For personal use only

ANZ NATIONAL BANK LIMITED GROUP GENERAL DISCLOSURE STATEMENTA N Z N AT I O N A L B A N K L I M I T E D G R O U P

G E NE R A L DISC LO SUR E S TATE M E N T

For the year ended 30 September 2008
Number 51 Issued November 2008

30 september 2008 NUMBER 51

ANZ National Bank Limited

For personal use only

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

GENERAL DISCLOSURE STATEMENT
for the year ended
30 September 2008

CONTENTS
General Disclosures			2-3Summary of Financial Statements			

4

Income Statements 			5Statements of Recognised Income and Expense			

6

Balance Sheets			

7

Cash Flow Statements			

8-9

Notes to the Financial Statements			

10 - 110

Directorate and Auditors			

111 -112

Conditions of Registration			

113 -115

Credit Rating Information			116

Directors’ Statement			

117

Independent Audit Report			118

Index			119A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

GENERAL DISCLOSURESThis Disclosure Statement has been issued in accordance with
the Registered Bank Disclosure Statement (Full and Half-Year New Zealand Incorporated Registered Banks) Order 2008 (‘theOrder’).
In this Disclosure Statement unless the context otherwise requires:a) “Banking Group” means ANZ National Bank Limited and all its
subsidiaries; andb) any term or expression which is defined in, or in the mannerprescribed by, the Registered Bank Disclosure Statement (Full andHalf-Year - New Zealand Incorporated Registered Banks) Order2008 shall have the meaning given in or prescribed by that Order.
G eneral M atters

The full name of the registered bank is ANZ National Bank Limited(‘the Bank’) and its address for service is Level 14, ANZ Tower, 215229 Lambton Quay, Wellington, New Zealand.
The Bank was incorporated under the Companies Act 1955 by virtue ofthe ANZ Banking Group (New Zealand) Act 1979 on 23 October 1979,
and was reregistered under the Companies Act 1993 on 13 June 1997.
The immediate parent company of the Bank is ANZ Holdings(New Zealand) Limited (incorporated in New Zealand). The immediate
parent company is owned by ANZ Funds Pty Limited and Australia
and New Zealand Banking Group Limited (both incorporated inAustralia).
The Ultimate Parent Bank is Australia and New Zealand Banking Group
Limited (‘ANZ’), which is incorporated in Australia, and its address forservice is Level 14, 100 Queen Street, Melbourne, Australia.
The Bank is wholly owned by its immediate parent company andultimately the Ultimate Parent Bank. The immediate parent company
has the power under the Bank’s Constitution to appoint any person asa Director of the Bank either to fill a casual vacancy or as an additional
Director or to remove any person from the office of Director, fromtime to time by giving written notice to the Bank. No appointmentof a new Director may occur unless the Reserve Bank of New Zealand(‘RBNZ’) confirms that it does not object to the appointment.
N ature o f B usiness

The principal activities of the Banking Group during the period wereretail, corporate and rural banking, mortgage lending, asset andgeneral finance, international and investment banking, nominee andcustodian services. Life insurance and funds management activities
are carried out through the ING New Zealand joint venture. 		
With the sale of Truck Leasing Limited, the Banking Group no longer
has significant operating lease activities.		

M aterial Financial S upport

In accordance with the requirements issued by the Australian
Prudential Regulatory Authority (‘APRA’) pursuant to the Prudential
Standards, Australia and New Zealand Banking Group Limited, as the
Ultimate Parent Bank, may not provide material financial support to
the Bank1 contrary to the following:		
• the Ultimate Parent Bank should not undertake any third party dealings
with the prime purpose of supporting the business of the Bank;• the Ultimate Parent Bank should not hold unlimited exposures(should be limited as to specified time and amount) in the Bank(e.g. not provide a general guarantee covering any of the Bank’s
obligations);• the Ultimate Parent Bank should not enter into cross default clauses
whereby a default by the Bank on an obligation (whether financial
or otherwise) is deemed to trigger a default of the Ultimate Parent
Bank in its obligations;• the Board of the Ultimate Parent Bank in determining limits on
acceptable levels of exposure to the Bank should have regard to:• the level of exposure that would be approved to third parties ofbroadly equivalent credit status. In this regard, prior consultation(and in cases approval) is required before entering exceptionallylarge exposures; and• the impact on the Ultimate Parent Bank’s capital and liquidity
position and its ability to continue operating in the event of a failure
by the Bank.
• the level of exposure to the Bank not exceeding:• 50% on an individual exposure basis; and• 150% in aggregate (being exposures to all similar regulated
entities related to the Ultimate Parent Bank)of the Ultimate Parent Bank’s capital base.
Additionally, the Ultimate Parent Bank may not provide material
financial support in breach of the Australian Banking Act (1959). Thisrequires APRA to exercise its powers and functions for the protectionof a bank’s depositors and in the event of a bank becoming unable tomeet its obligations or suspending payment, the assets of the bankin Australia shall be available to meet that bank’s deposit liabilities inAustralia in priority to all other liabilities of the bank.		
The Ultimate Parent Bank has not provided material financial support
to the Bank contrary to any of the above requirements.		
P ending P roceedings or A rbitration

Other than disclosed in the Disclosure Statement, there are no pending
proceedings or arbitration concerning any member of the Banking Group
that may have a material adverse effect on the Bank or the Banking Groupas at the date of the General Disclosure Statement.
The Banking Group has received amended tax assessments from the New
Zealand Inland Revenue Department (‘IRD’) in respect of its review ofcertain structured finance transactions. The Banking Group is confident,
based on independent tax and legal advice obtained, that its tax treatmentof these transactions is correct and disagrees with the IRD’s position.
The Commerce Commission has brought proceedings under the Commerce
Act 1986 against Visa, MasterCard and all New Zealand issuers of Visa
and MasterCard credit cards, including the Bank. Several major New
Zealand retailers have also issued proceedings. The Bank is defending theproceedings. At this stage any potential liabilities cannot be assessed.

1. Note that for material financial support purposes, the APRA requirements include any exposures to the Bank’s parent company, ANZ Holdings (New Zealand) Limited.

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

GENERAL DISCLOSURESFor personal use only

( continued )The Bank markets and distributes a range of wealth management products
which are managed by ING (NZ) Limited (of which the Bank holds 49%).
Trading in the ING Diversified Yield Fund and the ING Regular Income Fundwas suspended on 13 March 2008 by the fund manager, ING (NZ) Limited,
due to the deterioration in liquidity in credit markets.
The matter is being reviewed by both the Bank and ING (NZ) Limited and it
is too early to assess the nature or quantum of any, if any, potential liability
Further details on pending proceedings or arbitration are set out in Note
43 Contingent Liabilities and Credit Related Commitments.
Ot h er M aterial M atters

There are no matters relating to the business or affairs of the Bank andthe Banking Group which are not contained elsewhere in the General
Disclosure Statement and which would, if disclosed, materially adversely
affect the decision of a person to subscribe for debt securities of which the
Bank or any member of the Banking Group is the issuer.
G uarantors

The Bank has a guarantee under the New Zealand Deposit Guarantee
Scheme (“Crown Guarantee”). The Crown Guarantee is provided undera Crown Deed of Guarantee (Registered Bank) entered into by the Bankand the Crown on 14 November 2008 (“Crown Deed of Guarantee”).
As at the date of this General Disclosure Statement the only material
obligations of the Bank that are guaranteed are the Debt Securities (as definedin the Crown Deed of Guarantee) guaranteed under the Crown Guarantee.
The Crown Guarantee does not extend to subordinated debt securities
issued by the Bank or debt securities that are issued by the Bank toRelated Parties (as defined in the Crown Deed of Guarantee) of the Bankor to Financial Institutions.
As defined in the Crown Deed of Guarantee, “Financial Institutions” meansa financial institution, as defined in section 2 of the Reserve Bank of New
Zealand Act 1989, which carries on the business of borrowing and lending
money, such as a life insurance company, a building society or a registeredbank, and, without limiting the generality of the foregoing, includes:a) a “collective investment scheme” as that term is defined in section
157B of the Reserve Bank of New Zealand Act 1989 (including any“superannuation fund” or “superannuation scheme”);b) an “insurer” as that term is defined in section 2 of the Insurance
Companies (Rating and Inspections) Act 1994 or any other person
carrying on the business of providing insurance cover (of whatevernature);c) a person carrying on business as a sharebroker, an investment
adviser or a fund manager (to the extent that person is acting in thatcapacity); ord) a person who is a subsidiary of, or who is controlled by a financial
institution within (a), (b) or (c) above.
The Crown Guarantee applies for a period commencing at 12.01 am
on 12 October 2008 and expiring at 12.01 am on 12 October 2010(“Guarantee Period”).
Under the Crown Guarantee the Crown absolutely and irrevocably
guarantees:a) all obligations of the Bank to pay money to a creditor under Debt
Securities (“Indebtedness”) that become due and payable during the
Guarantee Period; andb) if a Default Event, as defined in the Crown Deed of Guarantee,
occurs during the Guarantee Period, all Indebtedness that exists on
the date of that Default Event (whether or not that Indebtedness isdue and payable during the Guarantee Period); andc) all interest accruing on the amounts referred to in (b) after theoccurrence of the Default Event.
The Crown undertakes that if the Bank does not pay an amount referred
to in (a), (b) or (c) above, the Crown will pay that amount to the creditor
when it is due and payable (except to the extent that that Indebtedness
or interest is not paid solely as a result of an administrative error or
technical error and is subsequently paid within 7 days of its due date).
The Crown’s obligation to pay any amount under the Crown Guarantee
is subject to the Crown receiving a notice of claim from the creditor in
respect of the relevant Indebtedness and to the Crown satisfying itself
as to the amount of the relevant Indebtedness and such other mattersas the Crown reasonably considers appropriate in order to ascertain
the extent of its liability under the Crown Guarantee in respect of that
Indebtedness. Notice may be served on the Crown in respect of the
Crown Guarantee by service on the Solicitor-General at Crown Law
Office, Unisys House, 56 The Terrace, Wellington.
The maximum liability of the Crown to each creditor under the Crown
Guarantee is one million New Zealand dollars (NZ$1,000,000). For thispurpose amounts owed to creditors by the Bank under any Debt Security
will be aggregated with other amounts owed to the same creditor by the
Bank which are supported by the Crown Guarantee.
Further information about the Crown Guarantee and a copy of the
Crown Deed of Guarantee are available in the most recent Supplemental
Disclosure Statement and onTheTreasury website at www.treasury.govt.nz.
The Supplemental Disclosure Statement for the year ended 30 September
2008 is available at no charge:a) on the Bank’s website at www.anznational.co.nz, www.anz.co.nz andwww.nationalbank.co.nz;b) immediately if request is made at the Bank’s head office; andc) within five working days of a request, if a request is made at any
branch of ANZ or The National Bank of New Zealand.
The Crown’s long-term foreign currency issuer credit rating is Aaa(Moody’s Investors Service), AA+ (Standard & Poor’s), AA+ (Fitch Ratings)
and has not changed in the two years immediately before the date ofthis General Disclosure Statement.
Credit ratings are assigned to sovereigns and businesses by theinternational credit rating agencies. Credit ratings provide investors withan indication of the credit-worthiness of an entity in which they are
considering investing. There are three major internationally recognised
credit rating agencies: Standard & Poor’s, Moody’s Investors Service andFitch Ratings. AAA is the highest rating level while a rating in the AA
range is also seen as a very high level of credit-worthiness.
Further information about the Crown, including a copy of its most recent
audited financial statements and details of its credit ratings is alsoavailable at www.treasury.govt.nz.
Supplemental Disclosure Statement

A copy of the Bank’s most recent Supplemental Disclosure Statement for
the year ended 30 September 2008 can be obtained immediately where
request is made within normal banking hours at Level 14, ANZ Tower,215-229 Lambton Quay, Wellington, New Zealand. It is also available,
free of charge, either on one of the Bank’s websites, or within five working
days of any such request, at any branch of the Bank.
The Bank’s most recent Supplemental Disclosure Statement contains a
copy of the bilateral netting agreement (refer Note 33) and a copy of the
Crown Guarantee.		

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

SUMMARY OF FINANCIAL STATEMENTS		Consolidated					Previous
Previous
NZ IFRSNZ IFRS1NZ IFRS1, 2
NZ IFRS1, 2
GAAP1
GAAP3
Audited
Audited
Audited
Audited
Audited
AuditedYear toYear toYear toYear toYear toYear to30/09/2008 30/09/2007 30/09/2006 30/09/2005 30/09/2005 30/09/2004
$m
$m
$m
$m
$m
$m

C ontinuing operations

Interest income		Interest expense		

9,857
7,568

8,309
6,059

7,206
5,077

6,009
4,069

5,985
4,069

4,481
2,797

Net interest income		
Other operating income		

2,289
1,124

2,250
861

2,129
802

1,940
794

1,916
851

1,684
751

Operating income		Operating expenses		

3,413
1,444

3,111
1,331

2,931
1,323

2,734
1,312

2,767
1,506

2,435
1,265

Profit before provision for credit impairment and income tax		
Collective provision charge (credit)		
Individual provision charge4		

1,969
112
190

1,780
20
54

1,608
(10)
28

1,422
121
-

1,261
122
-

1,170
133
-

Provision for credit impairment		

302

74

18

121

122

133

Profit before income tax		
Income tax expense		

1,667
504

1,706
614

1,590
523

1,301
398

1,139
404

1,037
357

Profit after income tax from continuing operations		

1,163

1,092

1,067

903

735

680

D iscontinued operations

Profit from discontinued operations (net of income tax)		

-

76

5

14

-

-

Profit after income tax		

1,163

1,168

1,072

917

735

680

Retained profits at beginning of the year		

3,052

2,610

2,378

1,813

1,438

958

Adjustment on adoption of NZ IFRS on 1 October 2004		
Adjustment on adoption of NZ IAS 39 on 1 October 2005		

-

-

61

4
-

-

-

Total available for appropriation		
Actuarial (loss) gain on defined benefit schemes after tax		
Interim ordinary dividends paid		

4,215
(23)
-

3,778
2
(728)

3,511
(1)
(900)

2,734
4
(360)

2,173
(360)

1,638
(200)

Retained profits at end of the year		

4,192

3,052

2,610

2,378

1,813

1,438

		

Consolidated					Previous
Previous
NZ IFRSNZ IFRS1NZ IFRS1, 2
NZ IFRS1, 2
GAAP3
GAAP3
Audited
Audited
Audited
Audited
Audited
AuditedYear toYear toYear toYear toYear toYear to30/09/2008 30/09/2007 30/09/2006 30/09/2005 30/09/2005 30/09/2004
$m
$m
$m
$m
$m
$m

Total impaired assets (on-balance sheet and off-balance sheet)
Total assets		
Total liabilities		
Equity		333
122,915
113,108
9,807

121
107,787
99,084
8,703

159
95,81487,5818,233

220
85,501
77,5557,946

22085,30177,545
7,756

123
74,212
66,831
7,381

The amounts included in this summary have been taken from the audited financial statements of the Banking Group.
1. Truck Leasing Limited has been classified as a discontinued operation for the comparative years ending 30 September 2007, 30 September 2006 and 30 September 2005. For further details,
refer to Note 10 Discontinued Operations.								2. On 1 October 2005, the Banking Group adopted New Zealand equivalents to International Financial Reporting Standards (‘NZ IFRS’). In accordance with NZ IFRS, comparative information
was restated using the new accounting standards from 1 October 2004. As permitted by the transitional provisions set out in NZ IFRS 1: First-time Adoption of New Zealand Equivalents
to International Financial Reporting Standards, management has elected not to restate comparative information for the adoption of NZ IAS 32 Financial Instruments: Disclosure andPresentation (‘NZ IAS 32’) and NZ IAS 39 Financial Instruments: Recognition and Measurement (‘NZ IAS 39’). Refer to Note 52 Explanation of Transition to NZ IFRS in the 30 September
2006 General Disclosure Statement for an explanation of the Banking Group’s transition to NZ IFRS and the adjustments required to comply with NZ IFRS. 								3. On 1 December 2003, the Banking Group acquired all of the shares of NBNZ Holdings Limited (‘NBNZ Group’). The results and financial position of NBNZ Group have been included in
the Banking Group since that date. For further details, refer to Note 14 Acquisition of Subsidiaries in the 30 September 2004 General Disclosure Statement. 								4. The RBNZ’s guidelines require the Banking Group to show the individual provision charge to profit as the ‘impaired asset expense’. Prior to adopting NZ IFRS on 1 October 2005, under the Banking
Group’s Bad and Doubtful Debts policy, the required individual provision was not charged to profit, but was transferred from the collective provision balance. The Banking Group’s provision for credit
impairment, which represented the expected average annual loss on principal over the economic cycle for the lending portfolio, was credited to the collective provision. Under NZ IFRS, there is nolonger a transfer between the collective and individual provisions. Further detail on the provision for credit impairment is set out in Note 15 Provision for Credit Impairment.

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

INCOME STATEMENTS
for the year ended 30 september 2008

Consolidated
					
					
				
Note

ParentYear to30/09/2008$mYear to30/09/2007$mYear to30/09/2008$mYear to30/09/2007$m

C ontinuing operations

Interest income

4

9,857

8,309

9,638

8,038

Interest expense

5

7,568

6,059

8,130

6,542

Net interest income		

2,289

2,250

1,508

1,496

Other operating income
4
1,013
837
1,056
Share of profit of equity accounted associates							2,017and jointly controlled entities

16

111

24

-

-

Operating income		

3,413

3,111

2,564

3,513

Operating expenses
5
1,444
1,331
1,384
1,283
Profit before provision for credit impairment									and income tax		

1,969

1,780

1,180

15

302

74

278

75

Profit before income tax		

1,667

1,706

902

2,155

504

614

258

379

1,163

1,092

644

1,776

Provision for credit impairment
Income tax expense

6

Profit after income tax from continuing operations		

2,230

D iscontinued operations							Profit from discontinued operations (net of income tax)
Profit after income tax		

-

76

-

-

1,163

1,168

644

1,776

10

The notes on pages 10 to 110 form part of and should be read in conjunction with these financial statements.

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

STATEMENTS OF RECOGNISED INCOME AND E XPENSE
for the year ended 30 September 2008

Consolidated			 		
					
				
Note

Year to30/09/2008$mYear to30/09/2007$mYear to30/09/2008$mYear to30/09/2007$m

Available-for-sale re valuation reserve:- Valuation gain (loss) taken to equity

30

26

(1)

26

(1)

- Cumulative gain transferred to the income
		 statement on sale of financial assets

30

-

(3)

-

(3)

- Valuation (loss) gain taken to equity

11

(47)

78

(47)

78

- Transferred to income statement

11

(37)

(35)

(37)

(35)

Actuarial (loss) gain on defined benefit schemes

45

C ash flow hedging reserve :

(35)

3

(35)

3

Income tax credit (expense) on items
recognised directly in equity

34

(12)

34

(12)

Net (expense) income recognised directly in equity		

(59)

30

(59)

30

Profit after income tax		

1,163

1,168

644

1,776

Total recognised income and expense for the year		

1,104

1,198

585

1,806

The notes on pages 10 to 110 form part of and should be read in conjunction with these financial statements.

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ParentA N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

bALANCE ShEETS
AS AT 30 SEpTEMbER 2008

Consolidated

NoteYear to30/09/2008$m

ParentYear to30/09/2007$mYear to30/09/2008$mYear to30/09/2007$m

ASSETS

Liquid assets

7

4,838

4,807

4,837

4,807

Due from other financial institutions

8

5,032

3,563

4,527

3,101

Trading securities

9

2,624

1,877

2,624

1,877

Derivative financial instruments

11

7,533

4,711

7,544

4,705

Available-for-sale assets

12

109

48

107

38

Net loans and advances

13, 14, 15

97,67987,87895,241

84,044

-

-

1,992

1,585

363

206

7,694

7,683

57

112

214

248
920

Due from subsidiary companies
Shares in controlled entities, associates
and jointly controlled entities

16

Current tax assets
Other assets

17

1,000

1,045

885

Deferred tax assets

18

121

11

100

-

Premises and equipment

19

242

232

53

54

Goodwill and other intangible assets

20

Total assets

3,317

3,297

3,268

3,247

122,915

107,787

129,086

112,309

LIABILITIESDue to other financial institutions

21

3,312

3,170

1,940

1,686

Deposits and other borrowings

22

77,13670,03062,80058,514--43,26032,942

Due to parent company

27

404

2,775

404

2,775

Derivative financial instruments

11

6,710

4,924

6,710

4,896

Payables and other liabilities

23

1,841

1,351

1,531

988

Deferred tax liabilities

24

-

-

-

7

Provisions

25

190

165

186

151

Bonds and notes

26

20,695

14,607

1,123561

Loan capital

28

2,820

2,062

2,820

2,062

113,108

99,084

120,774

104,582

9,807

8,703

8,312

7,727

5,943

Due to subsidiary companies

Total liabilities
Net assets
EqUITY

Ordinary share capital

29

5,943

5,943

5,943

Reserves

30

47

83

47

83

Retained earnings

30

3,817

2,677

2,322

1,701

9,807

8,703

8,312

7,727

Total equity

For and on behalf of the Board of Directors:

Sir Dryden Spring
Director
19 November 2008

Graham Hodges
Director
19 November 2008

The notes on pages 10 to 110 form part of and should be read in conjunction with these financial statements.

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

CASH FLOW STATEMENTS
for the year ended 30 September 2008 1

Consolidated

NoteYear to30/09/2008$mYear to30/09/2007$mYear to30/09/2008$mYear to30/09/2007
$m

9,502

7,892

9,258

7,739
1,217

C as h f low s f rom operating acti v ities

Interest received
Dividends received

4

3

24

Fees and other income received

1,060

926

992

715

Interest paid

(6,959)(5,486)(7,504)(6,027)

Operating expenses paid

(1,313)(1,254)(1,275)(1,226)

Income taxes paid

(524)

(513)

(303)

(285)

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

1,770

1,568

1,192

2,133

(Increase) decrease in due from other financial institutions - term

(630)

469

(587)

446

Increase in trading securities

(617)

(73)

(617)

(73)

(Increase) decrease in derivative financial instruments

2,358(1,136)

2,336(1,114)

(36)

312

(44)

312
(9,993)

Net changes in operating assets and liabilities:(Increase) decrease in available-for-sale assets
Increase in loans and advances(9,433)(10,149)(10,806)

Decrease (increase) in due from subsidiary companies

-

-

(407)

(80)

Increase in due to subsidiary companies

-

-

2,701

2,593

Decrease (increase) in other assets

28

(69)

154

(27)

(Decrease) increase in due to other financial institutions

142

(817)

254

(1,142)

4,618

6,857

3,889

4,573

208

(125)

251

(194)

(1,592)(3,163)(1,684)(2,566)

-

5

9

6

Increase in deposits and other borrowings
Increase (decrease) in payables and other liabilities
Net cash flows used in operating activities

38

C as h f low s f rom in v esting acti v ities

Proceeds from sale of shares in associates
and jointly controlled entities
Proceeds from sale of subsidiary companies2

10

Proceeds from sale of premises and equipment
Purchase of shares in associates and jointly controlled entities
Purchase of shares in subsidiary companies

8

-

585

-

-

2

17

1

2

(48)

(8)

-

-

-

-

-

(25)

Purchase of intangible assets

(29)

(17)

(29)

(16)

Purchase of premises and equipment

(51)

(51)

(16)

(13)

Net cash flows (used in) provided by investing activities

(126)

531

(35)

(46)

1. The comparative cash flow statements have not been restated for the classification of Truck Leasing Limited as a discontinued operation. For a detailed explanation of the financial impactsof the sale of Truck Leasing Limited refer to Note 10 Discontinued Operations in the consolidated financial statements for the year ended 30 September 2007.				
2. The cash proceeds from the sale of controlled entities includes $438 million relating to the repayment of TLL’s unsecured bank borrowings with UDC Finance Limited (‘UDC’) by theacquiree.

The notes on pages 10 to 110 form part of and should be read in conjunction with these financial statements.

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ParentA N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SCASH FLOW STATEMENTS
for the year ended 30 September 2008 1

For personal use only

( continued )Consolidated

ParentYear to30/09/2008$mYear to30/09/2007$mYear to30/09/2008$mYear to30/09/2007$m

Proceeds from bonds and notes

9,283

4,173

615

86

Redemptions of bonds and notes

Note

C as h f low s f rom f inancing acti v ities(5,270)

(684)

(109)

-

Proceeds from loan capital

835

800

835

800

Redemptions of loan capital

(100)

(550)

(100)

(550)

Increase in due to subsidiary companies - term

-

-

3,507

3,403

(Decrease) increase in due to parent company(2,371)55(2,371)

55

-

(728)

-

(728)

Net cash flows provided by financing activities

Dividends paid

2,377

3,066

2,377

3,066

Net cash flows used in operating activities(1,592)(3,163)(1,684)(2,566)

Net cash flows (used in) provided by investing activities

(126)

531

(35)

(46)

Net cash flows provided by financing activities

3,066

2,377

3,066

2,377

Net (decrease) increase in cash and cash equivalents

659

434

658

454

Cash and cash equivalents at beginning of the period

7,130

6,696

7,128

6,674

Cash and cash equivalents at end of the period

7,789

7,130

7,786

7,128

Liquid assets

4,838

4,807

4,837

4,807

Due from other financial institutions - less than 90 days

2,951

2,323

2,949

2,321

7,789

7,130

7,786

7,128

R econciliation o f cas h and cas h e q ui valents to
t h e balance s h eets 3

Total cash and cash equivalents38							3. Comparatives for cash and cash equivalents have been restated to remove “due to other financial institutions - less than 90 days” from the definition of cash and cash equivalents. A
reconciliation of cash and cash equivalents to the Banking Group’s core liquidity portfolio is included in Note 38 Notes to the Cash Flow Statements. An analysis of the balance sheet
items that make up the Banking Group’s core liquidity portfolio is included in Note 32 Financial Risk Management.									The notes on pages 10 to 110 form part of and should be read in conjunction with these financial statements.

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NOTES TO THE FINANCIAL STATEMENTS

1.

ACCOUNTING POLICIES

A. Basis of preparationi)Statement of compliance					These financial statements have been prepared in accordance with the requirements of the Companies Act 1993, the Financial
Reporting Act 1993 and the Registered Bank Disclosure Statement (Full and Half-Year - New Zealand Incorporated Banks) Order 2008
(the ‘Order’). The parent company’s financial statements are for ANZ National Bank Limited (the ‘Bank’ or ‘Parent’) as a separate entity
and the consolidated financial statements are for the ANZ National Bank Limited Group (the ‘Banking Group’ or ‘reporting entity’),which includes subsidiaries, associate companies and jointly controlled entities.					These financial statements have also been prepared in accordance with New Zealand Generally Accepted Accounting Principles. They
comply with New Zealand equivalents to International Financial Reporting Standards (‘NZ IFRS’) and other applicable Financial
Reporting Standards, as appropriate for profit-oriented entities. The financial statements comply with International Financial ReportingStandards (‘IFRS’). 					The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been
consistently applied by the Parent and all consolidated entities and to all periods presented in the consolidated financial statements.
These financial statements were authorised for issue by the Board of Directors on 19 November 2008.					ii) Use of estimates and assumptions					The preparation of the financial statements requires the use of management judgement, estimates and assumptions that affectreported amounts and the application of policies. The estimates and associated assumptions are based on historical experience andvarious other factors that are believed to be reasonable. Actual results may differ from these estimates. 					For further discussion on the judgements and estimates made by the Banking Group, in the process of applying its accounting policies,that have the most effect on the amounts recognised in the financial statements refer to Note 2 Critical Estimates and Judgements
Used in Applying Accounting Policies. Such estimates may require review in future periods.					iii) Basis of measurement					The financial statements have been prepared on a going concern basis in accordance with the historical cost basis except that thefollowing assets and liabilities are stated at their fair value:					• derivative financial instruments, including in the case of fair value hedging, the fair value of any applicable underlying exposure;• assets treated as available-for-sale;		
• financial instruments held for trading;		
• assets and liabilities designated at fair value through profit and loss; and		• defined benefit plan assets and liabilities.		
iv) Changes in accounting policies and early adoptions					There have been no material changes in accounting policies or early adoption of NZ IFRS in the preparation or presentation of thisfinancial report.					The Banking Group has adopted NZ IFRS 7: Financial Instruments: Disclosures (‘NZ IFRS 7’) and amendments to NZ IAS 1 Presentationof Financial Statements - Capital Disclosures from 1 October 2007. Application of these standards has resulted in modified financial
disclosures relating to risks arising from financial instruments and further qualitative disclosures on financial risk and capitalmanagement policies, but does not have any impact on reported profits or financial position.					The Banking Group has not early adopted NZ IAS 1 : Presentation of Financial Statements (revised) issued in November 2007.
This standard is effective for annual accounting periods beginning on or after 1 January 2009 and will not result in recognition ormeasurement changes in the financial statements.					The Banking Group has not early adopted NZ IFRS 8: Operating Segments issued in December 2006. This standard is effective forannual accounting periods beginning on or after 1 January 2009. Adoption of this standard will not result in any measurement or
recognition changes in the financial statements.					v) Presentation currency and rounding					The amounts contained in the financial statements are presented in millions of New Zealand dollars, unless otherwise stated.
vi) Comparatives					Certain amounts in the comparative information have been reclassified to conform with current period financial statement
presentations.											P A G E

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1.

A C C O U N T I N G P O L I C I E S ( continued ) 					vii) Principles of consolidation					Subsidiaries					The financial statements consolidate the financial statements of the Bank and all its subsidiaries where it is determined that there isa capacity to control.					Where subsidiaries have been sold or acquired during the period, their operating results have been included to the date of disposal orfrom the date of acquisition.					Control means the power to govern, directly or indirectly, decision making in relation to the financial and operating policies of an entity
so as to obtain benefits from its activities. Control is usually present when an entity has:					• power over more than one-half of the voting rights of the other entity;		
• power to govern the financial and operating policies of the other entity;		
• 		power to appoint or remove the majority of the members of the board of directors or equivalent governing body;• power to cast the majority of votes at meetings of the board of directors or equivalent governing body of the entity.
In addition, potential voting rights that are presently exercisable or convertible are taken into account in determining whether control
exists. However, all the facts of a particular situation are considered when determining whether control exists.					The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of acquisition is measured as thefair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly
attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination
are measured initially at their fair values at acquisition date. The excess of the cost of acquisition over the fair value of the Banking
Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the
Banking Group’s share of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation.
Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The accounting
policies of the subsidiary have been changed where necessary to ensure consistency with the policies adopted by the Banking Group.
Associates and joint ventures					The Banking Group adopts the equity method of accounting for associates and the Group’s interest in joint venture entities. The Parent
adopts the fair value method of accounting for its interest in associates, and the cost method of accounting for its interest in joint ventures.
Associates are all entities over which the Banking Group has significant influence but not control, which generally accompany ashareholding of between 20% and 50% of the voting rights.					Joint ventures are entities over which the Banking Group has joint control. Joint control is the contractually agreed sharing of control
and exists only when the strategic financial and operating decisions relating to the activities of the joint venture require the unanimous
consent of the parties sharing control.					The Banking Group’s share of the post acquisition results of associates and jointly controlled entities is included in the consolidated
income statement and its share of post-acquisition movements in reserves recognised in reserves. Shares in associates and jointly
controlled entities are stated in the consolidated balance sheet at cost plus the Banking Group’s share of post acquisition net assets.
Unrealised gains on transactions between the Banking Group and its associates and jointly controlled entities are eliminated to theextent of the Banking Group’s interest in the entity. Unrealised losses are also eliminated unless the transaction provides evidence ofan impairment of the asset transferred. If an associate or jointly controlled entity uses accounting policies other than those used by
the Banking Group for like transactions and similar events, adjustments are made to conform the associate or jointly controlled entity’s
policy to those of the Banking Group in applying the equity method.					Interests in associates and jointly controlled entities are reviewed at each reporting date for indicators of impairment. Any impairment
is recognised in the income statement. 					All significant activities of the Banking Group, with the exception of the ING New Zealand joint venture, are operated through wholly
owned entities.					The Banking Group may invest in or establish special purpose entities to enable it to undertake specific types of transactions. Where
the Banking Group controls such vehicles, they are consolidated into the Banking Group’s financial results.					Special purpose and off-balance sheet entities					The Group may invest in or establish special purpose entities (SPEs) to enable it to undertake specific types of transactions. The maintypes of these SPEs are securitisation vehicles, structured finance entities, and entities used to sell credit protection.					Where the Banking Group has established SPEs which are controlled by the Banking Group to facilitate transactions undertaken for
Banking Group purposes, these are consolidated in the Banking Group’s financial statements.					The Banking Group does not consolidate SPEs that it does not control. As it can sometimes be difficult to determine whether the
Banking Group has control of an SPE, it makes judgements about its exposure to the risks and rewards, as well as about its ability tomake operational decision for the SPE in question.					P A G E

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1.

A C C O U N T I N G P O L I C I E S ( continued ) 					viii) Foreign currency translation					Functional and presentation currency					Items included in the financial statements of each of the Banking Group’s entities are measured using the currency of the primaryeconomic environment in which the entity operates (the functional currency). The Banking Group’s financial statements are presented
in New Zealand dollars, which is the Bank’s functional and presentation currency.					Foreign currency transactions					Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the date of thetransaction. Monetary assets and liabilities resulting from foreign currency transactions are subsequently translated at the spot rate atreporting date.					Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different to those at which
they were initially recognised or included in a previously financial report, are recognised in the income statement in the period in which
they arise.					Translation differences on non-monetary items measured at fair value through profit or loss, are reported as part of the fair value gainor loss on these items. Translation differences on non-monetary items measured at fair value through equity, such as equities classified
as available-for-sale financial assets, are included in the available-for-sale reserve in equity.					B. Income Recognition						Revenue is recognised to the extent that it is probable that economic benefits will flow to the Banking Group and that revenue can bereliably measured.					

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i)

Interest income					Interest income is recognised in the income statement as it accrues, using the effective interest method. 					The effective interest method calculates the amortised cost of a financial asset or financial liability and allocates the interest income
or interest expense, including any fees and directly related transaction costs that are an integral part of the effective interest rate, overthe expected life of the financial asset or liability. Income and expense on the financial asset or financial liability is recognised on an
effective yield basis in proportion to the amount outstanding over the period to maturity or repayment.					For assets subject to prepayment, expected life is determined on the basis of the historical behaviour of the particular asset portfolio,
taking into account contractual obligations and prepayment experience assessed on a regular basis. 					ii) Fee and commission income					Fees and commissions that are integral to the effective rate of a financial asset or liability are included in the determination of theeffective interest rate.					Fees and commissions that relate to the execution of a significant act (for example, advisory services, placement fees and underwritingfees) are recognised when the significant act has been completed.					Fees charged for providing ongoing services that represent the recoupment of the costs of providing service (for example, maintaining
and administering existing facilities) are recognised as revenue over the period the service is provided.					iii) Dividend income					Dividends are recognised as revenue when the right to receive payment is established.					iv) Leasing income					Finance income on finance leases is recognised on a basis that reflects a constant periodic return on the net investment in the financelease.					v) Gain or loss on sale of property, plant and equipment					The gain or loss on the disposal of premises and equipment is determined as the difference between the carrying amount of the assets
at the time of disposal and the proceeds of disposal, and is recognised as income in the year for which the significant risks and rewardsof ownership are transferred to the buyer.					A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

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(CONTINUED)

1.

A C C O U N T I N G P O L I C I E S ( continued ) 					C. Expense recognition						Expenses are recognised in the income statement on an accruals basis.					i)Interest expense					Interest expense on financial liabilities measured at amortised cost is recognised in the income statement as it accrues using theeffective interest method as described in note 1(B)(i).					ii) Loan origination expenses					Certain loan origination expenses are an integral part of the effective interest rate of a financial asset and are measured at amortised
cost. These loan origination expenses include:					• fees and commissions payable to brokers in respect of originating lending business; and		• other expenses of originating lending business, such as external legal costs and valuation fees, provided these are direct and incremental
costs related to the issue of a financial asset.		
Such loan origination expenses are initially recognised as part of the cost of acquiring the financial asset and amortised as part of the
expected yield of the financial asset over its expected life using the effective interest method.					iii) Capitalised expenses					Direct external expenses, comprising direct and incremental costs related to the acquisition of interest earning assets, including
structured institutional lending, mortgages and finance leases, are initially recognised as part of the cost of acquiring the asset andwritten off as an adjustment to its expected yield over its expected life using the effective interest method. 					iv) Share-based compensation expense					The Banking Group has various equity settled share-based compensation plans. These are described in note 44 and largely comprise the
Employee Share Acquisition Plan and the ANZ Share Option Plan.					ANZ Ordinary Shares					The fair value of ANZ ordinary shares granted under the Employee Share Acquisition Plan is measured at grant date, using the one-day
volume weighted average market price of ANZ shares. The fair value is expensed immediately when shares vest immediately. Where
shares are subject to a vesting period, the Banking Group initially recognises a net share compensation asset reflecting the fair valueof unvested shares issued to employees of the Banking Group. The fair value of unvested shares is amortised to profit and loss on astraight-line basis over the vesting period (normally three years) as employee services are received.					Share Options					The fair value of ANZ share options is measured at grant date, using an option pricing model. The fair value is expensed on a straightline basis over the relevant vesting period. This is recognised as an employee compensation expense with a corresponding increase in
the share options liability account.					The option pricing model takes into account the exercise price of the option, the risk free interest rate, the expected volatility of the
ANZ ordinary share price and other factors. Market vesting conditions are taken into account in estimating the fair value.
Performance Rights					A Performance Right is a right to acquire a share at nil cost to the employee subject to satisfactorily meeting time and performance
hurdles. Upon exercise, each Performance Right entitles the holder to one ordinary share in ANZ. The fair value of Performance Rights
is determined at grant date using an option pricing model, taking into account market conditions. The fair value is expensed over the
relevant vesting period with a corresponding increase in the share options reserve.					Other adjustments					Subsequent to the grant of an equity-based award, the amount recognised as an expense is adjusted for vesting conditions otherthan market conditions so that, ultimately, the amount recognised as an expense is based on the number of equity instruments thateventually vest.					P A G E

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1.

A C C O U N T I N G P O L I C I E S ( continued ) 					D. Income tax						
i)Income tax expense					Income tax on earnings for the period comprises current and deferred tax. It is recognised in the income statement as tax expense,
except when it relates to items credited directly to equity, in which case it is recorded in equity, or where it arises from the initialaccounting for a business combination, in which case it is included in the determination of goodwill.					ii) Current tax 					Current tax is the expected tax payable on taxable income for the period, based on tax rates (and tax laws) which are enacted or
substantively enacted by the reporting date and including any adjustment for tax payable in previous periods. Current tax for current
and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).					iii) Deferred tax 					Deferred tax is accounted for using the comprehensive tax balance sheet method. Deferred tax arises by providing for temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax base.					Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset 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 thereporting date. The measurement reflects the tax consequences that would follow from the manner in which the Banking Group, at thereporting date, expects to recover or settle the carrying amount of its assets and liabilities.					Deferred tax liabilities are recognised for all taxable temporary differences, other than those in relation to taxable temporary differences
arising from goodwill. They are also recognised for taxable temporary differences arising on investments in controlled entities, branches,
associates and joint ventures, except where the Banking Group is able to control the reversal of the temporary differences and it isprobable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets associated with these interests
are recognised only to the extent that it is probable that the temporary difference will reverse in the foreseeable future and there will
be sufficient taxable profits against which to utilise the benefits of the temporary difference.					Deferred tax assets, including those related to the tax effects of income tax losses and credits available to be carried forward, arerecognised only to the extent that it is probable that future taxable profits will be available against which the deductible temporary
differences or unused tax losses and credits can be utilised.					Deferred tax related to fair value re-measurement of available-for-sale financial assets and cash flow hedges, which are charged or
credited directly to equity, is also charged or credited directly to equity and subsequently recognised in the income statement together
with the deferred gain or loss on the related asset or liability.					iv) Offsetting					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 and intention to settle on a net basis and it is allowed under the tax law of the relevant
jurisdiction.					E. Assets						Financial assets						
i)Financial assets and liabilities at fair value through profit or loss					Trading securities 					Trading securities are financial instruments acquired principally for the purpose of selling in the short-term or which are a part of aportfolio which is managed for short-term profit-taking. They comprise debt and equity securities and treasury notes purchased with
the intent of being actively traded. Trading securities are initially recognised at fair value on trade date with transaction costs taken
to the income statement. Changes in the fair value (gains or losses) of these securities are recognised in the income statement in the
period in which they occur. The assets are derecognised when the rights to receive cash flows have expired, or the Banking Group has
transferred substantially all of the risks and rewards of ownership. Fair value for listed and unlisted securities is determined by the pricedisplayed by a willing buyer in a liquid market at the reporting date. Where a market price in a liquid market is not readily available, thefair value is determined by reference to the market price available for a security with similar credit, maturity and yield characteristics
or by using industry standard pricing models.									ii) Derivative financial instruments					Derivatives that are neither financial guarantee contracts nor effective hedging instruments are carried at fair value through profit
or loss. In addition, certain financial assets and liabilities are designated and measured at fair value through profit or loss where thefollowing applies:					• doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuringassets and liabilities, or recognising the gains or losses thereon, on different bases;		
• 		a group of financial assets or financial liabilities or both is managed and its performance evaluated on a fair value basis; or• the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows
or it is clear, with little or no analysis, that it would not be separately recorded.		

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1.

A C C O U N T I N G P O L I C I E S ( continued ) 					The designation of a financial asset or liability at fair value through profit or loss is irrevocable. Changes in the fair value (gains orlosses) of these financial instruments are recognised in the income statement in the period in which they occur.				
Purchases and sales of trading securities are recognised on trade date.
Derivative financial instruments are contracts whose value is derived from changes in one or more underlying financial instruments orindices. 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 for hedging purposes(where the derivative instruments are used to hedge the Banking Group’s exposures to interest rate risk, currency risk, price risk, credit
risk and other exposures relating to non-trading positions).					Derivative financial instruments are recognised initially at fair value with gains or losses from subsequent measurement at fair value
being recognised in the income statement. Fair values are obtained from quoted prices in active markets (including recent transactions)and valuation techniques including discounted cash flow models and option pricing models, as appropriate.					Where the derivative financial instrument is designated as, and effective as, a hedging instrument 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 associatedaccounting are as follows:					Fair value hedge					Where the Banking Group hedges the change in fair value of a recognised asset or liability or firm commitment, any change in the fairvalue of derivatives designated as fair value hedges 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 the hedged item, which are also recognisedin the income statement.					Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated, exercised or no longer qualifies for hedge
accounting. The resulting adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to theincome statement over a period to maturity of the hedged item. If the hedged item is sold or repaid, the unamortised adjustment isrecognised immediately in the income statement.					Cash flow hedge					The Banking Group designates derivatives as cash flow hedges where the instrument hedges the variability in cash flows of a recognised
asset or liability, or a highly probable forecast transaction. The effective portion of changes in the fair value of derivatives qualifying anddesignated as cash flow hedges are deferred to the cash flow hedging reserve, which forms part of shareholders’ equity. Any ineffective
portion is immediately recognised in the income statement. Amounts deferred in equity are recognised in the income statement in
the period during which the hedged forecast transactions take place. Where the forecast transaction that is hedged results in therecognition of a non-financial asset or non-financial liability, the gain or loss previously deferred in equity is transferred from equity
and included in the initial measurement of the cost of the asset or liability.					When the hedge expires, is sold, terminated, exercised, or no longer qualifies for hedge accounting, the cumulative amount deferredin equity remains in the cash flow hedging reserve, and is subsequently transferred to the income statement when the hedged item isrecognised in the income statement.					When a forecast transaction is no longer expected to occur, the amount deferred in equity is immediately recognised in the income
statement.					Derivatives that do not qualify for hedge accounting					All gains and losses from changes in the fair value of derivatives that are not designated in a hedging relationship but are enteredinto to manage the interest rate and foreign exchange risk are recognised in the income 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 fair value movement is included in other income.					Embedded derivatives					Derivatives embedded in financial instruments or other host contracts are treated as separate derivatives when their economic
characteristics and risks are not closely related to those of the host contracts, and the host contracts are not measured at fair value.
The embedded derivative is reported at fair value with changes in fair value immediately recognised in the income statement.
Set-off arrangements					Fair value gains/losses arising from trading derivatives are not offset against fair value gains/losses on the balance sheet unless a legal
right of set-off exists and there is an intention to settle net.					iii) Available-for-sale assets					Available-for-sale assets comprise those non-derivative financial assets which the Banking Group designates as available-for-sale but
which are not deemed to be held principally for trading purposes, and include equity investments and fixed term securities. They are
initially recorded at fair value plus transaction costs. Subsequent gains or losses arising from changes in fair value are included as aseparate component of equity in the ‘available-for-sale revaluation reserve’. When the asset is sold, the cumulative gain or loss relating
to the asset is transferred to the income statement. 					P A G E

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1.

A C C O U N T I N G P O L I C I E S ( continued ) 					Where there is objective evidence of impairment, the cumulative loss related to that asset is removed from equity and recognisedin the income statement as an impairment expense for debt instruments or as non-interest income for equity instruments. If, in a
subsequent period, the amount of an impairment loss relating to an available-for-sale asset decreases and the decrease can be linked
objectively to an event occurring after the impairment event, the loss previously recognised in the income statement is reversed
through the income statement. Impairment losses recognised in the income statement for an investment in an equity instrumentclassified as available-for-sale are not reversed through the income statement.					Purchases and sales of available-for-sale financial assets are recognised on the trade date as with all regular way assets, being the dateon which the Group commits to purchase or sell the asset.					Premiums and discounts are included within the calculation of the fair value of the security. Interest is accrued and recognised inaccordance with the effective yield basis. 					iv) Net loans and advances					Net loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They arise when the Banking Group has no intention of trading on the loans 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 the effective interest method, less any impairment loss, or when in an effective hedging relationship,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, and also recognised in the income statement. Loans and advances are derecognised when the rights to receive cash flows
have expired or the Banking Group has transferred substantially all the risks and rewards of ownership.					Net loans and advances include direct finance provided to customers such as bank overdrafts, credit cards, term loans, finance leasereceivables and commercial bills. Overdrafts, credit cards and term loans are carried at amortised cost. Customer financing throughredeemable preference shares is included within net loans and advances. Dividends received on redeemable preference shares are taken
to the income statement as part of interest income.					Credit assessment					All loans are graded according to the level of credit risk. Loans are classified as either productive or impaired. 					Impaired assets include other impaired assets, restructured assets and assets acquired through the enforcement of security.
Other impaired assets include loans where there is doubt as to full recovery, and loans that have been restructured. An individual
provision is raised to cover the expected loss, where full recovery of principal is doubtful.					Restructured assets are those assets where the counterparty had difficulty complying with the original terms of the contract and theoriginal terms have been modified to grant the counterparty concessional terms where the yield of the loan is equal to or greater thanthe Banking Group’s average cost of funds and below the yield applicable to a customer of equal credit standing.					Assets acquired through enforcement of security are those assets which are legally owned by the Banking Group as a result of enforcing
security, other than any buildings occupied by the Banking Group.					Cash receipts on other impaired assets are initially applied as a reduction in principal.					A past due asset is any loan where the counterparty has failed to make a payment when contractually due, and which is not an
impaired asset. A 90 days past due asset is any past due asset which has not been operated by the counterparty within its key terms
for at least 90 days. 					Other assets under administration are any loans, not being impaired or 90 days past due, where the customer is in any form ofvoluntary or involuntary administration, including receivership, liquidation, bankruptcy or statutory management.					Impairment of loans and advances					Loans and advances are reviewed at least at each reporting date for impairment. Credit impairment provisions are raised for exposuresthat are known to be impaired. Loans are impaired and impairment losses incurred if there is objective evidence of impairment as aresult of one or more loss events that occurred after the initial recognition of the loan and that loss event (or events) has had a reliably
measurable impact on the estimated future cash flows of the individual loan or the collective portfolio of loans.					Impairment is assessed initially for assets that are individually significant (or on a portfolio basis for small value loans), and then on acollective basis for those exposures not individually known to be impaired. 					For those exposures that are assessed collectively, these are placed in pools of 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 thecollective pool. The historical loss experience is adjusted 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.											
						
						
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A C C O U N T I N G P O L I C I E S ( continued ) 					The estimated individual impairment loss is measured as the difference between the asset’s carrying amount and the estimated future
cash flows discounted to their present value at the original effective interest rate. As this discount unwinds during the period between
recognition of impairment and recovery of the cash flow, it is recognised in the income statement. The process of estimating theamount and timing of cash flows involves considerable management judgement. These judgements are reviewed regularly to reduceany differences between loss estimates and actual loss experience. 					The provision for credit impairment (individual and collective) is deducted from loans and advances in the balance sheet and the
movement in the provision 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. Subsequent
recoveries of amounts previously written off are taken to the income statement. Unsecured facilities are normally written-off when
they become 180 days past due or earlier in the event of the customer’s bankruptcy or similar legal release from the obligation.
However, a certain level of recoveries is expected after the write-off, which is reflected in the amount of the provision for credit losses.
In the case of secured facilities, remaining balances are written-off after proceeds from the realisation of collateral have been received,
if the proceeds are insufficient.					Where impairment losses recognised in previous periods have subsequently decreased or no longer exist, such impairments are reversedin the income statement. 					A provision is also raised for off balance sheet items such as commitments that are considered to be onerous.					v) Lease receivables					Finance leases 					Contracts to lease assets and hire purchase agreements are classified as finance leases if they transfer substantially all the risks andrewards of ownership of the asset to the customer or an unrelated third party. All other lease contracts are classified as operating leases.
Finance lease receivables include amounts due from lessees in relation to finance leases and hire purchase contracts.					The gross amount of contractual payments regarding lease finance to business customers that have a fixed rate and a fixed term arerecorded as gross lease receivables and the unearned interest component is recognised as income yet to mature.					The finance lease receivables are initially recognised at amounts equal to the present value of the minimum lease payments, plus thepresent value of any unguaranteed residual value expected to accrue at the end of the lease term. Finance lease payments are allocatedbetween interest revenue and reduction in the lease receivable over the term of the finance lease, reflecting a constant periodic rateof return on the net investment outstanding in respect of the lease. 					Operating leases 					Operating lease payments are recognised as an expense on a straight-line basis over the lease term as lessee.					vi) Repurchase agreements					Securities sold under repurchase agreements are retained in the financial statements where substantially all the risks and rewards ofownership remain with the Banking Group, and a counterparty liability is disclosed under the classifications of due to other financial
institutions or payables and other liabilities, depending on the term of the agreement and the counterparty.					The difference between the sale price and the repurchase price is amortised over the life of the repurchase agreement and charged tointerest expense in the income statement.					Securities purchased under agreements to resell, where the Banking Group does not acquire the risks and rewards of ownership, arerecorded as liquid assets, net loans and advances, or due from other financial institutions, depending on the term of the agreement andthe counterparty. The security is not included in the balance sheet. Interest income is accrued on the underlying loan amount.
vii) Derecognition					The Group enters into transactions where it transfers financial assets recognised on its balance sheet yet retains either all the risks
and rewards of the transferred assets or a portion of them. If all, or substantially all, the risks and rewards are retained, the transferredassets are not derecognised from the balance sheet.					In transactions where substantially all the risks and rewards of ownership of a financial asset are neither retained nor transferred, theGroup derecognises the asset if control over the asset is lost. In transfers where control over the asset is retained, the Group continues
to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in thevalue of the transferred asset. The rights and obligations retained or created in the transfer are recognised separately as assets andliabilities as appropriate.					P A G E

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A C C O U N T I N G P O L I C I E S ( continued ) 					Non-financial assets						viii) Goodwill					Goodwill, representing the excess of the purchase consideration over the fair value of the identifiable net assets of a controlled entity
at the date of gaining control, is recognised as an asset. Goodwill has an indefinite life. The carrying value of goodwill is reviewed for
impairment at each reporting period and tested for impairment annually, or more frequently if there is an indication that the goodwill
may be impaired. This involves, where required, using discounted cash flow or capitalisation of earnings methodology to determine
the expected future benefits of the cash generating unit to which goodwill has been allocated. Where the assessment results in thecurrent carrying value of goodwill exceeding the value of expected future benefits, the difference is charged to the income statement.
Any impairment writedown of goodwill is not reversed in subsequent periods.					Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.					ix) Other intangible assets					Other intangible assets include costs incurred in acquiring and building software and computer systems (referred to as software) andan intangible asset relating to the ING New Zealand Joint Venture acquisition.					Software is amortised using the straight-line method over its expected useful life to the Banking Group. The period of amortisation is
between 3 and 5 years for certain core infrastructure projects where the useful life has been determined to be 7 years.					At each reporting date, the software assets and other intangible assets are reviewed for impairment against impairment indicators. If
any indication of impairment exists, the recoverable amount of the assets are estimated and compared against the existing carrying
value. Where the existing carrying value exceeds the recoverable amount, the difference is charged to the income statement.
Costs incurred in planning or evaluating software proposals, or in maintaining systems after implementation, are not capitalised.
x) Premises and equipment					Premises and equipment are carried at cost less accumulated depreciation and impairment.					The gain or loss on the disposal of premises and equipment is determined as the difference between the carrying amount of the assets
at the time of disposal and the proceeds of disposal, and is included in the income statement in the year in which the significant risks
and rewards of ownership are transferred to the buyer.					Assets other than freehold land are depreciated at rates based upon their expected useful lives to the Banking Group, using thestraight-line method. The depreciation rates used for each class of asset are:					Buildings		

1%		

Building integrals		

10%		

Furniture & equipment		

10%		

Computer & office equipment		

12.5% - 33%		

Motor vehicles 		

20%		

Leasehold improvements are amortised on a straight-line basis over the shorter of their useful lives or remaining terms of the lease.
At each reporting date, the carrying amounts of premises and equipment are reviewed for indications of impairment. If any such
indication exists, the recoverable amount of the assets are estimated and compared against the existing carrying value. Where theasset’s existing carrying value exceeds its recoverable amount the difference is charged to the income statement. If it is not possible toestimate the recoverable amount of an individual asset, the Banking Group estimates the recoverable amount of the cash generating
unit to which the asset belongs. 					A previously recognised impairment loss is reversed if there has been a change in the estimates used to determine the asset’s recoverable
amount.					F. Liabilities						Financial liabilities						
i)Deposits and other borrowings					Deposits and other borrowings include certificates of deposit, interest bearing deposits, debentures, commercial paper and otherrelated interest bearing financial instruments. Deposits and other borrowings, excluding commercial paper, are initially recognised atfair value plus transaction costs and subsequently measured at amortised cost. The interest expense is recognised using the effective
interest method as explained in Accounting Policy 1 B (i). Commercial paper is designated at fair value through profit or loss, with fairvalue movements recorded directly in the income statement, which reflects the basis on which it is managed.					ii) Bonds, notes and loan capital					Bonds, notes and loan capital are initially recognised at fair value plus transaction costs. They are subsequently measured at amortised
cost using the effective interest method, less any impairment loss, or when in an effective hedging relationship, changes in the fairvalue of the hedged item attributable to the hedged risk are reflected in adjustments to the carrying value of the hedged item, and also
recognised in the income statement. Interest expense is recognised in the income statement using the effective interest method. 		
			

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A C C O U N T I N G P O L I C I E S ( continued ) 					iii) Financial guarantee contracts					Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it
incurs because a specified debtor fails to make payments when due. Financial guarantees are issued in the ordinary course of business,consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognised in the financial statements atfair value on the date the guarantee was given; typically this is the premium received.					Subsequent to initial recognition, the Banking Group’s liabilities under such guarantees are measured at the higher of their amortisedamount and the best estimate of the expenditure required to settle any financial obligation arising at the balance sheet date. Theseestimates are determined based on experience of similar transactions and history of past losses.					iv) Derecognition					Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires.					Non-financial liabilities						vi) Employee benefits					Leave benefits					The amounts expected to be paid in respect of employees’ entitlements to annual leave are accrued at expected salary rates including
on-costs. Expected future payments for long service leave are discounted using market yields at the reporting date on national
government bonds with terms to maturity that match, as closely as possible, the estimated future cash outflows. Liability for longservice leave is calculated and accrued for in respect of all applicable employees using an actuarial valuation. 					Superannuation schemes					The Banking Group operates a number of defined contribution schemes and also contributes, according to local law, in the various
countries to which it operates, to government and other plans that have the characteristics of defined contribution schemes. The
Banking Group’s contributions to its defined contribution cash accumulation scheme are recognised as an expense in the income
statement when incurred.					The Banking Group operates two defined benefit superannuation schemes. The liability and expense related to providing benefits toemployees under each of the defined benefit schemes are calculated by independent actuaries. A defined benefit liability is recognised
to the extent that the present value of the defined benefit obligation of each scheme, calculated using the Projected Unit Credit
Method, is greater than the fair value of each scheme’s assets. Where this calculation results in a benefit to the Banking Group, adefined benefit asset is recognised and capped at the recoverable amount. The present value of the defined benefit obligation isdetermined by discounting the estimated future outflows by reference to New Zealand 10-year government bond rates.					In each subsequent reporting period, ongoing movements in the carrying value of the defined benefit liability or asset are treated asfollows:					• the net movement relating to the current period’s service cost, interest cost, expected return on scheme assets, past service costs
and other costs (such as the effects of any curtailments and settlements), is recognised as an employee expense in the income
statement;• movements relating to actuarial gains and losses are recognised directly in retained profits; and		• contributions incurred are recognised directly against the net defined benefit position.							The assets of the defined benefit and cash accumulation superannuation schemes are held in trust and are not included in thesefinancial statements as the Banking Group does not have direct or indirect control of these schemes. The benefits under the schemes areprovided from contributions by employee members and by the Banking Group, and from income earned by the assets of the schemes.
Members’ contributions are at varying rates. Actuarial valuations are carried out at minimum of every three years in accordance withthe schemes’ Trust Deed and superannuation legislation.					vii) Provisions					The Banking Group recognises provisions when there is a present obligation, the future sacrifice of economic benefits is probable, andthe amount of the provision can be measured reliably. The amount recognised is the best estimate of the consideration required tosettle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation at reporting
date. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present
value of those cash flows. Any expected third party recoveries are recognised as an asset if it is virtually certain that recovery will bereceived and the amount of the receivable can be measured reliably.					P A G E

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A C C O U N T I N G P O L I C I E S ( continued ) 					G. Equity						
i)Reserves					Available-for-sale revaluation reserve					This reserve includes changes in the fair value of available-for-sale financial assets, net of tax. These changes are transferred to theincome statement in non-interest income when the asset is either 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.					H. Presentation						

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i)

Offsetting of income and expenses					Income and expenses are not offset unless required or permitted by an accounting standard. This generally arises in the following
circumstances:					• where transaction costs form an integral part of the effective interest rate of a financial instrument which is measured at amortisedcost, these are offset against the interest income generated by the financial instrument;• where gains and losses relating to fair value hedges are assessed as being effective;• where gains and losses arise from a group of similar transactions, such as foreign exchange gains and losses.						ii) Offsetting of 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 and liability; and		• There is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.				
iii) Statement of cash flows					For cash flow statement presentation purposes the statement of cash flows has been prepared using the direct approach modified by
the netting of the certain items as disclosed below.					Cash and cash equivalents include liquid assets, amounts due from other financial institutions, trading securities and available-for-saleassets held for the purpose of meeting short-term cash commitments that are readily convertible to cash and subject to insignificant
risk of changes in value.					Certain cash flows have been netted in order to provide more meaningful disclosure, as many of the cash flows are received anddisbursed on behalf of customers and reflect the activities of the customers rather than those of the Banking Group. These include
customer loans and advances, customer deposits, certificates of deposit, related party balances and trading securities.					iv) Segment reporting					Business segments are distinguishable components of the Banking Group that provide products or services that are subject to risks andrewards that are different to those of other business segments. Geographical segments provide products or services within a particular
economic environment that is subject to risks and rewards that are different to those components operating in other economic
environments.					Business segments are the Banking Group’s primary reporting segments. For reporting purposes the three major business segments
are Retail Banking, Relationship Banking and Institutional. The Banking Group operates primarily in one geographic segment, New
Zealand.					v) Goods and services tax					Revenues, expenses and assets are recognised net of the amount of goods and services tax (‘GST’) except where the amount of GST
incurred is not recoverable from the Inland Revenue Department (‘IRD’). In these circumstances, the GST is recognised as part of thecost of acquisition of the asset or as part of the expense.					Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the IRD
is included as ‘other assets’ or ‘other liabilities’ in the balance sheet.					Cash flows are included in the cash flow statement on a net basis. The GST components of cash flows arising from investing andfinancing activities, which are recoverable from, or payable to, the IRD are classified as operating cash flows.					A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

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A C C O U N T I N G P O L I C I E S ( continued ) 					I. Other						
i)Contingent liabilities					Liabilities are no longer contingent, and are recognised on the balance sheet, when the following requirements are met:					• the transaction is probable in that the contingency is likely to occur; and• the contingency can be reasonably estimated.		
Further disclosure is made within Note 43 Contingent Liabilities and Credit Related Commitments, where the above requirements are
not met, but there is a possible obligation that is higher than remote. Specific details are provided together with an estimate of therange or a statement that such an estimate is not possible.					ii) Securitisation, funds under management and other fiduciary activities					Certain subsidiaries of the Bank act as trustees and/or managers for a number of unit trusts and superannuation investment funds. The
Bank provides private banking services to customers including portfolio management. The assets of the managed funds and privatebanking clients are not included in these financial statements, as direct or indirect control of the assets is not held by the Banking
Group. Commissions and fees earned in respect of the Banking Group’s funds under management are included in net operating
income.					Financial services provided by any member of the Banking Group to discretionary private banking activities or entities conducting
funds management, and assets purchased from discretionary private banking activities or entities conducting funds management are
on arm’s length terms and conditions, and at fair value. 					Securitised assets are derecognised when the right to receive cash flows have expired or the Banking Group has transferred substantially
all the risks and rewards of ownership.					iii) Discontinued operations					A discontinued operation is a component of the Banking Group’s business that represents a separate major line of business orgeographical area of operations that has been disposed of or is classified as held for sale, or is a subsidiary that has been disposed ofor is classified as held for sale.					When an operation is classified as a discontinued operation the comparative income statement is restated as if the operation had been
discontinued from the start of the comparative period.

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C R I T I C A L E S T I M AT E S A N D J U D G E M E N T S U S E D I N A P P LY I N G A C C O U N T I N G P O L I C I E S

These financial statements are prepared in accordance with New Zealand Financial Reporting Standards and other authoritative accounting
pronouncements. Notwithstanding the existence of relevant accounting standards, there 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 the financial
statements. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectationsof future events that are believed to be reasonable under the circumstances.				
An explanation of the judgements and estimates made by the Banking Group in the process of applying its accounting policies, that have themost significant effect on the amounts recognised in the financial statements are set out below. 				Critical accounting estimates and assumptions				Credit provisioning				Provisions for impairment in customer loans and advances are raised by management to cover incurred losses arising from past events. Losses
for impaired loans are recognised when there is objective evidence that impairment of a loan or portfolio of loans has occurred. Impairment
losses are calculated on individual loans and on loans assessed collectively. Losses expected from future events, no matter how likely, are notrecognised. The amount of the impairment loss is recognised as an expense in the income statement.				
The calculation of impairment provisions includes consideration of all expected cash flows associated with the loan. This includes any expectedcash flows from realisation of security and interest and takes into account any costs expected to be incurred, including security realisation costs,
legal and administration costs.							Individual provisions				An individual provision is raised where there is an expectation of a loss of principal, interest and/or fees and there is objective evidence ofimpairment. 				At each balance date, the Banking Group reviews individually significant loans for evidence of impairment. All relevant information, including
the economic situation, solvency of the customer/guarantor, enforceability of guarantees, current security values and the time value of future
cash flows are taken into account in determining individual provisions. At a minimum, individual provisions are reassessed on a quarterly basis,upon receipt of a significant asset realisation or when there is a change in customer circumstances/business strategy.				
Collective provisions				A collective provision is calculated for:				
• Loans subject to individual assessment to cover losses which have been incurred but not yet identified; and• For homogenous portfolios of loans that are not considered individually significant (e.g. retail portfolios such as mortgages, credit cards andsome small business loans).		
The collective provision is estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in thecollective pool. The historical loss experience is then adjusted for the impact of current observable data.				
For individually significant loans, historical loss experience used to calculate the collective provision is determined by taking into accounthistorical information on probability of default and loss given default by risk grade. The collective provision on homogeneous or portfolio
managed exposures is calculated by applying an expected loss factor to the outstanding drawn and undrawn balances in each loan portfolio.
The expected loss factor is determined from internal historical loss data.				
The long-term historical loss experience is reviewed by management and adjustments made to reflect current economic and credit conditions
as well as taking into account such factors as concentration risk in an individual portfolio. In addition, management recognise that a certain
level of imprecision exists in any model used to generate risk grading and provisioning levels. As such an adjustment is applied for model risk.
As at 30 September 2008 for the Banking Group, total provision for credit impairment was $666 million representing 0.68% of total net
loans and advances (30/09/2007 $466 million or 0.53%). Of the total provision for 30 September 2008, $534 million represented collective
provisions and $132 million represented individual provisions. 				As at 30 September 2008 for the Bank, total provision for credit impairment was $612 million representing 0.64% of total net loans andadvances (30/09/2007 $426 million or 0.51%). Of the total provision for 30 September 2008, $497 million represented collective provisions
and $115 million represented individual provisions.				
Management regularly reviews and adjusts the estimates and methodologies as improved analysis becomes available. Changes in theseassumptions and methodologies could have a direct impact on the level of provision and impairment charge recorded in the financial
statements.				

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2.

C R I T I C A L E S T I M AT E S A N D J U D G E M E N T S U S E D I N A P P LY I N G A C C O U N T I N G P O L I C I E S ( continued ) 				Critical judgements in applying the Banking Group’s accounting policies				Derivatives and hedging				
The Banking Group 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 non-trading positions. The derivative instruments used to hedge the Banking Group’s exposures include:• Swaps• Foreign exchange contracts• Forward rate agreements• Futures• Options, and• Combinations of the above instruments.
The Banking Group enters into derivatives for trading (including transactions entered into on behalf of customers) or for hedging purposes.
Hedging				A hedging instrument is a designated derivative whose fair value or cash flows are expected to offset changes in the fair value or cash flows ofa designated hedged item. A hedged item is an asset, liability, firm commitment or highly probable forecast transaction that (a) exposes the
Banking Group to the risk of changes in fair value or future cash flows and (b) is designated as being hedged. 				For a relationship to qualify for hedge accounting, the following criteria must be met:				
• Designation and Documentation: The hedging relationship must be formally designated and documented at the inception of the hedge.
• Prospective Effectiveness: This is a forward-looking test of whether a hedging relationship is expected to be highly effective in future periods.
The hedge must be expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk,
consistently with the originally documented risk management strategy for that particular hedging relationship for hedge accounting to beachievable. 			
The effectiveness of the hedge must be capable of being reliably measured, that is, the fair value or cash flows of the hedged item that are
attributable to the hedged risk and the fair value of the hedging instrument can be reliably measured. Prospective hedge effectiveness testingis required at least quarterly.			
• Retrospective Effectiveness: This is a backward-looking test of whether a hedging relationship has actually been highly effective throughout
the reporting periods for which the hedge was designated (i.e. retrospectively). The actual results of the hedge must be within a range of
80 - 125 per cent. Hedge accounting is only achieved where both prospective and retrospective effectiveness is achieved.			
• External Counterparty: For hedge accounting purposes, only instruments that involve a party external to the Banking Group can be designatedas hedging instruments. 		
Judgement is required by management in selecting and designating hedging relationships and assessing hedge effectiveness. NZ IAS 39 does not
specify a single method for assessing hedge effectiveness prospectively or retrospectively. The Banking Group adopts the hypothetical derivative
approach to determine hedge effectiveness in line with current risk management strategies. Hedge ineffectiveness can arise for a number ofreasons, and whilst a hedge may pass the effectiveness tests above it may not be perfectly effective, thus creating volatility within the income
statement through recognition of this ineffectiveness.				
Fair value of derivatives				Derivatives which are entered into as part of the Banking Group’s trading operations and those derivatives which are part of fair value hedges
are measured at fair value, with any changes in fair value recognised in the income statement. Where liquid markets exist, fair value is based onquoted market prices. Where there is no active market fair value is determined by the use of various valuation techniques including discounted
cash flow models and option pricing models. To the extent possible models use only observable data, however such areas as counterparty
risk, volatilities and correlations require management to make judgements and estimates. Changes in assumptions used in these models andprojections of future cash flows could affect the reported fair value of derivative financial instruments.				
Goodwill				The carrying value of goodwill is subject to an impairment test to ensure that the current carrying value does not exceed its recoverable value atthe balance sheet date. Any excess of carrying value over recoverable amount is taken to the income statement as an impairment writedown.
As at 30 September 2008, the balance of goodwill recorded as an asset on the Banking Group’s consolidated balance sheet as a result of
acquisitions was $3,265 million (30/09/2007 $3,265 million) of which $3,230 million relates to the acquisition of NBNZ Group in December
2003 (30/09/2007 $3,230 million).
As at 30 September 2008, the balance of goodwill recorded as an asset on the Bank’s balance sheet as a result of acquisitions was $3,217
million, which relates to the amalgamation of The National Bank of New Zealand Limited in June 2004 (30/09/2007 $3,217 million).		
		

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C R I T I C A L E S T I M AT E S A N D J U D G E M E N T S U S E D I N A P P LY I N G A C C O U N T I N G P O L I C I E S ( continued ) 				Goodwill is allocated to cash-generating units for the purpose of impairment testing, which is undertaken at the lowest level at which goodwill
is monitored for internal management reporting purposes. The cash-generating unit to which goodwill related to the National Bank Group is
the NZ Geographic segment being ANZ National Bank Limited Group.				
Impairment testing of purchased goodwill is performed annually, or more frequently where there is an indication that the goodwill may be
impaired, by comparing the recoverable value of the Banking Group, being the smallest cash-generating unit to which the goodwill is allocated,with the current carrying amount of its net assets, including goodwill. The recoverable amount is based on fair value less costs to sell. Where thecurrent carrying value is greater than the recoverable amount a charge for impairment of goodwill will be recorded in the income statement.
The Banking Group obtained an independent valuation of the ANZ National Bank Limited Group as at 31 August 2008. 				In determining the fair value of the Banking Group, independent valuations based on fair value less costs to sell using a capitalisation of earnings
approach and a discounted cash flow approach were used.				
The results of the independent valuation resulted in a fair value less costs to sell in excess of current carrying value.				
In determining an appropriate price multiple under the capitalisation of earnings approach, judgement is applied in assessing comparability ofsimilar companies or transactions, particularly with respect to the mix of business, geographic location, growth prospects, riskiness of future
earnings and size of the overall business.				
Changes in the assumptions upon which the valuation is based, together with changes in future cash flows could materially impact thevaluation obtained. Based on this independent valuation, the current carrying value of the Banking Group’s goodwill arising from acquisitions
is considered recoverable and no impairment write-down is required.				
Valuation of investment in ING (NZ) Holdings Ltd (ING NZ)				
The Banking Group adopts the equity method of accounting for its 49% interest in its jointly controlled entity, ING NZ. As at 30 September
2008, the carrying value of the Banking Group’s investment in ING NZ was $212 million (30/09/2007 $189 million). The carrying value of theBank’s investment in ING NZ was $208 million (30/09/2007 $208 million).				
The carrying value of this investment 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 of carrying value over recoverable amount is taken to the income statement as an impairment
writedown.				
The Banking Group obtained an independent valuation of ING NZ as at 30 September 2008. The valuation was based on a value-in-use
methodology using a discounted cash flow approach. The results of the independent valuation resulted in a value-in-use in excess of the
Banking Group’s current carrying value. Based on this independent valuation, the current carrying value of the Banking Group’s investment in
ING NZ is considered recoverable and no impairment write-down is required.				
				

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(CONTINUED)

3.

R I S K M A N A G E M E N T P O L I C I E S 				The Banking Group recognises the importance of effective risk management to its business success. Management is committed to achieving
strong control and a distinctive risk management capability that enables the Banking Group business units to meet their performance
objectives. 		
The Banking Group approaches risk through managing the various elements of the system as a whole rather than viewing them as independentand unrelated parts. The Risk function is independent of the business with clear delegations from the Board and operates within a comprehensive
framework comprising:		
• The Board, providing leadership, setting risk appetite/strategy and monitoring progress;• A strong framework for development and maintenance of Banking Group-wide risk management policies, procedures and systems, overseen by
an independent team of risk professionals;• The use of sophisticated risk tools, applications and processes to execute the global risk management strategy across the Banking Group;• Business Unit level accountability, as the “first line of defence”, and for the management of risks in alignment with the Banking Group’s strategy;and• Independent oversight to ensure Business Unit level compliance with policies, regulations and laws, and to provide regular risk evaluation andreporting.
The Banking Group 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 the Banking Group’s response to emerging risk issues andtrends, and that the requisite culture and practices are in place across the Banking Group, are conducted within the Banking Group and also by
the Ultimate Parent Bank. The Board has responsibility for reviewing all aspects of risk management. 		
The Board has ultimate responsibility for overseeing the effective deployment of risk management frameworks, policies and processes within
New Zealand. The Banking Group’s Risk Committee assists the Board in this function. The role of the Committee is to assist the Board in theeffective discharge of its responsibilities for business, market, credit, operational, compliance, liquidity and reputational risk management, andto liaise and consult with the Ultimate Parent Bank Risk Committee to assist it to discharge its responsibilities. The Banking Group has anindependent Risk Management function, which via the Chief Risk Officer, coordinates risk management directly between Business Unit riskfunctions and Ultimate Parent Bank Group Risk Management functions.		
The risk management process is subject to oversight by the Risk Committee of the Ultimate Parent Bank Board. This includes the review of risk
portfolios and the establishment of prudential policies and controls.		
The Banking Group’s risk management policies are essentially the same as the Ultimate Parent Bank, but are tailored where required to suit the
local New Zealand regulatory and business environment. 		
The Audit Committee, which is a sub-committee of the Board, has responsibility for reviewing all aspects of published financial statements andinternal and external audit processes. The Committee has a quorum of two directors, both of whom must be non-executive directors. It meetsat least four times a year, and reports directly to the Board.		
Financial risk management		
Credit risk is the risk of financial loss from counterparties being unable to fulfil their contractual obligations. 		
Market risk is the risk to the Banking Group’s earnings arising from changes in interest rates, currency exchange rates, credit spreads, or fromfluctuations in bond, commodity or equity prices.		
Liquidity risk is the risk that the Banking Group has insufficient capacity to fund increases in assets, or is unable to meet its payment obligations
as they fall due, including repaying depositors or maturing wholesale debt.		
Refer to Note 32 Financial Risk Management for detailed disclosures on the Banking Group’s financial risk management policies.		
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 the availability or integrityof services, systems and information, or damage to the Bank’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 the Banking Group’s operational risk framework and associated Banking Group-level policies.
Business Units are responsible for the identification, analysis, assessment and treatment of operational risks on a day-to-day basis.
A Risk Drivers and Controls (or ‘Scorecards’) Approach to operational risk measurement is used to measure the operational risk profile ofindividual business units, and to allocate operational risk economic capital. This approach gives business managers a strong and clear incentive
to reduce operational risk.		
Business Units have primary responsibility for the identification and management of operational risk with executive oversight provided by therelevant Retail and Wholesale Risk Committees. The Banking Group’s Operational Risk Executive Committee (OREC) undertakes the governancefunction through the monthly monitoring of operational risk performance across the Banking Group. The Board and Risk Management conduct
effective oversight through the approval of operational risk policies and frameworks and monitoring key operational risk metrics.		

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3.

R I S K M A N A G E M E N T P O L I C I E S ( continued ) 		Compliance		
The Banking Group conducts its business in accordance with all relevant compliance requirements in each point of representation. In order toassist the Banking Group identify, manage, monitor and measure its compliance obligations, the Banking Group has a comprehensive regulatorycompliance framework in place, which addresses both external (regulatory) and internal compliance.		
Risk Management, in conjunction with Business Unit staff ensure the Banking Group operates within a compliance infrastructure and frameworkthat incorporates new and changing business obligations and processes.		
The compliance policies and their supporting framework seeks to minimise material risks to the Banking Group’s reputation and value that
could arise from non-compliance with laws, regulations, industry codes and internal standards and policies. Business Units have primary
responsibility for the identification and management of compliance. The Banking Group’s Risk Management division provides policy andframework, measurement, monitoring and reporting, as well as leadership in areas such as anti-money laundering procedures and matters ofprudential compliance. The Banking Group’s OREC, the Chief Risk Officer, the Board and the Risk Committee of the Ultimate Parent Bank Board
conduct Board and Executive oversight.		
Internal audit		
The Banking Group’s internal audit function, conducts independent reviews that assist the Board of Directors and management to meet theirstatutory and other obligations.		
Internal Audit reports directly to the Chairman of the ANZ National Audit Committee. Under its Charter, Internal Audit conducts independent
appraisals of:		
• The continued operation and effectiveness of the internal controls in place to safeguard and monitor all material risks to the Banking Group;• Compliance with Board policies and management directives;• Compliance with the requirements of supervisory regulatory authorities;• The economic and efficient management of resources; and• The effectiveness of operations undertaken by the Banking Group.
In planning the audit activities, Internal Audit adopts a risk-based approach that directs and concentrates resources to those areas of greatest
significance, strategic concern and risk to the business. This encompasses reviews of major credit, market, technology and operating risks within
the wider Banking Group. Significant findings are reported quarterly to the Audit Committee.		
The Internal Audit Plan is approved by the Audit Committee and endorsed by the ANZ Group Audit Committee.		
All issues and recommendations reported to management are tracked and monitored internally to ensure completion and agreed actions areundertaken where appropriate.		
		

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(CONTINUED)

4.

I ncomeConsolidated

ParentYear to30/09/2008$mYear to30/09/2007$mYear to30/09/2008$mYear to30/09/2007$m

Trading securities

220

233

220

233

Derivative financial instruments

507

278

556

288

727

511

776

521

Liquid assets

313

345

313

345

Other financial institutions

321

220

275

178

Available-for-sale assets

3

7

3

6

8,471

7,190

8,202

6,873

Lending on impaired assets (Note 14)

6

4

6

4

Subsidiary companies

-

-

47

84
13

C ontinuing operations

Interest income
Financial assets at fair value through profit or loss

Financial assets not at fair value through profit or loss

Lending on productive loans

Related parties

-

13

-

16

19

16

14

9,130

7,798

8,862

7,517

9,857

8,309

9,638

8,038

Net fee income1

646

594

594

552

Dividends received

4

3

24

1,217

Other
Total interest income
Other operating income

Associate investments

-

-

88

2

Net gain on foreign exchange trading

166

128

164

126

Net gain on trading securities

44

2

44

2

Net gain on trading derivatives

61

39

61

39

-

10

-

10

Net gain on hedges not qualifying for hedge accounting

72

20

72

20

Net ineffectiveness on qualifying fair value hedges

(70)

(1)

(70)

(1)

Net cash flow hedge gains transferred to income statement

37

35

37

35

Net gain (loss) on financial liabilities designated at fairvalue through profit or loss

15

(2)

15

(2)

Net gain on available-for-sale assets

Other income

38

9

27

17

1,013

837

1,056

2,017

Lending and credit facility fee income

134

110

135

110

Fee income on trust and other fiduciary activities

47

46

20

27

Other fee income

632

592

606

569

Total fee income

813

748

761

706

Direct fee expense

167

154

167

154

Net fee income

646

594

594

552

Total other operating income
1

Net fee income comprises:

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(CONTINUED)

5.

EXPENSES

Consolidated

ParentYear to30/09/2007$mYear to30/09/2008$mYear to30/09/2007
$m

997

595

-

-

997

595

-

-

195
4,397
1,532
151
207
89

206
3,740
1,076
211
157
74

99
4,800
2,730
57
151
207
86

100
3,774
2,210
32
211
157
58

6,571

5,464

8,130

6,542

7,568

6,059

8,130

6,542

Personnel costs
Employee entitlements
Pension costs- Defined contribution schemes- Defined benefit schemes

724
75

650
67

692
73

620
65

37
7

35
6

36
7

34
6

Share-based payments expense
Building occupancy costs
Depreciation of premises and equipment
Leasing and rental costs
Related parties (Note 46)

13
38
38
80
82

12
38
39
72
71

13
9
15
17
178

12
13
17
13
167

Computer expenses

117

112

110

107

Administrative expenses

180

181

172

173

Other costs

53

48

62

56

1,444

1,331

1,384

1,283

Year to30/09/2008$m

C ontinuing operations

Interest expense
Financial liabilities at fair value through profit or loss
Commercial paper
Deposits at amortised cost
Other financial institutions
Deposits and other borrowings
Subsidiary companies
Bonds and notes
Related party funding
Loan capital
Other
Total interest expense
Operating expenses

Total operating expenses

Consolidated

ParentYear to30/09/2008$000s

Year to30/09/2007$000s

Year to30/09/2008$000s

Year to30/09/2007$000s

Auditors’ remuneration to KPMG comprises:
Audit or review of financial statements

1,942

1,549

1,583

1,314

Other audit-related services

500

357

298

333

Total auditors’ remuneration

2,442

1,906

1,881

1,647

It is Banking Group policy that 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 not provide services that are perceived to be in conflict with the role of auditor. These
include consulting advice and subcontracting of operational activities normally undertaken by management, and engagements where theauditor may ultimately be required to express an opinion on its own work. However, non-audit services that are not perceived to be materiallyin conflict with the role of auditor may be provided by KPMG subject to the approval of the Ultimate Parent Bank Audit Committee.
Other audit-related services include services for the audit or review of financial information other than financial reports including prudential
supervision reviews, prospectus reviews, trust audits and other audits required for local regulatory purposes.

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6.

I N C O M E TA X E X P E N S E

Consolidated
Year to30/09/2008$m

ParentYear to30/09/2007$mYear to30/09/2008$mYear to30/09/2007$m

R econciliation o f t h e prima facie income tax payable on pro f it w it h t h e income tax expense c h arged
in t h e income statement

Continuing operations
Profit before income tax

1,667

1,706

902

2,155

Prima facie income tax at 33%

550

563

298

711

Rebateable and non-assessable dividends

(10)

(12)

(8)

(401)

Non-assessable income/non-deductible expenses

(35)

34

(31)

43

505

585

259

353

Tax effect of change in domestic tax rate
Income tax under provided in prior periods

(1)
-

27
2

(1)
-

25
1

Total income tax expense from continuing operations

504

614

258

379

30.2%

36.0%

28.6%

17.6%

610
-

512
2

361
-

277
1

(106)

100

(103)

101

504

614

258

379

(12)

1

(12)

1

1

Effective tax rate (%)
The major components of the income tax expense comprise:Amounts recognised in the income statement
Current income tax charge
Current income tax charge
Adjustments recognised in the current period in relation
to current tax of prior periods
Deferred income tax
Deferred tax (income) expense relating to the origination
and reversal of temporary differences
Total income tax expense recognised in income statement- continuing operations
The following amounts were (credited) charged directly to equity:
Current income tax
Actuarial (loss) gain on defined benefit schemesDeferred income tax
Net (loss) gain on revaluation of cash flow hedges

(4)

11

(4)

11

(16)

12

(16)

12

Balance at beginning of the year

831

642

595

483

Imputation credits attached to dividends received
Taxation paid
Imputation credits attached to dividends paid
Additions from companies joining the Imputation Group

33
211
(370)
-

14
371
(196)
-

18
84
(370)
121

91
217
(196)
-

(9)

-

(2)

-

696

831

446

595

Total income tax (credit) expense recognised directly in equity
Imputation Credit Account

Other
Balance at end of the year

The above amounts only include items that give rise to imputation credits that are available for use by the Banking Group and/or the Bank.
The parent is a member of an Imputation Group with other members of the Banking Group. The figures shown for the Parent above include theimputation credits available for use by the Parent held by the Imputation Group.								1. In May 2007, legislation was passed to reduce the New Zealand corporate tax rate from 33% to 30%, effective for the 2009 income tax year. The tax effect shown is the impact on thevalue of deferred tax assets and liabilities as a result of the reduction in the corporate tax rate from 1 October 2008.																								P A G E

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(CONTINUED)

7.

LIQUID ASSETS

Consolidated

Parent30/09/2008$m

30/09/2007$m

30/09/2008$m

30/09/2007
$m

3,949

3,010

3,949

3,010

-

197

-

197

Money at call

807

1,467

806

1,467

Bills receivable and remittances in transit

82

133

82

133

Total liquid assets

4,838

4,807

4,837

4,807

Included within liquid assets is the following balance:
Overnight balances with central banks

3,779

2,809

3,779

2,809

The Banking Group’s total core liquidity portfolio held for
managing liquidity risk (Note 32)

8,736

6,168

8,736

6,168

Able to be withdrawn without prior notice

437

952

435

950

Securities purchased under agreement to resell

304

512

304

512

Security settlements

1,328

-

1,328

-

Certificates of deposit

2,447

1,634

2,447

1,634		

Term loans and advances

516

465

13

5

5,032

3,563

4,527

3,101

Cash and balances with central banks
Securities purchased under agreement to resell

8.

D U E F RO M OT H E R F I N A N C I A L I N S T I T U T I O N S

Total due from other financial institutions

There are no assets used to secure deposit obligations or assets encumbered through repurchase agreements at 30 September 2008
(30 September 2007 nil).								There is a related party balance with a subsidiary of the Ultimate Parent Company at 30 September 2008 of $1,328m (30 September 2007 nil)

9.

TRADING SECURITIES

Government, Local Body stock and bonds

252

144

252

144

Certificates of deposit

926

866

926

866

Promissory notes

39

177

39

177

Other bank bonds

1,331

638

1,331

638

76

52

76

52

2,624

1,877

2,624

1,877

97

300

97

300

Other
Total trading securities
Included within trading securities is the following balance:
Assets encumbered through repurchase agreements

1 0 . D I S C O N T I N U E D O P E R AT I O N S

On 31 October 2006, UDC Finance Limited sold Truck Leasing Limited to Nikko Principal Investments Australia Limited, a private equity
business of Nikko Cordial Corporation, for consideration of $147 million. A gain of $76 million was realised.								For a detailed explanation of the financial impacts of the sale of TLL refer to Note 10 Discontinued Operations in the consolidated financial
statements for the year ended 30 September 2007.																P A G E

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1 1 . D E R I VAT I V E F I N A N C I A L I N S T R U M E N T S

Derivative instruments are contracts whose value is derived from one or more underlying variables or indices, require little or no initial net investment
and are settled at a future date. Derivatives include contracts traded on registered exchanges and contracts agreed between counterparties, called‘Over the Counter’ or ‘OTCs’. The use of derivatives and their sale to customers as risk management products is an integral part of the Banking
Group’s trading activities. Derivatives are also used to manage the Banking Group’s own exposure to fluctuations in exchange and interest rates aspart of its asset and liability management activities (i.e. balance sheet risk management).
Derivatives are subject to the same types of credit and market risk as other financial instruments, and the Banking Group manages these risks in
a consistent manner.
Types of derivative instruments									The principal foreign exchange rate contracts used by the Banking Group are forward foreign exchange contracts, currency swaps and currency
options. Forward foreign exchange contracts are agreements to buy or sell a specified quantity of foreign currency on a specified future date at anagreed rate. A currency swap generally involves the exchange, or notional exchange, of equivalent amounts of two currencies and a commitment
to exchange interest periodically until the principal amounts are re-exchanged on a future date. Currency options provide the buyer with the right,
but not the obligation, either to purchase or sell a fixed amount of a currency at a specified rate on or before a future date. As compensation forassuming the option risk, the option writer generally receives a premium at the start of the option period.			
The principal commodity contracts used by the Banking Group are forward commodity contracts and commodity swaps. Forward commodity
contracts are agreements for the payment of the difference between a specified commodity price and a fixed rate on a notional volume of thecommodity at a future date. A commodity swap generally involves the exchange of the return on the commodity for a fixed or floating interest
payment without the exchange of the underlying commodity or principal amount.				
The principal interest rate contracts used by the Banking Group are forward rate agreements, interest rate futures, interest rate swaps and options.
Forward rate agreements are contracts for the payment of the difference between a specified interest rate and a reference rate on a notional
deposit at a future settlement date. There is no exchange of principal. An interest rate future is an exchange traded contract for the delivery of astandardised amount of a fixed income security or time deposit at a future date. Interest rate swap transactions generally involve the exchange of
fixed and floating interest payment obligations without the exchange of the underlying principal amounts. Interest rate options provide the buyer
with the right but not the obligation either to receive or pay interest at a specified rate on or before a future date. As compensation for assuming
the option risk, the option writer generally receives a premium at the start of the option period.
Equity related contracts are transacted by the Banking Group to offset the equity risk associated with financial instruments priced against various
share indices.						Derivatives, except for those that are specifically designated as effective hedging instruments, are classified as held for trading. The held for tradingclassification includes two categories of derivative instruments: those held as trading positions and those used for the Banking Group’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 and marketingof 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.
Gains or losses, including any current period interest, from the change in fair value of trading positions are recognised in the income statement as‘other operating income’ in the period in which they occur.
Balance sheet risk management									The Banking Group designates 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 the hedged item. Hedge
accounting is not applied to all balance sheet risk management positions.
Gains or losses from the change in fair value of balance sheet risk management derivatives that form part of an effective hedging relationshipare recognised in the income statement based on the hedging relationship. Any ineffectiveness is recognised in the income statement as ‘otheroperating income’ in the period in which it occurs.
Gains or losses, excluding any current period interest, from the change in fair value of balance sheet risk management positions that are notdesignated into hedging relationships are recognised in the income statement as ‘other operating income’ in the period in which they occur.
Current period interest is included in interest income and expense.
The following tables provide an overview of the Banking Group’s and the Bank’s foreign exchange rate, interest rate and equity derivatives. They
include all trading and balance sheet risk management contracts. Notional principal amounts measure the amount of the underlying financial
commodity and represent the volume of outstanding transactions. They are not a measure of the risk associated with a derivative. The derivative
instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market rates relative to their terms. The aggregate
contractual or notional amount of derivative financial instruments on hand, the extent to which instruments are favourable or unfavourable, andas a consequence the aggregate fair values of derivative financial assets and liabilities, can fluctuate significantly from time to time. The fair valuesof derivative instruments held and notional principal amounts are set out as follows.

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(CONTINUED)P A G E

1 1 . D E R I VAT I V E F I N A N C I A L I N S T R U M E N T S ( continued )Consolidated		ParentNotional			Principal		Fair values
AmountAssets Liabilities
$m
$m
$m

Notional
Principal
Amount$m

Fair values
AssetsLiabilities$m$m

Foreign exchange derivatives
Spot and forward contracts		
Swap agreements		
Options purchased		
Options sold		Collateral received / paid		

37,914
68,158
1,828
1,813
n/a

1,079
3,129
58
(586)

684
1,802
61
(270)

37,914
68,246
1,828
1,813
n/a

1,079
3,138
58
(586)

684
1,802
61
(270)

			

109,713

3,680

2,277

109,801

3,689

2,277

		

30/09/2008

Derivatives held for trading

Commodity derivatives									Swap agreements		
36
4
4
36
4
4
Interest rate derivatives
Forward rate agreements		
Swap agreements		
Futures contracts		
Options purchased		
Options sold		

121,966
347,394
20,328
2,158
2,164

22
3,565
15
11
-

17 121,966
3,631 346,844
620,328
2,158
11
2,164

22
3,565
15
11
-

17
3,631
6
11

			

494,010

3,613

3,665

3,613

3,665

Equity derivatives
Options purchased
Total derivatives held for trading		

493,460

-

-

-

-

-

-

603,759

7,297

5,946

603,297

7,306

5,946

Derivatives held for hedging									(a) Designated as cash flow hedges									Interest rate derivatives
Swap agreements		

12,160161

142

12,160161

142

Total derivatives designated as cash flow hedges		

12,160161

142

12,160161

142(b) Designated as fair value hedges									Foreign exchange derivatives									Swap agreements		
58
1
58
1
Interest rate derivatives									Swap agreements		
31,29974622
31,89976
622
Total derivatives designated as fair value hedges		

31,35775

622

31,957

77

Total derivatives held for hedging		

43,517236

764

44,117238

764

Total derivative financial instruments		

647,276

7,533

6,710

647,414

7,544

6,710

3 2

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(CONTINUED)

1 1 . D E R I VAT I V E F I N A N C I A L I N S T R U M E N T S ( continued )Consolidated		ParentNotional			Principal		Fair values
AmountAssets Liabilities
$m
$m
$m

Notional
Principal
Amount$m

Fair values
AssetsLiabilities$m$m

Foreign exchange derivatives
Spot and forward contracts		
Swap agreements		
Options purchased		
Options sold		Collateral received / paid		

37,15551,253
2,890
2,866
-

750
1,601
113
(530)

1,023
1,360
108
(115)

37,15551,253
2,890
2,866
-

750
1,601
113
(530)

1,023
1,360
108
(115)

			

94,164

1,934

2,376

94,164

1,934

2,376

Interest rate derivatives
Forward rate agreements		
Swap agreements		
Futures contracts		
Options purchased		
Options sold		

74,574319,459
17,761
1,703
1,651

3
2,240
4
13
-

4
2,321
34
13

74,574
318,965
17,761
1,703
1,651

3
2,241
4
13
-

4
2,321
34
13

			

415,148

2,260

2,372

414,654

2,261

2,372

		

30/09/2007

Derivatives held for trading

Equity derivatives
Options purchased		

20

20

-

20

20

-

Total derivatives held for trading		

509,332

4,214

4,748

508,838

4,215

4,748

Derivatives held for hedging(a) Designated as cash flow hedges
Foreign exchange derivatives								Spot and forward contracts		
49
2
49
2
Interest rate derivatives									Swap agreements		
12,568108
50
12,568108
50
Total derivatives designated as cash flow hedges		

12,617110

50

12,61711050(b) Designated as fair value hedges									Foreign exchange derivatives									Swap agreements		
74
1
7
74
1
7
Interest rate derivatives									Swap agreements		

35,635386

119

35,735379

91

Total derivatives designated as fair value hedges		

35,709387

12635,809380

98

Total derivatives held for hedging		

48,326497

176

48,426490

148

Total derivative financial instruments		

557,658

4,711

4,924

557,264

4,705

4,896

P A G E

3 3

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1 1 . D E R I VAT I V E F I N A N C I A L I N S T R U M E N T S ( continued )Hedging relationships
The Banking Group has two types of allowable hedging relationships entered into by the Banking Group: fair value hedges and cash flow hedges.
Each has specific requirements when accounting for the fair value changes in the hedging relationship. For details on the accounting treatmentof each type of hedging relationship refer to Note 1 Accounting Policy E (ii).
Fair value hedges									The risk being hedged in a fair value hedge is a change in the fair value of an asset or liability or unrecognised firm commitment that may affectthe income statement. Changes in fair value might arise through changes in interest rates or foreign exchange rates. The Banking Group’s fairvalue 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.								The application of fair value hedge accounting results in the fair value adjustment on the hedged item attributable to the hedged risk being
recognised in the income statement at the same time the hedging instrument impacts the income statement. If a hedging relationship isterminated, the fair value adjustment to the hedged item continues to be recognised as part of the carrying amount of the item or groupof items and is amortised to the income statement as a part of the effective yield over the period to maturity. Where the hedged item isderecognised from the Banking Group’s balance sheet, the fair value adjustment is included in the income statement as ‘other operating
income’ as a part of the gain or loss on disposal. The table below shows the gain or loss on fair value hedges by hedging instrument and hedge
item attributable to the hedged risk:				Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Gain or (loss) arising from fair value hedges:			- hedged item				- hedging instrument 				

733
(803)

(364)
363

733
(803)

(364)
363

Net ineffectiveness on qualifying fair value hedges				

(70)

(1)

(70)

(1)

Cash flow hedges
The risk being hedged in a cash flow hedge is the potential volatility in future cash flows that may affect the income statement. Volatility
in the future cash flows may result from changes in interest rates or changes in exchange rates arising from recognised financial assets andliabilities and highly probable forecast transactions. The Banking Group’s cash flow hedges consist principally of interest rate swaps that areused to protect against exposures to variability in future interest 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 Banking Group primarily applies cash flow hedge accounting, where
necessary, to its variable rate loan assets, variable rate liabilities and short term re-issuances of fixed rate customer and wholesale deposit
liabilities. The amounts and timing of future cash flows, representing both principal and interest flows, are projected for each portfolio offinancial assets and liabilities on the basis of their forecast repricing profile. This forms the basis for identifying gains and losses on the effective
portions of derivatives designated as cash flow hedges.
The effective portion of changes in the fair value of derivatives qualifying and designated as cash flow hedges is deferred to the cash flow
hedging reserve which forms part of equity. Amounts deferred in equity are recognised in the income statement in the period during which thehedged forecast transactions take place and is fully amortised when the hedging relationship matures. The table below shows the movementsin the cash flow hedging reserve:		
		

Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Balance at beginning of the year					Transferred to income statement					Tax effect of items transferred to income statement					Valuation (loss) gain taken to equity					Tax effect of net loss (gain) taken to equity					

84
(37)
11
(47)
13

52
(35)
12
78
(23)

84
(37)
11
(47)
13

52
(35)
12
78
(23)

Balance at end of the year					

24

84

24

84

The mechanics of hedge accounting results in the gain or loss in the cash flow hedging reserve above being released into the income statement
at the same time that the corresponding loss or gain attributable to the hedged item impacts the income statement. It will not necessarily bereleased to the income statement uniformly over the period of the hedging relationship as the fair value of the derivative is driven by changes
in market rates over the term of the instrument. As market rates do not always move uniformly across all time periods, a change in market rates
may drive more value in one forecast period than another, which impacts when the hedging reserve is released to the income statement.

P A G E

3 4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1 1 . D E R I VAT I V E F I N A N C I A L I N S T R U M E N T S ( continued )The table below shows the breakdown of the cash flow hedging reserve attributable to each type of cash flow hedging relationship:		Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

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

70
(1)

(19)
69

70
(1)

(19)
69

(45)

34

(45)

34

Total cash flow hedging reserve		

24

84

24

84

All underlying hedged cash flows are expected to be recognised in the income statement in the period in which they occur which is anticipatedto take place over the next 0 - 10 years (30/09/2007 0-10 years).
All gains and losses associated with the ineffective portion of the hedging derivatives are recognised immediately as ‘other operating income’in the income statement. The ineffectiveness recognised in the income statement in respect of cash flow hedges was nil in the Banking Group(30/09/2007 less than $1 million) and nil in the Bank (30/09/2007 less than $1 million).
There were no transactions where cash flow hedge accounting ceased in the period ended 30 September 2008 as a result of highly probablecash flows that were no longer expected to occur (30/09/2007 no transactions).

1 2 . AVA I L A B L E - F O R - S A L E A S S E T S		Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Government, Local Body stock and bonds				
Other debt securities				
Equity securities				

3
41
65

4
43
1

3
41
63

4
33
1

Total available-for-sale assets				

109

48

107

38

Overdrafts
Credit card outstandings
Term loans - housing
Term loans - non-housing
Finance lease receivables

2,140
1,434
53,35040,583
777

2,012
1,338
49,75135,156
752

2,140
1,435
53,35038,480
36

2,012
1,338
49,751
31,70337

Gross loans and advances
Provision for credit impairment (Note 15)
Unearned finance income
Fair value hedge adjustment
Deferred fee revenue and expenses
Capitalised brokerage/ mortgage origination fees

98,284
(666)
(346)
353
(55)
109

89,009
(466)
(290)
(442)
(53)
120

95,441
(612)
353
(50)
109

84,841
(426)
(442)
(49)
120

Total net loans and advances

97,67987,87895,241

84,044

1 3 . N E T L O A N S A N D A D VA N C E S

Included within net loans and advances is the									following related party balance:									ANZ Holdings (New Zealand) Limited (Parent Company)
89
89
The balance owing by the Parent Company is due within the next twelve months. Interest is received at variable bank rates.

P A G E

3 5

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

1 4 . I M PA I R E D A S S E T S , PA S T D U E A S S E T S A N D OT H E R A S S E T S U N D E R A D M I N I S T R AT I O NConsolidated
Retail Other retailmortgages exposures$m$m

ParentCorporate		
exposures1
Total
$m
$m

Retail Other retailmortgages exposures$m$m

Corporate
exposures1
$m

Total
$m

Individually impaired assets
30/09/2008
Balance at beginning of the year
Transfers from productive
Transfers to productive
Assets realised or loans repaid
Write offs

7
103
(2)
(18)
(7)

20
122
(14)
(98)

88
228
(8)
(86)
(8)

115
453
(10)
(118)
(113)

7
103
(2)
(18)
(7)

7
97
(3)
(87)

79
200
(5)
(75)
(8)

93
400
(7)
(96)
(102)

Balance at end of the year

83

30

214

327

83

14

191

288

30/09/2007
Balance at beginning of the year
Transfers from productive
Transfers to productive
Assets realised or loans repaid
Write offs

9
3
(5)
-

19
85
(9)
(75)

123
81
(15)
(92)
(9)

151
169
(15)
(106)
(84)

9
3
(5)
-

12
73
(9)
(69)

108
62
(11)
(71)
(9)

129
138
(11)
(85)
(78)

Balance at end of the year

7

20

88

115

7

7

79

93

		

Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Past due assets (90 days past due assets)2
Balance at beginning of the year		 		Transfers to past due assets		 		Transfers from past due assets		 		

102
856
(649)

86
360
(344)

95
798
(597)

78
326
(309)

Balance at end of the year				

309

102

296

95

Other assets under administration
Balance at beginning of the year				
Transfers to other assets under administration				
Transfers from other assets under administration				

1
-

3
(3)

1
-

3
(3)

Balance at end of the year				

1

-

1

-

Undrawn facilities with impaired customers
Balance at beginning of the year				
Transfers to (from) undrawn facilities with impaired customers		

6
-

8
(2)

6
-

8
(2)

Balance at end of the year				

6

6

6

6

Interest foregone on impaired assets
Gross interest receivable on impaired loans				Interest recognised				

24
(6)

12
(4)

24
(6)

11
(4)

Net interest foregone on impaired loans				

18

8

18

7

1. Includes corporate, sovereign and banks.
2. 90 day past due assets are not classified as impaired assets as they are either 90 days or more past due and well secured, or are portfolio managed facilities that can be held for up to 180
days past due.											

3 6A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1 4 . I M PA I R E D A S S E T S , PA S T D U E A S S E T S A N D OT H E R A S S E T S U N D E R A D M I N I S T R AT I O N ( continued )Further analysis of past due assets can be found in Note 32 Financial Risk Management, including an ageing analysis of all past due assets 1 day
and over where the counterparty has failed to make a payment when contractually due.											Other assets under administration and undrawn facilities with impaired customers are predominantly corporate exposures.											There are no undrawn facilities with 90 day past due customers or customers within the other assets under administration category as at 30
September 2008 (30 September 2007 nil).											As at 30 September 2008, the Banking Group did not have any material restructured assets or assets acquired through enforcement of security(30 September 2007 nil).

1 5 . P ROV I S I O N F O R C R E D I T I M PA I R M E N T

Consolidated
Retail Other retailmortgages exposures$m$m

ParentCorporate		
exposures1
Total
$m
$m

Retail Other retailmortgages exposures$m$m

Corporate
exposures1
$m

Total
$m

30/09/2008
Collective provision
Balance at beginning of the year
Charge to income statement

58
23

130
34

234
55

422
112

58
23

117
29

217
53

392
105

Balance at end of the year

81

164

289

534

81

146

270

497

Individual provision(individually impaired assets)
Balance at beginning of the year
Charge to income statement
Recoveries of amounts previously written off
Bad debts written off
Discount unwind2

4
31
(7)
-

13
80
15
(98)
-

27
79
2
(8)
(6)

44
190
17
(113)
(6)

4
31
(7)
-

5
71
15
(87)
-

25
71
1
(8)
(6)

34
173
16
(102)
(6)

Balance at end of the year

28

10

94

132

28

4

83

115

Total provision for credit impairment

109

174

383

666

109

150

353

612

Collective provision
Balance at beginning of the year
Charge to income statement

51
7

132
(2)

219
15

402
20

51
7

115
2

198
19

364
28

Balance at end of the year

58

130

234

422

58

117

217

392

Individual provision(individually impaired assets)
Balance at beginning of the year
Charge to income statement
Recoveries of amounts previously written off
Bad debts written off
Discount unwind2

3
1
-

16
55
17
(75)
-

39
(2)
3
(9)
(4)

58
54
20
(84)
(4)

3
1
-

9
48
17
(69)
-

39
(2)
1
(9)
(4)

51
47
18
(78)
(4)

30/09/2007

Balance at end of the year

4

13

27

44

4

5

25

34

Total provision for credit impairment

62

143

261

466

62

122

242

426

1. Includes corporate, sovereign and banks.
2. 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 their present value. As
this discount unwinds during the period it is recognised as interest income.

P A G E

3 7

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1 5 . P ROV I S I O N F O R C R E D I T I M PA I R M E N T ( continued )Provision movement analysis
		Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

New and increased provisions		
Provision releases		

223
(16)

92
(18)

203
(14)

82
(17)

			
Recoveries of amounts previously written off		

207
(17)

74
(20)

189
(16)

65
(18)

Individual provision charge		
Collective provision charge		

190
112

54
20

173
105

47
28

Charge to income statement		

302

74

278

75

1 6 . S H A R E S I N C O N T RO L L E D E N T I T I E S , A S S O C I AT E S A N D J O I N T LY C O N T RO L L E D E N T I T I E S		Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Shares in controlled entities
Unquoted at cost				

-

-

7,398

7,473

Shares in associates			

144

10

88

2

Shares in jointly controlled entities
Unquoted at cost plus equity accounted adjustments				

219

196

208

208

Total shares in controlled entities, associates and 							jointly controlled entities				
363
206
7,694

7,683

Shares in associates comprise:
Balance at beginning of the year				Acquisitions				
Disposals				Transfers to subsidiary company				Fair value adjustment 				Share of profit of equity accounted associates1				

10
48
(2)
88

3
8
(1)
-

2
86
-

3
(1)
-

Balance at end of the year			

144

10

88

2

Shares in associates at 30 September 2008 includes goodwill of $57 million (30/09/2007 $8 million) for the Banking Group and $nil
(30/09/2007 $nil) for the Parent.
Shares in jointly controlled entities comprise:						Balance at beginning of the year				
196
174
Disposals				(2)
Share of profit of equity accounted jointly controlled entities			
23
24
Balance at end of the year				

219

196

Shares in jointly controlled entities at 30 September 2008 includes goodwill of $97 million (30/09/2007 $97 million) for the Banking Groupand $90 million (30/09/2007 $90 million) for the Parent.
1. The Banking Group, via its associate, Cards NZ Limited, acquired shares in Visa in March 2008, resulting in an equity accounted profit of $88 million being recognised on the sale of theshares at fair value by Cards NZ Limited. Visa shares not sold into the initial public offering are held as an available-for-sale asset on the balance sheet.

P A G E

3 8

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1 7 . OT H E R A S S E T S		Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Accrued interest and prepaid discounts				Accrued commission				Defined benefit schemes surplus				
Share-based payments asset				Prepaid expenses				
Security settlements				
Other assets				

535
20
50
57
85
253

537
12
8
37
30
137
284

515
16
50
46
85
173

487
9
8
37
23
137
219

Total other assets				

1,000

1,045

885

920

Deferred tax assets
Balance at beginning of the year				Credited (charged) to income statement				Set-off of deferred tax liabilities pursuant to set-off provisions1		

11
59
51

122
(38)
(73)

57
43

105
(37)
(68)

1 8 . D E F E R R E D TA X A S S E T S

Balance at end of the year				

121

11

100

-

Deferred tax assets comprise the following temporary differences:
Provision for credit impairment				Deferred fee revenue and expenses				Premises and equipment				Software				Provisions and accruals				Derivative financial instruments				Defined benefit schemes				
Other				

200
3
11
125
3
8
3

140
3
2
32
103
3
11

184
3
(3)
12
118
4
8
1

129
3
(2)
32
95
4
9

					
Set-off of deferred tax liabilities pursuant to set-off provisions1		

353
(232)

294
(283)

327
(227)

270
(270)

Net deferred tax assets				

121

11

100

-

The deferred tax credited (charged) to the income statement
comprises the following temporary differences:
Provision for credit impairment				Deferred fee revenue and expenses				Premises and equipment				Software				Provisions and accruals				Derivative financial instruments				Defined benefit schemes				
Other				

60
(2)
(21)
22
8
(8)

(12)
(2)
(2)
4
(6)
(20)

55
(1)
(20)
23
8
(8)

(8)
(2)
(1)
1
(5)
(22)

Total deferred tax credited (charged) to the income statement		

59

(38)

57

(37)

There was no deferred tax asset charged or credited to equity as at 30 September 2008 (30/09/2007 $nil). There were no unrecognised deferred
tax assets as at 30 September 2008 (30/09/2007 $nil).										The reduction in the corporate tax rate from 33% to 30% from the 2009 tax year has been taken into account in calculating the value ofdeferred tax assets as at 30 September 2008 and 30 September 2007. 										1. Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities within
the same taxable group.										P A G E

3 9

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

19. PREMISES AND EQUIPMENT		

Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Freehold and leasehold land and buildings
At cost				Accumulated depreciation				

69
(12)

69
(12)

-

-

Total carrying amount				

57

57

-

-

Leasehold improvements
At cost				Accumulated depreciation				

98
(75)

97
(73)

2
(1)

1
-

Total carrying amount				

23

24

1

1

Furniture and equipment
At cost				Accumulated depreciation				

255
(176)

244
(166)

20
(12)

17
(10)

Total carrying amount				

79

78

8

7

Computer and office equipment
At cost				Accumulated depreciation				

246
(196)

239
(189)

207
(169)

200
(161)
39

Total carrying amount				

50

50

38

Work in progress				

33

23

6

7

Total premises and equipment				

242

232

53

54

3,265

3,265

3,217

3,217

Gross carrying amount
Balance at beginning of the year				Additions 				

68
28

51
17

66
27

50
16

Balance at end of the year				

96

68

93

66

Accumulated amortisation
Balance at beginning of the year				Amortisation expense1				

(39)
(8)

(32)
(7)

(39)
(6)

(32)
(7)

Balance at end of the year				

(47)

(39)

(45)

(39)

Total software				

49

29

48

27

Other intangible assets				

3

3

3

3

Total goodwill and other intangible assets				

3,317

3,297

3,268

3,247

2 0 . G O O D W I L L A N D OT H E R I N TA N G I B L E A S S E T S

Goodwill
Gross carrying amount
Balance at beginning and end of the year				
SoftwareNo impairment losses have been recognised against the gross carrying amount of goodwill, software and other intangible assets for the year
ended 30 September 2008 (30/09/2007 $nil).
1. Software amortisation expense is included in ‘other costs’ in the income statement.

4 0

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

2 1 . D U E TO OT H E R F I N A N C I A L I N S T I T U T I O N S		Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Australia and New Zealand Banking Group Limited(Ultimate Parent Company)				
Securities sold under agreements to repurchase				Other financial institutions				

1,002
97
2,213

1,140
300
1,730

1
97
1,842

300
1,386

Total due to other financial institutions		 		

3,312

3,170

1,940

1,686

Included within due to other financial institutions is the following balance:
Balances owing to the Ultimate Parent Company by
ANZ National (Int’l) Limited guaranteed by the Bank		 		

1,002

1,140

1

-

Balances owing to the Ultimate Parent Bank are due within twelve months. Interest is paid at variable bank rates.

2 2 . D E P O S I T S A N D OT H E R B O R ROW I N G S

Amortised cost
Certificates of deposit				Term deposits				Demand deposits bearing interest				Deposits not bearing interest				Secured debenture stock				

5,527
31,26022,085
3,928
1,683

4,447
28,99821,128
4,354
1,786

5,527
31,26022,085
3,928
-

4,447
28,99820,715
4,354-

Total deposits and other borrowings recognised at amortised cost		

64,48360,71362,80058,514

Fair value through the profit or loss
Commercial paper 				12,653

9,317

-

-

Total deposits and other borrowings recognised at fair value				12,653

9,317

-

-

Total deposits and other borrowings				

77,13670,03062,80058,514The principal at maturity of commercial paper at fair value through the profit and loss is $12,755 million (30/09/2007 $9,404 million).
The Banking Group has not defaulted on any principal, interest or redemption amounts on its borrowed funds during the year ended 30
September 2008 (30/09/2007 nil). Deposits from customers are unsecured and rank equally with other unsecured liabilities of the Banking
Group. In the unlikely event that the Bank was put into liquidation or ceased to trade, secured creditors and those creditors set out in theSeventh Schedule of the Companies Act 1993 would rank ahead of the claims of unsecured creditors.										Included within deposits and other borrowings are
the following balances:
Commercial paper issued by ANZ National (Int’l) Limited
guaranteed by the Bank at amortised cost				

12,670

9,319

-

-

UDC Finance Limited secured debentures
Carrying value of total tangible assets				

2,032

2,065

-

-

Registered secured debenture stock is constituted and secured by a trust deed between UDC Finance Limited and its independent trustee,
Trustees Executors Limited. The trust deed creates floating charges over all the assets, primarily loans and advances, of UDC Finance Limited.

P A G E

4 1

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

2 3 . PAYA B L E S A N D OT H E R L I A B I L I T I E S		Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Creditors				Accrued interest and unearned discounts				Defined benefit schemes deficit				Share-based payments liability				Accrued charges				
Security settlements				
Equitable assignment of mortgages1				Other liabilities				

77
982
27
29
215
236
25
250

55
770
20
170
37
32
267

42
811
27
29
199
236
25
162

28
582
20
161
37
32
128

Total payables and other liabilities				

1,841

1,351

1,531

988

1. The ANZ FlexiMortgage Income Trust holds mortgages under an equitable assignment with the Bank. The ANZ FlexiMortgage Income Trust can at any time require the Bank to repurchase
any mortgage. The Bank may also require repurchase in certain circumstances. The mortgages are included in these financial statements.										
		2 4 . D E F E R R E D TA X L I A B I L I T I E SProvision for deferred income tax
Balance at beginning of the year				(Credited) charged to income statement				(Credited) charged directly to equity				Set-off of deferred tax liabilities pursuant to set-off provisions1		

(47)
(4)
51

62
11
(73)

7
(46)
(4)
43

64
11
(68)

Balance at end of the year				

-

-

-

7

Deferred tax liabilities comprise thefollowing temporary differences:
Lease finance				Defined benefit schemes				
Other				

90
142

110
2
171

85
142

104
2
171

					
Set-off of deferred tax liabilities pursuant to set-off provisions1		

232
(232)

283
(283)

227
(227)

277
(270)

Net deferred tax liabilities				

-

-

-

7

The deferred tax (credited) charged to the income statement
comprises the following temporary differences:
Lease finance				Share compensation 				Defined benefit schemes				
Other				

(20)
(2)
(25)

20
(4)
46

(19)
(2)
(25)

22
(4)
46

Total deferred tax (credited) charged to the income statement		

(47)

62

(46)

64

The deferred tax (credited) charged to equity comprises
the following temporary differences:
Cash flow hedges				

(4)

11

(4)

11

Total deferred tax (credited) charged directly to equity				

(4)

11

(4)

11

The reduction in the corporate tax rate from 33% to 30% from the 2009 tax year has been taken into account in calculating the value ofdeferred tax liabilities as at 30 September 2008 and 30 September 2007. 										1. Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities within
the same taxable group.										P A G E

4 2

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

2 5 . P ROV I S I O N S		Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Non-lending losses, frauds and forgeries				

11

3

11

3

Employee entitlements
Balance at beginning of the year				
New provisions				
Provisions utilised				

110
62
(55)

107
56
(53)

108
61
(54)

106
54
(52)

Balance at end of the year				

117

110

115

108

Personnel restructuring costs
Balance at beginning of the year				
Provisions utilised				New provisions				

2
30

9
(7)
-

2
30

9
(7)
-

Balance at end of the year				

32

2

32

2

Redundant assets restructuring costs2
Balance at beginning of the year				
Transfers from subsidiary companies				
Provisions utilised				

2
(1)

5
(3)

2
(1)

2
1
(1)

1

2

Balance at end of the year				

1

2

1

2

Other provisions				

29

48

27

36

Total provisions				

190

165

186

151

1. Employee entitlements										The provision for employee entitlements provides mainly for the cost of employee entitlements to annual leave, long service leave and retirement leave. The majority of employees utilise
their annual leave in the year the entitlement accrues.										2. Personnel restructuring costs and redundant assets restructuring costs										Restructuring cost provisions arise from exit activities relating to material changes in the scope or manner of business undertaken by the Banking Group and includes termination benefits.
Provisions are made when the Banking Group is demonstrably committed, it is probable that the costs will be incurred, though their timing is uncertain, and the costs can be reliably
estimated. The majority of provisions recognised at 30 September 2008 are expected to be settled over the 2009 financial year, with the exception that provisions for losses arising fromrental commitments on leased premises which have become vacant as a result of restructuring will be settled over the remaining term of the leases.										P A G E

4 3

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

2 6 . B O N D S A N D N OT E S			Consolidated						 30/09/2008 30/09/2007						
$m$m

Issued by ANZ National Bank Limited (Parent)
Denomination Face value ($m)		
Maturity
Interest rate %NZD
150m
fixed rate notes
2009
6.82%		NZD50mfloating rate notes
2009
3 month BKBM + 0.30%		
NZD
70m
floating rate notes2010
3 month BKBM + 0.35%		
NZD
100m
fixed rate notes
2010
8.74%		NZD150mfixed rate notes
2011
6.80%		NZD170mfloating rate notes
2011
3 month BKBM + 0.90%		
NZD
50m
fixed rate notes
2011
8.25%		NZD175mfixed rate notes
2014
8.80%		Other bonds and notes1						

150
50
70
100
150
170
50
175
208

150
150
261

							

1,123

561

806
179
254
200
215
1,607
193
150
58
54
1,120
373
448
20
643
254
250
13
2,985
124
14
86
1,120
100
375

668
150
103
107
187
802
14
36
158
330
991
1,969
1,403
170
150
51
48
991
330
396
20
561
12
26
32
34
991
100
-

Issued by ANZ National (Int’l) Limited
Denomination
GBP
NZD
JPY
GBP
EUR
GBP
HKD
USD
USD
USD
USD
USD
USD
NZD
JPY
EUR
HKD
NZD
HKD
HKD
USD
USD
USD
NZD
EUR
JPY
JPY
USD
USD
JPY
JPY
JPY
HKD
HKD
HKD
USD
NZD
CHF

4 4

Face value ($m)		
250m
floating rate notes2
150m
fixed rate notes
9,000mfloating rate notes
40m
floating rate notes
100m
floating rate notes
300m
floating rate notes
80m
fixed rate notes
27m
fixed rate notes3
120m
floating rate notes
250m
fixed rate notes
750m
floating rate notes
170m
floating rate notes4
1,500mfloating rate notes4
200m
fixed rate notes
15,000m
floating rate notes
750m
floating rate notes
1,000mfixed rate notes
150m
floating rate notes
300m
fixed rate notes
280m
fixed rate notes
750m
floating rate notes
250m
floating rate notes
300m
floating rate notes
20m
floating rate notes
300m
floating rate notes
17,770m
fixed rate notes
17,500m
floating rate notes
9m
floating rate notes4
2,000mfloating rate notes5
8,640mfixed rate notes
1,000mfixed rate notes
6,000mfloating rate notes
150m
floating rate notes6
190m
floating rate notes7
200m
floating rate notes8
750m
floating rate notes
100m
floating rate notes
275m
floating rate notes

Maturity
2007
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2010
2010
2010
2010
2010
2010

Interest rate %3 month LIBOR - 0.01%		
6.50%		3 month JPY LIBOR		
3 month GBP LIBOR - 0.065%		
3 month EURIBOR + 0.02%		
3 month GBP LIBOR + 0.01%		
3.93%		5.00%		3 month LIBOR - 0.06%		
4.265%		
3 month LIBOR + 0.07%		
1 month LIBOR + 0.01%		
1 month LIBOR + 0.01%		
9.20%		3 month JPY LIBOR		
3 month EURIBOR + 0.12%		
4.40%		3 month BKBM + 0.10%		
4.93%		4.44%		3 month LIBOR + 0.04%		
3 month Prime - 2.9125%		
1 month LIBOR + 0.04%		
3 month BKBM + 0.05%		
3 month EUR LIBOR + 0.15%		
0.055%		
3 month JPY LIBOR		
1 month LIBOR + 0.01%		
3 month LIBOR + 0.22%		
0.114%		
0.01%		3 month JPY LIBOR		
6 month HIBOR + 0.60%		
6 month HIBOR + 0.60%		
6 month HIBOR + 0.60%		
3 month LIBOR + 0.11%		
3 month BKBM + 0.05%		
3 month CHF LIBOR + 0.75%		

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

2 6 . B O N D S A N D N OT E S ( continued )			Consolidated						 30/09/2008 30/09/2007						
$m$m

Denomination
SGD
USD
AUD
USD
USD
GBP
HKD
HKD
GBP
USD
USD

Face value ($m)		
200m
fixed rate notes
100m
floating rate notes
50m
floating rate notes
890m
floating rate notes12
300m
fixed rate notes
435m
floating rate notes
200m
fixed rate notes9200m
fixed rate notes10
450m
floating rate notes12
2,000mfixed rate notes
250m
floating rate notes

Maturity
2010
2010
2010
2010
2011
2011
2011
2011
2012
2013
2015

Interest rate %3.22%		3 month LIBOR + 0.55%		
3 month BBSW + 0.61%		
3 month LIBOR + 1.03%		
5.50%		3 month GBP LIBOR + 0.05%		
5.10%		4.90%		6 month GBP LIBOR + 0.08%		
6.20%		3 month LIBOR + 0.90%		

209
149
60
1,328
448
1,169
1,210
2,985
373

396
1,069
34
34
1,203
-

							

19,572

13,566-480

20,695

14,607

2,538

1,871

Issued by NBNZ Holdings Limited
Denomination Face value ($m)		
NZD
480m
floating rate notes11

Maturity
2008

Interest rate %3 month BKBM

Total bonds and notes						Included within bonds and notes is the following related party balance:
Australia and New Zealand Banking Group Limited (Ultimate Parent Bank)					
1.

Other bonds and notes includes index linked notes, equity linked notes and other fixed rate and fixed term bonds.											

2.

These notes were issued to Australia and New Zealand Banking Group Limited. 											

3.

The interest rate payable on these notes is stepped as follows: Year 1 3.00%, Year 2 3.25%, Year 3 3.50%, Year 4 4.25% and Year 5 5.00%. The issuer may elect to redeem the notes annuallyfrom May 2004. These notes matured in May 2008.											

4.

The interest rate payable on these notes is stepped as follows: Year 1 1 month LIBOR - 0.02%, Year 2 1 month LIBOR, Year 3 1 month LIBOR + 0.01%, Year 4 1 month LIBOR + 0.02% andYear 5 1 month LIBOR + 0.03%. The investor may elect to extend the maturity of the notes for a year on a monthly basis. These notes were originally for USD1.5billion, but between 7
August 2007 and 7 May 2008, investors elected not to extend USD 1,492 million of bonds. This has resulted in these bonds carrying a fixed maturity as follows: 7 August 2008 USD 89
million; 5 September 2008 USD 1,232 million; 7 October 2008 USD 164 million; 5 December 2008 USD 6 million; 7 May 2009 USD 1 million.											

5.

The interest rate payable on these notes is stepped as follows: Year 1 3 month LIBOR + 0.22%, Year 2 3 month LIBOR + 0.24% Year 3 3 month LIBOR + 0.26%, Year 4 3 month LIBOR +0.28% and Year 5 3 month LIBOR + 0.29%. The investor may elect to extend the maturity of the notes for a year on a 3 monthly basis. On 10 June 2008 and 10 September 2008, investors
elected not to extend USD 686 million and USD 525 million of bonds which has resulted in these bonds carrying a fixed maturity on 9 April 2009 and 10 July 2009, respectively.

6.

The interest rate payable on these notes is stepped as follows: Year 1 3.77%, Years 2 - 5 HIBOR + 0.60%. For each 6 month period after Year 1, there is a maximum interest rate payable,
starting at 3.75% after Year 1 and stepping up 0.25% every 6 months. The issuer has the right to redeem the notes on every semi-annual coupon date from 28 April 2006. The issuer
exercised their option to call the note on 28 April 2008.											

7.

The interest rate payable on these notes is stepped as follows: Year 1 3.77%, Years 2 - 5 HIBOR + 0.60%. For each 6 month period after Year 1, there is a maximum interest rate payable,
starting at 3.75% after Year 1 and stepping up 0.25% every 6 months. The issuer has the right to redeem the notes on every semi-annual coupon date from 28 April 2006. The issuer
exercised their option to call the note on 28 April 2008.											

8.

The interest rate payable on these notes is stepped as follows: Year 1 HIBOR + 1.26%, Years 2 - 5 HIBOR + 0.60%. For each 6 month period after Year 1, there is a maximum interest rate
payable, starting at 4.00% after Year 1 and stepping up 0.25% every 6 months. The issuer exercised their option to call the note on 26 November 2007.											

9.

The interest rate payable on these notes is stepped as follows: Year 1 5.10% per annum, Year 2 4.65% per annum, Years 3, 4 and 5 4.40% per annum. The issuer exercised their option tocall the note on 5 December 2007.											10. The interest rate payable on these notes is stepped as follows: Year 1 4.90% per annum, Year 2 4.65% per annum, Years 3, 4 and 5 4.40% per annum. The issuer exercised their option tocall the note on 6 December 2007.											11. These notes can be redeemed by the noteholder giving not less than 30 days notice. The bonds matured in August 2008.											12. These notes were issued to subsidiaries of ANZ Group. The issue for USD890m was settled on 1 October 2008.											.

Bonds and notes issued by ANZ National (Int’l) Limited are guaranteed by the Bank.

2 7 . D U E TO PA R E N T C O M PA N Y		Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

ANZ Holdings (New Zealand) Limited (Parent Company)				

404

2,775

404

2,775

These funds have been borrowed in New Zealand dollars on an overnight basis and are at call. Interest is payable monthly, based on
New Zealand overnight deposit rates.

P A G E

4 5

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

2 8 . L O A N C A P I TA L		

Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

AUD 207,450,000 term subordinated floating rate loan				AUD 265,740,000 perpetual subordinated floating rate loan				
AUD 186,100,000 term subordinated floating rate loan				
AUD 43,767,507 term subordinated floating rate loan				
AUD 169,520,000 term subordinated floating rate loan				NZD subordinated fixed rate bonds				

248
317
222
52
202
1,779

242
309
217
51
197
1,046

248
317
222
52
202
1,779

242
309
217
51
197
1,046

Total loan capital				

2,820

2,062

2,820

2,062

Included within loan capital is the following related party balance:
Australia and New Zealand Banking Group Limited(Ultimate Parent Bank)				

1,041

1,016

1,041

1,016

AUD 207,450,000 loan											This loan was drawn down on 31 August 2004 and has an ultimate maturity date of 31 August 2014. The Bank may elect to repay the loanon 31 August each year commencing from 2009 through to 2013. All interest is payable half yearly in arrears, with interest payments due 28
February and 31 August. Interest is based on BBSW + 0.40% p.a. up until, and including, 31 August 2009 and increases to BBSW + 0.90% p.a.
thereafter.											AUD 265,740,000 loan											This loan was drawn down on 27 September 1996 and has no fixed maturity. Interest is payable half yearly in arrears based on BBSW + 0.95%
p.a., with interest payments due 15 March and 15 September.											AUD 186,100,000 loan											This loan was drawn down on 19 April 2005 with an ultimate maturity date of 20 April 2015. The Bank may elect to repay the loan on 19 April
each year commencing from 2010 through to 2015. All interest is payable half yearly in arrears, with interest payments due 19 April and 19
October. Interest is based on BBSW + 0.32% p.a. to 19 April 2010 and increases to BBSW + 0.82% p.a. thereafter.											AUD 43,767,507 loan											This loan was drawn down on 15 September 2006 with an ultimate maturity date of 15 September 2016. The Bank may elect to repay the loanon 15 September each year commencing from 2011 through to 2016. All interest is payable half yearly in arrears, with interest payments due
15 March and 15 September. Interest is based on BBSW + 0.29% p.a. to 15 September 2011 and increases to BBSW + 0.79% p.a. thereafter.
AUD 169,520,000 loan											This loan was drawn down on 17 September 2007 with an ultimate maturity date of 17 September 2017. The Bank may elect to repay the loan
on 17 September each year commencing from 2012 through to 2016. All interest is payable half yearly in arrears, with interest payments due
17 March and 17 September. Interest is based on BBSW + 0.68% p.a. to 17 September 2012 and increases to BBSW + 1.18% p.a. thereafter.
NZD subordinated fixed rate bonds
The terms and conditions of these fixed rate and fixed term bonds are as follows:

4 6

New Zealand Exchange listed bonds
Issue date
15 September 2006

Amount $m350

Coupon rate
7.16%

Call date
15 September 2011

Maturity date
15 September 2016

2 March 2007

250

7.60%

2 March 2012

2 March 201723 July 2007

350

8.23%

23 July 201223 July 2017

As at 30 September 2008, these bonds carried an AA- rating by Standard & Poor’s.
The Bank may elect to redeem the bonds on their call date. If the bonds are not called the Bank will continue to pay interest to maturity
at the five year interest rate swap rate plus 0.75% p.a., 0.76% p.a. and 0.62% p.a. for the 15 September 2006; 2 March 2007 and 23 July
2007 bonds respectively. Interest is payable half yearly in arrears based on the fixed coupon rate.

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

2 8 . L O A N C A P I TA L ( continued )Perpetual Subordinated Bond
Issue date
18 April 2008

Amount $m
835

Coupon rate
9.66%

1st Call date
18 April 2013

2nd Call date
18 April 2018

The Bank may elect to redeem the bonds on 18 April 2013, 18 April 2018 or any interest payment date subsequent to 18 April 2018. Interest is
payable half yearly in arrears on 18 April and 18 October each year, beginning on 18 October 2008, up to and including the Second Call Date andthen quarterly thereafter. If the bonds are not called at the First Call Date, the coupon rate will reset to the five year interest swap rate plus 2.00%.
Should the bonds not be called at the Second Call Date, the Coupon Rate from the Second Call Date onwards will be set on a quarterly basis to
the three month FRA rate plus 3.00%. 						As at 30 September 2008, these bonds carried an A+ rating by Standard and Poor’s.			
Interest may not necessarily be paid on each interest payment date as under the terms of the Bonds, ANZ National has a general right and incertain specified circumstances an obligation, to defer payment of interest on the Bonds.				
These bonds are listed on the NZX. The Market Surveillance Panel of the NZX granted the Bank a waiver from the requirements of Listing Rules
10.4 and 10.5. Rule 10.4 relates to the provision of preliminary announcements of half yearly and annual results to the NZX. Rule 10.5 relates
to preparing and providing a copy of half yearly and annual reports to the NZX. The Bank has been granted a waiver from these rules on theconditions that the Bank’s quarterly General Disclosure Statement (‘GDS’) is available on the Bank’s website, at any branch and at the NZX; thatbondholders are advised by letter that copies of the GDS are available at the above locations; that all bondholders are notified on an ongoingbasis, by way of a sentence included on the notification of interest payments, that the latest GDS is available for review at the above locations;and that a copy of the GDS is sent to the NZX on an ongoing basis.										Loan capital is subordinated in right of payment in the event of liquidation or wind up to the claims of depositors and all creditors of the Bank.
All subordinated debt qualifies as Lower Level Tier Two Capital for capital adequacy purposes except for the perpetual subordinated debt which
qualifies as Upper Level Tier Two Capital.										2 9 . O R D I N A RY S H A R E C A P I TA L

		
		
		

Consolidated
30/09/2008
Number ofIssued Shares

Parent30/09/2007
Number ofIssued Shares

30/09/2007
Number ofIssued Shares

30/09/2008
Number ofIssued Shares										Ordinary shares at beginning and end of the period		700,755,498
700,755,498
700,755,498 700,755,498
		Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Ordinary share capital at beginning and end of the period				

5,943

5,943

5,943

5,943

The authorised share capital of the Bank comprises 700,755,498 ordinary shares at par value. At beginning and end of the period, 650,712
ordinary shares were uncalled (30/09/2007 650,712 shares).										Voting rights										At a meeting: on a show of hands or vote by voice every member who is present in person or by proxy or by representative shall have one
vote.										On a poll: every member who is present in person or by proxy or by representative shall have one vote for every share of which such member
is the holder.																				P A G E

4 7

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 0 . R E S E RV E S A N D R E TA I N E D E A R N I N G S

		Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Available-for-sale revaluation reserve
Balance at beginning of the year				(1)
3
Valuation gain (loss) recognised after tax				
24(1)
Cumulative gain transferred to the income						statement on sale of financial assets				
(3)

(1)
24

3
(1)

-

(3)

Balance at end of the year				

23

(1)

23

(1)

Cash flow hedging reserve
Balance at beginning of the year				
Valuation (loss) gain recognised after tax				
Transferred to income statement				

84
(34)
(26)

52
55
(23)

84
(26)
(34)

52
55
(23)

Balance at end of the year				

24

84

24

84

Total reserves				

47

83

47

83

Retained earnings
Balance at beginning of the year				
Profit after income tax				

2,677
1,163

2,235
1,168

1,701
644

651
1,776

Total available for appropriation				
Actuarial (loss) gain on defined benefit schemes after tax				Interim ordinary dividends paid				

3,840
(23)
-

3,403
2
(728)

2,345
(23)
-

2,427
2
(728)

Balance at end of the year				

3,817

2,677

2,322

1,701

The paid dividend on ordinary shares was $nil per share (30/09/2007 $1.04 per share).					

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3 1 . C A P I TA L A D E Q UA C Y

Adoption of Basel II Accord
The Bank received accreditation from the RBNZ to adopt the internal ratings based approach under the Basel II Accord on 10 December 2007 for
calculating capital adequacy ratios, effective from 31 March 2008. The objective of the Basel II Accord is to develop capital adequacy guidelinesthat are more accurately aligned with the individual risk profile of banks. Basel II consists of three pillars - Pillar I covers the capital requirements
for banks for credit, operational and market risks, Pillar II covers all other material risks not already included in Pillar I, and Pillar III relates tomarket disclosure. These market disclosure requirements are set out below.
C A P I TA L M A N A G E M E N T P O L I C I E S 													The Bank is subject to regulation by the RBNZ. The RBNZ sets minimum capital requirements that the Bank must comply with that are
specified in the Bank’s Conditions of Registration. The Bank’s Conditions of Registration require capital adequacy ratios for the Banking Groupto be calculated under the Basel II framework in accordance with the RBNZ document entitled ‘Capital Adequacy Framework (Internal Models
Based Approach)’ (BS2B) dated March 2008. In prior periods, risk weighted exposures for the Banking Group were calculated under the Basel I
framework in accordance with the RBNZ document entitled ‘Capital Adequacy Framework’ (BS2) dated March 2007.													The RBNZ defines total regulatory capital as tier one capital plus tier two capital less deductions from total capital. Tier one capital consists ofequity less prescribed deductions such as goodwill. Tier two capital consists of subordinated loan capital less any prescribed deductions.
Additional deductions from tier one and tier two capital are required where total expected loss (using RBNZ credit risk assumptions) exceeds
the total eligible allowances for impairment.																						The Bank has an Internal Capital Adequacy Assessment Process (‘ICAAP’) which complies with the requirements set out in the RBNZ document
entitled ‘Guidelines on a Bank’s Internal Capital Adequacy Assessment Process (“ICAAP”)’ (BS12) from 31 August 2008, under the Bank’s
Conditions of Registration. The Bank’s ICAAP incorporates overall capital policies and objectives, capital management policies and plans,
allocation of capital to business units and stress testing of both risk and capital positions.													The Bank’s ICAAP policy outlines the core capital management principles that must be maintained to demonstrate that its capital levels:
consider all material risks; are consistent with its overall risk appetite and profile, current operating environment and stage in business cycle;
and that forward-looking stress testing of capital requirements is performed.
The Bank’s core capital objectives are to:													• Protect the interests of depositors, creditors and the shareholder.		
• Ensure the safety and soundness of the Bank’s capital position.		
• Ensure that the capital base supports the Bank’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 the Bank’s ICAAP policy and framework, standardised risk definitions for all material risks, materiality thresholds, capital adequacy
targets, internal economic risk capital principles and risk appetite. 											The Board has set capital minimum, trigger and operating range targets for both tier one and total capital that ensure sufficient capital ismaintained to:													• Meet minimum prudential requirements as defined in the Bank’s Conditions of Registration.
• Ensure consistency with the Bank’s overall risk profile and financial positions, taking into account its strategic focus and business plan.
• Support the economic risk capital requirements of the business. The Bank aims to maintain capital consistent with a long-term Standard &Poor’s AA credit rating (and equivalent ratings from other rating agencies).
The Bank’s Asset & Liability Committee and its related Capital Management sub-committee are responsible for developing, implementing andmaintaining the Bank’s ICAAP framework including ongoing monitoring, reporting and compliance.
The Bank’s ICAAP is subject to independent and periodic review conducted by internal and external audit as appropriate.								The Bank has complied with all externally imposed capital requirements to which it is subject during both the current and comparative
periods.													P A G E

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3 1 . C A P I TA L A D E Q UA C Y ( continued )CAPITAL ADEQUACY RATIOS UNDER THE BASEL II INTERNAL MODELS BASED APPROACH1
RBNZ minimum
ratios30/09/2008

Tier One Capital					Total Capital					Consolidated		
30/09/2008

4.00%		8.00%		

8.13%11.72%

							$m

Tier One Capital
Ordinary share capital							Revenue and similar reserves							Current period’s profit after tax							

5,943
2,701
1,163

Less deductions from Tier One Capital- Goodwill							- Other intangible assets							- Equity investment in ING NZ							- Cash flow hedging reserve							- 50% of total expected loss to the extent greater than total eligible allowances for impairment				

3,265
52
212
24
117

Total Tier One Capital							6,137Tier Two Capital - Upper Level Tier Two Capital
Perpetual subordinated debt							1,152Tier Two Capital - Lower Level Tier Two Capital
Term subordinated debt							1,668								2,820Capital of the Banking Group as at 30 September 2008

Less deductions from Tier Two Capital- 50% of total expected loss to the extent greater than total eligible allowances for impairment				117

Total Tier Two Capital							2,703Total Capital							8,840					Risk weighted					 exposure or					 implied risk				 Exposure atweighted Total capital				
default
exposure requirement
					
$m
$m
$m

Total required capital of the Banking Group as at 30 September 2008
Internal ratings based approach					 133,205
Specialised lending subject to the slotting approach					9,272Other internal ratings based exposures					4,746Equity exposures					
224Standardised approach					
26852,584
9,354
845
950
241

4,207
749
68
76
19

Total credit risk					 147,715
Operational risk					Market risk					Supervisory adjustment2					63,974
5,638
3,835
2,002

5,119
451
307
160

Total capital requirement						75,4496,037

1. Basel II capital ratios for the 30 September 2007 comparative periods have not been provided as the information is not readily available. The Bank was accredited to adopt the internal
models based approach under Basel II on 10 December 2007.													2. The supervisory adjustment mandates an adjustment of 15% of risk-weighted retail mortgages and an adjustment, if required, in order to maintain the Basel II Minimum Capital
Requirements at no less than 90% of the Basel I Minimum Capital Requirements, in accordance with the Bank’s Conditions of Registration. No adjustment was required to maintain the
Basel II Minimum Capital Requirements at no less than 90% of the Basel I Minimum Capital Requirements at 30 September 2008.													P A G E

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3 1 . C A P I TA L A D E Q UA C Y ( continued )CAPITAL ADEQUACY RATIOS UNDER THE BASEL I APPROACH
		

Consolidated

Parent			

30/09/2008 30/09/2007

30/09/2008 30/09/2007

Tier One Capital				 7.75%
Total Capital				11.24%
Total risk-weighted exposures				 80,717

7.19%
10.08%
71,311

7.65%
11.09%
78,860

6.98%
9.02%
69,489RBNZ minimum ratios:Tier One Capital				 4.00%
Total Capital				 8.00%

4.00%
8.00%

4.00%
8.00%

4.00%
8.00%

Basel I capital adequacy in respect of the Banking Group and Registered Bank has been derived in accordance with the RBNZ document entitled‘Capital Adequacy Framework (Basel I Approach)’ (BS2) dated March 2008.											IMPLEMENTATION OF THE ADVANCED INTERNAL RATINGS BASED APPROACH TO CREDIT RISK MEASUREMENT
The Banking Group adheres to the standards of risk grading and risk quantification as set out for Internal Ratings Based (‘IRB’) banks in the RBNZ
document entitled ‘Capital Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008 to measure capital requirements.
Under this IRB framework, banks use their own measures for calculating the level of credit risk associated with customers and exposures, by wayof the primary components of:
Probability of Default (‘PD’) - an estimation of the level of risk of borrower default graded by way of rating models used both at loan originationand for ongoing monitoring. For Retail Mortgage exposures the Banking Group has adopted the RBNZ prescribed exposure weighted minimum PD
of 1.25%
Exposure at Default (‘EAD’) - the expected facility exposure at default, andLoss Given Default (‘LGD’) - an estimate of the potential economic loss on a credit exposure, incurred as a consequence of obligor default andexpressed as a percentage of the facility’s EAD. For Retail Mortgage exposures the Bank applies the downturn LGDs according to loan-to-valuation
ratio (‘LVR’) prescribed bands as set out in BS2B. For Rural Banking exposures within the Corporate asset class the Banking Group has adopted RBNZ
prescribed downturn LGDs which are more conservative than internal estimates.
For exposures classified under Specialised Lending, the Banking Group uses slotting tables prescribed by the RBNZ rather than internal estimates
The exceptions to IRB treatment are five minor portfolios where, due to systems constraints or other reasons, determining IRB estimates is not
currently feasible or appropriate. Risk weights for these exposures are calculated under a separate treatment as set out in the RBNZ document
entitled ‘Capital Adequacy Framework (Standardised Approach)’ (BS2A).
Set out below is a schedule showing the classification of Banking Group exposures according to rating approach:			Internal Ratings Based Approach
IRB Asset Class

Borrower Type

Rating Approach

SovereignCrown

IRB - Advanced

RBNZ

IRB - Advanced

Any other sovereign and its central bank

IRB - Advanced

Bank

Registered banks

IRB - Advanced

Corporate

Corporation, partnerships or proprietorships that do not fit any other asset classification

IRB - Advanced

Corporate Small to Medium Enterprises (‘SME’) with turnover of less than $50 million

IRB - Advanced

Retail Mortgages

Individuals’ borrowings against residential property

IRB - Advanced

Other Retail

Other lending to individuals (including credit cards)

IRB - Advanced

SME business borrowers

IRB - Advanced

Project Finance

IRB - Slotting

Income-Producing Real Estate

IRB - Slotting

Corporate sub-class –Specialised lending
EquityOther assets

IRB
All other assets not falling within any of the above classes

IRB

P A G E

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3 1 . C A P I TA L A D E Q UA C Y ( continued )A risk weight of 100% applies to premises and equipment and all other exposures not otherwise defined in the BS2B document, except for cash,
gold, New Zealand dollar denominated claims on the Crown and the RBNZ which receive a 0% risk weight.
Standardised Approach
Asset Class

Exposure Type

Reason for Standardised Approach

Future treatment

Corporate

ANZ Retail residential investment loans

System constraints

Move to IRB

Purchased receivables

Nature of productRemain Standardised

Merchant card prepayment exposures

System constraints

Move to IRB

Corporate credit cards

System constraints

Move to IRB

Mondex

Immaterial

Remain Standardised

Bank

CONTROLS SURROUNDING CREDIT RISK RATING SYSTEMS													The term Rating System covers all of the methods, processes, controls, data collection and technology that support the assessment of credit
risk, the assignment of internal credit risk ratings and the quantification of associated default and loss estimates.
All material aspects of the rating systems and risk estimate processes are governed by the Risk Management Committee of the Banking
Group. Risk grades are an integral part of reporting to senior management and executive. Management and staff of credit risk functions, inconjunction with the relevant Retail and Wholesale risk committees, regularly assess the performance of the rating systems, identify any areas
for improvement and monitor progress on previously identified development work needed.
The Banking Group’s rating systems are governed by a comprehensive framework of controls that operate at the business unit and support
centres, and through central audit and validation processes. All policies, model designs, model reviews, methodologies, validations, responsibilities,
systems and processes supporting the ratings systems are fully documented.
The Banking Group’s Retail and Wholesale ratings functions work closely with the Ultimate Parent Bank’s risk ratings functions, are independentof operational lending activities and are responsible for the ratings strategies and ongoing management of credit risk models within New
Zealand. The annual validation of models used across the Banking Group is a function undertaken by the ANZ Decision Model Validation unit,
which is also independent of credit risk operational functions and is responsible for overseeing the design, implementation and performance of
all rating models in the Banking Group.
The target approach to modelling for the Banking Group is to deploy the model most suitable for the environment. At present this involves
a combined approach to modelling, utilising models developed in New Zealand and ANZ-developed models tested and validated for use in
New Zealand as appropriate.

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3 1 . C A P I TA L A D E Q UA C Y ( continued )CREDIT RISK EXPOSURES SUBJECT TO INTERNAL RATINGS BASED APPROACH
The following tables analyse the capital requirements under the internal ratings based approach exposures by asset class		Consolidated as at 30/09/2008

					
Exposure					weighted LGD					 used for the
Exposure			Total exposure or Exposure at
capital weighted risk Risk weighted Total capital			principal amountdefault calculation
weightexposure1 requirement
			
$m
$m
%
%
$m
$m

On-balance sheet exposures
Corporate 		Sovereign 		
Bank 		Retail mortgages 		
Other retail		

35,955
1,030
6,688
49,623
5,381

35,955
1,030
6,401
49,623
5,381

38
5
64
22
52

59
1
15
25
51

22,49613
1,039
12,988
2,902

1,800
1
83
1,038
233

Total on-balance sheet exposures		

98,677

98,39032

38

39,4383,155

Off-balance sheet exposures
Corporate 		Sovereign 		
Bank 		Retail mortgages 		
Other retail

13,474
66
1,307
5,397
5,304

12,465
59
1,189
5,314
5,358

47
5
53
21
61

53
26
21
32

6,996
327
1,159
1,818

560
26
93
145

Total off-balance sheet exposures		

25,54824,38545

40

10,300824

Market related contracts
Corporate 		Sovereign 		
Bank		

121,447
4,541
517,813

2,459
323
7,648

61
5
65

39
1
23

1,008
3
1,835

81
147

Total market related contracts		

643,801

10,430

62

26

2,846

228

Total credit risk exposures subject to theinternal ratings based approach		

768,026

133,2053737

52,5844,207

1. Total credit risk-weighted exposures include a scalar of 1.06 in accordance with the Bank’s Conditions of Registration.

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3 1 . C A P I TA L A D E Q UA C Y ( continued )		Consolidated as at 30/09/2008

					
Exposure					 weighted LGD					 used for the
Exposure			
Probability
Exposure at
capital weighted risk Risk weighted Total capital			of default
default
calculation
weightexposure1 requirement
		
%
$m
%
%
$m
$m

Corporate
CCR rating
0 - 2 		 0.04%
3 - 4 		 0.34%
5			 1.00%
6 			 2.61%
7 - 8 		 7.79%
Default
100.00%7,341
21,913
12,542
6,711
2,120
252

60
38
37
39
41
50

24
41
69
91
140
101

1,879
9,576
9,133
6,496
3,147
269

150
766
731
520
252
22

Total corporate credit risk exposures 			

50,8794157

30,5002,441

Sovereign
CCR rating
0 			
1 			
2 			
3 			
4 - 8 		Default 		

0.01%
n/a
n/a
n/a
n/a
n/a

1,412
-

5
-

1
-

16
-

1
-

Total sovereign credit risk exposures 			

1,412

5

1

16

1

Bank
CCR rating
0 			
1 			
2 - 4 		5 - 6 		7 - 8 		Default 		

0.01%
0.02%
0.09%
1.22%
5.83%
n/a

13,147
1,097
926
33
35
-

65
54
54
65
65
-

19
16
28
117
203
-

2,625
183
277
41
75
-

210
15
22
3
6
-

Total bank credit risk exposures 			

15,238

64

20

3,201

256

Retail mortgages
CCR rating
0 - 3 		 0.24%
4 			 0.35%
5 			 0.98%
6 			 2.35%
7 - 8 		 12.58%
Default 		 100.00%

13,742
21,341
10,305
6,582
2,527
440

21
22
23
24
25
29

10
13
28
51
110
27

1,432
3,031
3,074
3,543
2,940
127

115
242
246
283
235
10

Total residential mortgage credit risk exposures 			

54,93722

24

14,147

1,131

Other retail
CCR rating
0 - 2 		 0.10%
3 - 4 		 0.26%
5 			 1.09%
6 			 2.05%
7 - 8 		 11.53%
Default
100.00%

1,216
4,480
2,561
1,728
648
106

80
55
52
51
54
55

20
24
54
66
92
3

261
1,146
1,478
1,206
629
-

21
92
119
96
50
-

Total other retail credit risk exposures 			

10,739

56

41

4,720

378

Credit risk exposures subject to the internal ratings based approach have been derived in accordance with the Reserve Bank of New Zealanddocument entitled ‘Capital Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008 and other relevant correspondence
from the RBNZ setting out prescribed credit risk estimates.
1. Total credit risk-weighted exposures include a scalar of 1.06 in accordance with the Bank’s Conditions of Registration.

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3 1 . C A P I TA L A D E Q UA C Y ( continued )SPECIALISED LENDING SUBJECT TO THE SLOTTING APPROACH
		
			
			
				

Consolidated as at 30/09/2008
Exposure		 Risk weighted Total capitalamountRisk weight
exposure2 requirement
$m
%
$m
$m

On-balance sheet exposures3
Strong			Good			Satisfactory			
Weak			Default			

3,036
2,592
1,722
380
62

70
90
115
250
226

2,253
2,473
2,099
1,007
149

180
198
168
81
12

Total on-balance sheet exposures subject to the slotting approach			

7,792

97

7,981

639

		
		
			

Exposure		
amountEAD$m$m

Average risk Risk weighted Total capitalweightexposure2 requirement%$m$m

Off-balance sheet exposures
Undrawn commitments and other off balance sheet exposures		
Market related contracts		

1,467
3,475

1,406
74

87
90

1,302
71

104
6

Total off-balance sheet exposures subject to the slotting approach

4,942

1,480

88

1,373

110

Specialised lending subject to the slotting approach has been derived in accordance with the Reserve Bank of New Zealand document entitled‘Capital Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008.
OTHER IRB EXPOSURES
		
			
			
				

Consolidated as at 30/09/2008
Exposure		 Risk weighted Total capitalamountRisk weight
exposure2 requirement
$m
%
$m
$m

Cash and gold bullion			
New Zealand dollar denominated claims on the Crown and the RBNZ		
Other assets			

170
3,779
797

100

845

68

Total other IRB credit risk exposures			

4,746

17

845

68

Other IRB exposures have been calculated in accordance with the Reserve Bank of New Zealand document entitled ‘Capital Adequacy Framework(Internal Models Based Approach)’ (BS2B) dated March 2008.													A risk weight of 100% applies to premises and equipment and all other exposures not otherwise defined in the BS2B document, except for cash,
gold, New Zealand dollar denominated claims on the Crown and the RBNZ which receive a 0% risk weight.
EQUITY EXPOSURES		

Consolidated as at 30/09/2008

			Exposure		Risk weighted Total capital			amountRisk weight
exposure2 requirement
				
$m
%
$m
$m

All other equity holdings (not deducted from capital)				

224

400

950

76

Equity exposures have been calculated in accordance with the Reserve Bank of New Zealand document entitled ‘Capital Adequacy Framework(Internal Models Based Approach)’ (BS2B) dated March 2008.
2.

Total credit risk-weighted exposures include a scalar of 1.06 in accordance with the Bank’s Conditions of Registration.													3. The supervisory categories of specialised lending above are associated with a specific risk-weight. These categories broadly correspond to the following external credit assessments using
the Standard & Poor’s rating scale: Strong BBB- or better, Good BB+ or BB, Satisfactory BB- or B+ and Weak B to C-.													P A G E

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3 1 . C A P I TA L A D E Q UA C Y ( continued )CREDIT RISK EXPOSURES SUBJECT TO THE STANDARDISED APPROACH
		

Consolidated as at 30/09/2008

			Exposure			amount				$m

Average risk		Risk weighted Total capitalweightexposure2 requirement%$m$m

On-balance sheet exposures
Corporates			

122

70

91

7

Total on-balance sheet exposures subject to the standardised approach		

122

70

91

7

		Average credit
Exposure conversion
amountfactor		$m%

Off-balance sheet exposures
Undrawn commitments and other off balance sheet exposures

420

35

Creditequivalentamount$m

Average risk Risk weighted Total capitalweightexposure2 requirement
%
$m
$m

146

97

150

12

Credit risk exposures subject to the standardised approach have been calculated in accordance with the Reserve Bank of New Zealand document
entitled ‘Capital Adequacy Framework (Standardised Approach)’ (BS2A) dated November 2007.
OPERATIONAL RISK						
Total					 Implied risk operational					weighted risk capital					
exposure requirement						
$m$m

Operational risk capital requirement as at 30 September 2008
Advanced Measurement Approach for operational risk					

5,638

451

The Banking Group uses the Advanced Measurement Approach for determining its regulatory capital requirement for operational risk calculated
in accordance with the Reserve Bank of New Zealand document entitled ‘Capital Adequacy Framework (Internal Models Based Approach)’(BS2B) dated March 2008.
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems or from external events. Operationalrisk incorporates legal risk which includes, but is not limited to, exposures to fines, penalties, or punitive damages resulting from regulatory
actions, as well as private settlements.
The Banking Group has implemented an organisational-wide (‘top of house’) Loss Distribution Approach (LDA) calculation to determine theinitial Operational Risk Capital. The data inputs into the LDA process include internal and external loss data and scenario analysis.		
The initial capital number is calculated at the group-wide level and then distributed and adjusted for business environment and internal controls
down to the business units (and completion points) using a Risk Drivers and Controls Approach (RDCA) Methodology. The RDCA is a risk andcontrol self assessment system which:													• assesses the level of the Banking Group’s exposure to specified drivers of risk;• assesses the scope and quality of the Banking Group’s internal control environment, key operational processes and risk mitigants; and• directly links these assessments to operational risk capital.
The Banking Group’s Operating Risk Capital is calculated using the ANZ Group methodology, but with standalone New Zealand inputs to ensure
there are no diversification benefits.
The Banking Group does not incorporate any insurance mitigation impact into its capital number. Accordingly, there are no insurance related
questions contained within the risk drivers and control assessment (scorecard) methodology.
2.

5 6

Total credit risk-weighted exposures include a scalar of 1.06 in accordance with the Bank’s Conditions of Registration.

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3 1 . C A P I TA L A D E Q UA C Y ( continued )MARKET RISK							Implied risk							weighted							exposure							
$m

Aggregate
capital charge$mMarket risk capital requirement as at 30 September 2008
Interest rate risk						 3,736
Foreign currency risk						35Equity risk						
64

299
3
5

							 3,835

307

The market risk capital requirement has been calculated in accordance with the Reserve Bank of New Zealand document entitled ‘Capital
Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008.
CREDIT RISK MITIGATIONThe Banking Group assesses the integrity and ability of counterparties to meet their contractual financial obligations for repayment. Collateral
security in the form of real property or a security interest in personal property is generally taken for business credit except for major government,bank and corporate counterparties of strong financial standing. Longer term consumer finance in the form of housing loans is generally secured
against real estate while short term revolving consumer credit is generally unsecured.
Netting is defined as the set-off of two or more cash flows, assets, or liabilities. The types of netting used by the Banking Group are payments or
settlement, close-out, bilateral or multilateral. The Banking Group establishes its netting rights through various means including legally binding
set-off agreements, collateral agreements, facility agreements, security agreements and the terms and conditions of trading (including ISDA
Master Agreements when considered appropriate). Where documented rights to net have been established a net limit may be used for exposure
assessment and monitoring.
Guarantees used for credit risk mitigation may be provided by bank, sovereign, corporate or individual counterparties. Guarantors are separately
rated, and their capacity to honour their commitments under the guarantee is also assessed. The obligor is also separately rated on a standalone basis, and then the rating of the obligor is adjusted to take into account the strength of the guarantor. The size of the adjustment reflects
the Banking Group’s assessment of the strength of the guarantor, but is capped at the guarantor’s rating so there is no recognition of “double
default”. Guaranteed exposures are subject to Banking Group policy covering market and credit risk concentrations.
As at 30 September 2008, under the IRB approach the Banking Group had $1,024m of Corporate exposures covered by guarantees. None of
the credit risk exposures subject to the Standardised approach were covered by eligible financial collateral. Under the IRB approach the Banking
Group currently has no exposures backed by credit derivatives.
RETAIL MORTGAGES BY LOAN-TO-VALUATION RATIOThe table below sets out retail mortgages by loan-to-valuation ratio (‘LVR’) bands as used to calculate the Banking Group’s Pillar One capitalrequirement at balance date. As required by the RBNZ, LVRs are calculated as the current loan balance divided by the Bank’s valuation of the
security property at origination of the exposure. Where the Bank is unable to calculate the LVR the exposure is placed in the over 90% band tomaintain a conservative treatment. 																			 30/09/2008						
Exposure						
amount1							$m

LVR range
0% - 59%						60% - 69%							70% - 79%							80% - 89%						Over 90%						22,329
7,371
9,483
7,486
6,550

Total retail mortgage credit risk exposures subject to the internal ratings based approach				53,219

1. The exposure amount used to calculate LVR excludes commitments to lend.		

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3 1 . C A P I TA L A D E Q UA C Y ( continued )PILLAR II CAPITAL FOR OTHER MATERIAL RISKS2						 30/09/2008						 Total capital						 requirement							$m

Internal capital allocation for other material risks							

145The internal capital allocation for other material risks has been derived in accordance with the Bank’s Conditions of Registration.													The Banking Group actively manages and measures all material risks affecting its operations. These risks go beyond the traditional banking risksof credit, operational and market risks. The measurement and management of any other material risk is covered in the Bank’s Economic Capitalmodel which is used within the Bank’s ICAAP. Economic capital is defined as the maximum loss in excess of that which is to be expected in thenormal course of business, assessed at a given confidence level. Losses in excess of those expected are termed ‘unexpected’. Economic capital is
unexpected loss measured to a 99.97% confidence level, which is consistent with the Bank’s risk appetite of maintaining its AA credit rating.
The internal capital allocation for the Banking Group’s other material risks as at 30 September 2008 was $145 million, comprising premises andequipment risk and capitalised origination fees risk.
Other material risks outside of the credit, operational and market risks that the Banking Group measures and manages are generally alreadydeducted from Tier 1 capital. As a result, the Banking Group has not included capital for these risks in the internal capital allocation for othermaterial risks.													CAPITAL ADEQUACY OF ULTIMATE PARENT BANK		Consolidated				
Basel II
Basel I							 30/09/2008 30/09/2007

Tier One Capital						Total Capital						7.71%11.10%

6.70%
10.08%

Australian Prudential Regulatory Authority (APRA) minimum ratios:Tier One Capital						Total Capital						

4.00%
8.00%

4.00%
8.00%

For calculation of minimum capital requirements under Pillar I of the Basel II Accord, the Ultimate Parent Bank has been accredited by APRA
to use the Advanced Internal Ratings Based (AIRB) methodology for calculation of credit risk weighted assets and the Advanced Measurement
Approach (AMA) for the operational risk weighted asset equivalent. The Basel II Accord came into effect from 1 January 2008.
Under prudential regulations, the Ultimate Parent Bank is required to hold a prudential capital ratio (PCR) as determined by APRA. Subject to
APRA’s discretion, the minimum PCR is 8 per cent of its total risk weighted assets. Half of this capital must be held in the form of Tier One
Capital. Prior to 1 January 2008, the minimum capital ratio, subject to APRA’s discretion, was also 8 per cent of its total risk weighted assets
calculated under the Basel I methodology and at least half of this capital was held in the form of Tier One Capital.
The Ultimate Parent Bank met the minimum capital adequacy requirements set by APRA as at 30 September 2008 and for comparative priorperiods.
The Ultimate Parent Bank is required to publicly disclose Pillar III financial information as at 30 September 2008. In the Ultimate Parent Bank’s
Consolidated Financial Report, Dividend Announcement and Appendix 4D for the Year to 30 September 2008, capital adequacy ratios calculated
under the Basel II methodology were disclosed. This report can be accessed at the following website address: www.anz.com.
2.

5 8

The Internal allocation for other material risks for 30 September 2007 comparative period has not been provided as the information is not readily available.													A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

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(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T

Strategy in using financial instruments
Financial instruments are fundamental to the Banking Group’s business, constituting the core element of its operations. Accordingly, the risks
associated with financial instruments are a significant component of the risks faced by the Banking Group. Financial instruments create, modify
or reduce the credit, market (including traded or fair value risks and non-traded or interest and foreign currency related risks) and liquidity risksof the Banking Group’s balance sheet. These risks and the Banking Group’s policies and objectives for managing such risks are outlined below.
The Banking Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential
adverse effects on the financial performance of the Banking Group.
CREDIT RISK
Credit risk is the risk of financial loss from counterparties being unable to fulfil their contractual obligations. The Banking Group assumes credit
risk in a wide range of lending and other activities in diverse markets and many jurisdictions. The credit risks arise not only from traditional
lending to customers, but also from inter-bank, treasury, international trade and capital market activities around the world.
The Banking Group has an overall lending objective of sound growth for appropriate returns. The credit risk objectives of the Banking Group are
set by the Board and are implemented and monitored within a tiered structure of delegated authority, designed to oversee multiple facets ofcredit risk, including asset writing strategies, credit policies/controls, single exposures, portfolio monitoring and risk concentrations. The credit
risk management framework exists to provide a structured and disciplined process to support those objectives. The integrity of the credit riskfunction is maintained by the independence of the credit chain and is supported by comprehensive risk analysis, risk tools, monitoring processes
and policies.
CREDIT RISK MANAGEMENT
The credit risk management framework is in place across the Banking Group with the aim of ensuring a structured and disciplined approach
is maintained in achieving the objectives set by the Board. The framework focuses on policies, people, skills, vision, values, controls, risk
concentrations and portfolio balance. It is supported by portfolio analysis and asset-writing strategies which guide lending decisions andidentify segments of the portfolio requiring attention. The effectiveness of the framework is monitored through a series of compliance andreporting processes.					An independent Risk Management function, at Banking Group, Divisional and Business Unit levels, is staffed by risk specialists. In regards tocredit risk management, the objective is for Risk Management to provide robust credit policies, to make independent credit decisions, and toprovide strong support to front 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, and development of credit standards and policies.					The framework is top down, being defined firstly by the Banking Group’s Vision and Values and secondly, by Credit Principles and Policies. The
effectiveness of the credit risk management framework is validated through the compliance and monitoring processes.									Risk Management’s responsibilities for credit risk policy and management are executed through dedicated departments, which support the
Banking Group’s business units. All major Business Unit credit decisions require approval from both business writers and independent 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. Credit risk policy and management is executed through the Chief Risk Officer who
has various dedicated areas within the Risk Management division. Wholesale Risk services the Banking Group’s corporate, investment banking
and rural lending activities through dedicated teams. Retail Risk services the Banking Group’s small business and consumer customers. The
Portfolio Reporting team within Risk Management provides an independent overview of credit risk across the Bank at a portfolio level. The
Banking Group allows sole discretion for transaction approvals at the Business Unit level in both the retail and wholesale lending sectors, withlarger transactions approved by Retail Risk and Wholesale Risk.						The credit risk review function within Internal Audit also provides a further independent check mechanism to ensure the quality of credit
decisions. This includes providing independent periodic checks on asset quality and compliance with the agreed standards and policies acrossthe Banking Group.																								P A G E

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3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Country risk management
Some customer credit risks involve country risk whereby actions or events at a national or international level could disrupt servicing ofcommitments. Country risk arises when payment or discharge of an obligation will, or could, involve the flow of funds from one country toanother or involve transactions in a currency other than the domestic currency of the relevant country.
Country ratings are assigned to each country where the Banking Group incurs country risk and have a direct bearing on the Banking Group’s
risk appetite for each country. The country rating is determined through a defined methodology based around external ratings agencies’
ratings and internal specialist opinion. It is also a key risk consideration in the Banking Group’s capital pricing model for cross border flows.
The recording of country limits provides the Banking Group with a means to identify and control country risk. Country limits ensure that
there is a country-by-country ceiling on exposures that involve country risk. They are recorded by time to maturity and purpose of exposuree.g. trade, markets, 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 to managing risk appetite, asset
writing strategies and business 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 macroeconomic scenarios.
The Ultimate Parent Bank has a dedicated stress testing team within Risk Management that assists business and risk executives in the Banking
Group to model and report periodically to management and the Board Risk Committee on a range of scenarios and stress tests.
Portfolio analysis and reporting
Global credit portfolios are analysed by the Risk Committees and Senior Business Executives. A central risk reporting department produces
credit portfolio analysis which is distributed to senior Risk and Business Executives through monthly, half yearly and ad hoc reporting, or as set
agenda reports to the various Risk Committees. This area provides an independent mechanism to ensure that significant and emerging credit
risks are proactively identified and communicated to Group, Risk and Business Executives, including the Board Risk Committee.		
Collateral management
Banking Group credit principles specify to only lend what the counterparty has the capacity and ability to repay and the Banking Group
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 (i.e. interest and capital repayments). Obtaining collateral is only used to mitigate credit risk. Procedures are designed
to ensure collateral is managed, legally enforceable, conservatively valued and adequately insured. Banking Group policy sets out the typesof acceptable collateral, including:• cash;• mortgages over property;• charges over business assets, e.g. premises, stock and debtors;• charges over financial instruments, e.g. debt securities and equities in support of trading facilities; and• financial guarantees.
In the event of customer default, any loan security is usually held as mortgage in possession while the Banking Group is actively seeking torealise it. Therefore the Banking Group does not usually hold any real estate or other assets acquired through the enforcement of security.
The Banking Group uses ISDA Master Agreements 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 event of default occurs, all contracts with the counterparty are terminated and settled on a net
basis. Further, it is the Banking Group’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 is passed between the parties, depending on the aggregate mark-tomarket (positive or negative) of derivative trades between the two entities, to mitigate the market contingent counterparty risk inherent in theoutstanding positions.												

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3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk arise when a number of customers are engaged in similar business activities or activities within the same geographic
region, or when they have similar risk characteristics that would cause their ability to meet contractual obligations to be similarly affected bychanges in economic or other conditions.					The Banking Group 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 a monthly list of the Banking Group’s top Corporate exposures. The Credit and Trading Risk Committee (six monthly) and Board Risk
Committee (annually) review a comprehensive list of single customer concentration limits and customers’ adherence to these limits.
Analyses of financial assets by industry sector are based on Australian and New Zealand Standard Industrial Classification (ANZSIC) codes.
Concentrations of credit risk analysis:
The composition of financial instruments, that give rise to credit risk, by industry and geography:
Consolidated
Liquid assets
Trading							and due fromsecurities
Derivative		
Other
Credit 			other financial and available
financial
Net loansfinancialrelatedinstitutions for-sale assets instruments and advances
assets commitments3
Total		
$m
$m
$m
$m
$m
$m
$m

30/09/2008
Industry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2

105
5,104
3,966
209
392
31
23
40

28
2,423
255
8
4
15

74
9
1
7
6,809
277
208
20
13
20
11
84

17,925
1,201
921
1,051
1,817
642
3,129
54,831
9,271
1,903
1,392
1,849
2,060

163
11
8
10
17
6
29
499
84
17
13
17
19

5,018
559
427
488
843
298
1,452
10,704
4,303
883
646
858
956

23,285
1,780
1,357
1,584
17,013
5,444
5,035
66,034
13,678
3,208
2,106
2,758
3,174

		

146,456

9,870

2,733

7,533

97,992893

27,435

Individual provision for credit impairment

-

-

-

(132)

-

-

(132)

Collective provision for credit impairment

-

-

-

(534)

-

-

(534)
(666)

		

-

-

-

(666)

-

-

Fair value hedge adjustment

-

-

-

353

-

-

353

9,870

2,733

7,533

97,679893

27,435

146,143
135,429

Total financial assets

Geography		
New Zealand

7,581

1,229

1,839

96,452893

27,435

Overseas

2,289

1,504

5,694

1,227

-

-

10,714

Total financial assets

9,870

2,733

7,533

97,679893

27,435

146,143

1. Government and local authority includes exposures to government administration and defence, education and health, and community services.
2. Other includes exposures to electricity, gas and water, communications, and personal services.									3. Includes credit related commitments, contingent liabilities, and letters of offer.									P A G E

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3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Consolidated
Liquid assets
Trading							and due fromsecurities
Derivative		
Other
Credit 			other financial and available
financial
Net loansfinancialrelatedinstitutions for-sale assets instruments and advances
assets commitments3
Total		
$m
$m
$m
$m
$m
$m
$m

30/09/2007
Industry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2		
Individual provision for credit impairment
Collective provision for credit impairment
		
Fair value hedge adjustment
Total financial assets

201
21
4,115
3,082
281
441
69
16
144
8,370
8,370

4
1,577
152
27
28
137
1,925
1,925

24
10
63
4,199
48
139
52
26
8
142
4,711
4,711

14,514
1,141
812
958
2,560
1,334
2,809
51,819
7,432
1,556
1,233
1,218
1,400
88,786
(44)
(422)
(466)
(442)
87,878

159
12
9
10
28
16
31
566
81
17
13
13
15
970
970

4,055
577
410
484
1,294
673
1,420
9,405
3,756
786
623
616
708
24,80724,807

18,953
1,740
1,231
1,540
13,773
5,305
4,707
61,79011,269
2,852
1,992
1,871
2,546
129,569
(44)
(422)
(466)
(442)
128,661

Geography									New Zealand
7,108
1,329
1,367
84,701970
24,807120,282
Overseas
1,262
596
3,344
3,177
8,379
Total financial assets
8,370
1,925
4,711
87,878970
24,807
128,661
1. Government and local authority includes exposures to government administration and defence, education and health, and community services.
2. Other includes exposures to electricity, gas and water, communications, and personal services.
3. Includes credit related commitments, contingent liabilities, and letters of offer.

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3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )		ParentLiquid assets
and due fromother financial
institutions$m

Trading				securities
Derivative		
Due fromand available
financial
Net loanssubsidiaryfor-sale assets
instruments and advances companies
$m
$m
$m
$m

Other
Creditfinancialrelatedassets commitments3
$m
$m

Total
$m

30/09/2008
Industry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2		
Individual provision for credit impairment
Collective provision for credit impairment
		
Fair value hedge adjustment
Total financial assets

105
4,599
3,965
209
392
31
23
40
9,364
9,364

28
2,421
255
8
4
15
2,731
2,731

74
9
1
7
6,820
277
208
20
13
20
11
84
7,544
7,544

17,604
1,078
689
1,026
1,648
560
2,946
54,358
9,267
1,723
1,009
1,797
1,795
95,500
(115)
(497)
(612)
353
95,241

1,992
1,992
1,992

145
9
6
8
14
5
24
449
77
14
8
15
15
789
789

5,018
527
402
462
811
274
1,441
10,690
4,303
843
644
854
953
27,222
27,222

22,946
1,623
1,098
1,531
18,305
5,336
4,836
65,497
13,667
2,985
1,716
2,700
2,902
145,142
(115)
(497)
(612)
353
144,883

Geography
New ZealandOverseas
Total financial assets

7,435
1,929
9,364

1,227
1,504
2,731

1,850
5,694
7,544

94,014
1,227
95,241

1,992
1,992

789
789

27,222
27,222

134,529
10,354
144,883

1. Government and local authority includes exposures to government administration and defence, education and health, and community services.
2. Other includes exposures to electricity, gas and water, communications, and personal services.
3. Includes credit related commitments, contingent liabilities, and letters of offer.

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3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )		ParentLiquid assets
and due fromother financial
institutions$m

30/09/2007
Industry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2		
Individual provision for credit impairment
Collective provision for credit impairment
		
Fair value hedge adjustment
Total financial assets

Trading				securities
Derivative		
Due fromand available
financial
Net loanssubsidiaryfor-sale assets
instruments and advances companies
$m
$m
$m
$m

Other
Creditfinancialrelatedassets commitments3
$m
$m

Total
$m

201
21
3,653
3,082
281
441
69
16
144
7,908
7,908

20
1,567
152
4
28
144
1,915
1,915

24
10
63
4,193
48
139
52
26
8
142
4,705
4,705

14,222
1,037
628
939
1,008
1,244
2,469
51,325
7,427
1,422
871
1,184
1,136
84,912
(34)
(392)
(426)
(442)
84,044

1,585
1,585
1,585

143
10
6
9
10
12
25
516
75
14
9
12
11
852
852

4,050
575
372
479
1,209
668
1,405
9,405
3,746
780
561
609
676
24,53524,535

18,640
1,632
1,006
1,531
13,225
5,206
4,323
61,246
11,248
2,709
1,564
1,829
2,253
126,412
(34)
(392)
(426)
(442)
125,544

Geography		
New Zealand
6,727
Overseas
1,181
Total financial assets
7,908

1,319
596
1,915

1,361
3,344
4,705

80,786
3,258
84,044

1,585
1,585

852
852

24,53524,535

117,165
8,379
125,544

1. Government and local authority includes exposures to government administration and defence, education and health, and community services.
2. Other includes exposures to electricity, gas and water, communications, and personal services.
3. Includes credit related commitments, contingent liabilities, and letters of offer.

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3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )MAXIMUM EXPOSURE TO CREDIT RISKFor financial assets recognised on the balance sheet, the exposure to credit risk equals their carrying amount. For contingent exposures, themaximum exposure to credit risk is the maximum amount that the Banking Group would have to pay if the contingent is called upon. For
undrawn facilities, the maximum exposure to credit risk is the full amount of the committed facilities.
The following table presents the maximum exposure to credit risk of balance sheet financial instruments before taking account of any collateral
held or other credit enhancements and after deductions such as provision for credit impairment. The exposure is classified into summarised
Basel II asset classes, with Corporate exposures including all non-Retail mortgages and Other retail exposures.
Consolidated

Parent				
Total				
Total
				
maximum				maximum
Retail Other retail Corporate exposure to
Retail Other retail Corporate exposure tomortgages exposures exposures1 credit risk
mortgages exposures exposures1 credit risk
$m
$m
$m
$m
$m
$m
$m
$m

30/09/2008
Exposure to credit risk
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Due from subsidiary companies
Other financial assets
Credit related commitments

49,514
5,397

5,207
5,307

4,838
5,032
2,624
7,533
109
42,958893
16,731

4,838
5,032
2,624
7,533
109
97,679893
27,43549,514
5,397

4,385
5,293

4,837
4,527
2,624
7,544
107
41,342
1,992
789
16,532

4,837
4,527
2,624
7,544
107
95,241
1,992
789
27,222

Total financial assets

54,911

10,51480,718146,143

54,911

9,678

80,294

144,883

Exposure to credit risk
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Due from subsidiary companies
Other financial assets
Credit related commitments

45,944
4,552

4,987
4,853

4,807
3,563
1,877
4,711
48
36,947970
15,402

4,807
3,563
1,877
4,711
48
87,878970
24,80745,944
4,552

4,157
4,853

4,807
3,101
1,877
4,705
38
33,943
1,585
852
15,130

4,807
3,101
1,877
4,705
38
84,044
1,585
852
24,535

Total financial assets

50,496

9,840

68,325

128,661

50,496

9,010

66,038125,544

30/09/2007

1. Includes corporate, sovereign and banks.

P A G E

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3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )CREDIT QUALITY
A core component of the Banking Group’s credit risk management capability is the risk grading framework used across all major Business
Units. A set of risk grading principles and policies are supported by a complementary risk grading methodology. Pronouncements by theInternational Basel Committee on Banking Supervision have been encapsulated in these principles and policies including governance, validationand modelling requirements.				
The Banking Group’s risk grade profile changes dynamically through new counterparty lending and/or existing counterparty movements ineither risk or volume. All counterparty risk grades are subject to frequent review, including statistical and behavioural reviews in consumer andsmall business segments, and individual counterparty reviews in segments with larger single name borrowers.				
Impairment and provisioning of financial assets											The Banking Group’s policy relating to the recognition and measurement of impaired assets conforms with the RBNZ’s guidelines.		
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, and/or where a material credit obligation is 90 days past due but not well secured, or is a portfolio
managed facility that can be held for up to 180 days past due, or where concessional terms have been provided due to the financial difficultiesof the customer.
In the event where the value of collateral is sufficient to repay both the principal debt and all potential interest and there is no concern as tothe creditworthiness of the counterparty in question, the exposure is then classified as past due but not impaired.				
The provision for credit impairment represents management’s best estimate of the losses incurred in the loan portfolio at balance date basedon its experienced judgement.
Credit exposures, including loans and advances and off-balance sheet items, such as commitments and guarantees, are reviewed at least at
each reporting date for impairment. Exposures are impaired and impairment losses are recorded if, and only if, there is objective evidence ofimpairment as a result of one or more loss events that occurred after the initial recognition of the loan and prior to the reporting date, and thata loss event or events has (or have) had an impact on the estimated future cash flows of the individual loan or the collective portfolio of loansthat can be reliably estimated. When the Banking Group recognises an impairment loss in an individual asset or portfolio of assets, the Banking
Group is recognising that future economic benefits (previously assessed as being available to the entity) are no longer probable.				
The Banking Group’s methodology for determining the total provision for loan losses establishes both an individual component for assets thatare individually significant (or on a portfolio basis for small value loans) and then a collective component for those exposures not individuallyknown to be impaired. The individual provision represents the results of analysis of individual loans within the Banking Group’s portfolio. The
Banking Group reviews its loan portfolios and monitors adherence to terms, conditions and lending covenants. The reviews undertaken employ
a variety of statistical measures and experienced judgement to determine the continuing collectability of credit facilities. When objective
evidence arises as to the collectability of a credit facility, the exposure is classified and reported as individually impaired and an individual
provision for credit impairment is allocated against it.		
Exposures that are assessed collectively are placed into pools of similar assets with similar risk characteristics to be collectively assessed forlosses that have been incurred, but not yet identified. The collective provision is estimated on the basis of historical loss experience for assets
with credit risk characteristics similar to those in the collective pool. Historical loss experience is determined using loan and portfolio risk
gradings, associated default and loss expectancy rates and an assessment of the emergence period. The historical loss experience may be refined
based on current observed default data and through various scenario adjustments.						The collective provision is also reviewed to ensure it is adequate for the term of the portfolio as a whole.											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 the Banking Group’s risk grading principles and policies
supported by a complementary risk grading methodology. The following table presents an analysis of gross loans and advances, prior todeducting the fair value hedge adjustment and provision for credit impairment, by summarised Basel II asset class into exposures neither past
due nor impaired, past due and impaired.						

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3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Consolidated
Retail Other retailmortgages exposures$m$m

ParentCorporate		
exposures1
Total
$m
$m

Retail Other retailmortgages exposures$m$m

Corporate
exposures1
$m

Total
$m

30/09/2008
Neither past due nor impaired
Past due but not impaired (1 to 89 days)
Past due but not impaired (over 90 days)
Impaired

47,520
1,776
244
83

4,912
385
54
30

41,886877
11
214

94,318
3,038
309
327

47,520
1,776
244
83

4,161
312
48
14

40,311836
4
191

91,992
2,924
296
288

		

49,623

5,381

42,98897,992

49,623

4,535

41,342

95,50030/09/2007
Neither past due nor impaired
Past due but not impaired (1 to 89 days)
Past due but not impaired (over 90 days)
Impaired

45,268
1,116
57
7

4,730
361
19
20

36,397697
26
88

86,395
2,174
102
115

45,268
1,116
57
7

4,008
247
17
7

33,467618
21
79

82,743
1,981
95
93

		

46,4485,130

37,20888,78646,448

4,279

34,18584,912Credit quality of gross loans and advances neither past due nor impaired
The credit quality of financial assets is assessed by the Banking Group using internal ratings which aim to reflect the relative ability ofcounterparties to fulfil, on time, their credit-related obligations, and is based on their current probability of default. 			
Internal rating											Strong risk rating											Corporate customers demonstrating superior stability 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 comprises
CCR 0+ to CCR 4- which broadly corresponds to ratings “Aaa” to “Ba1” and “AAA” to “BB+” of Moody’s Investors Service and Standard & Poor’s
respectively.					Satisfactory risk rating											Corporate customers consistently demonstrating sound operational and financial stability over the medium to long term, even though some
may be susceptible to cyclical trends or variability in earnings. Retail customers with moderate expected loss. This rating band comprises
CCR 5+ to CCR 6- which broadly corresponds to ratings “Ba2” to “Ba3” and “BB” to “BB-” of Moody’s Investors Service and Standard & Poor’s
respectively.										Weak risk rating but not past due or impaired											Corporate customers demonstrating some operational and financial instability, with variability and uncertainty in profitability and liquidity
projected to continue over the short and possibly medium term. Retail customers with higher expected loss. This rating band comprises CCR 7+
to 8 which broadly corresponds to ratings “B1” to “Caa” and “B+” to “CCC” of Moody’s Investors Service and Standard & Poor’s respectively.
The rating bands presented below differ from the Note 31 Capital Adequacy credit risk exposures subject to the internal ratings based approach
disclosures as RBNZ credit risk estimates are not used for these internal ratings. 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.											1. Includes corporate, sovereign and banks.

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3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )The following table presents an analysis of gross loans and advances neither past due nor impaired by the above internal ratings:											Consolidated
Retail Other retailmortgages exposures$m$m

ParentCorporate		
exposures1
Total
$m
$m

Retail Other retailmortgages exposures$m$m

Corporate
exposures1
$m

Total
$m

30/09/2008
Strong risk rating
Satisfactory risk rating
Weak risk rating but not past due or impaired

43,866
3,041
613

1,849
2,800
263

19,827
19,9872,072

65,54225,8282,948

43,866
3,041
613

1,807
2,091
263

19,437
18,996
1,878

65,11024,1282,754

		

47,5204,912

41,886

94,31847,5204,161

40,311

91,992

30/09/2007
Strong risk rating
Satisfactory risk rating
Weak risk rating but not past due or impaired

41,385
3,041
613

1,524
2,810
396

17,87917,246
1,272

60,78823,413
2,194

41,385
3,357
526

1,524
2,088
396

15,987
16,297
1,183

58,896
21,7422,105

		

45,2684,730

36,39786,39545,2684,008

33,46782,743Credit quality of financial assets that are past due but not impaired
Ageing analysis of past due loans between 1 and 90 days is used by the Banking Group to measure and manage the retail portfolio’s credit
quality. The remaining portfolios are individually managed and therefore, accounts are managed on a daily basis. The following table presents
an ageing analysis of past due loans that are not impaired:								Consolidated
Retail Other retailmortgages exposures$m$m

30/09/2008
1 to 5 days
6 to 29 days
30 to 59 days
60 to 89 days
90 days or over		
30/09/2007
1 to 5 days
6 to 29 days
30 to 59 days
60 to 89 days
90 days or over		
1. Includes corporate, sovereign and banks.

6 8

ParentCorporate		
exposures1
Total
$m
$m

Retail Other retailmortgages exposures$m$m

Corporate
exposures1
$m

Total
$m

544
798
304
130
244

137
155
63
30
54

534
193
106
44
11

1,215
1,146
473
204
309

544
798
304
130
244

113
123
51
25
48

520
176
102
38
4

1,177
1,097
457
193
296

2,020

439

888

3,347

2,020

360

840

3,220

366
580
138
32
57

189
125
34
13
19

506
136
35
20
26

1,061
841
207
65
102

366
580
138
32
57

103
103
29
12
17

441
132
28
17
21

910
815
195
61
95

1,173

380

723

2,276

1,173

264

639

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3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Past due but not impaired (over 90 days)
This classification applies where contractual payments are past due greater than 90 days, or where the facility remains outside of contractual
arrangements for greater than 90 consecutive days, but the Banking Group believes that impairment is not appropriate on the basis of the levelof security/collateral available, or the facility is portfolio managed.				
A facility, subject to a regular repayment schedule, is classified as 90 days past due when at least 90 calendar days have elapsed since the due
date of a contractual payment has not been met in full and the facility is well secured.				
Facilities that do not have a regular repayment schedule are considered 90 days past due when the facility has remained continuously outsideof contracted arrangements for 90 or more consecutive days and the facility is well secured.				
Well secured is when the fair value of associated security is sufficient to ensure that the Banking Group will recover the entire amount owing over thelife of the facility and there is reasonable assurance that collective efforts will result in payment of the amounts due in a timely manner.				
The Banking Group’s residential mortgages and corporate exposures are generally well secured. Collateral is generally represented by residential
property and business assets respectively.						Portfolio managed assets 90 days past due but not impaired include financial assets which are homogenous with similar characteristics andare assessed, approved, and controlled on a portfolio basis within a centralised environment (for example Credit Cards, Personal Loans, Home
Loans). When the financial assets are managed on a portfolio basis, the assets can be held on a non-impaired basis for up to 180 days.
Credit quality of financial assets that are individually impaired											The Banking Group regularly reviews its portfolio and monitors adherence to contractual terms. When doubt arises as to the collectabilityof a credit facility, the financial asset is classified and reported as individually impaired and an individual provision is allocated against it.
The following table presents an analysis of individually impaired assets, undrawn facilities with impaired customers and provision for credit
impairment by summarised Basel II asset class:											Consolidated
Retail Other retailmortgages exposures$m$m

ParentCorporate		
exposures1
Total
$m
$m

Retail Other retailmortgages exposures$m$m

Corporate
exposures1
$m

Total
$m

30/09/2008
Impaired financial assets
Undrawn facilities with impaired customers
Individual provision balance

83
28

30
10

214
6
94

327
6
132

83
28

14
4

191
6
83

288
6
115

Net impaired financial assets

55

20

126

201

55

10

114

179

Collective provision balance

81

164

289

534

81

146

270

497

30/09/2007
Impaired financial assets
Undrawn facilities with impaired customers
Individual provision balance

7
4

20
13

88
6
27

115
6
44

7
4

7
5

79
6
25

93
6
34

Net impaired financial assets

3

7

67

77

3

2

60

65

Collective provision balance

58

130

234

422

58

117

217

392

Security held by the Banking Group in respect of individually impaired financial assets in the analysis above has an estimated fair value of$195 million (30/09/2007 $71 million). In addition, security held in respect of impaired off-balance sheet facilities amounts to $6 million(30/09/2007 $6 million).
Security held by the Bank in respect of individually impaired financial assets in the analysis above has an estimated fair value of $173 million (30/09/2007$59 million) In addition, security held in respect of impaired off-balance sheet facilities amounts to $6 million (30/09/2007 $6 million).
Restructured items											The Banking Group distinguishes between facilities renegotiated on a commercial basis, on terms similar to those offered to new clients withsimilar risk, and those restructured on non commercial terms as a result of a client’s inability to meet original contractual obligations.
In the course of restructuring facilities due to financial difficulty, the Banking Group may consider modifying its terms to include concessions
such as a reduction in the principal amount, a deferral of repayments, and/or a reduction in interest rates or an extension of the maturity datematerially beyond those typically offered to new facilities with similar risk.
Restructured facilities are classified as productive and must demonstrate sound prospects of being able to adhere to the modified contractual
terms. Where doubt exists as to the capacity to sustain the modified terms, the facilities remain impaired and an appropriate level of individual
provision is held.
There are no material restructured loans held by the Banking Group or the Bank (30/09/2008 $nil).
1. Includes corporate, sovereign and banks.

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3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Estimated value of collateral and other charges related to financial assets that are individually impaired.											Consolidated

30/09/2008

Cash and securities
Real estate
Other
Total value of collateral
Credit exposure
Unsecured portion of credit

30/09/2007

Liquid assets
Trading							and due fromsecurities
Derivative		
Other
Credit 			other financial and available
financial
Net loansfinancialrelatedinstitutions for-sale assets instruments and advances
assets commitments1
Total		
$m
$m
$m
$m
$m
$m
$m

-

-

112
83
195
327
132

-

6
6
6
-

112
89
201
333
132

Liquid assets
Trading							and due fromsecurities
Derivative		
Other
Credit 			other financial and available
financial
Net loansfinancialrelatedinstitutions for-sale assets instruments and advances
assets commitments1
Total		
$m
$m
$m
$m
$m
$m
$m

Cash and securities
Real estate
3
3
Other
68
6
74
Total value of collateral71
677
Credit exposure
115
6
121
Unsecured portion of credit
4444											Parent30/09/2008

Liquid assets
Trading							and due fromsecurities
Derivative		
Other
Credit 			other financial and available
financial
Net loansfinancialrelatedinstitutions for-sale assets instruments and advances
assets commitments1
Total		
$m
$m
$m
$m
$m
$m
$m

Cash and securities
Real estate
113
113
Other
60
6
66
Total value of collateral
173
6
179
Credit exposure
288
6
294
Unsecured portion of credit
115
115																						30/09/2007

Cash and securities
Real estate
Other
Total value of collateral
Credit exposure
Unsecured portion of credit

Liquid assets
Trading							and due fromsecurities
Derivative		
Other
Credit 			other financial and available
financial
Net loansfinancialrelatedinstitutions for-sale assets instruments and advances
assets commitments1
Total		
$m
$m
$m
$m
$m
$m
$m

-

1. Includes credit related commitments, contingent liabilities, and letters of offer.

P A G E

-

7 0

-

-

3
56
59
93
34

-

6
6
6
-

3
62
65
99
34

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3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )MARKET RISK

Market risk is the risk to the Banking Group’s earnings arising from changes in interest rates, currency exchange rates, credit spreads, or fromfluctuations in bond, commodity or equity prices.
Market risk management and control responsibilities
The Banking Group has a detailed market risk management and control framework, to support trading and non-trading activities, which
incorporates an independent risk measurement approach to quantify the magnitude of market risk within the trading and non-trading books.
This approach, along with related analysis, identifies the range of possible outcomes that can be expected over a given period of time, andestablishes the relative likelihood of those outcomes.													These risks are monitored daily against a comprehensive limit framework that includes VaR, aggregate market position and sensitivity, productand geographic thresholds. To facilitate the management, control, measurements and reporting of market risk, the Banking Group has grouped
market risk into two broad categories:a) Traded market riskThis is the risk of loss from changes in the value of financial instruments due to movements in price factors for both physical andderivative trading positions. They arise in trading transactions where the Banking Group acts as principal with clients or with themarket. The principal risk categories monitored are:• Currency risk is the potential loss arising from the decline in the value of a financial instrument due to changes in foreign exchange
rates or their implied volatilities.
• Interest rate risk is the potential loss arising from the change in the value of a financial instrument due to changes in market interest
rates or their implied volatilities.
• Credit spread risk is the potential loss arising from a change 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 foreignexchange rate movements.
Some instruments do not fall into either category but also expose the Banking Group to market risk. These include equity securities classified
as available-for-sale. Regular reviews are performed to substantiate valuation of the investments within this portfolio.
The Board of Directors through the Risk Committee has responsibility for oversight of market risk within the Banking Group. Routine management,
overall strategies and policies, and control of market risk exposures at Banking Group level is the responsibility of the Chief Risk Officer, whoworks closely with the Markets business unit.		
The Traded Market risk function provides specific oversight of each of the main trading areas and is responsible for the establishment of a
Value at Risk (VaR) framework and detailed control limits. In all trading areas the Banking Group has implemented models that calculate VaR
exposures, monitor risk exposures against defined limits on a daily basis, and ‘stress test’ trading portfolios. The Banking Group has an Asset andLiability Committee (‘ALCO’), comprising executive management to provide monthly oversight of Market Risk.								The Chief Risk Officer is responsible for daily review and oversight of Traded market risk reports. The Chief Risk Officer has the authority for
instructing the business to close exposures and withdraw limits where appropriate.
Value at Risk (VaR) measure
A key measure of market risk is Value at Risk. VaR is a statistical estimate of the likely daily loss and is based on historical market movements.
The confidence level is such that there is 97.5% or 99% probability that the loss will not exceed the VaR estimate on any given day. Conversely
there is a 2.5% or 1% probability of the decrease in market value exceeding the VaR estimate on any given day. The 99% confidence levelencompasses a wider range of potential outcomes.								The Banking Group’s standard VaR approach for both traded and non-traded risk is historical simulation. The Banking Group calculates VaR using
historical changes in market rates and prices over the previous 500 business days. Traded and Non-Traded VaR is calculated using a one-day
holding period.								It should be noted that because VaR is driven by actual hisotrical observations, it is not an estimate of the maximum loss that the Banking
Group could experience from an extreme market event. As a result of this limitation, the Group utilises a number of other risk measures (e.g.
stress testing) and associated detailed control limits to measure and manage market risk.
Traded and non-traded market risks are considered separately on the following page.

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3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Traded market risks
Trading activities are focused on customer trading, distribution and underwriting of a range of securities and derivative instruments. The
principal activities include foreign exchange, interest rate, and debt markets. These activities are managed on a global product basis.
Below are aggregate VaR exposures covering both derivative and non-derivative trading positions for the Banking Group.
Consolidated
Value at risk at 97.5% confidence
		
As at
$m

High for
period$m

Consolidated
Value at risk at 99% confidence

Low for Average for		
periodperiod
As at
$m
$m
$m

High for
period$m

Low for Average for
periodperiod$m$m

30/09/2008
Foreign exchangeInterest rate
Credit spread
Diversification benefit

0.2
1.6
0.2
(0.3)

1.3
1.9
0.3
n/a

0.1
0.5
0.1
n/a

0.3
0.9
0.1
(0.5)

0.2
2.7
0.4
(0.6)

1.6
2.7
0.4
n/a

0.2
0.6
0.2
n/a

0.5
1.3
0.2
(0.7)

Total VaR

1.7

2.0

0.3

0.8

2.7

2.8

0.5

1.3

30/09/2007
Foreign exchangeInterest rate
Credit spread
Diversification benefit

0.2
0.7
0.2
(0.1)

1.1
1.5
0.2
n/a

0.1
0.5
0.1
n/a

0.4
0.9
0.1
(0.4)

0.3
0.8
0.3
(0.1)

1.3
2.3
0.4
n/a

0.1
0.7
0.1
n/a

0.5
1.3
0.2
(0.5)

Total VaR

1.0

2.0

0.5

1.0

1.3

3.1

0.7

1.5

VaR is calculated separately for Foreign Exchange/Commodities and for Interest Rate/Debt Markets businesses as well as for the Banking Group.
The diversification benefit reflects the historical correlation between Foreign Exchange, Commodity, Interest Rate and Debt Markets.
To supplement the VaR methodology, the Banking Group applies a wide range of stress tests, both on individual portfolios and at a Banking
Group level. The Banking Group’s stress-testing regime provides senior management with an assessment of the financial impact of identified
extreme events on market risk exposures of the Banking Group.													Non-traded market risks (balance sheet risk)
The principal objectives of balance sheet management are to manage interest income sensitivity while maintaining acceptable levels of interest
rate and liquidity risk and to manage the market value of the Banking Group’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 secure stable and optimal net interest income over both the short (next 12months) and long term. Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on the Banking
Group’s future net interest income. 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. Non-traded interest raterisk 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.																																																				

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3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )a) VaR non-traded interest rate risk
Below are aggregate VaR figures covering non-traded interest rate risk.
				Consolidated						
					
As at
					
$m

High for
period$m

Low for Average for
periodperiod$m$m

30/09/2008
Value at risk at 97.5% confidence				

12.8

13.0

10.4

11.9

30/09/2007
Value at risk at 97.5% confidence					

10.8

10.8

7.3

8.8

To supplement the VaR methodology, the Banking Group applies a wide range of stress tests, both on individual portfolios and at the Banking
Group level. The Banking Group’s stress-testing regime provides senior management with an assessment of the financial impact of identified
extreme events on market risk exposures of the Banking Group.
b) 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 a percentageof reported net interest income. The sign indicates the nature of the rate sensitivity with a positive number signifying that a rate increase ispositive for net interest income over the next 12 months.
			Consolidated						 30/09/2008 30/09/2007

Impact of 1% Rate ShockAs at						Maximum exposure						Minimum exposure						Average exposure (in absolute terms)						

0.0%
1.8%
0.0%
0.8%

1.4%
2.8%
0.9%
1.9%

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. The Banking Group quantifies the potential variation in future net interest income as a result of these repricing
mismatches each month using a static gap model.
The repricing gaps themselves are constructed based on contractual repricing information. However, for those assets and liabilities where thecontractual term to repricing is not considered to be reflective of the actual interest rate sensitivity (for example, products priced at the Banking
Group’s discretion), a profile based on historically observed and/or anticipated rate sensitivity is used. This treatment excludes the effect ofbasis risk between customer pricing and wholesale market pricing. For example, when wholesale market rates are anticipating an official rateincrease the Banking Group does not reprice certain customer business until the first repricing date after the official rate rise.
The majority of the Banking Group’s non-traded interest exposure exists in New Zealand. A separate balance sheet simulation processsupplements the static gap information. This allows the net interest income outcomes of a number of different scenarios – with different
market interest rate environments and future balance sheet structures – to be identified. This better enables the Banking Group to quantify theinterest rate risks associated with the balance sheet and to formulate strategies to manage current and future risk profiles.

P A G E

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For personal use only

(CONTINUED)P A G E

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Interest rate sensitivity gap
The interest rate sensitivity gap analysis provides information about the Banking Group’s exposure to interest rate risk.							Repricing gaps are based upon contractual repricing information except where the contractual terms are not considered to be reflectiveof actual interest rate sensitivity, for example, those assets and liabilities priced at the Banking Group’s discretion. In such cases, the ratesensitivity is based upon historically observed and/or anticipated rate sensitivity.
Sensitivity to interest rates arises from mismatches in the period to repricing of assets and that of the corresponding liability funding. Thesemismatches are managed within policy guidelines for mismatch positions.
The majority of the Banking Group’s loan business is conducted domestically in New Zealand. The majority of retail deposits are also raisedin New Zealand but are either fixed or floating in nature. The mix of repricing maturities in this book is influenced by the underlying financial
needs of customers.
The Banking Group’s offshore operations are wholesale in nature and are able to minimise interest rate sensitivity through closely matching thematurities of loans and deposits. Given both the size and nature of this business, the interest rate sensitivity of this balance sheet contributes
little to the aggregate risk exposure, which is primarily a reflection of the positions in New Zealand.
A combination of off-balance sheet instruments and pricing initiatives is used in the management of interest rate risk. For example, where astrong medium to long term rate view is held, hedging and pricing strategies are used to modify the profile’s interest rate sensitivity so that
it is positioned to take advantage of the expected movement in interest rates. However, such positions are taken within the overall risk limits
specified by Banking Group policy.
The following tables represent the interest rate sensitivity of the Banking Group’s assets, liabilities and off balance sheet instruments repricing(that is, when interest rates applicable to each asset or liability can be changed) in the periods shown.
				Consolidated

			
		
Total
		
$m

Less than
3 months$m

3 to 6months$m

6 to 12months$m

1 to 5years$mBeyond Not bearing
5 years
interest$m$m

30/09/2008
AssetsLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets

4,838
5,032
2,624
7,533
109
97,679
893

4,667
3,080
1,043
30
44,105
-

450
10
6,682
-

13,308
-

134
1,332
14
33,877
-

239
46
-

171
1,368
7,533
65
(339)
893

Total financial assets
Non-financial assets

118,708
4,207

52,925-

7,142-

13,308-35,357
-

285
-

9,691
4,207

Total assets

122,915

52,925

7,142

13,30835,357285

13,898

Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments
Payables and other financial liabilities
Bonds and notes
Due to parent company
Loan capital

3,312
77,1366,710
1,471
20,695
404
2,820

2,380
54,82794
15,732404
216

114
10,671
472
819

378
6,813
374
-

381
896
60
3,942
1,785

40
1
7
175
-

19
3,928
6,710
1,310
-

Total financial liabilities
Non-financial liabilities
Equity112,548560
9,807

73,653-

12,076
-

7,565
-

7,064
-

223
-

11,967560
9,807

Total liabilities and equity

122,91573,653

12,076

7,565

7,064

223

22,334On-balance sheet interest sensitivity gap
Hedging instruments-(20,728)
20,239(4,934)
5,578

5,743
(6,078)28,293(19,486)62(253)(8,436)-

Interest sensitivity gap - net
Interest sensitivity gap - cumulative

-

(489)
(489)

644
155

(335)
(180)

8,807
8,627

(191)
8,436

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(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )		Consolidated

			
		
Total
		
$m

Less than
3 months$m

3 to 6months$m

6 to 12months$m

1 to 5years$mBeyond Not bearing
5 years
interest$m$m

30/09/2007
AssetsLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets

4,807
3,563
1,877
4,711
48
87,878
970

4,606
2,925
742
34
33,335
-

440
375
4,051
-

4
11,404
-

174
629
13
39,355
-

127
84
-

201
24
4,711
1
(351)
970

Total financial assets
Non-financial assets

103,854
3,933

41,642-

4,866-

11,408-40,171
-

211
-

5,556
3,933

Total assets

107,787

41,642

4,866

11,40840,171

211

9,489

Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments
Payables and other financial liabilities
Bonds and notes
Due to parent company
Loan capital

3,170
70,0304,924
1,087
14,607
2,775
2,062

2,334
49,27616
13,113
2,775
217

216
7,489
77
150
799

189
6,261
379
100

16
2,650
965
946

377
60
-

38
4,354
4,924
934
-

Total financial liabilities
Non-financial liabilities
Equity98,655429
8,703

67,731
-

8,731
-

6,929
-

4,577
-

437
-

10,250429
8,703

Total liabilities and equity

107,787

67,731

8,731

6,929

4,577

437

19,382On-balance sheet interest sensitivity gap
Hedging instruments-(26,089)
25,195(3,865)
3,514

4,479
2,371

35,594(31,707)

(226)
627

(9,893)-

Interest sensitivity gap - net
Interest sensitivity gap - cumulative

-

(894)
(894)

(351)
(1,245)

6,850
5,605

3,887
9,492

401
9,893

(9,893)-

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(CONTINUED)P A G E

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )		Parent

			
		
Total
		
$m

Less than
3 months$m

3 to 6months$m

6 to 12months$m

1 to 5years$mBeyond Not bearing
5 years
interest$m$m

30/09/2008
AssetsLiquid assets 		
Due from other financial institutions 		
Trading securities 		
Derivative financial instruments 		
Available-for-sale assets 		
Net loans and advances 		Due from subsidiary companies 		
Other financial assets 		

4,837
4,527
2,624
7,544
107
95,241
1,992
789

4,666
2,709
1,041
31
43,418
614
-

450
10
6,648
85
-

13,203-1,334
13
32,280
530
-

239
16
-

171
1,368
7,544
63
(324)
763
789

Total financial assets 		
Non-financial assets

117,661
11,42552,479-7,193-

13,203-34,157-255-

10,374
11,425

Total assets

129,086

52,4797,193

13,20334,157

255

21,799Liabilities
Due to other financial institutions 		
Deposits and other borrowings 		
Due to subsidiary companies 		
Derivative financial instruments 		
Payables and other financial liabilities 		
Bonds and notes 		Due to parent company 		
Loan capital 		

1,940
62,80043,260
6,710
1,187
1,123
404
2,820

1,863
46,991
33,153
95
498
404
216

8
6,668
4,120
150
819

4,505
2,198
-

10
707
3,789
300
1,785

40
1
7
175
-

19
3,928
6,710
1,085
-

Total financial liabilities
Non-financial liabilities 		
Equity 		120,244530
8,312

83,220-11,765
-

6,703
-

6,591
-

223
-

11,742530
8,312

Total liabilities and equity

129,086

83,22011,765

6,703

6,591

223

20,584On-balance sheet interest sensitivity gap 		Hedging instruments-(30,741)
20,789(4,572)
6,178

6,500
(6,073)27,566(20,641)

32
(253)

1,215
-

Interest sensitivity gap - net 		Interest sensitivity gap - cumulative 		-(9,952)(9,952)

1,606(8,346)427(7,919)

6,925
(994)

(221)
(1,215)

1,215
-

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(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )		Parent

			
		
Total
		
$m

Less than
3 months$m

3 to 6months$m

6 to 12months$m

1 to 5years$mBeyond Not bearing
5 years
interest$m$m

30/09/2007
AssetsLiquid assets 		
Due from other financial institutions 		
Trading securities 		
Derivative financial instruments 		
Available-for-sale assets 		
Net loans and advances 		Due from subsidiary companies 		
Other financial assets 		

4,807
3,101
1,877
4,705
38
84,044
1,585
852

4,606
2,637
742
34
32,602
141
-

440
375
3,855
-

4
11,008140-629
336,844
397
-

127
68
156
-

201
24
4,705
1
(333)
751
852

Total financial assets 		
Non-financial assets 		

101,00911,30040,762-

4,670-

11,152-37,873
-

351
-

6,201
11,300Total assets 		

112,30940,762

4,670

11,15237,873351

17,501

Liabilities
Due to other financial institutions 		
Deposits and other borrowings 		
Due to subsidiary companies 		
Derivative financial instruments 		
Payables and other financial liabilities 		
Bonds and notes 		Due to parent company 		
Loan capital 		

1,686
58,51432,942
4,896
741
561
2,775
2,062

1,562
41,29428,650
16
261
2,775
217

15
5,802
1,778
19
799

23
4,978
1,285
100

16
2,086
1,229
300
946

30
-

40
4,354
4,896
706
-

Total financial liabilities 		Non-financial liabilities 		
Equity 		104,177
405
7,727

74,775
-

8,413
-

6,386
-

4,577
-

30
-

9,996
405
7,727

Total liabilities and equity 		

112,30974,775

8,413

6,386

4,577

30

18,128On-balance sheet interest sensitivity gap 		Hedging instruments 		

-(34,013)
25,234(3,743)
3,514

4,766
2,378

33,296(31,753)

321
627

(627)
-

Interest sensitivity gap - net 		Interest sensitivity gap - cumulative 		-(8,779)(8,779)(229)(9,008)

7,144(1,864)

1,543
(321)

948
627

(627)
-

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(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Equity securities classified as available-for-saleMarket risk arises on equity securities classified as available-for-sale. The fair value of these securities as at 30 September 2008 was $65 million(30 September 2007 $1 million) and private equity holdings of $nil included in other assets (30 September 2007 $2 million). Regular reviews
are performed to substantiate valuation of the investments within the portfolio. The fair value of the equity securities classified as availablefor-sale can fluctuate considerably. A 10 per cent reduction in the value of the available-for-sale equity securities at 30 September 2008 would
have reduced equity by $6.5 million (30 September 2007 $nil).
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 from individual funding
and other transactions is actively managed. The total amounts of unmatched foreign currency assets and liabilities and consequent foreign currency
exposures, arising from each class of financial asset and liability, whether recognised or unrecognised, within each currency are not material.
The net open position in each foreign currency, detailed in the table below, 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 in that
foreign currency. The amounts are stated in New Zealand dollar equivalents translated using the spot exchange rates as at balance sheet date.
		Consolidated

Parent						

30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Net open position				Australian dollar				
Canadian dollar				Euro				Pound sterling				US dollar				
Other				

9
(2)
9
14
2

(10)
13
(1)
2
2

9
(2)
9
14
2

(10)
13
(1)
2
2

Total net open position				

32

6

32

6		

LIQUIDITY RISK
Liquidity risk is the risk that the Banking Group has insufficient capacity to fund increases in assets, or is unable to meet its payment obligations
as they fall due, including repaying depositors or maturing wholesale debt. The Banking Group maintains sufficient liquid funds to meet its
commitments based on historical and forecasted cash flow requirements. Liquidity risk is measured through cash flow modelling, with profiles
produced for both normal business and short-term crisis conditions.
The timing mismatch of cash flows and the related liquidity risk is inherent in all banking operations, and may result from internal and/or
external events, including: credit or operational risks, bank-specific events, market disruptions, or systemic shocks. The following outlines the
Banking Group’s approach to liquidity and funding risk management. Principles include:										• ensuring the liquidity management framework is compatible with local regulatory requirements;• daily liquidity reporting and scenario analysis to quantify the Banking Group’s positions;• monitoring wholesale and customer liability composition;• maintaining 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 day-to-day operations; and• establishing detailed contingency plans to cover liquidity crisis events.		
Scenario Modelling
A key component of the Banking Group’s liquidity management framework is scenario modelling. This requires assessing liquidity under at least
two specific scenarios:													
1.

‘Normal Business conditions’: the normal behaviour of cash flows in the ordinary course of business. The Banking Group must be able to meetall commitments and obligations under a going concern scenario, within the Banking Group’s normal funding capacity, over at least the next
30 calendar days. In estimating the funding requirement, the Banking Group models expected cash flows by reference to historical behaviour
and contractual maturity data.				

2.

‘Short term crisis’: refers to a potential name-specific liquidity crisis in which the Banking Group may have significant difficulty rollingover or replacing liabilities. The Banking Group needs to be cash flow positive over a 5 business day period under a short term crisis
scenario. The Banking Group models expected cash flow behaviour under such a scenario based on the type of customer and their level ofsophistication, and the type of asset/ liability.											In addition, the Banking Group models a number of other stress tests and liquidity scenarios over a variety of time horizons, including theimpact of credit rating downgrades, and reduced access to wholesale debt in domestic and offshore markets.																										P A G E

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(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Customer and wholesale funding composition
The Banking Group employs actual cash flow based funding metrics to determine appropriate balance sheet liquidity and funding risk strategies.
These metrics are used to measure and manage the proportion of the Banking Group’s external assets which are funded by customer liabilities,
wholesale debt, equity and loan capital.
Managing these metrics assists in ensuring that an appropriate proportion of the Banking Group’s assets are funded by either ‘sticky’ customer
liabilities; or long-term wholesale debt funding (with a remaining term exceeding 1 year). This approach recognises that long-term wholesale
debt and other sticky liabilities have favourable liquidity characteristics thereby assisting in reducing any adverse impact or volatility caused byshort-term funding, and in monitoring the impact of deposit-gathering strategies.
The table below outlines total Banking Group volumes of customer deposits and wholesale funding.													.
		Funding Composition

Consolidated

Parent30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Customer deposits1													New Zealand				
52,19950,39150,647
48,711
Overseas				
6,757
5,875
6,626
5,356
Total customer deposits				

58,95656,26657,27354,067Wholesale funding									Bonds and notes				
20,695
14,607
1,123561
Loan capital				
2,820
2,062
2,820
2,062
Certificates of deposit				
5,527
4,447
5,527
4,447
Commercial paper				
12,6539,317
Due to subsidiary companies - ANZ National (Int’l) Limited				
33,38624,183Due to subsidiary companies - other				
9,874
8,759
Due to parent company				
404
2,775
404
2,775
Secured deposits				Due to other financial institutions				
3,312
3,170
1,940
1,686
Total wholesale funding				45,41136,37855,07444,473

Total funding				104,367

92,644112,347

98,540Concentrations of funding by industry													Households				
36,23934,23434,57132,448Agriculture, forestry, fishing and mining				
4,517
3,438
4,517
3,438
Manufacturing				
1,465
1,429
1,465
1,429
Entertainment, leisure and tourism				
611
559
611
559
Finance and insurance				51,49843,72861,14551,409Retail trade				
752
665
752
665
Wholesale trade				
626
590
626
591
Business and property services				
4,686
4,405
4,686
4,405
Transport and storage				
594
582
594
582
Construction				
722
693
722
693
Government and local authority				
1,585
1,366
1,586
1,366
Other 2				
1,072
955
1,072
955
Total concentrations of funding by industry			

92,644112,347

98,540Concentrations of funding by geography3						New Zealand				61,06557,320
United States				24,178
13,834
Europe				
11,484
14,120
Other countries				
7,640
7,370

69,356
23,797
11,466
7,728

64,561
13,06913,615
7,295

Total concentrations of funding by geography				112,347

98,540104,367

104,367

92,644

Analyses of funding liabilities by industry sector are based on Australian and New Zealand Standard Industrial Classification (ANZSIC) codes.
1. Represents: term deposits, other deposits bearing interest, deposits not bearing interest and secured debenture stock.													2 . Other includes exposures to electricity, gas and water, communications, and personal services.													3. Funding of the Bank via ANZ National (Int’l) Limited is classified as either from the United States or Europe, as the company conducts overseas funding activities through its London branch.

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3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Wholesale funding
The Banking Group’s wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost efficiency
while targeting diversification by markets, investors, currencies, maturities and funding structures. Short-term wholesale funding requirements,
with a contractual maturity of less than one year, are managed through the Treasury and Markets operations. Long-term wholesale funding ismanaged and executed through Treasury operations.						The Banking Group also uses maturity concentration limits under the wholesale funding and liquidity management framework. Funding
instruments used to meet the wholesale borrowing requirement must be on a pre-established list of approved products.
Funding capacity and debt issuance planning
Under the normal business conditions scenario, borrowing capacity is an estimate of the amount of funding that can be raised in the wholesalemarkets in normal market conditions. The Banking Group adopts a conservative approach to determine its funding capacity. Funding capacity
limits are determined at the Ultimate Parent Bank level and allocated to individual sites based on their requirements.		
Annually, a Funding Plan is ratified by the Banking Group’s Senior Management. The plan is supplemented by monthly updates, and is linked to
the Banking Group’s three year strategic planning cycle.
Liquidity portfolio management
The Banking Group holds a diversified portfolio of cash and high-quality highly-liquid securities to support payment obligations and contingent
funding in the event of a market disruption.						The size of the Banking Group’s liquidity portfolio is based on the amount of liquidity required to meet: day-to-day operational requirements;
a potential name crisis; or potential wholesale ‘funding stress’ requirements.						In addition, the Banking Group monitors the ratio of cover provided by the liquidity portfolio to fund both domestic and offshore wholesale
debt maturities.						Supplementing its liquidity position, the Banking Group holds additional cash and liquid asset balances. The Markets business holds secondary
sources of liquidity in the form of highly liquid instruments in its trading portfolios.
Assets held for managing liquidity risk includes short term cash held with the RBNZ or other banks, government securities and other securities
that are readily acceptable in repurchase agreements with the RBNZ and other New Zealand banks, and securities issued by offshore
Supranational and highly rated banks.
The Banking Group’s core liquidity portfolio held for managing liquidity risk comprises:																Consolidated

Parent30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Cash and balances with central banks				
Securities purchased under agreement to resell				Certificates of deposit				Government, Local Body stock and bonds				
Other bank bonds				

3,779
134
3,343
180
1,300

2,809
346
2,417
1
595

3,779
134
3,343
180
1,300

2,809
346
2,417
1
595

Total liquidity portfolio				

8,736

6,168

8,736

6,168

Liquidity crisis contingency planning
The Banking Group maintains liquidity crisis contingency plans defining an approach for analysing and responding to a liquidity threatening
event at a Banking 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;• 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; and• assigned responsibilities for internal and external communications.

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(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Contractual maturity analysis of financial assets and liabilities					The tables below analyse the Banking Group’s financial assets and liabilities into relevant maturity groupings based on the earliest on which
the Bank or Banking Group may be required to pay. The amounts represent principal and interest cash flows and may differ compared to theamounts reported on the balance sheet.
The management of liquidity risk is detailed on pages 78 to 80. The analysis presented below has been made on an undiscounted basis, but itshould be noted that this is not how the Bank or Banking Group manages its liquidity risk. 				Contractual maturity analysis for on-balance sheet financial assets and financial liabilities:															Consolidated
Carrying			
Value
Total
At call$m$m$mLess than
3 months$m

3 to 12months$m

1 to 5years$mBeyond No maturity
5 years
specified$m$m

30/09/2008
AssetsLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets

4,838
5,032
2,624
7,533
109
97,679
893

4,923
5,173
3,097
7,533
136
163,788
893

4,838
436
-

85
3,640
1,028
11,047893

579
103
18,580
-

518
1,688
32
47,374-278
39
87,120
-

7,533
65
(333)
-

Total financial assets

118,708

185,543

5,274

16,693

19,262

49,61287,437

7,265

Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments
Other financial liabilities
Bonds and notes
Due to parent company
Loan capital

3,312
77,1366,710
1,471
20,695
404
2,820

3,528
79,4976,710
1,471
24,317
411
4,502

1,713
26,946411-

734
33,068
1,404
2,134
60

538
18,292
7,462
178

497
1,189
60
14,115
959

46
2
7
606
2,153

6,710
1,152

Total financial liabilities

112,548

120,436

29,07037,40026,47016,820

2,814

7,862

30/09/2007
AssetsLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets

4,807
3,563
1,877
4,711
48
87,878
970

5,219
3,782
2,169
4,711
53
159,967
970

4,860
961
-

359
1,718
662
34
11,527
970

474
454
3
15,086
-

334
865
15
45,380-295
188
88,324
-

4,711
1
(350)
-

Total financial assets

103,854

176,871

5,821

15,27016,017

46,59488,807

4,362

Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments
Other financial liabilities
Bonds and notes
Due to parent company
Loan capital

3,170
70,0304,924
1,087
14,607
2,775
2,062

3,407
72,875
4,924
1,087
17,402
2,836
3,194

1,163
26,073
2,836
-

1,248
28,216
919
866
40

449
15,666
76
4,897
122

128
2,920
32
11,639
647

419
60
2,076

4,924
309

Total financial liabilities

98,655

105,725

30,072

31,28921,21015,366

2,555

5,233

P A G E

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For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )		Carrying			
Value
Total
At call$m$m$mLess than
3 months$m

3 to 12months$m

1 to 5years$m

30/09/2008
AssetsLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Due from subsidiary companies
Other financial assets

4,837
4,527
2,624
7,544
107
95,241
1,992
789

4,922
4,538
3,097
7,544
134
160,885
2,179
789

4,837
440
1,138
-

85
3,643
1,028
11,047789

455
103
18,175
175
-

1,688
32
45,015
866
-

278
39
86,967
-

7,544
63
(319)
-

Total financial assets

117,661

184,088

6,415

16,592

18,90847,601

87,284

7,288

Beyond No maturity
5 years
specified$m$m

Liabilities													Due to other financial institutions
1,940
2,009
1,718
209
11
25
46
Deposits and other borrowings
62,80064,79426,55425,426
11,878934
2
Due to subsidiary companies
43,26054,696
14,587
12,64913,675
13,361424
Derivative financial instruments
6,710
6,710
6,710
Other financial liabilities
1,187
1,187
1,187
Bonds and notes
1,123
1,343
223
236
691
193
Due to parent company
404
411
411
Loan capital
2,820
4,502
60
178
959
2,153
1,152
Total financial liabilities

120,244

135,652

43,27039,75425,97815,970

2,818

7,862

30/09/2007									Assets													Liquid assets
4,807
5,219
4,860
359
Due from other financial institutions
3,101
3,123
956
1,723
444
Trading securities
1,877
2,169
662
454
865
188
Derivative financial instruments
4,705
4,705
4,705
Available-for-sale assets
38
40
35
1
4
Net loans and advances
84,044
153,557
11,14914,072
41,06387,606(333)
Due from subsidiary companies
1,585
1,763
690
224
687
162
Other financial assets
852
852
852
Total financial assets

101,009

171,428

6,506

14,78015,19542,61987,956

4,372

Liabilities													Due to other financial institutions
1,686
1,745
1,157
457
44
52
35
Deposits and other borrowings
58,51460,97125,65520,055
12,5412,720
Due to subsidiary companies
32,942
38,583
7,161
9,160
7,877
14,385Derivative financial instruments
4,896
4,896
4,896
Other financial liabilities
741
741
690
19
32
Bonds and notes
561
679
7
172
500
Due to parent company
2,775
2,836
2,836
Loan capital
2,062
3,194
40
122
648
2,075
309
Total financial liabilities

P A G E

Parent8 2

104,177

113,645

36,80930,40920,775

18,337

2,110

5,205

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 3 . C O N C E N T R AT I O N S O F C R E D I T R I S KConcentrations of credit risk to individual counterparties
The number of individual counterparties other than banks or groups of closely related counterparties of which a bank is a parent (excludingOECD Governments and connected persons), where the quarter end and peak end-of-day credit exposure equals or exceeds 10% of equity (asat the end of the quarter) in ranges of 10% of equity, on the basis of limits:						
		10% to 20% of equity			Consolidated
30/09/2008

30/09/2007

Number of Counterparties

Number of Counterparties

As at

Peak forthe quarter

As at

Peak forthe quarter

1

1

2

2

As noted above, the number of individual counterparties disclosed within the various equity ranges is based on counterparty limits rather thanactual exposures outstanding. No account is taken of security and/or guarantees which the Banking Group may hold in respect of the various
counterparty limits.
The amount and percentage of quarter end and peak end-of-day credit exposures to individual counterparties other than banks or groups ofclosely related counterparties of which a bank is a parent (excluding OECD Governments and connected persons), where the quarter end andpeak end-of-day credit exposure equals or exceeds 10% of equity (as at the end of the quarter), by credit rating:											Consolidated
30/09/2007

30/09/2008
						
Amount				$m% of Total		
CreditAmountExposure$m% of Total
CreditExposure

As at
Investment grade credit rating1			

100.0%

2,509

100.0%

1,329

Concentrations of credit risk to bank counterparties
The number of bank counterparties or groups of closely related counterparties of which a bank is the parent (excluding OECD Governments andconnected persons), where the quarter end and peak end-of-day credit exposure equals or exceeds 10% of equity (as at the end of the quarter)in ranges of 10% of equity, on the basis of actual exposures:		

10% to 20% of equity			
20% to 30% of equity			Consolidated
30/09/2008

30/09/2007

Number of Counterparties

Number of Counterparties

As at

Peak forthe quarter

As at

Peak forthe quarter

1
1

2
1

1
-

3
-

The amount and percentage of quarter end and peak end-of-day credit exposures to bank counterparties or groups of closely related
counterparties of which a bank is a parent (excluding OECD Governments and connected persons), where the quarter end and peak end-of-day
credit exposure equals or exceeds 10% of equity (as at the end of the quarter), by credit rating:								Consolidated
30/09/2008

30/09/2007

						
Amount				$m% of Total		
CreditAmountExposure$m% of Total
CreditExposure

As at
Investment grade credit rating1			

100.0%

1,193

100.0%

3,416

1. All of the individual and bank counterparties included in the above tables have an investment grade rating. An investment grade credit rating means a credit rating of BBB- or Baa3 or above, or its
equivalent. In the case of a group of closely related counterparties, the credit rating applicable is that of the entity heading the group of closely related counterparties. The credit rating is applicable
to an entity’s long term senior unsecured obligations payable in New Zealand, in New Zealand dollars, or to an entity’s long term senior unsecured foreign currency obligations.				
									P A G E

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For personal use only

(CONTINUED)P A G E

3 3 . C O N C E N T R AT I O N S O F C R E D I T R I S K ( continued )Concentrations of credit risk to connected persons
Credit exposures to connected persons reported in the table below have been calculated partially on a bilateral net basis, and partially on agross basis. With effect from 11 August 2008, netting has occurred in respect of certain transactions which are the subject of a bilateral netting
agreement disclosed in the Bank’s most recent Supplemental Disclosure Statement for the year ended 30 September 2008. There is a limit of125% of the Banking Group Tier One Capital in respect of the gross amount of aggregate credit exposure to connected persons that can benetted off in determining the net exposure.
		Consolidated
30/09/2008

30/09/2007

Amount% of Tier$m One Capital

Amount6% of Tier$m One Capital

Aggregate at end of period4					Other connected persons (on gross basis, before netting)2			
3,011
49.1%
2,793
54.5%
Other connected persons (netted amount)2			
2,187
35.6%
n/a
n/a
Other connected persons (on partial bilateral net basis)2			
824
13.5%
n/a
n/a
Non-bank connected persons3			
0.0%
0.0%
Peak end-of-day for the quarter4													Other connected persons (on gross basis, before netting)			
4,250
69.3%
3,468
67.6%
Other connected persons (netted amount)			
2,889
47.1%
n/a
n/a
Other connected persons (on partial bilateral net basis)			
1,361
22.2%
n/a
n/a
Non-bank connected persons			
0.0%
0.0%
Rating-contingent limit5									Other connected persons			
n/a
70.0%
n/a
75.0%
Non-bank connected persons			
n/a
15.0%
n/a
15.0%
													The credit exposure concentrations disclosed for connected persons are on the basis of actual exposures and exclusive of exposures of a capitalnature. The peak end-of-day credit exposures for the quarter to connected persons are measured over Tier One Capital as at the end of thequarter. There were no individual provisions provided against credit exposures to connected persons as at 30 September 2008 (30/09/2007$nil). The Banking Group had no contingent exposures arising from risk lay-off arrangements to connected persons as at 30 September 2008
(30/09/2007 $nil).
2. The Banking Group has amounts due from its Parent Company and Ultimate Parent Company and other entities within the Ultimate Parent Group arising from the ordinary course of its
business. These balances arise primarily from unrealised gains on trading and hedging derivative financial instruments with the Ultimate Parent Bank. As at 30 September 2008, the gross
exposures to the Bank’s Parent Company were $nil million (30/09/2007 $249 million). As at 30 September 2008, the gross exposures to the Bank’s Ultimate Parent Company were $3,011
million (30/09/2007 $2,715 million). 								3. Non-bank connected persons exposures consist of loans to directors of the Bank. Any loans are made in the ordinary course of business of the Bank, on an arm’s length basis and on normal
commercial terms and conditions.
4. The Banking Group has complied with the limits on aggregate credit exposures (of a non-capital nature and net of individual provisions) to connected persons and non-bank connected
persons, as set out in the Conditions of Registration, at all times during the quarter.
5. Represents the maximum peak end-of-day aggregate credit exposures limit (exclusive of exposures of a capital nature and net of individual provisions) to all connected persons. This isbased on the rating applicable to the Bank’s long term senior unsecured obligations payable in New Zealand, in New Zealand dollars (refer page 116 for the credit rating). Within theoverall limit a sub-limit of 15% of Tier One Capital applies to aggregate credit exposures (exclusive of exposures of a capital nature and net of individual provisions) to non-bank connected
persons. On 4 May 2007, the connected persons’ limit increased from 70% to 75% as a result of an improvement in the Bank’s credit rating. On 18 March 2008, the Bank formally engaged
Fitch Ratings to provide credit rating services. The Fitch Ratings rating of AA- has meant that from this date the connected persons’ limit has decreased from 75% to 70% as the Fitch
Ratings rating of AA- is lower than that given by Standard & Poor’s and Moody’s Investors Services.
6. The connected exposure balances for 30 September 2007 have been amended for the credit equivalent adjustment for derivatives, in addition to the fair value which was already included.
The revised balances remain within limits.													

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(CONTINUED)

34. MARKET RISKRBNZ Market Risk Disclosure
The aggregate market risk exposures below have been calculated in accordance with the Reserve Bank of New Zealand document entitled‘Capital Adequacy Framework (Internal Models Based Approach)’ (B2SB) dated February 2008.
The peak end-of-day market risk exposures for the quarter are measured over equity at the end of the quarter.
		Consolidated					Implied risk weighted exposure
Aggregate capital charge

Aggregate capital charge asa percentage of the Banking
Group’s Equity

		

As at
$m

Peak
$m

As at
$m

Peak
$m

As at
$m

Peak
$m

30/09/2008
Interest rate risk
Foreign currency risk
Equity risk

3,736
35
64

3,984
160
75

299
3
5

319
13
6

3.0%
0.0%
0.1%

3.3%
0.1%
0.1%

30/09/2007
Interest rate risk
Foreign currency risk
Equity risk

3,778
16
3

4,668
81
3

302
1
0

373
7
0

3.5%
0.0%
0.0%

4.3%
0.1%
0.0%

35. INTEREST EARNING AND DISCOUNT BEARING ASSETS AND LIABILITIES		Consolidated

Parent30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Interest earning and discount bearing assets		

109,017

98,298107,287

94,808Interest and discount bearing liabilities				

100,581

88,405

108,502

94,181P A G E

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For personal use only

(CONTINUED)

3 6 .	FA I R VA L U E O F F I N A N C I A L A S S E T S A N D F I N A N C I A L L I A B I L I T I E S

All financial instruments are recognised initially at fair value, which is the amount for which an asset could be exchanged, or a liability settled,
between knowledgeable, willing parties in an arm’s length transaction.
The fair value of a financial instrument on initial recognition is normally the transaction price, however, in certain circumstances the initialfair value may be based on other observable current market transactions in the same instrument, without modification or repackaging, or on avaluation technique whose variables include only data from observable markets. For the majority of short-term financial instruments, defined as
those which reprice or mature in 90 days or less, with no significant change in credit risk, the fair value was assumed to equate to the carrying
amount in the Banking Group’s balance sheet.
Subsequent to initial recognition, the fair value of financial instruments measured at fair value is based on quoted market prices, whereavailable. In cases where quoted market prices are not available, fair values are based on present value estimates or other market acceptedvaluation techniques which include data from observable markets wherever possible.
The fair values are based on relevant information available as at the respective balance sheet dates. While judgement is used in obtaining thefair value of financial instruments, there are inherent weaknesses in any estimation technique. Many of the estimates involve uncertainties andmatters of significant judgement and changes in underlying assumptions could significantly affect these estimates.
In the tables below, classes of financial assets have been allocated into the following groups: amortised cost, financial assets at fair value
through profit or loss, derivatives in effective hedging relationships and available-for-sale financial assets. Similarly, each class of financial
liability has been allocated into three groups: amortised cost, financial liabilities at fair value through profit and loss and derivatives in effective
hedging relationships.
The significant accounting policies in Note 1 Accounting Policies describe how the categories of financial assets and financial liabilities aremeasured and how income and expenses, including fair value gains and losses, are recognised. The carrying amount and fair value of the Banking
Group’s financial assets and financial liabilities are also set out below.
A significant number of financial instruments are carried at fair value in the balance sheet. Additional disclosure of the fair value of thosefinancial instruments not carried at fair value has been provided below. The fair value disclosure does not cover those instruments that are notconsidered financial instruments from an accounting perspective such as income tax and intangible assets. The aggregate fair value amounts
do not represent the underlying value of the Banking Group.
FINANCIAL ASSETS
Liquid assets and due from other financial institutions
The carrying values of these financial instruments are considered to approximate their net fair values as they are short-term in nature or are
receivable on demand.
Trading securities
Trading securities are carried at fair value. Fair value is generally based on quoted market prices, broker or dealer price quotations, or prices forsecurities with similar credit risk, maturity and yield characteristics.
Derivative financial instruments
The fair values of derivative financial instruments are determined using market prices and market accepted valuation models as appropriate(including discounted cash flow models) based on current market yields for similar types of instruments and the maturity of each instrument.
Available-for-sale assets
Fair value is based on quoted market prices or broker or dealer price quotations. If this information is not available, fair value is estimated using
quoted market prices for securities with similar credit, maturity and yield characteristics, or market accepted valuation models as appropriate(including discounted cash flow models) based on current market yields for similar types of instruments and the maturity of each instrument.
Net loans and advances
The carrying value of loans and advances includes deferred fees and expenses, and is net of provision for credit impairment and income yet
to mature. The estimated fair value of loans and advances is based on the discounted amount of estimated future cash flows and accordingly
has not been adjusted for provision for credit impairment. Estimated contractual cash flows for performing loans are discounted at estimatedcurrent bank credit spreads to determine fair value. For loans with doubt as to collection, expected cash flows (inclusive of the value of security)
are discounted using a rate, which includes a premium for the uncertainty of the flows.
The difference between estimated fair values for loans and advances and their carrying value reflects changes in interest rates and the credit
worthiness of borrowers since loan origination.
Other financial assets
Included in this category are accrued interest and fees receivable. The carrying values of accrued interest and fees receivable are considered toapproximate their net fair values as they are short term in nature or are receivable on demand.
Financial assets designated at fair value through profit or loss
The Banking Group has not reclassified any financial assets previously measured at amortised cost to fair value, or previously measured at fairvalue to amortised cost, during the period ended 30 September 2008 (30 September 2007 nil).

P A G E

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For personal use only

(CONTINUED)

3 6 .	FA I R VA L U E O F F I N A N C I A L A S S E T S A N D F I N A N C I A L L I A B I L I T I E S ( continued )FINANCIAL LIABILITIESDue to other financial institutions
The carrying values of these financial instruments are considered to approximate their net fair values as they are short-term in nature or are
receivable on demand.
Deposits and other borrowings
The fair value of a deposit liability without a specified maturity or at call is deemed to be the amount payable on demand at the reporting date.
The fair value is not adjusted for any value expected to be derived from retaining the deposit for a future period of time.
For interest bearing fixed maturity deposits and other borrowings without quoted market prices, market borrowing rates of interest for debt
with a similar maturity are used to discount contractual cash flows.
Bonds and notes, due to parent company and loan capital
The aggregate fair value of bonds and notes and loan capital is calculated based on quoted market prices. For those debt issues where quoted market
prices were not available, a discounted cash flow model using a yield curve appropriate for the remaining term to maturity of the debt instrument isused. The carrying value of the due to parent company balance is considered to approximate the fair value as it is repayable on demand.
Other financial liabilities
This category includes accrued interest and fees payable for which the carrying amount is considered to approximate the fair value.
Commitments and contingencies
As outlined in Note 43 Contingent Liabilities and Credit Related Commitments, the Banking Group and the Bank have various credit related
commitments. Based upon the level of fees currently charged for granting such commitments, taking into account maturity and interest rates,
together with any changes in the creditworthiness of counterparties since origination of the commitments, their estimated replacement or net
fair value is not material.
Financial liabilities designated at fair value through profit or loss
Certain items included in deposits and other borrowings have been designated as financial liabilities at fair value through profit or loss in order toeliminate an accounting mismatch which would arise if the liabilities were otherwise carried at amortised cost. This mismatch arises where a derivative,
which is required to be measured at fair value through profit or loss, has been acquired to mitigate a financial risk within the financial liability.
Deposits and other borrowings
At balance date, the carrying amount of deposits and other borrowings designated by the Banking Group at fair value through profit or loss
was $12,653 million (30/09/2007 $9,317 million). This is $17 million lower (30/09/2007 $2 million lower) than their amortised cost.
The accumulated amount of the change in fair value attributable to changes in credit risk on these liabilities was less than $3 million(30/09/2007 less than $1 million). The change in fair value attributable to changes in credit risk has been determined as the amount ofchange in fair value that is not attributable to changes in market conditions that give rise to market risks (benchmark interest rate, andforeign exchange rates).
The fair value amounts have not been updated for the purposes of these financial statements since 30 September 2008, and therefore the fairvalue of the financial instruments subsequent to 30 September 2008 may be different from the amounts reported.

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For personal use only

(CONTINUED)P A G E

3 6 .	FA I R VA L U E O F F I N A N C I A L A S S E T S A N D F I N A N C I A L L I A B I L I T I E S ( continued )Consolidated
		At amortised cost
		
			
			
			
		 Loans and		 receivables
Carrying amount		$m

At fair value		
though		profit or loss
Hedging

Otherfinancialassets at
amortised		
cost
Sub-total$m$m

Availablefor-saleassetsHeld fortrading			
$m
$m
$m

Total
$m

Financial assets
30/09/2008
Liquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments1		
Available-for-sale assets		
Net loans and advances2
Other financial assets

97,679
-

4,838
2,585
893

4,838
2,585
97,679
893

2,624
7,297
-

236
-

2,447
109
-

4,838
5,032
2,624
7,533
109
97,679893

Total financial assets		

97,6798,316

105,995

9,921

236

2,556

118,708

30/09/2007
Liquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments1		
Available-for-sale assets		
Net loans and advances2		
Other financial assets		

87,878
-

4,807
1,929
968

4,807
1,929
87,878
968

1,877
4,214
-

497
-

1,634
48
2

4,807
3,563
1,877
4,711
48
87,878970

Total financial assets		

87,878

7,704

95,582

6,091

497

1,684

103,854

The following table summarises the carrying amounts and fair values of those financial assets not presented in the Banking Group’s balance
sheet at their fair value:
Consolidated					

30/09/2008		 30/09/2007
Carrying		
Carrying
amountFair value
amountFair value
$m

$m

$m

$m

Liquid assets
Due from other financial institutions
Net loans and advances2
Other financial assets

4,838
2,585
97,679
893

4,838
2,585
97,429
893

4,807
1,929
87,878
968

4,807
1,929
87,607968

Total financial assets at amortised cost

105,995

105,745

95,582

95,311

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

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(CONTINUED)

3 6 .	FA I R VA L U E O F F I N A N C I A L A S S E T S A N D F I N A N C I A L L I A B I L I T I E S ( continued )		Consolidated
At amortised
cost

		
		
		
Carrying amount		$m

At fair value through profit or loss

Hedging

Designatedon initialrecognition$mHeld fortrading$m

Sub-total		
$m
$m

Total
$m

Financial liabilities
30/09/2008
Due to other financial institutions		
Deposits and other borrowings		
Derivative financial instruments1		
Other financial liabilities		
Bonds and notes2		
Due to parent company		
Loan capital		

3,312
64,483
1,471
20,695404
2,820

12,653-

5,946-

12,653
5,946
-

764
-

3,312
77,1366,710
1,471
20,695404
2,820

Total financial liabilities		

93,185

12,653

5,946

18,599764

112,548

30/09/2007
Due to other financial institutions		
Deposits and other borrowings		
Derivative financial instruments1		
Other financial liabilities		
Bonds and notes2		
Due to parent company		
Loan capital2		

3,170
60,713
1,087
14,6072,775		2,062		

9,317
-

4,748
-

9,317
4,748
-

176
-

3,170
70,0304,924
1,087
14,6072,775
2,062

Total financial liabilities		

84,414

9,317

4,748

14,065176

98,655

The following table summarises the carrying amounts and fair values of those financial liabilities not presented in the Banking Group’s balance
sheet at their fair value:
Consolidated

		

30/09/2008		 30/09/2007
Carrying		
Carrying
amountFair value
amountFair value
$m
$m
$m
$m

Due to other financial institutions			
Deposits and other borrowings			
Other financial liabilities			
Bonds and notes2			
Due to parent company			
Loan capital			

3,312
64,483
1,471
20,695
404
2,820

3,312
64,532
1,471
20,448
404
2,687

3,170
60,713
1,087
14,607
2,775
2,062

3,170
60,676
1,087
14,5852,775
2,038

Total financial liabilities at amortised cost			

93,18592,854

84,41484,331			

1. Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2. Fair value hedging is applied to financial assets within bonds and notes and loan capital. The resulting fair value adjustment means that the carrying value differs from the amortisedcost.

P A G E

8 9

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 6 .	FA I R VA L U E O F F I N A N C I A L A S S E T S A N D F I N A N C I A L L I A B I L I T I E S ( continued )		Parent		At amortised cost
		
			
			
			
		 Loans and		 receivables
Carrying amount		$m

At fair value		
though		profit or loss
Hedging

Otherfinancialassets at
amortised		
cost
Sub-total$m$m

Availablefor-saleassetsHeld fortrading			
$m
$m
$m

Total
$m

Financial assets
30/09/2008
Liquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments1		
Available-for-sale assets		
Net loans and advances2
Due from subsidiary companies		
Other financial assets		

95,241
-

4,837
2,080
1,992
789

4,837
2,080
95,241
1,992
789

2,624
7,306
-

238
-

2,447
107
-

4,837
4,527
2,624
7,544
107
95,241
1,992
789

Total financial assets		

95,241

9,698

104,939

9,930

238

2,554

117,661

30/09/2007
Liquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments1		
Available-for-sale assets		
Net loans and advances2		
Due from subsidiary companies		
Other financial assets		

84,044
-

4,807
1,467
1,585
852

4,807
1,467
84,044
1,585
852

1,877
4,215
-

490
-

1,634
38
-

4,807
3,101
1,877
4,705
38
84,044
1,585
852

Total financial assets		

84,044

8,711

92,755

6,092

490

1,672

101,009

The following table summarises the carrying amounts and fair values of those financial assets not presented in the Bank’s balance sheet attheir fair value:
Consolidated

		

30/09/2008		 30/09/2007
Carrying		
Carrying
amountFair value
amountFair value
$m
$m
$m
$m

Liquid assets
Due from other financial institutions
Net loans and advances2
Due from subsidiary companies			
Other financial assets

4,837
2,080
95,241
1,992
789

4,837
2,080
94,972
1,992
789

4,807
1,467
84,044
1,585
852

4,807
1,467
83,7801,585
852

Total financial assets at amortised cost

104,939

104,670

92,75592,491

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

P A G E

9 0

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 6 .	FA I R VA L U E O F F I N A N C I A L A S S E T S A N D F I N A N C I A L L I A B I L I T I E S ( continued )		ParentAt amortisedcost

At fair value through profit or loss

Hedging

Designated		
on initial		 recognition
Carrying amount		$m$mHeld fortrading$m

Financial liabilities
30/09/2008
Due to other financial institutions		
Deposits and other borrowings		
Due to subsidiary companies		
Derivative financial instruments1		
Other financial liabilities		
Bonds and notes2		
Due to parent company		
Loan capital		

1,940
62,80043,260
1,187
1,123
404
2,820

-

5,946
-

5,946
-

764
-

1,940
62,80043,260
6,710
1,187
1,123
404
2,820

Total financial liabilities		

113,534

-

5,946

5,946

764

120,244

30/09/2007
Due to other financial institutions		
Deposits and other borrowings		
Due to subsidiary companies		
Derivative financial instruments1		
Other financial liabilities		
Bonds and notes2		
Due to parent company		
Loan capital2		

1,686
58,51432,942
741
561
2,775
2,062

-

4,748
-

4,748
-

148
-

1,686
58,51432,942
4,896
741
561
2,775
2,062

Total financial liabilities		

99,281

-

4,748

4,748

148

104,177

Sub-total		
$m
$m

Total
$m

The following table summarises the carrying amounts and fair values of those financial liabilities not presented in the Banking Group’s balance
sheet at their fair value:
Parent		

30/09/2008		 30/09/2007
Carrying		
Carrying
amountFair value
amountFair value
$m
$m
$m
$m

Due to other financial institutions		
Deposits and other borrowings		
Due to subsidiary companies		
Other financial liabilities		
Bonds and notes2		
Due to parent company		
Loan capital		

1,940
62,80043,260
1,187
1,123
404
2,820

1,940
62,84343,027
1,187
1,125
404
2,687

1,686
58,51432,942
741
561
2,775
2,062

1,686
58,48232,931
741
550
2,775
2,038

Total financial liabilities at amortised cost		

113,534

113,213

99,281

99,203			

1. Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2. Fair value hedging is applied to financial assets within bonds and notes and loan capital. The resulting fair value adjustment means that the carrying value differs from the amortisedcost.

P A G E

9 1

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 7 . S E G M E N TA L A N A LYS I S

For segment reporting purposes, the Banking Group is organised into three major business segments - Retail Banking, Relationship Banking andInstitutional. Centralised back office and corporate functions support these segments.
A summarised description of each business segment is shown below:
Retail Banking
Provides banking products and services to individuals and small businesses through separate ANZ and The National Bank branded distribution
channels and UDC. Personal banking customers have access to a wide range of financial services and products. Small business banking services
are offered to enterprises with annual revenues of less than $5 million. Included in this segment is Private Banking, a stand-alone business unit,
which offers a fully inclusive banking and investment service to high net worth individuals. This segment also includes profit centres supporting
the Retail Banking segment (e.g. Direct Banking and the ING NZ joint venture). UDC is primarily involved in the financing and leasing ofequipment, plant and machinery for small and medium sized businesses.
Relationship Banking
This segment provides services to rural, commercial and corporate customers. A full range of banking products and services are provided to Rural
customers. Corporate and Commercial customers consist of primarily privately owned medium to large businesses with annual revenues of $2
million and greater. The Banking Group’s relationship with these businesses ranges from simple banking requirements with revenue from deposit
and transactional facilities, and cash flow lending, to more complex funding arrangements with revenue sourced from a wider range of products.
Institutional
Comprises businesses that provide a full range of financial services to the Banking Group’s client base. The Institutional business unit is madeup of the following specialised units:•

Institutional - provides financial services to large multi-banked corporates, often global, who require sophisticated product and structuringsolutions.

•

Corporate Finance - provides complex financing and advisory services, structured financial products, leasing, private equity, project, export
and leveraged finance.

•

Markets - provides foreign exchange and commodity trading and sales-related services, origination, underwriting, structuring, risk
management and sale of credit and derivative products globally.

•

Working Capital - provide cash management, trade finance, international payments, clearing and custodian services.

Other
Includes Treasury and back office support functions, none of which constitutes a separately reportable segment. Truck Leasing Limited(trading as Esanda FleetPartners) is classified as a discontinued operation, and is included in the “Other” segment for 2007.
As the composition of segments has changed over time, prior period comparatives have been adjusted to be consistent with the 2008
segment definitions.

9 2

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 7 . S E G M E N TA L A N A LYS I S ( continued )Consolidated

			 Relationship		Retail Banking
Banking			$m$mInstitutional
$m

Other
$m

Total
$m

Year to 30/09/2008
Continuing operations1, 2External interest income			External interest expense			
Net intersegment interest			

4,945(2,646)
(984)

3,002
(669)
(1,694)

1,875(1,821)71

35(2,432)
2,607

9,857
(7,568)-Net interest income			
Other external operating income			
Share of profit of equity accounted associates and jointly controlled entities		

1,315
502
23

639
79
-

125
420
1

210
12
87

2,289
1,013
111

Operating income			
Other external expenses			
Net intersegment and related party expenses3			

1,840
631
357

718
143
95

546
90
68

309
498
(438)

3,413
1,362
82

Operating expenses			

988

238

158

60

1,444

Profit before provision for credit impairment and income tax			
Provision for credit impairment			

852
202

480
85

388
15

249
-

1,969
302

Profit before income tax			
Income tax expense			

650
204

395
131

373
110

249
59

1,667
504

Profit after income tax			

446

264

263

190

1,163

Discontinued operations
Profit from discontinued operations (net of income tax)			

-

-

-

-

-

Profit after income tax			

446

264

263

190

1,163

Non-cash expenses
Depreciation and amortisation			

16

-

2

28

46

56,299231
39,431

34,1299,949

27,55064
29,183

4,937
68
34,545

122,915363
113,108

Balance sheet
Total external assets		
Share in associates and jointly controlled entities		
Total external liabilities		
1. Results are equity standardised.
2. Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
3. Net intersegment expenses are eliminated at the Ultimate Parent Bank level.

P A G E

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 7 . S E G M E N TA L A N A LYS I S ( continued )Consolidated
			 Relationship		Retail Banking
Banking			$m$mInstitutional
$m

Other
$m

Total
$m

Year to 30/09/2007
Continuing operations1, 2External interest income			External interest expense			
Net intersegment interest			

4,204(2,094)
(814)

2,419
(526)
(1,311)

1,668(1,507)7

18(1,932)
2,118

8,309
(6,059)-Net interest income			
Other external operating income			
Share of profit of equity accounted associates and jointly controlled entities		

1,296
476
22

582
66
-

168
265
2

204
30
-

2,250
837
24

Operating income			
Other external expenses			
Net intersegment and related party expenses3			

1,794
623
348

648
122
96

435
73
58

234
442
(431)

3,111
1,260
71

Operating expenses			

971

218

131

11

1,331

Profit before provision for credit impairment and income tax			
Provision for credit impairment			

823
57

430
21

304
(3)

223
(1)

1,780
74

Profit before income tax			
Income tax expense			

766
245

409
136

307
91

224
142

1,706
614

Profit after income tax			

521

273

216

82

1,092

Discontinued operations
Profit from discontinued operations (net of income tax)			

-

-

-

76

76

Profit after income tax			

521

273

216

158

1,168

Non-cash expenses
Depreciation and amortisation			

14

1

1

39

55

Balance sheet
Total external assets			
Share in associates and jointly controlled entities			
Total external liabilities			

52,614
189
36,78729,488
8,611

21,66515
25,5864,020
228,100107,787
206
99,084

Geographic segment analysis
The Banking Group operates predominantly in New Zealand. No other geographic segments are reportable secondary segments.
1. Results are equity standardised.
2. Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
3. Net intersegment expenses are eliminated at the Ultimate Parent Bank level.

9 4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 8 . N OT E S TO T H E C A S H F L OW S TAT E M E N T S		Consolidated

Parent30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Reconciliation of profit after income tax to net cash flows(used in) provided by operating activities
Profit after income tax				

1,163

1,168

644

1,776

Non-cash items:
Depreciation and amortisation				Provision for credit impairment				Deferred fee revenue and expenses				
Share-based payments expense				Amortisation of capitalised brokerage/ mortgage origination fees		

46
302
(3)
13
57

55
74
3
12
45

22
278
(2)
13
57

25
75
1
12
45

Deferrals or accruals of past or future operating
cash receipts or payments:
Increase in operating assets and liabilities				Decrease (increase) in interest receivable				Increase in interest payable			
Increase in accrued income				(Decrease) increase in accrued expenses				Decrease in provisions				Amortisation of premiums and discounts				(Increase) decrease in income tax assets				(Decrease) increase in income tax liabilities				(3,362)
2
202
(8)
45
25
56
(20)
-

(4,731)
(94)
242
(1)
28
(9)
46
39
62

(2,876)
(28)
219
(7)
37
35
56
(38)
(7)

(4,699)
(104)
166
(1)
25
(4)
46
30
64

Items classified as investing/financing:
Share of profit of equity accounted associates andjointly controlled entities				
Other adjustments including associates				Gain on disposal of controlled entities				Gain on disposal of associates and jointly controlled entities				
Loss (gain) on disposal of premises and equipment				

(111)
1

(24)
(76)
(2)
-

(88)
1

(22)
(1)

Net cash flows used in operating activities				(1,592)(3,163)(1,684)(2,566)

Reconciliation of core liquidity portfolio to cash and cash equivalents
The Banking Group’s core liquidity portfolio held for managing liquidity risk comprises:
		
		
Note

Total liquidity portfolio1

Consolidated

Parent30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007
$m
$m

8,736

6,168

8,736

6,168

Add back items not included in liquidity portfolio:
Liquid assets			
Due from other financial institutions - less than 90 days			

1,059
1,948

1,873
1,233

1,058
1,946

1,873
1,231

Deduct items not included in cash and cash equivalents:
Trading securities			
Available-for-sale assets			
Due from other financial institutions - greater than 90 days				(2,376)(1,578)(1,378)(1)(765)(2,376)(1,578)(1,378)(1)(765)

Total cash and cash equivalents				

7,789

7,130

7,786

7,128

32

1. Assets held for managing liquidity risk includes short term cash held with the RBNZ or other banks, government securities and other securities that are readily acceptable in repurchaseagreements with the RBNZ and other New Zealand banks and securities issued by offshore Supranational and highly rated banks.

P A G E

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 9 .	S I G N I F I C A N T C O N T RO L L E D E N T I T I E S , A S S O C I AT E S A N D I N T E R E S T S I N J O I N T LY C O N T RO L L E D E N T I T I E S
A S AT 3 0 S E P T E M B E R 2 0 0 8
Controlled entities

Ownership
Interest %Airlie Investments Limited
Alos Holdings Limited
ANZ Capital NZ Limited
ANZ Investment Services (New Zealand) Limited
ANZ National (Int’l) Limited
ANZ National Staff Superannuation Limited
APAC Investments Limited
Arawata Assets Limited
Arawata Capital Limited
Arawata Finance Limited
Arawata Funding Limited
Arawata Holdings Limited
Arawata Securities Limited
Arawata Trust
Arawata Trust Company
BHI Limited
CBC Finance Limited (incorporated in United Kingdom)
Control Nominees Limited
Cortland Finance Limited
Corvine Investments Limited
Culver Finance Limited
Direct Broking Limited
Direct Nominees Limited
EFTPOS New Zealand Limited
Endeavour Finance Limited
Endeavour Securities Limited
General Finance Custodians Limited
Harcourt Corporation Limited
Harcourt Investments Limited
Karapiro Investments Limited
Marmion Trust
National Bank of New Zealand Custodians Limited
NBNZ Finance Limited
NBNZ Holdings Hong Kong Limited (incorporated in Hong Kong)
NBNZ Holdings Limited
Origin Mortgage Management Services Limited
Origin Mortgage Management Services (2008) Limited
Private Nominees Limited
Radiola Corporation Limited
Rural Growth Fund Limited
Sefton Finance Limited
South Pacific Merchant Finance Limited
Southpac Corporation Limited
Technical Solutions Limited
Trillium Holdings Limited
Tui Endeavour Limited
Tui Securities Limited
UDC Finance Limited

9 6

100
100
100
100
100
100
65
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

Balance
Date

Nature of business

30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
31 December
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
31 March
30 September
30 September
30 September
31 December
30 September
30 September
31 December
30 September
31 March
31 March
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September

Investment company
Investment company
Investment company
Funds management company
Finance company
Staff superannuation scheme trustee
Finance company
Property company
Investment company
Investment company
Investment company
Investment company
Finance company
Finance entity
Investment company
Investment company
Finance company
Finance company
Investment company
Investment company
Investment company
On-line share broker
Nominee company
Eftpos service provider
Investment company
Investment company
Mortgage finance
Investment company
Investment company
Non operative
Finance entity
Nominee and custody services
Finance company
Non operative
Finance company
Mortgage financeMortgage financeNominee company
Distribution company
Investment company
Investment company
Investment company
Investment company
Software provider
Finance company
Investment company
Investment company
Finance company

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 9 .		S I G N I F I C A N T C O N T RO L L E D E N T I T I E S , A S S O C I AT E S A N D I N T E R E S T S I N J O I N T LY C O N T RO L L E D E N T I T I E S A S AT
3 0 S E P T E M B E R 2 0 0 8 ( continued )All controlled entities are incorporated in New Zealand, unless stated.
For all controlled entities, with the exception of General Finance Custodians Limited, Origin Mortgage Management Services Limited and Origin
Mortgage Management Services (2008) Limited, the ownership interest percentage equates to the voting power held. In relation to thesecompanies, control exists through the Banking Group having 100% of the voting rights.
In relation to Marmion Trust, control exists through the undertaking of the majority of risks and rewards which are variable.
Movements in controlled entities
On 7 November 2007, the Banking Group exited its controlling interest in Amberley Investments (50% ownership).
On 7 November 2007, the Banking Group exited its controlling interest in Endeavour Caterpillar New Zealand Finance Company (50% ownership).
On 3 December 2007, Radiola NZ Limited was incorporated as a subsidiary of the Banking Group, and on 23 May 2008 changed its name toRadiola Corporation Limited.
On 8 January 2008, the Banking Group exited its controlling interest in Nerine Finance No. 2 (65% ownership).
On 5 March 2008, the Banking Group purchased a 100% interest in Technical Solutions Limited.
On 11 April 2008, Pioneer First Limited changed its name to Origin Mortgage Management Services (2008) Limited.
		
Associates

Book Value Voting
Ownership$mInterest % Interest %Balance
Date

Nature of business

Cards NZ Limited
Electronic Transaction Services Limited
EXCCL Limited (in receivership)
Mondex New Zealand Limited
NZ Poultry Enterprises Limited
UCG Investments Limited
Wyma Engineering (NZ) Limited

86
2
0
0
40
13
3

30 Sep31 Mar30 Sep31 Dec30 Apr
31 Mar
31 MarCard services
Eftpos settlements
Plastics manufacturing and recycling
Card services
Poultry processor
Rest home operator
Agricultural machinery supplier

Total investment in associates

144

25
25
45
40
20
38
31

14
25
81
40
20
38
31

All associates are incorporated in New Zealand.
Movements in associates
On 25 February 2008, ANZ Capital NZ Limited acquired a 20% ownership interest in NZ Poultry Enterprises Limited.
From 28 November 2007, ANZ Capital NZ Limited purchased five further tranches of UCG Investments Limited.
		
Jointly controlled entities

Book Value Voting
Ownership$mInterest % Interest %Balance
Date

Nature of businessArgenta Limited
BCS Group Limited
ING (NZ) Holdings Limited
JMI Aerospace Limited

2
4
212
1

31 Jul30 Jun31 Dec31 MarManufacture and marketing of animal remedies
Manufacturer of baggage handling systems
Funds management and insurance
Airline maintenance and service provider

Total investment in jointly controlled entities

219

24
40
50
33

24
40
49
33

All jointly controlled entities are incorporated in New Zealand.
The Banking Group has joint control of all these entities due to a combination of control factors, none of which gives either party overall control.

P A G E

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 9 .		S I G N I F I C A N T C O N T RO L L E D E N T I T I E S , A S S O C I AT E S A N D I N T E R E S T S I N J O I N T LY C O N T RO L L E D E N T I T I E S A S AT
3 0 S E P T E M B E R 2 0 0 8 ( continued )The summarised financial information relating to the Banking Group’s investment in ING (NZ) Holdings Limited is as follows:			Consolidated					 30/09/2008 30/03/2007						
$m$m

Share of assets and liabilities
Investments						Other assets						

78
160

81
160

Total assets						

238

241

Life insurance policy liabilities						Other liabilities						

(3)
11

22
11

Total liabilities						8

33Net assets						

230

208

Share of revenue, expenses and results
Net underwriting result						Other revenue						

66
25

49
29

Total revenue						Expenses						

91
75

78
56

Profit before income tax						Income tax expense						

16
(6)

22
-

Profit after tax						

22

22Share of commitments
Lease commitments						

8

4There are no unrecognised losses in respect of any of the Banking Group’s jointly controlled entities. The Banking Group’s share of thecontingent liabilities of its joint ventures are incurred jointly with other investors. There were no contingent liabilities as at 30 September 2008
(30/09/2007 $nil).

4 0 . PA R E N T C O M PA N Y A N D U LT I M AT E PA R E N T bank

The Parent Company is ANZ Holdings (New Zealand) Limited which is incorporated in New Zealand. The Ultimate Parent Bank is Australia and
New Zealand Banking Group Limited which is incorporated in Australia.

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4 1 . S E C U R I T I S AT I O N , F U N D S M A N A G E M E N T, OT H E R F I D U C I A RY A C T I V I T I E S A N D T H E M A R K E T I N G A N D D I S T R I B U T I O N O F
I N S U R A N C E P RO D U C T S

Securitisation
In May 2008 the RBNZ expanded the range of acceptable collateral that banks can pledge and borrow against as part of changes to its liquidity
management arrangement designed to help ensure adequate liquidity for New Zealand financial institutions in the event that global market disruption
was to intensify. From 31 July 2008, acceptable collateral includes residential mortgage backed securities (“RMBS”) that satisfy RBNZ criteria.
On 10 October 2008, subsequent to balance date, the Banking Group established an in-house RMBS facility that could issue securities meeting
the RBNZ criteria. The establishment of the facility resulted in the Parent financial statements recognising a payable and receivable of equalamount of $3,720m to Kingfisher NZ Trust 2008-1, a newly established consolidated entity post balance date. The Consolidated Group’s
financial statements do not change as a result of establishing this facility.
The establishment of this facility increases the Banking Group’s contingent funding ability from the RBNZ.
Funds management
Certain subsidiaries of the Bank act as trustee and/or manager for a number of unit trusts and investment and superannuation funds. The Bank
provides private banking services to a number of clients, including investment advice and portfolio management. The Banking Group 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 owned by the Banking Group, they are not included in these financial statements. The Banking Group
derives fee and commission income from the sale and management of investment funds and superannuation bonds, unit trusts and theprovision of private banking services to a number of clients.
Some funds under management are invested in products owned or securities issued by the Banking Group and are recorded as liabilities inthe balance sheet. At 30 September 2008, $2,229 million of funds under management were invested in the Banking Group’s own products or
securities (30/09/2007 $1,035 million).
Funds management activities conducted by the ING New Zealand joint venture are not included in the funds managed by the Banking Group,as the Banking Group does not have control of the ING New Zealand joint venture.
The aggregate value of funds managed by the Banking Group at balance date was:			Consolidated					 30/09/2008 30/09/2007						
$m$m

Superannuation schemes						Bonus Bonds						Discretionary funds						

2,417
3,440

3
2,488
2,045

Totals funds under management						

5,857

4,536

On 1 October 2007, the Direct Broking Call Account was registered as a portfolio investment entity (PIE).
On 25 March 2008, the UDC Superbonds Superannuation Scheme managed by UDC Finance Limited was wound up.
On 1 April 2008, the National Bank Call Fund, Private Banking Portfolio Call Fund and National Bank Private Banking Call Fund, all managed by
ANZ Investments Services (New Zealand) Limited, commenced as PIEs. The funds invest in call deposits with the Bank.
On 9 April 2008, the Term Maximiser Fund and Call Maximiser Fund managed by UDC Finance Limited commenced as PIEs. The funds invest in
secured debentures with UDC Finance Limited.
On 1 October 2008, the ANZ Call Fund and ANZ Term Fund, managed by UDC Finance Limited, commenced as PIEs. The funds invest in New
Zealand dollar call and term deposits with the Bank.
Custodial services
The Banking Group provides custodial services to customers in respect of assets that are beneficially owned by those customers.
Marketing and distribution of insurance products
The Banking Group markets and distributes a range of insurance products which are underwritten by several insurance companies. These
activities are managed in association with the ING New Zealand joint venture.
Insurance business
The Banking Group does not conduct any insurance business directly, although the Banking Group holds a 49% share in the ING NZ joint
venture which does conduct insurance business.
Provision of financial services
Financial services provided by the Banking Group to entities which are involved in trust, custodial, funds management and other fiduciary
activities, and to affiliated insurance companies which conduct marketing or distribution of insurance products, or on whose behalf themarketing or distribution of insurance products are conducted, are provided on arm’s length terms and conditions and at fair value. Any assets
purchased from such entities have been purchased on an arm’s length basis and at fair value.
The Banking Group has not provided any funding to entities which conduct any of the following activities: trust, custodial, funds management
or other fiduciary activities established, marketed and/or sponsored by a member of the Banking Group (30/09/2007 $nil).

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4 1 . S E C U R I T I S AT I O N , F U N D S M A N A G E M E N T, OT H E R F I D U C I A RY A C T I V I T I E S A N D T H E M A R K E T I N G A N D D I S T R I B U T I O N O F
I N S U R A N C E P RO D U C T S ( C ontinued )Risk management
The Bank and subsidiaries participating in the activities identified above have in place policies and procedures to ensure that those activities
are conducted in an appropriate manner. Should adverse conditions arise, it is considered that these policies and procedures will minimise thepossibility that these conditions will adversely impact the Bank. The policies and procedures include comprehensive and prominent disclosureof information regarding products, and formal and regular review of operations and policies by management and auditors.
In addition, the following measures have been taken to manage any risk to the Bank of marketing and distributing insurance products:
Investment statements, prospectuses and brochures for insurance products include disclosures that the Bank and its subsidiaries do notguarantee the insurer, nor the insurer’s subsidiaries, nor any of the products issued by the insurer or the insurer’s subsidiaries.
Where the insurance products are subject to the Securities Act 1978, investment statements, prospectuses and brochures additionally
include disclosures that:• the policies do not represent deposits or other liabilities of the Bank or its subsidiaries;• the policies are subject to investment risk, including possible loss of income and principal; and• the Bank and its subsidiaries do not guarantee the capital value or performance of the policies.
Application forms for insurance products contain acknowledgements to be signed by a purchaser which are consistent with the disclosures
for insurance products noted above.
In addition, the following measures have been taken to manage any risk to the Bank of marketing and distributing fund management products:
Prospectuses, investment statements and brochures for funds management products include disclosures:• that the securities do not represent deposits or other liabilities of the Bank;• that the securities are subject to investment risk including possible loss of income and principal invested; and• that the Bank does not guarantee the capital value or performance of the securities.
Application forms for funds management products contain acknowledgements to be signed by a purchaser which are consistent with thedisclosures for funds management products noted above.

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42. COMMITMENTS		Consolidated

Parent30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Capital expenditure
Contracts for outstanding capital expenditure:
Premises and equipment
Not later than 1 year				

26

15

-

1

Total capital expenditure commitments				

26

15

-

1

86
167
27

85
163
32

17
19
-

20
28
-

Lease rentals
Future minimum lease payments under non-cancellable operating leases:
Premises and equipment
Not later than 1 year				Later than 1 year but not later than 5 years				Later than 5 years				Total lease rental commitments				

280

280

36

48

Total commitments				

306

295

36

49

4 3 . C O N T I N G E N T L I A B I L I T I E S A N D C R E D I T R E L AT E D C O M M I T M E N T S

For contingent exposures, the maximum exposure to credit risk is the maximum amount that the Banking Group would have to pay if thecontingent is called upon. For undrawn facilities, the maximum exposure to credit risk is the full amount of the committed facilities.
		Consolidated

Parent30/09/2008 30/09/2007$m$m

30/09/2008 30/09/2007$m$m

Credit related commitments
Commitments with certain drawdown due within one year				Commitments to provide financial services				

659
23,1501,074
20,751659
22,9401,074
20,483

Total credit related commitments				

23,80921,82523,59921,557

Contingent liabilities
Financial guarantees				Standby letters of credit				Transaction related contingent items				
Trade related contingent liabilities				

2,017
401
1,090
118

1,933
528
398
123

2,017
401
1,090
115

1,933
528
398
119

Total contingent liabilities				

3,626

2,982

3,623

2,978

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4 3 . C O N T I N G E N T L I A B I L I T I E S A N D C R E D I T R E L AT E D C O M M I T M E N T S ( continued )The Banking Group guarantees the performance of customers by issuing standby letters of credit and guarantees to third parties, including its
Ultimate Parent Bank. The risk involved is essentially the same as the credit risk involved in extending loan facilities to customers, therefore thesetransactions are subjected to the same credit origination, portfolio management and collateral requirements for customers applying for loans. As
the facilities may expire without being drawn upon, the notional amounts do not necessarily reflect future cash requirements.
The detailed and estimated maximum amount of contingent liabilities that may become payable are set out below.

Contingent tax liability
As previously disclosed, the New Zealand Inland Revenue Department (‘IRD’) is reviewing a number of structured finance transactions as part ofan audit of the 2000 to 2005 tax years. This is part of an industry-wide review by the IRD of these transactions undertaken in New Zealand.
The Bank has received Notices of Proposed Adjustment (the ‘Notices’) in respect of some of these transactions. The Notices are formal advice
that the IRD is proposing to amend tax assessments. The Notices are not tax assessments and do not establish a tax liability but are the first stepin a formal disputes process.
As expected in March 2008 the IRD issued amended tax assessments as a follow up to the Notices in respect of four of these transactions for the
2003 tax year (prior to that tax year becoming statute-barred). We expect assessments for the 2003 income year for a further two transactions. The
IRD has previously issued tax assessments as a follow up to the Notices in respect of two transactions for the 2000 tax year, four transactions for the
2001 tax year and five transactions in respect of the 2002 income year (in each case prior to that tax year becoming statute-barred). Proceedings
disputing the amended tax assessments with respect to the 2000-2003 tax years have been commenced.
Based on the independent tax and legal advice obtained, the Bank is confident that the tax treatment it has adopted for these transactions andall similar transactions is correct.
The tax adjustments proposed so far by the IRD cover the 2000 to 2005 tax years and imply a maximum potential liability of $224 million ($343
million with interest tax effected).
The IRD is also investigating other transactions undertaken by the Banking Group, which have been subject to the same tax treatment. Should thesame position be taken by the IRD for all years on all these transactions, including those that the Notices cover, the maximum potential liability
would be approximately $365 million ($541 million with interest tax effected) as at 30 September 2008.				
Of the maximum potential tax liability in dispute, it has been estimated that approximately $99 million ($151 million with interest tax effected)
is subject to indemnities given by Lloyds TSB Bank plc under the agreement by which the Bank acquired the NBNZ Holdings Limited Group, andwhich relate to transactions undertaken by NBNZ Group before December 2003.
This leaves a net potential tax liability as at 30 September 2008 of $266 million ($390 million with interest tax effected).
All of these transactions have now either matured or been terminated.

Commerce Commission
In November 2006, the Commerce Commission brought proceedings under the Commerce Act 1986 against Visa, MasterCard and all New
Zealand issuers of Visa and MasterCard credit cards, including ANZ National Bank Limited. The Commission alleges price fixing and substantiallylessening competition in relation to the setting of credit card interchange fees and is seeking penalties and orders under the Commerce Act.
Subsequently, several major New Zealand retailers have issued proceedings against ANZ National Bank Limited and the other above mentioned
defendants seeking unquantified damages, based on allegations similar to those contained in the Commerce Commission proceedings.
ANZ National Bank Limited is defending the proceedings. The Bank has received independent legal advice. The Bank considers it has a strongly
arguable case, but the matter is complex and difficult. At this stage any potential liabilities cannot be assessed with any certainty. A trial has
been scheduled for October 2009.
In addition, the Bank is aware that the Commerce Commission is looking closely at credit contract fees under the Credit Contracts andConsumer Finance Act 2003 (CCCFA). In its 2008-2011 Statement of Intent the Commission stated that:“The Commission is turning more to litigation under the Credit Contracts and Consumer Finance Act to ensure credit contract fees are reasonable
and disclosed. Currently the credit industry is not fully compliant with the legislation and taking more action through the courts will encourage
better compliance and clarify any areas of the law that may be uncertain.”In particular the Bank is aware that the Commerce Commission is investigating the level of default fees charged on credit cards and the level ofcurrency conversion charges on overseas transactions using credit cards under the CCCFA. We have also been notified that the Commission may
be investigating early repayment charges on fixed rate mortgages. At this stage the possible outcome of these investigations and any liability
or impact on fees cannot be determined with any certainty.
ING New Zealand Funds
The Bank markets and distributes a range of wealth management products which are managed by ING (NZ) Limited (of which the Bank holds49%). Trading in the ING Diversified Yield Fund and the ING Regular Income Fund was suspended on 13 March 2008 by the fund manager, ING(NZ) Limited, due to the deterioration in liquidity in credit markets.
There has been significant public coverage regarding the closure of these funds and questions have been raised about the involvement of
ING and the Bank. In particular, the Bank has received a number of claims from customers alleging that the Bank, in its capacity as one ofthe distributors for ING, mis-sold these funds to some investors. We are investigating these claims. It is too early at this stage to assess the
merit of these claims and therefore the nature or quantum of any potential liability.
Other contingent liabilities
The Banking Group has other contingent liabilities in respect of actual and potential claims and proceedings. An assessment of the Banking
Group’s likely loss in respect of these matters has been made on a case-by-case basis and provision made where appropriate. As at 30
September 2008, there were no other contingent assets or liabilities required to be disclosed (30/09/2007 nil).

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4 4 . E M P L OY E E S H A R E A N D O P T I O N P L A N S

The Banking Group participates in the ANZ Employee Share Acquisition Plan and the ANZ Share Option Plan operated by the ANZ. Any sharesor options granted under these plans are shares in Australia and New Zealand Banking Group Limited.
The closing market price of one ordinary share of ANZ quoted on the ASX (Australian Stock Exchange) at 30 September 2008 was A$18.75(30/09/2007 A$29.70).
ANZ EMPLOYEE SHARE ACQUISITION PLAN
The ANZ Employee Share Acquisition Plan includes the A$1,000 Share Plan, the Deferred Share Plan and the Restricted Share Plan.
A$1,000 share plan
Each permanent employee who has had continuous service for one year with the Banking Group is eligible to participate in a scheme enabling
the issue of up to A$1,000 of shares of ANZ in each financial year, subject to the approval of the Ultimate Parent Bank Board. The shares vest
subject to satisfaction of a three year service period but may be forfeited in the event of resignation or termination for serious misconduct.
On expiration of that period, an employee may sell the shares, transfer them into their name, or have them retained in trust. The issue price isbased on the one-day volume weighted average price (‘VWAP’) of the shares traded on the ASX on the date of issue.
The Banking Group’s employees are required to pay NZ 1 cent per share at the time the shares are transferred to them. During the year to
30 September 2008, 267,523 shares with an average issue price of A$27.96 were issued under the A$1,000 Share Plan (30/09/2007 269,025
shares with an average issue price of A$27.88 were issued).
Deferred share plan
The Banking Group’s last issue of shares under this plan was in November 2004. Selected employees were issued deferred shares, which vest
subject to satisfaction of a minimum three year service period from the date of issue. Ordinary shares issued under this plan may be heldin trust for up to 10 years, and may be required to meet performance hurdles before being able to be traded after the restriction period has
expired. The issue price is based on the VWAP of the shares traded on the ASX in the five trading days leading up to and including the date ofissue. Unvested shares are forfeited on resignation or dismissal, or if a performance condition has not been met.
Restricted share plan
Restricted Shares are available to selected employees and are issued under the ANZ Employee Share Acquisition Plan. Selected employees havethe option to take some (or all) of their incentive payment as Restricted Shares. The shares are held in trust and may not be traded until theconclusion of the one-year restriction period, after which they may be transferred into the employees name. Until they are transferred into theemployees name, they continue to be subject to forfeiture on termination for serious misconduct.
Shares valuations
The fair value of services received in return for shares in the ANZ Employee Share Acquisition Plan are measured by referring to the fair valueof ANZ shares granted. The fair value of shares granted in the current period, measured at the date of grant of the shares, is NZ $8.5 million
based on 267,523 shares at a weighted average price of A$27.96 converted at the exchange rate of 0.8809 (30/09/2007 NZ $9 million basedon 269,025 shares at a weighted average price of A$27.88 converted at the exchange rate of 0.8391 were issued).
The average issue price of shares granted and the number of shares that are expected to ultimately vest to the employees at the end of thevesting period are used to calculate the fair value of shares. No dividends are incorporated into the measurement of the fair value of shares.
ANZ SHARE OPTION PLAN
Selected employees may be granted options, which entitle them to purchase ordinary fully paid shares in ANZ at a price fixed at the time when
the options were issued. Voting and dividend rights will be attached to the unissued ordinary shares when the options have been exercised.
Each option entitles a holder to purchase one ordinary share subject to any terms and conditions imposed on issue. The exercise price of theoptions (excluding zero-priced options) is determined in accordance with the rules of the plan, and is based on the weighted average price of
the Ultimate Parent Bank’s shares traded during the five business days preceding the date of granting the options.
The main schemes of the ANZ Share Option Plan are as follows:
Current option plans
Performance rights planThis scheme is a long term incentive program available to certain Banking Group employees since November 2005 and grants the right toacquire ANZ shares at nil cost, subject to a three year vesting period and a Total Shareholder Return (TSR) performance hurdle. The proportionof rights that will become exercisable will depend upon the TSR achieved by ANZ relative to the companies in the comparator group, which
consists of selected major financial services companies in the Standard & Poor’s and ASX 100 Index. Performance equal to the median TSRof the comparator group will result in half the rights becoming exercisable. Performance above the median will result in further performancerights becoming exercisable, increasing on a straight line basis until all of the rights become exercisable where ANZ’s TSR is at or above the75th percentile in the comparator group.

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(CONTINUED)P A G E4 4 . E M P L OY E E S H A R E A N D O P T I O N P L A N S ( continued )The TSR hurdle will only be tested once at the end of the three-year vesting period. If the rights do not pass the hurdle on testing date, or ifthey pass the hurdle on testing date and are not exercised by the end of five years from the grant date, the rights will lapse. In the case of
resignation or termination on notice, only rights that become exercisable by the end of the notice period may be exercised. A grace period
is provided in which to exercise the rights. All other rights will lapse. In the case of retrenchment or retirement, performance rights will be
performance tested at the date of termination and where performance hurdles have been met, performance rights will be pro-rated and a grace
period provided in which to exercise the rights. In case of death or total and permanent disablement, a grace period is provided in which toexercise all performance rights.
Deferred share rights
This scheme is a short term incentive program available to certain Banking Group employees since November 2004 and grants the right toacquire ANZ shares at nil cost after a specified vesting period ranging from one to three years. Deferred share rights must be exercised by
the seventh anniversary of grant date. In the case of resignation, only rights that become exercisable by the end of the notice period may
be exercised. A grace period is provided in which to exercise the rights. All other rights will lapse. In the case of termination on notice,retrenchment, retirement, death or total and permanent disablement, a grace period is provided in which to exercise all deferred share rights.
Legacy Option Plans
Performance options planThis scheme is a long term incentive program available to certain Banking Group employees. The options can only be exercised after a threeyear vesting period and before the seventh anniversary of the grant date. There are no other performance conditions attached to these options.
All unexercised options are generally forfeited on resignation but any options to which the Banking Group employee is entitled will need to
be exercised within a specified period of termination. On retrenchment, entitlements to options will be pro-rated over the three year vesting
period. On death or total and permanent disablement, all unvested options will become available for exercise. No further performance options
have been granted to Banking Group employees after November 2005.
Zero-price options (ZPO)A ZPO is a right to acquire an ANZ share at nil cost and is granted to certain employees as part of their employment contracts. The ZPO’s haveno time based vesting criteria, so can be exercised at any time during employment and within 6 months of termination of employment. ZPO’s
must be exercised within two years of grant date or they lapse.
Other past option plans which are no longer available to the Banking Group’s employees, but continue to be amortised during their appropriate
vesting periods are hurdled options and index linked options (ILOs).
Details of the options over unissued ANZ ordinary shares and their related weighted average exercise prices as at the beginning and end of theyear and movements during the year are set out below:
			Consolidated/Parent		
30/09/2008
30/09/2007				 Weighted		Weighted				
average		
average			
Numberexercise
Numberexercise			1of shares
priceof shares
price1
					
A$		
A$

Share options at beginning of the year			
Share options granted			
Share options exercised			
Share options forfeited and expired			

1,616,716
376,715(130,988)(120,672)

13.93
16.13
12.27

1,668,436
318,921(339,782)(30,859)

17.49
17.53
19.67

Share options at end of the year			

1,741,771

10.86

1,616,716

13.93

Weighted average share price during the year				21.37 		28.83Range of exercise prices on share options at end of the year			0.00-23.49 		 0.00-23.49
Weighted average remaining contractual life on share options
at end of the year					36 months		 46 months
1. Calculation of weighted average exercise prices are affected by performance rights, deferred share rights and ZPO plans which have nil exercise prices.

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4 4 . E M P L OY E E S H A R E A N D O P T I O N P L A N S ( continued )Options valuations
The fair value of services received in return for share options are measured by referring to the fair value of ANZ share options granted. The fairvalue of options granted in the current period, measured at the date of grant are calculated using one of the following models:(a) Monte-Carlo simulation model utilising the assumptions underlying Black-Scholes. In terms of factoring in early exercise, the model
assumes that deferred share rights and performance rights are exercised as soon as they vest so that the option holder can benefit fromthe dividends. It assumes that the performance options are exercised when the share price reaches twice the exercise price; or(b) an adjusted form of the Binomial Option pricing model (“BOM”). In terms of factoring in early exercise, the model assumes that the
expected life of vanilla options is 5 years, performance rights is 4 years and that deferred share rights are exercised immediately to accountfor lack of marketability.
In addition, both models are designed such that they take into account as appropriate, any performance hurdles and non-transferability ofthe options.
All options issued in 2008 were valued using the BOM pricing model.
The following inputs are used to measure the fair value of instruments granted during the period. For each instrument, the model used (a or b)
is indicated. All prices are quoted in Australian dollars:
				Performance	Option type			rights (b)LTI deferred
STI deferredshare rights (b) share rights (b)Grant date			29-May-2008
Number of Options			 22,633
Option value			$18.38
Exercise price (5 day VWAP)			 $nil
Share price at grant			$21.35
ANZ expected volatility2			 15%Option term			5 years
Vesting period			3 years
Expected life			2 years
Expected dividends			5.00%
Risk free interest rate			 n/a

9-Nov-2007
161,011$24.49$nil$27.9515%
5 years
3 years
2 years
4.50%
6.69%

Performancerights (b)9-Nov-2007 30-Oct-2007
15,758177,313$25.59$12.30$nil$nil$27.95$29.6915%n/a
5 years
5 years
2 years
3 years
3 years
2 years
4.50%
4.50%
6.77%
6.63%

2. Expected volatility is based on ANZ’s historic volatility.

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(CONTINUED)P A G E4 5 . R E T I R E M E N T B E N E F I T O B L I G AT I O N S

The Banking Group has established a number of pension and superannuation schemes. The Banking Group may be obliged to contribute to theschemes as a consequence of legislation and provision of trust deeds. Legal enforceability is dependent on the terms of the legislation and trust
deeds. The major schemes are:Contribution levels
Employee

Contribution levels
Employer

Defined Benefit Scheme2orDefined Contribution Scheme

Nil

Balance of cost4

2.5% minimum of salary

7.5% of salary6

Defined Benefit Scheme3orDefined Contribution Scheme

5% of salary

Balance of cost5

2.0% minimum of salary

11.2% of salary7

SchemeScheme type

ANZ National Bank Staff Superannuation Scheme1

The National Bank Staff Superannuation Fund1

1. These schemes provide for pension benefits and provide for lump sum benefits.
2. Closed to new members on 31 March 1990. Operates to make pension payments to retirees who were members of that section of the scheme or to dependents of the members.
3. Closed to new members on 1 October 1991.
4. 30/09/2008: $nil (30/09/2007 $nil).
5. 30/09/2008: 22.3% (30/09/2007 22.3%) of members’ salaries.
6. 30/09/2008: 7.5% (30/09/2007 7.5%) of members’ salaries.
7. 30/09/2008: 11.2% (30/09/2007 11.2%) of members’ salaries.

Details of the defined benefit schemes are as follows:
Actuarial valuations are undertaken every six months. The latest valuations were carried out as at 30 September 2008.
				

Consolidated/Parent					 30/09/2008 30/09/2007						
$m$m

The amounts recognised in the balance sheet arising from the Banking Group’s
obligation in respect of its defined benefit schemes are determined as follows:
Defined benefit obligation at beginning of the year						Current service cost						Interest cost						Contributions by scheme participants						Actuarial (gains) losses						Benefits paid						

181
3
12
1
3
(21)

190
4
12
1
(10)
(16)

Present value of funded defined benefit obligations						

179

181

Fair value of scheme assets at beginning of the year						Expected return on scheme assets (net of tax)						Actuarial (losses) gains						Contributions by employer						Contributions by scheme participants						Benefits paid						

189
10
(30)
3
1
(21)

196
11
(7)
4
1
(16)

Fair value of scheme assets						

152

189

Net defined benefit (liability) asset recognised on balance sheet					

(27)

8

The fair value of scheme assets include cash deposits and fixed interest investments of $5 million with the Banking Group as at 30 September
2008 (30/09/2007 $7 million).								1 0 6A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

4 5 . R E T I R E M E N T B E N E F I T O B L I G AT I O N S ( continued )				Consolidated/Parent					 30/09/2008 30/09/2007						
$m$m

The amounts recognised in the income statement in respect of defined benefit
schemes are as follows:
Current service cost						Interest cost						Expected return on scheme assets (net of tax)						Contribution withholding tax						

3
12
(10)
2

4
12
(11)
1

Total pension costs recognised in the income statement - defined benefit superannuation schemes			7

6

Actuarial gains (pre-tax) at beginning of the year						Actuarial (loss) gain (pre-tax) incurred during the year						

8
(35)

4
3

Balance of actuarial (losses) gains (pre-tax) at end of the year					

(27)

7

Income tax credit (expense) recognised directly in equity						

8

(2)Balance of actuarial (losses) gains at end of the year						

(19)

5

The actuarial gains and losses recognised directly in equity via the statement of recognised income and expense are as follows:

The principal actuarial assumptions used were as follows:
The National Bank		
Staff Superannuation Fund				

30/09/2008

30/09/2007		ANZ National Bank
Staff Superannuation Scheme
30/09/2008

30/09/2007

Defined benefits calculation
Discount rate (gross of tax)			
Future price inflation			
Future pension increases			
Future salary increases			

6.0%
2.5%
2.5%
3.7%

6.5%
2.5%
2.5%
3.7%

6.0%
2.5%
2.5%
n/a

6.5%
2.5%
2.5%
n/a

Scheme assets calculation
Expected return on scheme assets (net of tax)			

5.5%

5.5%

4.5%

4.5%

The overall expected return on scheme assets is determined by reference to market expectations, at the beginning of the relevant period, ofasset performance applicable to the period over which the defined benefit obligation is to be settled. The overall expected return on scheme
assets reflects an aggregation of the expected returns on the underlying asset classes.
The actual return on scheme assets (net of tax) for The National Bank Staff Superannuation Fund was -9.0% for the year ended 30 September
2008 (30/09/2007 6.5%). The actual return on scheme assets (net of tax) for the ANZ National Bank Staff Superannuation Scheme was -6.0%
for the year ended 30 September 2008 (30/09/2007 6.1%).
The investment return on scheme assets is taxed at 33% (30/09/2007 33%).
The major categories of scheme assets as a percentage of the fair value of scheme plan assets are as follows:
The National Bank		
Staff Superannuation Fund				Cash and short term debt instruments			
New Zealand fixed interest			Overseas fixed interest			New Zealand equities			
Overseas equities			
Property							

30/09/2008

19.9%
14.5%
16.1%
9.7%
39.8%
0.0%
100.0%

30/09/2007		

15.7%
22.2%
16.5%
8.9%
36.7%
0.0%
100.0%ANZ National Bank
Staff Superannuation Scheme
30/09/2008

30/09/2007

17.1%
23.2%
20.8%
9.3%
23.9%
5.7%
100.0%

13.2%
23.1%
23.3%
7.1%
28.0%
5.3%
100.0%The benchmark weightings of each asset class is determined by the Trustee in conjunction with the investment manager.

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(CONTINUED)

4 5 . R E T I R E M E N T B E N E F I T O B L I G AT I O N S ( continued )Historical summary
Actuarial gains and losses comprise experience adjustments (the effects of differences between the previous actuarial assumptions and what
has actually occurred in the period) and the effects of changes in actuarial assumptions on valuation date. The history of the schemes’ net
position and experience adjustments is as follows:
		
					
					

Consolidated/Parent
30/09/2008 30/09/2007 30/09/2006 30/09/2005
$m
$m
$m
$m

Defined benefit obligation					Fair value of scheme assets					

(179)
152

(181)
189

(190)
196

(187)
195

Net benefit (liability)/asset					Experience adjustments on scheme liabilities					Experience adjustment on scheme assets					

(27)

8

6

8

5
(21)

(1)
(7)

3
5

11

Employer contributions
To ensure the defined benefit schemes remain solvent, the schemes’ independent actuaries recommend an employer contribution rate to the
Banking Group, annually for The National Bank Staff Superannuation Fund and every three years for the ANZ National Bank Staff Superannuation
Scheme. The funding methods and current contribution rates of the individual schemes are determined in accordance with NZ IAS 19 Employee
Benefits (‘NZ IAS 19’) for annual periods beginning on or after 1 January 2007.
The National Bank Staff Superannuation Fund deficit was valued at $5.5 million in the most recent actuarial valuation at 1 April 2007 determinedin accordance with NZ IAS 19. The ANZ National Bank Staff Superannuation Scheme surplus was valued at $0.2 million in the most recent
actuarial valuation at 31 December 2007 determined in accordance with NZ IAS 19.
The Banking Group contributed $3.1 million (net of contributions withholding tax) to its defined benefit schemes in the period to 30 September
2008 (30/09/2007 $4 million). Employer contributions are taxed at a rate of 33% (30/09/2007 33%).
Contingent liabilities
The National Bank Staff Superannuation Fund
Under the Fund’s Trust Deed, if this scheme were wound up, the Banking Group is required to pay the Trustee of the Fund an amount sufficient
to ensure members do not suffer a reduction in benefits to which they would otherwise be entitled.
ANZ National Bank Staff Superannuation Scheme
If the Scheme is wound up then its assets must be cashed up and applied to all members’ benefits. If Scheme funds are insufficient to pay all members’
benefits then the Banking Group must pay to the Scheme such amounts as the Scheme Actuary determines are necessary to pay those benefits.
4 6 . R E L AT E D PA RT Y T R A N S A C T I O N S

Consolidated

ParentYear toYear to30/09/2008 30/09/2007
$000
$000

Year toYear to30/09/2008 30/09/2007
$000
$000

Key management personnel
Key management personnel compensation
Salaries and short-term employee benefits				
Post-employment benefits				
Other long-term benefits				
Share-based payments				

11,919
786
127
2,665

10,407
315
106
2,144

11,518
780
107
2,633

9,929
315
87
2,124

Total compensation of key management personnel				

15,497

12,972

15,03812,455Loans to key management personnel				

7,272

6,202

7,272

6,202

Deposits from key management personnel				

3,594

2,666

3,594

2,649

Loans made to and deposits held by key management personnel (including personally related parties) are made in the course of ordinary businesson normal commercial terms and conditions no more favourable than those given to other employees or customers. Loans are on terms of
repayment that range between fixed, variable and interest only, all of which have been made in accordance with the Bank’s lending policies. No
provision for credit impairment has been recognised for loans made to key management personnel (30/09/2007 $nil).
All other transactions with key management personnel (including personally related parties) are conducted on an arm’s length basis in theordinary course of business and on commercial terms and conditions. These transactions principally consist of the provision of financial andinvestment services.
Key management personnel is defined as those persons having authority and responsibility for planning, directing and controlling the activitiesof the entity, directly or indirectly, including directors (whether executive or otherwise).
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4 6 . R E L AT E D PA RT Y T R A N S A C T I O N S ( continued )Transactions with the Parent Company, Ultimate Parent Bank and subsidiaries
Details of amounts provided by/to the Parent Company, Ultimate Parent Bank and subsidiaries of the Banking Group during the ordinary courseof business are set out in the relevant notes to these financial statements. No provision for credit impairment has been recognised during theyear ended 30 September 2008 (30/09/2007 $nil).
		Consolidated

ParentYear to30/09/2008$mYear to30/09/2007$mYear toYear to30/09/2008 30/09/2007$m$m

Interest income- Subsidiary companies- Parent Company- Ultimate Parent Bank

4

13
4

47
4

84
13
4

Interest expense- Subsidiary companies- Parent Company- Ultimate Parent Bank

151
199

211
202

2,730
151
83

2,210
211
57

Operating expenses- Subsidiary companies- Ultimate Parent Bank

82

71

96
82

96
71

Transactions with associates and joint venture entities
During the period the Banking Group conducted transactions with associates and joint venture entities on normal commercial terms andconditions as shown below:
		Consolidated

ParentYear to30/09/2008$mYear to30/09/2007$mYear toYear to30/09/2008 30/09/2007$m$m

Amounts receivable		- associates- joint venture entities

28
36

14
56

-

14

Amounts payable- associates

85

-

85

-

Interest income- associates- joint venture entities

2
4

1
8

-

4

Commission received from ING NZ joint venture
Costs recovered from ING NZ joint venture

23
1

23
1

23
1

23
1

The Banking Group provides general administrative, strategic and governance services to ING (NZ) Limited under a Technical Services Agreement.
The Banking Group provided registry services to the ING NZ joint venture in connection with the business of ING Managed Funds (NZ) Limited
until 31 December 2006. The Banking Group provided payroll, tax accounting and compliance services, and premises in connection with andfor the purpose of ING Insurance Services (NZ) Limited and ING Managed Funds (NZ) Limited. All provision of these services ceased from5 March 2007.
A provision for credit impairment of $5 million is recognised for amounts outstanding from associates as at 30 September 2008 (30/09/2007$7 million). A credit impairment loss of $nil was recovered during the year ended 30 September 2008 (30/09/2007 $nil)

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(CONTINUED)P A G E

47. SUBSEQUENT EVENTS

Deposit Guarantee Scheme
The Bank has a guarantee under the New Zealand Deposit Guarantee Scheme (‘Crown Guarantee’). The Crown Guarantee is provided undera Crown Deed of Guarantee (Registered Bank) entered into by the Bank and the Crown on 14 November 2008. Further information about
the Crown Guarantee is available in the General Disclosures section of this General Disclosure Statement, the most recent Supplemental
Disclosure Statement and on The Treasury website at www.treasury.govt.nz
Securitisation
On 10 October 2008, subsequent to balance date, the Banking Group established an in-house residential mortgage-backed securities facility
that could issue securities that can be used as collateral for borrowing from the RBNZ. The establishment of the facility resulted in the Parent
financial statements recognising a payable and receivable of equal amount totalling $3,720m to Kingfisher Trust 2008-1, a newly establishedconsolidated entity post balance date. The Consolidated Group’s financial statements do not change as a result of establishing this facility.

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DIRECTORATE AND AUDITORS

D irectorate and A uditors

The address to which any document or communication may be sent to any Director is ANZ National Bank Limited, Level 14, 215-229 Lambton
Quay, Wellington, New Zealand. The document or communication should be marked for the attention of that Director.
Directors’ Interests
In order to ensure that members of the Board are reminded of their disclosure obligations under the Companies Act 1993, the following
procedures are adopted:a) At least once in each year, Directors are requested to complete, in terms of section 140(1) of the Companies Act 1993, a disclosure of any
interests which they have with the Bank itself. Directors are reminded at this time of their obligation under the Companies Act 1993 todisclose promptly any transaction or proposed transaction with the Bank in which they have an interest.
b) Directors are also requested to make a general disclosure of their interest in other entities in terms of section 140(2) of the Companies Act
1993. In addition, they are requested to initiate a review of that disclosure if there are any significant alterations which occur subsequently
during the period.
In addition to the written disclosures referred to in paragraphs (a) and (b) above, Directors disclose relevant interests which they have before
discussion of particular business items.
The Companies Act 1993 (subject to any different provision in the Bank’s Constitution) allows a Director with an interest in a transaction toparticipate in discussions and to vote on all matters relating to that particular transaction. The Bank’s Constitution does not alter that situation.
However, the Board has adopted a guideline whereby a Director with an interest in a transaction should not be present during any discussions,and should not vote, on any matter pertaining to that particular transaction.
Transactions with Directors
No Director has disclosed that he or any immediate relative or professional associate has any dealing with the Banking Group which has been
either entered into on terms other than those which would in the ordinary course of business be given to any other person of like circumstancesor means or which could otherwise be reasonably likely to influence materially the exercise of the Director’s duties as a Director of the Bank.
Changes in Directorships
There have been no changes to the Bank’s Board of Directors since the authorisation date of the previous Disclosure Statement on 20 August 2008.

B oard M embers as at 1 9 N ov ember 2 0 0 8

Independent Non-Executive Director, Chairman
Sir Dryden Spring
DSc
Company Director
Matamata, New Zealand
Directorships
Director: Sky City Entertainment Group Limited, Port of Tauranga Limited, Fletcher Building Limited, Fletcher Building Finance Limited, Northport
Limited

Executive Director
Graham Kennedy Hodges
BEc (Hons)
Chief Executive
ANZ National Bank Limited
Wellington, New Zealand
Directorships
Director: ANZ Holdings (New Zealand) Limited, Banking Ombudsman Scheme Limited

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DIRECTORATE AND AUDITORSFor personal use only

(CONTINUED)

Non-Executive Directors
Dr Robert John Edgar
Ph.D, BEc (Hons)
Senior Managing Director
Australia and New Zealand Banking Group Limited
Melbourne, Australia

Peter Ralph Marriott
BEc (Hons), FCA
Chief Financial Officer
Australia and New Zealand Banking Group Limited
Melbourne, Australia

Directorships
Chairman: Esanda Finance Corporation Limited, ING Australia Limited
Director: ANZ Insage Pty Limited, ANZ Royal Bank (Cambodia)
Limited, ANZ Specialist Asset Management Limited, Tianjin City
Commercial Bank, AMMB Holdings Berhad, ANZ Business Equity
Fund Limited (Alternate Director)

Directorships
Director: ANZ Capital Hedging Pty Limited, ANZ (Delaware) Inc.,ANZ Holdings (New Zealand) Limited, Esanda Finance Corporation
Limited, ANZEST Pty Limited, ANZ Funds Pty Limited, ANZ
Investment Holdings Pty Limited, ANZ Investments Pty Limited, LFD
Limited, ANZ Orchard Investments Pty Limited, RFDL Pty Limited,
Ballimore Pty Limited, ANZ GPSC No.1 Pty Limited, NZ GPSC No.2
Pty Limited, NZ GPSC No.3 Pty Limited, NZ GPSC No.4 Pty Limited

Michael Roger Pearson Smith, OBE
BSc (Hons)
Chief Executive Officer
Australia and New Zealand Banking Group Limited
Melbourne, Australia
Directorships
Director: Australia and New Zealand Banking Group Limited

Independent Non-Executive Directors
Norman Michael Thomas Geary, CBE
B Com, FACA, FNZIM, FCIT
Company Director
Auckland, New Zealand

Dr Donald Thomas Brash
MA EconCompany Director
Auckland, New Zealand

Directorships
Director: Fisher & Paykel Appliances Holdings Limited,
Otago Innovation Limited, DB Breweries Limited

Directorships
Director: Brash Forestry Limited, Eljeans Orchard Limited, Huljich
Limited, Huljich (New Zealand) Limited, Huljich Wealth Management(New Zealand) Limited, Brash Consultancy Services Limited, Ocean
Group Holdings Limited, Ocean Partners Limited

Audit Committee Members as at 19 November 2008
N M T Geary (Chairman)
Independent Non-Executive Director
Sir Dryden Spring
Independent Non-Executive Director
Dr D T Brash
Independent Non-Executive Director
P R Marriott
Non-Executive Director
The Audit Committee, which is a sub-committee of the Board, has responsibility for reviewing and approving the published financial statements.
The Audit Committee Charter provides that the membership of the Audit Committee shall be not less than three non-executive Directors. The
quorum shall be not less than two non-executive Director members.

Auditors
KPMG
Chartered Accountants
10 Customhouse Quay
P O Box 996
Wellington, New ZealandP A G E

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CONDITIONS OF REGISTRATION

Conditions of Registration, applicable as at 19 November 2008.
The Bank’s Conditions of Registration were revised on 31 March 2008 and 16 June 2008 and 15 October 2008 in order to implement a new
set of capital adequacy conditions for banks that have adopted the internal models based approach to capital adequacy and to correct thedefinition of the Parent Bank capital ratios respectively. The conditions that were amended were conditions 1, 1A, 1B, 1C and 4. This has
resulted in changes to the Banking Group’s capital adequacy disclosures (refer to Note 31 Capital Adequacy). Condition 11 was also changed
on 27 June 2008 to exclude the outsourcing functions provided to the bank by Electronic Services Limited and Interchange and Settlement
Limited until 31 December 2008.
The registration of ANZ National Bank Limited (‘the Bank’) as a registered bank is subject to the following conditions:1.

That the Banking Group complies with the following requirements:(a) the total capital ratio of the Banking Group calculated in accordance with the Reserve Bank of New Zealand document “Capital
adequacy framework (internal models based approach)” (BS2B) dated March 2008 is not less than 8%;(b) the tier one capital ratio of the Banking Group calculated in accordance with the Reserve Bank of New Zealand document “Capital
adequacy framework (internal models based approach)” (BS2B) dated March 2008 is not less than 4%; and(c) the capital of the Banking Group calculated in accordance with the Reserve Bank of New Zealand document “Capital adequacy
framework (internal models based approach)” (BS2B) dated March 2008 is not less than $30 million.
For the purposes of this condition of registration the scalar referred to in the Reserve Bank of New Zealand document “Capital adequacy
framework (internal models based approach)” (BS2B) dated March 2008 is 1.06.
For the purposes of this condition of registration, the supervisory adjustment referred to in the Reserve Bank of New Zealand document“Capital adequacy framework (internal models based approach)” (BS2B) dated March 2008 is the sum of:(a) 15% of risk-weighted exposures secured by residential mortgages as defined in the Reserve Bank of New Zealand document “Capital
adequacy framework (internal models based approach)” (BS2B) dated March 2008; and(b) 12.5 times the greater of: zero; and 90% of adjusted Basel I capital, less adjusted Basel II capital; where(i) “adjusted Basel I capital” means 8% of total risk-weighted exposures, plus deductions from tier one capital, plus deductions fromtotal capital, all calculated in accordance with the Reserve Bank of New Zealand document “Capital adequacy framework (Basel I
approach)” (BS2) dated March 2008;(ii) “adjusted Basel II capital” means 8% of total Basel II risk-weighted exposures plus deductions from tier one capital, plus deductions
from total capital, less any amount included in tier two capital arising from the excess of eligible allowances for impairment overEL (expected losses), all calculated in accordance with the Reserve Bank of New Zealand document “Capital adequacy framework(internal models based approach)” (BS2B) dated March 2008; and(iii) “total Basel II risk-weighted exposures” means scalar x (risk-weighted on and off balance sheet credit exposures) + 12.5 x total
capital charge for market risk exposure + 12.5 x total capital requirement for operational risk + 15% of risk-weighted exposures
secured by residential mortgages as defined in the Reserve Bank of New Zealand document “Capital adequacy framework (internal
models based approach)” (BS2B) dated March 2008.

1A. That (a) the Bank has an internal capital adequacy assessment process (“ICAAP”); that with effect from 31 August 2008 the Bank’s ICAAP
accords with the requirements set out in the document “Guidelines on a Bank’s internal capital adequacy process (“ICAAP”)” (BS12)
dated December 2007;(b) under its ICAAP the Bank identifies and measures its “other material risks” defined as all material risks of the Banking Group that are
not explicitly captured in the calculation of tier one and total capital ratios under the requirements set out in the document “Capital
adequacy framework (internal models based approach)” (BS2B) dated March 2008; and(c) the Bank determines an internal capital allocation for each identified and measured “other material risk”.
1B. That the Banking Group complies with all requirements set out in the Reserve Bank of New Zealand document “Capital adequacy framework(internal models based approach)” (BS2B) dated March 2008.
1C. That the Bank complies with the following requirements:
The total capital ratio of the Bank is not less than 8 %.
The tier one capital ratio of the Bank is not less than 4%.
For the purposes of this condition of registration:•

the total capital ratio is defined as capital as a percentage of risk-weighted exposures where capital and risk-weighted exposures are
as defined in the Reserve Bank of New Zealand document “Capital adequacy framework (Basel I approach)” (BS2) dated March 2008;
and•the tier one capital ratio is defined as tier one capital as a percentage of risk-weighted exposures where tier one capital and riskweighted exposures are as defined in the Reserve Bank of New Zealand document “Capital adequacy framework (Basel I approach)”(BS2) dated March 2008.

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(CONTINUED)

2. That the Banking Group does not conduct any non-financial activities that in aggregate are material relative to its total activities, where
the term material is based on generally accepted accounting practice, as defined in the Financial Reporting Act 1993.
3. That the Banking Group’s insurance business is not greater than 1% of its total consolidated assets. For the purposes of this condition:(i) Insurance business means any business of the nature referred to in section 4 of the Insurance Companies (Ratings and Inspections)
Act 1994 (including those to which the Act is disapplied by sections 4(1)(a) and (b) and 9 of that Act), or any business of the naturereferred to in section 3(1) of the Life Insurance Act 1908;(ii) In measuring the size of the Banking Group’s insurance business:(a) where insurance business is conducted by any entity whose business predominantly consists of insurance business, the size of that
insurance business shall be:•

The total consolidated assets of the group headed by that entity;•

Or if the entity is a subsidiary of another entity whose business predominantly consists of insurance business, the total
consolidated assets of the group headed by the latter entity;(b) otherwise, the size of each insurance business conducted by any entity within the Banking Group shall equal the total liabilities
relating to that insurance business, plus the equity retained by the entity to meet the solvency or financial soundness needs of theinsurance business;(c) the amounts measured in relation to parts a) and b) shall be summed and compared to the total consolidated assets of the Banking
Group. All amounts in parts a) and b) shall relate to on balance sheet items only, and shall be determined in accordance withgenerally accepted accounting practice, as defined in the Financial Reporting Act 1993;(d) where products or assets of which an insurance business is comprised also contain a non-insurance component, the whole of suchproducts or assets shall be considered part of the insurance business.
4. That the aggregate credit exposures (of a non-capital nature and net of any allowances for impairment) of the Banking Group to all
connected persons do not exceed the rating-contingent limit outlined in the following matrix:
Credit Rating1

Connected exposure limit(% of the Banking Group’s Tier 1 capital)

AA/Aa2 and above

75

AA-/Aa3

70

A+/A1

60

A/A2

40

A-/A3

30

BBB+/Baa1 and below

15

1. This table uses the rating scales of Standard & Poor’s, Fitch Ratings and Moody’s Investors Service. (Fitch Ratings’ scale is identical to Standard & Poor’s.)

Within the rating-contingent limit, credit exposures (of a non-capital nature and net of any allowances for impairment) to non-bankconnected persons shall not exceed 15 percent of the Banking Group’s tier one capital.
For the purposes of this condition of registration, compliance with the rating-contingent connected exposure limit is determined inaccordance with the Reserve Bank of New Zealand document entitled ‘Connected exposures policy’ (BS8) dated March 2008.
5. That exposures to connected persons are not on more favourable terms (e.g. as relates to such matters as credit assessment, tenor, interest
rates, amortisation schedules and requirement for collateral) than corresponding exposures to non-connected persons.
6. That the board of the Bank contains at least two independent directors and that alternates for those directors, if any, are also independent.
In this context an independent director (or alternate) is a director (or alternate) who is not an employee of the Bank, and who is not a
director, trustee, or employee of any holding company (as that term is defined in section 5 of the Companies Act 1993) of the Bank, or any
other entity capable of controlling or significantly influencing the Bank.
7. That the chairperson of the Bank’s board is not an employee of the Bank.
8. That the Bank’s constitution does not include any provision permitting a director, when exercising powers or performing duties as a director,
to act other than in what he or she believes is the best interests of the company (i.e. the Bank).
9. That a substantial proportion of the Bank’s business is conducted in and from New Zealand.
10. That no appointment of any director, chief executive officer, or executive who reports or is accountable directly to the chief executive
officer, shall be made in respect of the Bank unless:P A G E

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(CONTINUED)(i) The Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee, and(ii) The Reserve Bank has advised that it has no objection to that appointment.
11. That the Bank has legal and practical ability to control and execute any business, and any functions relating to any business, of the Bank
that are carried on by a person other than the Bank, sufficient to achieve, under normal business conditions and in the event of stress or
failure of the Bank or of a service provider to the Bank, the following outcomes:(a) that the Bank’s clearing and settlement obligations due on a day can be met on that day;(b) that the Bank’s financial risk positions on a day can be identified on that day;(c) that the Bank’s financial risk positions can be monitored and managed on the day following any failure and on subsequent days; and(d) that the Bank’s existing customers can be given access to payments facilities on the day following any failure and on subsequent days.
For the purposes of this condition of registration, the term “legal and practical ability to control and execute” is explained in the Reserve
Bank of New Zealand document entitled ‘Outsourcing Policy’ (BS11) dated January 2006.
Until 31 December 2008, functions provided to the Bank by Electronic Transaction Services Limited and Interchange and Settlement
Limited are not covered by this condition.
12. (a) That the business and affairs of the Bank are managed by, or under the direction and supervision of, the board of the Bank.
(b) That the employment contract of the chief executive officer of the Bank or person in an equivalent position (together “CEO”) is with
the Bank, and the terms and conditions of the CEO’s employment agreement are determined by, and any decision relating to theemployment or termination of employment of the CEO are made by, the board of the Bank.
(c) That all staff employed by the Bank shall have their remuneration determined by (or under the delegated authority of) the board or
the CEO of the Bank and be accountable (directly or indirectly) to the CEO of the Bank.
For the purposes of these conditions of registration, the term ‘Banking Group’ means ANZ National Bank Limited’s financial reporting group(as defined in section 2(1) of the Financial Reporting Act 1993).

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CREDIT RATING INFORM ATIONP A G E

Credit Ratings applicable as at 19 November 2008
The Bank has three current credit ratings, which are applicable to its long-term senior unsecured obligations which are payable in New Zealandin New Zealand dollars. The credit ratings are:Standard & Poor’s

AA

Moody’s Investors Service

Aa2

Fitch RatingsAA-

The Standard & Poor’s rating was issued on 22 February 2007. On this date Standard & Poor’s revised the Bank’s rating to AA from AA-.
There have been no other changes in the credit rating issued in the past two years ended 30 September 2008. The rating is not subject to any
qualifications.
The Moody’s Investors Service was issued on 4 May 2007. On this date Moody’s Investors Service revised the Bank’s rating to Aa2 from Aa3.
There have been no other changes in the credit rating issued in the past two years ended 30 September 2008. The rating is not subject to any
qualifications.
Fitch Ratings was formally engaged by the Bank on 18 March 2008 to provide credit rating services. Previously Fitch Ratings had rated the Bankon an unsolicited basis as AA- and this rating was last affirmed on 26 October 2007. The rating is not subject to any qualifications.
Standard &Poor’sMoody’s
Investors
Service

Fitch Ratings

Ability to repay principal and interest is extremely strong. This is the highest
investment category.

AAA

Aaa

AAA

The following grades display investment grade characteristics:

Very strong ability to repay principal and interest.

AA

Aa

AA

Strong ability to repay principal and interest although somewhat susceptible to adversechanges in economic, business or financial conditions.

A

A

A

Adequate ability to repay principal and interest. More vulnerable to adverse changes.

BBB

Baa

BBB

Significant uncertainties exist which could affect the payment of principal and interest
on a timely basis.

BB

Ba

BB

Greater vulnerability and therefore greater likelihood of default.

B

B

BB

Likelihood of default now considered high. Timely repayment of principal and interest isdependent on favourable financial conditions.

CCC

Caa

CCC

CC to CCa to CCC to CD-

RD & DThe following grades have predominantly speculative characteristics:

Highest risk of default.
Obligations currently in default.

Credit ratings from Standard & Poor’s and Fitch Ratings may be modified by the addition of “+” or “-” to show the relative standing withinthe ‘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.

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DIRECTORS’ STATEMENTD I R E C TO R S ’ S TAT E M E N T

As at the date on which this Disclosure Statement is signed, after due enquiry, each Director believes that:(i) The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statement (Full and Half-Year New Zealand Incorporated Registered Banks) Order 2008;(ii) The Disclosure Statement is not false or misleading.
Over the year ended 30 September 2008, after due enquiry, each Director believes that:(i) ANZ National Bank Limited has complied with the Conditions of Registration;(ii) Credit exposures to connected persons were not contrary to the interests of the Banking Group;(iii) ANZ National Bank Limited had systems in place to monitor and control adequately the Banking Group’s material risks, including credit
risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk, operational risk and other business risks, and thatthose systems were being properly applied.
This General Disclosure Statement is dated, and has been signed by or on behalf of all Directors of the Bank on, 19 November 2008.
On that date, the Directors of the Bank were:

Dr D T Brash

Dr R J Edgar

N M T Geary, CBE

G K Hodges

P R Marriott

M R P Smith, OBE

Sir Dryden Spring

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INDEPENDENT audit REPORT
for the year ended 30 september 2008

I ndependent audit R eport to t h e s h are h older o f A N Z N ational B ank L imited

We have audited the financial statements on pages 4 to 110 prepared and disclosed in accordance with Clause 22 of the Registered Bank DisclosureStatement (Full and Half-Year – New Zealand Incorporated Registered Banks) Order 2008 (the ‘Order’) and the supplementary information prescribedin Schedules 3 to 9 of the Order. The financial statements, and supplementary information, provide information about the past financial performanceand cash flows of ANZ National Bank Limited (the ‘Bank’) and its subsidiary companies (the ‘Banking Group’) and their financial position as at 30
September 2008. This information is stated in accordance with the accounting policies set out on pages 10 to 21.
D irectors ’ responsibilities	

The Directors of ANZ National Bank Limited are responsible for the preparation and presentation of financial statements which give a trueand fair view of the financial position of the Bank and Banking Group as at 30 September 2008 and their financial performance and cash
flows for the year ended on that date.
They are also responsible for the preparation of supplementary information which gives a fair view, in accordance with the Order, of thematters to which it relates; and complies with Schedules 3 to 9 of the Order.
A uditors ’ responsibilities

It is our responsibility to express an independent opinion on the financial statements, including the supplementary information disclosed inaccordance with Schedules 4, 6 to 9, and Clause 17 of Schedule 3 of the Order presented to us by the Directors and report our opinion to
you in accordance with Clause 19 of the Order.
It is also our responsibility to express an independent opinion on the supplementary information as required by Schedule 5B of the Orderin order to state whether, on the basis of the procedures described below, anything has come to our attention that would indicate that the
information disclosed in accordance with Schedule 5B is not in all material respects prepared in accordance with the Bank’s Conditions ofRegistration and with the Bank’s internal models for credit risk and operational risk as accredited by the Reserve Bank of New Zealand anddisclosed in accordance with Schedule 5B and for reporting our findings to you.
B asis o f audit opinion

An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing:• the significant estimates and judgments made by the Directors in the preparation of the financial statements and supplementary information; and• whether the accounting policies are appropriate to the Bank’s and Banking Group’s circumstances, consistently applied and adequately disclosed.
We conducted our audit in accordance with New Zealand Auditing Standards. We planned and performed our audit so as to obtain all theinformation and explanations which we considered necessary in order to provide us with sufficient evidence to obtain reasonable assurance
that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluatedthe overall adequacy of the presentation of information in the financial statements.
Our firm has also provided other services to the Bank and Banking Group in relation to other audit related services. Partners and employees ofour firm may also deal with the Bank and Banking Group on normal terms within the ordinary course of trading activities of the business of the
Bank and Banking Group. There are, however, certain restrictions on borrowings which the partners and employees of our firm can have with
the Bank and Banking Group. These matters have not impaired our independence as auditors of the Bank and Banking Group. The firm has noother relationship with, or interest in, the Bank and Banking Group.
U n q uali f ied O pinion

We have obtained all the information and explanations we have required.
In our opinion:		
• proper accounting records have been kept by the Bank and Banking Group as far as appears from our examination of those records;• the financial statements on pages 4 to 110 (excluding the supplementary information included in Notes 31, 33, 34 and 41):• comply with New Zealand generally accepted accounting practice; and• give a true and fair view of the balance sheets of the Bank and Banking Group as at 30 September 2008 and the results of their operations
and cash flows for the year ended on that date;• the supplementary information disclosed in Notes 33, 34 and 41 prescribed by Schedules 4, 6 to 9 and Clause 17 of Schedule 3 of the Order isfairly stated in accordance with those Schedules;
Further, nothing has come to our attention that:		
• the supplementary information disclosed in Note 31 relating to Capital Adequacy as required by Schedule 5B of the Order, derived from theBank’s financial statements and sources other than the Banks’ accounting records, is not in all material respects derived in accordance with
the Bank’s Conditions of Registration, with the Reserve Bank of New Zealand document Capital Adequacy Framework (Internal Models BasedApproach) (BS2B), and with the Bank’s internal models for credit risk and operational risk as accredited by the Reserve Bank of New Zealand,and disclosed in accordance with Schedule 5B of the Order.
Our review was completed on 19 November 2008 and our unqualified opinion is expressed as at that date.

Wellington

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INDE X

General Disclosures2

24. Deferred Tax Liabilities

42

Summary of Financial Statements

4

25. Provisions

43

Income Statements

5

26. Bonds and Notes

44

Statements of Recognised Income and Expense

6

27. Due to Parent Company

45

Balance Sheets

7

28. Loan Capital

46

Cash Flow Statements

8

29. Ordinary Share Capital

47

1.

Accounting Policies

10

30. Reserves and Retained Earnings

48

2.

Critical Estimates and Judgements Used in
Applying Accounting Policies

31. Capital Adequacy

49

22

32. Financial Risk Management

59

3.

Risk Management Policies

25

33. Concentrations of Credit Risk

83

4.

Income27

34. Market Risk

85

5.

Expenses

28

6.

Income Tax Expense

29

35. Interest Earning and Discount Bearing
Assets and Liabilities

85

7.

Liquid Assets

30

8.

Due from Other Financial Institutions

30

36. Fair Value of Financial Assets andFinancial Liabilities

86

37. Segmental Analysis

92

38. Notes to the Cash Flow Statements

95

39. Controlled Entities, Associates and Interests
in Jointly Controlled Entities

96

40. Parent Company and Ultimate Parent Company

98

99

9.

Trading Securities

30

10. Discontinued Operations30

11. Derivative Financial Instruments

31

12. Available-For-Sale Assets

35

13. Net Loans and Advances

35

14. Impaired Assets, Past Due Assets andOther Assets Under Administration

36

41. Securitisation, Funds Management, Other
Fiduciary Activities and the Marketing andDistribution of Insurance Products

15. Provision for Credit Impairment

37

42. Commitments

101

38

43. Contingent Liabilities and Credit
Related Commitments

101

17. Other Assets

39

44. Employee Share and Option Plans

103

18. Deferred Tax Assets

39

45. Retirement Benefit Obligations

106

19. Premises and Equipment

40

46. Related Party Transactions

108

20. Goodwill and Other Intangible Assets

40

47. Subsequent Events110

21. Due to Other Financial Institutions

41

Directorate and Auditors

111

22. Deposits and Other Borrowings

41

Conditions of Registration

113

23. Payables and Other Liabilities

42

Credit Rating Information

116

Directors’ Statement

117

Independent Audit Report

118

16. Shares in Controlled Entities, Associates andJointly Controlled Entities

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