken to the income
statement as an impairment write down.
Goodwill has been allocated for impairment purposes to the
cash generating units at which the goodwill is monitored forinternal reporting purposes. Impairment testing of purchased
goodwill is performed by comparing the recoverable value ofeach cash generating unit with the current carrying amount of
its net assets, including goodwill. Judgement is required in
identifying the cash-generating units to which goodwill andother assets are allocated for the purpose of impairment testing.
The recoverable amount is based on value-in-use calculations.
These calculations use cash flow projections based on anumber of financial budgets within each segment approved bymanagement covering a three year period. Cash flow
projections are based on a range of readily available economic
assumptions including GDP and CPI. Cash flows beyond thethree year period are extrapolated using a 2% growth rate.
These cash flow projections are discounted using a capital asset
pricing model. As at 30 June 2016 when the last valuation was
prepared, a discount rate of 10.9% was applied to each cash
generating unit. The main variables in the calculation of the
discount rate used are the risk free rate, the beta rate and themarket risk premium. The risk free rate is based on the 10 year
Government Bond Rate. The beta rate and the market risk
premium are consistent with observable and comparative
market rates applied in the regional banking sector. Market
observable information is not readily available at the segmentlevel therefore management performed stress tests for key
sensitivities in each segment.
Management believes any reasonable possible change in the
key assumptions on which the recoverable amount is based
would not cause ANZ New Zealand’s carrying amount toexceed its recoverable amount.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

14

NOTES TO THE FINANCIAL STATEMENTS
3.

NET INTEREST INCOME
Year toYear to30/09/2016
NZ$m

30/09/2015
NZ$m

453

488

64

102

Interest income
Financial assets at fair value through profit or loss
Trading securities
Financial assets not at fair value through profit or loss
Cash
Available-for-sale assets

64

37

Net loans and advances

6,160

6,760

Other

29

30

6,317

6,929

6,770

7,417

226

280

Deposits and other borrowings

2,646

3,248

Debt issuances

681

855

Subordinated debt

154

122

Other

34

32

3,515

4,257

Total interest expense

3,741

4,537

Net Interest Income

3,029

2,880

Total interest income
Interest expense
Financial liabilities at fair value through profit or loss
Commercial paper
Financial liabilities not at fair value through profit or loss

4.

NON INTEREST INCOME
Year toYear to30/09/2016
NZ$m

30/09/2015
NZ$m

Net gain on foreign exchange trading

203

201

Net gain on trading securities

115

384

Net loss on trading derivatives

(306)

(323)

12

262

Net funds management income

187

165

Net insurance income

227

220

Total funds management and insurance income

414

385

Net trading gains

Net trading gains
Net funds management and insurance income

Other operating income
Lending and credit facility fee income

55

54

Other fee income

656

591

Total fee income

711

645

Direct fee expense

(308)

(264)

Net fee income

403

381

Net loss on financial liabilities designated at fair value

(5)

(1)

Net ineffectiveness on qualifying fair value hedges

2

7

Net gain / (loss) on derivatives not qualifying for hedge accounting

(31)

48

Net cash flow hedge gain / (loss) transferred to income statement

(7)

16

Net loss on available for sale securities transferred to income statement(2)-

Other income

41

54

Total other operating income

401

505

Australia and New Zealand Banking Group Limited - ANZ New Zealand

15

NOTES TO THE FINANCIAL STATEMENTS
5.

OPERATING EXPENSES
Year toYear to30/09/2016
NZ$m

30/09/2015
NZ$m

Salaries and related costs

811

803

Superannuation costs

30

31

Share-based payments expense

21

22

Other

32

20

Total personnel expenses

894

876

Depreciation of premises and equipment32

31

Leasing and rental costs

79

80

Other

41

42

Total premises expenses

152

153

Depreciation and amortisation

111

49

Licenses and outsourced services

116

99

Other

58

51

Total technology expenses

285

199

Advertising and public relations

42

61

Amortisation of other intangible assets

55Freight, stationery, postage and telephone

48

51

Professional Fees

45

37

Travel and entertainment expenses

28

38

Charges from Ultimate Parent Bank

64

64

Other

37

29

Total other expenses

269

285

Total operating expenses

1,600

1,513

Personnel

Premises

Technology

Other

Software capitalisation changes
During the year ended 30 September 2016, ANZ New Zealand changed the application of its accounting policy for the capitalisation of
expenditure on internally generated software assets effective from 1 October 2015. The change aligns the accounting policy for software
assets with the rapidly changing technology landscape and ANZ New Zealand’s evolving digital strategy by increasing the threshold forcapitalisation of software development costs and directly expensing more project related costs. The change does not affect ANZ New
Zealand’s total investment in technology but does affect the timing of recognition of costs in the income statement. The impact of thechange on the results for the year ended 30 September 2016 was:•Higher amortisation of NZ$54 million relating to the accelerated amortisation of software assets where the original cost was below
the revised threshold at 1 October 2015. This brings forward amortisation which otherwise would have been recognised in future
periods.
•
Higher operating expenses of NZ$56 million relating to software development costs which otherwise would have been capitalised
and amortised in future periods.
The change in capitalised software treatment has no impact on regulatory capital ratios.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

16

NOTES TO THE FINANCIAL STATEMENTS
6.

INCOME TAX
Year toYear to30/09/2016

30/09/2015

NZ$m

NZ$m

Profit before income tax

2,114

2,448

Prima facie income tax at 28%

Reconciliation of the prima facie income tax payable on profit
591

685

Imputed and non-assessable dividends

(1)

(3)

Change in tax provisions(5)-

Non assessable income and non deductible expenditure

(11)

(5)

Income tax over provided in prior years(2)-

Total income tax expense

572

677

Effective tax rate (%)

27.1%

27.7%

582

602

Amounts recognised in the income statement
Current tax
Deferred tax

(10)

75

Total income tax expense recognised in the income statement

572

677

Imputation credits available

3,566

2,989

A number of companies within ANZ New Zealand are members of the New Zealand Resident imputation group. The imputation credit
balance for ANZ New Zealand includes the imputation credit balance in relation to both the New Zealand Resident imputation group andother companies within ANZ New Zealand that are not in the New Zealand Resident imputation group. The imputation credit balance
available includes imputation credits that will arise from the payment of the amount of provision for income tax as at the reporting date.

30/09/2016
NZ$m

30/09/2015
NZ$m

Provision for credit impairment

177

176

Premises and equipment, software and intangibles

22

(8)

Deferred tax assets / (liabilities) comprise the following temporary differences:

Provisions and accruals

75

60

Insurance policy assets

(159)

(146)

Financial instruments

(24)

4

Lease finance

(216)

(203)

(22)

(7)

(147)

(124)

Other deferred tax assets and liabilities (including tax provisions)1

Net deferred tax liabilities
1

Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same income tax authority on either the same taxable entity or different taxable
entities within the same taxable group.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

17

NOTES TO THE FINANCIAL STATEMENTS
7.

SEGMENT ANALYSISANZ New Zealand is organised into three major business segments for segment reporting purposes - Retail, Commercial and Institutional.
Centralised back office and corporate functions support these segments. These segments are consistent with internal reporting provided
to the chief operating decision maker, being the Bank’s Chief Executive Officer.
During the year ended 30 September 2016, Wealth was integrated with Retail, having been disclosed separately previously. Segment
reporting has been updated to reflect this change and other minor changes to ANZ New Zealand’s structure. Comparative data has beenadjusted to be consistent with the current year’s segment definitions.
RetailRetail provides products and services to Retail, Private Banking, and Business Banking customers via the branch network, mortgage
specialists, relationship managers, the contact centre and a variety of self service channels (internet banking, phone banking, ATMs,website and mobile phone banking). Retail and Private Banking customers have personal banking requirements and Business Banking
customers consist primarily of small enterprises with annual revenues of less than NZ$5 million. Core products and services include current
and savings accounts, unsecured lending (credit cards, personal loans and overdrafts), home loans secured by mortgages over property,
investment products, superannuation and insurance services.
Commercial
Commercial provides services to Commercial & Agri (CommAgri) and UDC customers. CommAgri customers consist of primarily privately
owned medium to large enterprises. Commercial’s relationship with these businesses ranges from simple banking requirements withrevenue from deposit and transactional facilities, and cash flow lending, to more complex funding arrangements with revenue sourced
from a wider range of products. UDC is principally involved in the financing and leasing of plant, vehicles and equipment, mainly for small
and medium sized businesses, as well as investment products.
Institutional
Institutional provides financial services through a number of specialised units to large multi-banked corporations, often global, which
require sophisticated product and risk management solutions. Those financial services include loan structuring, foreign exchange,wholesale money market services and transaction banking.
Other
Other includes treasury and back office support functions, none of which constitutes a separately reportable segment.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

18

NOTES TO THE FINANCIAL STATEMENTS
Business segment analysis1
RetailCommercial

Institutional

Other

Total

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

External interest income

3,836

2,202

718

14

6,770

External interest expense(1,598)

(333)

(407)

(1,403)(3,741)

Net intersegment interest

(509)

(981)

60

1,430

-

Net interest income

1,729

888

371

41

3,029

Other external operating income

657

16

113

41

827

5

-

-

-

5

Operating income

2,391

904

484

82

3,861

Operating expenses

1,045

258

181

116

1,600

Profit before credit impairment and income tax

1,346

646

303

(34)

2,261

Credit impairment charge

55

72

20

-

147

Profit before income tax

1,291

574

283

(34)

2,114

Income tax expense

350

161

80

(19)

572

Profit after income tax

941

413

203

(15)

1,542

30/09/2016

Share of associates' profit

Other information
Depreciation and amortisation

12

1

-

135

148

Goodwill

1,109

1,052

1,072

-

3,233

Other intangible assets

118

3

-

70

191

Investment in associates

7

-

-

-

7

Total external assets

75,244

41,63947,812

2,011

166,706

Total external liabilities

63,605

13,36240,75137,821

155,539

External interest income

3,968

2,441

989

19

7,417

External interest expense(1,905)

(388)

(498)

(1,746)(4,537)

Net intersegment interest(419)(1,149)

(184)

1,752

-

Net interest income

1,644

904

307

25

2,880

Other external operating income

634

17

360

141

1,152

3

-

-

2

5

Operating income

2,281

921

667

168

4,037

Operating expenses

1,023

257

189

44

1,513

Profit before credit impairment and income tax

1,258

664

478

124

2,524

Credit impairment charge

58

-

18

-

76

Profit before income tax

1,200

664

460

124

2,448

Income tax expense

328

186

127

36

677

Profit after income tax

872

478

333

88

1,771

30/09/2015

Share of associates' profit

Other information
Depreciation and amortisation

20

-

-

65

85

Goodwill

1,109

1,052

1,072

-

3,233

Other intangible assets

138

-

-

121

259

Investment in associates

4

-

-

-

4

Total external assets

69,68340,561

43,767

1,519

155,530

Total external liabilities

59,935

12,39038,85033,495

144,6701Intersegment transfers are accounted for and determined on an arm's length or cost recovery basis.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

19

NOTES TO THE FINANCIAL STATEMENTS
8.

NOTES TO THE CASH FLOW STATEMENT
Year toYear to30/09/2016
NZ$m

30/09/2015
NZ$m

1,542

1,771

Depreciation and amortisation

148

85

Provision for credit impairment

147

76

Reconciliation of profit after income tax to net cash flows used in operating activities
Profit after income tax
Non-cash items:

Deferred fee revenue and expenses

(7)

(3)

Amortisation of capitalised brokerage / mortgage origination fees

160

131

Amortisation of premiums and discounts

70

60

Fair value gains and losses

31

(323)

Loss on disposal and impairment of premises and equipment and intangibles

4

1(3,593)(1,876)

Deferrals or accruals of past or future operating cash receipts or payments:
Change in net operating assets less liabilities
Change in interest receivable

29

2

Change in interest payable

(63)

(20)

Change in accrued expenses

(73)

14

Change in provisions

15

(13)

Change in life insurance policy assets

(57)

(79)

Change in other receivables and payables

8

(20)

Change in net income tax assets / liabilities

(69)

88

Dividends from associates in excess of share of profits

(3)

84

Items classified as investing activities:
Proceeds from sale of insurance policies

(23)

-

Net cash flows used in operating activities(1,734)(22)

30/09/2016
NZ$m

30/09/2015
NZ$m

2,274

2,435

Nostro accounts

45

108

Overdrawn nostro accounts

(4)

(17)

Total cash and cash equivalents

2,315

2,526

Reconciliation of cash and cash equivalents to the balance sheet
CashAmounts included in settlement balances receivable / (payable):Australia and New Zealand Banking Group Limited - ANZ New Zealand

20

NOTES TO THE FINANCIAL STATEMENTS
9.

CASH
30/09/2016
NZ$m

30/09/2015
NZ$m

Coins, notes and cash at bank

193

250

Securities purchased under agreements to resell

229

338

Balances with central banks

1,852

1,847

Total cash

2,274

2,435

30/09/2016

30/09/2015

10. TRADING SECURITIES

Government securities

NZ$m

NZ$m

5,953

6,555

Corporate and financial institution securities

6,026

5,584

Total trading securities

11,97912,13911.

DERIVATIVE FINANCIAL INSTRUMENTS

The use of derivatives and their sale to customers as risk management products is an integral part of ANZ New Zealand’s trading activities.
Derivatives are also used to manage ANZ New Zealand’s own exposure to fluctuations in exchange and interest rates as part of its own
asset and liability management activities.
Derivatives are subject to the same types of credit and market risk as other financial instruments and ANZ New Zealand manages theserisks in a consistent manner.
Derivatives, except for those that are specifically designated as effective hedging instruments, are classified as held for trading.
Derivatives held for trading
The held for trading classification includes two categories of derivative instruments: those held as trading positions and those used for
ANZ New Zealand’s balance sheet risk management.
Trading positions
Trading positions consist of both sales to customers and market making activities. Sales to customers include the structuring andmarketing of derivative products to customers which enable them to take or mitigate risks. Market making activities consist of derivatives
entered into principally for the purpose of generating profits from short-term fluctuations in price or margins. Positions may be traded
actively or held over a period of time to benefit from expected changes in market rates.
Balance sheet risk management
ANZ New Zealand designates certain balance sheet risk management derivatives into hedging relationships in order to minimise income
statement volatility. This volatility is created by differences in the timing of recognition of gains and losses between the derivative and thehedged item. Hedge accounting is not applied to all balance sheet risk management positions as some balance sheet risk management
derivatives are classified as held for trading.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

21

NOTES TO THE FINANCIAL STATEMENTS
30/09/2016
Notional
principal
amountNZ$m30/09/2015

Fair values
AssetsLiabilities
NZ$m
NZ$m

Notional
principal
amountNZ$mFair values
AssetsLiabilities
NZ$m
NZ$m

Derivatives held for trading
Foreign exchange derivatives
Spot and forward contracts

63,473635

783

75,930

1,625

1,333

Swap agreements

144,501

1,616

3,639

130,093

2,898

4,118

Options purchased

2,379

50

2

1,870

79

3

Options sold

2,248

7

77

1,820

2

46

212,601

2,308

4,501

209,713

4,604

5,500

Interest rate derivatives
Forward rate agreements

41,5071

5

24,633

2

12

Swap agreements

1,170,478

17,853

16,992

1,130,414

12,338

11,395

Futures contracts

78,9883

46

45,40712

18

Options purchased

2,366

6

-

1,218

5

-

Options soldCommodity derivatives
Total derivatives held for trading

1,603

1

2

827

1

2

1,294,942

17,864

17,045

1,202,499

12,358

11,427

460

33

32

235

29

29

1,508,003

20,205

21,5781,412,447

16,991

16,95637,012271

440

33,136230

446

37,012271

440

33,136230

446

18,985493

380

21,715366

367

Derivatives in hedging relationships
Fair value hedges
Interest rate swap agreements
Cash flow hedges
Interest rate swap agreements
Total derivatives in hedging relationships
Total derivative financial instruments

55,997764

820

54,851596

813

1,564,000

20,96922,3981,467,298

17,587

17,769Derivatives in hedging relationships
Fair value hedges
ANZ New Zealand’s fair value hedges principally consist of interest rate swaps that are used to protect against changes in the fair value of
fixed-rate long-term financial instruments due to movements in market interest rates.
Gain / (loss) on fair value hedges attributable to the hedged risk

30/09/2016

30/09/2015

NZ$m

NZ$m

Gain / (loss) arising from fair value hedges:- hedged item

(84)

189

- hedging instrument

86

(182)

Net ineffectiveness on qualifying fair value hedges

2

7Cash flow hedges
ANZ New Zealand’s cash flow hedges comprise interest rate swaps that are used to protect against exposures to variability in futureinterest cash flows on non-trading assets and liabilities which bear interest at variable rates or which are expected to be refunded or
reinvested in the future. The amounts and timing of future cash flows, representing both principal and interest flows, are projected foreach portfolio of financial assets and liabilities on the basis of their forecast repricing profile. This forms the basis for identifying gains andlosses on the effective portions of derivatives designated as cash flow hedges.
Analysis of the cash flow hedging reserve30/09/2016

30/09/2015

NZ$m

NZ$m

Deferred gain / (loss) attributable to hedges of:
Variable rate loan assets

296

187

Short term re-issuances of fixed rate customer and wholesale deposit liabilities

(234)

(197)

62

(10)

Total cash flow hedging reserve

All underlying hedged cash flows are expected to be recognised in the income statement in the period in which they occur, which isanticipated to take place over the next ten years (2015: ten years).

Australia and New Zealand Banking Group Limited - ANZ New Zealand

22

NOTES TO THE FINANCIAL STATEMENTS
12. AVAILABLE-FOR-SALE ASSETS
30/09/2016
NZ$m

30/09/2015
NZ$m

Government securities

1,195

869

Corporate and financial institution securities

1,663

557

Equity and other securities
Total available-for-sale assets

1

2

2,859

1,428

30/09/2016

30/09/2015

13. NET LOANS AND ADVANCES

Note

NZ$m

NZ$m

1,133

1,162

1,663

1,688

73,33067,93243,65142,880

Lease receivables

226

236

Hire purchase

1,098

946

121,101

114,844

Overdrafts1
Credit card outstandings
Term loans - housing

1

Term loans - non-housing

Total gross loans and advances
Less: Provision for credit impairment

(632)

(629)

Less: Unearned income

(211)

(214)

Add: Capitalised brokerage/mortgage origination fees

366

323

Add: Customer liability for acceptances27

52

120,651

114,376

Total net loans and advances
1

14

Comparative amounts have been changed to reclassify revolving credit facilities secured by residential property provided to corporate customers from Overdrafts to Termloans – housing (2015: NZ$476 million).

Australia and New Zealand Banking Group Limited - ANZ New Zealand

23

NOTES TO THE FINANCIAL STATEMENTS
14. PROVISION FOR CREDIT IMPAIRMENT
Credit impairment charge / (release)
30/09/2016
Retail Other retailmortgages exposures

30/09/2015

Non-retail
exposures

Total

NZ$m

NZ$m

NZ$m

NZ$m

New and increased provisions

23

110

111

Write-backs

(35)

(18)

(30)

Recoveries of amounts written off previously

-

(22)

Individual credit impairment charge / (release)

(12)

70

Retail Other retailmortgages exposures

Non-retail
exposures

Total

NZ$m

NZ$m

NZ$m

NZ$m

244

45

107

76

228

(83)

(48)

(19)

(59)

(126)

(3)

(25)

(1)

(20)

(8)

(29)

78

136

(4)

68

9

73

Collective credit impairment charge / (release)

(2)

3

10

11

(4)

9

(2)

3

Credit impairment charge / (release)

(14)

73

88

147

(8)

77

7

76

Movement in provision for credit impairment
30/09/2016
Retail Other retailmortgages exposures

30/09/2015

Non-retail
exposures

Total

Retail Other retailmortgages exposures

Non-retail
exposures

Total

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

87

127

253

467

91

118

255

464

Collective provision
Balance at beginning of the year
Charge / (release) to income statement

(2)

3

10

11

(4)

9

(2)

3

Balance at end of the year

85

130

263

478

87

127

253

467
224

Individual provision
Balance at beginning of the year

62

9

91

162

81

15

128

New and increased provisions net of write-backs

(12)

92

81

161

(3)

88

17

102

Bad debts written off

(6)

(95)

(55)

(156)

(10)

(94)

(54)

(158)

Discount unwind reversal / (discount unwind)1

(4)

-

(9)

(13)

(6)

-

-

(6)

Balance at end of the year

40

6

108

154

62

9

91

162

Total provision for credit impairment

125

136

371

632

149

136

344

629

1

The impairment loss on an impaired asset is calculated as the difference between the asset’s carrying amount and the estimated future cash flows discounted to its present
value using the original effective interest rate for the asset. This discount unwinds as interest income over the period the asset is held.

Impaired assets
30/09/2016
Retail Other retailmortgages exposures
NZ$m
NZ$m

30/09/2015

Non-retail
exposures
NZ$m

Total
NZ$m

Retail Other retailmortgages exposures
NZ$m
NZ$m

Non-retail
exposures
NZ$m

Total
NZ$m

668

Balance at beginning of the year

119

32

253

404

223

35

410

Transfers from productive

76

129

395

600

121

126

155

402

Transfers to productive

(40)

(8)

(7)

(55)

(80)

(7)

(46)

(133)

Assets realised or loans repaid

(85)

(31)

(244)

(360)

(135)

(28)

(212)

(375)

Write offs

(6)

(95)

(55)

(156)

(10)

(94)

(54)

(158)

Total impaired assets

64

27

342

433

119

32

253

404

Other assets under administration

11

2

-

13

7

1

-

8

Undrawn facilities with impaired customers

-

1

57

58

1

-

14

15

Australia and New Zealand Banking Group Limited - ANZ New Zealand

24

NOTES TO THE FINANCIAL STATEMENTS
15. DEPOSITS AND OTHER BORROWINGS
30/09/2016
Note

30/09/2015

NZ$m

NZ$m

Term deposits

39,66534,982On demand and short term deposits

42,32341,436

7,780

6,716

Deposits not bearing interest
UDC secured investments

21

1,592

1,736

Total customer deposits

91,36084,870

Certificates of deposit

2,237

745

Commercial paper

5,364

4,964

76

47

Securities sold under repurchase agreements
Borrowings from Ultimate Parent Bank and Immediate Parent Company

32

Total deposits and other borrowings

7,871

9,110

106,908

99,736

Deposits from customers, except UDC secured investments, are unsecured and rank equally with other unsecured liabilities of ANZ New
Zealand. In the unlikely event that the Bank was put into liquidation or ceased to trade, secured creditors and those creditors set out in
Schedule 7 of the Companies Act 1993 would rank ahead of the claims of unsecured creditors.

16. DEBT ISSUANCES
30/09/2016

30/09/2015

NZ$m

NZ$m

Domestic bonds

3,975

3,525

U.S. medium term notes1

6,883

6,831

Euro medium term notes1

2,792

3,598

6,218

5,335

-

35

Note

Covered bonds1
Index linked notes
Total debt issuances

21, 31

19,86819,324

Fair value hedge adjustment

192

175

Less debt issuances held by the Bank

(46)

(96)

20,014

19,403

Total debt issuances
1

These debt issuances are issued by ANZ New Zealand (Int’l) Limited and are guaranteed by the Bank.

Debt issuances, other than covered bonds, are unsecured and rank equally with other unsecured liabilities of ANZ New Zealand.
Domestic bonds includes two series of bonds quoted on the NZX Debt Market which mature on 2 September 2021 and 1 September
2023 respectively (the Bonds). NZX Regulation has granted the Bank a waiver in respect of the Bonds from the requirement in Main
Board/Debt Market Listing Rule 5.2.3 (as modified by NZX’s ruling on Rule 5.2.3 issued on 29 September 2015) to enable the Bank to apply
for quotation of the Bonds on the NZX Debt Market even though the Bonds may not initially be held by at least 100 members of the
public holding at least 25% of the Bonds issued. The waiver has been granted for a period of 6 months from the relevant dates of
quotation of the Bonds on the NZX Debt Market. The effect of the waiver from NZX Listing Rule 5.2.3 is that initially the Bonds may not be
widely held and there may be reduced liquidity in the Bonds. To the extent that there is a material reduction in the spread of the Bonds,
the Bank will notify NZX accordingly.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

25

NOTES TO THE FINANCIAL STATEMENTS
17. SUBORDINATED DEBT
30/09/2016

30/09/2015

NZ$m

NZ$m

AUD 970m ANZ Capital Notes 3 (ANZ CN3)2

1,005

1,052

NZD 500m ANZ New Zealand Capital Notes (ANZ NZ CN)3

496

494

NZD 835m perpetual subordinated bond3

835

835

AUD 10m perpetual subordinated floating rate loan

1011

ANZ Capital Notes

1

Perpetual subordinated debt

Dated subordinated debt
AUD 265m subordinated floating rate loan

278

291

Total subordinated debt

2,624

2,683

1
2
3

These instruments qualify as additional tier 1 capital of the Overseas Banking Group.
These instruments are quoted on the Australian Stock Exchange.
These instruments are quoted on the NZX Debt Market.

Subordinated debt is subordinated in right of payment in theevent of liquidation or wind up to the claims of depositors andall creditors of the relevant issuer or drawer of the debt.
ANZ Capital Notes••

On 5 March 2015, the NZ Branch issued 9.7 million
convertible notes (ANZ CN3) at A$100 each, raising A$970
million before issue costs.
On 31 March 2015, the Bank issued 500 million convertible
notes (ANZ NZ CN) at NZ$1 each, raising NZ$500 million
before issue costs.

ANZ Capital Notes (the notes) are fully paid mandatorily
convertible non-cumulative perpetual subordinated notes.
As at 30 September 2016 ANZ NZ CN carried a BBB- credit ratingfrom Standard and Poor’s.
The notes are classified as debt given there are circumstances
beyond ANZ New Zealand’s control where the principal isconverted into a variable number of shares of the Ultimate
Parent Bank.
Distributions and interest
Distributions on ANZ CN3 and interest on ANZ NZ CN arerecorded as interest expense in the statement ofcomprehensive income. Distributions and interest on the notes
are non-cumulative and payable as follows:••

ANZ CN3: payable semi-annually in arrears in March and
September in each year and will be franked in line with thefranking applied to ordinary shares of the Ultimate Parent
Bank. The distributions are based on a floating rate equal
to the aggregate of the Australian 6 month bank bill rateplus a 360 basis point margin, multiplied by one minus theAustralian company tax rate. Should the distribution not
be fully-franked, the terms of the notes provide for a cash
gross-up for the amount of the franking benefit notprovided.
ANZ NZ CN: payable quarterly in arrears in February, May,
August and November in each year. The interest rate is
fixed at 7.2% per annum until 25 May 2020, and thereafter
will be based on a floating rate equal to the aggregate of
the New Zealand 3 month bank bill rate plus a 350 basis
point margin.

Distributions and interest payments are subject to the Ultimate
Parent Bank’s (ANZ CN3) and the Bank’s (ANZ NZ CN) absolute
discretion and certain payment conditions being satisfied(including APRA and RBNZ (ANZ NZ CN only) requirements). If
distributions or interest are not paid on the notes, the Ultimate
Parent Bank (ANZ CN3) or the Bank (ANZ NZ CN) may not,except in limited circumstances, pay dividends or undertake ashare buy-back or other capital reduction on its ordinary shares
until the distributions or interest are next paid.
Conversion features
On 24 March 2025 (ANZ CN3) or 25 May 2022 (ANZ NZ CN) or
an earlier date under certain circumstances, the relevant notes
will mandatorily convert into a variable number of ordinary
shares of the Ultimate Parent Bank based on the average market
price of the Ultimate Parent Bank’s ordinary shares over a
specified period prior to conversion less a 1% discount.
The mandatory conversion will be deferred for a specified
period if the conversion tests are not met.
If a common equity capital trigger event, an APRA non-viability
trigger event or an RBNZ non-viability trigger event (ANZ NZ CN
only) occurs, some or all of the notes will be required to be
immediately converted into ordinary shares of the Ultimate
Parent Bank, subject to a maximum conversion number.
A common equity capital trigger event occurs if the:••Overseas Banking Group’s Level 1 (ANZ CN3 only) or Level
2 common equity tier 1 capital ratio is equal to or less than
5.125% orBanking Group’s common equity tier 1 capital ratio is equal
to or less than 5.125% (ANZ NZ CN only).

An APRA non-viability trigger event occurs if APRA notifies the
Ultimate Parent Bank that, without the conversion or write-off ofcertain securities or a public sector injection of capital (orequivalent support), it considers that the Ultimate Parent Bank
would become non-viable. An RBNZ non-viability trigger event
occurs if the RBNZ directs the Bank to convert or write off thenotes or a statutory manager is appointed to the Bank anddecides the Bank must convert or write off the notes.
On 25 May 2020 the Bank has the right, subject to satisfying
certain conditions, to redeem (subject to receiving RBNZ’s and
APRA’s prior approval), or to convert into ordinary shares of theAustralia and New Zealand Banking Group Limited - ANZ New Zealand

26

NOTES TO THE FINANCIAL STATEMENTS
Ultimate Parent Bank, all or some of the ANZ NZ CN at its
discretion on similar terms as mandatory conversion.

NZD 835,000,000 bondOn 24 March 2023 the Ultimate Parent Bank has the right,
subject to receiving APRA’s prior approval and satisfying certain
conditions, to redeem, or to convert into ordinary shares of the
Ultimate Parent Bank, all or some of the ANZ CN3 at its
discretion on similar terms as mandatory conversion.

The Bank may elect to redeem the bond on 18 April 2018 (theCall Date) or any interest payment date subsequent to 18 April
2018. Interest is payable semi-annually in arrears on 18 April and18 October each year, up to and including the Call Date andthen quarterly thereafter. Should the bond not be called at theCall Date, the Coupon Rate from the Call Date onwards will bebased on a floating rate equal to the aggregate of the 3 monthbank bill rate plus a 300 basis point margin.

Rights of holders in event of liquidation
In a liquidation of the Ultimate Parent Bank, ANZ CN3 rank
equally with other additional tier 1 capital instruments issued by
the Ultimate Parent Bank. In a liquidation of the Bank, ANZ NZ
CN rank equally with the Bank’s other additional tier 1 capital
instruments, including preference shares, and lower than the
Bank’s perpetual subordinated debt. Holders of the notes do
not have any right to vote in general meetings of the Ultimate
Parent Bank or the Bank.
Perpetual subordinated debt
Perpetual subordinated debt instruments are classified as debt
reflecting an assessment of the key terms and conditions of the
instruments, and an assessment of the ability, and likelihood ofinterest payments being deferred. Certain of these instruments
have interrelationships that have been considered in thisassessment.

This bond was issued by the Bank on 18 April 2008.

As at 30 September 2016, this bond carried a BBB+ rating byStandard and Poor's and an A3 rating by Moody’s.
The coupon interest on the bond is 5.28% per annum until 18
April 2018.
AUD 10,000,000 loan
This loan was drawn down by the Bank on 27 March 2013 andhas no fixed maturity. Interest is payable semi-annually in arrears
on 15 March and 15 September each year. The Bank may repay
the loan on any interest payment date after the NZD
835,000,000 bond has been repaid in full.
Coupon interest is based on a floating rate equal to theaggregate of the Australian 6 month bank bill rate plus a 240
basis point margin, increasing to the Australian 6 month bankbill rate plus a 440 basis point margin from 15 September 2018.
Dated subordinated debt
AUD 265,017,668 loan
This loan was drawn down by ANZ Holdings (New Zealand)
Limited on 25 September 2013. The loan matures on 1
September 2023, but ANZ Holdings (New Zealand) Limited mayelect to repay the loan on any interest payment date from 1
September 2018. Interest is payable semi-annually in arrears on
1 March and 1 September in each year and is based on a
floating rate equal to the aggregate of the Australian 6 monthbank bill rate plus a 260 basis point margin.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

27

NOTES TO THE FINANCIAL STATEMENTS
18. FINANCIAL RISK MANAGEMENT
Strategy in using financial instruments
Financial instruments are fundamental to ANZ New Zealand’s
business, constituting the core element of its operations.
Accordingly, the risks associated with financial instruments are asignificant component of the risks faced by ANZ New Zealand.
Financial instruments create, modify or reduce the credit,
market and liquidity risks of ANZ New Zealand’s balance sheet.
ANZ New Zealand’s overall risk management programme
focuses on the unpredictability of financial markets and seeks tominimise potential adverse effects on the financial performanceof ANZ New Zealand.
The risk management and policy control framework applicableto the entities comprising ANZ New Zealand has been set by
the Board and Risk Committee of the Bank or the Ultimate
Parent Bank, as appropriate. Likewise oversight and monitoringof material risk exposures of ANZ New Zealand is undertaken by
the Risk Management functions of the Bank and also the
Ultimate Parent Bank. Throughout this document, references to
the Risk Management of the operations within the entities
comprising ANZ New Zealand, implicitly involves oversight byboth related entities.

Credit risk
Credit risk is the risk of financial loss from counterparties being
unable to fulfil their contractual obligations. ANZ New Zealandassumes credit risk in a wide range of lending and otheractivities in diverse markets and many jurisdictions. Credit risksarise not only from traditional lending to customers, but also
from inter-bank, treasury, international trade and capital market
activities around the world.
ANZ New Zealand has an overall lending objective of soundgrowth for appropriate returns. The credit risk objectives of ANZ
New Zealand are set by each Board and are implemented andmonitored within a tiered structure of delegated authority,
designed to oversee multiple facets of credit risk, including
business writing strategies, credit policies/controls, single
exposures, portfolio monitoring and risk concentrations.
Credit risk management
A credit risk management framework is in place across ANZ
New Zealand with the aim of ensuring a structured anddisciplined approach is maintained in achieving the objectives
set by each Board. The framework focuses on policies, people,
skills, controls, risk concentrations and portfolio balance. It is
supported by portfolio analysis and business-writing strategies,
which guide lending decisions and identify segments of theportfolio requiring attention. The effectiveness of the framework
is monitored through a series of compliance and reporting
processes.
An independent Risk Management function is staffed by risk
specialists. In regard to credit risk management, the objective isfor Risk Management to provide robust credit policies, to makeindependent credit decisions, and to provide strong support tofront line staff in the application of sound credit practices. In
addition to providing independent credit assessment on
lending decisions, Risk Management also performs key roles in
portfolio management by development and validation of credit
risk measurement systems, loan asset quality reporting, anddevelopment of credit standards and policies.

The credit risk management framework is top down. The
framework is defined by ANZ New Zealand's credit principles
and policies. The effectiveness of the credit risk management
framework is validated through the compliance and monitoringprocesses.
Risk Management's responsibilities for credit risk policy andmanagement are executed through dedicated departments,
which support the business units. All major business unit credit
decisions require approval from both business writers andindependent risk personnel.
Credit risk is controlled through a combination of approvals,
limits, reviews and monitoring procedures that are carried out
on a regular basis, the frequency of which is dependent upon
the level of risk. For the key operating entities within ANZ New
Zealand, credit risk policy and management is executed
through the Chief Risk Officer, who is responsible for various
dedicated areas within the Risk Management division. A formal
outsourcing agreement provides for credit risk functions to beprovided to a number of ANZ New Zealand entities by staff ofthe Bank.
Credit risk review function Group Credit Assurance also provides
a further independent check mechanism to ensure the qualityof credit decisions. This includes providing independent
periodic checks on asset quality and compliance with theagreed standards and policies across ANZ New Zealand.
Country risk management
Some customer credit risks involve country risk, whereby
actions or events at a national or international level could
disrupt servicing of commitments. Country risk arises when
payment or discharge of an obligation will, or could, involve theflow of funds from one country to another or involve
transactions in a currency other than the domestic currency of
the relevant country.
Country ratings are assigned to each country where ANZ New
Zealand incurs country risk and have a direct bearing on ANZ
New Zealand's risk appetite for each country. The country rating
is determined through a defined methodology based aroundexternal ratings agencies’ ratings and internal specialist opinion.
It is also a key risk consideration in ANZ New Zealand's capitalpricing model for cross border flows.
The recording of country limits provides ANZ New Zealand witha means to identify and control country risk. Country limits
ensure that there is a country-by-country ceiling on exposuresthat involve country risk. They are recorded by time to maturity
and purpose of exposure, e.g., trade, markets and project
finance. Country limits are managed centrally by the Ultimate
Parent Bank, through a global country risk exposure
management system managed by a specialist unit within
Institutional Risk.
Portfolio stress testing
Stress testing is integral to strengthening the predictive
approach to Risk Management and is a key component tomanaging risk appetite and business writing strategies. It
creates greater understanding of impacts on financial
performance through modelling relationships and sensitivities
between geographic, industry and business unit exposures
under a range of macro economic scenarios.
The Ultimate Parent Bank has a dedicated stress testing teamthat assists business and risk executives in ANZ New Zealand toAustralia and New Zealand Banking Group Limited - ANZ New Zealand

28

NOTES TO THE FINANCIAL STATEMENTS
model and report periodically to management and the Board
Risk Committee on a range of scenarios and stress tests.
Portfolio analysis and reporting
Credit portfolios are actively monitored at each layer of the risk
structure to ensure credit deterioration is quickly detected andmitigated through the implementation of remediation
strategies.
Businesses incurring credit risk undertake regular andcomprehensive analysis of their credit portfolios. Issue
identification and adherence to performance benchmarks arereported to Risk Management and business executives througha series of reports including monthly ‘asset quality’ reporting.
This process is undertaken by or overseen by Risk Management
ensuring an efficient and independent conduit exists to identify
and communicate emerging credit issues to ANZ New Zealandexecutives and each Board.
Collateral management
ANZ New Zealand credit principles specify lending only what
the counterparty has the capacity and ability to repay and ANZ
New Zealand sets limits on the acceptable level of credit risk.
Acceptance of credit risk is firstly based on the counterparty’s
assessed capacity to meet contractual obligations (ie interest
and capital repayments). Obtaining collateral is only used tomitigate credit risk. Procedures are designed to ensure collateralis managed, legally enforceable, conservatively valued andadequately insured where appropriate. ANZ New Zealandpolicy sets out the types of acceptable collateral, including:•Cash•
Mortgages over property•
Charges over business assets, eg premises, stock anddebtors•
Charges over financial instruments, eg debt securities
and equities in support of trading facilities•
Financial guarantees.
In the event of customer default, any loan security is usually
held as mortgagee in possession while action is taken to realise
it. Therefore ANZ New Zealand does not usually hold any realestate or other assets acquired through the enforcement of
security.
ANZ New Zealand uses International Swaps and Derivatives
Association Master Agreements (ISDA) to document derivatives'

activities to limit exposure to credit losses. The credit risk is
reduced by a master agreement to the extent that, if an eventof default occurs, all contracts with the counterparty are
terminated and settled on a net basis. Further, it is ANZ New
Zealand's preferred practice to include all products covered by
the ISDA in the Credit Support Annex (CSA) in order to achieve
further credit exposure reduction. Under a CSA, collateral ispassed between the parties, depending on the aggregate markto-market (positive or negative) of derivative trades between
the two entities, to mitigate the market contingent
counterparty risk inherent in the outstanding positions.
Concentrations of credit risk
Concentrations of credit risk arise when a number of customers
are engaged in similar business activities or activities within thesame geographic region, or when they have similar risk
characteristics that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic orother conditions.
ANZ New Zealand monitors its portfolios to identify and assess
risk concentrations. Concentration limits are used to guard
against large single customer or correlated credit risks. Risk
Management, Business Unit executives and senior
management monitor large exposure concentrations through amonthly list of ANZ New Zealand's top corporate exposures.
The ANZ Credit and Market Risk Committee and Board Risk
Committee regularly review a comprehensive list of single
customer concentration limits and customers’ adherence tothese limits.
Analyses of financial assets by industry sector are based on
Australian and New Zealand Standard Industrial Classification(ANZSIC) codes. Notes on the following tables:
1 Government and local authority includes exposures togovernment administration and defence, education andhealth and community services.
2 Other includes exposures to electricity, gas and water,
communications and personal services.
3 Net loans and advances exclude individual and collective
provisions for credit impairment held in respect of credit
related commitments.
4 Credit related commitments comprise undrawn facilities,
customer contingent liabilities and letters of offer.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

29

NOTES TO THE FINANCIAL STATEMENTS
Cash,
Tradingsettlements securities andreceivable and available-forcollateral paid
sale assets

Derivative
Net loans andfinancialadvances 3
instruments

Other
Credit related
financialcommitments 4
assetsTotal

30/09/2016

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Industry
Agriculture

-

-

24

18,51064

1,189

19,787

Forestry, fishing and mining

-

-

45

776

3

809

1,633

Business and property services

-

-

79

11,29339

2,865

14,276

Construction

-

-

17

1,492

5

853

2,367

Entertainment, leisure and tourism

-

-

31

1,349

5

361

1,746

Finance and insurance

2,935

7,728

18,551

949

282

1,128

31,573Government and local authority1

12,374

1,852

7,030

1,075

1,246

4

1,167

Manufacturing

-

12

185

3,465

12

1,977

5,651

Personal lending

-

-

-

74,911

238

14,12589,274Retail trade

-

-

64

1,967

7

933

2,971

Transport and storage

-

5

91

1,611

6

871

2,584

Wholesale trade

-

-

23

1,617

6

1,561

3,207

Other2

-

63

784

1,942

7

1,668

4,464

4,787
-

14,838-20,969-121,128
(528)

678
-

29,507(104)

191,907(632)

Less: Unearned income

-

-

-

(211)

-

-

(211)

Add: Capitalised brokerage/mortgage
origination fees

-

-

-

366

-

-

366

Total financial assets

4,787

14,83820,969120,755678

29,403

191,430

Geography
New Zealand

2,931

9,681

3,453

118,011669

29,220163,965

Overseas

1,856

5,157

17,516

2,744

9

183

27,465

Total financial assets

4,787

14,83820,969120,755678

29,403

191,430

Agriculture

-

-

23

18,38373

1,238

19,717

Forestry, fishing and mining

-

-

44

931

4

1,035

2,014

Business and property services

-

1

23

10,81843

2,798

13,683

Construction

-

-

12

1,344

5

811

2,172

Entertainment, leisure and tourism

-

-

47

1,069

4

268

1,388

Finance and insurance

2,631

6,956

15,069

1,246

335

1,067

27,304Government and local authority1
Manufacturing

1,847

6,475

1,338

1,157

5

1,408

12,230

-

31

417

3,471

14

1,993

5,926

Personal lending

-

-

-

69,390245

13,82083,455Retail trade

-

-

18

2,010

8

1,012

3,048

Transport and storage

-

6

60

1,638

7

759

2,470

Wholesale trade

-

-

17

1,468

6

1,248

2,739

Other2

-

98

519

1,971

8

1,672

4,268

4,478
-

13,567-

17,587-

114,896
(531)

757
-

29,129(98)

180,414(629)

Less: Unearned income

-

-

-

(214)

-

-

(214)

Add: Capitalised brokerage / mortgage
origination fees

-

-

-

323

-

-

323

Total financial assets

4,478

13,567

17,587

114,474757

29,031

179,894

Geography
New Zealand

2,582

8,673

3,585

111,991748

28,851

156,430

Overseas

1,896

4,894

14,002

2,483

9

180

23,464

Total financial assets

4,478

13,567

17,587

114,474757

29,031

179,894

Less: Provision for credit impairment

30/09/2015

Industry

Less: Provision for credit impairment

1
2
3
4

Government and local authority includes exposures to government administration and defence, education and health and community services.
Other includes exposures to electricity, gas and water, communications and personal services.
Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.
Credit related commitments comprise undrawn facilities, customer contingent liabilities and letters of offer. The comparative amount for undrawn facilities has been reduced
by $5,518 million following a review of the composition of commitments.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

30

NOTES TO THE FINANCIAL STATEMENTS
Maximum exposure to credit risk
The following table presents the maximum exposure to credit risk for on and off balance sheet financial instruments before taking accountof the financial effect of any collateral held or other credit enhancements, unless such collateral meets the offsetting criteria in NZ IAS 32
Financial Instruments: Presentation.
The table also provides a quantification of the value of the financial charges ANZ New Zealand holds over a borrower’s specific asset (orassets) where ANZ New Zealand is able to enforce the collateral in satisfying a debt in the event of the borrower failing to meet its
contractual obligations. For the purposes of this disclosure, where the collateral held is valued at more than the corresponding credit
exposure, the financial effect is capped at the value of the credit exposure. In respect of derivative financial instruments, the assessedcollateral is the amount of cash collateral received and does not include the effect of any netting arrangements under ISDAs.
The most common types of collateral include:•
Security over real estate including residential, commercial, industrial and rural property•
Cash deposits•
Other security over business assets including specific plant and equipment, inventory and accounts receivables.
ANZ New Zealand also manages its credit risk by accepting other types of collateral such as guarantees and security interests over theassets of a customer’s business. The assignable value of such credit mitigants is less certain and their financial effect has not been
quantified for disclosure purposes. Credit exposures shown as not fully secured may benefit from such credit mitigants.
30/09/2016
Maximum
exposure tocredit risk

30/09/2015

Financial
Unsecuredeffect of portion of credit
collateralexposure

Maximum
exposure tocredit risk

Financial
Unsecuredeffect of portion of credit
collateralexposure

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Cash

2,081

229

1,852

2,240

338

1,902

Settlement balances receivable

396

265

131

309

134

175

Collateral paid

2,310

-

2,310

1,929

-

1,929

Trading securities

11,979-11,97912,139-12,139Derivative financial instruments

20,969529

20,44017,587

1,687

15,900Available-for-sale assets

2,859

-

2,859

1,428

-

1,428

Net loans and advances

120,755

110,370

10,385

114,474

103,482

10,992

678

361

317

757

382

375

Credit related commitments

29,403

15,193

14,21029,031

14,59014,441

Total exposure to credit risk

191,430

126,947

64,483

179,894

120,61359,281On and off-balance sheet positions

Other financial assets

Credit quality
A core component of ANZ New Zealand’s credit risk
management capability is the risk grading framework used
across all major business units. A set of risk grading principles
and policies is supported by a complementary risk grading
methodology. Pronouncements by the International BaselCommittee on Banking Supervision have been encapsulated inthese principles and policies, including governance, validationand modelling requirements.
ANZ New Zealand’s risk grade profile changes dynamicallythrough new counterparty lending and existing counterparty
movements in either risk or volume. All counterparty risk grades
are subject to frequent review, including statistical andbehavioural reviews in consumer and small business segments,
and individual counterparty reviews in segments with larger
single name borrowers.
Impairment and provisioning of financial assets
ANZ New Zealand's policy relating to the recognition andmeasurement of impaired assets conforms to the RBNZ'sguidelines.

Loans are classified as either performing or impaired. Impaired
assets are credit exposures where: there is doubt as to whether
the full contractual amount (including interest) will be received;a material credit obligation is 90 days past due but not wellsecured; they are portfolio managed and can be held for up to
180 days past due; or concessional terms have been provided
due to the financial difficulties of the customer.
An exposure is classified as past due but not impaired (less than
90 days) where the value of collateral is sufficient to repay boththe principal debt and all other potential interest or there is noconcern as to the creditworthiness of the counterparty inquestion.
The past due but not impaired (over 90 days) classification
applies where contractual payments are past due by 90 days or
more, or where the facility remains outside of contractual
arrangements for 90 or more consecutive days, but ANZ New
Zealand believes that impairment is not appropriate on thebasis of the level of security/collateral available, or the facility is
portfolio managed.
The provision for credit impairment represents management’s
best estimate of the losses incurred in the loan portfolio atbalance date based on its experienced judgement.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

31

NOTES TO THE FINANCIAL STATEMENTS
Distribution of gross loans and advances assets by credit quality
The credit quality of the portfolio of loans and advances is assessed by reference to ANZ New Zealand’s risk grading principles and policies
supported by a complementary risk grading methodology.
30/09/2016

30/09/2015

Retailmortgages

Other retail
exposures

Non-retail
exposures

Total

Retailmortgages

Other retail
exposures

Non-retail
exposures

NZ$m

NZ$m

Total

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Strong risk rating

62,528Satisfactory risk rating

6,842

1,263

20,29684,087

55,837

1,285

23,05180,173

2,997

22,30932,148

7,661

3,021

19,192

Substandard but not past due or impaired

29,874

336

539

1,928

2,803

649

382

1,430

2,461

69,706

4,799

44,533

119,038

64,147

4,688

43,673

112,508

1 to 5 days

359

125

350

834

311

110

454

875

6 to 29 days

170

73

42

285

258

92

99

449

1 to 29 days

529

198

392

1,119

569

202

553

1,324

30 to 59 days

136

32

62

230

134

37

88

259

60 to 89 days

106

17

6

129

98

18

11

127

90 days and over

103

26

23

152

128

32

62

222

Total past due but not impaired

874

273

483

1,630

929

289

714

1,932

Total impaired assets

64

27

342

433

119

32

253

404

70,644

5,099

45,358

121,101

65,1955,009

44,640114,844

Total neither past due nor impaired
Past due but not impaired:

Gross loans and advances

Credit quality of gross loans and advances neither past due
nor impaired
The credit quality of financial assets is assessed by ANZ New
Zealand using internal ratings which aim to reflect the relative
ability of counterparties to fulfil, on time, their credit-related
obligations, and is based on their current probability of default.
Internal ratings
Strong risk rating - Corporate customers demonstrating superiorstability in their operating and financial performance over the
long-term, and whose debt servicing capacity is not
significantly vulnerable to foreseeable events. Retail customers
with low expected loss. This rating band broadly corresponds toratings “Aaa” to “Ba1” and “AAA” to “BB+” of Moody's InvestorsService and Standard & Poor's respectively.
Satisfactory risk rating - Corporate customers consistently
demonstrating sound operational and financial stability overthe medium to long term, even though some may besusceptible to cyclical trends or variability in earnings. Retailcustomers with moderate expected loss. This rating bandbroadly corresponds to ratings “Ba2” to “B1” and “BB” to “B+” of
Moody's Investors Service and Standard & Poor's respectively.
Substandard but not past due or impaired - Corporate customers
demonstrating some operational and financial instability, withvariability and uncertainty in profitability and liquidity projected
to continue over the short and possibly medium term. Retailcustomers with higher expected loss. This rating band broadly
corresponds to ratings “B2” to “Caa” and “B” to “CCC” of Moody's
Investors Service and Standard & Poor's respectively.

Movements in the rating categories between balance dates are
due to both changes in the underlying internal ratings applied
to customers and to new loans written or loans rolling off.
Credit quality of financial assets that are past due but not
impairedAgeing analysis of past due loans is used by ANZ New Zealand
to measure and manage credit quality. Financial assets that are
past due but not impaired include those:•
Assessed, approved and managed on a portfolio basis
within a centralised environment (for example, credit
cards and personal loans)•
Held on a productive basis until they are 180 days pastdue•Managed on an individual basis.
A large portion of retail credit exposures, such as residential
mortgages, are generally well secured. That is, the fair value of
associated security is sufficient to ensure that ANZ New Zealand
will recover the entire amount owing over the life of the facility
and there is reasonable assurance that collection efforts will
result in payment of the amounts due in a timely manner.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

32

NOTES TO THE FINANCIAL STATEMENTS
Market riska.

Market risk is the risk to ANZ New Zealand’s earnings arisingfrom changes in interest rates, currency exchange rates, credit
spreads, or from fluctuations in bond, commodity or equity
prices. Market risk is generated through both trading activities
and the interest rate risk inherent in the banking book.

This is the risk of loss from changes in the value of financial
instruments due to movements in price factors for both
physical and derivative trading positions. They arise in tradingtransactions where ANZ New Zealand acts as principal withclients or with the market. The primary risk categories
monitored are:

ANZ New Zealand conducts trading operations in interest rates,
foreign exchange, commodities and debt securities.
ANZ New Zealand has a detailed risk management and control
framework to support its trading and balance sheet
management activities. The framework incorporates a risk
measurement approach to quantify the magnitude of market
risk within trading and balance sheet portfolios. This approach,and related analysis, identifies the range of possible outcomesthat can be expected over a given period of time, establishes
the relative likelihood of those outcomes and allocates anappropriate amount of capital to support these activities.
Market risk management and control responsibilities
The Board Risk Committee has delegated responsibility for theoversight of market risk to the Asset & Liability Committee(ALCO), chaired by the Chief Financial Officer of the Bank. ALCO
is required to ensure that market risk exposure across Tradedand Non-Traded portfolios remains within the risk appetite
specified by the Board Risk Committee. ALCO receives regular
reporting on a range of trading and balance sheet market risk
exposures.
The Risk Management division of ANZ New Zealand, throughthe Chief Risk Officer, is responsible for the day-to-day oversightof market risk. This includes the implementation of acomprehensive limit and policy framework to control theamount of risk that the Banking Group will accept. Market risk
limits are allocated at various levels and are reported andmonitored on a daily basis. The detailed limit framework
allocates individual limits to manage and control asset classes(e.g., interest rates, foreign exchange), risk factors (e.g., interest
rates, volatilities) and profit and loss limits (to monitor andmanage the performance of the trading portfolios).

Traded market risk•

Currency risk is the potential loss arising from the decline
in the value of a financial instrument due to changes inforeign exchange rates or their implied volatilities.

•

Interest rate risk is the potential loss arising from thechange in the value of a financial instrument due tochanges in market interest rates or their implied
volatilities.

•

Credit spread risk is the potential loss arising from achange in value of an instrument due to a movement of
its margin or spread relative to a bench mark.

b.

Non-traded market risk (or balance sheet risk)This comprises the management of non-traded interest rate risk,
liquidity, and the risk to capital and earnings as a result of
movements in market rates.
Some instruments do not fall into either category but also
expose ANZ New Zealand to market risk. These include equity
securities classified as available-for-sale. Regular reviews are
performed to substantiate the valuation of these types of
instruments.
In all trading areas ANZ New Zealand has implemented models
that calculate Value at Risk (“VaR”) exposures, monitor risk
exposures against defined limits on a daily basis, and “stresstest” trading portfolios.
VaR measure
A key measure of market risk is VaR. VaR is a statistical estimateof the likely daily loss and is based on historical market
movements.

Additional oversight and monitoring of material risk exposuresof ANZ New Zealand is undertaken by the Risk Management
functions of the Ultimate Parent Bank.

The confidence level is such that there is a 99% probability thatthe loss will not exceed the VaR estimate on any given day.
Conversely there is 1% probability of the decrease in market
value exceeding the VaR estimate on any given day.

Within overall strategies and policies, the control of market risk
is the joint responsibility of business units and Risk
Management, with the delegation of market risk limits from theBoard Risk Committee to both Risk Management and thebusiness units.

ANZ New Zealand’s standard VaR approach for both traded andnon-traded risk is historical simulation. ANZ New Zealandcalculates VaR using historical changes in market rates andprices over the previous 500 business days. Traded and NonTraded VaR is calculated using a one-day holding period.

These risks are monitored daily against a comprehensive limit
framework that includes Value at Risk, aggregate market
position and sensitivity, product and geographic thresholds. To
facilitate the management, control, measurement and reportingof market risk, ANZ New Zealand has grouped market risk into
two broad categories:

It should be noted that because VaR is driven by actual
historical observations, it is not an estimate of the maximum
loss that ANZ New Zealand could experience from an extreme
market event. As a result of this limitation, ANZ New Zealandutilises a number of other risk measures (e.g. stress testing) andassociated detailed control limits to measure and manage
market risk.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

33

NOTES TO THE FINANCIAL STATEMENTS
Traded market risks
30/09/2016

30/09/2015

Value at risk at 99% confidenceHigh forLow for
Period end
year
year

Average for
year

Value at risk at 99% confidenceHigh forLow for
Period end
year
year

Average for
year

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Foreign exchange risk

0.2

0.9

0.1

0.4

0.6

1.1

-

0.3

Interest rate risk

2.1

4.9

1.3

2.6

2.4

5.1

1.0

2.1

Credit spread risk

0.5

0.7

0.3

0.5

0.7

0.7

0.2

0.4

Diversification benefit

(0.7)

n/a

n/a

(1.0)

(2.0)

n/a

n/a

(0.7)

Total VaR

2.1

4.4

1.3

2.5

1.7

4.9

1.0

2.1

Traded market risk VaR is calculated separately for foreign exchange and for interest rate/debt markets businesses as well as for ANZ New
Zealand. The diversification benefit reflects the historical correlation between foreign exchange, interest rate and debt markets.
To supplement the VaR methodology, ANZ New Zealand applies a wide range of stress tests, both on individual portfolios and at ANZ
New Zealand level. ANZ New Zealand's stress-testing regime provides senior management with an assessment of the financial impact ofidentified extreme events on market risk exposures of ANZ New Zealand.
Non-traded market risk (or balance sheet risk)
The principal objectives of balance sheet management are to manage net interest income sensitivity while maintaining acceptable levels
of interest rate and liquidity risk and to manage the market value of ANZ New Zealand’s capital. Liquidity risk is dealt with in the next
section.
Interest rate risk
The objective of balance sheet interest rate risk management is to mitigate the negative impact of movements in wholesale interest rates
on the earnings of ANZ New Zealand's banking book. Non-traded interest rate risk relates to the potential adverse impact to earnings fromchanges in market interest rates. This risk arises from two principal sources: mismatches between the repricing dates of interest bearing
assets and liabilities; and the investment of capital and other non-interest bearing liabilities in interest bearing assets.
As part of normal business activity ANZ New Zealand has additional risks from fixed rate mortgage prepayments and basis risk:•
Prepayment risk is the potential risk to earnings or market value from when a customer prepays all or part of a fixed rate loan andwhere any customer fee charged is not sufficient to offset the loss in value to ANZ New Zealand of this financial asset due tomovements in interest rates and other pricing factors. As far as possible the true economic cost is passed through to customers inline with their terms and conditions and relevant legislation.
•
Basis risk is the potential risk to earnings or market value from differences between customer pricing and wholesale market pricing.
This is managed through active review of product margins.
Non-traded interest rate risk is managed to both value and earnings at risk limits. Interest rate risk is reported using three measures: VaR;
scenario analysis (to a 1% shock); and interest rate sensitivity gap. This treatment excludes the effect of prepayment and basis risk.
a.

Non-traded interest rate risk VaR
Period end

High foryear

Low foryear

Average for
year

NZ$m

NZ$m

NZ$m

NZ$m

9.7

10.3

7.7

8.9

7.4

12.4

7.3

10.1

30/09/2016

Value at risk at 99% confidence
30/09/2015

Value at risk at 99% confidence

Australia and New Zealand Banking Group Limited - ANZ New Zealand

34

NOTES TO THE FINANCIAL STATEMENTSb.

Scenario analysis – a 1% shock on the next 12 months’ net interest income

A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net interest income over the
succeeding 12 months. This is a standard risk quantification tool.
The figures in the table below indicate the outcome of this risk measure for the current and comparative periods – expressed as apercentage of reported net interest income. The sign indicates the nature of the rate sensitivity with a positive number signifying that arate increase is positive for net interest income over the next 12 months. Conversely, a negative number signifies that a rate increase isnegative for the next 12 months’ net interest income.
30/09/2016

30/09/2015

Period end

0.3%

1.0%

Maximum exposure

1.6%

2.3%

Minimum exposure

-0.3%

-0.2%

Average exposure (in absolute terms)

0.7%

1.1%

Impact of 1% rate shock

The extent of mismatching between the repricing characteristics and timing of interest bearing assets and liabilities at any point has
implications for future net interest income.
Interest rate sensitivity gap
The interest rate sensitivity gap analysis provides information about ANZ New Zealand's exposure to interest rate risk.
Sensitivity to interest rates arises from mismatches in the period to repricing of assets and that of the corresponding liability funding.
These mismatches are managed within policy guidelines for mismatch positions.
The following tables represent the interest rate sensitivity of ANZ New Zealand's assets, liabilities and off balance sheet instruments byshowing the periods in which these instruments may reprice (that is, when interest rates applicable to each asset or liability can bechanged).
The repricing gaps are based upon contractual repricing.

Total
NZ$m

Up to
3 months
NZ$m

Over 3 to
6 months
NZ$m

Over 6 to
12 months
NZ$m

Over 1 to
2 years
NZ$m

Over
2 years
NZ$m

Not bearing
interest
NZ$m

Cash

2,274

2,081

-

-

-

-

193

Settlement balances receivable

396

48

-

-

-

-

348

Collateral paid

2,310

2,310

-

-

-

-

-

Trading securities

11,979

1,092

243

308

2,090

8,246

-

Derivative financial instruments

20,969

-

-

-

-

-

20,96930/09/2016

AssetsAvailable-for-sale assets

2,859

1,956

149

50

160

543

1

Net loans and advances

120,651

63,6669,000

19,83919,898

8,726

(478)

Other financial assets

678

65

25

17

12

-

559

Total financial assets

162,116

71,218

9,417

20,214

22,16017,515

21,592

Settlement balances payable

1,554

666

-

-

-

-

888

Collateral received

529

529

-

-

-

-

-

Deposits and other borrowings

106,908

73,261

11,986

10,120

2,460

1,302

7,779

Derivative financial instruments

22,398

-

-

-

-

-

22,398Debt issuances

20,014

4,342

-

1,087

2,843

11,742-

Subordinated debt

2,624

-

1,293

-

835

496

-

Liabilities

Other financial liabilities

654

51

-

-

9

124

470

Total financial liabilities

154,681

78,84913,279

11,207

6,147

13,664

31,535

Hedging instruments-

20,128(14,284)

4,412(13,121)2,865-Interest sensitivity gap

7,435

12,497(18,146)

13,419

2,892

6,716

(9,943)

Australia and New Zealand Banking Group Limited - ANZ New Zealand

35

NOTES TO THE FINANCIAL STATEMENTS
Total
NZ$m

Up to
3 months
NZ$m

Over 3 to
6 months
NZ$m

Over 6 to
12 months
NZ$m

Over 1 to
2 years
NZ$m

Over
2 years
NZ$m

Not bearing
interest
NZ$m

Cash

2,435

2,240

-

-

-

-

195

Settlement balances receivable

309

141

-

-

-

-

168

Collateral paid

1,929

1,929

-

-

-

-

-

Trading securities

12,139

1,280

731

789

863

8,476

-

Derivative financial instruments

17,587

-

-

-

-

-

17,587Available-for-sale assets

1,428

1,178

-

-

-

248

2

Net loans and advances

114,376

60,366

7,117

17,03521,984

8,341

(467)

Other financial assets

757

-

113

33

-

5

606

Total financial assets

150,960

67,134

7,961

17,857

22,847

17,07018,091598

30/09/2015

AssetsLiabilities
Settlement balances payable

1,469

871

-

-

-

-

Collateral received

1,687

1,687

-

-

-

-

-

Deposits and other borrowings

99,73670,249

9,586

9,507

2,103

1,575

6,716

Derivative financial instruments

17,769

-

-

-

-

-

17,769Debt issuances

19,403

6,001

1,587

-

2,498

9,317

-

Subordinated debt

2,683

-

1,354

-

-

1,329

-

Payables and other liabilities

997

100

-

-

6

256

635

Total financial liabilities

143,744

78,90812,527

9,507

4,607

12,47725,718

Hedging instruments-

39,841(22,090)(3,027)(13,420)(1,304)-

Interest sensitivity gap

7,216

28,067(26,656)

5,323

4,820

3,289

(7,627)

Foreign currency related risksThis risk relates to the potential loss arising from the decline in the value of foreign currency positions due to changes in foreign exchange
rates.
For non-traded instruments in foreign currencies, the risk is monitored and is hedged in accordance with policy. Risk arising fromindividual funding and other transactions is actively managed. The total amounts of unmatched foreign currency assets and liabilities, andconsequent foreign currency exposures arising from each class of financial asset and liability, whether recognised or unrecognised, withineach currency are not material.
The net open position in each foreign currency represents the net on-balance sheet assets and liabilities in that foreign currency
aggregated with the net expected future cash flows from off-balance sheet purchases and sales from foreign exchange transactions inthat foreign currency. The amounts are stated in New Zealand dollar equivalents translated using the spot exchange rates as at balance
sheet date.
30/09/2016
NZ$m

30/09/2015
NZ$m

Net open position
Australian dollar

26

(1)

Euro

6

(13)

Japanese yen

(3)

(4)

US dollar

(5)

34

Other

1

6

Total net open position

25

22

Australia and New Zealand Banking Group Limited - ANZ New Zealand

36

NOTES TO THE FINANCIAL STATEMENTS
Liquidity risk

Scenario Modelling

Liquidity risk is the risk that ANZ New Zealand is unable to meetits payment obligations as they fall due. The timing mismatch of
cash flows and the related liquidity risk is inherent in all banking
operations and is closely monitored by ANZ New Zealand.

A key component of ANZ New Zealand’s liquidity management
framework is scenario modelling. Liquidity is assessed under
different scenarios, including normal conditions, name crisis andfunding market disruption.

ANZ New Zealand’s liquidity and funding risks are governed bya detailed policy framework which is approved by the Risk
Committees of the Bank’s and Ultimate Parent Bank’s Boards.
The core objective of ANZ New Zealand’s framework is to
manage liquidity to meet obligations as they fall due, without
incurring unacceptable losses.

Normal conditions: reflects the normal behaviour of cash flows in
the ordinary course of business. ANZ New Zealand must
manage its short and long term wholesale funding to ensure
there are no undue maturity concentrations within thewholesale funding profile over the following three months.
Limits are applied within the three month period based on a
combination of ANZ New Zealand’s demonstrated andassumed wholesale funding capacity.

Central to ANZ New Zealand’s liquidity risk management
approach is the establishment of a liquidity risk appetite
framework to which ANZ New Zealand must conform at all
times. The risk appetite for liquidity has been set as low, and thisobjective is achieved by ANZ New Zealand managing liquidity
risks within the boundaries of the following requirements andprinciples:•
Maintaining the ability to meet all payment obligations in
the immediate term.
•
Ensuring the ability to meet “survival horizons” under ANZ
New Zealand specific and general market liquidity stressscenarios.
•
Maintaining strength in ANZ New Zealand’s balance sheet
structure to ensure long term resilience in ANZ New
Zealand’s liquidity and funding risk profile.
•
Limiting the potential earnings at risk associated with
unexpected increases in funding costs or the liquidationof assets under stress.
•
Ensuring the liquidity management framework is
compatible with regulatory requirements.
•
Daily liquidity reporting and scenario analysis, quantifying
ANZ New Zealand’s positions.
•Targeting a diversified funding base, avoiding undue
concentrations by investor type, maturity, market source
and currency.
•
Holding a portfolio of high quality liquid assets to protect
against adverse funding conditions and to support dayto-day operations.
•
Establishing detailed contingency plans to cover different
liquidity crisis events.
Management of liquidity and funding risks are overseen by
ALCO.
Supervision and Regulation
The RBNZ requires the Bank to have a comprehensive Board
approved liquidity strategy defining: policy, systems andprocedures for measuring, assessing, reporting and managing
domestic and foreign currency liquidity. This also includes aformal contingency plan for dealing with a liquidity crisis. The
Banking Group is required to meet one week and one monthliquidity mismatch ratios and a one year core funding ratio eachday.

Name-crisis: refers to a potential severe name-specific liquidity
crisis scenario which models the behaviour of cash flows where
there is a problem (real or perceived) which may include, but is
not limited to, operational issues, doubts about the solvency of
ANZ New Zealand, or adverse rating changes. Under this
scenario ANZ New Zealand may have significant difficultyrolling over or replacing funding. Under the liquidity policy ANZ
New Zealand must have sufficient high quality liquid assets tomeet its liquidity needs for the following 30 calendar days
under this scenario.
Funding market disruption: The global financial crisis highlighted
the importance of differentiating between a name specific crisisand the different behaviour that domestic and offshore funding
markets can exhibit during market disruption events. Under theliquidity policy, ANZ New Zealand must be able to meet its
wholesale maturities under a scenario of protracted stress indomestic and offshore wholesale funding markets over a periodof six months.
As of 30 September 2016 ANZ New Zealand was in compliancewith the above scenarios.
Wholesale funding
ANZ New Zealand’s wholesale funding strategy is designed todeliver a sustainable portfolio of wholesale funds that balances
cost efficiency while targeting diversification by markets,
investors, currencies, maturities and funding structures. Shortterm wholesale funding requirements, with a contractual
maturity of less than one year, are managed through theTreasury and Markets operations. Long-term wholesale fundingis managed and executed through Treasury operations.
ANZ New Zealand also uses maturity concentration limits under
the wholesale funding and liquidity management framework.
Maturity concentration limits ensure that ANZ New Zealanddoes not become reliant on issuing large volumes of newwholesale funding within a short time period. Funding
instruments used to meet the wholesale borrowing
requirement must be on a pre-established list of approved
products.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

37

NOTES TO THE FINANCIAL STATEMENTS
Funding capacity and debt issuance planning
ANZ New Zealand adopts a conservative approach to determine its funding capacity. Annually, a funding plan is approved by the Bank’s
Board. The plan is supplemented by regular updates and is linked to ANZ New Zealand’s three year strategic planning cycle.
Funding Composition
ANZ New Zealand actively uses balance sheet disciplines to prudently manage the funding mix. ANZ New Zealand employs funding
metrics to ensure that an appropriate proportion of its assets are funded from stable sources, including customer liabilities, longer-dated
wholesale debt (with remaining term exceeding one year) and equity. This approach recognises that long-term wholesale debt and othersticky liabilities have favourable liquidity characteristics.
Analysis of funding liabilities by industry sector is based on Australian and New Zealand Standard Industrial Classification (ANZSIC) codes.
30/09/2016
NZ$m

30/09/2015
NZ$m

New Zealand

81,34275,408Overseas

10,018

9,462

Total customer deposits

91,36084,870Debt issuances

20,014

19,403

Subordinated debt

2,624

2,683

Certificates of deposit

2,237

745

Commercial paper

5,364

4,964

Other borrowings

7,947

9,157

Customer deposits1

Wholesale funding

Total wholesale funding

38,18636,952

Total funding

129,546

121,822

2,989

2,871

Concentrations of funding by industry
Agriculture
Forestry, fishing and mining

618

656

Business and property services

6,751

6,304

Construction

1,588

1,283

Entertainment, leisure and tourism

1,010

1,021

Finance and insurance

47,56744,728Government and local authority

2,958

2,910

Manufacturing

2,004

1,913

Households

59,27555,239Retail trade

1,075

1,064

Transport and storage

653

745

Wholesale trade

1,274

1,312

Other2

1,784

1,776

129,546

121,822

New Zealand

88,45280,564Australia

10,163

11,472

United States

12,215

12,332Europe11,448

10,388Other countries

7,268

7,066

Total funding

129,546

121,822

Total funding
Concentrations of funding by geography

12

Represents term deposits, other deposits bearing interest, deposits not bearing interest and UDC secured investments.
Other includes exposures to electricity, gas and water, communications and personal services.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

38

NOTES TO THE FINANCIAL STATEMENTS
Liquidity portfolio management
ANZ New Zealand holds a diversified portfolio of cash and high quality highly liquid securities to support liquidity risk management. The
size of ANZ New Zealand’s liquidity portfolio is based on the amount required to meet its internal and regulatory liquidity scenario metrics.
Total liquidity portfolio
30/09/2016
NZ$m

30/09/2015
NZ$m

Cash and balances with central banks

2,068

2,069

Certificates of deposit

1,124

468

Government, local body stock and bonds

6,117

5,063

Government treasury bills

811

1,155

Reserve Bank bills

100

799

Other bonds

6,483

5,930

Total liquidity portfolio

16,703

15,484

Assets held for managing liquidity risk include short term cash held with the RBNZ, New Zealand Government securities, securities issued
by supranational agencies, securities issued by highly rated banks and securities issued by State Owned Enterprises, Local Authorities andhighly rated NZ domestic corporates. These assets would be accepted as collateral by the RBNZ in repurchase transactions. At 30
September 2016 ANZ New Zealand would be eligible to enter into repurchase transactions with a value of NZ$13,515 million. The Banking
Group also held unencumbered internal residential mortgage backed securities (RMBS) which would entitle ANZ New Zealand to enter
into repurchase transactions with a value of NZ$6,793 million at 30 September 2016.
Liquidity crisis contingency planning
ANZ New Zealand maintains liquidity crisis contingency plans defining an approach for analysing and responding to a liquiditythreatening event on a group wide basis. The framework includes:•
the establishment of crisis severity/stress levels•
clearly assigned crisis roles and responsibilities•
early warning signals indicative of an approaching crisis, and mechanisms to monitor and report these signals•
outlined action plans, and courses of action for altering asset and liability behaviour•
procedures for crisis management reporting, and covering cash-flow shortfalls•
guidelines determining the priority of customer relationships in the event of liquidity problems•
assigned responsibilities for internal and external communications.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

39

NOTES TO THE FINANCIAL STATEMENTS
Contractual maturity analysis of financial assets and liabilities
The following tables present ANZ New Zealand's financial assets and liabilities within relevant contractual maturity groupings, based on
the earliest date on which the NZ Branch or ANZ New Zealand may be required to realise an asset or settle a liability. The amounts
disclosed in the tables represent undiscounted future principal and interest cash flows, except for derivatives held for trading where thefull mark-to-market amount has been included in the less than three months category. As a result, the amounts in the tables below may
differ to the amounts reported on the balance sheet.
The contractual maturity analysis for off-balance sheet commitments and contingent liabilities has been prepared using the earliest date
at which ANZ New Zealand or the NZ Branch can be called upon to pay. The liquidity risk of credit related commitments and contingent
liabilities may be less than the contract amount, and does not necessarily represent future cash requirements as many of these facilities are
expected to be only partially used or to expire unused.
ANZ New Zealand does not manage its liquidity risk on this basis.

Total
NZ$m

At call
NZ$m

Up to
3 months
NZ$m

Over 3 to
12 months
NZ$m

Over 1 to
5 years
NZ$m

Over
5 years
NZ$m

No maturity
specified
NZ$m

Cash

2,274

2,045

229

-

-

-

-

Settlement balances receivable

396

58

338

-

-

-

-

Collateral paid

2,310

-

2,310

-

-

-

-

Trading securities

12,804

-

171

1,136

10,859638-

Derivative financial assets (trading)

19,396-

19,396----

Available-for-sale assets

2,923

-

1,670

283

969

-

1

Net loans and advances

30/09/2016

Financial assets

156,693

246

15,532

18,04552,36170,509-Other financial assets

281

-

228

41

12

-

-

Total financial assets

197,077

2,349

39,874

19,50564,201

71,147

1

Settlement balances payable

1,523

1,111

412

-

-

-

-

Collateral received

529

-

529

-

-

-

-

Deposits and other borrowings

108,532

50,413

21,343

28,341

7,540

895

-

Derivative financial liabilities (trading)

19,328-19,328----Debt issuances¹

20,983

-

2,363

1,882

13,466

3,272-

Subordinated debt¹

2,733

-

14

43

1,659

1,017

-

Other financial liabilities

303

-

72

7

93

131

-

Total financial liabilities

153,931

51,52444,061

30,27322,758

5,315-

Financial liabilities

Derivative financial instruments used for balance sheet management- gross inflows

21,743

-

3,461

3,203

11,2073,872-- gross outflows(22,590)-(4,042)(3,398)(11,460)(3,690)-Net financial assets / (liabilities) after balance
sheet management

42,299(49,175)(4,768)(10,963)

41,19066,014

1

Contractual maturity of off-balance sheet commitments and contingent liabilities

Non-credit related commitments
Credit related commitments

Total

Less than
1 yearBeyond1 year

NZ$m

NZ$m

NZ$m

460

92

368

27,046

27,046-

Contingent liabilities

2,461

2,461

-

Total

29,96729,599368

1

Any callable wholesale debt instruments have been included at their next call date. Refer to note 17 for subordinated debt call dates.

Australia and New Zealand Banking Group Limited - ANZ New Zealand40

NOTES TO THE FINANCIAL STATEMENTS
Total
NZ$m

At call
NZ$m

Up to
3 months
NZ$m

Over 3 to
12 months
NZ$m

Over 1 to
5 years
NZ$m

Over
5 years
NZ$m

No maturity
specified
NZ$m

Cash

2,435

2,041

394

-

-

-

-

Settlement balances receivable

309

140

169

-

-

-

-

Collateral paid

1,929

-

1,929

-

-

-

-

Trading securities

13,180

-

516

1,929

9,710

1,025

-

Derivative financial assets (trading)

16,430-16,430----30/09/2015

Financial assets

Available-for-sale assets

1,454

-

1,078

11

363

-

2

Net loans and advances

153,787

252

15,716

16,98952,704

68,126-

Other financial assets

331

-

180

146

5

-

-

Total financial assets

189,855

2,433

36,412

19,07562,782

69,151

2

1,427

1,188

239

-

-

-

-

Financial liabilities
Settlement balances payable
Collateral received

1,687

-

1,687

-

-

-

-

Deposits and other borrowings

101,835

48,42919,41024,470

9,526

-

-

Derivative financial liabilities (trading)

14,635-

14,635----

Debt issuances¹

20,315

-

2,217

3,207

13,498

1,393-

Subordinated debt¹

2,858

-

15

44

1,734

1,065

-

Other financial liabilities

583

-

212

9

107

255

-

Total financial liabilities

143,340

49,61738,41527,73024,865

2,713-

Derivative financial instruments used for balance sheet management- gross inflows

23,581

-

2,488

4,434

14,714

1,945-- gross outflows(25,247)-(2,629)(4,889)(15,730)(1,999)-Net financial assets / (liabilities) after balance
sheet management

44,849(47,184)(2,144)(9,110)36,901

66,384

2

Contractual maturity of off-balance sheet commitments and contingent liabilities
Total

Less than
1 yearBeyond1 year

NZ$m

NZ$m

NZ$m

514

59

455

Credit related commitments

26,675

26,675-

Contingent liabilities

2,454

2,454

-

Total

29,64329,188455

Non-credit related commitments

1

Any callable wholesale debt instruments have been included at their next call date. Prior period interest cash flows have been revised to improve comparability.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

41

NOTES TO THE FINANCIAL STATEMENTS
19. CLASSIFICATION OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
At amortisedcost

At fair value throughprofit or loss
Designatedon initial
Held forrecognition
trading

Hedging

Available-forsale assets

Total
carrying
amountFair value

30/09/2016

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Cash

2,274

-

-

-

-

2,274

2,274

Settlement balances receivable

396

-

-

-

-

396

396

Collateral paid

2,310

-

-

-

-

2,310

2,310

-

-

11,979--11,97911,979Derivative financial instruments--

20,205764-

20,96920,969Available-for-sale assets

-

-

-

-

2,859

2,859

2,859

Net loans and advances2

120,651

-

-

-

-

120,651

120,931

Other financial assets

559

119

-

-

-

678

678

Total financial assets

126,19011932,184764

2,859

162,116

162,396

Settlement balances payable

1,554

-

-

-

-

1,554

1,554

Collateral received

529

-

-

-

-

529

529

101,544

5,364

-

-

-

106,908

107,106

Trading securities
1

Deposits and other borrowings
Derivative financial instruments1--

21,578820-

22,39822,398Debt issuances2

20,014----20,014

20,148Subordinated debt

2,624

-

-

-

-

2,624

2,636

Other financial liabilities

497

-

157

-

-

654

654

Total financial liabilities

126,762

5,364

21,735820-

154,681

155,025

Cash

2,435

-

-

-

-

2,435

2,435

Settlement balances receivable

309

-

-

-

-

309

309

Collateral paid

1,929

-

-

-

-

1,929

1,929

Trading securities--

12,139--12,13912,139Derivative financial instruments1--

16,991596-

17,587

17,587Available-for-sale assets

-

-

-

-

1,428

1,428

1,428
114,899

30/09/2015

2

Net loans and advances

114,376

-

-

-

-

114,376

Other financial assets

606

151

-

-

-

757

757

Total financial assets

119,655

151

29,130596

1,428

150,960

151,483

1,469

-

-

-

-

1,469

1,469

Settlement balances payable
Collateral received

1,687

-

-

-

-

1,687

1,687

Deposits and other borrowings

94,772

4,964

-

-

-

99,73699,947

Derivative financial instruments1--

16,956813-

17,76917,769Debt issuances2

19,403----

19,403

19,516

Subordinated debt

2,683

-

-

-

-

2,683

2,640

Other financial liabilities

688

-

309

-

-

997

997

Total financial liabilities

120,702

4,964

17,265813-

143,744

144,025

1
2

Derivative financial instruments classified as held for trading include derivatives entered into as economic hedges which are not designated as accounting hedges.
Fair value hedging is applied to certain financial assets within loans and advances and certain financial liabilities within debt issuances. The resulting fair value adjustment
means that the carrying value differs from the amortised cost.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

42

NOTES TO THE FINANCIAL STATEMENTS
Measurement of fair value
Valuation methodologies
ANZ New Zealand has an established control framework that ensures fair value is either determined or validated by a function
independent of the party that undertakes the transaction. The control framework ensures that all models are calibrated periodically to test
that outputs reflect prices from observable current market transactions in the same instrument or other available observable market data.
Where quoted market prices are used, prices are independently verified from other sources. For fair values determined using a valuation
model, the control framework may include, as applicable, independent development or validation of valuation models, any inputs to
those models, any adjustments required outside of the valuation model and, where possible, independent validation of model outputs. In
this way, continued appropriateness of the valuations is ensured.
In instances where ANZ New Zealand holds offsetting risk positions, ANZ New Zealand uses the portfolio exemption in NZ IFRS 13 Fair
Value Measurement to measure the fair value of such groups of financial assets and financial liabilities on the basis of the price that would
be received to sell a net long position (that is, an asset) for a particular risk exposure or to transfer a net short position (that is, a liability) fora particular risk exposure.
ANZ New Zealand categorises its fair value measurements on the basis of inputs used in measuring fair value using the fair value hierarchy
below:•

Level 1 – Financial instruments that have been valued by reference to unadjusted quoted prices in active markets for identicalfinancial instruments. This category includes financial instruments valued using quoted yields where available for specific debt
securities.

•

Level 2 – Financial instruments that have been valued through valuation techniques incorporating inputs other than quoted prices
within Level 1 that are observable for a similar financial asset or liability, either directly or indirectly.

•

Level 3 – Financial instruments that have been valued using valuation techniques which incorporate significant inputs that are notbased on observable market data (unobservable inputs).

Valuation techniques and inputs used
In the event that there is no quoted market price for the instrument, fair value is based on valuation techniques. The valuation models
incorporate the impact of bid/ask spreads, counterparty credit spreads, funding costs and other factors that would influence the fair value
determined by market participants.
The majority of valuation techniques employ only observable market data. However, for certain financial instruments the valuation
technique may employ some data (valuation inputs or components) which is not readily observable in the current market. In these cases
valuation inputs (or components of the overall value) are derived and extrapolated from other relevant market data and tested against
historic transactions and observed market trends. To the extent that valuation is based on models or inputs that are not observable in themarket, the determination of fair value can be more subjective, dependent on the significance of the unobservable input to the overall
valuation.
The following valuation techniques have been applied to determine the fair values of financial instruments where there is no quoted price(level1) for the instrument:•

For instruments classified as trading securities and securities short sold, derivative financial assets and liabilities, available-for-saleassets, and investments backing insurance contract liabilities, fair value measurements are derived by using modelled valuations
techniques (including discounted cash flow models) that incorporate market prices / yields for securities with similar credit risk,
maturity and yield characteristics; and/or current market yields for similar instruments.

•

For net loans and advances, deposits and other borrowings and debt issuances, discounted cash flow techniques are used wherecontractual future cash flows of the instrument are discounted using discount rates incorporating wholesale market rates or market
borrowing rates of debt with similar maturities or a yield curve appropriate for the remaining term to maturity.

There have been no substantial changes in the valuation techniques applied to different classes of financial instruments during the year.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

43

NOTES TO THE FINANCIAL STATEMENTS
Valuation hierarchy for financial assets and financial liabilities measured at fair value in the balance sheet
30/09/2016
Level 1
NZ$m

Level 2
NZ$m

30/09/2015
Level 3
NZ$m

Total
NZ$m

Level 1
NZ$m

Level 2
NZ$m

Level 3
NZ$m

Total
NZ$m

Financial assets
Trading securities
Derivative financial instruments
Available-for-sale assets
Investments backing insurance contract liabilities
Total

11,967

12-

11,97911,880259-

12,1393

20,9597

20,96912

17,5696

17,587

1,671

1,187

1

2,859

900

526

2

1,428

5

114

-

119

2

149

-

151

13,64622,272

835,926

12,79418,503831,305

Financial liabilities
Deposits and other borrowings

-

5,364

-

5,364

-

4,964

-

4,964

Derivative financial instruments

46

22,3502

22,39818

17,7492

17,769Other financial liabilities

157

-

-

157

309

-

-

309

Total

203

27,7142

27,919327

22,713

2

23,042

Valuation hierarchy for financial assets and financial liabilities not measured at fair value¹
30/09/2016

30/09/2015

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

-

117,553

3,378

120,931-

110,9903,909

114,899

Financial assets
Net loans and advances
Financial liabilities
Deposits and other borrowings-

101,742-

101,742-

94,983-

94,983

Debt issuances

1,629

18,519-20,148638

18,878-19,516

Subordinated debt

2,344

292

-

2,636

2,333

307

-

2,640

Total

3,973

120,553-

124,526

2,971

114,168-

117,139

1

Fair values, where the carrying amount is not considered a close approximation of fair value.

20. MATURITY ANALYSIS OF ASSETS AND LIABILITIESThe following is an analysis of asset and liability line items in the balance sheet that combine amounts expected to be realised or due tobe settled within one year and after more than one year.
30/09/2016
within one
after more
year than one year

Total

30/09/2015
within one
after more
year than one year

Total

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

107

12

119

146

5

151

AssetsInvestments backing insurance contract liabilities
Available-for-sale assets

1,915

944

2,859

1,071

357

1,428

Net loans and advances

25,112

95,539120,651

27,442

86,934

114,376

598

103

701

657

83

740

Deposits and other borrowings

99,8507,058

106,908

90,915

8,821

99,736

Payables and other liabilities

895

242

1,137

1,312

215

1,527

Provisions

108

98

206

95

96

191

Debt issuances

4,009

16,00520,014

5,237

14,166

19,403

Other assets
Liabilities

Australia and New Zealand Banking Group Limited - ANZ New Zealand

44

NOTES TO THE FINANCIAL STATEMENTS
21. ASSETS CHARGED AS SECURITY FOR LIABILITIES AND COLLATERAL ACCEPTED AS
SECURITY FOR ASSETS
Assets charged as security for liabilities1
The carrying amounts of assets pledged as security are as follows:
Carrying Amount
30/09/2016
NZ$m

Securities sold under agreements to repurchase

Related Liability

30/09/2015
NZ$m

30/09/2016
NZ$m

30/09/2015
NZ$m

77

47

76

47

Residential mortgages pledged as security for covered bonds

10,265

7,547

6,218

5,335

Assets pledged as collateral for UDC secured investments

2,665

2,441

1,592

1,736

UDC Secured Investments are secured by a security interest granted under the Trust Deed over all of UDC Finance Limited's (UDC) present
and future assets and undertakings, to Trustees Executors Limited, as supervisor. The assets subject to the security interest comprisemainly loans to UDC's customers and certain plant and equipment. The security interest secures all amounts payable by UDC on the UDC
Secured Investments and all other moneys payable by UDC under the Trust Deed.
Collateral accepted as security for assets1
ANZ New Zealand has received collateral in relation to reverse repurchase agreements. These transactions are governed by standard
industry agreements.
The fair value of collateral received and sold or repledged is as follows:
30/09/2016
NZ$m

30/09/2015
NZ$m

Collateral received on standard reverse repurchase agreements
Fair value of assets which can be sold

231

339

Fair value of assets sold or repledged

141

269

1

Excludes the amounts disclosed as collateral paid and received in the balance sheet that relate to derivative liabilities and derivative assets respectively. The terms andconditions of the collateral agreements are included in the standard CSA that forms part of the ISDA.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

45

NOTES TO THE FINANCIAL STATEMENTS
22. OFFSETTING
The following information relates to financial assets and liabilities which have not been set off in the balance sheet but for which ANZ New
Zealand has enforceable master netting agreements in place with counterparties. No financial assets and liabilities have been set off in thebalance sheet.
Gross amounts
presented in thebalance sheet
30/09/2016

NZ$m

Related amounts not offset 1
Financial
instruments Cash collateral

Net amounts

NZ$m

NZ$m

NZ$m

1,405

-

(1,332)

73

77

(76)

-

1

7,442

(7,086)

(333)

23
25

Financial assets
Collateral paid
Trading securities 2
Derivative financial instruments
Financial liabilities
Collateral received

358

-

(333)

Securities sold under agreements to repurchase 3

76

(76)

-

-

8,718

(7,086)(1,332)

300

1,139

-

(1,112)

27

47

(47)

-

-

6,923

(6,194)

(704)

25

960

-

(704)

256

Derivative financial instruments
30/09/2015

Financial assets
Collateral paid
Trading securities 2
Derivative financial instruments
Financial liabilities
Collateral received
Securities sold under agreements to repurchase
Derivative financial instruments

3

47

(47)

-

-

7,342

(6,194)(1,112)36

ANZ New Zealand enters into derivatives and repurchase and reverse repurchase agreements with various counterparties which are governed by industry standard masternetting agreements. ANZ New Zealand holds and provides cash and securities collateral in respective of derivative transactions covered by these agreements. The right to set
off balances under these master netting agreements or to set off cash and securities collateral only arises in the event of non-payment or default and, as a result, thesearrangements do not qualify for offsetting under NZ IAS 32 Financial Instruments: Presentation.
2
This is the amount of trading securities encumbered through repurchase agreements, see financial assets pledged as collateral table in note 21.
3
Included in deposits and other borrowings, see note 15.
1

Australia and New Zealand Banking Group Limited - ANZ New Zealand46

NOTES TO THE FINANCIAL STATEMENTS
23. CREDIT RELATED COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES
30/09/2016

30/09/2015

NZ$m

NZ$m

27,046

26,675

Guarantees and letters of credit

850

1,002

Performance related contingencies

1,611

1,452

Total guarantees and contingent liabilities

2,461

2,454

Total Credit Related Commitments, Guarantees and Contingent Liabilities

29,507

29,129Contract amount of:
Credit related commitments - facilities provided
Undrawn facilities1
Guarantees and contingent liabilities

1

The comparative amount for undrawn facilities has been reduced by NZ$5,518 million following a review of the composition of commitments.

These guarantees and contingent liabilities relate to transactions that ANZ New Zealand has entered into as principal, including
guarantees, standby letters of credit and documentary letters of credit.
Documentary letters of credit involve the issue of letters of credit guaranteeing payment in favour of an exporter secured against anunderlying shipment of goods or backed by a confirmatory letter of credit from another bank.
Performance related contingencies are liabilities that oblige ANZ New Zealand to make payments to a third party should the customer failto fulfil the non-monetary terms of the contract.
To reflect the risk associated with these transactions, they are subjected to the same credit origination, portfolio management andcollateral requirements as customers that apply for loans. The contract amount represents the maximum potential amount that could be
lost if the counterparty fails to meet its financial obligations. As the facilities may expire without being drawn upon, the notional amounts
do not necessarily reflect future cash requirements.
Other contingent liabilities
In June 2013, litigation funder Litigation Lending Services (NZ) Limited filed a representative action against the Bank regarding certain fees
charged to New Zealand customers. The representative action has been settled with the Bank making a contribution to the claimants’costs. The Bank has not admitted liability and all claims against it have been formally discontinued.
ANZ New Zealand has other contingent liabilities in respect of actual and possible claims and court proceedings.
An assessment of ANZ New Zealand’s likely loss in respect of these matters has been made on a case-by-case basis and provision madewhere deemed necessary.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

47

NOTES TO THE FINANCIAL STATEMENTS
24. OTHER ASSETS
30/09/2016

30/09/2015

NZ$m

NZ$m

Accrued interest and prepaid discounts

397

426

Accrued commission

22

22

Share-based payments asset

103

83

Prepaid expenses

19

24

Other assets

160

185

Total other assets

701

740

30/09/2016

30/09/2015

25. GOODWILL AND OTHER INTANGIBLE ASSETS

NZ$m

NZ$m

3,233

3,233

Software

76

139

Other intangibles

115

120

Total goodwill and other intangible assets

3,424

3,492

30/09/2016

30/09/2015

NZ$m

NZ$m

Creditors

60

121

Accrued interest and unearned discounts

451

514

Defined benefits plan obligations

28

43

Accrued charges

170

243

Securities short sold (classified as held for trading)

157

309

Liability for acceptances

27

52

Share-based payments liability

86

65Life insurance contract liabilities - reinsurance

128

107

Goodwill

26. PAYABLES AND OTHER LIABILITIESOther liabilities
Total payables and other liabilities

30

73

1,137

1,527

30/09/2016

30/09/2015

NZ$m

NZ$m

126

129

27. PROVISIONS

Employee annual and long service leave
Other

1

Total provisions
1

Includes provisions for surplus leased space, make-good of leased premises, seismic obligations, and restructuring costs.

80

62

206

191

Australia and New Zealand Banking Group Limited - ANZ New Zealand48

NOTES TO THE FINANCIAL STATEMENTS
28. SHARE CAPITAL AND INITIAL HEAD OFFICE ACCOUNT

Number of issued shares

NZ$ millions

30/09/2016

30/09/2015

30/09/2016

30/09/2015

At beginning and end of the year

381,655,112

381,655,112

1,453

1,453

Shares cancelled on amalgamation 1(3,500,000)

-

(3)

-

Ordinary shares at end of the year

378,155,112

381,655,112

1,450

1,453

5,504,884,529

4,903,692,932

6,594

5,929

Issued during the year-

611,191,597-

675

Redeemed during the year-

(10,000,000)

-

(10)

Redeemable preference shares at end of the year

5,504,884,529

5,504,884,529

6,594

6,594

Paid in share capital
NZ Branch initial head office account5,883,039,641-

5,886,539,641
-

8,044
11

8,047
11

Total ANZ New Zealand share capital & initial head office account5,883,039,641

5,886,539,641

8,055

8,058

Ordinary shares

Redeemable preference shares
At beginning of the year

1

The issued share capital of ANZ Securities (NZ) Limited was not issued to a member of ANZ New Zealand and was cancelled on amalgamation with South Pacific MerchantFinance Limited, a subsidiary of the Bank, on 30 September 2016.

Ordinary shares
All ordinary shares share equally in dividends and any proceeds available to ordinary shareholders on winding up. On a show of hands
every member who is present at a meeting in person or by proxy or by representative is entitled to one vote, and upon a poll every
member shall have one vote for each share held.
During the year ended 30 September 2016 ANZ Holdings (New Zealand) Limited (ANZH) paid ordinary dividends of NZ$1,320 million(2015: NZ$1,630 million) to the Immediate Parent Company (equivalent to NZ$3.49 (2015: NZ$4.31) per share).
Redeemable preference shares
All redeemable preference shares (RPS) were issued by ANZH to members of the Overseas Banking Group. RPS carry no voting rights andare redeemable by ANZH providing notice in writing to holders of the RPS. Dividends are payable at the discretion of the directors of
ANZH and are non-cumulative.
There are seven classes of RPS, relating to issues in 1988, 2005, 2007, 2008, 2009, 2014 and 2015. ANZH did not pay any dividends on RPS
during the years ended 30 September 2016 and 30 September 2015.
In the event of liquidation, holders of RPS are entitled to available subscribed capital per share, pari passu with all holders of existing RPS
but in priority to all holders of ordinary shares. They have no entitlement to participate in further distribution of profits or assets.
Head office account
The NZ Branch capital comprises the initial head office account only. The head office account is the funds provided by the Ultimate Parent
Bank on the creation of the NZ Branch. It is non-interest bearing and there is no fixed date of repayment.

Australia and New Zealand Banking Group Limited - ANZ New Zealand49

NOTES TO THE FINANCIAL STATEMENTS
29. CAPITAL ADEQUACY
Capital management policies
ANZ New Zealand’s core capital objectives are to:•Protect the interests of depositors, creditors and shareholders•
Ensure the safety and soundness of ANZ New Zealand’s capital position•
Ensure that the capital base supports ANZ New Zealand’s risk appetite, and strategic business objectives, in an efficient and effective
manner.
The Board holds ultimate responsibility for ensuring that capital adequacy is maintained. This includes: setting, monitoring and obtaining
assurance for ANZ New Zealand’s Internal Capital Adequacy Assessment Process (“ICAAP”) policy and framework; standardised risk
definitions for all material risks; materiality thresholds; capital adequacy targets; internal economic risk capital principles; and risk appetite.
ANZ New Zealand has minimum and trigger levels for common equity tier 1, tier 1 and total capital that ensure sufficient capital ismaintained to:•
Meet minimum prudential requirements imposed by regulators•
Ensure consistency with ANZ New Zealand’s overall risk profile and financial positions, taking into account its strategic focus andbusiness plan•
Support the economic risk capital requirements of the business.
ANZ New Zealand’s Asset & Liability Committee and its related Capital Management Forum are responsible for developing, implementing
and maintaining ANZ New Zealand's ICAAP framework, including ongoing monitoring, reporting and compliance. ANZ New Zealand’s
ICAAP is subject to independent and periodic review conducted by Internal Audit.
ANZ New Zealand has complied with all externally imposed capital requirements to which it is subject during the current andcomparative periods.
Basel III capital ratios

Ultimate Parent Bank
(Extended Licensed Entity)

Overseas Banking Group
30/09/2016

30/09/2015

30/09/2016

30/09/2015

Unaudited

Common equity tier 1 capital

9.6%

9.6%

9.7%

9.6%

Tier 1 capital

11.8%

11.3%

12.1%

11.6%

Total capital

14.3%

13.3%

14.7%

13.7%

For calculation of minimum capital requirements under Pillar 1 (Capital Requirements) of the Basel Accord, APRA has accredited theOverseas Banking Group to use the Advanced Internal Ratings Based (AIRB) methodology for calculation of credit risk weighted assets andthe Advanced Measurement Approach (AMA) for the operational risk weighted asset equivalent.
Under prudential regulations, the Overseas Banking Group is required to maintain a Prudential Capital Ratio (PCR) as determined by APRA.
The Overseas Banking Group exceeded the PCR set by APRA as at 30 September 2016 and for the comparative prior periods.
The Overseas Banking Group is required to publicly disclose Pillar 3 financial information as at 30 September 2016. The Overseas Banking
Group’s Pillar 3 disclosure document for the quarter ended 30 September 2016, in accordance with APS 330: Public Disclosure of Prudential
Information, discloses capital adequacy ratios and other prudential information. This document can be accessed at the website anz.com.
Market risk
ANZ New Zealand’s aggregate market risk exposures below have been calculated in accordance with the RBNZ document BS2B. The peak
end-of-day market risk exposures are for the half-year ended 30 September 2016.
Implied risk weighted exposure
Period end

Notional capital charge

Peak

Peak

Period end

Peakoccurred on

Unaudited 30/09/2016

NZ$m

NZ$m

NZ$m

NZ$m

Interest rate risk

8,506

9,367

680

749

15/09/2016

Foreign currency risk

35

130

3

10

17/05/2016

Equity risk

1

2

-

-

29/06/2016

8,542

683

Australia and New Zealand Banking Group Limited - ANZ New Zealand

50

NOTES TO THE FINANCIAL STATEMENTS
Residential mortgages by loan-to-valuation ratio
As required by the RBNZ, LVRs are calculated as the current exposure secured by a residential mortgage divided by ANZ New Zealand'svaluation of the security property at origination of the exposure. Off balance sheet exposures include undrawn and partially drawn
residential mortgage loans as well as commitments to lend. Commitments to lend are formal offers for housing lending which have been
accepted by the customer.

30/09/2016
On-balance
sheet
NZ$m

Off-balance
sheet
NZ$m

Total
NZ$m

Does not exceed 60%

29,335

4,760

34,095

Exceeds 60% and not 70%

15,317

1,499

16,816

Exceeds 70% and not 80%

19,324

1,604

20,928Does not exceed 80%

63,976

7,863

71,839Exceeds 80% and not 90%

4,657

198

4,855

Exceeds 90%

2,011

211

2,222

Total

70,644

8,272

78,916Note

30/09/2016
NZ$m

13

73,330

Unaudited

LVR range

Reconciliation of mortgage related amounts
Unaudited

Term loans - housing
Less: fair value hedging adjustment(154)

Less: housing loans made to corporate customers
On-balance sheet retail mortgage exposures(2,532)18

70,644

Add: off-balance sheet retail mortgage exposures

8,272

Total retail mortgage exposures as per LVR analysis

78,916

Australia and New Zealand Banking Group Limited - ANZ New Zealand51

NOTES TO THE FINANCIAL STATEMENTS
30. SUBSIDIARIESThe following table lists the principal subsidiaries of ANZ New Zealand. Principal subsidiaries are those that have transactions or balanceswith parties outside ANZ New Zealand. All subsidiaries are 100% owned and incorporated in New Zealand unless stated otherwise.
Principal subsidiaries

Nature of business

Members of the Banking GroupANZ Bank New Zealand Limited

Registered bank

ANZ Investment Services (New Zealand) Limited

Funds management

ANZ New Zealand (Int'l) Limited

Finance

ANZ New Zealand Investments Limited

Funds management

ANZ New Zealand Securities Limited

On-line share broker

ANZNZ Covered Bond Trust1

Securitisation entity

Arawata Assets Limited

Property

Karapiro Investments Limited1

Kingfisher NZ Trust 2008-1

Investment
Securitisation entity

OnePath Life (NZ) Limited

Insurance

UDC Finance Limited

Asset finance

Other operating members of ANZ New Zealand (together with the NZ Branch, the "Relevant Members")
ANZ Capel Court Limited (New Zealand Branch)2

Securitisation services

ANZ Holdings (New Zealand) Limited

Holding company

ANZ New Zealand does not own ANZNZ Covered Bond Trust and Kingfisher NZ Trust 2008-1. Control exists as ANZ New Zealand retains substantially all the risks and rewards ofthe operations. Details of ANZ New Zealand’s interest in consolidated structured entities is included in note 31.
2
Incorporated in Australia and registered in New Zealand as an Overseas ASIC Company.
1

Australia and New Zealand Banking Group Limited - ANZ New Zealand

52

NOTES TO THE FINANCIAL STATEMENTS
31. STRUCTURED ENTITIES, TRANSFERRED FINANCIAL ASSETS, FIDUCIARY ACTIVITIES AND
INSURANCE
Structured entities
ANZ New Zealand’s involvement with structured entities is mainly through securitisations and its funds management activities, which are
outlined further below. ANZ New Zealand has involvement with structured entities that may be established either by ANZ New Zealand or
by a third party.
Consolidated structured entities
Kingfisher NZ Trust 2008-1 (the Kingfisher Trust)
ANZ New Zealand has established the Kingfisher Trust as an in-house residential mortgage backed securities facility that can issue
securities meeting the RBNZ criteria to use as collateral in repurchase transactions with the RBNZ.
These assets do not qualify for derecognition as the Bank retains substantially all of the risks and rewards of the transferred assets.
As at 30 September 2016 and 30 September 2015 ANZ New Zealand had not entered into any repurchase agreements with the RBNZ for
residential mortgage backed securities and therefore no collateral had been accepted by the RBNZ under this facility.
ANZNZ Covered Bond Trust (the Covered Bond Trust)
Substantially all of the assets of the Covered Bond Trust are made up of certain housing loans and related securities originated by the Bank
which are security for the guarantee by ANZNZ Covered Bond Trust Limited as trustee of the Covered Bond Trust of issuances of coveredbonds by the Bank, or its wholly owned subsidiary ANZ New Zealand (Int’l) Limited, from time to time. The assets of the Covered Bond
Trust are not available to creditors of the Bank, although the Bank (or its liquidator or statutory manager) may have a claim against theresidual assets of the Covered Bond Trust (if any) after all prior ranking creditors of the Covered Bond Trust have been satisfied.
ANZ New Zealand continues to recognise the assets of the Covered Bond Trust on its balance sheet as, although they are pledged as
security for covered bonds, the Bank retains substantially all the risks and rewards of ownership.
Unconsolidated securitisations
ANZ New Zealand also has an interest in unconsolidated securitisation entities through the provision of funding facilities or holding bonds
or notes issued by such entities. ANZ New Zealand’s exposure to these entities is not material.
Transferred financial assets
Assets transferred to the Kingfisher Trust and the Covered Bond Trust
The Bank has purchased securities issued by both the Kingfisher Trust and the Covered Bond Trust in exchange for the transfer of therights to the cash flows associated with the identified residential mortgages. As at 30 September 2016, NZ$19,656 million of assets were
held in the Kingfisher Trust and the Covered Bond Trust (2015: NZ$16,071 million).
Repurchase transactions
Securities sold subject to repurchase agreements are not derecognised when substantially all the risks and rewards of ownership remain
with the Bank. See note 21 for details of securities sold under agreements to repurchase. The amount of trading securities encumberedthrough repurchase agreements is shown in note 22. The carrying amount of the associated liabilities is not materially different to theamount of trading securities subject to the repurchase agreement.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

53

NOTES TO THE FINANCIAL STATEMENTS
Funds management and other fiduciary activities
Funds management
Certain entities that form part of ANZ New Zealand act as trustee and/or manager for a number of unit trusts and investment andsuperannuation funds. ANZ New Zealand provides private banking services to a number of clients, including investment advice andportfolio management. ANZ New Zealand is not responsible for any decline in performance of the underlying assets of the investors due
to market forces.
As funds under management are not controlled by ANZ New Zealand, they are not included in these financial statements. ANZ New
Zealand derives fee and commission income from the sale and management of investment funds and superannuation schemes, unit
trusts and the provision of private banking services to customers. ANZ New Zealand derives commission income from the sale of third
party funds management products.
Some funds under management are invested in products owned or securities issued by ANZ New Zealand and are recorded as liabilities inthe balance sheet. At 30 September 2016, NZ$3,698 million of funds under management were invested in ANZ New Zealand's own
products or securities (2015: NZ$3,100 million).
Custodial services
ANZ New Zealand provides custodial services to customers in respect of assets that are beneficially owned by those customers.
30/09/2016

30/09/2015

NZ$m

NZ$m

Kiwisaver and other managed funds

11,2199,147

The Bonus Bonds Trust

3,561

3,277

ANZ PIE Fund1

953

794

7,007

6,020

Discretionary Investment Management Service (DIMS)

2

Other investment portfolios2

3,745

3,502

Total funds under management

26,48522,740Funds under custodial arrangements

7,408

6,535

Other funds held or managed subject to fiduciary responsibilities

1,927

1,547

Funds management fee income from structured entities

156

137

1

2

ANZ New Zealand established, and is considered to be the sponsor of, the ANZ PIE Fund. The ANZ PIE Fund invests only in deposits with the Bank. ANZ New Zealand does notreceive a management fee from, and does not have an interest in, the ANZ PIE Fund.
These funds are not structured entities as they are investment portfolios managed on behalf of customers.

Insurance business
ANZ New Zealand conducts insurance business through its subsidiary OnePath Life (NZ) Limited (OnePath Life).
ANZ New Zealand’s aggregate amount of insurance business comprises the total consolidated assets of OnePath Life of NZ$926 million(2015: NZ$884 million), which is 0.6% (2015: 0.6%) of the total consolidated assets of ANZ New Zealand.
Risk management
The Bank and entities that form part of ANZ New Zealand participating in the activities identified above have in place policies andprocedures to ensure that those activities are conducted in an appropriate manner. Should adverse conditions arise, it is considered thatthese policies and procedures will minimise the possibility that these conditions will adversely impact the Bank or ANZ New Zealand. The
policies and procedures include comprehensive and prominent disclosure of information regarding products, and formal and regularreview of operations and policies by management.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

54

NOTES TO THE FINANCIAL STATEMENTS
32. RELATED PARTY DISCLOSURES
Key management personnel
Key management personnel (KMP) are defined as directors and those executives who report directly to the Bank’s Chief Executive Officer
with responsibility for the strategic direction and management of a major revenue generating division or who control material revenue
and expenses.
Loans made to directors and other KMP are made in the ordinary course of business on normal commercial terms and conditions no morefavourable than those given to other employees or customers, including the term of the loan, security required and the interest rate.
All other transactions with KMP and their related parties are made on terms equivalent to those that prevail in arm’s length transactions.
These transactions generally involve the provision of financial and investment services. All such transactions that have occurred with KMP
and their related parties have been trivial or domestic in nature. In this context, transactions are only disclosed when they are consideredof interest to the users of the financial statements in making and evaluating decisions about the allocation of scarce resources.
Year toYear to30/09/2016
NZ$00030/09/2015
NZ$000Key management personnel compensation
Salaries and short-term employee benefits

11,303

12,698Post-employment benefits

280

220

Other long-term benefits

88

77

Termination benefits

79-

Share-based payments expense

4,123

5,076

Total compensation of key management personnel

15,87318,071Loans to key management personnel

16,652

12,693

Transactions with other related parties
The NZ Branch and ANZ New Zealand undertake transactions with the Immediate Parent Company, the Ultimate Parent Bank, othermembers of the Overseas Banking Group and associates.
These transactions principally consist of funding and hedging transactions, the provision of other financial and investment services,
technology and process support, and compensation for share based payments made to ANZ New Zealand employees. Transactions withrelated parties outside of ANZ New Zealand are conducted on an arm’s length basis and on normal commercial terms.
In addition the Bank undertakes similar transactions with subsidiaries, which are eliminated in the consolidated ANZ New Zealand financial
statements. Included within the Bank’s transactions with subsidiaries is the provision of administrative functions to some subsidiaries forwhich no payments have been made.
Transactions with related parties

Ultimate Parent Bank and subsidiaries not part of ANZ New ZealandInterest income

Year toYear to30/09/2016
NZ$m

30/09/2015
NZ$m

6

12

Interest expense

279

426

Other operating income

1935

Operating expenses

64

64

Preference shares redeemed

-

(10)

Immediate Parent Company
Interest expense

57

74

Preference shares issued-

675Interest expense-

3

Direct fee expense

108Dividends received

2

89

Share of associates' profit

55

Associates

Australia and New Zealand Banking Group Limited - ANZ New Zealand

55

NOTES TO THE FINANCIAL STATEMENTS
Balances with related parties
30/09/2016

30/09/2015

NZ$m

NZ$m

Cash

47

55

Settlement balances receivable

31

86

Collateral paid

375-

Derivative financial instruments

4,335

3,937

Other assets

108

97

Ultimate Parent Bank and subsidiaries not part of ANZ New Zealand

Associates
Investments in associates
Total due from related parties

7

4

4,903

4,179

Ultimate Parent Bank and subsidiaries not part of ANZ New Zealand
Settlement balances payable

106

98

-

688

Deposits and other borrowings

6,105

7,344

Derivative financial instruments

5,302

3,843

Payables and other liabilities

42

47

Subordinated debt

288

302

1,766

1,766

4

5

Collateral received

Immediate Parent Company
Deposits and other borrowings
Payables and other liabilities
Associates
Payables and other liabilities

1-

Total due to related parties

13,614

14,093

Balances due from / to related parties are unsecured other than that ANZ New Zealand and the Bank have provided guarantees andcommitments to related parties as follows:

Financial guarantees provided to the Ultimate Parent Bank

30/09/2016

30/09/2015

NZ$m

NZ$m

152

183

Australia and New Zealand Banking Group Limited - ANZ New Zealand

56

NOTES TO THE FINANCIAL STATEMENTS
33. CAPITAL EXPENDITURE AND OPERATING LEASE COMMITMENTS
30/09/2016
NZ$m

30/09/2015
NZ$m

5

12

Not later than 1 year

87

47

Later than 1 year but not later than 5 years

217

258

Later than 5 years

151

197

Total operating lease commitments

455

502

Total commitments

460

514

Contracts for outstanding capital expenditure
Not later than 1 year
Future minimum lease payments under non-cancellable operating leases

34. COMPENSATION OF AUDITORS
Year toYear to30/09/2016

30/09/2015

NZ$000

NZ$000

2,301

2,246

Prudential and regulatory services3

262

119

Offer documents assurance or review

100

155

Other assurance services4

67

126

Total other services

429

400

Total compensation of auditors relating to ANZ New Zealand

2,730

2,646

Compensation of auditors (KPMG New Zealand)
Audit or review of financial statements1
Other services:2

Fees paid on behalf of certain managed funds and not recharged2,5
Total compensation of auditors
1
2
3
4
5

33

35

2,763

2,681

Includes fees for both the audit of the annual financial statements and reviews of interim financial statements.
Comparative amounts have been updated to conform with current period classification, and to exclude NZ$68,000 of fees that were recharged to managed funds.
Includes fees for reviews and controls reports required by regulations.
Includes fees for controls reports, comfort letters and other agreed upon procedures engagements.
Amounts relate to the ANZ PIE Fund and certain other funds, and include fees for audits of annual financial statements and audits of summary financial statements forinclusion in offer documents, comfort letters and other agreed upon procedures engagements.

It is ANZ New Zealand’s policy that, subject to the approval of the Ultimate Parent Bank’s Audit Committee, KPMG can provide assurance
and other audit-related services that, while outside the scope of the statutory audit, are consistent with the role of auditor. KPMG may notprovide services that are perceived to be in conflict with the role of auditor. Services that are perceived to be in conflict with the role ofauditor include consulting advice and subcontracting of operational activities normally undertaken by management, and engagements
where the auditor may ultimately be required to express an opinion on its own work.

35. CONCENTRATIONS OF CREDIT RISK TO INDIVIDUAL COUNTERPARTIESANZ New Zealand measures its concentration of credit risk using actual exposures for bank counterparties and limits for non bankcounterparties.
For the three months ended 30 September 2016 there were no individual counterparties (excluding connected parties, governments andbanks with long term credit ratings of A- or above) where ANZ New Zealand’s period end or peak end-of-day credit exposure equalled or
exceeded 10% of the Overseas Banking Group’s equity (as at the end of the period).
This credit exposure information does not include exposures to counterparties if they are booked outside New Zealand.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

57

NOTES TO THE FINANCIAL STATEMENTS
36. RISK MANAGEMENT FRAMEWORK

Financial risk management

ANZ New Zealand recognises the importance of effective risk
management to its business success. Management iscommitted to achieving strong control and a distinctive risk
management capability that enables ANZ New Zealandbusiness units to meet their performance objectives.

Refer to note 18 for detailed disclosures on ANZ New Zealand's
financial risk management policies.

ANZ New Zealand approaches risk through managing thevarious elements of the system as a whole rather than viewing
them as independent and unrelated parts. The risk
management division (Risk Management) is independent of thebusiness, with clear delegations from the Board of the Ultimate
Parent Bank and operates within a comprehensive frameworkcomprising:•
The Boards of the entities making up ANZ New Zealand(the Boards) providing leadership, setting risk
appetite/strategy and monitoring progress•
A strong framework for development and maintenanceof ANZ New Zealand-wide risk management policies,
procedures and systems, overseen by an independent
team of risk professionals•
The use of sophisticated risk tools, applications andprocesses to execute the global risk management
strategy as it is deemed to apply to each entity across
ANZ New Zealand•Business unit level accountability, as the “first line ofdefence”, for the management of risks in alignment with
ANZ New Zealand’s strategy•
Independent oversight to ensure business unit levelcompliance with policies, regulations and laws, and toprovide regular risk evaluation and reporting.
ANZ New Zealand manages risk through an approval,delegation and limits structure. Regular reviews of the policies,
systems and risk reports, including the effectiveness of the risk
management systems, discussions covering ANZ New Zealand’s
response to emerging risk issues and trends, and that therequisite culture and practices are in place across ANZ New
Zealand, are conducted within ANZ New Zealand and also by
the Ultimate Parent Bank. The Boards have responsibility forreviewing all aspects of risk management.
The Boards have ultimate responsibility for overseeing theeffective deployment of risk management frameworks, policies
and processes within New Zealand. The Bank’s Risk Committee
assists the Boards in this function. The role of the Risk
Committee is to assist the Boards in the effective discharge of its
responsibilities for business, market, credit, operational,
compliance, liquidity, product and reputational risk
management, and to liaise and consult with the Ultimate Parent
Bank Risk Committee as required. Risk Management, via theChief Risk Officer, coordinates risk management activities
directly between Business Unit risk functions and Ultimate
Parent Bank Group Risk Management functions.
ANZ New Zealand’s risk management policies are essentially thesame as the Ultimate Parent Bank, but are tailored whererequired to suit the local New Zealand regulatory and businessenvironment.
The Bank’s Audit Committee has responsibility for reviewing for
ensuring the integrity of ANZ New Zealand's financial controls,
reporting systems and internal audit standards. It meets at least
four times a year and reports directly to the Board of the Bank.
All members of the Bank’s Audit Committee are non-executive
directors.

Operational Risk
Operational risk is the risk arising from day to day operational
activities which may result in direct or indirect loss. These losses
may result from failure to comply with policies, procedures, laws
and regulations, from fraud or forgery, from a breakdown in theavailability or integrity of services, systems and information, or
damage to ANZ New Zealand’s reputation.
Examples include failure to comply with policy and legislation,
human error, natural disasters, fraud and other malicious acts.
Where appropriate, risks are mitigated by insurance.
Risk Management is responsible for establishing ANZ New
Zealand’s operational risk framework and associated ANZ New
Zealand-wide policies. Business units are responsible for theidentification, analysis, assessment and treatment of operationalrisks on a day-to-day basis.
Business units have primary responsibility for the identificationand management of operational risk with executive oversightprovided through business unit Risk Forums. The Bank’s
Operational Risk Executive Committee (OREC) undertakes thegovernance function through the bi-monthly monitoring ofoperational risk performance across ANZ New Zealand. The
Boards and Risk Management conduct effective oversight
through the approval of operational risk policies andframeworks and monitoring key operational risk metrics.
Compliance
ANZ New Zealand conducts its business in accordance with all
relevant compliance requirements. In order to assist ANZ New
Zealand identify, manage, monitor and measure its complianceobligations, ANZ New Zealand has a comprehensive
compliance framework in place, which addresses both external(regulatory) and internal compliance.
Risk Management, in conjunction with business unit staff
ensure ANZ New Zealand operates within a complianceinfrastructure and framework that incorporates new andchanging business obligations and processes.
The compliance policies and their supporting framework seek
to minimise material risks to ANZ New Zealand’s reputation andvalue that could arise from non-compliance with laws,
regulations, industry codes and internal standards and policies.
Business units have primary responsibility for the identificationand management of compliance. Risk Management provides
policy and framework, measurement, monitoring and reporting,as well as leadership in areas such as anti-money laundering
procedures and matters of prudential compliance. The Boardand the Risk Committee of the Ultimate Parent Bank Board
conduct Board and Executive oversight.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

58

NOTES TO THE FINANCIAL STATEMENTS
Internal Audit
Internal Audit is a function independent of management whoserole is to provide the Board and management with an effective
and independent appraisal of the internal controls establishedby management. Operating under a Board approved Charter,
the reporting line for the outcomes of work conducted byInternal Audit is direct to the Chair of the Bank’s Audit
Committee, with a direct communication line to the Chief
Executive Officer of the Bank and the external auditor.
The Internal Audit Plan is developed utilising a risk based
approach and is refreshed on a quarterly basis. The Bank’s Audit

Committee approves the plan, the associated budget and anychanges.
All audit activities are conducted in accordance with local andinternational auditing standards, and the results of the activities
are reported to the Audit Committees of the Ultimate Parent
Bank and the Bank as appropriate, Risk Committee andmanagement. These results influence the performanceassessment of business heads.
Furthermore, Internal Audit monitors the remediation of audit
issues and highlights the current status of any outstanding
audits.

37. NZ BRANCH AND OVERSEAS BANKING GROUP INFORMATIONNZ Branch Funding
Total liabilities of the NZ Branch less amounts due to related parties
Overseas Banking Group Profitability and Size
Profit for the year ended 30/09/20161
Net profit after tax for the 12 months to 30/09/2016 as a percentage of average total assets
Total assets
Percentage change in total assets in the 12 months to 30/09/2016
1

30/09/2016
NZ$m

1,146
30/09/2016
AUDm

5,720
0.63%
914,869
2.81%

Net profit after tax for the year includes AUD 11 million of profit attributable to non-controlling interests.

Overseas Banking Group asset quality
Gross impaired assets

30/09/2016
AUDm

3,173

Gross impaired assets as a percentage of total assets

0.3%

Individual provision

1,307

Individual provision as a percentage of gross impaired assets

41.2%

Collective provision

2,876

Australia and New Zealand Banking Group Limited - ANZ New Zealand59

HISTORICAL SUMMARY OF FINANCIAL STATEMENTS
Year toYear toYear toYear toYear to30/09/2016

30/09/2015

30/09/2014

30/09/2013

30/09/2012

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Interest income

6,770

7,417

6,799

6,461

6,568

Interest expense

3,741

4,537

4,034

3,820

3,859

Net interest income

3,029

2,880

2,765

2,641

2,709

Non-interest income

832

1,157

1,063

795

905

Operating income

3,861

4,037

3,828

3,436

3,614

Operating expenses

1,600

1,513

1,490

1,513

1,743

Credit impairment charge / (release)

147

76

(9)

66

202

Profit before income tax

2,114

2,448

2,347

1,857

1,669

Income tax expense

572

677

636

488

404

Profit after income tax

1,542

1,771

1,711

1,369

1,265

Dividends paid

(1,320)(1,630)(2,335)

(720)

(485)

-

665

969

-

-

Share capital issued

Total impaired assets

As at

As at

As at

As at

As at

30/09/2016

30/09/2015

30/09/2014

30/09/2013

30/09/2012

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

433

404

668

936

1,405

Total assets

166,706

155,530

138,528

129,853

130,983

Total liabilities

155,539

144,670

128,447

120,111

121,827

Equity & head office account

11,167

10,86010,081

9,742

9,156

The amounts included in this summary have been taken from the audited financial statements of ANZ New Zealand.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

60

GENERAL DISCLOSURES
General Matters
The Disclosure Statement has been issued in accordance with theOrder.
The address for service for the Ultimate Parent Bank is ANZ Centre
Melbourne, Level 9, 833 Collins Street, Docklands, Victoria 3008,
Australia.
Financial Statements of the Ultimate Parent Bank andOverseas Banking Group
Copies of the most recent publicly available financial statements of
the Ultimate Parent Bank and Overseas Banking Group will be
provided immediately, free of charge, to any person requesting a
copy where request is made at the Registered Office. The mostrecent publicly available financial statements for the Ultimate
Parent Bank and Overseas Banking Group can also be accessed at
the internet address anz.com.

Ranking of local creditors in liquidation
Certain creditors of the Ultimate Parent Bank are given a statutory
priority under Australian law. Unsecured creditors of the NZ Branch
could be expected to rank behind such claims.
Specifically, pursuant to section 13A(3) of the Banking Act of theCommonwealth of Australia (the Banking Act), if an Authorised
Deposit-Taking Institution (ADI) (which includes the Ultimate
Parent Bank) becomes unable to meet its obligations or suspends
payment, the assets of the ADI in Australia are available to meet
the ADI's liabilities in the following order:(a) first, the ADI's liabilities (if any) to APRA because of the rights
APRA has against the ADI because of section 16AI of the
Banking Act(b) second, the ADI's debts (if any) to APRA under section 16AO
of the Banking Act(c) third, the ADI's liabilities (if any) in Australia in relation toprotected accounts that account-holders keep with the ADI.
Broadly, this includes, among other things, certain deposit
accounts with the Ultimate Parent Bank that are situated inAustralia and recorded in Australian dollars(d) fourth, the ADI’s debts (if any) to the Reserve Bank of Australia(e) fifth, the ADI’s liabilities (if any) under an industry support
contract that is certified by APRA under section 11CB of the
Banking Act(f)sixth, the ADI's other liabilities in the order of their priority(apart from section 13A(3)).

Unsecured creditors of the NZ Branch could be expected to rank as
a creditor pursuant to the sixth paragraph, together with otherunsecured creditors of the Ultimate Parent Bank that do not
otherwise have a priority claim under preceding paragraphs.
Under section 13A(1) of the Banking Act, in certain circumstances
APRA may investigate the affairs of an ADI, appoint a person toinvestigate the affairs of an ADI, take control of an ADI’s business or
appoint an administrator to take control of the ADI’s business.
Section 16(1) and (2) of the Banking Act provide that, despite
anything contained in any law relating to the winding-up ofcompanies, but subject to section 13A(3) of the Banking Act, thedebts of an ADI to APRA in respect of APRA's costs (including costsin the nature of remuneration and expenses) of being in control of
the ADI's business, or of having an administrator in control of the
ADI's business, are a debt due to APRA and have priority in awinding-up of the ADI over all other unsecured debts.

Section 86 of the Reserve Bank Act 1959 of the Commonwealth ofAustralia provides that notwithstanding anything contained in any
law relating to the winding-up of companies, but subject tosection 13A(3) of the Banking Act, debts due to the Reserve Bank ofAustralia by any ADI shall, in a winding-up, have priority over allother debts.
Section 13A(3) of the Banking Act affects all of the unsecured
liabilities of the NZ Branch, which as at 30 September 2016,
amounted to $nil (2015: nil).

Requirement to hold excess assets over deposit
liabilities
Section 13A(4) of the Banking Act states that it is an offence for an
ADI not to hold assets (excluding goodwill and any assets or otheramount excluded by the prudential standards for the purposes ofthat subsection) in Australia of a value that is equal to or greaterthan the total amount of its deposit liabilities in Australia, unless
APRA has authorised the ADI to hold assets of a lesser value.
During the year ended 30 September 2016, the Ultimate Parent
Bank has at all times held assets (excluding goodwill and any assets
or other amounts prescribed by APRA) in Australia of not less thanthe value of the Ultimate Parent Bank's total deposit liabilities inAustralia.
Section 13E of the Banking Act states that APRA may give the
Ultimate Parent Bank a direction that requires it to increase its levelof capital in the circumstances specified in that section.
The requirements of the Banking Act have the potential to impact
the management of the liquidity of ANZ New Zealand.

Guarantors
No material obligations of the NZ Branch are guaranteed as at 23
November 2016.
ANZNZ Covered Bond Trust
Certain debt securities (Covered Bonds) issued by the Bank’s
wholly owned subsidiary, ANZ New Zealand (Int’l) Limited, areguaranteed by ANZNZ Covered Bond Trust Limited (the Covered
Bond Guarantor), solely in its capacity as trustee of ANZNZ Covered
Bond Trust. The Covered Bond Guarantor has guaranteed thepayment of interest and principal of Covered Bonds with a carrying
value as at 30 September 2016 of NZ$6,218 million, pursuant to aguarantee which is secured over a pool of assets. The Covered
Bond Guarantor’s address for service is Level 9, 34 Shortland Street,
Auckland, New Zealand. The Covered Bond Guarantor is not amember of the Banking Group and has no credit ratings applicable
to its long term senior unsecured obligations payable in New
Zealand dollars. The Covered Bonds have been assigned a longterm rating of Aaa and AAA by Moody’s Investors Service and Fitch
Ratings respectively. Details of the pool of assets that secure thisguarantee are provided in note 31.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

61

GENERAL DISCLOSURES
Other Matters

Credit Rating Information

APRA has reviewed the level of exposures that can be provided to
the respective New Zealand banking subsidiaries and branches(New Zealand operations) of the four Australian parent banks,
including the Ultimate Parent Bank.

As at 23 November 2016 the Ultimate Parent Bank has three credit
ratings, which are applicable to its long-term senior unsecured
obligations which are payable in New Zealand in New Zealanddollars. On 7 July 2016, Standard & Poor’s changed the outlook on
the Ultimate Parent Bank from Stable to Negative. On 18 August
2016, Moody’s Investors Service changed the outlook on the
Ultimate Parent Bank from Stable to Negative.

APRA has confirmed that by 1 January 2021 no more than 5% of
the Ultimate Parent Bank’s Level 1 Tier 1 capital can comprise nonequity exposures to its New Zealand operations during ordinary
times. Exposures in excess of this limit must be reduced in equal
percentages over the five year transition period and may notincrease above the exposures as at 30 June 2015. This limit does
not include holdings of capital instruments or eligible secured
contingent funding support provided to the Bank during times offinancial stress.
The Ultimate Parent Bank established a New Zealand branch which
was registered on 5 January 2009. The Bank sells, from time-totime, residential loans and mortgages into the NZ Branch toprovide funding for the Bank’s business. As at 30 September 2016,
the NZ Branch held approximately NZ$6.0 billion of residential
loans. To satisfy APRA’s requirements described above, the Bank
intends to repay this funding at approximately NZ$1.6 billion perannum over the five year transition period ending 31 December
2020.
APRA has also clarified that contingent funding support by the
Ultimate Parent Bank to the Bank during times of financial stressmust be provided on terms that are acceptable to APRA and, inaggregate with all other exposures to its New Zealand operations,must not exceed 50% of the Ultimate Parent Bank’s Level 1 Tier 1
capital. At present, only covered bonds meet APRA’s criteria forcontingent funding. On this basis, we believe that the Ultimate
Parent Bank will continue to be able to provide financial support to
the Bank.

The Ultimate Parent Bank’s credit ratings are:Rating Agency
Standard & Poor’s

Current Credit
Rating
Qualification
AAOutlook Negative

Moody’s Investors Service

Aa2

Outlook Negative

Fitch Ratings

AA-

Outlook Stable

The following table describes the credit rating grades available:
Standard &Poor'sMoody's Fitch Ratings
Investors
Service

The following grades display investment grade characteristics:
Ability to repay principal and
AAA
Aaa
AAA
interest is extremely strong. This is
the highest investment category.
Very strong ability to repayAA
AaAA
principal and interest.
Strong ability to repay principal
AAA
and interest although somewhat
susceptible to adverse changes in
economic, business or financial
conditions.
Adequate ability to repay
BBB
Baa
BBB
principal and interest. Morevulnerable to adverse changes.
The following grades have predominantly speculative
characteristics:
Significant uncertainties exist
BB
Ba
BB
which could affect the paymentof principal and interest on atimely basis.
Greater vulnerability andB
B
B
therefore greater likelihood of
default.
Likelihood of default now
CCC
Caa
CCC
considered high. Timely
repayment of principal andinterest is dependent on
favourable financial conditions.
CC to CCa to CCC to C
Highest risk of default.
D
RD & D
Obligations currently in default.
Credit ratings from Standard & Poor's and Fitch Ratings may be modified by theaddition of "+" or "-" to show the relative standing within the “AA” to “B” categories.
Moody's Investors Service applies numerical modifiers 1, 2, and 3 to each of the “Aa” to“Caa” classifications, with 1 indicating the higher end and 3 the lower end of the rating
category.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

62

CONDITIONS OF REGISTRATION
Conditions of Registration, applicable as at 30 September
2016. These Conditions of Registration have applied from 1
November 2015.

5.

The registration of Australia and New Zealand Banking Group
Limited (the registered bank) in New Zealand is subject to thefollowing conditions:That Australia and New Zealand Banking Group Limited
complies with the requirements imposed on it by theAustralian Prudential Regulation Authority.

6.

That Australia and New Zealand Banking Group Limited
complies with the following minimum capital adequacy
requirements, as administered by the Australian Prudential
Regulation Authority:

1.

b)That the banking group does not conduct any non-financial
activities that in aggregate are material relative to its total
activities.

a)That the banking group’s insurance business is not greaterthan 1% of its total consolidated assets.

Common Equity Tier 1 capital of the Australia and New
Zealand Banking Group Limited is not less than 4.5
percent of risk weighted exposures;b)

For the purposes of this condition of registration, the banking
group’s insurance business is the sum of the following
amounts for entities in the banking group:

Tier 1 capital of the Australia and New Zealand Banking
Group Limited is not less than 6 percent of risk weighted
exposures;c)

Total capital of Australia and New Zealand Banking
Group Limited is not less than 8 percent of risk weighted
exposures.

In this condition of registration, the meaning of “material” isbased on generally accepted accounting practice.
2.

a)

b)

If the business of an entity predominately consists of
insurance business and the entity is not a subsidiary of
another entity in the banking group whose businesspredominantly consists of insurance business, theamount of the insurance business to sum is the total
consolidated assets of the group headed by the entity;
andIf the entity conducts insurance business and its businessdoes not predominantly consist of insurance businessand the entity is not a subsidiary of another entity in thebanking group whose business predominantly consistsof insurance business, the amount of the insurance
business to sum is the total liabilities relating to theentity’s insurance business plus the equity retained by
the entity to meet the solvency or financial soundness
needs of its insurance business.

In determining the total amount of the banking group’s
insurance businessa)

all amounts must relate to on balance sheet items
only, and must comply with generally accepted
accounting practice; andb)

if products or assets of which an insurance businessis comprised also contain a non-insurancecomponent, the whole of such products or assets
must be considered part of the insurance business.

For the purposes of this condition of registration,“insurance business” means the undertaking orassumption of liability as an insurer under a contract of
insurance:“insurer” and “contract of insurance” have the same
meaning as provided in sections 6 and 7 of the Insurance(Prudential Supervision) Act 2010.
3.

4.

the Reserve Bank has advised that it has no objection tothat appointment.

That the business of the registered bank in New Zealand does
not constitute a predominant proportion of the total businessof the registered bank.
That no appointment to the position of the New Zealandchief executive officer of the registered bank shall be madeunless:a)the Reserve Bank has been supplied with a copy of thecurriculum vitae of the proposed appointee; and7.

That the business of the registered bank in New Zealand isrestricted to:a)acquiring for fair value, and holding, mortgages
originated by ANZ Bank New Zealand Limited; andb)

any other business for which the prior written approvalof the Reserve Bank of New Zealand has been obtained;
andc)activities that are necessarily incidental to the businessspecified in paragraphs (a) and (b).

8.

That the value of the mortgages held by the registered bankin New Zealand must not exceed $15 billion in aggregate.

9.

That the registered bank in New Zealand does not incur any
liabilities except:a)to the government of New Zealand in respect of taxationand other charges;b)

to other branches or the head office of the registered
bank;

c)

to trade creditors and staff;d)to ANZ Bank New Zealand Bank Limited in respect ofactivities, other than borrowing, that are necessarily
incidental to the business specified in paragraphs (a) and(b) of condition 7; ande)any other liabilities for which the prior written approvalof the Reserve Bank has been obtained.

In these conditions of registration:“banking group” means the New Zealand business of theregistered bank and its subsidiaries as required to be reported
in group financial statements for the group’s New Zealandbusiness under section 461B(2) of the Financial Markets
Conduct Act 2013.
“business of the registered bank in New Zealand” means the
New Zealand business of the registered bank as defined in
the requirement for financial statements for New Zealandbusiness in section 461B(1) of the Financial Markets Conduct
Act 2013.
“generally accepted accounting practice” has the same
meaning as in section 8 of the Financial Reporting Act 2013.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

63

DIRECTORATE AND AUDITOR
Any document or communication may be sent to any Director
or the Chief Executive Officer – NZ Branch at the Registered
Office. The document or communication should be marked forthe attention of that Director or the Chief Executive Officer.
Directors’ Interests
The Board of the Ultimate Parent Bank has adopted procedures
to ensure that conflicts and potential conflicts of interest
between a Director’s duties to the Ultimate Parent Bank andtheir own interests are avoided or dealt with. Pursuant to theseprocedures:••

each Director should disclose to all Directors any material
personal interest they have in any matter which relates tothe affairs of the Ultimate Parent Bank and any otherinterest which the Director believes is appropriate todisclose in order to avoid an actual conflict of interest or
the perception of a conflict of interest. This disclosure
should be made as soon as practicable after the Director
becomes aware of their interest or the need to make adisclosure.
Director who has an interest of the type referred to in a.
above in a matter that is to be considered at a Directors'
meeting, must not vote on the matter nor be present while
the matter is considered at the meeting, unless a majorityof Directors who do not have such an interest in the matter
agree that the interest should not disqualify such Director
from being present while the matter is being considered
and from voting on the matter. The minutes of themeeting should record the decision taken by the Directors
who do not have an interest in the matter.

In addition, Standing Notices about Interests are maintained foreach Director. If the Director's interests change, the Director
shall disclose the change as soon as practicable and an updated
Standing Notice shall be tabled at the next Board meeting andrecorded in the minutes of that meeting.
Transactions with Directors and the Chief Executive Officer,
NZ Branch
There are no transactions entered into by any Director, the Chief
Executive Officer – NZ Branch, or any immediate relative or
close business associate of any Director or the Chief Executive
Officer – NZ Branch, with any part of ANZ New Zealand which
has been either entered into on terms other than those which
would in the ordinary course of business be given to any otherperson of like circumstances or means or which could
otherwise be reasonably likely to influence materially theexercise of the Directors' or Chief Executive Officer – NZ Branch
duties in respect of the NZ Branch and ANZ New Zealand.

Board Members as at 23 November 2016
The names, qualifications, occupation, country of residence andmaterial external directorships of each director of the Ultimate
Parent Bank as at the date this Disclosure Statement was signed
were:

ChairmanDavid Michael Gonski, AC
BCom, LLB, FAICD(Life), FCPA
Company Director
Sydney, Australia
Mr Gonski is an ex-officio member of all Board Committees,
including Chair of the Environmental, Sustainability andGovernance Committee.
Chairman: Coca-Cola Amatil Limited and The University of New
South Wales Foundation Limited
Director/Member: Lowy Institute for International Policy, ASIC
External Advisory Panel, Australian Philanthropic Services
Limited and Advisory Committee for Optus Limited
Chancellor: University of New South Wales Council
President: Art Gallery of NSW Trust

Chief Executive Officer – Australia and New Zealand
Banking Group Limited
Shayne Cary Elliott
B Com
Chief Executive Officer and Executive Director
Melbourne, Australia
Director: The Financial Markets Foundation for Children

Non-Executive Directors
Ilana Rachel Atlas
BJuris (Hons), LLB (Hons), LLM
Company Director
Sydney, Australia
Ms Atlas is a member of the Audit Committee, Human
Resources Committee and Environmental, Sustainability andGovernance Committee.
External Directorships
Chairman: The Bell Shakespeare Company Limited
Director: Oakridge Wines Pty Limited, Coca-Cola Amatil
Limited, Human Rights Law Centre Ltd, Treasury Corporation of
New South Wales, Jawun, Westfield Corporation Limited
Member: Australian Institute of Company Directors’ Corporate
Governance Committee and Panel of Adara Partners
Fellow: Senate of the University of Sydney

Australia and New Zealand Banking Group Limited - ANZ New Zealand

64

DIRECTORATE AND AUDITOR
Paula Jane Dwyer

Ian John Macfarlane, AC

BCom, FCA, SF Fin, FAICD
Company Director
Melbourne, Australia

BEc (Hons), MEc, Hon DSc Syd., Hon DSc UNSW, Hon DCom
Melb., Hon DLitt Macq., Hon LLD Monash
Company Director
Sydney, Australia

Ms Dwyer is Chair of the Audit Committee and a member of the
Risk Committee and Human Resources Committee.
External Directorships
Chairman: Healthscope Limited, Tabcorp Holdings Limited andKin Group Advisory Board
Director: Lion Pty Ltd
Member: Kirin International Advisory Board

Mr Macfarlane is Chair of the Risk Committee and a member ofthe Environmental, Sustainability and Governance Committee
and Audit Committee.
External Directorships
Director: Lowy Institute for International Policy
Member: International Advisory Board of Goldman Sachs

Sarah Jane Halton, AO, PSM

John Thomas Macfarlane

BA (Hons) Psychology, FAIM, FIPAA, NAM, Hon. FAAHMS, Hons.
FACHSE, Hon. DLitt (UNSW)Company Director
Canberra, Australia

BCom, MCom (Hons)
Company Director
Melbourne, Australia

External Directorships
Member: Executive Board of the Institute of Health Metrics and
Evaluation at the University of Washington
Board Member: Coalition for Epidemic Preparedness
Innovations (Norway)
Public Policy Fellow: ANU Crawford School of Public Policy
Adjunct Professor: University of Sydney and University ofCanberra
Lee Hsien Yang
MSc, BA
Company Director
Singapore
Mr Lee is Chair of the Digital Business and Technology
Committee and a member of the Risk Committee and Human
Resources Committee.
External Directorships
Chairman: Civil Aviation Authority of Singapore, The Islamic
Bank of Asia Limited, and General Atlantic Singapore Fund Pte
Ltd
Director: Rolls-Royce Holdings plc, General Atlantic Singapore
Fund FII Pte Ltd, Caldecott Inc., and Cluny Lodge Pte Ltd
Member: Governing Board of Lee Kuan Yew School of Public
PolicySpecial Advisor: General Atlantic
Consultant: Capital International Inc Advisory Board
President: INSEAD South East Asia Council
Graeme Richard Liebelt
BEc (Hons), FAICD, FTSE, FAIM
Company Director
Melbourne, Australia
Mr Liebelt is Chair of the Human Resources Committee, and amember of the Risk Committee, Environmental, Sustainability
and Governance Committee and Digital Business andTechnology Committee
External Directorships
Chairman: Amcor Limited
Director: Australian Foundation Investment Company Limited,
DuluxGroup Limited and Carey Baptist Grammar School

Mr Macfarlane is a member of the Audit Committee, Risk
Committee and Digital Business and Technology Committee.
External Directorships
Chairman: AGInvest Holdings Limited (MyFarm Limited)
Director: Craigs Investment Partners Limited, Colmac Group Pty
Ltd, Aikenhead Centre for Medical Discovery Limited and St.
Vincent’s Institute of Medical Research

Chief Executive Officer, Australia and New Zealand
Banking Group – New Zealand Branch
Anthony John Bradshaw
BCA, CA
Chief Executive Officer– NZ Branch
Wellington, New ZealandAuditor
KPMG
Chartered Accountants
10 Customhouse Quay
P O Box 996
Wellington, New ZealandAustralia and New Zealand Banking Group Limited - ANZ New Zealand

65

DIRECTORS' AND NEW ZEALAND CHIEF EXECUTIVE OFFICER'S STATEMENT
As at the date on which this Disclosure Statement is signed, after due enquiry, each Director of the Ultimate Parent Bank and the Chief
Executive Officer – NZ Branch believes that:•

The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statements (Overseas
Incorporated Registered Banks) Order 2014•

The Disclosure Statement is not false or misleading.

Over the year ended 30 September 2016, after due enquiry, each Director of the Ultimate Parent Bank and the Chief Executive Officer – NZ
Branch believes that:•

The Ultimate Parent Bank has complied with all Conditions of Registration that applied during that period•

The NZ Branch and the Bank had systems in place to monitor and control adequately the material risks of Relevant Members of ANZ
New Zealand including credit risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk and otherbusiness risks, and that those systems were being properly applied.

This Disclosure Statement is dated 23 November 2016, and has been signed by the Chairman of the Ultimate Parent Bank, onbehalf of all Directors, and by the Chief Executive Officer – NZ Branch.

David Gonski, AC
Chairman,on behalf of the Directors:
Ilana Atlas
Paula Dwyer
Shayne ElliottDavid Gonski, AC
Sarah Jane Halton, AO, PSM
Lee Hsien Yang
Graeme Liebelt
Ian Macfarlane, ACJohn Macfarlane

Anthony Bradshaw
Chief Executive Officer – NZ BranchAustralia and New Zealand Banking Group Limited - ANZ New Zealand

66

INDEPENDENT AUDITOR’S REPORTTo the Directors of Australia and New Zealand Banking Group Limited
Report on the ANZ New Zealand Disclosure Statement
We have audited the accompanying financial statements and supplementary information (excluding supplementary information relating
to Capital Adequacy) of Australia and New Zealand Banking Group Limited – New Zealand Branch and its related entities (“ANZ New
Zealand”) on pages 3 to 58 of the Disclosure Statement. The financial statements comprise the balance sheet as at 30 September 2016, thestatements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant
accounting policies and other explanatory information of ANZ New Zealand. The supplementary information comprises the informationthat is required to be disclosed in accordance with Schedules 2, 4, 7, 9, 10, 11 and 13 of the Registered Bank Disclosure Statements(Overseas Incorporated Registered Banks) Order 2014 (as amended) (the Order).
This report is made solely to the Directors as a body. Our audit work has been undertaken so that we might state to the Directors ofAustralia and New Zealand Banking Group Limited those matters we are required to state to them in the auditor's report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Directors of Australia
and New Zealand Banking Group Limited as a body, for our audit work, this report or any of the opinions we have formed.
Directors' responsibility for the disclosure statement
The Directors are responsible on behalf of ANZ New Zealand for the preparation of ANZ New Zealand Disclosure Statement, including
financial statements prepared in accordance with Clause 25 of the Order, generally accepted accounting practice in New Zealand that is afair presentation of the matters to which they relate. The Directors are also responsible for such internal controls as they determine arenecessary to enable the preparation of the ANZ New Zealand financial statements that are free from material misstatement whether due
to fraud or error.
The Directors are responsible for the preparation and fair presentation of supplementary information, in accordance with Schedules 2, 4, 7,
10, 11 and 13 of the Order.
Auditor’s responsibility
Our responsibility is to express an opinion on the Disclosure Statement, including the financial statements prepared in accordance with
Clause 25 of the Order and the supplementary information disclosed in accordance with Schedules 2, 4, 7, 10, 11 and 13 of the Order. We
conducted our audit in accordance with International Standards on Auditing (New Zealand). Those standards require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance about whether ANZ New Zealand financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in ANZ New Zealand financial
statements (excluding the supplementary information relating to Capital Adequacy). The procedures selected depend on the auditor’s
judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In
making those risk assessments, the auditor considers internal controls relevant to ANZ New Zealand’s preparation of the financial
statements that present fairly the matters to which they relate in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of ANZ New Zealand’s internal controls. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as
evaluating the presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion on the Disclosure Statement
In our opinion the Disclosure Statement of ANZ New Zealand on pages 3 to 58 (excluding the supplementary information):•complies with generally accepted accounting practice in New Zealand•complies with International Financial Reporting Standards•

give a true and fair view of the financial position of ANZ New Zealand as at 30 September 2016 and of the financial performance andcash flows for the year ended on that date.

Opinion on supplementary information
In our opinion, the supplementary information (excluding supplementary information relating to Capital Adequacy) that is required to bedisclosed in accordance with Schedules 2, 4, 7, 10, 11 and 13 of the Order:•

has been prepared, in all material respects, in accordance with the guidelines issued pursuant to section 78(3) of the Reserve Bank of
New Zealand Act 1989 and any conditions of registration

Australia and New Zealand Banking Group Limited - ANZ New Zealand•is in accordance with the books and records of ANZ New Zealand in all material respects•

fairly states, in all material respects, the matters to which it relates in accordance with those Schedules.

67

Report on the supplementary information relating to Capital Adequacy
We have reviewed the supplementary information relating to Capital Adequacy, as disclosed in note 29 of the Disclosure Statement for
the year ended 30 September 2016.
Directors’ responsibility for the supplementary information relating Capital Adequacy
The Directors are responsible for the preparation of supplementary information relating to Capital Adequacy that is required to bedisclosed under Schedule 9 of the Order and prepared in accordance with the Capital Adequacy Framework (Standardised Approach)(BS2A) and described in note 29 of the Disclosure Statement.
Auditor’s responsibility
Our responsibility is to express an opinion on the supplementary information relating to Capital Adequacy based on our review. We
conducted our review in accordance with NZ SRE 2410 Review of Financial Statements Performed by the Independent Auditor of the Entity
issued by the New Zealand External Reporting Board. As the auditor of ANZ New Zealand, NZ SRE 2410 requires that we comply with the
ethical requirements relevant to the audit of the annual financial statements and plan and perform the review to obtain limited assurance
about whether the supplementary information relating to Capital Adequacy is, in all material respects:•

prepared in accordance with the Capital Adequacy Framework (Standardised Approach) (BS2A)•

disclosed in accordance with Schedule 9 of the Order.

A review is limited primarily to enquiries of ANZ New Zealand personnel and analytical review procedures applied to the financial data,
and thus provides less assurance than an audit. We have not performed an audit in respect of the Capital Adequacy disclosures, andaccordingly, we do not express an audit opinion on these disclosures.
A review of the supplementary information relating to Capital Adequacy in accordance with NZ SRE 2410 is a limited assurance
engagement. The auditor performs procedures, primarily consisting of making enquiries, primarily of persons responsible for financial andaccounting matters, and applying analytical and other review procedures.
The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with International
Standards on Auditing (New Zealand). Accordingly we do not express an audit opinion on the supplementary information relating tocapital adequacy disclosures.
Review opinion on the supplementary information relating to Capital Adequacy
Based on our review, nothing has come to our attention that causes us to believe that the supplementary information relating to Capital
Adequacy, and disclosed in note 29 of the Disclosure Statement, is not, in all material respects:•

prepared in accordance with the Capital Adequacy Framework (Standardised Approach) (BS2A)•

disclosed in accordance with Schedule 9 of the Order.

Review on other legal and regulatory requirements
In accordance with the requirements of clauses 2(1)(d) and 2(1)(e) of Schedule 1 of the Order, we report that:•

we have obtained all the information and explanations we have required•in our opinion, proper accounting records have been kept by ANZ New Zealand, as far as appears from our examination of thoserecords.

Independence
Our firm has provided other services to ANZ New Zealand in relation to review of regulatory returns, internal controls reports, prospectus
assurance or reviews and agreed upon procedures engagements. Subject to certain restrictions partners and employees of our firm may
also deal with the ANZ New Zealand on normal terms within the ordinary course of trading activities of the business of ANZ New Zealand.
There are, however, certain restrictions on dealings which the partners and employees of our firm can have with ANZ New Zealand. These
matters have not impaired our independence as auditors of ANZ New Zealand. The firm has no other relationship with, or interest in, ANZ
New Zealand.

Wellington
23 November 2016