ANZ BANK NEW ZEALAND LIMITEDANNUAL REPORT AND REGISTERED BANK DISCLOSURE STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2021
NUMBER 96 | ISSUED NOVEMBER 2021

CONTENTS
Annual Report and Glossary of terms

2

DISCLOSURE STATEMENT
Financial Statements
Consolidated financial statements
Notes to the financial statements
Registered Bank Disclosures
Directors’ Statement

3
4
8
70
105
106

Independent Auditor’s Report

ANNUAL REPORTFOR THE YEAR ENDED 30 SEPTEMBER 2021
Pursuant to section 211(3) of the Companies Act 1993, the shareholder of the Bank has agreed that the Annual Report of the Banking
Group need not comply with any of the paragraphs (a), and (e) to (j) of subsection (1) and subsection (2) of section 211.
Accordingly, there is no information to be provided in this Annual Report other than the financial statements for the year ended 30
September 2021 and the audit report on those financial statements.
For and on behalf of the Board of Directors:

Rt Hon Sir John Key, GNZM AC
Chair
10 November 2021

Antonia Watson
Executive Director
10 November 2021

GLOSSARY OF TERMS
In this Registered Bank Disclosure Statement (Disclosure Statement) unless the context otherwise requires:
Bank means ANZ Bank New Zealand Limited.
Banking Group, We or Our means the Bank and all its controlled entities.
Immediate Parent Company means ANZ Holdings (New Zealand) Limited.
Ultimate Parent Bank means Australia and New Zealand Banking Group Limited.
Overseas Banking Group means the worldwide operations of Australia and New Zealand Banking Group Limited including its controlled
entities.
New Zealand business means all business, operations, or undertakings conducted in or from New Zealand identified and treated as if itwere conducted by a company formed and registered in New Zealand.
NZ Branch means the New Zealand business of the Ultimate Parent Bank.
ANZ New Zealand means the New Zealand business of the Overseas Banking Group.
Registered Office is Ground Floor, ANZ Centre, 23-29 Albert Street, Auckland, New Zealand, which is also the Banking Group’s address forservice.
RBNZ means the Reserve Bank of New Zealand.
APRA means the Australian Prudential Regulation Authority.
the Order means the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014.
Any term or expression which is defined in, or in the manner prescribed by, the Order shall have the meaning given in or prescribed by
the Order.

2

FINANCIAL
STATEMENTS
Financial statements
Income statement

4Statement of comprehensive income

4

Balance sheet

5

Cash flow statement

6

Statement of changes in equity

7

Notes to the financial statements
Basis of preparation
1. About our financial statements

Non-financial assets
8

Financial performance

19. Goodwill and other intangible assets

54

Non-financial liabilities

2. Operating income

12

3. Operating expenses

14

4. Income tax

15

Equity5. Dividends

16

21. Shareholders' equity

59

6. Segment reporting16

22. Capital management

60

Financial assets

20. Other provisions

57

Consolidation and presentation

7. Cash and cash equivalents

18

23. Controlled entities

61

8. Trading securities

19

24. Structured entities

62

9. Derivative financial instruments

20

25. Transfers of financial assets

64

10. Investment securities

25

11. Net loans and advances

26

Other disclosures

12. Allowance for expected credit losses

27

26. Related party disclosures

65

27. Commitments and contingent liabilities

67

28. Compensation of auditors

69

Financial liabilities
13. Deposits and other borrowings

33

14. Debt issuances

34

Financial instrument disclosures
15. Financial risk management36

16. Fair value of financial assets and financial liabilities

49

17. Assets charged as security for liabilities

52

and collateral accepted as security for assets
18. Offsetting

53

3

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTFINANCIAL STATEMENTS
INCOME STATEMENT
For the year ended 30 September

NoteInterest income
Interest expense

2021
NZ$m

2020
NZ$m

4,600
(1,176)5,568(2,306)

Net interest income

2

3,424

3,262

Other operating income

2

765

807

4,189

4,069

3

(1,621)(1,752)

2,568

2,317

Operating income
Operating expenses
Profit before credit impairment and income tax
Credit impairment release / (charge)

12

Profit before income tax

114

(403)

2,682

1,914

(743)

(541)

1,939

1,373

For the year ended 30 September

2021
NZ$m

2020
NZ$m

Profit for the year

1,939

1,373

56

(6)

Unrealised gains / (losses) recognised directly in equity

(75)

122

Realised losses transferred to the income statement

8

12Income tax attributable to the above items

3

(36)

Income tax expense
Profit for the year

4

STATEMENT OF COMPREHENSIVE INCOME

Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Actuarial gain / (loss) on defined benefit schemes
Items that may be reclassified subsequently to profit or loss
Reserve movements:

Other comprehensive income after tax
Total comprehensive income for the year

The notes appearing on pages 8 to 69 form an integral part of these financial statements

4

(8)

92

1,931

1,465

FINANCIAL STATEMENTS

BALANCE SHEETAs at 30 September
AssetsCash and cash equivalents

Note

2021
NZ$m

2020
NZ$m

7

7,844

8,248

Settlement balances receivable

237

378

Collateral paid

537

1,394

Trading securities

8

9,585

12,797

Derivative financial instruments

9

9,304

9,702

Investment securities

10

11,926

9,893

Net loans and advances

11

140,756

132,698

Deferred tax assets

4

390

327

Goodwill and other intangible assets

19

3,091

3,092

Premises and equipment

509

590

Other assets

590

625

184,769

179,744

2,704

2,950

738

1,275

Total assets
Liabilities
Settlement balances payable
Collateral received
Deposits and other borrowings

13

133,139

125,061

Derivative financial instruments

9

7,727

8,252

Current tax liabilities
Payables and other liabilities
Employee entitlements

170

251

1,464

1,115

138

143

Other provisions

20

295

389

Debt issuances

14

21,502

24,439Total liabilities

167,877

163,875

Net assets

16,892

15,86911,888

11,888EquityShare capital

21

70

118

Retained earnings

4,934

3,863

Total equity

16,892

15,869Reserves

For and on behalf of the Board of Directors:

Rt Hon Sir John Key, GNZM AC
Chair
10 November 2021

Antonia Watson
Executive Director
10 November 2021

The notes appearing on pages 8 to 69 form an integral part of these financial statements

5

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTFINANCIAL STATEMENTS
CASH FLOW STATEMENT
For the year ended 30 September

2021
NZ$m

2020
NZ$m

Profit after income tax

1,939

1,373

Adjustments to reconcile to net cash flows from operating activities:
Depreciation and amortisation

124

158

Loss on sale and impairment of premises and equipment

7

5

Goodwill impairment

-

28

(940)

(1,044)

-

(533)

151

20

Net derivatives/foreign exchange adjustment
Proceeds from divestments net of intangibles disposed of, classified as investing activities
Other non-cash movements
Net (increase)/decrease in operating assets:
Collateral paid

857

930

Trading securities

3,212(3,855)Net loans and advances(8,058)

(173)

113

(372)

Deposits and other borrowings (excluding items included in financing activities)

6,778

11,634

Settlement balances payable

(246)

1,343

Collateral received

(537)

284

Other liabilities

205

(112)

1,666

8,313

3,605

9,686

Purchases(5,528)(5,569)Proceeds from sale or maturity

2,833

2,790

-

659

Other assets
Net increase/(decrease) in operating liabilities:

Total adjustments
Net cash flows from operating activities

1

Cash flows from investing activities
Investment securities:

Proceeds from divestments
Other assets
Net cash flows from investing activities

(39)

(64)

(2,734)(2,184)

1,300-

Cash flows from financing activities
Deposits and other borrowings2
Debt issuances3
Issue proceeds

3,278

2,327

Redemptions(4,899)(3,885)

Repayment of lease liabilities

(46)

(50)

Dividends paid

(908)

(9)

Net cash flows from financing activities(1,275)(1,617)

Net change in cash and cash equivalents

(404)

5,885

Cash and cash equivalents at beginning of year

8,248

2,363

Cash and cash equivalents at end of year

7,844

8,248

1
2
3

Net cash provided by operating activities includes income taxes paid of NZ$884 million (2020: NZ$691 million).
Movement in deposits and other borrowings includes repurchase transactions entered into with the RBNZ under the Funding for Lending Programme of NZ$1,000 million and the Term
Lending Facility of NZ$300 million.
Movement in debt issuances (Note 14 Debt Issuances) also includes an NZ$958 million decrease (2020: NZ$557 million decrease) from the effect of foreign exchange rates, a NZ$398 million
decrease (2020: NZ$286 million increase) from changes in fair value hedging instruments and a NZ$40 million increase (2020: NZ$61 million increase) from other changes.

The notes appearing on pages 8 to 69 form an integral part of these financial statements

6

FINANCIAL STATEMENTS

STATEMENT OF CHANGES IN EQUITY

NoteInvestment
securities
Share revaluation
capitalreserve
NZ$m
NZ$m

Cash flow
hedging
reserve
NZ$m

Retainedearnings
NZ$m

Total
equity
NZ$m

As at 1 October 2019
Impact on transition to NZ IFRS 16 Leases

11,888

(6)

27

2,521

14,430

-

-

-

(17)

(17)

As at 1 October 2019 (adjusted)

11,888

(6)

27

2,504

14,413

Profit or loss

-

-

-

1,373

1,373

Unrealised gains recognised directly in equity

-

19

103

-

122

Realised losses transferred to the income statement

-

-

12

-

12

Actuarial loss on defined benefit schemes

-

-

-

(6)

(6)

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

-

(5)

(32)

1

(36)

Total comprehensive income for the year

-

14

83

1,368

1,465

-

-

-

(9)

(9)

-

-

-

(9)

(9)

As at 30 September 2020

11,888

8

110

3,863

15,869As at 1 October 2020

11,888

8

110

3,863

15,869Transactions with Immediate Parent Company in its capacity as owner:
Preference dividends paid

21

Transactions with Immediate Parent Company in its capacity as owner

Profit or loss

-

-

-

1,939

1,939

Unrealised gains / (losses) recognised directly in equity

-

77

(152)

-

(75)

Realised losses / (gains) transferred to the income statement

-

(2)

10

-

8

Actuarial gain on defined benefit schemes

-

-

-

56

56

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

-

(21)

40

(16)

3

Total comprehensive income for the year

-

54

(102)

1,979

1,931

Transactions with Immediate Parent Company in its capacity as owner:
Ordinary dividends paid

5

-

-

-

(900)

(900)

Preference dividends paid

21

-

-

-

(8)

(8)

Transactions with Immediate Parent Company in its capacity as owner
As at 30 September 2021

-

-

-

(908)

(908)

11,888

62

8

4,934

16,892The notes appearing on pages 8 to 69 form an integral part of these financial statements

7

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
1.

ABOUT OUR FINANCIAL STATEMENTS

These are the financial statements for ANZ Bank New Zealand Limited (the Bank) and its controlled entities (together, the ‘Banking Group’) for the year
ended 30 September 2021. The Bank is incorporated and domiciled in New Zealand. The address of the Bank’s registered office and its principal placeof business is ANZ Centre, 23-29 Albert Street, Auckland, New Zealand.
On 10 November 2021, the Directors resolved to authorise the issue of these financial statements.
Information in the financial statements is included only to the extent we consider it material and relevant to the understanding of the financial
statements. A disclosure is considered material and relevant if, for example:• the amount is significant in size (quantitative factor);• the information is significant by nature (qualitative factor);• the user cannot understand the Banking Group’s results without the specific disclosure (qualitative factor);• the information is critical to a user’s understanding of the impact of significant changes in the Banking Group’s business during the period – forexample: business acquisitions or disposals (qualitative factor);• the information relates to an aspect of the Banking Group’s operations that is important to its future performance (qualitative factor); or• the information is required under legislative requirements of the Financial Markets Conduct Act 2013 or by the Banking Group’s principal
regulator, RBNZ.
This section of the financial statements:• outlines the basis upon which the Banking Group’s financial statements have been prepared; and• discusses any new accounting standards or regulations that directly impact the financial statements.

BASIS OF PREPARATION
These financial statements are general purpose (Tier 1) financial statements prepared by a ‘for profit’ entity, in accordance with the requirements of
the Financial Markets Conduct Act 2013. These financial statements comply with:• New Zealand Generally Accepted Accounting Practice (NZ GAAP), as defined in the Financial Reporting Act 2013;• New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards, as
appropriate for publicly accountable for-profit entities; and• International Financial Reporting Standards (IFRS).
We present the financial statements of the Banking Group in New Zealand dollars, which is the Banking Group’s functional and presentation currency.
We have rounded values to the nearest million dollars (NZ$m), unless otherwise stated.

BASIS OF MEASUREMENT
We have prepared the financial information in accordance with the historical cost basis - except for the following assets and liabilities which we havestated at their fair value:• derivative financial instruments;• financial instruments measured at fair value through other comprehensive income; and• financial instruments measured at fair value through profit and loss.

BASIS OF CONSOLIDATIONThe consolidated financial statements of the Banking Group comprise the financial statements of the Bank and all its subsidiaries. An entity, including
a structured entity, is considered a subsidiary of the Banking Group when we determine that the Banking Group has control over the entity. Control
exists when the Banking Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power over the entity. We assess power by examining existing rights that give the Banking Group the current ability to direct therelevant activities of the entity. We have eliminated, on consolidation, the effect of all transactions between entities in the Banking Group.

FOREIGN CURRENCY TRANSLATION
TRANSACTIONS AND BALANCES
Foreign currency transactions are translated into the relevant functional currency at the exchange rate prevailing at the date of the transaction. At thereporting date, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the relevant spot rate.
Any foreign currency translation gains or losses that arise are included in profit or loss in the period they arise.
We measure translation differences on non-monetary items at fair value through profit or loss and report them as part of the fair value gain or loss onthese items. For non-monetary items classified as investment securities measured at fair value through other comprehensive income, translationdifferences are included in the investment securities revaluation reserve in equity.

FIDUCIARY ACTIVITIESThe Banking Group provides fiduciary services to third parties including custody, nominee and trustee services. This involves the Banking Groupholding assets on behalf of third parties and making decisions regarding the purchase and sale of financial instruments. If the Banking Group is not thebeneficial owner or does not control the assets, then we do not recognise these transactions in these financial statements, except when required byaccounting standards or another legislative requirement.

8

NOTES TO THE FINANCIAL STATEMENTS

1.

ABOUT OUR FINANCIAL STATEMENTS (continued)

KEY JUDGEMENTS AND ESTIMATES
In the process of applying the Banking Group’s accounting policies, management has made a number of judgements and applied
estimates and assumptions about past and future events. Further information on the key judgements and estimates that we consider
material to the financial statements are contained within each relevant note to the financial statements.
Coronavirus (COVID-19) pandemic
The COVID-19 pandemic and its ongoing effects on the global economy have continued to impact our customers, operations andthe Banking Group‘s performance. Governments have responded at unprecedented levels to protect the health of the population,
local economies and livelihoods. The course of the pandemic and vaccination levels have varied across the globe and government
responses have differed in their extent and timing. Economies are reopening at different rates whilst the risk of subsequent waves ofinfection remain. Thus there remains an elevated level of estimation uncertainty involved in the preparation of these financial
statements including:•the extent and duration of the disruption to business arising from the actions of governments, businesses and consumers in theongoing management of the virus;• the impact and expected response of the economy (and forecasts of key economic factors including GDP, employment andhouse prices). This includes the response of capital markets, and the impacts on credit quality, liquidity, unemployment,
consumer spending, as well as specific sector impacts; and• the efficacy of vaccines against variants of the virus, and the effectiveness of government and central bank measures to support
businesses and consumers through this disruption.
The Banking Group has made various accounting estimates in these financial statements based on forecasts of economic conditions whichreflect expectations and assumptions as at 30 September 2021 about future events that the Directors believe are reasonable in thecircumstances. There is a considerable degree of judgement involved in preparing these estimates. The underlying assumptions are also
subject to uncertainties which are outside the control of the Banking Group. Accordingly, actual economic conditions are likely to bedifferent from those forecast since anticipated events frequently do not occur as expected, and the effect of those differences may
significantly impact accounting estimates included in these financial statements.
The significant accounting estimates impacted by these forecasts and associated uncertainties are predominantly related to expectedcredit losses and recoverable amounts of non-financial assets.
The impact of the COVID-19 pandemic on each of these estimates is discussed further in the relevant note of these financial statements.
Readers should carefully consider these disclosures in light of the inherent uncertainty described above.

ACCOUNTING STANDARDS ADOPTED IN THE PERIODINTEREST RATE BENCHMARK REFORM
Interbank offered rates (IBORs), such as the London Interbank Offered Rate (LIBOR), have played a critical role in global financial markets, serving as
reference rates for derivatives, loans and securities, and in the valuation of financial instruments. Uncertainty surrounding the integrity of IBOR rates
has led regulators and industry to transition away from IBOR to alternative risk-free benchmark reference rates (RFRs).
As had been anticipated, in March 2021 the UK Financial Conduct Authority announced the dates on which IBORs will cease, after which
representative IBOR rates will no longer be available. The cessation of the majority of IBOR rates will occur on 31 December 2021, notably for the
Pound Sterling (GBP), Euro (EUR), Swiss Franc (CHF) and Japanese Yen (JPY) settings in their entirety, and the US Dollar (USD) 1-week and 2-month
LIBOR settings. The Banking Group has ceased issuing new products referencing these rates. Other USD LIBOR settings will cease by 30 June 2023.
The Banking Group has exposure to IBORs through its loan and derivative transactions with customers, issuance of debt and its asset and liability
management activities.
Other significant interest rate benchmarks applicable to the Banking Group’s banking activities with customers and our own risk management
activities include the Euro Interbank Offered Rate (Euribor), the AUD Bank Bill Swap Rate (BBSW) and the NZ Bank Bill Market Rate (BKBM). These are notimpacted by IBOR reform and these benchmark rates are expected to remain for the foreseeable future.
Banking Group approach to interest rate benchmark reform
The development of new RFR products and the migration of the Banking Group’s existing contracts that reference IBORs to RFRs exposes the Banking
Group to financial, compliance, legal and operational risks. The Banking Group is managing the transition to RFRs and these risks through a Benchmark
Transition Programme (the Programme), which is overseen by a formal Steering Committee of senior executives.
The IBOR reforms have a wide-ranging impact for the Banking Group and our customers, given the fundamental differences between IBORs and RFRs.
RFRs are available both as backward-looking in arrears rates and, for some currencies, as forward-looking term rates. The key difference between IBORs
and RFRs is that IBOR rates include a term and bank credit risk premium, whereas RFRs do not. As a result of these differences, adjustments are
required to an RFR to ensure contracts referencing an IBOR rate, transition on an economically comparable basis.

9

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
1.

ABOUT OUR FINANCIAL STATEMENTS (continued)

The Programme includes the identification of impacted IBOR contracts across the Banking Group, actions necessary to develop product capability andtransition existing contracts to RFRs. This includes the assessment and mitigation of financial, legal and conduct risks arising from changes to pricing
and valuation (largely interest rate risk), compliance risks arising from any potential non-compliance with relevant regulatory requirements, legal risks
arising from changes to customer contracts, and operational risks including changes to IT systems, controls and reporting infrastructure. In
undertaking these changes, the Banking Group is actively engaging RBNZ in respect of our IBOR transition readiness.
To date, the Banking Group has commenced transitioning existing IBOR derivative trades to reference RFR benchmark rates and has establishedprocesses to offer loans referencing RFR benchmark rates. The Banking Group continues to extend and deliver its RFR product suite and pricing
options to be able support our customers in line with regulatory best practice guidelines.
The Programme also includes the management of the impact on customers. The Banking Group is well-progressed in ensuring all customer transition
plans are finalised ahead of IBOR cessation dates, with the significant majority of our derivative counterparties with exposures referencing IBORs
agreeing to amend existing contracts by adhering to the industry developed ISDA 2020 IBOR Fallbacks Protocol (ISDA Protocol) to facilitate astandardised and orderly transition to RFRs. The Banking Group has also adhered to the ISDA Protocol.
In relation to our loan and transaction banking customers, the Banking Group has commenced a proactive outreach programme to ensure an orderly
and well-managed migration to RFRs. The Banking Group’s customer arrangements reference USD LIBOR, which will continue to be published for themost widely used settings until 30 June 2023.
Changes to accounting standards
In 2018, given the uncertainty with regards to the longer term viability of IBORs, the International Accounting Standards Board (IASB) commenced areview of the financial reporting implications of the reforms, given the significant potential consequences for financial instrument accounting.
In November 2019, the External Reporting Board (XRB) issued XRB amending standard Interest Rate Benchmark Reform, which amended certain existinghedge accounting requirements to provide relief from potential effects of the uncertainty caused by the interest rate benchmark reform. The Banking
Group elected to early adopt the amendments from 1 October 2019, which have not had a significant impact on the Banking Group.
In September 2020, the XRB issued Interest Rate Benchmark Reform - Phase 2 (the Standard), which the Banking Group early adopted from 1 April 2021.
This Standard addresses issues that may affect the Banking Group at the point of transition from an existing IBOR to a RFR, including the effects ofchanges to contractual cash flows or hedging relationships. The Standard includes amendments in respect of:•••Modification of a financial asset or a financial liability measured at amortised cost: IBOR reform is expected to result in a change to the basis fordetermining contractual cash flows of impacted assets and liabilities of the Banking Group. The Standard provides a practical expedient toaccount for a change in the basis for determining the contractual cash flows by updating the effective interest rate. As a result, no immediate
gain or loss is recognised. This applies only when the change is a direct consequence of IBOR reform, and the new basis for determining thecontractual cash flows is economically equivalent to the previous basis;
Additional relief for hedging relationships: the Standard amends a number of existing hedge accounting requirements such that the Banking
Group will not have to discontinue any hedge accounting relationships solely because of changes made because of the reform if all other hedge
accounting criteria are met; andAdditional disclosure requirements: the Standard amended NZ IFRS 7 Financial Instruments: Disclosures, which requires additional qualitative andquantitative disclosures in relation to the impact of IBOR reforms on the Banking Group. These disclosures are contained within this note.

Financial impacts of IBOR reform
The following sets out the Banking Group’s impact assessment in relation to IBOR reforms as at 30 September 2021:
i) Impact for the year ended 30 September 2021
For the year ended 30 September 2021, the net impact of the reforms recognised in the Banking Group’s net profit after tax is not material. The
impacts recognised in the current year include:a) changes in the fair values of certain derivative financial instruments for which it is known at balance sheet date – as a result of regulatory
pronouncements confirming IBOR cessation – that the fair valuation will incorporate a change to an RFR at a future date; andb) revenue from a small number of customers in the Institutional segment who have transitioned to derivative contracts referencing an RFR by 30
September.

10

NOTES TO THE FINANCIAL STATEMENTS

1.

ABOUT OUR FINANCIAL STATEMENTS (continued)ii) Exposures subject to benchmark reform as at 30 September 2021
The table below shows the Banking Group’s exposures to interest rate benchmarks subject to IBOR reform. These are financial instruments that
contractually reference an IBOR benchmark planned to transition to an RFR, and have a contractual maturity date beyond the planned IBOR
cessation date.
Financial instruments yet totransition to RFRs
US dollar LIBOR
Others1
As at 30 September 2021
NZ$m
NZ$m
3
Derivative asset (notional value)
62,3482,237
Derivative liability (notional value)3
40,847808
Loan commitments2,4
198
1
2
3
4

Comprises financial instruments referencing other significant benchmark rates subject to cessation yet to transition to alternative benchmarks.
Excludes Expected Credit Losses (ECL).
For cross-currency swaps, where both the receive and pay legs are in currencies subject to reform, the Banking Group discloses the New Zealand dollar-equivalent notional amounts for both. Where
one leg of a swap is subject to reform, the Banking Group discloses the notional amount of the receive leg.
For multi-currency IBOR referenced facilities, the undrawn balance has been allocated to the base currency of the facility. In the event the base currency interest rate is not subject to cessation, but
can be drawn in a currency subject to cessation, the allocation is based on most likely currency of drawdown.

iii) Hedge accounting exposures subject to IBOR reform
The Banking Group has hedge-accounted relationships referencing IBORs, with the most significant being US dollar LIBOR, primarily due to the
Banking Group’s fixed rate debt issuances denominated in US dollars that are designated in fair value hedge accounting relationships.
The table below details the carrying values of the Banking Group's US dollar exposures designated in hedge accounting relationships referencing
LIBOR that will be impacted by reform The nominal value of the associated hedging instruments is also included:
As at 30 September 2021
US dollar LIBOR exposures
Hedged items
NZ$m
Debt issuances
7,458
Notional designated up to
Notional designated30 June 2023
beyond 30 June 2023
Total notional amountHedging Instruments
NZ$m
NZ$m
NZ$m
Fair value hedges
2,109
5,162
7,271
As at 30 September 2021, the Banking Group also has Swiss franc exposures designated in hedge accounting relationships of NZ$973 million
subject to IBOR reform.
Other hedge accounting relationships referencing the Euribor, BBSW and BKBM are not impacted by IBOR reform as these benchmark rates are
expected to remain for the foreseeable future.
iv) Future development
As the most widely referenced US dollar LIBOR benchmark tenors will continue to be published up to 30 June 2023, the Banking Group’s transition
programme supporting our customers and the Banking Group’s own risk management activities will continue beyond 2021.
REVISED CONCEPTUAL FRAMEWORKOn 1 October 2020, the Banking Group adopted New Zealand Equivalent to the IASB Conceptual Framework for Financial Reporting (2018 Conceptual
Framework). The new framework includes updated definitions and criteria for the recognition and derecognition of assets and liabilities. Additionally, it
introduces new concepts on measurement, including factors to consider when selecting a measurement basis. The adoption of the conceptual
framework did not have a material impact on the Banking Group.

11

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
1.

ABOUT OUR FINANCIAL STATEMENTS (continued)

ACCOUNTING STANDARDS NOT EARLY ADOPTED
A number of new standards, amendments to standards and interpretations have been published but are not mandatory for the financial statements
for the year ended 30 September 2021, and have not been applied by the Banking Group in preparing these financial statements. Further details ofthese are set out below.
GENERAL HEDGE ACCOUNTINGNZ IFRS 9 Financial Instruments (NZ IFRS 9) introduces new hedge accounting requirements which more closely align accounting with risk
management activities undertaken when hedging both financial and non-financial risks. NZ IFRS 9 provides the Banking Group with an accounting
policy choice to continue to apply the NZ IAS 39 Financial Instruments: Recognition and Measurement (NZ IAS 39) hedge accounting requirements until
the IASB’s ongoing project on macro hedge accounting is completed. The Banking Group continues to apply the hedge accounting requirements of
NZ IAS 39.
DEFERRED TAX RELATED TO ASSETS AND LIABILITIES ARISING FROM A SINGLE TRANSACTION
Amendments to New Zealand Accounting Standards – Deferred Tax related to Assets and Liabilities arising from a Single Transaction amends NZ IAS 12
Income Taxes and clarifies that entities are required to recognise deferred tax on transactions for which there is both an asset and a liability and thatgive rise to equal taxable and deductible temporary differences. This may include transactions such as leases and decommissioning or restoration
obligations. This amendment is effective for the Banking Group from 1 October 2023 and is not expected to have a significant impact.

2.

OPERATING INCOME

Net interest income
Interest income by type of financial asset
Financial assets at amortised cost
Trading securities
Investment securities
Interest income
Interest expense by type of financial liability
Financial liabilities at amortised cost
Financial liabilities designated at fair value through profit or loss
Interest expense
Net interest income
Other operating income(i) Fee and commission income
Lending fees
Non-lending fees
Commissions
Funds management income
Fee and commission income
Fee and commission expense
Net fee and commission income(ii) Other income
Net foreign exchange earnings and other financial instruments income1
Sale of legacy insurance portfolio2
Sale of UDC Finance Limited (UDC)
Other
Other income
Other operating income
Operating income
1
2

12

2021
NZ$m

2020
NZ$m

4,355
106
139
4,600

5,277
148
143
5,568

(1,148)(28)(1,176)3,424(2,272)(34)(2,306)
3,262

30
678
35
271
1,014
(459)
555

33
673
57
258
1,021
(463)
558

179
14
17
210
765

261
(32)
20
249
807

4,189

4,069

Includes fair value movements (excluding realised and accrued interest) on derivatives not designated as accounting hedges entered into to manage interest rate and foreign exchange risk
on funding instruments, ineffective portions of cashflow hedges, and fair value movements in financial assets and liabilities designated at fair value through profit or loss.
The Bank sold and transferred its rights and obligations relating to servicing a legacy portfolio of insurance underwritten by Tower Limited (Tower) to Tower in March 2021.

NOTES TO THE FINANCIAL STATEMENTS

2.

OPERATING INCOME (continued)

RECOGNITION AND MEASUREMENTNET INTEREST INCOME
Interest income and expense
We recognise interest income and expense in net interest income for all financial instruments, including those classified as held for
trading, assets measured at fair value through other comprehensive income or designated at fair value through profit or loss. We use theeffective interest rate method to calculate amortised cost of assets held at amortised cost and to recognise interest income on financial assets
measured at fair value through other comprehensive income. The effective interest rate is the rate that discounts the stream of estimatedfuture cash receipts or payments over the expected life of the financial instrument or, when appropriate, a shorter period, to the net
carrying amount of the financial asset or liability. For assets subject to prepayment, we determine their expected life on the basis ofhistorical behaviour of the particular asset portfolio - taking into account contractual obligations and prepayment experience.
We recognise fees and costs, which form an integral part of the financial instruments (for example loan origination fees and costs), using
the effective interest rate method. This is presented as part of interest income or expense depending on whether the underlying financial
instrument is a financial asset or financial liability.
OTHER OPERATING INCOME
Fee and commission income
We recognise fee and commission revenue arising from contracts with customers (a) over time when the performance obligation is satisfied
across more than one reporting period or (b) at a point in time when the performance obligation is satisfied immediately or is satisfied within
one reporting period.
• lending fees exclude fees treated as part of the effective yield calculation of interest income. Lending fees include certain guarantee andcommitment fees where the loan or guarantee is not likely to be drawn upon, and other fees charged for providing customers a distinct
good or service that are recognised separately from the underlying lending product (including annual package fees that provide benefits
on our other products).
• non-lending fees includes fees associated with deposit and credit card accounts, interchange fees and fees charged for specific customertransactions such as international money transfers. Where the Banking Group provides multiple goods or services to a customer under thesame contract, the Banking Group allocates the transaction price of the contract to distinct performance obligations based on the relative
stand-alone selling price of each performance obligation. Revenue is recognised as each performance obligation is satisfied.
• commissions represent fees from third parties where we act as an agent by arranging a third party (such as an insurance provider) to
provide goods and services to a customer. In such cases, we are not primarily responsible for providing the underlying good or service tothe customer. If the Group collects funds on behalf of a third party when acting as an agent, we only recognise the net commission it
retains as revenue. When the commission is variable based on factors outside our control (such as a trail commission), revenue is only
recognised if it is highly probable that a significant reversal of the variable amount will not be required in future periods.
• funds management income represents fees earned from customers for providing financial advice and fees for asset management services
and advice provided to investment funds. Revenue is recognised either at the point the financial advice is provided or over the period inwhich the asset management services are delivered.
Net foreign exchange earnings and other financial instruments income
We recognise the following as net foreign exchange earnings and other financial instruments income:• exchange rate differences arising on the settlement of monetary items and translation differences on monetary items translated at rates
different to those at which they were initially recognised;• fair value movements (excluding realised and accrued interest) on derivatives that we use to manage interest rate and foreign exchange
risk on funding instruments not designated as accounting hedges;• the ineffective portions of fair value hedges and cash flow hedges;• immediately upon sale or repayment of a hedged item, the unamortised fair value adjustments in items designated as fair value hedges
and amounts accumulated in equity related to designated cash flow hedges;• fair value movements on financial assets and financial liabilities designated at fair value through profit or loss or held for trading;• amounts released from the investment securities revaluation reserve in equity when a debt instrument classified as FVOCI is sold; and• the gain or loss on derecognition of financial assets or liabilities measured at amortised cost.
SHARE OF ASSOCIATES’ PROFIT / (LOSS)The equity method is applied to accounting for associates. Under the equity method, the Banking Group’s share of the after tax results ofassociates is included in the income statement and the statement of comprehensive income.

13

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
3.

OPERATING EXPENSES

Personnel
Salaries and related costs
Superannuation costs
Other
Personnel
PremisesRent
Depreciation
Other
Premises
Technology
Depreciation and amortisation
Subscription licences and outsourced services
Other
Technology
Other
Advertising and public relations
Professional fees
Freight, stationery, postage and communication
Goodwill impairment
Charges from Ultimate Parent Bank
Other
Other
Operating expenses

2021
NZ$m

2020
NZ$m

891
29
15
935

886
29
73
988

18
79
37
134

21
96
40
157

45
140
36
221

62
138
39
239

43
58
42
120
68
331
1,621

43
58
41
28
97
101
368
1,752

RECOGNITION AND MEASUREMENTOPERATING EXPENSES
Operating expenses are recognised as services are provided to the Banking Group, over the period in which an asset is consumed, or once a
liability is created.
SALARIES AND RELATED COSTS – ANNUAL LEAVE, LONG SERVICE LEAVE AND OTHER EMPLOYEE BENEFITS
Wages and salaries, annual leave, and other employee entitlements expected to be paid or settled within twelve months of employees
rendering service are measured at their nominal amounts using remuneration rates that the Banking Group expects to pay when the liabilities
are settled.
We accrue employee entitlements relating to long service leave using an actuarial calculation. It includes assumptions regarding staff
departures, leave utilisation and future salary increases. The result is then discounted using market yields at the reporting date. The market yields
are determined from a blended rate of government bonds with terms to maturity that closely match the estimated future cash outflows.
If we expect to pay short term cash bonuses, then a liability is recognised when the Banking Group has a present legal or constructive obligation
to pay this amount (as a result of past service provided by the employee) and the obligation can be reliably measured.

14

NOTES TO THE FINANCIAL STATEMENTS

4. INCOME TAX
INCOME TAX EXPENSE
Reconciliation of the prima facie income tax expense on pre-tax profit with the income tax expense recognised in profit or loss:

Profit before income tax
Prima facie income tax expense at 28%
Tax effect of permanent differences:
Sale of legacy insurance portfolio
Sale of UDC
Tax provisions no longer required
Non-assessable income and non-deductible expenditure
Subtotal
Income tax over provided in previous years
Income tax expense
Current tax expense
Adjustments recognised in the current year in relation to the current tax of prior years
Deferred tax income relating to the origination and reversal of temporary differences
Income tax expense
Effective tax rate

2021
NZ$m
2,682
751

2020
NZ$m
1,914
536

(4)
(3)
3
747
(4)
743
770
(4)
(23)
743
27.7%

9
(3)
2
544
(3)
541
821
(3)
(277)
541
28.3%

RECOGNITION AND MEASUREMENT
INCOME TAX EXPENSE
Income tax expense comprises both current and deferred taxes and is based on the accounting profit adjusted for differences in the accounting
and tax treatments of income and expenses (that is, taxable income). We recognise tax expense in profit or loss except when the tax relates toitems recognised directly in equity and other comprehensive income, in which case we recognise the tax directly in equity or othercomprehensive income respectively.
CURRENT TAX EXPENSE
Current tax is the tax we expect to pay on taxable income for the year, based on tax rates (and tax laws) which are enacted at the reporting date.
We recognise current tax as a liability (or asset) to the extent that it is unpaid (or refundable).
DEFERRED TAX ASSETS AND LIABILITIESWe account for deferred tax using the balance sheet method. Deferred tax arises because the accounting income is not always the same as thetaxable income. This creates temporary differences, which usually reverse over time. Until they reverse, we recognise a deferred tax asset, or
liability, on the balance sheet. We measure deferred taxes at the tax rates that we expect will apply to the period(s) when the asset is realised, or
the liability settled, based on tax rates (and tax laws) that have been enacted or substantially enacted at the reporting date.
We offset current and deferred tax assets and liabilities 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.

15

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
5.

DIVIDENDS

ORDINARY SHARE DIVIDENDSDividends
Financial Year 2020
No dividends were paid during the year ended 30 September 2020
Financial Year 2021
Dividend paid in June 2021
Dividends paid during the year ended 30 September 2021

Amountper share

Total
dividend
NZ$m

-

-

14.2 cents

900
900

2021
NZ$m
7,221

2020
NZ$m
6,443

IMPUTATION CREDIT ACCOUNT

Imputation credits available

The imputation credit balance for the Banking Group includes the imputation credit balance in relation to both the New Zealand resident imputationgroup and other companies in the Banking Group that are not in the New Zealand resident imputation group. The imputation credit balance
available includes imputation credits that will arise from the payment of the amount of provision for income tax as at the reporting date.

6. SEGMENT REPORTINGDESCRIPTION OF SEGMENTS
The Banking Group is organised into three major business segments for segment reporting purposes - Personal, Business and Institutional. Centralised
back office and corporate functions support these segments. These segments are consistent with internal reporting provided to the chief operating
decision maker, being the Bank’s Chief Executive Officer.
During the year ended 30 September 2021, the Banking Group reorganised into the following business segments: Personal (including Personal
Banking and Funds Management), Business, and Institutional. These are intended to better align the Banking Group’s internal business with the needsof its primary customer groups, home owners and business owners. These changes were implemented from August 2021 and have been accounted
for prospectively. There were net movements of NZ$870 million of loans and advances and NZ$4,750 million of customer deposits from Retail to
Business, and NZ$31 million of goodwill from Commercial to Personal. The reorganisation is expected to be completed in the first half of 2022.
Comparative amounts have not been restated because the estimated impact on the financial performance and financial position of the affected
segments, Personal and Business, is not considered material.
Personal (previously Retail)
Personal provides a full range of banking and wealth management services to consumer and private banking customers. We deliver our services via
our internet and app-based digital solutions and network of branches, mortgage specialists, relationship managers and contact centres.
Business (previously Commercial)Business provides a full range of banking services including small business banking, through our digital, branch and contact centre channels, andtraditional relationship banking and sophisticated financial solutions through dedicated managers. These cover privately owned small, medium andlarge enterprises, the agricultural business segment, government and government related entities.
Institutional
The Institutional division services governments, global institutional and corporate customers via the following business units:• Transaction Banking provides customers with working capital and liquidity solutions including documentary trade, supply chain financing aswell as cash management solutions, deposits, payments and clearing.
• Corporate Finance provides customers with loan products, loan syndication, specialised loan structuring and execution, project and export
finance, debt structuring and acquisition finance and corporate advisory services.
• Markets provides customers with risk management services on foreign exchange, interest rates, credit, commodities and debt capital markets inaddition to managing the Banking Group’s interest rate exposure and liquidity position.
Other
Other includes treasury and back office support functions, none of which constitutes a separately reportable segment.

16

NOTES TO THE FINANCIAL STATEMENTS

6.

SEGMENT REPORTING (continued)

OPERATING SEGMENTS
Personal

Business1

Institutional

Other

Total

2021

2020

2021

2020

2021

2020

2021

2020

2021

2020

For the year ended 30 September

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Net interest income

1,990

1,812

1,064

1,073

333

345

37

32

3,424

3,262

Net fee and commission income- Lending fees
- Non-lending fees

9

15

3

1

18

17

-

-

30

33

612

610

10

10

56

53

-

-

678

673

- Commissions

34

57

-

-

1

-

-

-

35

57

- Funds management income

271

258

-

-

-

-

-

-

271

258

- Fee and commission expense

(459)

(463)

-

-

-

-

-

-

(459)

(463)

Net fee and commission income

467

477

13

11

75

70

-

-

555

558

Other income

19

13

-

-

160

308

31

(72)

210

249

486

490

13

11

235

378

31

(72)

765

807

Operating income

2,476

2,302

1,077

1,084

568

723

68

(40)

4,189

4,069

Operating expenses(1,147)(1,214)

(262)

(303)

(185)

(198)

(27)

(37)

(1,621)(1,752)

Profit before credit impairment and income tax

1,329

1,088

815

781

383

525

41

(77)

2,568

2,317

18

(145)

62

(223)

34

(35)

-

-

114

(403)

Profit before income tax

1,347

943

877

558

417

490

41

(77)

2,682

1,914

Income tax expense

(373)

(273)

(246)

(156)

(117)

(138)

(7)

26

(743)

(541)

Profit after income tax

974

670

631

402

300

352

34

(51)

1,939

1,373

3,006

3,006

Other operating income

Credit impairment release / (charge)

Financial position
Goodwill

1,042

1,011

895

926

1,069

1,069

-

-

Net loans and advances

95,06186,36239,15839,333

6,535

6,993

2

10 140,756 132,698

Customer deposits

78,592

79,867

23,744

18,437

22,79322,559-- 125,129 120,863

1

UDC was part of the Business segment until the sale on 1 September 2020.

OTHER SEGMENTThe Other segment profit after income tax comprises:
Item
Personal and Business central functions
Group centre1,2
Economic hedges2
Total
1
2

2021
NZ$m
(2)
20
16
34

2020
NZ$m
4
(33)
(22)
(51)

Group centre’s other income for the year ended 30 September 2020 includes the NZ$32 million loss on sale of UDC (Note 2 Operating Income).
Amounts for the year ended 30 September 2020 include the transfer of NZ$23 million of accumulated after tax unrealised losses on economic hedges of UDC loans and advances to Groupcentre. These losses were transferred upon the sale of UDC.

17

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
FINANCIAL ASSETS

CLASSIFICATION AND MEASUREMENT
Financial assets - general
There are three measurement classifications for financial assets under NZ IFRS 9: amortised cost, fair value through profit or loss (FVTPL) and fairvalue through other comprehensive income (FVOCI). Financial assets are classified into these measurement classifications on the basis of two
criteria:• the business model within which the financial asset is managed; and• the contractual cash flow characteristics of the financial asset (specifically whether the contractual cash flows represent solely payments ofprincipal and interest).
The resultant financial asset classifications are as follows:• Amortised cost: financial assets with contractual cash flows that comprise solely payments of principal and interest and which are held in abusiness model whose objective is to collect their cash flows;• FVOCI: financial assets with contractual cash flows that comprise solely payments of principal and interest and which are held in a businessmodel whose objective is to collect their cash flows or to sell the assets; and• FVTPL: any other financial assets not falling into the categories above are measured at FVTPL.
Fair value option for financial assets
A financial asset may be irrevocably designated on initial recognition:• at FVTPL when the designation eliminates or significantly reduces an accounting mismatch that would otherwise arise; or• at FVOCI for investments in equity securities, where that instrument is neither held for trading nor contingent consideration recognised byan acquirer in a business combination.

7.

CASH AND CASH EQUIVALENTS

Coins, notes and cash at bankSecurities purchased under agreements to resell in less than 3 months
Balances with central banks
Settlement balances receivable within 3 months
Cash and cash equivalents

18

2021
NZ$m
163
610
6,697
374
7,844

2020
NZ$m
187
782
7,108
171
8,248

NOTES TO THE FINANCIAL STATEMENTS

8.

TRADING SECURITIES

Government securities
Corporate and financial institution securities
Trading securities

2021
NZ$m
7,985
1,600
9,585

2020
NZ$m
11,251
1,546
12,797

RECOGNITION AND MEASUREMENT
Trading securities are financial instruments we either:• acquire principally for the purpose of selling in the short-term; or• hold as part of a portfolio we manage for short-term profit making.
We recognise purchases and sales of trading securities on trade date:• initially, we measure them at fair value; and• subsequently, we measure them in the balance sheet at their fair value with any revaluation recognised in the profit or loss.

KEY JUDGEMENTS AND ESTIMATES
Judgement is required when applying the valuation techniques used to measure the fair value of trading securities not valued using
quoted market prices. Refer to Note 16 Fair Value of Financial Assets and Financial Liabilities for further details.

19

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
9. DERIVATIVE FINANCIAL INSTRUMENTS

Fair value
Derivative financial instruments - held for trading
Derivative financial instruments - designated in hedging relationships
Derivative financial instruments

Assets
2021
NZ$m
8,504
800
9,304

Liabilities
2021
NZ$m
(7,001)(726)(7,727)

Assets
2020
NZ$m
8,423
1,279
9,702

Liabilities
2020
NZ$m
(6,887)(1,365)(8,252)FEATURES
Derivative financial instruments are contracts:• whose value is derived from an underlying price index (or other variable) defined in the contract – sometimes the value is derived from morethan one variable;• that require little or no initial net investment; and• that are settled at a future date.
Movements in the price of the underlying variables, which cause the value of the contract to fluctuate, are reflected in the fair value of the derivative.

PURPOSEThe Banking Group’s derivative financial instruments have been categorised as follows:
Trading

Derivatives held in order to:• meet customer needs for managing their own risks.
• manage risks in the Banking Group that are not in a designated hedge accounting relationship (some elementsof balance sheet management).
• undertake market making and positioning activities to generate profits from short-term fluctuations in prices or
margins.

Designated in hedging
relationships

Derivatives designated into hedge accounting relationships in order to minimise profit or loss volatility by matching
movements in underlying positions relating to:• hedges of the Banking Group’s exposures to interest rate risk and currency risk.
• hedges of other exposures relating to non-trading positions.

TYPES
The Banking Group offers or uses four different types of derivative financial instruments:
Forwards

A contract documenting the rate of interest, or the currency exchange rate, to be paid or received on a notional
principal amount at a future date.

Futures

An exchange traded contract in which the parties agree to buy or sell an asset in the future for a price agreed on thetransaction date, with a net settlement in cash paid on the future date without physical delivery of the asset.

Swaps

A contract in which one party exchanges one series of cash flows for another.

Options

A contract in which the buyer of the contract has the right - but not the obligation - to buy (known as a ‘call option’)or to sell (known as a ‘put option’) an asset or instrument at a set price on a future date. The seller has thecorresponding obligation to fulfil the transaction to sell or buy the asset or instrument if the buyer exercises theoption.

RISKS MANAGED
The Banking Group offers and uses the instruments described above to manage fluctuations in the following market factors:
Foreign exchange

Currencies at current or determined rates of exchange.

Interest rate

Fixed or variable interest rates applying to money lent, deposited or borrowed.

Commodity

Soft commodities (that is, agricultural products such as wheat, coffee, cocoa, and sugar) and hard commodities (thatis, mined products such as gold, oil and gas).

CreditRisk of default by customer or third parties.

20

NOTES TO THE FINANCIAL STATEMENTS

9.

DERIVATIVE FINANCIAL INSTRUMENTS (continued)

The Banking Group uses central clearing counterparties and exchanges to settle derivative transactions. Different arrangements for posting ofcollateral exist with these exchanges:••

some transactions are subject to clearing arrangements which result in separate recognition of collateral assets and liabilities, with the carrying
values of the associated derivative assets and liabilities held at their fair value.
other transactions are legally settled by the payment or receipt of collateral which reduces the carrying values of the related derivative
instruments by the amount paid or received.

In August 2021, the Banking Group amended the terms of its legal agreements with one of its central clearing counterparties giving effect to this formof legal settlement. As a result of this change, collateral paid and received by the Banking Group under these agreements is no longer separately
recognised, instead settling the Banking Group’s outstanding derivative exposures and reducing the associated carrying values of the derivative asset
and liability balances. The impact of this change as at 30 September 2021 is a reduction in derivative assets of NZ$3.9 billion and derivative liabilities of
NZ$4.1 billion, and a reduction in net collateral paid of NZ$0.2 billion.

DERIVATIVE FINANCIAL INSTRUMENTS – HELD FOR TRADINGThe majority of the Banking Group’s derivative financial instruments are held for trading. The fair value of derivative financial instruments held for
trading are:AssetsLiabilities
AssetsLiabilities
2021
2021
2020
2020
Fair value
NZ$m
NZ$m
NZ$m
NZ$m
Interest rate contracts
Forward rate agreements
7
(8)
1
(1)
Futures contracts
8
(4)
19
(5)
Swap agreements
4,465(3,368)5,926(3,714)
Options purchased
1
3
(2)
5,944
(3,728)
Total
4,486(3,374)Foreign exchange contracts
Spot and forward contracts
1,009
(955)
2,217
(1,862)
Swap agreements
1,432(2,155)
1,762(1,716)
Options purchased
26
24
(2)
Options sold
(27)
2
(23)
Total
4,005
(3,603)
2,467(3,137)
Commodity contracts and credit default swaps
13
(24)
12
(22)
8,423
(6,887)
Derivative financial instruments - held for trading
8,504(7,001)DERIVATIVE FINANCIAL INSTRUMENTS – DESIGNATED IN HEDGING RELATIONSHIPS
The Banking Group uses two types of hedge accounting relationships:
Fair value hedge

Cash flow hedge

Objective of thishedgingarrangement

To hedge our exposure to changes to the fair value of arecognised asset or liability or unrecognised firm
commitment caused by interest rate or foreign currency
movements.

To hedge our exposure to variability in cash flows of arecognised asset or liability, a firm commitment or ahighly probable forecast transaction caused by interest
rate, foreign currency and other price movements.

Recognition ofeffective hedge
portionThe following are recognised in profit or loss at the sametime:
• all changes in the fair value of the underlying item
relating to the hedged risk; and• the change in the fair value of the derivatives.

We recognise the effective portion of changes in the fairvalue of derivatives designated as a cash flow hedge inthe cash flow hedge reserve.

Recognition of ineffective
hedge portion

Recognised immediately in other operating income.

If a hedging instrument
expires, or is sold,terminated, or exercised;or no longer qualifies forhedge accounting

When we recognise the hedged item in profit or loss, werecognise the related unamortised fair value adjustmentin profit or loss. This may occur over time if the hedged
item is amortised to profit or loss as part of the effective
yield over the period to maturity.

Only when we recognise the hedged item in profit orloss is the amount previously deferred in the cash flow
hedge reserve transferred to profit or loss.

Hedged item sold or
repaidWe recognise the unamortised fair value adjustment
immediately in profit or loss.

Amounts accumulated in equity are transferred
immediately to profit or loss.

Under the policy choice provided by NZ IFRS 9 Financial Instruments, the Banking Group has continued to apply the hedge accounting requirementsof NZ IAS 39 Financial Instruments: Recognition and Measurement.
21

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
9.

DERIVATIVE FINANCIAL INSTRUMENTS (continued)

The fair value of derivative financial instruments designated in hedging relationships are:
2021

2020
Liabilities
NZ$m

NominalamountNZ$mAssets
NZ$m

Liabilities
NZ$m

572

(512)

27,905644(818)

27,820228(214)41,191635(547)

55,844800(726)

69,096

1,279(1,365)

Averageinterest
rate

Less than 3months
NZ$m

3 to 12months
NZ$m

1 to 5years
NZ$m

After 5
years
NZ$m

Total
NZ$m

1.47%

247

3,556

13,71810,50328,024

1.51%

2,585

5,226

18,981

1,028

27,820

1.54%

79

3,196

16,221

8,409

27,905

1.83%

5,195

12,89021,477

1,629

41,191

Fair value hedges
Interest rate swap agreements
Cash flow hedges
Interest rate swap agreements
Derivative financial instruments - designated in
hedging relationships

NominalamountNZ$mAssetsNZ$m

28,024The maturity profile of the nominal amounts of our hedging instruments held is:Nominal amountAs at 30 September 2021
Fair value hedges
Interest rate
Cash flow hedges
Interest rate
As at 30 September 2020
Fair value hedges
Interest rate
Cash flow hedges
Interest rate

The impacts of ineffectiveness from our designated hedge relationships by type of hedge relationship and type of risk being hedged are:IneffectivenessChange in valueof hedging
instrument 2
2021
2020
NZ$m
NZ$m
Fair value hedges1
Interest rate
Cash flow hedges1
Interest rate
12Change in valueof hedged item
2021
2020
NZ$m
NZ$m

Hedge ineffectivenessrecognised in profit
and loss
2021
2020
NZ$m
NZ$m

Amount reclassified
from the cash flow
hedge reserve
to profit and loss
2021
2020
NZ$m
NZ$m

295

217

(289)

(215)

6

2

-

(153)

103

152

(103)

(1)

-

10

.
12

All instruments are classified as derivative financial instruments.
Changes in value of hedging instruments is before any adjustments for Settle to Market.

Hedge ineffectiveness recognised is classified within other operating income. Reclassification adjustments to the statement of comprehensive income
are recognised within net interest income.

22

NOTES TO THE FINANCIAL STATEMENTS

9.

DERIVATIVE FINANCIAL INSTRUMENTS (continued)

The hedged items in relation to the Banking Group’s fair value hedges are:Carrying amount
AssetsLiabilities
NZ$m
NZ$m

Accumulated fair value
hedge adjustments on
the hedged item
AssetsLiabilities
NZ$m
NZ$m

Balance sheet
presentation

Hedged risk

As at 30 September 2021
Fixed rate loans and advances
Fixed rate debt issuances
Fixed rate investment securities (FVOCI)1
Total

Net loans and advances
Debt issuances
Investment securities

Interest rate
Interest rate
Interest rate

11,915
11,915(16,307)(16,307)

(361)
(361)

(245)
(245)

As at 30 September 2020
Fixed rate loans and advances
Fixed rate debt issuances
Fixed rate investment securities (FVOCI)1
Total

Net loans and advances
Debt issuances
Investment securities

Interest rate
Interest rate
Interest rate

1,542
9,679
11,221(18,029)(18,029)

10
322
332

(643)
(643)

1

The carrying amount of debt instruments at fair value through other comprehensive income does not include the fair value hedge adjustment since accounting for the hedge relationshipresults in the transfer of the hedge adjustment out of other comprehensive income to the income statement to match the profit or loss on the hedging instrument.

The cumulative amount of fair value hedge adjustments relating to ceased hedge relationships remaining on the balance sheet is NZ$2 million (2020:
NZ$11 million).
The hedged items in relation to the Banking Group’s cash flow hedges are:Floating rate loans and advances
Floating rate customer deposits

Hedged risk
Interest rate
Interest rate

Continuing
hedges
2021
2020
NZ$m
NZ$m
577
48
(421)
(36)

Discontinued
hedges
2021
2020
NZ$m
NZ$m
(1)
(4)
2

All cash flow hedges relate to hedges of interest rate risk and the movements in the cash flow hedge reserve are shown in the statement of changes
in equity on page 7.

23

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
9.

DERIVATIVE FINANCIAL INSTRUMENTS (continued)

RECOGNITION AND MEASUREMENT
Recognition

Initially and at each reporting date, we recognise all derivatives at fair value. If the fair value of a derivative ispositive, then we carry it as an asset, but if its value is negative, then we carry it as a liability.
Valuation adjustments are integral in determining the fair value of derivatives. This includes:• a credit valuation adjustment (CVA) to reflect the counterparty risk and/or event of default; and• a funding valuation adjustment (FVA) to account for funding costs and benefits in the derivatives portfolio.

Derecognition ofassets and liabilities

We remove derivative assets from our balance sheet when the contracts expire or we have transferred
substantially all the risks and rewards of ownership. We remove derivative liabilities from our balance sheet
when the Banking Group’s contractual obligations are discharged, cancelled or expired.
With respect to derivatives cleared through a central clearing counterparty or exchange, derivative assets or
liabilities may be derecognised in accordance with the principle above when collateral is settled, dependingon the legal arrangements in place for each instrument.

Impact on theincome statement

The recognition of gains or losses on derivative financial instruments depends on whether the derivative isheld for trading or is designated into a hedging relationship. For derivative financial instruments held for
trading, gains or losses from changes in the fair value are recognised in profit or loss.
For an instrument designated into a hedging relationship the recognition of gains or losses depends on thenature of the item being hedged. Refer to the table on page 21 for profit or loss treatment for each hedge type.
Sources of hedge ineffectiveness may arise from differences in the interest rate reference rate, margins, or rate
set differences and differences in discounting between the hedged items and the hedging instruments. The
hedging instruments are discounted using Overnight Index Swaps discount curves which are not applied tothe hedged items.

Hedge effectivenessTo qualify for hedge accounting a hedge is expected to be highly effective. A hedge is highly effective only if
the following conditions are met:
• the hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows
attributable to the hedged risk during the period for which the hedge is designated (prospective
effectiveness); and• the actual results of the hedge are within the range of 80-125% (retrospective effectiveness).
The Banking Group monitors hedge effectiveness on a regular basis but at a minimum at least at eachreporting date.

KEY JUDGEMENTS AND ESTIMATES
Judgement is required when we select the valuation techniques used to measure the fair value of derivatives, particularly the selectionof valuation inputs that are not readily observable, and the application of valuation adjustments to certain derivatives. Refer to Note 16
Fair Value of Financial Assets and Financial Liabilities for further details.

24

NOTES TO THE FINANCIAL STATEMENTS

10. INVESTMENT SECURITIESInvestment securities measured at fair value through other comprehensive income
Debt securities
Equity securities
Total

2021
NZ$m

2020
NZ$m

11,925
1
11,926

9,892
1
9,893

As at 30 September 2021
Government securities
Corporate and financial institution securities
Equity securities
Total

Less than 3months
NZ$m
272
2
274

3 to 12months
NZ$m
363
123
486

1 to 5 years
NZ$m
7,704
290
7,994

After
5 years
NZ$m
3,171
3,171

No
maturity
NZ$m
1
1

Total
NZ$m
11,510415
111,926As at 30 September 2020
Government securities
Corporate and financial institution securities
Equity securities
Total

1,021
3
1,024

641
113
754

6,662
284
6,946

1,168
1,168

1
1

9,492
400
1
9,893

RECOGNITION AND MEASUREMENT
Investment securities are those financial assets in security form (that is, transferable debt or equity instruments) that are not held for trading
purposes. By way of exception, bills of exchange (a form of security/transferable instrument) which are used to facilitate the Banking Group’s
customer lending activities are classified as loans and advances (rather than investment securities) to better reflect the substance of thearrangement.
Non-trading equity instruments may be designated at FVOCI on an instrument by instrument basis. If this election is made, gains or losses are
not reclassified from other comprehensive income to profit or loss on disposal of the investment. However, gains or losses may be reclassified
within equity.
Assets disclosed as investment securities are subject to the general classification and measurement policy for financial assets outlined on page
18. Additionally, expected credit losses associated with ‘Investment securities - debt securities at fair value through other comprehensive
income’ are recognised and measured in accordance with the accounting policy outlined in Note 12 Allowance for Expected Credit Losses, andthe allowance for Expected Credit Loss (ECL) is recognised in the FVOCI reserve in equity with a corresponding charge to profit or loss.

KEY JUDGEMENTS AND ESTIMATES
Judgement is required when we select valuation techniques used to measure the fair value of assets not valued using quoted market
prices, particularly the selection of valuation inputs that are not readily observable. Refer to Note 16 Fair Value of Financial Assets andFinancial Liabilities for further details.

25

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
11. NET LOANS AND ADVANCES
The following table provides details of net loans and advances for the Banking Group:

Note
Overdrafts
Credit cards
Term loans - housing
Term loans - non-housing
Subtotal
Unearned income
Capitalised brokerage and other origination costs
Gross loans and advances
Allowance for expected credit losses
Net loans and advances
Residual contractual maturity:
Within one year
More than one year
Net loans and advances

12

2021
NZ$m
799
1,127
98,51340,528140,967(18)
392
141,341(585)
140,756

2020
NZ$m
659
1,300
89,25841,882133,099(26)
319
133,392(694)
132,698

32,708108,048
140,756

35,15897,540132,698

The Bank has sold residential mortgages to the NZ Branch with a net carrying value of NZ$318 million as at 30 September 2021 (2020: NZ$287 million).
These assets qualify for derecognition as the Bank does not retain a continuing involvement in the transferred assets.

RECOGNITION AND MEASUREMENT
Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are
facilities the Banking Group provides directly to customers or through third party channels.
Loans and advances are initially recognised at fair value plus transaction costs directly attributable to the issue of the loan or advance, which areprimarily brokerage and other origination costs which we amortise over the estimated life of the loan. Subsequently, we then measure loans
and advances at amortised cost using the effective interest rate method, net of any allowance for expected credit losses.
The Banking Group enters into transactions in which it transfers financial assets that are recognised on its balance sheet. When the Banking
Group retains substantially all of the risks and rewards of the transferred assets, the transferred assets remain on the Banking Group’s balance
sheet, however if substantially all the risks and rewards are transferred, the Banking Group derecognises the asset. If the risks and rewards are
partially retained and control over the asset is lost, then the Banking Group derecognises the asset. If control over the asset is not lost, theBanking Group continues to recognise the asset to the extent of its continuing involvement.
We separately recognise the rights and obligations retained, or created, in the transfer as assets and liabilities as appropriate.
Assets disclosed as net loans and advances are subject to the general classification and measurement policy for financial assets outlined on
page 18. Additionally, expected credit losses associated with loans and advances at amortised cost are recognised and measured in accordancewith the accounting policy outlined in Note 12 Allowance for Expected Credit Losses.

26

NOTES TO THE FINANCIAL STATEMENTS

12. ALLOWANCE FOR EXPECTED CREDIT LOSSES
2021

Net loans and advances at amortised cost
Off-balance sheet commitments
Total

2020

Collectively Individuallyassessedassessed
NZ$m
NZ$m
525
60
107
15
632
75

Collectively Individuallyassessedassessed
NZ$m
NZ$m
588
106
137
22
725
128

Total
NZ$m
694
159
853

Stage 3
Collectively IndividuallyStage 2
assessedassessed
NZ$m
NZ$m
NZ$m
194
42
97
(30)
4
1
206
34
157
(34)
(92)
(9)
(23)
(1)
(14)
347
79
106
(14)
(2)
(19)
(21)
67
(63)
(47)
(3)
314
56
60

Total
NZ$m
497
395
(34)
(92)
(9)
(63)
694
4
(63)
(47)
(3)
585

Total
NZ$m
585
122
707

The following tables present the movement in the allowance for ECL for the year.
Net loans and advances
Allowance for ECL is included in net loans and advances.

As at 1 October 2019
Transfer between stages
New and increased provisions (net of collective provision releases)
Write-backs
Bad debts written-off (excluding recoveries)
Discount unwind
Sale of UDC
As at 30 September 2020
Transfer between stages
New and increased provisions (net of collective provision releases)
Write-backs
Bad debts written-off (excluding recoveries)
Discount unwind
As at 30 September 2021

Stage 1
NZ$m
164
25
(2)
(25)
162
16
(23)
155

Off-balance sheet credit related commitments - undrawn and contingent facilities
Allowance for ECL is included in other provisions.
As at 1 October 2019
Transfer between stages
New and increased provisions (net of collective provision releases)
Sale of UDC
As at 30 September 2020
Transfer between stages
New and increased provisions (net of collective provision releases)
As at 30 September 2021

60
3
17
(1)
79
3
(18)
64

24
(3)
36
(2)
55
(4)
(12)
39

2
1
3
1
4

11
11
22
(7)
15

97
65
(3)
159
(37)
122

The collectively assessed allowance for ECL decreased by NZ$93 million attributable to: a reduction of NZ$62 million from the improving economic
outlook offset by changes to the allowance for model uncertainty due to the continuing pandemic; and a reduction of NZ$31 million due to portfolio
credit risk profile improvements, offset by an increase in mortgage lending.

CREDIT IMPAIRMENT CHARGE – INCOME STATEMENT

New and increased provisions (net of releases)- Collectively assessed- Individually assessed
Write-backs
Recoveries of amounts previously written-off
Total credit impairment charge / (release)

2021
NZ$m

2020
NZ$m

(93)
60
(63)
(18)
(114)

291
169
(34)
(23)
403

27

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

RECOGNITION AND MEASUREMENTEXPECTED CREDIT LOSS MODEL
The measurement of expected credit losses reflects an unbiased, probability weighted prediction which evaluates a range of scenarios andtakes into account the time value of money, past events, current conditions and forecasts of future economic conditions.
Expected credit losses are either measured over 12 months or the expected lifetime of the financial asset, depending on credit deterioration
since origination, according to the following three-stage approach:•••Stage 1: At the origination of a financial asset, and where there has not been a Significant Increase in Credit Risk (SICR) since origination,an allowance equivalent to 12 months ECL is recognised reflecting the expected credit losses resulting from default events that are
possible within the next 12 months from the reporting date. For instruments with a remaining maturity of less than 12 months,
expected credit losses are estimated based on default events that are possible over the remaining time to maturity.
Stage 2: Where there has been a SICR since origination, an allowance equivalent to lifetime ECL is recognised reflecting expected credit
losses resulting from all possible default events over the expected life of a financial instrument. If credit risk were to improve in a
subsequent period such that the increase in credit risk since origination is no longer considered significant, the exposure returns to a
Stage 1 classification and a 12 month ECL applies.
Stage 3: Where there is objective evidence of impairment, an allowance equivalent to lifetime ECL is recognised.

Expected credit losses are estimated on a collective basis for exposures in Stage 1 and Stage 2, and on either a collective or individual basis
when transferred to Stage 3.
MEASUREMENT OF EXPECTED CREDIT LOSSECL is calculated as the product of the following credit risk factors at a facility level, discounted to incorporate the time value of money:•••

Probability of default (PD) – the estimate of the likelihood that a borrower will default over a given period;
Exposure at default (EAD) – the expected balance sheet exposure at default taking into account repayments of principal and interest,
expected additional drawdowns and accrued interest; andLoss given default (LGD) – the expected loss in the event of the borrower defaulting, expressed as a percentage of the facility’s EAD,
taking into account direct and indirect recovery costs.

These credit risk factors are adjusted for current and forward-looking information through the use of macro-economic variables.
EXPECTED LIFE
When estimating ECL for exposures in Stage 2 and 3, the Banking Group considers the expected lifetime over which it is exposed to credit risk.
For non-retail portfolios, the Banking Group uses the maximum contractual period as the expected lifetime for non-revolving credit facilities.
For non-retail revolving credit facilities, such as corporate lines of credit, the expected life reflects the Banking Group’s contractual right towithdraw a facility as part of a contractually agreed annual review, after taking into account the applicable notice period.
For retail portfolios, the expected lifetime is determined using a behavioural term, taking into account expected prepayment behaviour andsubstantial modifications.
DEFINITION OF DEFAULT, CREDIT IMPAIRED AND WRITE-OFFS
The definition of default used in measuring expected credit losses is aligned to the definition used for internal credit risk management
purposes across all portfolios. This definition is also in line with the regulatory definition of default. Default occurs when there are indicatorsthat a debtor is unlikely to fully satisfy contractual credit obligations to the Banking Group, or the exposure is 90 days past due.
Financial assets, including those that are well secured, are considered credit impaired for financial reporting purposes when they default.
When there is no realistic probability of recovery, loans are written off against the related impairment allowance on completion of the Banking
Group’s internal processes and when all reasonably expected recoveries have been collected. In subsequent periods, any recoveries ofamounts previously written-off are credited to credit impairment charge in the income statement.
MODIFIED FINANCIAL ASSETS
If the terms of a financial asset are modified or an existing financial asset is replaced with a new one for either credit or commercial reasons, anassessment is made to determine if the changes to the terms of the existing financial asset are considered substantial. This assessment
considers both changes in cash flows arising from the modified terms as well as changes in the overall instrument risk profile; for example,
changes in the principal (credit limit), term, or type of underlying collateral. Where a modification is considered non-substantial, the existing
financial asset is not derecognised and its date of origination continues to be used to determine SICR. Where a modification is considered
substantial, the existing financial asset is derecognised and a new financial asset is recognised at its fair value on the modification date, which
also becomes the date of origination used to determine SICR for this new asset.

28

NOTES TO THE FINANCIAL STATEMENTS

12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

RECOGNITION AND MEASUREMENTSIGNIFICANT INCREASE IN CREDIT RISK (SICR)
Stage 2 assets are those that have experienced a SICR since origination. In determining what constitutes a SICR, the Banking Groupconsiders both qualitative and quantitative information:i.

Internal credit rating grade
For the majority of portfolios, the primary indicator of a SICR is a significant deterioration in the internal credit rating grade of a facility
since origination and is measured by application of thresholds.
For non-retail portfolios, a SICR is determined by comparing the Customer Credit Rating (CCR) applicable to a facility at reporting
date to the CCR at origination of that facility. A CCR is assigned to each borrower which reflects the probability of default of theborrower and incorporates both borrower and non-borrower specific information, including forward-looking information. CCRs are
subject to review at least annually or more frequently when an event occurs which could affect the credit risk of the customer.
For retail portfolios, a SICR is determined, depending on the type of facility, by either comparing the scenario weighted lifetime
probability of default at the reporting date to that at origination, or by reference to customer behavioural score thresholds. The
scenario weighted lifetime probability of default may increase significantly if:
•
•

ii.

there has been a deterioration in the economic outlook, or an increase in economic uncertainty; orthere has been a deterioration in the customer’s overall credit position, or ability to manage their credit obligations.

Backstop criteria
The Banking Group uses 30 days past due arrears as a backstop criterion for both non-retail and retail portfolios. For retail portfolios
only, facilities are required to demonstrate three to six months of good payment behaviour prior to being allocated back to Stage 1.

iii. COVID-19 initiatives
Facilities previously subject to the COVID-19 payment deferral arrangements have been subsumed into the normal loan portfolios
and SICR applied accordingly.
FORWARD-LOOKING INFORMATION
Forward-looking information is incorporated into both our assessment of whether a financial asset has experienced a SICR since its initialrecognition and in our estimate of ECL. In applying forward-looking information for estimating ECL, the Banking Group considers four
probability-weighted forecast economic scenarios as follows:i.

Base case scenario
The base case scenario is our view of likely future macro-economic conditions. It reflects management’s assumptions used forstrategic planning and budgeting, and also informs the Banking Group’s Internal Capital Adequacy Assessment Process (ICAAP)
which is the process the Banking Group applies in strategic and capital planning over a 3-year time horizon;

ii.

Upside and iii. Downside scenarios
The upside and downside scenarios are fixed by reference to average economic cycle conditions (that is, they are not based on theeconomic conditions prevailing at balance date) and are based on a combination of more optimistic (in the case of the upside) andpessimistic (in the case of the downside) economic events and uncertainty over long term horizons; andiv. Severe downside scenario
The severe downside scenario is fixed by reference to average economic cycle conditions and accounts for the potentially severe
impact of less likely extremely adverse economic conditions. It reflects macro-economic conditions of a downturn economic eventwith a probability of occurrence once every 25 years.
The four scenarios are described in terms of macro-economic variables used in the PD, LGD and EAD models (collectively the ECL models)depending on the lending portfolio and country of the borrower. Examples of the variables include unemployment rates, GDP growth
rates, house price indices, commercial property price indices and consumer price indices.
Probability weighting of each scenario is determined by management considering the risks and uncertainties surrounding the base caseeconomic scenario, as well as specific portfolio considerations where required.
Where applicable, temporary adjustments may be made to account for situations where known or expected risks have not beenadequately addressed in the modelling process.

29

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

KEY JUDGEMENTS AND ESTIMATES
In estimating collectively assessed ECL, the Banking Group makes judgements and assumptions in relation to:• the selection of an estimation technique or modelling methodology; and• the selection of inputs for those models, and the interdependencies between those inputs.
The following table summarises the key judgements and assumptions in relation to the ECL model inputs and the interdependencies between
those inputs, and highlights significant changes during the current period.
The judgements and associated assumptions have been made within the context of the impact of COVID-19, and reflect historical experienceand other factors that are considered to be relevant, including expectations of future events that are believed to be reasonable under thecircumstances. The Banking Group’s ECL estimates are inherently uncertain and, as a result, actual results may differ from these estimates.
Judgement /Considerations for the year ended
assumption
Description
30 September 2021
Determining
when a SICR
has occurred

In the measurement of ECL, judgement is involved insetting the rules and trigger points to determine
whether there has been a SICR since initialrecognition of a loan, which would result in thefinancial asset moving from Stage 1 to Stage 2. This isa key area of judgement since transition from Stage 1
to Stage 2 increases the ECL from an allowance basedon the probability of default in the next 12 months, toan allowance for lifetime expected credit losses.
Subsequent decreases in credit risk resulting intransition from Stage 2 to Stage 1 may similarly resultin significant changes in the ECL allowance.
The setting of precise trigger points requires
judgement which may have a material impact upon
the size of the ECL allowance. The Banking Group
monitors the effectiveness of SICR criteria on an
ongoing basis.

The support packages offered to customers in
response to COVID-19 in 2020 and 2021 have ceased
with the majority of customers who took up the
support packages having reverted back to theirnormal loan repayments. Given the recent cessationof these packages, the Banking Group has provided acomponent of ECL for expected delinquencies that
may have been obscured by the support measures.

Measuringboth 12-monthand lifetime
credit losses

The probability of default (PD), loss given default(LGD) and exposure at default (EAD) credit risk
parameters used in determining ECL are point-in-timemeasures reflecting the relevant forward-looking
information determined by management. Judgement
is involved in determining which forward-looking
information variables are relevant for particularlending portfolios and for determining eachportfolio’s point-in-time sensitivity.

The PD, EAD and LGD models are subject to the
Banking Group’s model risk policy that stipulates
periodic model monitoring, periodic re-validation anddefines approval procedures and authorities
according to model materiality.
During the year ended 30 September 2021 an
adjustment was made to the modelled outcome toaccount for increased model uncertainties as a resultof COVID-19.

In addition, judgement is required where behaviouralcharacteristics are applied in estimating the lifetime ofa facility to be used in measuring ECL.

There were no material changes to the policies during
the year ended 30 September 2021.

The Banking Group derives a forward-looking “basecase” economic scenario which reflects our view ofthe most likely future macro-economic conditions.

There have been no changes to the types of forwardlooking variables (key economic drivers) used asmodel inputs in the current year.
As at 30 September 2021, the base case assumptions
have been updated to reflect the evolving situation
with respect to COVID-19, including emergence fromlockdowns, government stimulus measures and rollout of vaccines. In determining the expected path ofthe economy, assessments of the impact of central
bank policies, governments’ actions, the response ofbusiness, and institution specific responses (such as
payment deferrals) were considered.
The expected outcomes of key economic drivers forthe base case scenario as at 30 September 2021 aredescribed below under the heading “Base caseeconomic forecast assumptions”.

Base caseeconomic
forecast

30

NOTES TO THE FINANCIAL STATEMENTS

12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

KEY JUDGEMENTS AND ESTIMATES
Judgement /assumption

1.
2.

Description

Considerations for the year ended
30 September 2021

Probability
weighting ofeach scenario(base case,upside,downside andseveredownsidescenarios)1,2

Probability weighting of each economic scenario is
determined by management considering the risks
and uncertainties surrounding the base case scenario
at each measurement date.

The key consideration for probability weightings in
the current period is the continued uncertain
economic impacts of COVID-19.
The Banking Group considers these weightings toprovide estimates of the possible loss outcomestaking into account short and long-term interrelationships within the Banking Group’s credit
portfolios.
As at 30 September 2021, a base case weighting of
50% has been applied, and more weight has been
applied to the downside scenario given the Banking
Group’s assessment of downside risks.
The assigned probability weightings are subject to ahigh degree of inherent uncertainty and therefore theactual outcomes may be significantly different tothose projected.

Management
temporaryadjustments

Management temporary adjustments to the ECL
allowance are used in circumstances where it isjudged that our existing inputs, assumptions andmodel techniques do not capture all the risk factors
relevant to our lending portfolios. Emerging local or
global macroeconomic, microeconomic or politicalevents, and natural disasters that are not incorporated
into our current parameters, risk ratings, or forwardlooking information are examples of suchcircumstances. The use of management temporary
adjustments may impact the amount of ECL
recognised.
The uncertainty associated with the COVID-19
pandemic, including the roll-out of vaccines and theirefficacy, and the extent to which the actions ofgovernments, businesses and consumers mitigate
against potentially adverse credit outcomes are notfully incorporated into existing ECL models which are
based on historical underlying data. Accordingly,
management overlays have been applied to ensure
credit provisions are appropriate.

Management have applied a number of adjustments
to the modelled ECL primarily due to the uncertainty
associated with continuing COVID-19 impacts.
Management overlays (including COVID-19 overlays)
which add to the modelled ECL provision have been
made for risks particular to personal and businessbanking.
Management temporary adjustments total NZ$177
million (2020: NZ$177 million).

The upside and downside scenarios are fixed by reference to average economic cycle conditions (that is, they are not based on the economic conditions prevailing at balance date) and are
based on a combination of more optimistic (in the case of the upside) and pessimistic (in the case of the downside) economic conditions.
The severe downside scenario is fixed by reference to average economic cycle conditions and accounts for the potentially severe downside impact of less likely extremely adverse economic
conditions.

31

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

KEY JUDGEMENTS AND ESTIMATES
Base case economic forecast assumptions
The uncertain evolution of the COVID-19 pandemic and associated government, business and consumer responses, increases the risk of theeconomic forecast resulting in an understatement or overstatement of the ECL balance due to uncertainties around:• the extent and duration of measures, including the roll-out of vaccines and the relaxation of containment measures, impacting the
spread of COVID-19;• the expected impact on the economy, including the timing and speed of the economic response and differences between sectors; and• the effects of progressive reductions in stimulus measures, in particular their impact on the extent and duration of economic recovery.
The economic drivers of the base case economic forecasts at 30 September 2021 are set out below. These reflect our view of future macroeconomic conditions at 30 September 2021. For years beyond the near term forecasts below, the ECL models project future year economic
conditions including an assumption to eventual reversion to mid-cycle economic conditions.
New Zealand

2021

Forecast calendar year
2022

2023

Gross domestic product (GDP) (annual % change)
Unemployment rate
Residential property prices (annual % change)
Consumer price index (CPI)

4.3%
4.1%
22.4%
3.3

4.3%
3.9%
0.4%
2.9

2.9%
3.9%
5.2%
1.9

The base case economic forecasts as at 30 September 2021 indicate a significant improvement in current and expected economic conditions
from the forecasts as at 30 September 2020 reflecting the ongoing progress and actions in responding to the COVID-19 pandemic.
Probability weightings
Probability weightings for each scenario are determined by management considering the risks and uncertainties surrounding the base caseeconomic scenario. The key consideration for probability weightings in the current period is the effectiveness of actions taken in response to
COVID-19 relaxation of containment measures by governments, and the take-up of vaccines limiting the impact of the virus.
The base case scenario represents a significant improvement in the forecasts since September 2020. Given the uncertainties associated with apotential ongoing recovery of the economy, the base case weighting remains at 50% and the downside scenario has been increased to 40.5%(2020: 32.0%).
The assigned probability weightings are subject to a high degree of inherent uncertainty and therefore the actual outcomes may besignificantly different to those projected. The Banking Group considers these weightings to provide estimates of the possible loss outcomes
and taking into account short and long term inter-relationships within the Banking Group’s credit portfolios. The average weightings applied
are set out below:

Base
UpsideDownside
Severe downside

2021

2020

50.0%
4.5%
40.5%
5.0%

50.0%
8.0%
32.0%
10.0%

ECL - Sensitivity analysis
Given current economic uncertainties and the judgement applied to factors used in determining the expected default of borrowers in future
periods, expected credit losses reported by the Banking Group should be considered as a best estimate within a range of possible estimates.
The table below illustrates the sensitivity of collectively assessed ECL to key factors used in determining it as at 30 September 2021:

32

ECL
NZ$m

Impact
NZ$m

If 1% of Stage 1 facilities were included in Stage 2
If 1% of Stage 2 facilities were included in Stage 1

637
631

5
(1)

100% upside scenario
100% base scenario
100% downside scenario
100% severe downside scenario

251
327
594
792

(381)
(305)
(38)
160

NOTES TO THE FINANCIAL STATEMENTS

FINANCIAL LIABILITIESCLASSIFICATION AND MEASUREMENT
Financial liabilities
Financial liabilities are measured at amortised cost, or fair value through profit or loss (FVTPL) when they are held for trading. Additionally, financial
liabilities can be designated at FVTPL where:• the designation eliminates or significantly reduces an accounting mismatch which would otherwise arise;• a group of financial liabilities are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk
management strategy; or• the financial liability contains one or more embedded derivatives unless:a) the embedded derivative does not significantly modify the cash flows that otherwise would be required by the contract; orb) the embedded derivative is closely related to the host financial liability.
Where financial liabilities are designated as measured at fair value, gains or losses relating to changes in the entity’s own credit risk are included
in other comprehensive income, except where doing so would create or enlarge an accounting mismatch in profit or loss.

13. DEPOSITS AND OTHER BORROWINGS
Note
Term deposits
On demand and short term deposits
Deposits not bearing interest
Total customer deposits
Certificates of deposit
Commercial paper
Securities sold under repurchase agreements
Deposits from Immediate Parent Company and NZ Branch
Deposits and other borrowings
Residual contractual maturity:
Within one year
More than one year
Deposits and other borrowings
Carried on balance sheet at:
Amortised cost
Fair value through profit or loss (designated on initial recognition)
Deposits and other borrowings

26

2021
NZ$m
40,66862,64821,813
125,129
1,875
4,433
1,663
39
133,1392020
NZ$m
50,06953,91016,884
120,863
1,782
1,748
646
22
125,061

129,726
3,413
133,139

121,4213,640
125,061

128,706
4,433
133,139

123,3131,748
125,061

RECOGNITION AND MEASUREMENT
For deposits and other borrowings that:• are not designated at fair value through profit or loss on initial recognition, we measure them at amortised cost and recognise their interest
expense using the effective interest rate method; and• are managed on a fair value basis, reduce or eliminate an accounting mismatch or contain an embedded derivative, we designate them asmeasured at fair value through profit or loss.
Refer to Note 16 Fair Value of Financial Assets and Financial Liabilities for further details.
For deposits and other borrowings designated at fair value we recognise the amount of fair value gain or loss attributable to changes in the Banking
Group’s own credit risk in other comprehensive income in retained earnings. Any remaining amount of fair value gain or loss we recognise directlyin profit or loss. Once we have recognised an amount in other comprehensive income, we do not later reclassify it to profit or loss.
Securities sold under repurchase agreements represent a liability to repurchase the financial assets that remain on our balance sheet since the risks
and rewards of ownership remain with the Banking Group. Over the life of the repurchase agreement, we recognise the difference between thesale price and the repurchase price and charge it to interest expense in the income statement.

33

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
14. DEBT ISSUANCESThe Banking Group uses a variety of funding programmes to issue unsubordinated debt and subordinated debt. The difference between
unsubordinated debt and subordinated debt is that holders of unsubordinated debt take priority over holders of subordinated debt owed by therelevant issuer. In any liquidation event subordinated debt will be repaid by the relevant issuer only after the repayment of claims of depositors, othercreditors and the unsubordinated debt holders.
2021
2020
NZ$m
NZ$m
Senior debt
14,22017,476
Covered bonds
4,248
4,522
21,998
Total unsubordinated debt
18,468Subordinated debt
- Additional Tier 1 capital instruments
2,441
2,441
- Tier 2 capital instruments
593
24,439Total debt issued
21,502TOTAL DEBT ISSUED BY CURRENCY
The table below shows the Banking Group’s issued debt by currency of issue, which broadly represents the debt holders’ base location.

AUD Australian dollars
EUR Euro
NZD New Zealand dollars
CHF Swiss Francs
USD United States dollars
Total debt issued
Residual contractual maturity:
Within one year
More than one year
Total debt issued

2021
NZ$m
45
8,055
4,494
984
7,924
21,502

2020
NZ$m
49
8,332
4,921
1,053
10,08424,4394,334
17,16821,502

5,133
19,30624,439Covered bonds are guaranteed by ANZNZ Covered Bond Trust Limited (the Covered Bond Guarantor), solely in its capacity as trustee of ANZNZ
Covered Bond Trust (the Covered Bond Trust). The Covered Bond Trust is a member of the Banking Group, whereas the Covered Bond Guarantor is nota member of the Banking Group.

SUBORDINATED DEBT
All subordinated debt is issued by the Bank and qualifies as regulatory capital for the Banking Group. Each subordinated debt instrument is classified
as either Additional Tier 1 (AT1) capital, in the case of the ANZ NZ Capital Notes (ANZ NZ CN), ANZ NZ Internal Capital Notes 1 (ANZ NZ ICN) and ANZNZ Internal Capital Notes 2 (ANZ NZ ICN2), or Tier 2 capital for RBNZ’s capital adequacy purposes depending on the terms and conditions of the
instruments.
In any liquidation event impacting the Bank, Tier 2 capital instruments rank ahead of AT1 capital instruments. AT1 capital instruments rank equally witheach other and with the Bank’s preference shares and only rank ahead of ordinary shares.
AT1 CAPITAL
AT1 capital notes are fully paid convertible non-cumulative perpetual subordinated notes. Holders of AT1 capital notes do not have any right to votein general meetings of the Bank. As at 30 September 2021, ANZ NZ CN carried a BBB- credit rating from S&P Global Ratings.
AT1 capital notes are classified as debt given there are circumstances beyond the Bank’s control where the principal is converted into a variable
number of ordinary shares of the Bank (ANZ NZ ICN and ANZ NZ ICN2) or the Ultimate Parent Bank (ANZ NZ CN).
Interest payments on the AT1 capital notes are non-cumulative and subject to the issuer’s absolute discretion and certain payment conditions(including regulatory requirements).
Where specified, AT1 capital notes provide the Bank with an early redemption or conversion option on a specified date and in certain othercircumstances (such as a tax or regulatory event). Early redemption is subject to RBNZ’s, and in the case of ANZ NZ CN, APRA’s prior written approval.
Each of the AT1 capital notes will immediately convert into a variable number of ordinary shares of the:• Bank based on the net assets per share in the Bank’s most recently published Disclosure Statement (ANZ NZ ICN and ANZ NZ ICN2); or• Ultimate Parent Bank based on the average market price of the Ultimate Parent Bank’s ordinary shares immediately prior to conversion less a 1%
discount, subject to a maximum conversion number (ANZ NZ CN)
if:• the Banking Group’s, or in the case of the ANZ NZ CN the Overseas Banking Group’s Level 2, common equity tier 1 capital ratio is equal to or lessthan 5.125% - known as a Common Equity Capital Trigger Event; or34

NOTES TO THE FINANCIAL STATEMENTS

14. DEBT ISSUANCES (continued)•

RBNZ directs the Bank to convert or write-off the notes or a statutory manager is appointed to the Bank and decides that the Bank must convert
or write-off the notes or, in the case of the ANZ NZ CN, APRA notifies the Ultimate Parent Bank that, without the conversion or write-off of certain
securities or a public injection of capital (or equivalent support), it considers that the Ultimate Parent Bank would become non-viable – known
as a Non-Viability Trigger Event.

Where specified, AT1 capital notes mandatorily convert into a variable number of ordinary shares of the Bank (ANZ NZ ICN and ANZ NZ ICN2) (basedon the net assets per share in the Bank’s most recently published Disclosure Statement) or the Ultimate Parent Bank (ANZ NZ CN) (based on the
average market value of the shares immediately prior to conversion less a 1% discount):• on a specified mandatory conversion date; or• on an earlier date under certain circumstances as set out in the terms.
However, the mandatory conversion is deferred for a specified period if certain conversion tests are not met.
The RBNZ has released new capital adequacy requirements for New Zealand banks, which are being implemented from October 2021 to July 2028.
Under the new requirements, from 1 January 2022, the AT1 capital notes are subject to a 12.5% reduction in their regulatory capital recognition. As aresult, the Bank has determined that a regulatory event has occurred in respect of these notes. The occurrence of a regulatory event means that the
Bank may choose to redeem any of the AT1 capital notes at its discretion. A redemption of the AT1 capital notes is subject to certain conditions,
including regulatory approvals. As at 10 November 2021, no decision has been made on whether the Bank will redeem the AT1 capital notes.
The table below show the key details of the AT1 capital notes on issue at 30 September in both the current and the prior years:
Issue dateIssue amount and carrying value
Face value
Interest frequency
Interest rate
Issuer's early redemption (as per deed poll)
Mandatory conversion dateCommon equity capital trigger event
Non-viability trigger event
1

ANZ NZ CN
31 March 2015
NZ$500 million
NZ$1
Quarterly in arrears
Floating rate: New Zealand 3
month Bank bill rate + 3.5%
n/a1

ANZ NZ ICN
5 March 2015
NZ$1,003 million
NZ$100Semi-annually in arrears
Floating rate: New Zealand 6
month Bank Bill rate + 3.8%
24 March 2023

ANZ NZ ICN2
15 June 2016
NZ$938 million
NZ$100Semi-annually in arrears
Floating rate: New Zealand 6
month Bank Bill rate + 6.29%
15 June 2026 and each 5th
anniversary

25 May 2022
Yes

24 March 2025
Yes

n/a
Yes

Yes

Yes

Yes

On 2 April 2020, RBNZ announced that locally incorporated banks, including the Bank, should not redeem capital notes at that time. Accordingly, the Bank was not permitted to, and did
not, redeem ANZ NZ CN on 25 May 2020 (the Optional Exchange Date). Further, the Bank did not exercise its option to convert ANZ NZ CN into ordinary shares of the Ultimate Parent Bankon the Optional Exchange Date.

TIER 2 CAPITAL
Tier 2 capital notes are fully paid unsecured subordinated notes. As at 30 September 2021 the notes carried an A- credit rating from S&P Global
Ratings. Interest payments are subject to the Bank being solvent at the time of, and immediately following, the payment. Unpaid interest accumulates,
and will be paid at the earlier of when the Bank is solvent again or at maturity. The Bank may repay the notes early on the dates specified below, or incertain other circumstances (such as a tax or regulatory event). Early repayment is subject to certain conditions, including approval from the RBNZ.
Issue dateIssue amount and carrying value
Face value
Interest frequency
Interest rate
Issuer's early redemption
Maturity

17 September 2021
Issue amount: NZ$600 million; Carrying value (net of issue costs): NZ$593 million
NZ$1
Quarterly in arrears
Fixed at 2.999% p.a. until 17 September 2026. Resets on 17 September 2026 to a floating
rate: New Zealand 3 month Bank bill rate + 1.25%
17 September 2026 or any interest payment date thereafter
17 September 2031

RECOGNITION AND MEASUREMENT
Debt issuances are measured at amortised cost. Where the Banking Group enters into a fair value hedge accounting relationship, the fair value
attributable to the hedge risk is reflected in adjustments to the carrying value of the debt. Interest expense is recognised using the effective
interest rate method.
Subordinated debt with capital-based conversion features (i.e. Common Equity Capital Trigger Event or Non-Viability Trigger Events) areconsidered to contain embedded derivatives that we account for separately at fair value through profit and loss. The embedded derivatives arise
because the amount of shares issued on conversion following any of those trigger events is subject to the maximum conversion number,
however they have no significant value as of the reporting date given the remote nature of those trigger events.
35

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENTRISK MANAGEMENT FRAMEWORK AND MODELINTRODUCTION
The use of financial instruments is fundamental to the Banking Group’s businesses of providing banking and other financial services to our customers.
The associated financial risks (primarily credit, market, and liquidity risks) are a significant portion of the Banking Group’s key material risks.
This note details the Banking Group’s financial risk management policies, processes and quantitative disclosures in relation to the key financial risks:
Key material financial risks

Key sections applicable to this risk

Credit risk

•
•
•
•
•

Credit risk overview, management and control responsibilities
Maximum exposure to credit risk
Credit quality
Concentrations of credit risk
Collateral management

•
•
•
•

Market risk overview, management and control responsibilities
Measurement of market risk
Traded and non-traded market risk
Foreign currency risk – structural exposure

•
•
•
•
•

Liquidity risk overview, management and control responsibilities
Key areas of measurement for liquidity risk
Liquidity portfolio management
Funding position
Residual contractual maturity analysis of the Banking Group’s
liabilities

The risk of financial loss resulting from:• a counterparty failing to fulfil its obligations; or• a decrease in credit quality of a counterparty resulting in financial loss.
Credit risk incorporates the risks associated with us lending to customers
who could be impacted by climate change or by changes to laws,
regulations, or other policies adopted by governments or regulatory
authorities, including carbon pricing and climate change adaptation or
mitigation policies.
Market risk
The risk to the Banking Group’s earnings arising from:• changes in interest rates, foreign exchanges rates, credit spreads,
volatility and correlations; or• fluctuations in bond, commodity or equity prices.
Liquidity and funding risk
The risk that the Banking Group is unable to meet its payment obligations as
they fall due, including:• repaying depositors or maturing wholesale debt; or• the Banking Group having insufficient capacity to fund increases in
assets.

OVERVIEWAN OVERVIEW OF OUR RISK MANAGEMENT FRAMEWORKThis overview is provided to aid the users of the financial statements in understanding the context of the financial disclosures required under NZ IFRS
7 Financial Instruments: Disclosures (NZ IFRS 7).
The Board is responsible for establishing and overseeing the Banking Group’s Risk Management Framework (RMF). The Board has delegated authority
to the Bank’s Board Risk Committee (BRC) to develop and monitor compliance with the Banking Group’s risk management policies. The BRC reports
regularly to the Board on its activities.
The Board approves the strategic objectives of the Banking Group including:• the Risk Appetite Statement (RAS), which sets out the Board’s expectations regarding the degree of risk that the Banking Group is prepared toaccept in pursuit of its strategic objectives and business plan; and• the Risk Management Strategy (RMS), which describes the Banking Group’s strategy for managing risks and the key elements of the RMF thatgive effect to this strategy. This includes a description of each material risk, and an overview of how the RMF addresses each risk, with reference
to the relevant policies, standards and procedures. It also includes information on how the Banking Group identifies, measures, evaluates,
monitors, reports and controls or mitigates material risks.
The Banking Group, through its training and management standards and procedures, aims to maintain a disciplined and robust control environment
in which all employees understand their roles and obligations. At the Banking Group, risk is everyone’s responsibility.
The Banking Group has an independent risk management function, headed by the Chief Risk Officer who:
• is responsible for overseeing the risk profile and the risk management framework;• can effectively challenge activities and decisions that materially affect the Banking Group’s risk profile; and• has an independent reporting line to the BRC to enable the appropriate escalation of issues of concern.
Internal Audit Function
Internal Audit is a function independent of management whose role is to provide the Board and management with an effective and independent
appraisal of the internal controls established by management. Operating under a Board approved Charter, the reporting line for the outcomes of work
conducted by Internal Audit is direct to the Chair of the Audit Committee, with a direct communication line to the Chief Executive Officer and theexternal auditor. The Internal Audit Plan is developed using a risk based approach and is reviewed quarterly. The Audit Committee approves the plan.
All audit activities are conducted in accordance with local and international internal auditing standards, and the results of the activities are reported to
the Audit Committee and management. These results influence the performance assessment of business heads. Furthermore, Internal Audit monitors
the remediation of audit issues and reports the current status of any outstanding audits.

36

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISKCREDIT RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIES
Granting credit facilities to customers is one of the Banking Group’s major sources of income. As this activity is also a key material risk, the Banking
Group dedicates considerable resources to its management. The Banking Group assumes credit risk in a wide range of lending and other activities indiverse markets and in many jurisdictions. Credit risks arise from traditional lending to customers as well as from interbank, treasury, trade finance andcapital markets activities.
Our credit risk management framework ensures we apply a consistent approach across the Banking Group when we measure, monitor and manage
the credit risk appetite set by the Board. The Board is assisted and advised by the BRC in discharging its duty to oversee credit risk. The BRC:
• sets the credit risk appetite and credit strategies; and• approves credit transactions beyond the discretion of executive management.
The BRC delegates responsibility for day-to-day management of credit risk and compliance with credit risk policies to the Bank’s Credit Risk
Management Committee (CRMC).
We quantify credit risk through an internal credit rating system (Master Scale) to ensure consistency across exposure types and to provide a consistentframework for reporting and analysis. The system uses models and other tools to measure the following for customer exposures:
Probability of Default (PD)Expressed by a Customer Credit Rating (CCR), reflecting the Banking Group’s assessment of a customer’sability to service and repay debt.

Exposure at Default (EAD)

The expected balance sheet exposure at default taking into account repayments of principal andinterest, expected additional drawdowns and accrued interest at the time of default.

Loss Given Default (LGD)

Expressed by a Security Indicator (SI) ranging from A to G. The SI is calculated by reference to thepercentage of loan covered by security which the Banking Group can realise if a customer defaults. The
A-G scale is supplemented by a range of other SIs which cover such factors as cash cover and sovereign
backing. For retail and some small business lending, we group exposures into large homogeneous
pools – and the LGD is assigned at the pool level.

Our specialist credit risk teams develop and validate the Banking Group’s PD and LGD rating models. The outputs from these models drive our day-today credit risk management decisions including origination, pricing, approval levels, regulatory capital adequacy, internal capital allocation, and credit
provisioning.
All customers with whom the Banking Group has a credit relationship are assigned a CCR at origination via either of the following assessment
approaches:
Large and more complex lending

Retail and some small business lending

Rating models provide a consistent and structured assessment, withjudgement required around the use of out-of-model factors. We
handle credit approval on a dual approval basis, jointly with thebusiness writer and an independent credit officer.

Automated assessment of credit applications using a combination ofscoring (application and behavioural), policy rules and external credit
reporting information. If the application does not meet the automatedassessment criteria, then it is subject to manual assessment.

We use the Banking Group’s internal CCR to manage the credit quality of financial assets. To enable wider comparisons, the Banking Group’s CCRs are
mapped to external rating agency scales as follows:
Credit quality
description

Internal CCR

The Banking Group customer requirements

Moody’s
RatingS&P Global
Ratings

Strong

CCR 0+ to 4-

Demonstrated superior stability in their operating and financial
performance over the long-term, and whose earnings capacity is
not significantly vulnerable to foreseeable events.

Aaa – Baa3

AAA – BBB-

Satisfactory

CCR 5+ to 6-

Demonstrated sound operational and financial stability over the
medium to long-term even though some may be susceptible tocyclical trends or variability in earnings.

Ba1 – B1

BB+ – B+Weak

CCR 7+ to 8=

Demonstrated some operational and financial instability, withvariability and uncertainty in profitability and liquidity projected tocontinue over the short and possibly medium term.

B2 – Caa

B - CCC

Defaulted

CCR 8- to 10

When doubt arises as to the collectability of a credit facility, thefinancial instrument (or ‘the facility’) is classified as defaulted.

n/a

n/a

37

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
MAXIMUM EXPOSURE TO CREDIT RISKFor financial assets recognised on the balance sheet, the maximum exposure to credit risk is the carrying amount. In certain circumstances there may
be differences between the carrying amounts reported on the balance sheet and the amounts reported in the tables below. Principally, thesedifferences arise in respect of financial assets that are subject to risks other than credit risk, such as equity instruments which are primarily subject tomarket risk, or bank notes and coins.
For undrawn facilities, this maximum exposure to credit risk is the full amount of the committed facilities. For contingent exposures, the maximum
exposure to credit risk is the maximum amount the Banking Group would have to pay if the instrument is called upon.
The table below shows our maximum exposure to credit risk of on-balance sheet and off-balance sheet positions before taking account of any
collateral held or other credit enhancements.
ReportedOn-balance sheet positions
Net loans and advances
Other financial assets:
Cash and cash equivalents
Settlement balances receivable
Collateral paid
Trading securities
Derivative financial instruments
Investment securities
Other financial assets2
Total other financial assets
Subtotal
Off-balance sheet commitments
Undrawn and contingent facilities3
Total
1
2
3

38

Maximum exposure tocredit risk

Excluded1

2021
NZ$m

2020
NZ$m

2021
NZ$m

2020
NZ$m

2021
NZ$m

2020
NZ$m

140,756

132,698--

140,756

132,698

7,844
237
537
9,585
9,304
11,926496
39,929180,685

8,248
378
1,394
12,797
9,702
9,893
547
42,959175,657

163
163
163

187
187
187

7,681
237
537
9,585
9,304
11,926496
39,766
180,522

8,061
378
1,394
12,797
9,702
9,893
547
42,772
175,470

30,030210,71530,857
206,514163

187

30,030210,552

30,857
206,327

Bank notes and coins and cash at bank within cash and cash equivalents.
Other financial assets mainly comprise accrued interest and acceptances.
Undrawn and contingent facilities include guarantees, letters of credit and performance related contingencies, net of collectively assessed and individually assessed allowance for expectedcredit losses.

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT QUALITY
An analysis of the Banking Group’s credit risk exposure is presented in the following tables based on the Banking Group’s internal credit quality ratingby stage without taking account of the effects of any collateral or other credit enhancements.

Stage 1
NZ$m
116,578
17,122
293
133,993(155)
133,838
0.12%

Stage 3
Collectively IndividuallyStage 2
assessedassessed
NZ$m
NZ$m
NZ$m
1,620
3,134
1,447
618
155
6,201
618
155
(314)
(56)
(60)
5,887
562
95
5.06%
9.06%
38.71%

98,25921,446405
120,110(162)
119,948
0.13%

5,508
4,578
1,734
11,820(347)
11,473
2.94%

Net loans and advances

As at 30 September 2021
StrongSatisfactory
Weak
Defaulted
Subtotal
Allowance for ECL
Net loans and advances at amortised cost
Coverage ratio
Unearned income
Capitalised brokerage and other origination costs
Net carrying amountAs at 30 September 2020
StrongSatisfactory
Weak
Defaulted
Subtotal
Allowance for ECL
Net loans and advances at amortised cost
Coverage ratio
Unearned income
Capitalised brokerage and other origination costs
Net carrying amount

808
808
(79)
729
9.78%

Total
NZ$m
118,198
20,256
1,740
773
140,967(585)
140,382
0.41%
(18)
392
140,756

361
361
(106)
255
29.36%

103,767
26,0242,139
1,169
133,099(694)
132,405
0.52%
(26)
319
132,6982021
NZ$m
39,70249
15
39,7662020
NZ$m
42,275447
50
42,772Other financial assets

StrongSatisfactory
Weak
Defaulted
Total carrying amount39

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
Off-balance sheet commitments - undrawn and contingent facilities

As at 30 September 2021
StrongSatisfactory
Weak
Defaulted
Gross undrawn and contingent facilities
Allowance for ECL included in Other provisions (refer to Note 20)
Net undrawn and contingent facilities
Coverage ratio

Stage 1
NZ$m
25,0723,734
12
28,818(64)
28,7540.22%

As at 30 September 2020
StrongSatisfactory
Weak
Defaulted
Gross undrawn and contingent facilities
Allowance for ECL included in Other provisions (refer to Note 20)
Net undrawn and contingent facilities
Coverage ratio

25,5253,949
27
29,501(79)
29,4220.27%

40Stage 3
Collectively IndividuallyStage 2
assessedassessed
NZ$m
NZ$m
NZ$m
142
1,037
100
32
23
1,279
32
23
(39)
(4)
(15)
1,240
28
8
3.05%
12.50%
65.22%

302
974
179
1,455
(55)
1,400
3.78%

19
19
(3)
16
15.79%

41
41
(22)
19
53.66%

Total
NZ$m
25,2144,771
112
55
30,152(122)
30,0300.40%

25,8274,923
206
60
31,016(159)
30,857
0.51%

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
CONCENTRATIONS OF CREDIT RISK
Credit risk becomes concentrated when a number of customers are engaged in similar activities, have similar economic characteristics, or have similar
activities within the same geographic region – therefore, they may be similarly affected by changes in economic or other conditions. The Banking
Group monitors its credit portfolio to manage risk concentration and rebalance the portfolio. The Banking Group also applies single customer
counterparty limits to protect against unacceptably large exposures to one single customer.
Analysis of financial assets by industry sector is based on Australian and New Zealand Standard Industrial Classification (ANZSIC) codes. The significant
categories shown are the level one New Zealand Standard Industry Output Categories (NZSIOC), except that Agriculture is shown separately as
required by the Order.
Composition of financial instruments that give rise to credit risk by industry group are presented below:
Loans
and advances

Other financial
assetsOff-balance sheet
credit related
commitments

2021
NZ$m

2020
NZ$m

2021
NZ$m

2020
NZ$m

2021
NZ$m

2020
NZ$m

2021
NZ$m

2020
NZ$m

16,316
659
2,342
946
1,165
1,264
2,473
943
1,040
37,441

17,049
678
2,407
1,098
1,150
1,243
2,415
838
948
35,529

43
5
162
337
9
51
12
55
10,969
1,627

70
5
161
567
26
69
27
159
11,139
1,270

854
137
2,126
1,828
909
1,790
848
708
1,774
2,357

862
113
2,350
1,991
955
1,797
992
738
1,800
2,314

17,213
801
4,630
3,111
2,083
3,105
3,333
1,706
13,783
41,425

17,981
796
4,918
3,656
2,131
3,109
3,434
1,735
13,887
39,113

830

923

5

7

480

545

1,315

1,475

305
71,274
1,905

283
64,522
2,059

12,453156
96

16,395167
153

808
13,564
1,869

883
13,757
1,796

13,56684,9943,870

17,561
78,446
4,008

Subtotal
Overseas
Finance and insurance services
Households
All other non-NZ residents

138,903

131,142

25,98030,21530,05230,893

194,935

192,250

104
1,259
701

127
1,172
658

13,7553
28

12,540
3
14

100
-

123
-

13,9591,262
729

12,7901,175
672

Subtotal
Gross total
Allowance for ECL
Subtotal
Unearned income
Capitalised brokerage and other origination
costs
Maximum exposure to credit risk

2,064
140,967(585)
140,382(18)

1,957
133,099(694)
132,405(26)

13,786
39,766
39,766-

12,55742,772
42,772-100
30,152(122)
30,030-123
31,016(159)
30,857-

15,950210,885(707)
210,178(18)

14,637
206,887(853)
206,034
(26)

392

319

-

-

-

-

392

319

140,756

132,698

39,76642,77230,03030,857

210,552

206,327

New Zealand residents
Agriculture
Forestry and fishing, agriculture services
Manufacturing
Electricity, gas, water and waste services
Construction
Wholesale trade
Retail trade and accommodation
Transport, postal and warehousing
Finance and insurance services
Rental, hiring & real estate services
Professional, scientific, technical,
administrative and support services
Public administration and safety1
Households
All other New Zealand residents2

1
2

Total

Public administration and safety includes exposures to local government administration and central government administration, defence and public safety.
Other includes exposures to mining, information media and telecommunications, education and training, health care and social assistance and arts, recreation and other services.

41

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
COLLATERAL MANAGEMENT
We use collateral for on and off-balance sheet exposures to mitigate credit risk if a counterparty cannot meet its repayment obligations. Where there issufficient collateral, an expected credit loss is not recognised. This is largely the case for certain lending products that are secured by corresponding
investment for which margin loans are utilised and for reverse repurchase agreements. For some products, the collateral provided by customers isfundamental to the product’s structuring, so it is not strictly the secondary source of repayment - for example, lending secured by trade receivables istypically repaid by the collection of those receivables. During the period there was no change in our collateral policies.
The nature of collateral or security held for the relevant classes of financial assets is as follows:
Net loans and advances
Loans – housing and personal

Housing loans are secured by mortgage(s) over property and additional security may take the form ofguarantees and deposits.
Personal lending (including credit cards and overdrafts) is predominantly unsecured. If we takesecurity, then it is restricted to eligible vehicles, motor homes and other assets.

Loans – businessBusiness loans may be secured, partially secured or unsecured. Typically, we take security by way of amortgage over property and/or a charge over the business or other assets.
If appropriate, we may take other security to mitigate the credit risk, such as guarantees, standby lettersof credit or derivative protection.

Other financial assets
Trading securities, investment
securities, derivatives and otherfinancial assets

For trading securities, we do not seek collateral directly from the issuer or counterparty. However, thecollateral may be implicit in the terms of the instrument (for example, with an asset-backed security).
The terms of debt securities may include collateralisation.
For derivatives, we typically terminate all contracts with the counterparty and settle on a net basis atmarket levels current at the time of a counterparty default under International Swaps and Derivatives
Association (ISDA) Master Agreements.
Our preferred practice is to use a Credit Support Annex (CSA) to the ISDA so that open derivative
positions with the counterparty are aggregated and cash collateral (or other forms of eligible collateral)is exchanged daily. The collateral is provided by the counterparty when their position is out of themoney (or provided to the counterparty by the Banking Group when our position is out of the money).

Off-balance sheet positions
Undrawn and contingent liabilities

Collateral for off-balance sheet positions is mainly held against undrawn facilities, and they are typically
performance bonds or guarantees. Undrawn facilities that are secured include housing loans securedby mortgages over residential property and business lending secured by commercial real estate and/or
charges over business assets.

The table below shows the estimated value of collateral we hold and the net unsecured portion of credit exposures:
Credit exposure

Total value of collateral

Unsecured portion of credit
exposure

2021
NZ$m

2020
NZ$m

2021
NZ$m

2020
NZ$m

Net loans and advances

140,756

132,698

133,801

125,770

6,955

6,928

Other financial assets

39,76642,772

1,878

2,761

37,88840,011Off-balance sheet positions

30,03030,857

16,241

15,291

13,78915,566

Total

210,552

206,327

151,920

143,82258,63262,505

42

2021
NZ$m

2020
NZ$m

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
MARKET RISKMARKET RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIESMarket risk stems from the Banking Group’s trading and balance sheet management activities and the impact of changes and correlations between
interest rates, foreign exchange rates, credit spreads and volatility in bond, commodity or equity prices.
The BRC delegates responsibility for day-to-day management of both market risk and compliance with market risk policies to the Bank’s Asset &Liability Committee (ALCO).
Within overall strategies and policies established by the BRC, business units and risk management have joint responsibility for the control of market
risk at the Banking Group level. The Market Risk team (a specialist risk management unit independent of the business) allocates market risk limits at
various levels and monitors and reports on them daily. This detailed framework allocates individual limits to manage and control exposures using risk
factors and profit and loss limits.
Management, measurement and reporting of market risk is undertaken in two broad categories:
Traded market risk

Non-traded market risk

Risk of loss from changes in the value of financial instruments due
to movements in price factors for both physical and derivative
trading positions. Principal risk categories monitored are:• Currency risk – potential loss arising from changes in foreignexchange rates or their implied volatilities.
• Interest rate risk – potential loss from changes in market
interest rates or their implied volatilities.
• Credit spread risk – potential loss arising from a movement
in margin or spread relative to a benchmark.
• Commodity risk – potential loss arising from changes incommodity prices or their implied volatilities.
• Equity risk – potential loss arising from changes in equity
prices.

Risk of loss associated with the management of non-traded interest rate risk,
liquidity risk and foreign exchange exposures. This includes interest rate riskin the banking book. This risk of loss arises from adverse changes in theoverall and relative level of interest rates for different tenors, differences in
the actual versus expected net interest margin, and the potential valuation
risk associated with embedded options in financial instruments and bankproducts.

MEASUREMENT OF MARKET RISKWe primarily manage and control market risk using Value at Risk (VaR), sensitivity analysis and stress testing.
VaR measures the Banking Group’s possible daily loss based on historical market movements.
The Banking Group’s VaR approach for both traded and non-traded risk is historical simulation. We use historical changes in market rates, prices andvolatilities over:• the previous 500 business days, to calculate standard VaR; and• a 1-year stressed period, to calculate stressed VaR.
We calculate traded and non-traded VaR using a one-day holding period. For stressed VaR we use a ten-day period. Back testing is used to ensure ourVaR models remain accurate.
The Banking Group measures VaR at a 99% confidence interval which means there is a 99% chance that a loss will not exceed the VaR for the relevant
holding period.

43

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
TRADED AND NON-TRADED MARKET RISK
Traded market risk
The table below shows the traded market risk VaR on a diversified basis by risk categories:

As at
NZ$m
Traded value at risk 99% confidence
Foreign exchangeInterest rate
CreditDiversification benefit1
Total VaR
1

0.6
2.9
0.5
(1.0)
3.0

2021
High forLow for
year
year
NZ$m
NZ$m
2.3
7.4
1.5
n/a
9.4

0.2
2.0
0.3
n/a
2.2

Averagefor year
NZ$m

As at
NZ$m

1.0
4.4
0.8
(1.3)
4.9

0.7
6.1
1.2
(1.3)
6.7

2020
High forLow for
year
year
NZ$m
NZ$m
2.0
8.7
1.6
n/a
10.3

Averagefor year
NZ$m

0.2
1.0
0.4
n/a
1.1

0.7
3.2
0.8
(0.9)
3.8

The diversification benefit reflects risks that offset across categories. The high and low VaR figures reported for each factor did not necessarily occur on the same day as the high and low VaR reported for
the Banking Group as a whole. Consequently, a diversification benefit for high and low would not be meaningful and is therefore omitted from the table.

Non-traded market risk
Balance sheet risk management
The principal objectives of balance sheet risk management are to maintain acceptable levels of interest rate and liquidity risk to mitigate the negative
impact of movements in interest rates on the earnings and market value of the Banking Group’s banking book, while ensuring the Banking Group
maintains sufficient liquidity to meet its obligations as they fall due.
Interest rate risk management
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, namely mismatches between the repricing dates of interest bearing assets and liabilities; and theinvestment of capital and other non-interest bearing liabilities in interest bearing assets. Interest rate risk is reported using VaR and scenario analysis(based on the impact of a 1% rate shock). The table below shows VaR figures for non-traded interest rate risk for the Banking Group.

As at
NZ$m
Non-traded value at risk 99% confidence
Total VaR

22.5

2021
High forLow for
year
year
NZ$m
NZ$m
38.4

22.3

Averagefor year
NZ$m

As at
NZ$m

30.5

29.1

2020
High forLow for
year
year
NZ$m
NZ$m
29.1

Averagefor year
NZ$m

9.5

16.6

We undertake scenario analysis to stress test the impact of extreme events on the Banking Group’s market risk exposures. We model a 1% overnight
parallel positive shift in the yield curve to determine the potential impact on our net interest income over the next 12 months. This is a standard risk
measure which assumes the parallel shift is reflected in all wholesale and customer rates.
The table below shows the outcome of this risk measure for the current and previous financial years, expressed as a percentage of reported net
interest income.
2021

2020

-1.4%

-0.6%

Impact of 1% rate shock
As at period end
Maximum exposure

0.2%

1.5%

Minimum exposure

-2.0%

-0.6%

Average exposure (in absolute terms)

-1.0%

0.5%

FOREIGN CURRENCY RISK – STRUCTURAL EXPOSURES
Where it is considered appropriate, the Banking Group takes out economic hedges against larger foreign exchange denominated revenue streams(primarily Australian Dollar, US Dollar and US Dollar correlated). The primary objective of hedging is to ensure that, if practical, the effect of changes inforeign exchange rates on the consolidated capital ratios are minimised.

44

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
LIQUIDITY AND FUNDING RISKLIQUIDITY RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIES
Liquidity risk is the risk that the Banking Group is either:• unable to meet its payment obligations (including repaying depositors or maturing wholesale debt) when they fall due; or• does not have the appropriate amount, tenor and composition of funding and liquidity to fund increases in its assets.
Management of liquidity and funding is overseen by ALCO. The Banking Group’s liquidity and funding risks are governed by a set of principles
approved by the Risk Committees of the Bank’s and Ultimate Parent Bank’s Boards and include:• maintaining the ability to meet all payment obligations in the immediate term;• ensuring that the Banking Group has the ability to meet ‘survival horizons’ under Banking Group specific and general market liquidity stressscenarios to meet cash flow obligations over the short to medium term;• maintaining strength in the Banking Group’s balance sheet structure to ensure long term resilience in the liquidity and funding risk profile;• ensuring the liquidity management framework is compatible with local regulatory requirements;• preparing daily liquidity reports and scenario analysis to quantify the Banking Group’s positions;• targeting a diversified funding base to avoid 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 a detailed contingency plan to cover different liquidity crisis events.
KEY AREAS OF MEASUREMENT FOR LIQUIDITY RISKSupervision and regulation
The RBNZ requires the Bank to have a comprehensive Board approved liquidity strategy defining: policy, systems and procedures for measuring,assessing, reporting and managing liquidity. This also includes a formal contingency plan for dealing with a liquidity crisis. The Banking Group isrequired to meet one week and one month liquidity mismatch ratios and a one year core funding ratio each day.
Scenario modelling
A key component of the Banking Group’s liquidity management framework is scenario modelling.
Potential severe liquidity crisis scenarios which model the behaviour of cash flows where there is a problem (real or perceived) may include, but are
not limited to, operational issues, doubts about the solvency of the Banking Group, or adverse rating changes. Under these scenarios the Banking
Group may have significant difficulty rolling over or replacing funding. The Banking Group’s liquidity policy requires sufficient high quality liquid assets
to be held to meet its liquidity needs for the following 30 calendar days under the modelled scenarios.
As of 30 September 2021 the Banking Group was in compliance with the above scenarios.
Structural balance sheet metrics
The Banking Group’s liquidity management framework also encompasses structural balance sheet metrics such as the RBNZ core funding ratio. These
metrics are designed to limit the amount of wholesale funding required to be rolled over within a 1 year timeframe and so interact with the liquidity
scenarios to maintain the Banking Group‘s liquidity position.
Wholesale funding
The Banking Group’s wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost efficiency withtargeting diversification by markets, investors, currencies, maturities and funding structures. Short-term and long-term wholesale funding is managed
and executed by Treasury operations.
The Banking Group also uses maturity concentration limits under the wholesale funding and liquidity management framework. Maturity
concentration limits ensure that the Banking Group is not required to issue large volumes of new wholesale funding within a short time period toreplace maturing wholesale funding. 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
The Banking Group adopts a conservative approach to determine its funding capacity. Annually, a funding plan is approved by the Bank’s Board. The
plan is supplemented by regular updates and is linked to the Banking Group’s three-year strategic planning cycle.

45

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
LIQUIDITY PORTFOLIO MANAGEMENT
The Banking Group holds a diversified portfolio of cash and high quality liquid securities primarily to support liquidity risk management. The size of the
Banking Group’s liquidity portfolio is determined with consideration of the amount required to meet the requirements of its internal and regulatory
liquidity scenario metrics.
Total liquidity portfolio

Central and local government bonds
Government treasury bills
Certificates of deposit
Other bonds
Securities eligible to be accepted as collateral in repurchase transactions
Cash and balances with central banks
Total liquidity portfolio

2021
NZ$m
10,312
899
959
8,913
21,083
7,013
28,0962020
NZ$m
10,729
3,909
389
7,525
22,552
7,385
29,937

Assets held in the Banking Group’s liquidity portfolio include short term cash held with RBNZ, New Zealand Government securities, securities issued bysupranational agencies, securities issued by highly rated banks and securities issued by State Owned Enterprises, Local Authorities and highly rated
New Zealand domestic corporates.
The Bank also held unencumbered internal residential mortgage backed securities (RMBS) which would be accepted as collateral by RBNZ in
repurchase transactions. These holdings would entitle the Bank to enter into repurchase transactions with RBNZ with a value of NZ$9,647 million at 30
September 2021 (2020: NZ$8,184 million).
RBNZ Term Lending Facility (TLF) and Funding for Lending Programme (FLP)• Between May 2020 and July 2021, RBNZ made funds available under the TLF to promote lending to businesses. The TLF is a five-year secured
funding facility for New Zealand banks at a fixed rate of 0.25%.
•

In November 2020, RBNZ announced the FLP which aims to lower the cost of borrowing for New Zealand businesses and households. The FLP isa three-year secured funding facility for New Zealand banks at a floating rate of the New Zealand Official Cash Rate (OCR). New Zealand banks
can obtain initial funding of up to 4% of their lending to New Zealand resident households, non-financial businesses and non-profit institutions
serving households as at 31 October 2020 (eligible loans). An additional allocation of up to 2% of eligible loans is available, subject to certain
conditions. The Bank’s initial allocation is NZ$5,223 million and its additional allocation is NZ$2,611 million. The additional allocation is available
until 6 December 2022, and the initial allocation is available until 6 June 2022.

As at 30 September 2021, the Bank had drawn NZ$300 million (2020: nil) under the TLF and NZ$1,000 million (2020: nil) under the FLP. These amounts
are included in securities sold under repurchase agreements in Note 13 Deposits and Other Borrowings.
Liquidity crisis contingency planning
The Banking Group maintains a liquidity crisis contingency plan to define an approach for analysing and responding to a liquidity-threatening eventon a group wide basis. The framework includes:• the establishment of crisis severity/stress levels;• clearly assigned crisis roles and responsibilities;• early warning signals indicative of an approaching crisis, and mechanisms to monitor and report these signals;• outlined action plans, and courses of action for altering asset and liability behaviour;• procedures for crisis management reporting, and covering cash-flow shortfalls; and• assigned responsibilities for internal and external communications.

46

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
FUNDING POSITION
The Banking Group actively uses balance sheet disciplines to prudently manage the funding mix. The Banking Group employs funding metrics toensure that an appropriate proportion of its assets are funded from stable sources, including customer liabilities, longer-dated wholesale debt (withremaining term exceeding one year) and equity.
Analysis of funding liabilities by industry is based on ANZSIC codes. The significant categories shown are the level one NZSIOC.
Note

2021
NZ$m

2020
NZ$m

13

125,129

120,863

Debt issuances

21,502

24,439Certificates of deposit and commercial paper

6,308

3,530

Other borrowings

1,702

668

Total wholesale funding

29,512

28,637

Total funding

154,641

149,500

Agriculture, forestry and fishing

4,485

4,109

Manufacturing

2,707

2,863

Construction

2,884

2,750

Wholesale trade

2,688

2,407

Retail trade and accommodation

2,177

2,280

Financial and insurance services

13,836

14,491

Rental, hiring and real estate services

4,260

3,691

Professional, scientific, technical, administrative and support services

6,560

5,748

Public administration and safety

1,813

2,043

Arts, recreation and other services

Funding composition
Customer deposits
Wholesale funding

Customer deposits by industry - New Zealand residents

2,226

2,199

Households

67,19664,203All other New Zealand residents1

4,807

4,280

115,639

111,064

8,693

9,219

797

580

9,490

9,799

125,129

120,863

Customer deposits by industry - overseas
Households
All other non-NZ residents
Total customer deposits
Wholesale funding (financial and insurance services industry)
New Zealand

7,891

6,814

Overseas

21,621

21,823

Total wholesale funding

29,512

28,637

Total funding

154,641

149,500

123,530

117,878

983

1,243

United States

12,791

12,223

Europe10,36910,976

Other countries

6,968

7,180

Total funding

154,641

149,500

Concentrations of funding by geography
New ZealandAustralia

1

Other includes mining; electricity, gas, water and waste services; transport, postal and warehousing; information media and telecommunications; education and training; health care andsocial assistance.

47

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
RESIDUAL CONTRACTUAL MATURITY ANALYSIS OF THE BANKING GROUP’S FINANCIAL LIABILITIESThe tables below provide residual contractual maturity analysis of financial liabilities at 30 September 2021 and 30 September 2020 within relevant
maturity groupings. All outstanding debt issuances are profiled on the earliest date on which the Banking Group may be required to pay. The amounts
represent principal and interest cash flows – so they may differ from equivalent amounts reported on the balance sheet.
It should be noted that this is not how the Banking Group manages its liquidity risk. The management of this risk is detailed on page 45.
On demand
NZ$mLess than
3 months
NZ$m

3 to 12months
NZ$m

1 to 5
years
NZ$m

After
5 years
NZ$m

Total
NZ$m

Settlement balances payable
Collateral received

2,383

323

-

-

-

2,706

-

738

-

-

-

738

Deposits and other borrowings

84,461

21,444

24,175

3,604-

133,684

Derivative financial liabilities (trading)

-

7,665

-

-

-

7,665

Debt issuances1

-

26

4,594

12,863

4,907

22,390

Lease liabilities

-

13

39

165

70

287

Other financial liabilities

-

192

48

382

268

890

- gross inflows

-

447

3,098

4,559

296

8,400

- gross outflows

-

(468)

(3,106)(4,572)(251)(8,397)

2,378

573

-

-

-

2,951

-

1,275

-

-

-

1,275

70,79425,61025,685

3,895-

125,9842021

Derivative financial instruments(balance sheet management)

2020
Settlement balances payable
Collateral received
Deposits and other borrowings
Derivative financial liabilities (trading)

-

6,374

-

-

-

6,374

Debt issuances1

-

450

5,061

14,762

4,840

25,113

Lease liabilities

-

13

39

178

99

329

Other financial liabilities

-

80

6

98

68

252

- gross inflows

-

392

1,924

6,638

366

9,320

- gross outflows

-

(496)

(2,042)(6,502)(282)(9,322)Derivative financial instruments(balance sheet management)

1

Any callable wholesale debt instruments have been included at their next call date. Refer to Note 14 Debt Issuances for subordinated debt call dates.

At 30 September 2021, NZ$30,152 million (2020: NZ$31,016 million) of its credit related commitments and contingent liabilities mature in less than 1
year, based on the earliest date on which the Banking Group may be required to pay.

48

NOTES TO THE FINANCIAL STATEMENTS

16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIESThe Banking Group carries a significant number of financial instruments on the balance sheet at fair value. The fair value is the best estimate of theprice that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement
date.
VALUATION
The Banking Group has an established control framework, including appropriate segregation of duties, to ensure that fair values are accurately
determined, reported and controlled. The framework includes the following features:• products are approved for transacting with external customers and counterparties only where fair values can be appropriately determined;• quoted market prices used to value financial instruments are independently verified with information from external pricing providers;• fair value methodologies and inputs are evaluated and approved by a function independent of the party that undertakes the transaction;• movements in fair values are independently monitored and explained by reference to underlying factors relevant to the fair value; and• valuation adjustments (such as funding valuation adjustments, credit valuation adjustments and bid-offer adjustments) are independently
validated and monitored.
If the Banking Group holds offsetting risk positions, then the Banking Group uses the portfolio exemption in NZ IFRS 13 Fair Value Measurement (NZ
IFRS 13) to measure the fair value of such groups of financial assets and financial liabilities. We measure the portfolio based on the price that would bereceived to sell a net long position (an asset) for a particular risk exposure, or to transfer a net short position (a liability) for a particular risk exposure.
FAIR VALUE APPROACH AND VALUATION TECHNIQUESWe use valuation techniques to estimate the fair value of assets and liabilities for recognition, measurement and disclosure purposes where no quoted
price in an active market exists for that asset or liability. This includes the following:
Asset or liability

Fair value approach

Financial instruments classified as:- Trading securities- Derivative financial assets and financial liabilities- Investment securities

Valuation techniques are used that incorporate observable market inputs for financial
instruments with similar credit risk, maturity and yield characteristics.

Financial instruments classified as:- Net loans and advances- Deposits and other borrowings- Debt issuances

Discounted cash flow techniques are used whereby contractual future cash flows of the
instrument are discounted using wholesale market interest rates, or market borrowing rates
for debt with similar maturities or with a yield curve appropriate for the remaining term tomaturity.

CLASSIFICATION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIESThe following tables set out the classification of financial asset and liability categories according to measurement bases together with the carrying
amounts as recorded on the balance sheet.
2021
2020
At
At
amortised
At fair
amortised
At fair
cost
value
Total
cost
value
Total
Note
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
Financial assets
Cash and cash equivalents
7
7,844
7,844
8,248
8,248
Settlement balances receivable
237
237
378
378
Collateral paid
537
537
1,394
1,394
Trading securities
8
12,797
12,797
9,585
9,585
Derivative financial instruments
9
9,702
9,702
9,304
9,304
Investment securities
10
9,893
9,893
11,926
11,926Net loans and advances
11
132,698
132,698
140,756
140,756
Other financial assets
547
547
496
496
Total
149,870
30,815
180,685
143,265
32,392
175,657
Financial liabilities
Settlement balances payable
2,704
2,704
2,950
2,950
Collateral received
1,275
1,275
738
738
Deposits and other borrowings
13
123,3131,748
125,061
128,706
4,433
133,139
Derivative financial instruments
9
8,252
8,252
7,727
7,727
Debt issuances
14
24,43924,43921,50221,502Other financial liabilities
679
158
837
572
676
1,248
Total
154,222
12,836167,058
152,656
10,158
162,81449

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
FAIR VALUE HIERARCHYThe Banking Group categorises assets and liabilities carried at fair value into a fair value hierarchy as required by NZ IFRS 13 based on the observabilityof inputs used to measure the fair value:• Level 1 – valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities;• Level 2 – valuations using inputs other than quoted prices included within Level 1 that are observable for a similar asset or liability, either directly
or indirectly; and• Level 3 – valuations where significant unobservable inputs are used to measure the fair value of the asset or liability.
The following table presents assets and liabilities carried at fair value in accordance with the fair value hierarchy:

2021
NZ$m

2020
NZ$m

Fair value measurements
Using observable
Using unobservable
inputsinputs (Level 3)(Level 2)
2021
2020
2021
2020
NZ$m
NZ$m
NZ$m
NZ$m

8,276
19
11,925
20,220

8,848
8
9,892
18,7481,309
9,284
10,593

3,949
9,691
13,640

1
1
2

5
676
681

4
158
162

4,433
7,722
12,155

1,748
8,248
9,996

-

Quoted market price(Level 1)

AssetsTrading securities
Derivative financial instruments
Investment securities
Total
Liabilities
Deposits and other borrowings
Derivative financial instruments
Other financial liabilities
Total

Total
2021
NZ$m

2020
NZ$m

3
1
4

9,585
9,304
11,92630,815

12,797
9,702
9,893
32,392

-

4,433
7,727
676
12,836

1,748
8,252
158
10,158Fair value designation
We designate commercial paper (included in deposits and other borrowings) as fair value through profit or loss where they are managed on a fairvalue basis to align the measurement with how the instruments are managed.

50

NOTES TO THE FINANCIAL STATEMENTS

16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES NOT MEASURED AT FAIR VALUE
The following table sets out the Banking Group’s basis of estimating the fair values of financial assets and financial liabilities carried at amortised costwhere the carrying value is not typically a reasonable approximation of fair value.
Financial asset and liability

Fair value approach

Net loans and advances to banks

Discounted cash flows using prevailing market rates for loans with similar credit quality.

Net loans and advances to customers

Present value of future cash flows, discounted using a curve that incorporates changes inwholesale market rates, the Banking Group’s cost of wholesale funding and the customer margin,
as appropriate.

Deposit liability without a specified maturity or
at call

The amount payable on demand at the reporting date. We do not adjust the fair value for any
value we expect the Banking Group to derive from retaining the deposit for a future period.

Interest bearing fixed maturity deposits andother borrowings and acceptances withquoted market rates

Market borrowing rates of interest for debt with a similar maturity are used to discount contractual
cash flows to derive the fair value.

Debt issuances

Calculated based on quoted market prices or observable inputs as applicable. If quoted market
prices are not available, we use a discounted cash flow model using a yield curve appropriate forthe remaining term to maturity of the debt instrument. The fair value reflects adjustments to credit
spreads applicable to the Banking Group for that instrument.

The financial assets and financial liabilities listed in the table below are carried at amortised cost on the Banking Group’s balance sheet. While this is thevalue at which we expect the assets will be realised and the liabilities settled, the Banking Group provides an estimate of the fair value of the financial
assets and financial liabilities at balance date in the table below.

Carrying amount
2021
2020
NZ$m
NZ$m
Financial assets
Net loans and advances
Total
Financial liabilities
Deposits and otherborrowings
Debt issuances
Total

Categorised into fair value hierarchy
Using observable
With significant nonQuoted market priceinputsobservable inputs(Level 1)(Level 2)(Level 3)
2021
2020
2021
2020
2021
2020
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m

Fair value (total)
2021
2020
NZ$m
NZ$m

140,756
140,756

132,698
132,698

-

-

106
106

133
133

140,597
140,597

133,172
133,172

140,703
140,703

133,305
133,305

128,706

123,313--

128,726

123,486--

128,726

123,486

21,502150,208

24,439147,752

2,626
2,626

2,637
2,637

19,276
148,002

22,111
145,597--

21,902
150,628

24,748148,234

KEY JUDGEMENTS AND ESTIMATES
The Banking Group evaluates the material accuracy of the valuations incorporated in the financial statements as they can involve a highdegree of judgement and estimation in determining the carrying values of financial assets and financial liabilities at the balance sheet date.
The majority of valuation models the Banking Group uses employ only observable market data as inputs. This has not changed as a result of
COVID-19, however the Banking Group has considered the impact of related economic and market disruptions on fair value measurement
assumptions and the appropriateness of valuation inputs, notably valuation adjustments, as well as the impact of COVID-19 on the classification of
exposures in the fair value hierarchy.
For certain financial instruments, we may use data that is not readily observable in current markets. If we use unobservable market data, thenwe need to exercise more judgement to determine fair value depending on the significance of the unobservable input to the overall
valuation. Generally, we derive unobservable inputs from other relevant market data and compare them to observed transaction prices whereavailable.
When establishing the fair value of a financial instrument using a valuation technique, the Banking Group considers valuation adjustments indetermining the fair value. We may apply adjustments (such as bid/offer spreads, credit valuation adjustments and funding valuation
adjustments – refer Note 9 Derivative Financial Instruments) to reflect the Banking Group’s assessment of factors that market participants
would consider in determining fair value.

51

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
17. ASSETS CHARGED AS SECURITY FOR LIABILITIES AND COLLATERAL ACCEPTED AS
SECURITY FOR ASSETS
The following disclosure excludes the amounts presented as collateral paid and received in the balance sheet that relate to derivative liabilities andderivative assets respectively. The terms and conditions of those collateral agreements are included in the standard CSA that forms part of the ISDA
Master Agreement under which most of our derivatives are executed.
ASSETS CHARGED AS SECURITY FOR LIABILITIESAssets charged as security for liabilities include the following types of instruments:• securities provided as collateral for repurchase transactions. These transactions are governed by standard industry agreements;• specified residential mortgages provided as security for notes and bonds issued to investors as part of the Banking Group’s covered bondprogrammes; and• collateral provided to the RBNZ under the TLF and FLP.
The carrying amounts of assets pledged as security are as follows:

Securities sold under agreements to repurchase1
Residential mortgages pledged as security for repurchase agreements with the RBNZ
Total assets of the ANZNZ Covered Bond Trust pledged as security for covered bonds
1

2021
NZ$m
362
1,556
11,406

2020
NZ$m
646
11,474

The amounts disclosed as securities sold under arrangements to repurchase include both:•
assets pledged as security which continue to be recognised on the Banking Group’s balance sheet; and•assets repledged, which are included in the disclosure below.

COLLATERAL ACCEPTED AS SECURITY FOR ASSETS
The Banking Group has received collateral associated with various financial transactions. Under certain arrangements the Banking Group has the rightto sell, or to repledge, the collateral received. These arrangements are governed by standard industry agreements.
The fair value of collateral we have received and that we have sold or repledged is as follows:

Fair value of assets which can be sold or repledged
Fair value of assets sold or repledged

52

2021
NZ$m
610
565

2020
NZ$m
790
290

NOTES TO THE FINANCIAL STATEMENTS

18. OFFSETTING
We offset financial assets and financial liabilities in the balance sheet (in accordance with NZ IAS 32 Financial Instruments: Presentation) when there is:• a current legally enforceable right to set off the recognised amounts in all circumstances; and• an intention to settle the asset and liability on a net basis, or to realise the asset and settle the liability simultaneously.
If the above conditions are not met, the financial assets and financial liabilities are presented on a gross basis.
The Banking Group does not have any arrangements that satisfy the conditions necessary to offset financial assets and financial liabilities within thebalance sheet. The following table identifies financial assets and financial liabilities which have not been offset but are subject to enforceable masternetting agreements (or similar arrangements) and the related amounts not offset in the balance sheet. We have not taken into account the effect ofover collateralisation.
Amount subject to master netting agreement or similar
Amounts not
subject toTotal amounts
masterFinancialrecognised
nettingcollateralin the agreement or
Financial(received)/balance sheet
similar
Total
instruments
pledgedNet amount
2021
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
Derivative financial instruments1
9,304(1,881)
7,423(6,050)(129)
1,244
Reverse repurchase agreements2
610
610
(610)
Total financial assets
9,914(1,881)
8,033(6,050)(739)
1,244
Derivative financial instruments(7,727)1,250(6,477)
6,050
81
(346)
Repurchase agreements3(1,663)(1,663)
1,663
Total financial liabilities(9,390)1,250(8,140)
6,050
1,744
(346)
2020
Derivative financial instruments
Reverse repurchase agreements2
Total financial assets
Derivative financial instruments
Repurchase agreements3
Total financial liabilities
1

2
3

9,702
782
10,484(8,252)(646)(8,898)(3,257)(3,257)
2,890
2,890

6,445
782
7,227
(5,362)(646)(6,008)(4,462)(4,462)
4,462
4,462

(342)
(782)
(1,124)
417
646
1,063

1,641
1,641
(483)
(483)

In August 2021, the Banking Group amended the terms of its legal agreements with one of its central clearing counterparties whereby payment and receipt of collateral results in a legal
settlement of associated derivative assets and liabilities, and an associated reduction in the carrying values of the related derivative instruments. These derivatives remain subject to a masternetting agreement. The impact of this change as at 30 September 2021 is a decrease in the derivative assets of NZ$3.9 billion and a decrease in derivative liabilities of NZ$4.1 billion andreduction in net collateral paid of NZ$0.2 billion. Refer to Note 9 Derivative Financial Instruments for further information.
Reverse repurchase agreements are presented in the balance sheet within cash and cash equivalents.
Repurchase agreements are presented in the balance sheet within deposits and other borrowings.

53

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
19. GOODWILL AND OTHER INTANGIBLE ASSETS
2021
NZ$m
3,006
76
9
3,091

GoodwillManagement rights
Software
Goodwill and other intangible assets

2020
NZ$m
3,006
76
10
3,092

GOODWILL AND OTHER INTANGIBLE ASSETS ALLOCATED TO CASH-GENERATING UNITS (CGUs)
Goodwill arose on the acquisition of the NBNZ Holdings Limited group on 1 December 2003, and the carrying amount reflects amortisation
recognised before the application of NZ IFRS from 1 October 2004 and subsequent business disposals. Funds management rights, assessed as having
indefinite useful lives, arose on the acquisition of the ING Holdings (NZ) Limited (now ANZ Wealth New Zealand Limited) group on 30 November 2009.
Goodwill and funds management rights are allocated to CGUs as follows:

Cash generating unit
Personal banking (previously Retail and business banking)Funds management (previously Wealth)
Personal segment (previously Retail segment)
Business (previously Commercial)
Institutional
Total

Goodwill
2021
2020
NZ$m
NZ$m
893
980
118
62
1,011
1,042
926
895
1,069
1,069
3,006
3,006

Management rights
2021
2020
NZ$m
NZ$m
76
76
76
76
76
76

Goodwill was assessed for indicators of impairment as at 30 September 2021, taking into account the results of the February 2021 impairment test andassociated sensitivity and scenario analysis performed, the forecast impact of the business segment changes outlined in Note 6 Segment Reporting,and recent economic events. There were no indicators of impairment therefore, in accordance with NZ IAS 36 Impairment of Assets, no further
impairment test was required.
The following information is for the annual goodwill impairment test, and reflects the CGUs and goodwill allocations (which were unchanged from 30
September 2020), as at 28 February 2021.
Annual goodwill impairment test
The annual impairment test is performed as at the end of February each year. Goodwill is considered to be impaired if the carrying amount of therelevant CGU exceeds its recoverable amount. The recoverable amount of a CGU is the higher of its fair value less costs of disposal (FVLCOD) and its
value-in use (VIU). We use a value-in-use approach to estimate the recoverable amount of the CGU to which each goodwill component is allocated.
Based on this assessment no impairment was identified for any CGU, and therefore a FVLCOD calculation was not required.

54

NOTES TO THE FINANCIAL STATEMENTS

19. GOODWILL AND OTHER INTANGIBLE ASSETS (continued)
VALUE-IN-USE
These calculations use cash flow projections based on a number of financial budgets within each CGU covering an initial forecast period. These
projections also incorporate economic assumptions including GDP, inflation, unemployment, residential and commercial property prices, the impactof the restriction imposed by the RBNZ on the payment of ordinary dividends by all New Zealand incorporated registered banks, and theimplementation of the RBNZ’s increased capital requirements. Cash flows beyond the forecast period are extrapolated using the terminal growth rate.
These cash flow projections are discounted using a discount rate derived using a capital asset pricing model.
Future changes in the assumptions upon which the calculation is based may materially impact this assessment, resulting in the potential impairmentof part or all of the goodwill balances.
Input / assumption

Values applied in 28 February 2021 impairment test

Forecast period and projections

To 30 September 2028 - an extended forecast period was used to cover the implementation period of the
RBNZ’s increased capital requirements.

Revenue growth over forecast
periodComprises impacts of net interest margin and volume growth, arising from planned responses to known
regulatory and economic forecasts. Average annual forecast revenue growth rates are shown below.

Credit impairment over forecast
periodVaries by CGU, based on ECL modelling for 2021 to 2023, before returning to long run experience levels for2024 to 2028. Long run experience levels are based on the Banking Group’s bad debts written off, net ofrecoveries, since 2004 of 0.15% of gross loans and advances. Credit impairment for each CGU as apercentage of forecast gross loans and advances for 2024 to 2028 is shown below.

Terminal growth rate

2.0% - based on 2023 forecast inflation from the RBNZ’s February 2021 Monetary Policy Statement.

Discount rate

Post tax: 9.4% (September 2020: 9.3%).
The main variables in the calculation of the discount rate used are the risk free rate, beta and the market risk
premium. The risk free rate was the traded 10 year New Zealand government bond yield as at 28 February
2021 of 1.9%. The market risk premium was estimated using a range of methods incorporating historicaland forward-looking market data. Beta was consistent with observable measures applied in the regionalbanking sector.

The values of the average revenue growth, credit impairment as a percentage of forecast gross loans and advances, and pre-tax discount rates
assumptions by CGU are shown in the table below. The implied pre-tax discount rates are significantly higher than the post-tax discount rate above
because regulatory capital retention over the forecast period is not tax effected.
Cash generating unit
Retail and business banking
WealthCommercial
Institutional

Revenue growthCredit impairment
Pre-tax discount rate
28 Feb 21 30 Sep 20 28 Feb 21 30 Sep 20 28 Feb 21 30 Sep 20
5.8%
0.13%
16.7%
6.1%
0.13%
17.5%
2.7%
0.01%
16.0%
3.4%
0.10%
16.4%
4.8%
0.22%
17.1%
4.2%
0.21%
17.8%
0.6%
0.12%
17.0%
4.5%
0.21%
17.3%

We performed stress tests for key sensitivities in each CGU. A change, considered to be reasonably possible by management, in key assumptions
would not cause the recoverable amounts of the Retail & business banking and Wealth CGUs to exceed their carrying amounts, but would do so for
the Commercial and Institutional CGUs.
A summary of the amounts by which key assumptions for Commercial and Institutional must change in order for their recoverable amounts to equal
their carrying amounts is shown below.

Amount by which recoverable amount exceeds carrying amount (NZ$m)
Value of assumption and change (in basis points) required to reduce recoverable amount to nil:
Average annual revenue growth over forecast period
Average annual credit impairment FY24-FY28
Discount rate
Terminal growth rate

Commercial
Forecast
ChangeValue required
513
n/a
4.2%
0.21%
9.4%
2.0%

-87 bp+17 bp+63 bp-106 bp

Institutional
Forecast
ChangeValue required
386
n/a
4.5%
0.21%
9.4%
2.0%

-113 bp+73 bp+80 bp-140 bp55

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
19. GOODWILL AND OTHER INTANGIBLE ASSETS (continued)

RECOGNITION AND MEASUREMENT
The table below details how we recognise and measure different intangible assets:
Intangible

Goodwill

SoftwareManagement rights

Definition

Excess amount the Banking
Group has paid in acquiring abusiness over the fair value lesscosts of disposal of theidentifiable assets and liabilities
acquired.

Purchased software owned by the
Banking Group is capitalised.

Management fee rights arising fromacquisition of funds managementbusiness.

Cost less any accumulated
impairment losses.

Initially, measured at cost.

Carrying value

Allocated to the CGU to which
the acquisition relates.

Internal and external costs incurredin building software and computer
systems costing more than NZ$20
million are capitalised as assets.
Those less than NZ$20 million are
expensed in the year in which thecosts are incurred.
Subsequently, carried at cost lessaccumulated amortisation andimpairment losses.

Initially, measured at fair value atacquisition.
Subsequently, carried at cost less
impairment losses.

Costs incurred in planning or
evaluating software proposals or inmaintaining systems after
implementation are not capitalised.
Useful life

Indefinite.
Goodwill is reviewed for
impairment at least annually or
when there is an indication of
impairment.

Except for major core
infrastructure, amortised overperiods between 2-5 years;
however major core infrastructure
may be amortised up to 7 years
subject to approval by the Audit
Committee.

Management fee rights have an
indefinite life and are reviewed for
impairment at least annually or
when there is an indication of
impairment.

Purchased software is amortisedover 2 years unless it is considered
integral to other assets with alonger useful life.
Amortisation
methodNot applicable.

Straight-line method.

Not applicable.

KEY JUDGEMENTS AND ESTIMATESManagement judgement is used to assess the recoverable value of goodwill and other intangible assets, and the useful economic life ofan asset, or whether an asset has an indefinite life. We reassess the recoverability of the carrying value at each reporting date.
Goodwill
A number of key judgements are required in the determination of whether or not a goodwill balance is impaired including:• the level at which goodwill is allocated – consistent with prior periods the CGUs to which goodwill is allocated are the the Banking
Group’s revenue generating segments that benefit from relevant historical business combinations generating goodwill.
• determination of the carrying amount of each CGU which includes an allocation, on a reasonable and consistent basis of corporate
assets and liabilities that are not directly attributable to the CGUs to which goodwill is allocated.
• assessment of the recoverable amount of each CGU used to determine whether the carrying amount of goodwill is supported isbased on judgements including the selection of the model and key assumptions used to calculate the recoverable amount.
The assessment of the recoverable amount of each CGU has been made within the context of the ongoing impact of COVID-19, andreflects expectations of future events that are believed to be reasonable under the circumstances. The rapidly evolving consequences of
COVID-19 and government, business and consumer responses create heightened uncertainty in these estimates and any variations could
have a positive or adverse impact on the determination of recoverable amounts.

56

NOTES TO THE FINANCIAL STATEMENTS

20. OTHER PROVISIONSECL allowance on undrawn facilities
Customer remediation
Restructuring costs
Leasehold make good
Other
Total other provisions

Note
12

2021
NZ$m
122
98
25
22
28
295

2020
NZ$m
159
141
36
23
30
389

Leaseholdmake good
NZ$m
23
3
(4)
22

Other
NZ$m
30
1
(3)
28

Movements in other provisions

Balance at start of year
New and increased provisions made during the year
Provisions used during the year
Unused amounts reversed during the year
Balance at end of year

Customer Restructuring
remediation
costs
NZ$m
NZ$m
141
36
26
23
(60)
(28)
(9)
(6)
98
25

Customer remediation
Customer remediation includes provisions for expected refunds to customers and other counterparties, remediation project costs and related
customer, counterparty and regulatory claims, penalties and litigation outcomes.
Restructuring costs
Provisions for restructuring costs arise from activities related to material changes in the scope of business undertaken by the Banking Group, including
the OnePath Life (NZ) Limited separation, or the manner in which that business is undertaken and include employee termination benefits. Costs
relating to on-going activities are not provided for and are expensed as incurred.
Leasehold make good
Provisions associated with leased premises where, at the end of a lease, the Banking Group is required to remove any fixtures and fittings installed in
the leased property. This obligation arises immediately upon installation. Estimated make good costs are added to the leasehold improvement asset(within premises and equipment) upon installation and amortised over the lease term.
Other
Other provisions comprise various other provisions including losses arising from other legal action, operational issues, and warranties and indemnities
provided in connection with various disposals of businesses and assets.

57

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
20. OTHER PROVISIONS (continued)

RECOGNITION AND MEASUREMENT
The Banking Group recognises provisions where there is a present obligation arising from a past event, an outflow of economic resources isprobable, and the amount of the provision can be measured reliably.
The amount recognised is the best estimate of the consideration required to settle the present obligation at reporting date, taking into
account the risks and uncertainties surrounding the timing and amount of the obligation. Where a provision is measured using the estimatedcash flows required to settle the present obligation, its carrying amount is the present value of those cash flows.

KEY JUDGEMENTS AND ESTIMATES
The Banking Group holds provisions for various obligations including customer remediation, restructuring costs, leasehold make good andlitigation related claims. These provisions involve judgements regarding the outcome of future events, including estimates of expenditure
required to satisfy such obligations. Where relevant, expert legal advice has been obtained and, in light of such advice, provisions and/or
disclosures as deemed appropriate have been made.
In relation to customer remediation, determining the amount of the provisions, which represent management’s best estimate of the costof settling the identified matters, requires the exercise of significant judgement. It will often be necessary to form a view on a number ofdifferent assumptions, including the number of impacted customers, the average refund per customer, the associated remediation costs,
and the implications of regulatory exposures and customer claims having regard to their specific facts and circumstances. Consequently,
the appropriateness of the underlying assumptions is reviewed on a regular basis against actual experience and other relevant evidence
including expert legal advice and adjustments are made to the provisions where appropriate.

58

NOTES TO THE FINANCIAL STATEMENTS

21. SHAREHOLDERS' EQUITY
Number of issued shares
2021
2020
6,345,755,498
6,345,755,498
300,000,000
300,000,000
6,645,755,498
6,645,755,498

Ordinary shares
Preference shares
Total share capital

NZ$ millions
2021
2020
11,588
11,588300
300
11,888
11,888Preference shares
The preference shares qualify as AT1 capital for RBNZ’s capital adequacy purposes.
The key terms of the preference shares are as follows:
Dividends
Dividends are payable at the discretion of the Directors of the Bank and are non-cumulative. The Bank must not resolve to pay any dividend or makeany other distribution on its ordinary shares until the next preference dividend payment date if the dividend on the preference shares is not paid.
Should the Bank elect to pay a dividend, the dividend is based on a floating rate equal to the aggregate of the New Zealand 6 month bank bill rateplus a 325 basis point margin, multiplied by one minus the New Zealand company tax rate, with dividend payments due on 1 March and 1 September
each year.
Redemption features
The preference shares are redeemable, subject to prior written approval of the RBNZ, by the Bank providing notice in writing to holders of thepreference shares. Under the RBNZ’s new capital requirements, from 1 January 2022, the preference shares are subject to a 12.5% reduction in theirregulatory capital recognition. As a result, the Bank has determined that a regulatory event has occurred in respect of the preference shares. The
occurrence of a regulatory event means that the Bank may choose to redeem the preference shares at its discretion. As at 10 November 2021, nodecision has been made on whether the Bank will redeem the preference shares.
The preference shares may be redeemed for nil consideration should a non-viability trigger event occur.

RECOGNITION AND MEASUREMENT
Ordinary shares

Ordinary shares have no par value. They entitle holders to receive dividends, or proceeds available on winding
up of the Bank, in proportion to the number of fully paid ordinary shares held. They are recognised at theamount paid per ordinary share net of directly attributable costs. Every holder of fully paid ordinary sharespresent at a meeting in person, or by proxy, is entitled to:• on a show of hands, one vote; and• on a poll, one vote, for each share held.

Preference shares

All preference shares were issued by the Bank to the Immediate Parent Company and do not carry any voting
rights. The preference shares are wholly classified as equity instruments as there is no contractual obligation for
the Bank to either deliver cash or another financial instrument or to exchange financial instruments on apotentially unfavourable basis.
In the event of liquidation, holders of preference shares are entitled to available subscribed capital per share,pari passu with all holders of existing preference shares and AT1 capital notes but in priority to all holders ofordinary shares. They have no entitlement to participate in further distribution of profits or assets.

Reserves:

Cash flow hedge
reserve

Includes fair value gains and losses associated with the effective portion of designated cash flow hedging
instruments together with any tax effect.

Investment securities
revaluation reserve

Includes the changes in fair value of investment securities together with any tax effect.

59

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
22. CAPITAL MANAGEMENTCAPITAL MANAGEMENT STRATEGYThe Banking Group’s core capital objectives are to:• protect the interests of depositors, creditors and shareholders;• ensure the safety and soundness of the Banking Group’s capital position; and• ensure that the capital base supports the Banking Group’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 Banking Group’s Internal Capital Adequacy Assessment Process (ICAAP) policy and framework; standardised risk definitions for all material risks;materiality thresholds; capital adequacy targets; internal capital principles; and risk appetite.
The Banking Group has minimum and trigger levels for common equity tier 1, tier 1 and total capital that ensure sufficient capital is maintained to:• meet minimum prudential requirements imposed by regulators;• ensure consistency with the Banking Group’s overall risk profile and financial positions, taking into account its strategic focus and business plan;and• support the internal risk capital requirements of the business.
ALCO and its related Capital Management Forum are responsible for developing, implementing and maintaining the Banking Group's ICAAP
framework, including ongoing monitoring, reporting and compliance. The Banking Group’s ICAAP is subject to independent and periodic review.
Throughout the year, the Banking Group maintained compliance with RBNZ’s minimum capital ratios.

REGULATORY ENVIRONMENTAs the Bank is a registered bank in New Zealand, it is primarily regulated by RBNZ under the Reserve Bank of New Zealand Act 1989. The Bank mustcomply with the minimum regulatory capital requirements, capital ratios and specific reporting levels that RBNZ sets. RBNZ requirements are
summarised below:
Regulatory capital definition

Minimum capital ratios

Common Equity Tier 1 (CET1) capital

Comprises ordinary share capital, retained
earnings, and certain accounting reserves. Someamounts (e.g. the value of goodwill) must be
deducted to determine the final value of CET1
capital.

CET1 capital divided by total risk weighted assets
must be at least 4.5%.

Tier 1 capital

CET1 capital plus additional tier 1 instruments,
which comprise high-quality capital and must:• provide a permanent and unrestrictedcommitment of funds;• be freely available to absorb losses; andprovide for fully discretionary capital
distributions.

Tier 1 capital divided by total risk weighted assets
must be at least 6.0%.

Total capital

Tier 1 plus Tier 2 capital. Tier 2 instruments
include some subordinated instruments andaccounting reserves that are not included in Tier
1 capital. Some amounts are deducted indetermining the value of Tier 2 instruments.

Total capital divided by total risk weighted assets
must be at least 8.0%.

Capital buffer

The Capital buffer is actual CET1 capital in excess
of any of the minimum capital requirements
imposed on the Bank.

Capital buffer divided by total risk weighted assets
should be at least 2.5%.

Reporting levels
Solo consolidated

The registered bank plus subsidiaries which are funded exclusively and wholly owned by theregistered bank.

Banking GroupThe registered bank’s consolidated group.

The Bank measures capital adequacy and reports to RBNZ on a Banking Group basis monthly, and measures capital adequacy on a Solo consolidated
basis quarterly. Banking Group and Solo consolidated capital ratios are reported publicly in six-monthly disclosure statements.

60

NOTES TO THE FINANCIAL STATEMENTS

22. CAPITAL MANAGEMENT (continued)
CAPITAL ADEQUACY
The following table provides details of the Banking Group’s capital ratios at 30 September:
Unaudited
Qualifying capital
Tier 1
Shareholder's equity
Preference shares included in Additional Tier 1 capital
Gross Common Equity Tier 1 capital
Deductions
Common Equity Tier 1 capital
Additional tier 1 capital
Tier 1 capital
Tier 2 capital
Total capital
Capital adequacy ratios
Common Equity Tier 1
Tier 1
Tier 2
Total
Buffer ratio
Risk weighted assets

2021
NZ$m

2020
NZ$m

16,892(300)
16,592(3,591)
13,001
2,752
15,753635
16,38815,869(300)
15,569(3,637)
11,932
2,750
14,682
14,682

13.4%
16.2%
0.7%
16.9%
8.9%
97,177

11.7%
14.4%
0.0%
14.4%
6.4%
102,290

23. CONTROLLED ENTITIESThe following table lists the subsidiaries of the Bank. All subsidiaries are 100% owned and incorporated in New Zealand.
Nature of business
ANZ Bank New Zealand Limited
Registered bank
ANZ Custodial Services New Zealand Limited
Custodian and nominee
ANZ Investment Services (New Zealand) Limited
Funds management
ANZ National Staff Superannuation Limited
Staff superannuation scheme trustee
ANZ New Zealand (Int'l) Limited
Finance
ANZ New Zealand Securities Limited
Non-operating
ANZ Wealth New Zealand Limited
Holding company
ANZ New Zealand Investments Limited
Funds management
ANZ New Zealand Investments Nominees Limited
Custodian and nominee
OneAnswer Nominees Limited
Wrap services provider
ANZNZ Covered Bond Trust1
Securitisation entity
Arawata Assets Limited
Property
Endeavour Finance Limited
Investment
Kingfisher NZ Trust 2008-11
Securitisation entity
1

The Banking Group does not own ANZNZ Covered Bond Trust and Kingfisher NZ Trust 2008-1. Control exists as the Banking Group retains substantially all the risks and rewards of theoperations. Details of the Banking Group’s interest in consolidated structured entities is included in Note 24 Structured Entities.

RECOGNITION AND MEASUREMENT
The Banking Group subsidiaries are those entities it controls through:• being exposed to, or having rights to, variable returns from the entity; and• being able to affect those returns through its power over the entity.
The Banking Group assesses whether it has power over those entities by examining the Banking Group’s existing rights to direct the relevant
activities of the entity.

61

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
24. STRUCTURED ENTITIESA Structured Entity (SE) is an entity that has been designed such that voting or similar rights are not the dominant factor in deciding who controls theentity. SEs are generally established with restrictions on their ongoing activities in order to achieve narrow and well defined objectives.
SEs are classified as subsidiaries and consolidated when control exists. If the Banking Group does not control a SE, then it is not consolidated. This note
provides information on both consolidated and unconsolidated SEs.
The Banking Group’s involvement with SEs is as follows:Type

Details

Securitisation

The Banking Group uses the Kingfisher NZ Trust 2008-1 (the Kingfisher Trust) to securitise residential mortgages
that it has originated, in order to diversify sources of funding for liquidity management. The Kingfisher Trust is aninternal securitisation (bankruptcy remote) vehicle we created for the purpose of structuring assets that are eligible
for repurchase under agreements with RBNZ (these are known as ‘Repo eligible’).
The Banking Group is exposed to variable returns from its involvement with the Kingfisher Trust and has the ability
to affect those returns through its power over the Kingfisher Trust’s activities. The Kingfisher Trust is therefore
consolidated.
As at 30 September 2021, the Banking Group had entered into repurchase agreements with RBNZ in relation to
the TLF and FLP (30 September 2020: nil).
Additionally, the Banking Group may acquire interests in securitisation vehicles set up by third parties throughproviding lending facilities to, or holding securities issued by, such entities.

ANZNZ Covered Bond Trust(the Covered Bond Trust)

Substantially all of the assets of the Covered Bond Trust are made up of certain housing loans and related
securities originated by the Bank which are security for the guarantee by ANZNZ Covered Bond Trust Limited astrustee of the Covered Bond Trust of issuances of covered bonds by the Bank, or its wholly owned subsidiary ANZ
New Zealand (Int’l) Limited, from time to time. The assets of the Covered Bond Trust are not available to creditorsof the Bank, although the Bank (or its liquidator or statutory manager) may have a claim against the residual assetsof the Covered Bond Trust (if any) after all prior ranking creditors of the Covered Bond Trust have been satisfied.
The Banking Group is exposed to variable returns from its involvement with the Covered Bond Trust and has theability to affect those returns through its power over the Covered Bond Trust’s activities. The Covered Bond Trust istherefore consolidated.

Structured financearrangements

The Banking Group is involved with SEs established:• in connection with structured lending transactions to facilitate debt syndication and/or to ring-fencecollateral; and• to own assets that are leased to customers in structured leasing transactions.
The Banking Group may provide risk management products (derivatives) to the SE.
In all instances, the Banking Group does not control these SEs. Further, the Banking Group’s involvement does notestablish more than a passive interest in decisions about the relevant activities of the SE, and accordingly we do
not consider that interest disclosable.

Funds management activities The Banking Group is the scheme manager for a number of Managed Investment Schemes (MIS). These MIS
include the ANZ and OneAnswer branded KiwiSaver, retail and wholesale schemes and the Bonus Bonds Scheme.
These MIS are financed through the issue of units to investors and the Banking Group considers them to be SEs.
The Banking Group’s interests in these MIS are limited to receiving fees for services or providing risk management
products (derivatives). These interests do not create significant exposures to the MIS that would allow the Banking
Group to control the funds. Therefore, these MIS are not consolidated.

62

NOTES TO THE FINANCIAL STATEMENTS

24. STRUCTURED ENTITIES (continued)
CONSOLIDATED STRUCTURED ENTITIESFinancial or other support provided to Consolidated Structured Entities
The Bank provides lending facilities, derivatives and commitments to the Kingfisher Trust and the Covered Bond Trust and/or holds debt instrumentsthat they have issued. The Bank did not provide any non-contractual support to consolidated SEs during the year (2020: nil).
UNCONSOLIDATED STRUCTURED ENTITIESThe Banking Group’s interest in Unconsolidated Structured Entities
An ‘interest’ in an unconsolidated SE is any form of contractual or non-contractual involvement with a SE that exposes the Banking Group to variabilityof returns from the performance of that SE. These interests include, but are not limited to: holdings of debt or equity securities; derivatives that pass onrisks specific to the performance of the SE; lending; loan commitments; financial guarantees; and fees from funds management activities.
For the purpose of disclosing interests in unconsolidated SEs:
• no disclosure is made if the Banking Group’s involvement is not more than a passive interest - for example: when the Banking Group’s
involvement constitutes a typical customer-supplier relationship. On this basis, exposures to unconsolidated SEs that arise from lending, trading
and investing activities are not considered disclosable interests - unless the design of the structured entity allows the Banking Group to
participate in decisions about the relevant activities (being those that significantly affect the entity’s returns).
• ‘interests’ do not include derivatives intended to expose the Banking Group to market risk (rather than performance risk specific to the SE) or
derivatives through which the Banking Group creates, rather than absorbs, variability of the unconsolidated SE (such as purchase of credit
protection under a credit default swap).
The Banking Group earned funds management fees from its MIS of NZ$205 million (2020: NZ$197 million) during the year. As at 30 September 2021
the Banking Group had total funds under management of NZ$39.0 billion (2020: NZ$35.2 billion) of which NZ$23.2 billion (2020: NZ$21.2 billion)
related to its MIS, with the largest individual fund being approximately NZ$4.3 billion (2020: NZ$3.5 billion).
The Banking Group did not provide any non-contractual support to unconsolidated SEs during the year (2020: nil): nor does it have any current
intention to provide financial or other support to unconsolidated SEs.
SPONSORED UNCONSOLIDATED STRUCTURED ENTITIESThe Banking Group may also sponsor unconsolidated SEs in which it has no disclosable interest.
For the purposes of this disclosure, the Banking Group considers itself the ‘sponsor’ of an unconsolidated SE if it is the primary party involved in thedesign and establishment of that SE and:• the Banking Group is the major user of that SE; or• the Banking Group’s name appears in the name of that SE, or on its products; or• the Banking Group provides implicit or explicit guarantees of that SE’s performance.
The Bank has sponsored the ANZ PIE Fund, which invests only in deposits with the Bank. The Banking Group does not provide any implicit or explicit
guarantees of the capital value or performance of investments in the ANZ PIE Fund. There was no income received from, nor assets transferred to, thisentity during the year.

KEY JUDGEMENTS AND ESTIMATES
Significant judgement is required in assessing whether the Banking Group has control over Structured Entities. Judgement is required todetermine the existence of:• power over the relevant activities (being those that significantly affect the entity’s returns); and• exposure to variable returns of that entity; and• the ability to use its power over the entity to affect the Banking Group’s returns.

63

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
25. TRANSFERS OF FINANCIAL ASSETSIn the normal course of business the Banking Group enters into transactions where it transfers financial assets directly to third parties. These transfers
may give rise to the Banking Group fully, or partially, derecognising those financial assets - depending on the Banking Group’s exposure to the risks
and rewards or control over the transferred assets. If the Banking Group retains substantially all of the risk and rewards of a transferred asset, thetransfer does not qualify for derecognition and the asset remains on the Banking Group’s balance sheet in its entirety.
Covered bonds
The Banking Group operates a covered bond programme to raise funding. Refer to Note 24 Structured Entities for further details. The covered bonds
issued externally are included within debt issuances.
Repurchase agreements
When the Banking Group sells securities subject to repurchase agreements under which we retain substantially all the risks and rewards of ownership,then those assets do not qualify for derecognition. An associated liability is recognised for the consideration received from the counterparty.
The table below sets out the balance of assets transferred that do not qualify for derecognition, along with the associated liabilities:

Current carrying amount of assets transferred
Carrying amount of associated liabilities

64

Covered bonds
2021
2020
NZ$m
NZ$m
11,474
11,406
4,522
4,248

Repurchase agreements
2021
2020
NZ$m
NZ$m
650
1,918
646
1,663

NOTES TO THE FINANCIAL STATEMENTS

26. RELATED PARTY DISCLOSURES
Key management personnel and their related parties
Key management personnel (KMP) are defined as directors and those executives having authority and responsibility for planning, directing andcontrolling the activities of the Banking Group. Executive roles included in KMP are the Bank’s Chief Executive Officer (CEO), all executives reporting
directly to the Bank’s CEO, and the CEO – NZ Branch.
2021
2020
Key management personnel compensation1
NZ$000
NZ$000
Salaries and short-term employee benefits
10,521
11,256
Post-employment benefits
256
192
Other long-term benefits2
107
68
Termination benefits3
1,155
1,308
Share-based payments
2,679
2,395
Total
15,21914,7181
2
3Includes former disclosed KMPs until the end of their employment, and close family members of KMP employed by the Banking Group. Comparative amounts have been updated toinclude amounts for close family members of KMP that were previously shown separately.
Comprises long service leave accrued during the year.
Includes payments for accrued annual leave, long service leave and pay in lieu of notice in accordance with contract, payable on cessation.

Transactions and balances with key management personnel and their related parties1
Secured loans and advances
Credit related commitments (undrawn loan facilities)
Interest income
Customer deposits2
Payables and other liabilities (share-based payments liability)
1
2

2021
NZ$m
26
3
1
19
2

2020
NZ$m
22
3
1
17
2

Includes KMP, close family members of KMP and entities that are controlled or jointly controlled by KMP or their close family members, of the Banking Group and its parent companies.
Includes holdings of units in the ANZ PIE Fund (a sponsored unconsolidated structured entity) which are invested solely in deposits of the Bank.

Loans made to KMP and their related parties are made in the ordinary course of business on normal commercial terms and conditions no morefavourable than those given to other employees or customers, including the term of the loan, security required and the interest rate. No amounts
have been written off or forgiven, or individually assessed allowances for expected credit losses raised in respect of these balances (2020: nil).
All other transactions with KMP and their related parties are made on terms and conditions no more favourable than those given to other employees
or customers. These transactions generally involve the provision of financial and investment services. In addition to the amounts above:• Aggregate amounts for each of unsecured loans and advances, interest expense, fee income, debt issuances and collectively assessed credit
impairment charge and allowance for expected credit losses were less than NZ$1 million for both years presented.
• KMP and their related parties also hold units in MIS managed by the Banking Group. Transactions and balances in respect of these MIS holdings
are not disclosed because those MIS are unconsolidated structured entities and not included in the financial statements of the Banking Group.
• Some KMP pay the Banking Group for the use of carparks in premises owned or leased by the Banking Group. These amounts were less than
NZ$0.1 million (2020: less than NZ$0.1 million).
Transactions with other members of the Overseas Banking Group and associates
The Bank and Banking Group undertake transactions with the Immediate Parent Company, the Ultimate Parent Bank, other members of the Overseas
Banking Group and associates.
These transactions principally consist of funding and hedging transactions, the provision of other financial and investment services, technology andprocess support, and compensation for share based payments made to Banking Group employees. Other than noted on the following page,transactions with related parties outside of the Banking Group are conducted on an arm’s length basis and on normal commercial terms.

65

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
26. RELATED PARTY DISCLOSURES (continued)
Transactions
Immediate Parent Company
Dividends paid
Ultimate Parent Bank and other subsidiaries not part of the Banking GroupInterest income
Interest expense
Other operating income
Operating expenses
Mortgages sold to the NZ Branch
Mortgages repurchased from the NZ Branch
Associates
Operating expenses

Outstanding balances
Immediate Parent Company
Derivative financial instruments
Ultimate Parent Bank and other subsidiaries not part of the Banking Group
Cash and cash equivalents
Derivative financial instruments
Other assets
Total due from related parties
Immediate Parent Company
Deposits and other borrowings
Derivative financial instruments
Ultimate Parent Bank and subsidiaries not part of the Banking Group
Settlement balances payable
Collateral received
Deposits and other borrowings
Derivative financial instruments
Payables and other liabilities
Debt issuances
Associates
Deposits and other borrowings
Total due to related parties

2021
NZ$m

2020
NZ$m

908

9

2
103
16
120
130
17

13
115
19
97
371

2

1

2021
NZ$m

2020
NZ$m

-

3

152
5,352
41
5,545

166
2,849
48
3,066

28
1

11
-

129
242
85
5,018
32
1,942

85
173
2,877
31
1,972

1
7,478

1
5,150

Balances due from / to other members of the Overseas Banking Group and associates are unsecured. The Bank has provided guarantees andcommitments to, and received guarantees from, these entities as follows.

Financial guarantees provided by the Ultimate Parent Bank
Financial guarantees provided to the Ultimate Parent Bank
Undrawn credit commitments provided to the Immediate Parent Company
Undrawn credit commitments provided to associates

66

2021
NZ$m
219
100
250
1

2020
NZ$m
264
123
250
1

NOTES TO THE FINANCIAL STATEMENTS

27. COMMITMENTS AND CONTINGENT LIABILITIESCREDIT RELATED COMMITMENTS AND CONTINGENCIES

Contract amount of:
Undrawn facilities
Guarantees and letters of credit
Performance related contingencies
Total

2021
NZ$m

2020
NZ$m

27,4201,181
1,551
30,152

28,2731,309
1,434
31,016

UNDRAWN FACILITIESThe majority of undrawn facilities are subject to customers maintaining specific credit and other requirements or conditions. Many of these facilities
are expected to be only partially used, and others may never be used at all. As such, the total of the nominal principal amounts is not necessarily
representative of future liquidity risks or future cash requirements. Based on the earliest date on which the Banking Group may be required to pay, thefull amount of undrawn facilities mature within 12 months.
GUARANTEES, LETTERS OF CREDIT AND PERFORMANCE RELATED CONTINGENCIES
Guarantees, letters of credit and performance related contingencies relate to transactions that the Banking Group has entered into as principal –including: guarantees, standby letters of credit and documentary letters of credit.
Documentary letters of credit involve the Banking Group issuing letters of credit guaranteeing payment in favour of an exporter. They are secured
against an underlying shipment of goods or backed by a confirmatory letter of credit from another bank.
Performance related contingencies are liabilities that oblige the Banking Group to make payments to a third party if the customer fails to fulfil its nonmonetary obligations under the contract.
To reflect the risk associated with these transactions, we apply the same credit origination, portfolio management and collateral requirements that weapply to loans. The contract amount represents the maximum potential amount that we could lose if the counterparty fails to meet its financial
obligations. As the facilities may expire without being drawn upon, the notional amounts do not necessarily reflect future cash requirements. Basedon the earliest date on which the Banking Group may be required to pay, the full amount of total guarantees and letters of credit and performance
related contingencies mature within 12 months.

67

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS
27. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
OTHER CONTINGENT LIABILITIESThere are outstanding court proceedings, claims and possible claims for and against the Banking Group. Where relevant, expert legal advice has beenobtained and, in the light of such advice, provisions (refer to Note 20 Other Provisions) and/or disclosures as deemed appropriate have been made. In
some instances we have not disclosed the estimated financial impact of the individual items either because it is not practicable to do so or becausesuch disclosure may prejudice seriously the interests of the Banking Group.
REGULATORY AND CUSTOMER EXPOSURESIn recent years there has been an increase in the number of matters on which the Banking Group engages with its regulators. There have also beensignificant increases in the nature and scale of regulatory investigations, surveillance and reviews, civil and criminal enforcement actions (whether bycourt action or otherwise), formal and informal inquiries, regulatory supervisory activities and the quantum of fines issued by regulators, particularly
against financial institutions both in New Zealand and globally. The Banking Group has received various notices and requests for information from its
regulators as part of both industry-wide and Banking Group-specific reviews, and has also made disclosures to its regulators at its own instigation. The
nature of these interactions can be wide ranging and, for example, may include a range of matters including responsible lending practices, regulated
lending requirements, product suitability and distribution, interest and fees and the entitlement to charge them, customer remediation, wealth advice,
insurance distribution, pricing, competition, conduct in financial markets and financial transactions, capital market transactions, anti-money launderingand counter-terrorism financing obligations, reporting and disclosure obligations and product disclosure documentation. There may be exposures tocustomers which are additional to any regulatory exposures. These could include class actions, individual claims or customer remediation orcompensation activities. The outcomes and total costs associated with such reviews and possible exposures remain uncertain.
The Bank self-identified three prescribed transaction reporting (PTR) matters to the RBNZ, where transaction reports had not been filed within theprescribed timeframe. The RBNZ has informed the Bank that it considers one of these matters (related to 6,409 transaction reports of a certain SWIFT
message type) to be a material breach, and the other two to be minor breaches, of the Anti-Money Laundering and Countering Financing of Terrorism(AML/CFT) Act 2009 relating to PTR. These matters have been referred to the RBNZ’s enforcement team for review. The potential outcome of thesematters remains uncertain at this time.
LOAN INFORMATION LITIGATIONIn September 2021, a representative proceeding was brought against the Bank, alleging breaches of disclosure requirements under consumer credit
legislation in respect of variation letters sent to certain loan customers. The Bank is defending the allegations.
WARRANTIES AND INDEMNITIESThe Banking Group has provided warranties, indemnities and other commitments in favour of the purchaser in connection with various disposals of
businesses and assets and other transactions, covering a range of matters and risks. It is exposed to potential claims under those warranties,
indemnities and commitments.
REVIEWS UNDER SECTION 95 OF THE RESERVE BANK OF NEW ZEALAND ACT 1989 (RBNZ ACT)
Following a RBNZ notice under section 95 of the RBNZ Act in July 2019, the Bank obtained two external reviews (together, the Reviews). The first review
was on the Bank’s compliance with certain aspects of the RBNZ Banking Supervision Handbook document Capital Adequacy Framework (Internal
Models Based Approach) (BS2B) (Capital Adequacy Review), and the second review was on the effectiveness of the Bank’s directors’ attestation andassurance framework (Attestation Review).
The Bank is committed to implementing the recommendations and addressing the issues raised by the Reviews, including a broader programme of
improving the Bank's processes covered by those Reviews.
In mid-2021, the Bank obtained external interim reviews of the remediation activities being undertaken in respect of the Reviews. The external
reviewer reported that the Bank has made significant progress to address non-compliance issues and improvement areas identified by the Reviews.
The programme of work for the Attestation Review has been completed. The final external review of the remediation activities for the Attestation
Review is expected to be completed in December 2021.
The programme of work for the Capital Adequacy Review is expected to be completed in December 2021. The final external review of the remediation
activities for the Capital Adequacy Review is underway.

68

NOTES TO THE FINANCIAL STATEMENTS

28. COMPENSATION OF AUDITORSKPMG New ZealandAudit or review of financial statements1
Audit related services:
Prudential and regulatory services2
Offer documents assurance or review
Other assurance services3
Total audit related services
Total compensation of auditors relating to the Banking GroupFees related to certain managed funds not recharged4
Total compensation of auditors
1
2
3
4

2021
NZ$0002020
NZ$000

2,173

1,953

333
117
47
497
2,670

308
94
116
518
2,471

244
2,914

222
2,693

Includes fees for both the audit of annual financial statements and reviews of interim financial statements.
Includes fees for reviews and controls reports required by regulations.
Includes fees for other reviews and agreed upon procedures engagements.
Amounts relate to the ANZ PIE Fund, ANZ Investments Private Scheme and SIL Mutual Funds, and include fees for audits of annual financial statements, registry audits, supervisor reportingand other agreed upon procedures engagements. Comparative information has been updated to include amounts relating to the SIL Mutual Funds.

The Banking Group’s Policy allows KPMG New Zealand to provide assurance and other audit related services that, while outside the scope of thestatutory audit, are consistent with the role of an external auditor. These include regulatory and prudential reviews requested by regulators such as
RBNZ. Any other services that are not audit or audit-related services are non-audit services. The Policy allows certain non-audit services to be provided
where the service would not contravene auditor independence requirements. KPMG New Zealand may not provide services that are perceived to be
in conflict with the role of the external auditor or breach auditor independence. These include consulting advice and subcontracting of operational
activities normally undertaken by management, and engagements where the external auditor may ultimately be required to express an opinion on its
own work.

69

REGISTERED BANKDISCLOSURESThis section contains the additional disclosures required by theRegistered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014.

70

Section

Order reference

Page

B1.

General disclosures

Schedule 2

71

B2.

Additional financial disclosures

Schedule 4

82

B3.

Asset quality

Schedule 7

83

B4.

Capital adequacy under the internal models based approach,and regulatory liquidity ratios

Schedule 11

92

B5.

Concentration of credit exposures to individual counterparties

Schedule 13

97

B6.

Credit exposures to connected parties

Schedule 14

98

B7.

Insurance business, securitisation, funds management, other fiduciary activities,
and marketing and distribution of insurance products

Schedule 15

99

B8.

Risk management policies

Schedule 17

101

REGISTERED BANK DISCLOSURES

B1. GENERAL DISCLOSURES (UNAUDITED)
Details of ultimate parent bank and ultimate holding company
The ultimate parent bank and ultimate holding company of the Bank is Australia and New Zealand Banking Group Limited (Ultimate Parent Bank). The
address for service of the Ultimate Parent Bank is ANZ Centre, Melbourne, Level 9, 833 Collins Street, Docklands, Victoria 3008, Australia.
Restrictions on the Ultimate Parent Bank’s ability to provide financial support
Effect of APRA’s Prudential Standards
The Banking Group is subject to extensive prudential regulation by APRA. APRA’s current or future requirements may have an adverse effect on the
Bank’s business, results of operations, liquidity, capital resources or financial condition.
APRA Prudential Standard APS 222 Associations with Related Entities (APS 222) sets minimum requirements for authorised deposit-taking institutions(ADIs) in Australia, including the Ultimate Parent Bank, in relation to the monitoring, management and control of risks which arise from associations
with related entities and also includes maximum limits on intra-group financial exposures.
Under APS 222, the Ultimate Parent Bank’s ability to provide financial support to the Bank is subject to the following restrictions:• 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 must not hold unlimited exposures (i.e. should be limited as to specified time or amount) in the Bank (e.g. not provide
a general guarantee covering any of the Bank’s obligations);• the Ultimate Parent Bank must not enter into cross-default clauses whereby a default by the Bank on an obligation (whether financial orotherwise) triggers or is deemed to trigger a default by the Ultimate Parent Bank on its obligations; and• the level of exposure, net of exposures deducted from capital, of the Ultimate Parent Bank’s Level 1 total capital base to the Bank should notexceed: (A) 50% on an individual exposure basis; or (B) 150% in aggregate (being exposures to all similar regulated ADI equivalent entities
related to the Ultimate Parent Bank).
In December 2020, APRA amended APS222 to reduce the limits for Australian ADIs’ individual entity exposure to related ADIs (or overseas equivalents)from 50% of Level 1 total capital to 25% of Level 1 Tier 1 capital, and aggregate exposures from 150% of Level 1 total capital to 75% of Level 1 Tier 1
capital. These changes are effective from 1 January 2022. As exposures are measured net of capital deductions, the changes to APS111 Capital
Adequacy: Measurement of Capital (APS111) outlined below will affect the measurement of ADI exposures.
In September 2021, APRA amended APS111. The most material change is in relation to the treatment of capital investments for each banking andinsurance subsidiary at Level 1, with the tangible component of the investment changing from a 400% risk weighting to:• 250% risk weighting up to an amount equal to 10% of the Ultimate Parent Bank’s net Level 1 Common Equity Tier 1 (CET1) capital; and• the remainder of the investment will be treated as a CET1 capital deduction.
Until the new APS111 is implemented from 1 January 2022, APRA requires any new or additional equity investments in banking and insurance
subsidiaries, where the amount of that new or additional investments takes the aggregate value of the investment above 10 per cent of an ADI’s CET1
capital, to be fully funded by equity capital at the ADI parent company level. This treatment would apply to the proportion of the new or additional
investment that is above 10 per cent of an ADI’s CET1 capital.
The Ultimate Parent Bank continues to review the implications for its current investments. The net impact on the Overseas Banking Group is unclear
and will depend upon a number of factors including the capitalisation of the affected subsidiaries at the time of implementation and the effect ofmanagement actions being pursued that have the potential to materially offset the impact of these proposals. Based on the Ultimate Parent Bank’s
current investment as at 30 September 2021 in its affected subsidiaries and in the absence of any offsetting management actions, the above proposals
imply a reduction in the Ultimate Parent Bank’s Level 1 CET1 capital of up to approximately AUD 2 billion (~60 basis points). There would be no impact
on the Overseas Banking Group's Level 2 CET1 capital ratio arising from these proposed changes. In addition, since 1 January 2021, no more than 5%of the Ultimate Parent Bank’s Level 1 Tier 1 capital base can comprise non-equity exposures to its New Zealand operations (including its subsidiaries
incorporated in New Zealand, such as the Banking Group and the New Zealand Branch) during ordinary times. This limit does not include holdings ofcapital instruments or eligible secured contingent funding support provided to the Bank during times of financial stress.
APRA has also confirmed that contingent funding support by the Ultimate Parent Bank to the Bank during times of financial stress must be provided
on terms that are acceptable to APRA. At present, only covered bonds meet APRA’s criteria for contingent funding.
Effect of the Level 3 framework
In addition, certain requirements of APRA’s Level 3 framework relating to, among other things, group governance and risk exposures became effective
on 1 July 2017. This framework also requires that the Ultimate Parent Bank must limit its financial and operational exposures to subsidiaries (including
the Bank).
In determining the acceptable level of exposure to a subsidiary, the Board of the Ultimate Parent Bank should have regard to:• the exposures that would be approved for third parties of broadly equivalent credit status;• the potential impact on the Ultimate Parent Bank’s capital and liquidity positions; and• the Ultimate Parent Bank’s ability to continue operating in the event of a failure by the Bank.
These requirements are not expected to place additional restrictions on the Ultimate Parent Bank’s ability to provide financial or operational support
to the Bank.

71

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B1. GENERAL DISCLOSURES (UNAUDITED) (continued)
Other APRA powers
The Ultimate Parent Bank may not provide financial support in breach of the Australian Banking Act 1959 (the Banking Act). Under the Banking Act:
• APRA must exercise its powers and functions for the protection of a bank’s depositors in Australia and for the promotion of financial systemstability in Australia; and• in the event of a bank becoming unable to meet its obligations or suspending payment, the assets of the bank in Australia are to be available tomeet that bank’s deposit liabilities in Australia in priority to all other liabilities of the bank.
The requirements of the Banking Act and the exercise by APRA of its powers have the potential to impact the management of the liquidity of the
Bank.
Interests in 5% or more of voting securities of the BankThe Immediate Parent Company holds 100% of the voting securities of the Bank. The Immediate Parent Company has the direct ability to appoint
100% of the Directors of the Bank, subject to RBNZ advising that it has no objection to the appointment in accordance with the Bank’s conditions ofregistration. RBNZ also has the power under section 113B of the Reserve Bank of New Zealand Act 1989, after obtaining the consent of the Minister ofFinance, to remove, replace, or appoint directors in certain circumstances.
Priority of creditors’ claims
In the event that the Bank was put into liquidation or ceased to trade, claims of secured creditors and those creditors set out in Schedule 7 of theCompanies Act 1993 would rank ahead of the claims of unsecured creditors. Customer deposits are unsecured and rank equally with other unsecured
liabilities of the Bank, and such liabilities rank ahead of any subordinated instruments issued by the Bank.
Guarantees
The Bank has guaranteed the payment of interest and principal of covered bonds issued by its subsidiary ANZ New Zealand (Int’l) Limited. Thisobligation is guaranteed by ANZNZ Covered Bond Trust Limited (the Covered Bond Guarantor), solely in its capacity as trustee of ANZNZ Covered
Bond Trust. The Covered Bond Guarantor’s address for service is Level 9, 34 Shortland Street, Auckland, New Zealand. The Covered Bond Guarantor is
not a member of the Banking Group and has no credit ratings applicable to its long term senior unsecured obligations. The covered bonds have been
assigned a long term rating of Aaa and AAA by Moody’s Investors Service and Fitch Ratings respectively. Refer to page 34 for further details, and to page
52 for the amount of assets of the ANZ Covered Bond Trust pledged as security for covered bonds.
No other material obligations of the Bank are guaranteed as at 10 November 2021.
Auditors
KPMG, 18 Viaduct Harbour Avenue, Auckland, New Zealand.
Directors
Any document or communication may be sent to any Director at the Registered Office. The document or communication should be marked for theattention of that Director.
Transactions with Directors
No Director has disclosed that he/she 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 circumstances ormeans or which could otherwise be reasonably likely to influence materially the exercise of the Director’s duties as a Director of the Bank.
Board Audit Committee
There is a Board Audit Committee which covers audit matters. The committee has five members. Each member is a non-executive Director, and eachsatisfy the criteria for independence.
Policy of the Board of Directors for avoiding or dealing with conflicts of interest
In order to ensure that members of the Board are reminded of their disclosure obligations under the Companies Act 1993, the Board has adopted a
protocol setting out the procedures for Directors to follow to disclose and manage conflicts of interest. This protocol will be reviewed annually. In
addition:• at least once in each year, Directors are requested to confirm and disclose, in terms of section 140(1) of the Companies Act 1993, any interests
which they have with the Bank itself. Directors are reminded at this time of their obligation under the Companies Act 1993 to disclose promptly
any transaction or proposed transaction with the Bank in which they have an interest.
• Directors are also requested to confirm and make a general disclosure of their interest in other entities in terms of section 140(2) of theCompanies Act 1993.
In addition to the disclosures referred to above, Directors disclose relevant interests which they have before discussion of particular business items.
Disclosures are entered into the Bank’s Interests Register. The Companies Act 1993 allows a Director with an interest in a transaction to participate indiscussions and to vote on all matters relating to that particular transaction. However, under the protocol 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 thatparticular transaction.

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REGISTERED BANK DISCLOSURES

B1. GENERAL DISCLOSURES (UNAUDITED) (continued)

Rt Hon Sir John Key, GNZM AC

Antonia Watson

Maile Carnegie

PositionIndependent Non-Executive Director
and ChairChief Executive Officer and Director

Non-Executive Director

Occupation

Company Director

Chief Executive Officer New Zealand andGroup Executive

Group Executive, Digital and Australia
Transformation, Australia and New
Zealand Banking Group Ltd

Qualifications

BCom, DCom (Honoris Causa)

BCom (Hons), GAICD

BBAResides

Auckland, New Zealand

Auckland, New Zealand

Sydney, Australia

Other company Australia and New Zealand Banking Group ANZ Holdings (New Zealand) Ltd, Banking
Ltd, Dairy Investment Fund Ltd,
Ombudsman Scheme Ltd,
directorships
Kyro Capital Ltd, Palo Alto Networks Inc,
Mehek Holdings Ltd
Sashimi Holdings Ltd, Thirty Eight JK Ltd

Shayne Elliott

Alison Gerry

Scott St John

Position

Non-Executive Director

Independent Non-Executive Director

Independent Non-Executive Director

Occupation

Chief Executive Officer, Australia and
New Zealand Banking Group Ltd

Company Director

Company Director

Qualifications

BCom

BMS (Hons), MAppFin, CFInstD

BCom, Diploma of BusinessResides

Melbourne, Australia

Queenstown, New Zealand

Auckland, New Zealand

Other company
directorships

Australia and New Zealand Banking
Group Ltd, Financial Markets Foundation
for Children

Air New Zealand Ltd, Asteron Life Ltd,Glendora Avocados Ltd, Glendora
Holdings Ltd, Infratil Ltd,On Being Bold Ltd, Sharesies Ltd,
Sharesies AU Group Ltd, Sharesies Group
Ltd, Sharesies Investment Management
Ltd, Sharesies Nominee Ltd,
Vero Insurance New Zealand Ltd,
Vero Liability Insurance Ltd

Captain Cook Nominees Ltd, Fisher &Paykel Healthcare Corporation Ltd,
Fisher & Paykel Healthcare Employee
Share Purchase Trustee Ltd, Fonterra Cooperative Group Ltd, Hutton Wilson
Nominees Ltd, Mercury NZ Limited, Te
Awanga Terraces Ltd

Position

Mark Verbiest
Independent Non-Executive Director

Joan Withers
Independent Non-Executive Director

Occupation

Company Director

Company Director

Qualifications

LLB, CFInstD

MBA, CFInstD

Resides

Wanaka, New Zealand

Auckland, New Zealand

Other company
directorships

Bear Fund NZ Ltd, Freightways Ltd,
Summerset Group Holdings Ltd,
Summerset Lti Trustee Ltd, Meridian
Energy Ltd

On Being Bold Ltd, Origin Energy Ltd,Sky Network Television Ltd, The
Warehouse Group Ltd, The Warehouse
Planit Trustees Ltd,The Warehouse Management Trustee
Company Ltd, The Warehouse
Management Trustee Company No.2 Ltd

73

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B1. GENERAL DISCLOSURES (UNAUDITED) (continued)
Conditions of registration
The following conditions of registration were applicable as at 30 September 2021, and have applied from 1 July 2021.
The registration of ANZ Bank New Zealand Limited (“the bank”) as a registered bank is subject to the following conditions:
1.

That—
(a)

the Total capital ratio of the banking group is not less than 8%;(b)

the Tier 1 capital ratio of the banking group is not less than 6%;(c)the Common Equity Tier 1 capital ratio of the banking group is not less than 4.5%;(d)the Total capital of the banking group is not less than $30 million;(e)the bank must not include the amount of an Additional Tier 1 capital instrument or Tier 2 capital instrument issued after 1 January 2013 in the calculation of
its capital ratios unless it has received a notice of non-objection to the instrument from the Reserve Bank; and(f)the bank meets the requirements of Part 3 of the Reserve Bank of New Zealand document “Application requirements for capital recognition or repayment
and notification requirements in respect of capital” (BS16) dated November 2015 in respect of regulatory capital instruments.

For the purposes of this condition of registration, —“supervisory adjustment” referred to in Part 3 of the Reserve Bank of New Zealand document “Capital Adequacy Framework (Internal Models Based Approach)”(BS2B) dated November 2015 is calculated as the scalar times the sum of:(a) the greater of:i. 27.66 percent of the exposure-at-default (EAD) amount of non-defaulted standard residential mortgage loans less the risk-weighted asset amount(without scalar) calculated using the bank’s approved IRB models for non-defaulted standard residential mortgage loans; andii. zero;and(b) the greater of:i. 75.47 percent of the exposure-at-default (EAD) amount of non-defaulted corporate farm lending exposures less the risk-weighted asset amount(without scalar) calculated using the bank’s approved IRB models for non-defaulted corporate farm lending exposures; andii. zero;“standard residential mortgage loan” has the same meaning as in 4.7(a) of the Reserve Bank of New Zealand document “Capital Adequacy Framework (Internal
Models Based Approach)” (BS2B), dated November 2015;“corporate farm lending exposures” has the same meaning as in 4.4(c) of the Reserve Bank of New Zealand document “Capital Adequacy Framework (Internal
Models Based Approach)” (BS2B) dated November 2015;
the scalar referred to in the Reserve Bank of New Zealand document “Capital Adequacy Framework (Internal Models Based Approach)” (BS2B) dated November
2015 and elsewhere in this condition of registration is 1.06;“Tier 1 capital ratio”, and “Common Equity Tier 1 capital ratio” have the same meaning as in Part 3 of the Reserve Bank of New Zealand document “Capital Adequacy
Framework (Internal Models Based Approach)” (BS2B) dated November 2015, except that in the formulae for calculating the ratios, the term “total capitalrequirement for operational risk” has the same meaning as in Part 9 of the Reserve Bank of New Zealand document “Capital Adequacy Framework (Standardised
Approach)” (BS2A) dated November 2015;
an Additional Tier 1 capital instrument is an instrument that meets the requirements of subsection 2.13(a) or (c) of the Reserve Bank of New Zealand document“Capital Adequacy Framework (Internal Models Based Approach)” (BS2B) dated November 2015;
a Tier 2 capital instrument is an instrument that meets the requirements of subsection 2.16(a) or (c) of the Reserve Bank of New Zealand document “Capital
Adequacy Framework (Internal Models Based Approach)” (BS2B) dated November 2015 or subsection B3.2(2)(a) or (c) of the Reserve Bank of New Zealanddocument “BPR110: Capital Definitions”;“Total capital” has the same meaning as in Part 2 of the Reserve Bank of New Zealand document “Capital Adequacy Framework (Internal Models Based Approach)”(BS2B) dated November 2015 except that the amount of Tier 2 capital included in the calculation of total capital must include the value of any Tier 2 capital
instrument meeting the definition given in this condition of registration;“Total capital ratio” has the same meaning as in Part 3 of the Reserve Bank of New Zealand document “Capital Adequacy Framework (Internal Models BasedApproach)” (BS2B) dated November 2015 except that in the formula for calculating “total capital ratio”, the value of “total capital” is as defined in this condition ofregistration, and the term “total capital requirement for operational risk” has the same meaning as in Part 9 of the Reserve Bank of New Zealand document “Capital
Adequacy Framework (Standardised Approach)” (BS2A) dated November 2015;
the Reserve Bank of New Zealand document “BPR001: Glossary” provides definitions for the defined terms highlighted in the Reserve Bank of New Zealanddocument “BPR110: Capital Definitions”.
1A.

74

That—
(a)

the bank has an internal capital adequacy assessment process (“ICAAP”) that accords with the requirements set out in the document “Guidelines on a bank’s
internal capital adequacy assessment 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 the Common Equity Tier 1 capital ratio, the Tier 1 capital ratio and the Total capital ratio under the requirements set out in the document“Capital Adequacy Framework (Internal Models Based Approach)” (BS2B) dated November 2015; and(c)the bank determines an internal capital allocation for each identified and measured “other material risk”.

REGISTERED BANK DISCLOSURES

B1. GENERAL DISCLOSURES (UNAUDITED) (continued)
1B.

1C.

That the bank complies with the minimum requirements set out in the following sections of the Reserve Bank of New Zealand document “Capital Adequacy
Framework (Internal Models Based Approach)” (BS2B) dated November 2015:(a)the model approval requirements in section 1.3A;(b)the compendium requirements in section 1.3B;(c)the minimum requirements for the IRB approach in sections 4.217 to 4.324 (that is, Subpart 4C of BS2B); and(d)the minimum qualitative requirements for using the Advanced Measurement Approach (“AMA”) for operational risk set out in section 8.4(a) and sections 8.5
to 8.14.

That, if the buffer ratio of the banking group is 2.5% or less, the bank must:(a)according to the following table, limit the aggregate distributions of the bank’s earnings to the percentage limit on distributions that corresponds to thebanking group’s buffer ratio:

Banking group's
buffer ratio

Percentage limit on
distributions of the
bank's earnings

0% - 0.625%

0%>0.625 - 1.25%

20%>1.25 - 1.875%

40%>1.875 - 2.5%

50%

(b)

prepare a capital plan to restore the banking group’s buffer ratio to above 2.5% within any timeframe determined by the Reserve Bank for restoring the buffer
ratio; and(c)have the capital plan approved by the Reserve Bank.

For the purposes of this condition of registration,—“buffer ratio”, “distributions”, and “earnings” have the same meaning as in Part 3 of the Reserve Bank of New Zealand document: “Capital Adequacy Framework(Internal Models Based Approach)” (BS2B) dated November 2015, except that in the formula for calculating the buffer ratio, the term “total capital requirement for
operational risk” has the same meaning as in Part 9 of the Reserve Bank of New Zealand document “Capital Adequacy Framework (Standardised Approach)” (BS2A)
dated November 2015;
the scalar referred to in the Reserve Bank of New Zealand document “Capital Adequacy Framework (Internal Models Based Approach)” (BS2B) dated November
2015 is 1.06.
1D. That, if the buffer ratio of the banking group is more than 2.5%, the bank must limit aggregate distributions, other than discretionary payments payable to holders
of Additional Tier 1 capital instruments, to no more than 50% of the bank’s earnings.
For the purposes of this condition of registration,—
an Additional Tier 1 capital instrument is an instrument that meets the requirements of subsection 2.13(a) or (c) of the Reserve Bank of New Zealand document“Capital Adequacy Framework (Internal Models Based Approach)” (BS2B) dated November 2015;“buffer ratio”, “distributions” and “earnings” have the same meaning as in Part 3 of the Reserve Bank of New Zealand document: “Capital Adequacy Framework(Internal Models Based Approach)” (BS2B) dated November 2015, except that in the formula for calculating the buffer ratio, the term “total capital requirement for
operational risk” has the same meaning as in Part 9 of the Reserve Bank of New Zealand document “Capital Adequacy Framework (Standardised Approach)” (BS2A)
dated November 2015;
the scalar referred to in the Reserve Bank of New Zealand document “Capital Adequacy Framework (Internal Models Based Approach)” (BS2B) dated November
2015 is 1.06;
the bank must not make any individual dividend payment contributing to aggregate distributions for a financial year until it has completed its interim financial
accounts for the first six months of its financial year or its annual financial accounts for its full financial year, and must not make any such dividend payment lessthan six months after any previous such dividend payment.
2.

That the banking group does not conduct any non-financial activities that in aggregate are material relative to its total activities.
In this condition of registration, the meaning of “material” is based on generally accepted accounting practice.

3.

That the banking group’s insurance business is not greater than 1% of its total consolidated assets.
For the purposes of this condition of registration, the banking group’s insurance business is the sum of the following amounts for entities in the banking group:(a)

if the business of an entity predominantly consists of insurance business and the entity is not a subsidiary of another entity in the banking group whosebusiness predominantly consists of insurance business, the amount of the insurance business to sum is the total consolidated assets of the group headed by
the entity; and(b)

if the entity conducts insurance business and its business does not predominantly consist of insurance business and the entity is not a subsidiary of anotherentity in the banking group whose business predominantly consists of insurance business, the amount of the insurance business to sum is the total liabilities
relating to the entity’s insurance business plus the equity retained by the entity to meet the solvency or financial soundness needs of its insurance business.

In determining the total amount of the banking group’s insurance business—(a)

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

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

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

75

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B1. GENERAL DISCLOSURES (UNAUDITED) (continued)
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 rating of the bank1

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

1This 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-bank connected persons shall not
exceed 15% of the banking group’s Tier 1 capital.
For the purposes of this condition of registration, compliance with the rating-contingent connected exposure limit is determined in accordance with the Reserve
Bank of New Zealand document entitled “Connected Exposures Policy” (BS8) dated November 2015.
5.
6.

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.
That the bank complies with the following corporate governance requirements:(a)the board of the bank must have at least five directors;(b) the majority of the board members must be non-executive directors;(c)at least half of the board members must be independent directors;(d) an alternate director,—(i)for a non-executive director must be non-executive; and(ii)

for an independent director must be independent;(e)

at least half of the independent directors of the bank must be ordinarily resident in New Zealand;(f)the chairperson of the board of the bank must be independent; and(g) the bank’s constitution must not include any provision permitting a director, when exercising powers or performing duties as a director, to act other than inwhat he or she believes is the best interests of the company (i.e. the bank).
For the purposes of this condition of registration, “non-executive” and “independent” have the same meaning as in the Reserve Bank of New Zealand document
entitled “Corporate Governance” (BS14) dated July 2014.
7.

That no appointment of any director, chief executive officer, or executive who reports or is accountable directly to the chief executive officer, is made in respect of
the bank unless:(a)the Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee; and(b) the Reserve Bank has advised that it has no objection to that appointment.
8.

That a person must not be appointed as chairperson of the board of the bank unless:(a)the Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee; and(b) the Reserve Bank has advised that it has no objection to that appointment.
9.

That the bank has a board audit committee, or other separate board committee covering audit matters, that meets the following requirements:(a)the mandate of the committee must include: ensuring the integrity of the bank’s financial controls, reporting systems and internal audit standards;(b) the committee must have at least three members;(c)every member of the committee must be a non-executive director of the bank;(d) the majority of the members of the committee must be independent; and(e)the chairperson of the committee must be independent and must not be the chairperson of the bank.

For the purposes of this condition of registration, “non-executive” and “independent” have the same meaning as in the Reserve Bank of New Zealand document
entitled “Corporate Governance” (BS14) dated July 2014.
10.

76

That a substantial proportion of the bank’s business is conducted in and from New Zealand.

REGISTERED BANK DISCLOSURES

B1. GENERAL DISCLOSURES (UNAUDITED) (continued)
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 aperson 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 thebank, 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.
This condition ceases to apply in respect of an existing outsourcing arrangement on the earlier of either 1 October 2023 or when the existing outsourcing
arrangement becomes compliant with condition 21, from which point in time condition 21 will apply to that outsourcing arrangement.
For the purposes of this condition of registration:

12.

(a)

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; and(b)the term “existing outsourcing arrangement” is defined in the Reserve Bank of New Zealand document entitled “Outsourcing Policy (BS11)” dated April 2020.

That:
(a)

the business and affairs of the bank are managed by, or under the direction or supervision of, the board of the bank;(b) 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 andconditions of the CEO’s employment agreement are determined by, and any decisions relating to the employment or termination of employment of the CEO
are made by, the board of the bank; and(c)13.

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.

That the banking group complies with the following quantitative requirements for liquidity-risk management:(a)the one-week mismatch ratio of the banking group is not less than zero per cent at the end of each business day;(b) the one-month mismatch ratio of the banking group is not less than zero per cent at the end of each business day; and(c)the one-year core funding ratio of the banking group is not less than 50 per cent at the end of each business day.

For the purposes of this condition of registration, the ratios identified must be calculated in accordance with the Reserve Bank of New Zealand documents entitled“Liquidity Policy” (BS13) dated May 2021 and “Liquidity Policy Annex: Liquid Assets” (BS13A) dated May 2021.
14.

That the bank has an internal framework for liquidity risk management that is adequate in the bank’s view for managing the bank’s liquidity risk at a prudent level,
and that, in particular:(a)is clearly documented and communicated to all those in the organisation with responsibility for managing liquidity and liquidity risk;(b) identifies responsibility for approval, oversight and implementation of the framework and policies for liquidity risk management;(c)identifies the principal methods that the bank will use for measuring, monitoring and controlling liquidity risk; and(d) considers the material sources of stress that the bank might face, and prepares the bank to manage stress through a contingency funding plan.
15.

That no more than 10% of total assets may be beneficially owned by a SPV.
For the purposes of this condition,—“total assets” means all assets of the banking group plus any assets held by any SPV that are not included in the banking group’s assets:“SPV” means a person—(a)to whom any member of the banking group has sold, assigned, or otherwise transferred any asset;(b) who has granted, or may grant, a security interest in its assets for the benefit of any holder of any covered bond; and(c)

who carries on no other business except for that necessary or incidental to guarantee the obligations of any member of the banking group under a covered
bond:“covered bond” means a debt security issued by any member of the banking group, for which repayment to holders is guaranteed by a SPV, and investors retain an
unsecured claim on the issuer.
16.

That—
(a)

no member of the banking group may give effect to a qualifying acquisition or business combination that meets the notification threshold, and does notmeet the non-objection threshold, unless:(i)the bank has notified the Reserve Bank in writing of the intended acquisition or business combination and at least 10 working days have passed; and(ii)

at the time of notifying the Reserve Bank of the intended acquisition or business combination, the bank provided the Reserve Bank with the information
required under the Reserve Bank of New Zealand Banking Supervision Handbook document “Significant Acquisitions Policy” (BS15) dated December
2011; and(b) no member of the banking group may give effect to a qualifying acquisition or business combination that meets the non-objection threshold unless:(i)the bank has notified the Reserve Bank in writing of the intended acquisition or business combination;(ii)

at the time of notifying the Reserve Bank of the intended acquisition or business combination, the bank provided the Reserve Bank with the information
required under the Reserve Bank of New Zealand Banking Supervision Handbook document “Significant Acquisitions Policy” (BS15) dated December
2011; and(iii)

the Reserve Bank has given the bank a notice of non-objection to the significant acquisition or business combination.

For the purposes of this condition of registration, “qualifying acquisition or business combination”, “notification threshold” and “non-objection threshold” have thesame meaning as in the Reserve Bank of New Zealand Banking Supervision Handbook document “Significant Acquisitions Policy” (BS15) dated December 2011.
77

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B1. GENERAL DISCLOSURES (UNAUDITED) (continued)
17.

That the bank is pre-positioned for Open Bank Resolution and in accordance with a direction from the Reserve Bank, the bank can—(a)close promptly at any time of the day and on any day of the week and that effective upon the appointment of the statutory manager—(i)

all liabilities are frozen in full; and(ii)

no further access by customers and counterparties to their accounts (deposits, liabilities or other obligations) is possible;(b) apply a de minimis to relevant customer liability accounts;(c)apply a partial freeze to the customer liability account balances;(d) reopen by no later than 9am the next business day following the appointment of a statutory manager and provide customers access to their unfrozen funds;(e)maintain a full freeze on liabilities not pre-positioned for open bank resolution; and(f)reinstate customers’ access to some or all of their residual frozen funds.

For the purposes of this condition of registration, “de minimis”, “partial freeze”, “customer liability account”, and “frozen and unfrozen funds” have the same meaning
as in the Reserve Bank of New Zealand document “Open Bank Resolution (OBR) Pre-positioning Requirements Policy” (BS17) dated September 2013.
18.

That the bank has an Implementation Plan that—(a)is up-to-date; and(b) demonstrates that the bank’s prepositioning for Open Bank Resolution meets the requirements set out in the Reserve Bank document: “Open Bank Resolution
Pre-positioning Requirements Policy” (BS17) dated September 2013.
For the purposes of this condition of registration, “Implementation Plan” has the same meaning as in the Reserve Bank of New Zealand document “Open Bank
Resolution (OBR) Pre-positioning Requirements Policy” (BS17) dated September 2013.
19.

That the bank has a compendium of liabilities that—(a)at the product-class level lists all liabilities, indicating which are—(i)pre-positioned for Open Bank Resolution; and(ii)

not pre-positioned for Open Bank Resolution;(b) is agreed to by the Reserve Bank; and(c)if the Reserve Bank’s agreement is conditional, meets the Reserve Bank’s conditions.

For the purposes of this condition of registration, “compendium of liabilities”, and “pre-positioned and non pre-positioned liabilities” have the same meaning as in
the Reserve Bank of New Zealand document “Open Bank Resolution (OBR) Pre-positioning Requirements Policy” (BS17) dated September 2013.
20.

That on an annual basis the bank tests all the component parts of its Open Bank Resolution solution that demonstrates the bank’s prepositioning for Open Bank
Resolution as specified in the bank’s Implementation Plan.
For the purposes of this condition of registration, “Implementation Plan” has the same meaning as in the Reserve Bank of New Zealand document “Open Bank
Resolution (OBR) Pre-positioning Requirements Policy” (BS17) dated September 2013.

21.

That the bank must comply with the Reserve Bank of New Zealand document “Outsourcing Policy” (BS11) dated April 2020.

22.

That, for a loan-to-valuation measurement period ending on or before 30 June 2021, the total of the bank’s qualifying new mortgage lending amount in respect ofproperty-investment residential mortgage loans with a loan-to-valuation ratio of more than 70%, must not exceed 5% of the total of the qualifying new mortgage
lending amount in respect of property-investment residential mortgage loans arising in the loan-to-valuation measurement period.

23.

That, for a loan-to-valuation measurement period ending on or after 31 July 2021, the total of the bank’s qualifying new mortgage lending amount in respect ofproperty-investment residential mortgage loans with a loan-to-valuation ratio of more than 60%, must not exceed 5% of the total of the qualifying new mortgage
lending amount in respect of property-investment residential mortgage loans arising in the loan-to-valuation measurement period.

24.

That, for a loan-to-valuation measurement period, the total of the bank’s qualifying new mortgage lending amount in respect of non property-investment
residential mortgage loans with a loan-to-valuation ratio of more than 80%, must not exceed 20% of the total of the qualifying new mortgage lending amount inrespect of non property-investment residential mortgage loans arising in the loan-to-valuation measurement period.

25.

That the bank must not make a residential mortgage loan unless the terms and conditions of the loan contract or the terms and conditions for an associatedmortgage require that a borrower obtain the registered bank’s agreement before the borrower can grant to another person a charge over the residential property
used as security for the loan.

In these conditions of registration,—“banking group” means ANZ Bank New Zealand Limited (as reporting entity) and all other entities included in the group as defined in section 6(1) of the Financial
Markets Conduct Act 2013 for the purposes of Part 7 of that Act.
“generally accepted accounting practice” has the same meaning as in section 8 of the Financial Reporting Act 2013.
In conditions of registration 22 to 25,—
“loan-to-valuation ratio”, “non property-investment residential mortgage loan”, “property-investment residential mortgage loan”, qualifying new mortgage lending
amount in respect of property-investment residential mortgage loans”, “qualifying new mortgage lending amount in respect of non property-investment
residential mortgage loans”, and “residential mortgage loan” have the same meaning as in the Reserve Bank of New Zealand document entitled “Framework for
Restrictions on High-LVR Residential Mortgage Lending” (BS19) dated January 2019:“loan-to-valuation measurement period” means—(a)the three calendar month period ending on the last day of May 2021; and(b) thereafter a period of three calendar months ending on the last day of the third calendar month, the first of which ends on the last day of June 2021.

78

REGISTERED BANK DISCLOSURES

B1. GENERAL DISCLOSURES (UNAUDITED) (continued)
Changes since 30 September 2021
The Bank’s conditions of registration have been amended to:• implement the new Banking Prudential Regulations (BPRs) which implement the capital review decisions (effective 1 October 2021); and• include further changes on high loan-to-valuation residential mortgage lending to investors (effective 1 November 2021).
Outcome of the RBNZ liquidity thematic review
The RBNZ published a report in September 2021 outlining the findings from the thematic review of compliance with the RBNZ’s liquidity policy (BS13and BS13A). The ten largest New Zealand-incorporated banks, including the Bank, were required to develop a remediation plan to address thefindings set out in individual feedback letters and conduct a materiality assessment of the impact of certain quantitative findings on the liquidity ratios.
The Bank has provided the RBNZ with a remediation plan to address the individual feedback the Bank received and undertaken the requiredmateriality assessment. The Bank continues to work with the RBNZ on the findings of the thematic review.
Material non-compliance with conditions of registration: Condition of registration 1B – non-compliance with BS2B
As first reported in the disclosure statement for the year ended 30 September 2019, the Bank has not complied with condition of registration 1B in
relation to the implementation of changes to 17 rating models and processes that were not approved by the RBNZ. Applying the last RBNZ approved
methodologies to the affected exposures as at 30 September 2019 would have decreased Risk Weighted Assets (RWA) by NZ$47 million (0.05%) in
aggregate, which was not sufficient to affect the reported capital ratios.
As at 30 September 2021, 16 of these models had been submitted to the RBNZ for approval, with four of these approved. Nine models were approvedin October 2021. The final model is expected to be submitted before the end of 2021. The four remaining unapproved models and the initial dates of
non-compliance are:• Bank rating – 2008 (submitted to RBNZ)• Project and structured finance - 2009 (submitted to RBNZ)• Commercial property: hotels - 2011 (submitted to RBNZ)• Commercial property: special purpose asset investment - 2011 (to be submitted)
The Bank’s model compendium required under section 1.3B of BS2B was found to be non-compliant as it included unapproved model changes. An
updated model compendium was submitted to the RBNZ in April 2021, and is now compliant.
Other matters relevant to the conditions of registration
There are other matters currently under review where there may be more than one valid interpretation of the respective policy wording or
requirement. Where there may be some uncertainty about the interpretation the Bank has applied, where appropriate it has sought guidance from,and will be liaising with, the RBNZ on these matters.
Other material matters
New RBNZ capital requirements
The RBNZ has released new bank capital adequacy requirements applying to New Zealand locally incorporated registered banks, which are set out in
the RBNZ’s Banking Prudential Requirements documents. The new capital adequacy requirements are being implemented in stages during atransition period from October 2021 to July 2028. The key requirements are:
• The Banking Group’s total capital requirement will increase to 18% of RWA, including tier 1 capital of at least 16% of RWA. Up to 2.5% of the tier 1
capital requirement can be made up of additional tier 1 (AT1) capital, with the remainder of the tier 1 requirement made up of common equity
tier 1 (CET1) capital. The increased capital ratios requirement will be implemented progressively from 1 July 2022 to 1 July 2028. AT1 capital must
consist of perpetual preference shares, which may be redeemable. The total capital requirement can also include tier 2 capital of up to 2% of
RWA. Tier 2 capital must consist of long-term subordinated debt.
• The tier 1 capital requirement will include a CET1 prudential capital buffer of 9% of RWA. This will include: a 2% domestic, systemically importantbank capital buffer; a 1.5% 'early-set' counter-cyclical capital buffer, which can be temporarily reduced to 0% following a financial crisis, or
temporarily increased to prevent asset price bubbles from developing; and a 5.5% capital conservation buffer.
• Contingent capital instruments will no longer be treated as eligible regulatory capital. As at 30 September 2021, the Bank had approximately
NZ$2,741 million of AT1 instruments that will progressively lose eligible regulatory capital treatment over a six and a half year transition period
from 1 January 2022 to 1 July 2028.
• As an internal ratings based approach accredited bank, the Banking Group’s RWA outcomes will be increased to approximately 90% of what
would be calculated under the standardised approach. This will be achieved by applying an 85% output floor from 1 January 2022, andincreasing the credit RWA scalar from 1.06 to 1.20 from 1 October 2022.
• The Banking Group will be required to report RWA, and resulting capital ratios, using both the internal models and the standardised approaches
from 30 September 2022.
The RBNZ’s reforms will result in a material increase in the level of capital that the Banking Group is required to hold. The reforms could have a material
impact on the Banking Group and its business, including on its capital allocation and business planning.
Since 30 September 2018, CET1 capital has increased by NZ$3.9 billion to NZ$13.0 billion at 30 September 2021 and total capital has increased by
NZ$4.5 billion to NZ$16.4 billion, in preparation for these changes and due to the RBNZ’s COVID-19 related dividend restrictions.

79

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B1. GENERAL DISCLOSURES (UNAUDITED) (continued)
Credit rating
The Bank has three credit ratings, which are applicable to its long-term senior unsecured obligations which are payable in New Zealand in New
Zealand dollars.
Fitch Ratings changed the rating on the Bank from AA- to A+ on 7 April 2020. S&P Global Ratings changed the outlook on the Bank from Stable to
Negative on 8 April 2020. Fitch Ratings changed the outlook on the Bank from Negative to Stable on 12 April 2021. S&P Global Ratings changed theoutlook on the Bank from Negative to Stable on 7 June 2021.
As at 10 November 2021, the Bank’s credit ratings are:Rating agency
S&P Global Ratings
Fitch Ratings
Moody’s Investors Service

Credit rating
AAA+
A1

Qualification
Outlook Stable
Outlook Stable
Outlook Stable

The following table describes the credit rating grades available. The descriptions are from S&P Global Ratings. Credit ratings from S&P Global Ratingsand Fitch Ratings may be modified by the addition of "+" or "-" to show the relative standing within the “AA” to “B” categories. Moody's InvestorsService 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 therating category.
S&P Global
Ratings

Moody's
Investors
Service

Fitch Ratings

Extremely strong capacity to meet financial commitments. Highest rating.

AAA

Aaa

AAA

Very strong capacity to meet financial commitments.

AA

Aa

AA

Strong ability to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes
in circumstances.

A

A

A

Adequate capacity to meet financial commitments, but more subject to adverse economic conditions.

BBB

Baa

BBB

Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic
conditions.

BB

Ba

BB

More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meetfinancial commitments.

B

B

B

Currently vulnerable and dependent on favourable business, financial and economic conditions to meet financial
commitments.

CCC

Caa

CCC

Highly vulnerable; default has not yet occurred, but is expected to be a virtual certainty.

CC to CCa

CC to CDC

RD & D

Investment grade:Speculative grade:

Payment default on a financial commitment or breach of an imputed promise; also used when a bankruptcy petition
has been filed or similar action taken.

80

REGISTERED BANK DISCLOSURES

B1. GENERAL DISCLOSURES (UNAUDITED) (continued)
Historical summary of financial statements
Income statement
For the year ended 30 September
Interest income
Interest expense
Net interest income
Non-interest income
Operating income
Operating expenses
Credit impairment charge
Profit before income tax
Income tax expense
Profit after income tax

2021
NZ$m
4,600
(1,176)
3,424
765
4,189
(1,621)
114
2,682
(743)
1,939

2020
NZ$m
5,568
(2,306)
3,262
807
4,069
(1,752)
(403)
1,914
(541)
1,373

2019
NZ$m
6,423
(3,179)
3,244
946
4,190
(1,608)
(101)
2,481
(662)
1,819

2018
NZ$m
6,390
(3,240)
3,150
1,126
4,276
(1,517)
(55)
2,704
(751)
1,953

2017
NZ$m
6,198
(3,161)
3,037
938
3,975
(1,468)
(62)
2,445
(680)
1,765

2021
NZ$m
184,769
155
773
167,877
16,892

2020
NZ$m
179,744361
1,169
163,875
15,8692019
NZ$m
169,416285
729
154,986
14,4302018
NZ$m
159,012321
n/a
145,903
13,1092017
NZ$m
153,973357
n/a
141,192
12,781

(908)
-

(9)
-

(411)
-

(4,611)3,000(1,695)-

Balance sheet
As at 30 September
Total assets
Total individually impaired assets
Total impaired assets (i.e. Stage 3)
Total liabilities
EquityOther items included in Equity
Dividends paid
Share capital issued

The amounts included in this summary have been taken from the audited financial statements of the Banking Group.
Pending proceedings or arbitration
A description of any pending legal proceedings or arbitration concerning any member of the Banking Group that may have a material adverse effecton the Bank or the Banking Group is included in Note 27 Commitments and Contingent Liabilities.

81

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B2. ADDITIONAL FINANCIAL DISCLOSURES
Additional information on the balance sheet
2021
NZ$m
170,849
136,312

Total interest earning and discount bearing assets
Total interest and discount bearing liabilities

2020
NZ$m
165,332
136,036

Additional information on interest rate sensitivity
The following table represents the interest rate sensitivity of the Banking Group's assets, liabilities and off-balance sheet instruments by showing theperiods in which these instruments may reprice, that is, when interest rates applicable to each asset or liability can be changed.

2021
AssetsCash and cash equivalents
Settlement balances receivable
Collateral paid
Trading securities
Derivative financial instruments
Investment securities
Net loans and advances
Other financial assets
Total financial assets
Liabilities
Settlement balances payable
Collateral received
Deposits and other borrowings
Derivative financial instruments
Debt issuances
Lease liabilities
Other financial liabilities
Total financial liabilities
Hedging instruments
Interest sensitivity gap
1

Total
NZ$m

Up to
3 months
NZ$m

Over 3 to
6 months
NZ$m

Over 6 to
12 months
NZ$m

Over 1 to
2 years
NZ$m

Over Not bearing
2 years
interest1
NZ$m
NZ$m

7,844
237
537
9,585
9,304
11,926
140,756496
180,685

7,523
537
1,027
174
62,44371,704907
219
14,684
15,810342
272
35,40936,023

1,765
2,257
17,554
21,576

5,544
9,003
11,18925,736

321
237
9,304
1
(523)
496
9,836

2,704
738
133,139
7,727
21,502262
986
167,058
13,6271,808
738
85,0872,149
12676
90,47019,046280

12,6214,129
12
16,762(5,944)(6,896)

11,206224
24
11,454(4,500)20,069

1,544
3,452
86
5,082
(9,755)
6,739

868
11,548128
12,544
1,153
14,345896
21,813
7,727
310
30,746(20,910)

Note
11

NZ$m
98,513(2)(1,433)
97,0789,081
106,159

Excludes non-coupon bearing discounted financial assets and financial liabilities which are shown as repricing on their maturity date.

Reconciliation of mortgage related amounts
As at 30 September 2021
Term loans - housing1
Less: fair value hedging adjustment
Less: housing loans made to corporate customers
On-balance sheet residential mortgage exposures subject to the IRB approach (per asset quality and LVR analysis)
Add: off-balance sheet residential mortgage exposures subject to the IRB approach (per asset quality and LVR analysis)
Total residential mortgage exposures subject to the IRB approach (per LVR analysis)
182Term loans – housing includes loans secured over residential property for owner-occupier, residential property investment and business purposes.

B3, B4B3, B4B4

REGISTERED BANK DISCLOSURES

B3. ASSET QUALITY
This section should be read in conjunction with the estimates, assumptions and judgements relating to COVID-19 and ECL included in Note 1, Note 12
and Note 15 to the financial statements.
Movements in components of loss allowance – total
Stage 3
Collectively Individuallyassessedassessed
NZ$m
NZ$m
79
106
(2)
(21)
67
(63)
(18)
(23)
(14)
(47)
18
(3)
56
60

Net loans and advances - total
As at 1 October 2020
Transfer between stages
New and increased provisions (net of collective provision releases)
Write-backs
Recoveries of amounts previously written off
Credit impairment charge
Bad debts written-off (excluding recoveries)
Add back recoveries of amounts previously written off
Discount unwind
As at 30 September 2021

Stage 1
NZ$m
162
16
(23)
(7)
155

Stage 2
NZ$m
347
(14)
(19)
(33)
314

Total
NZ$m
694
4
(63)
(18)
(77)
(47)
18
(3)
585

Off-balance sheet credit related commitments - total
As at 1 October 2020
Transfer between stages
New and increased provisions (net of collective provision releases)
Credit impairment charge
As at 30 September 2021

79
3
(18)
(15)
64

55
(4)
(12)
(16)
39

3
1
1
4

22
(7)
(7)
15

159
(37)
(37)
122

Gross loans and advances - total
As at 1 October 2020
Net transfers in to each stage
Amounts drawn from new or existing facilities
Additions
Net transfers out of each stage
Amounts repaid
Deletions
Amounts written off
As at 30 September 2021
Loss allowance as at 30 September 2021

120,1103,329
45,39948,728(2)(34,843)(34,845)
133,993
155

11,8201,138
1,138(3,231)(3,526)(6,757)
6,201
314

808
25
86
111
(17)
(284)
(301)
618
56

361
8
139
147
(112)
(194)
(306)
(47)
155
60

133,099
3,362
46,76250,124(3,362)(38,847)(42,209)(47)
140,967
585

Off-balance sheet credit related commitments - total
As at 1 October 2020
Net transfers in to each stage
New and increased facilities and drawn amounts repaid
Additions
Net transfers out of each stage
Reduced facilities and amounts drawn
Deletions
As at 30 September 2021
Loss allowance as at 30 September 2021

29,501
28
8,796
8,824
(9)
(9,498)(9,507)
28,818
64

1,455
314
314
(31)
(459)
(490)
1,279
39

19
11
12
23
(10)
(10)
32
4

41
1
1
2
(20)
(20)
23
15

31,016
40
9,123
9,163
(40)
(9,987)(10,027)
30,152
122

Impacts of changes in gross financial assets on loss allowances - total

Explanation of how changes in the gross carrying amounts of gross loans and advances contributed to changes in loss allowance
Overall, loss allowances are 0.41% of gross balances as at 30 September 2021, down from 0.52% as at 30 September 2020. The NZ$146 million (17.1%)
decrease in loss allowances was driven by a decrease in the proportion of gross balances in Stage 2 and Stage 3, and changes in the forward-looking
economic scenarios as described in Note 12 Allowance for Expected Credit Losses.

83

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B3. ASSET QUALITY (continued)
Movements in components of loss allowance – total
Stage 3
Collectively IndividuallyStage 2
assessedassessed
NZ$m
NZ$m
NZ$m
194
42
97
(30)
4
1
206
34
157
(34)
(23)
176
38
101
(92)
23
(9)
(23)
(1)
(14)
347
79
106

Net loans and advances - total
As at 1 October 2019
Transfer between stages
New and increased provisions (net of collective provision releases)
Write-backs
Recoveries of amounts previously written off
Credit impairment charge
Bad debts written-off (excluding recoveries)
Add back recoveries of amounts previously written off
Discount unwind
Sale of UDC
As at 30 September 2020

Stage 1
NZ$m
164
25
(2)
23
(25)
162

Total
NZ$m
497
395
(34)
(23)
338
(92)
23
(9)
(63)
694

Off-balance sheet credit related commitments - total
As at 1 October 2019
Transfer between stages
New and increased provisions (net of collective provision releases)
Credit impairment charge
Sale of UDC
As at 30 September 2020

60
3
17
20
(1)
79

24
(3)
36
33
(2)
55

2
1
1
3

11
11
11
22

97
65
65
(3)
159

Gross loans and advances - total
As at 1 October 2019
Net transfers in to each stage
Amounts drawn from new or existing facilities
Additions
Net transfers out of each stage
Amounts repaid
Deletions
Amounts written off
Sale of UDC
As at 30 September 2020
Loss allowance as at 30 September 2020

123,28512
34,28734,299(5,152)(29,444)(34,596)(2,878)120,110
162

9,008
4,503
1,375
5,878
(45)
(2,574)(2,619)(447)
11,820
347

444
472
120
592
(225)
(225)
(3)
808
79

285
210
191
401
(212)
(212)
(92)
(21)
361
106

133,022
5,197
35,973
41,170(5,197)(32,455)(37,652)(92)(3,349)133,099694

Off-balance sheet credit related commitments - total
As at 1 October 2019
Net transfers in to each stage
New and increased facilities and drawn amounts repaid
Additions
Net transfers out of each stage
Reduced facilities and amounts drawn
Deletions
Sale of UDC
As at 30 September 2020
Loss allowance as at 30 September 2020

28,491
3
9,272
9,275
(398)
(7,489)(7,887)(378)
29,501
79

837
387
600
987
(6)
(198)
(204)
(165)
1,455
55

3
7
16
23
(7)
(7)
19
3

19
7
25
32
(10)
(10)
41
22

29,350404
9,913
10,317(404)(7,704)(8,108)(543)
31,016
159

Impacts of changes in gross financial assets on loss allowances - total

Explanation of how changes in the gross carrying amounts of gross loans and advances contributed to changes in loss allowance
Overall, loss allowances are 0.52% of gross balances as at 30 September 2020, up from 0.37% as at 30 September 2019. The NZ$259 million (43.6%)
increase in loss allowances was driven by an increase in the proportion of gross balances in Stage 2 and Stage 3, and changes in the forward-looking
economic scenarios and changes in probability weightings.

84

REGISTERED BANK DISCLOSURES

B3. ASSET QUALITY (continued)
Movements in components of loss allowance – residential mortgages

Net loans and advances - residential mortgages
As at 1 October 2020
Transfer between stages
New and increased provisions (net of collective provision releases)
Write-backs
Recoveries of amounts previously written off
Credit impairment charge / (release)
Bad debts written-off (excluding recoveries)
Add back recoveries of amounts previously written off
Discount unwind
As at 30 September 2021
Off-balance sheet credit related commitments - residential mortgages
As at 1 October 2020
Transfer between stages
New and increased provisions (net of collective provision releases)
Credit impairment charge
As at 30 September 2021

Stage 3
Collectively Individuallyassessedassessed
NZ$m
NZ$m
29
8
(1)
(11)
5
(4)
(12)
1
17
9

Stage 1
NZ$m
20
6
(3)
3
23

Stage 2
NZ$m
63
(5)
(5)
(10)
53

Total
NZ$m
120
(14)
(4)
(18)
102

-

-

-

-

-

Impacts of changes in gross financial assets on loss allowances - residential mortgages
Gross loans and advances - residential mortgages
As at 1 October 2020
Net transfers in to each stage
Amounts drawn from new or existing facilities
Additions
Net transfers out of each stage
Amounts repaid
Deletions
Amounts written off
As at 30 September 2021
Loss allowance as at 30 September 2021

81,057
3,175
33,25036,425(22,625)(22,625)
94,857
23

5,859
588
588
(3,164)(1,437)(4,601)
1,846
53

512
5
5
(17)
(144)
(161)
356
17

24
5
12
17
1
(23)
(22)
19
9

87,452
3,180
33,85537,035(3,180)(24,229)(27,409)
97,078102

Off-balance sheet credit related commitments - residential mortgages
As at 1 October 2020
Net transfers in to each stage
New and increased facilities and drawn amounts repaid
Additions
Net transfers out of each stage
Reduced facilities and amounts drawn
Deletions
Amounts written off
As at 30 September 2021
Loss allowance as at 30 September 2021

8,793
28
2,691
2,719
(2,472)(2,472)
9,040
-

73
12
12
(28)
(17)
(45)
40
-

2
2
(1)
(1)
1
-

-

8,866
28
2,705
2,733
(28)
(2,490)(2,518)
9,081-

Explanation of how changes in the gross carrying amounts of residential mortgages contributed to changes in loss allowance
While gross balances have increased, there has been a decrease in the proportion of gross balances in Stage 2 and Stage 3. The NZ$18 million (15.0%)
decrease in loss allowances on residential mortgage exposures is primarily driven by changes in the forward-looking economic scenarios as describedin Note 12 Allowance for Expected Credit Losses. Overall loss allowances and individually impaired exposures remain low, reflecting thatapproximately 94% of on-balance sheet residential mortgage exposures have loan to valuation ratios not exceeding 80% (refer to page 94).

85

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B3. ASSET QUALITY (continued)
Movements in components of loss allowance – residential mortgages

Net loans and advances - residential mortgages
As at 1 October 2019 1
Transfer between stages
New and increased provisions (net of collective provision releases)2
Write-backs
Recoveries of amounts previously written off
Credit impairment charge
Bad debts written-off (excluding recoveries)
Add back recoveries of amounts previously written off
Discount unwind
As at 30 September 2020
Off-balance sheet credit related commitments - residential mortgages
As at 1 October 2019
Transfer between stages
New and increased provisions (net of collective provision releases)
Credit impairment charge
As at 30 September 2020

Stage 1
NZ$m
18
6
(4)
2
20

-

Stage 3
Collectively IndividuallyStage 2
assessedassessed
NZ$m
NZ$m
NZ$m
25
12
8
(7)
1
45
16
7
(4)
38
17
3
(1)
(2)
63
29
8

Total
NZ$m
63
64
(4)
60
(1)
(2)
120

-

-

-

-

Impacts of changes in gross financial assets on loss allowances - residential mortgages
Gross loans and advances - residential mortgages
As at 1 October 2019
Net transfers in to each stage
Amounts drawn from new or existing facilities
Additions
Net transfers out of each stage
Amounts repaid
Deletions
Amounts written off
As at 30 September 2020
Loss allowance as at 30 September 2020

79,12823,077
23,077(3,835)(17,313)(21,148)
81,057
20

2,475
3,553
545
4,098
(714)
(714)
5,859
63

273
272
59
331
(92)
(92)
512
29

25
10
22
32
(32)
(32)
(1)
24
8

81,901
3,835
23,703
27,538(3,835)(18,151)(21,986)(1)
87,452120

Off-balance sheet credit related commitments - residential mortgages
As at 1 October 2019
Net transfers in to each stage
New and increased facilities and drawn amounts repaid
Additions
Net transfers out of each stage
Reduced facilities and amounts drawn
Deletions
As at 30 September 2020
Loss allowance as at 30 September 2020

8,232
1,937
1,937
(25)
(1,351)(1,376)
8,793
-

36
25
23
48
(11)
(11)
73
-

-

-

8,268
25
1,960
1,985
(25)
(1,362)(1,387)
8,866
-

1
2

Amounts have been updated to reclassify a total net NZ$14 million relating to corporate previously included in residential mortgages.
Amounts have been updated to reclassify NZ$31 million relating to residential mortgages previously included in corporate.

Explanation of how changes in the gross carrying amounts of residential mortgages contributed to changes in loss allowance
While gross balances have increased, and there has been a small increase in the proportion of gross balances in Stage 2 and Stage 3, the NZ$57
million (90.5%) increase in loss allowances on residential mortgage exposures is primarily driven by changes in the forward looking economic
scenarios and changes in probability weightings. Overall loss allowances and individually impaired exposures remain low, reflecting thatapproximately 94% of on-balance sheet residential mortgage exposures have loan to valuation ratios not exceeding 80%.

86

REGISTERED BANK DISCLOSURES

B3. ASSET QUALITY (continued)
Movements in components of loss allowance – other retail exposures

Net loans and advances - other retail exposures
As at 1 October 2020
Transfer between stages
New and increased provisions (net of collective provision releases)
Write-backs
Recoveries of amounts previously written off
Credit impairment charge / (release)
Bad debts written-off (excluding recoveries)
Add back recoveries of amounts previously written off
Discount unwind
As at 30 September 2021
Off-balance sheet credit related commitments - other retail exposures
As at 1 October 2020
Transfer between stages
New and increased provisions (net of collective provision releases)
Credit impairment release
As at 30 September 2021

Stage 3
Collectively Individuallyassessedassessed
NZ$m
NZ$m
26
8
(1)
(8)
37
(5)
(15)
(9)
17
(34)
15
17
6

Stage 1
NZ$m
11
6
(7)
(1)
10

Stage 2
NZ$m
60
(5)
(6)
(11)
49

Total
NZ$m
105
16
(5)
(15)
(4)
(34)
15
82

19
3
(7)
(4)
15

13
(3)
2
(1)
12

3
3

-

35
(5)
(5)
30

Impacts of changes in gross financial assets on loss allowances - other retail exposures
Gross loans and advances - other retail exposures
As at 1 October 2020
Net transfers in to each stage
Amounts drawn from new or existing facilities
Additions
Net transfers out of each stage
Amounts repaid
Deletions
Amounts written off
As at 30 September 2021
Loss allowance as at 30 September 2021

2,570
833
833
(2)
(1,130)(1,132)
2,271
10

165
44
44
(11)
(66)
(77)
132
49

49
10
7
17
(32)
(32)
34
17

11
3
38
41
(9)
(9)
(34)
9
6

2,795
13
922
935
(13)
(1,237)(1,250)
(34)
2,446
82

Off-balance sheet credit related commitments - other retail exposures
As at 1 October 2020
Net transfers in to each stage
New and increased facilities and drawn amounts repaid
Additions
Net transfers out of each stage
Reduced facilities and amounts drawn
Deletions
As at 30 September 2021
Loss allowance as at 30 September 2021

5,183
627
627
(1)
(718)
(719)
5,091
15

47
5
5
(1)
(13)
(14)
38
12

15
2
2
4
(6)
(6)
13
3

-

5,245
2
634
636
(2)
(737)
(739)
5,142
30

Explanation of how changes in the gross carrying amounts of other retail exposures contributed to changes in loss allowance
The NZ$28 million (20.0%) decrease in loss allowances is primarily driven by changes in the forward-looking economic scenarios as described in Note
12 Allowance for Expected Credit Losses.

87

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B3. ASSET QUALITY (continued)
Movements in components of loss allowance – other retail exposures

Net loans and advances - other retail exposures1
As at 1 October 2019
Transfer between stages
New and increased provisions (net of collective provision releases)
Write-backs
Recoveries of amounts previously written off
Credit impairment charge
Bad debts written-off (excluding recoveries)
Add back recoveries of amounts previously written off
Discount unwind
Sale of UDC
As at 30 September 2020
Off-balance sheet credit related commitments - other retail exposures
As at 1 October 2019
Transfer between stages
New and increased provisions (net of collective provision releases)
Credit impairment charge
As at 30 September 2020

Stage 1
NZ$m
26
11
(9)
2
(17)
11

17
3
(1)
2
19

Stage 3
Collectively IndividuallyStage 2
assessedassessed
NZ$m
NZ$m
NZ$m
51
24
18
(11)
30
3
71
(11)
(18)
19
3
42
(60)
18
(10)
(1)
(10)
60
26
8

Total
NZ$m
119
95
(11)
(18)
66
(60)
18
(38)
105

11
(3)
5
2
13

2
1
1
3

-

30
5
5
35

Impacts of changes in gross financial assets on loss allowances - other retail exposures
Gross loans and advances - other retail exposures2
As at 1 October 2019
Net transfers in to each stage
Amounts drawn from new or existing facilities
Additions
Net transfers out of each stage
Amounts repaid
Deletions
Amounts written off
Sale of UDC
As at 30 September 2020
Loss allowance as at 30 September 2020

4,853
12
1,223
1,235
(10)
(1,853)(1,863)(1,655)
2,570
11

305
28
28
(45)
(105)
(150)
(18)
165
60

45
25
13
38
(31)
(31)
(3)
49
26

30
18
49
67
(12)
(12)
(60)
(14)
11
8

5,233
55
1,313
1,368
(55)
(2,001)(2,056)(60)(1,690)2,795
105

Off-balance sheet credit related commitments - other retail exposures2
As at 1 October 2019
Net transfers in to each stage
New and increased facilities and drawn amounts repaid
Additions
Net transfers out of each stage
Reduced facilities and amounts drawn
Deletions
As at 30 September 2020
Loss allowance as at 30 September 2020

5,222
450
450
(1)
(488)
(489)
5,183
19

46
16
16
(3)
(12)
(15)
47
13

3
4
14
18
(6)
(6)
15
3

-

5,271
4
480
484
(4)
(506)
(510)
5,245
35

1
2

Amounts have been updated to reclassify a total net NZ$31 million (2019: NZ$4 million) relating to other retail exposures previously included in corporate.
For consistency with capital adequacy classifications, amounts have been updated to reclassify gross loans and advances of NZ$1,179 million (2019: NZ$1,718 million) previously included incorporate and off balance sheet credit related commitments of NZ$635 million to (2019: NZ$644 million from) corporate.

Explanation of how changes in the gross carrying amounts of other retail exposures contributed to changes in loss allowance
The NZ$9 million (6.0%) decrease in loss allowances is primarily driven by the reduction in other retail exposures due to the sale of UDC, partially offset
by a small increase in the proportion of gross balances in Stage 2 and Stage 3.

88

REGISTERED BANK DISCLOSURES

B3. ASSET QUALITY (continued)
Movements in components of loss allowance – corporate exposures1

Net loans and advances - corporate exposures
As at 1 October 2020
Transfer between stages
New and increased provisions (net of collective provision releases)
Write-backs
Recoveries of amounts previously written off
Credit impairment charge release
Bad debts written-off (excluding recoveries)
Add back recoveries of amounts previously written off
Discount unwind
As at 30 September 2021
Off-balance sheet credit related commitments - corporate exposures
As at 1 October 2020
Transfer between stages
New and increased provisions (net of collective provision releases)
Credit impairment release
As at 30 September 2021

Stage 3
Collectively Individuallyassessedassessed
NZ$m
NZ$m
24
90
(2)
25
(54)
(3)
(2)
(32)
(13)
3
(3)
22
45

Stage 1
NZ$m
131
4
(13)
(9)
122

Stage 2
NZ$m
224
(4)
(8)
(12)
212

Total
NZ$m
469
2
(54)
(3)
(55)
(13)
3
(3)
401

60
(11)
(11)
49

42
(1)
(14)
(15)
27

1
1
1

22
(7)
(7)
15

124
(32)
(32)
92

Impacts of changes in gross financial assets on loss allowances - corporate exposures
Gross loans and advances - corporate exposures
As at 1 October 2020
Net transfers in to each stage
Amounts drawn from new or existing facilities
Additions
Net transfers out of each stage
Amounts repaid
Deletions
Amounts written off
As at 30 September 2021
Loss allowance as at 30 September 2021

36,483
154
11,316
11,470(11,088)(11,088)
36,865
122

5,796
506
506
(56)
(2,023)(2,079)
4,223
212

247
15
74
89
(108)
(108)
228
22

326
89
89
(113)
(162)
(275)
(13)
127
45

42,852
169
11,985
12,154(169)(13,381)(13,550)(13)41,443401

Off-balance sheet credit related commitments - corporate exposures
As at 1 October 2020
Net transfers in to each stage
New and increased facilities and drawn amounts repaid
Additions
Net transfers out of each stage
Reduced facilities and amounts drawn
Deletions
As at 30 September 2021
Loss allowance as at 30 September 2021

15,525
5,478
5,478
(8)
(6,308)(6,316)
14,687
49

1,335
297
297
(2)
(429)
(431)
1,201
27

4
9
8
17
(3)
(3)
18
1

41
1
1
2
(20)
(20)
23
15

16,905
10
5,784
5,794
(10)
(6,760)(6,770)15,92992

1

Also includes all other non-retail exposure classes in net loans and advances and off balance sheet credit related commitments to reconcile to the respective totals for the Banking Group.

Explanation of how changes in the gross carrying amounts of corporate exposures contributed to changes in loss allowance
The NZ$100 million (16.9%) decrease in loss allowances is primarily driven by changes in the forward-looking economic scenarios as described in Note
12 Allowance for Expected Credit Losses, and a decrease in the proportion of gross balances in Stage 2 and Stage 3.

89

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B3. ASSET QUALITY (continued)
Movements in components of loss allowance – corporate exposures1

Net loans and advances - corporate exposures
As at 1 October 20192
Transfer between stages
New and increased provisions (net of collective provision releases)3
Write-backs
Recoveries of amounts previously written off
Credit impairment charge
Bad debts written-off (excluding recoveries)
Add back recoveries of amounts previously written off
Discount unwind
Sale of UDC
As at 30 September 2020
Off-balance sheet credit related commitments - corporate exposures
As at 1 October 2019
Transfer between stages
New and increased provisions (net of collective provision releases)
Credit impairment charge
Sale of UDC
As at 30 September 2020

Stage 1
NZ$m
120
8
11
19
(8)
131

43
18
18
(1)
60

Stage 3
Collectively IndividuallyStage 2
assessedassessed
NZ$m
NZ$m
NZ$m
118
6
71
(12)
3
1
131
15
79
(19)
(5)
119
18
56
(31)
5
(7)
(13)
(4)
224
24
90

Total
NZ$m
315
236
(19)
(5)
212
(31)
5
(7)
(25)
469

13
31
31
(2)
42

-

11
11
11
22

67
60
60
(3)
124

Impacts of changes in gross financial assets on loss allowances - corporate exposures
Gross loans and advances - corporate exposures4
As at 1 October 2019
Net transfers in to each stage
Amounts drawn from new or existing facilities
Additions
Net transfers out of each stage
Amounts repaid
Deletions
Amounts written off
Sale of UDC
As at 30 September 2020
Loss allowance as at 30 September 2020

39,304
9,987
9,987(1,307)(10,278)(11,585)(1,223)36,483
131

6,228
950
802
1,752
(1,755)(1,755)
(429)
5,796
224

126
175
48
223
(102)
(102)
247
24

230
182
120
302
(168)
(168)
(31)
(7)
326
90

45,888
1,307
10,957
12,264(1,307)(12,303)(13,610)(31)(1,659)42,852469

Off-balance sheet credit related commitments - corporate exposures4
As at 1 October 2019
Net transfers in to each stage
New and increased facilities and drawn amounts repaid
Additions
Net transfers out of each stage
Reduced facilities and amounts drawn
Deletions
Sale of UDC
As at 30 September 2020
Loss allowance as at 30 September 2020

15,037
3
6,885
6,888
(372)
(5,650)(6,022)(378)
15,525
60

755
362
561
923
(3)
(175)
(178)
(165)
1,335
42

3
2
5
(1)
(1)
4
-

19
7
25
32
(10)
(10)
41
22

15,811
375
7,473
7,848
(375)
(5,836)(6,211)(543)
16,905
124

1
2
3
4

90

Also includes all other non-retail exposure classes in net loans and advances and off balance sheet credit related commitments to reconcile to the respective totals for the Banking Group.
Amounts have been updated to reclassify aggregate amounts of NZ$14 million from residential mortgages and NZ$4 million to other retail.
Amounts have been updated to reclassify aggregate amounts of NZ$31 million to residential mortgages and NZ$27 million to other retail.
For consistency with capital adequacy classifications of other retail exposures, amounts have been updated to reclassify gross loans and advances of NZ$1,179 million (2019: NZ$1,718
million) to other retail exposures and off balance sheet credit related commitments of NZ$635 million from (2019: NZ$644 million to) other retail exposures.

REGISTERED BANK DISCLOSURES

B3. ASSET QUALITY (continued)
Explanation of how changes in the gross carrying amounts of corporate exposures contributed to changes in loss allowance
While there has been a small increase in the proportion of gross balances in Stage 3, the NZ$211 million (55.2%) increase in loss allowances is primarily
driven by changes in the forward looking economic scenarios and changes in probability weightings, partially offset by the reduction in exposuresfrom the sale of UDC and amounts written-off.

Past due assets
Residential
mortgages
NZ$m
Less than 30 days past due
402
At least 30 days but less than 60 days past due
122
At least 60 days but less than 90 days past due
125
At least 90 days past due
325
Total past due but not individually impaired
974
Other asset quality information
Undrawn facilities with impaired customers
Other assets under administration

2

2021
Other
retail Non-retail
exposures exposures
NZ$m
NZ$m
76
237
13
157
8
42
21
26
118
462

1

23
-

Residential
Total mortgages
NZ$m
NZ$m
313
715
86
292
106
175
470
372
975
1,554

23
3

3

2020
Other
retail Non-retail
exposures exposures
NZ$m
NZ$m
88
549
15
104
10
15
35
18
148
686

1

41
-

Total
NZ$m
950
205
131
523
1,809

41
4

Asset quality for financial assets designated at fair value
The Banking Group does not have any loans and advances designated at fair value.

91

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B4. CAPITAL ADEQUACY UNDER THE INTERNAL MODELS BASED APPROACH, AND REGULATORYLIQUIDITY RATIOS (UNAUDITED)RBNZ capital ratios

Common equity tier 1 capital
Tier 1 capital
Total capital
Buffer ratio

Banking Group
RBNZ minimum
2021
4.5%
13.4%
6.0%
16.2%
8.0%
16.9%
2.5%
8.9%

2020
11.7%
14.4%
14.4%
6.4%

Bank
(Solo Consolidated)
2021
2020
13.1%
11.3%
15.9%
14.0%
16.6%
14.0%
n/a
n/a

Capital
As at 30 September 2021
Tier 1 capital
Common equity tier 1 (CET1) capital
Paid up ordinary shares issued by the Bank
Retained earnings (net of appropriations)
Accumulated other comprehensive income and other disclosed reserves1
Less deductions from common equity tier 1 capital
Goodwill and intangible assets, net of associated deferred tax liabilities
Deferred tax assets less deferred tax liabilities relating to temporary differences
Cash flow hedge reserve
Defined benefit superannuation plan surplus
Expected losses to the extent greater than total eligible allowances for impairment
Common equity tier 1 capital
Additional tier 1 capitalPreference shares2
NZD 500m ANZ New Zealand Capital Notes (ANZ NZ CN)3
NZD 1,003m ANZ New Zealand Internal Capital Notes (ANZ NZ ICN)3NZD 938m ANZ New Zealand Internal Capital Notes (ANZ NZ ICN2)3
Retained earnings of the Bonus Bonds Scheme4Less deductions from additional tier 1 capital
Surplus retained earnings of the Bonus Bonds Scheme4
Additional tier 1 capital
Total tier 1 capital
Tier 2 capital
NZD 600m subordinated notes3
Eligible impairment allowance in excess of expected loss
Tier 2 capital
Total capital
1
2
3
4

21

11,588
4,934
70(3,091)
(416)
(8)
(7)
(69)
13,001

21
14
14
14

300
500
1,003
938
94
(83)
2,752
15,753600
35635
16,388

Includes the cash flow hedging reserve of NZ$8 million plus the investment securities revaluation reserve of NZ$62 million as at 30 September 2021.
Classified as equity on the balance sheet under NZ GAAP.
Classified as a liability on the balance sheet under NZ GAAP.
Bonus Bonds Scheme is not consolidated on the balance sheet under NZ GAAP but is classified as AT1 capital for capital adequacy purposes as set out in BS2B.

As at 30 September 2021
Total credit risk
Operational risk
Market risk
Supervisory adjustment
Total

92

NZ$m

21

Capital requirements of the Banking Group

1

Note

Total
exposures
after credit
risk mitigation
NZ$m
209,202
n/a
n/a
n/a
n/a

Risk weighted
exposure or
implied risk
weighted Total capital
exposure1 requirement
NZ$m
NZ$m
62,922
5,034
10,386
831
6,282
503
17,587
1,407
97,177
7,775

The calculation of capital requirements for total credit risk weighted includes a scalar of 1.06 in accordance with the Bank's Conditions of Registration.

REGISTERED BANK DISCLOSURES

B4. CAPITAL ADEQUACY UNDER THE INTERNAL MODELS BASED APPROACH, AND REGULATORYLIQUIDITY RATIOS (UNAUDITED) (continued)
Credit risk subject to the Internal Ratings Based (IRB) approach
IRB credit exposures by exposure class and customer credit rating

As at 30 September 2021
Corporate
0-2
3-4
5
6
7-8
Default
Total corporate exposures1,2
Sovereign0
1-8
Total sovereign exposures
Bank
0
1
2-4
5-8
Total bank exposures
Residential mortgages
0-3
4
5
6
7-8
Default
Total residential mortgage exposures3
Other retail
0-2
3-4
5
6
7-8
Default
Total other retail exposures
Total credit risk exposures subject
to the IRB approach1
2
3

Probabilityof default%

Exposure at
Total valuedefault
NZ$m
NZ$m

Exposureweighted
LGD used
for thecapitalcalculation%

Exposureweighted
risk weight%

Risk
Minimum
weighted
capitalassets requirement
NZ$m
NZ$m

0.05
0.31
1.01
2.30
17.63
100.001.86

83,76342,191
13,673
3,144
1,189
397
144,357

7,294
22,711
11,105
2,947
1,146
390
45,593

62
37
31
32
37
32
39

30
39
55
73
162
82
47

2,328
9,429
6,490
2,280
1,962
341
22,830

186
754
519
182
157
28
1,826

0.01
0.27
0.01

30,94052
30,992

15,86946
15,915

5
5
5

1
4
1

190
2
192

15
15

0.03
0.03
0.05
5.35
0.04

1
50,405
1,628,570
1,678,976

1
3,477
7,015
10,493

65
38
65
65
56

50
20
24
191
23

1
739
1,792
2,532

59
143
1
203

0.20
0.45
0.89
1.94
4.67
100.000.84

38,811
43,82020,057
2,897
192
382
106,159

39,202
43,95920,133
2,900
192
382
106,768

12
20
24
26
25
14
18

5
16
32
59
88
7
16

2,251
7,347
6,745
1,805
179
28
18,355

180
588
540
144
14
2
1,468

0.10
0.26
1.10
2.71
8.31
100.00
2.02

549
4,498
1,073
641
780
47
7,588

551
4,580
1,062
670
810
47
7,720

77
78
78
83
87
81
79

49
55
83
108
136
49
71

289
2,653
930
767
1,169
24
5,832

23
212
74
61
94
3
467

1.02

1,968,072

186,48927

25

49,741

3,979

During the year ended 30 September 2021, two immaterial issues impacting the calculation of RWA for corporate exposures were identified. They related to the tenor treatment for
performance guarantee products (estimated impact +NZ$106m RWA) and the measurement of security coverage for corporate customers with residential mortgages (estimated impact+NZ$143m RWA). There is no impact on reported capital ratios and remediation is in progress.
The supervisory adjustment on the previous page includes NZ$4,721 million of RWA for corporate exposures. This increases the pre-scalar exposure–weighted risk weight to 57% and theminimum capital requirement to NZ$2,204 million.
The supervisory adjustment on the previous page includes NZ$12,866 million of RWA for residential mortgage exposures. This increases the pre-scalar exposure-weighted risk weight to
28% and the minimum capital requirement to NZ$2,497 million.

93

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B4. CAPITAL ADEQUACY UNDER THE INTERNAL MODELS BASED APPROACH, AND REGULATORYLIQUIDITY RATIOS (UNAUDITED) (continued)
IRB credit exposures include the following undrawn commitments and other off-balance sheet amounts:

As at 30 September 2021
Undrawn commitments and other off-balance sheet amounts excluding market related contracts
Corporate
SovereignBank
Residential mortgages
Other retailMarket related contracts
Corporate
SovereignBank
Residential mortgages
Other retail

Total value
NZ$m

Exposure atdefault
NZ$m

12,599
82
1,234
9,081
5,142

11,835
77
1,084
9,532
5,216

99,897
15,006
1,672,023
-

1,891
95
4,380
-

Additional mortgage information
As required by the RBNZ, LVRs are calculated as the current exposure secured by a residential mortgage divided by the Banking Group's valuation of
the security property at origination of the exposure. Off-balance sheet exposures include undrawn and partially drawn residential mortgage loans aswell as commitments to lend. Commitments to lend are formal offers for housing lending which have been accepted by the customer.
On-balance Off-balance
sheet
sheet
NZ$m
NZ$m

As at 30 September 2021
LVR range
Does not exceed 60%
Exceeds 60% and not 70%
Exceeds 70% and not 80%
Does not exceed 80%
Exceeds 80% and not 90%
Exceeds 90%
Total
Specialised lending subject to the slotting approach

As at 30 September 2021
On-balance sheet exposures
StrongGood
Satisfactory
Weak
Default

As at 30 September 2021
Off-balance sheet exposures
Undrawn commitments and other off-balance sheet exposures

50,774
19,91920,86691,5593,888
1,631
97,078
Total
exposures
after
credit risk
mitigation
NZ$m

Risk weight
%

6,222
5,142
300
100
4

70
90
115
250
-

Exposure atdefault
NZ$m

Averagerisk weight
%

1,407

85

6,507
1,198
1,025
8,730
123
228
9,081

Total
NZ$m
57,281
21,117
21,891
100,289
4,011
1,859
106,159

Minimum
Risk
Pillar 1
weighted
capitalassets requirement
NZ$m
NZ$m
4,617
4,905
366
264
-

369
392
29
23
-

Minimum
Risk
Pillar 1
weighted
capitalassets requirement
NZ$m
NZ$m
1,271

101

The supervisory categories of specialised lending above are associated with specific risk-weights. These categories broadly correspond to thefollowing external credit assessments using S&P Global Ratings' rating scale, Strong: BBB- or better, Good: BB+ or BB, Satisfactory: BB- or B+ and Weak:
B to C-.
94

REGISTERED BANK DISCLOSURES

B4. CAPITAL ADEQUACY UNDER THE INTERNAL MODELS BASED APPROACH, AND REGULATORYLIQUIDITY RATIOS (UNAUDITED) (continued)
Credit risk exposures subject to the standardised approach

Total
exposure
after credit
risk Average risk
mitigation
weight
NZ$m%

As at 30 September 2021
On-balance sheet exposures
Cash and gold bullion
Sovereign and central banks
Multilateral development banks and other international organisations
Public sector entities
Banks
Corporate
Residential mortgages
Past due assets
Other assets

As at 30 September 2021
Off-balance sheet exposures
Undrawn commitments and other off-balance sheet
exposuresMarket related contracts
Foreign exchange contracts
Interest rate contracts
Other - OTC etc

163
6,697
331
1,119

17
100

Minimum
Risk
Pillar 1
weighted
capitalexposure requirement
NZ$m
NZ$m
60
1,187

5
95

Total
exposure or
principal
amount
NZ$m

Averagecreditconversion
factor
%

578

68

394

98

411

33

981,962
727

n/a
n/a
n/a

833
-

11
2

95
-

8
-

Creditequivalent Average risk
amountweightNZ$m%

Minimum
Risk
Pillar 1
weighted
capitalexposure requirement
NZ$m
NZ$m

Equity exposures

As at 30 September 2021
Equity holdings (not deducted from capital) that are publicly traded
All other equity holdings (not deducted from capital)

Exposure atdefault Risk weight
NZ$m
%
300
1
400

Minimum
Risk
Pillar 1
weighted
capitalexposure requirement
NZ$m
NZ$m
5
-

Credit risk mitigation
Information on the total value of exposures covered by financial guarantees and eligible financial collateral is not disclosed, as the effect of theseguarantees and collateral on the underlying credit risk exposures is not considered to be material.

As at 30 September 2021
Exposure class
Sovereign
Bank
Corporate (including specialised lending)Residential mortgage
Other
1

For portfolios subject tothe standardised approach:total value of exposurescovered by eligible financial
collateral (after haircut)
NZ$m

For all portfolios:
total value of exposurescovered by guarantees
or credit derivatives1
NZ$m

-

843
-

Covered by guarantees where the presence of the guarantees was judged to reduce the underlying credit risk of the exposures.

95

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B4. CAPITAL ADEQUACY UNDER THE INTERNAL MODELS BASED APPROACH, AND REGULATORYLIQUIDITY RATIOS (UNAUDITED) (continued)
Operational risk
As required by its conditions of registration, the Banking Group uses the standardised approach to the calculation of its operational risk capitalrequirement. As at 30 September 2021, the Banking Group had an implied risk weighted exposure of NZ$10,386 million for operational risk and an
operational risk capital requirement of NZ$831 million.
Market risk
The aggregate market risk exposures below have been calculated in accordance with BS2B. The peak end-of-day market risk exposures are for the six
months ended 30 September 2021.
Implied risk weighted
exposure
Aggregate capital charge
Period end
Peak Period end
Peak
As at 30 September 2021
NZ$m
NZ$m
NZ$m
NZ$m
Interest rate risk
6,260
10,950501876Foreign currency risk
21
21
2
2
Equity risk
1
1Capital for other material risks
The Banking Group has an Internal Capital Adequacy Assessment Process (ICAAP) which complies with the requirements of the Bank's Conditions ofRegistration. The Banking Group's ICAAP identifies and measures all "other material risks", which are those material risks that are not explicitly captured
in the calculation of the Banking Group's tier 1 and total capital ratios. Other material risks identified by the Banking Group include fixed asset risk anddeferred acquisition cost risk. The Banking Group's internal capital allocation for these other material risks is NZ$313 million (2020: NZ$335 million,
updated from NZ$293 million for revised methodology).
Information about Ultimate Parent Bank and Overseas Banking Group
APRA Basel III capital ratios

Common equity tier 1 capital
Tier 1 capital
Total capital

Ultimate Parent Bank
Overseas Banking Group (Extended Licensed Entity)
2021
2020
2021
2020
11.3%
11.2%
12.3%
12.0%
13.2%
13.2%
14.3%
14.1%
18.4%
16.4%
18.6%
16.7%

The Ultimate Parent Bank and the Overseas Banking Group are required to hold minimum capital as determined by APRA, which is at least equal tothat specified under the Basel III capital framework.
APRA has authorised the Ultimate Parent Bank and the Overseas Banking Group to use:
• the Advanced Internal Ratings Based (AIRB) methodology for calculation of credit risk weighted assets. Where the Overseas Banking Group is notaccredited to use the AIRB methodology the Overseas Banking Group applies the standardised approach.
• the Advanced Measurement Approach (AMA) for the operational risk weighted asset equivalent.
The Overseas Banking Group exceeded the minimum capital requirements set by APRA as at 30 September 2021 and for the comparative priorperiods.
The Overseas Banking Group is required to publicly disclose Pillar 3 financial information as at 30 September 2021. The Overseas Banking Group’s Pillar
3 disclosure document for the quarter ended 30 September 2021, in accordance with APS 330: Public Disclosure of Prudential Information, discloses
capital adequacy ratios and other prudential information. This document can be accessed at the website anz.com.
Regulatory liquidity ratios
RBNZ requires banks to hold minimum amounts of liquid assets to help ensure that they are effectively managing their liquidity risks. The mismatch
ratio is a measure of a bank’s liquid assets, adjusted for expected cash inflows and outflows during a 1-month or 1-week period of stress. It is expressed
as a ratio over the bank’s total funding. The Banking Group must maintain its 1-month and 1-week mismatch ratios above zero on a daily basis. The 1month and 1-week mismatch ratios are averaged over the quarter.
RBNZ requires banks to get a minimum amount of funding from stable sources called core funding. From 2 April 2020, the minimum amount of corefunding was lowered from 75% to 50% of a bank’s total loans. The Banking Group must maintain its core funding ratio above the regulatory minimum
on a daily basis. This measure of the core funding ratio is averaged over the quarter.
For the three months ended
Quarterly average 1-week mismatch ratio
Quarterly average 1-month mismatch ratio
Quarterly average core funding ratio

96

30 Sep 21
7.1%
6.5%
89.3%

30 Jun 21
7.3%
6.5%
89.4%

REGISTERED BANK DISCLOSURES

B5. CONCENTRATION OF CREDIT EXPOSURES TO INDIVIDUAL COUNTERPARTIESThe Banking Group measures its concentration of credit exposures to individual counterparties at the reporting date on the basis of actual exposures.
Peak end-of-day aggregate credit exposures are measured on the basis of internal limits that were not materially exceeded between the reporting
date for the previous disclosure statement and the reporting date for the Disclosure Statement.
The exposure information in the table below excludes exposures to:• connected persons (i.e. other members of the Overseas Banking Group and Directors of the Bank);• the central government or central bank of any country with a long-term credit rating of A- or A3 or above, or its equivalent; and• any supranational or quasi-sovereign agency with a long-term credit rating of A- or A3 or above, or its equivalent.

Exposures to banks
Total number of exposures to banks that are greater than 10% of CET1 capitalwith a long-term credit rating of A- or A3 or above, or its equivalent- 10% to less than 15% of CET1 capitalwith a long-term credit rating of at least BBB- or Baa3, or its equivalent, and at most BBB+ or Baa1, or its equivalent
Exposures to non-banks
Total number of exposures to non-banks that are greater than 10% of CET1
with a long-term credit rating of A- or A3 or above, or its equivalent- 10% to less than 15% of CET1 capital- 30% to less than 35% of CET1 capitalwith a long-term credit rating of at least BBB- or Baa3, or its equivalent, and at most BBB+ or Baa1, or its equivalent

As at
30 Sep 21

Peak end of
day over 6
months to
30 Sep 21

1
1
1
-

1
1
1
-

2
2
2
-

3
3
2
1
-

97

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B6. CREDIT EXPOSURES TO CONNECTED PERSONSConnected persons
Amount % of Tier 1
NZ$m
Capital
As at 30 September 2021
Gross amount, before netting
Amount netted
Aggregate credit exposure (on partial bilateral net basis)
Peak end-of day aggregate credit exposure over the year ended 30 September 2021
Gross amount, before netting
Amount netted
Aggregate credit exposure (on partial bilateral net basis)Non-bank connected
Amount % of Tier 1
NZ$m
Capital11,912
8,587
3,325

75.6%
54.5%
21.1%

<$1m
<$1m

0.0%
0.0%
0.0%

11,707
8,232
3,475

74.3%
52.3%
22.1%

<$1m
<$1m

0.0%
0.0%
0.0%

Credit exposures to connected persons
The information on credit exposure to connected persons has been derived in accordance with the RBNZ Banking Supervision Handbook document
Connected Exposures Policy (BS8), is net of individual credit impairment allowances and excludes advances to connected persons of a capital nature.
Peak end-of-day aggregate exposure
Peak end-of-day aggregate credit exposure to connected persons as a ratio to tier 1 capital for the full year accounting period is derived bydetermining the maximum end-of-day aggregate amount of credit exposure over the accounting period and then dividing that amount by the
Banking Group’s tier 1 capital as at the reporting date.
Rating contingent limit
The rating-contingent limit that applied to the Banking Group as at 30 September 2021 was 60%. No limit changes have occurred over the year to 30
September 2021. Within the overall rating-contingent limit, there is a sub-limit of 15% of tier 1 capital that applies to the aggregate credit exposure tonon-bank connected persons.
Additional requirements for aggregate credit exposure to connected persons
Aggregate credit exposure to connected persons has been calculated on a partial bilateral net basis. The gross amounts and amounts netted off
under a bilateral netting agreement are included in the table above. There is a limit of 125% of the Banking Group’s tier 1 capital in respect of the grossamount of aggregate credit exposure to connected persons that can be netted off in determining the net exposure.
Aggregate amount of contingent exposures arising from risk lay-off arrangements
NZ$219 million of contingent exposures of the Banking Group to connected persons arose from risk lay-off arrangements in respect of credit
exposures to counterparties (excluding counterparties that are connected persons) as at 30 September 2021.
Loss allowance for credit-impaired credit exposures to connected persons
There were no loss allowances provided against credit exposures to connected persons as at 30 September 2021.

98

REGISTERED BANK DISCLOSURES

B7. INSURANCE BUSINESS, SECURITISATION, FUNDS MANAGEMENT, OTHER FIDUCIARY ACTIVITIESAND MARKETING AND DISTRIBUTION OF INSURANCE PRODUCTS
Insurance business
The Banking Group does not conduct any insurance business.
Banking Group’s involvement in securitisation, funds management, other fiduciary activities, and marketing and distribution of insurance
productsa)Banking Group’s involvement in the establishment, marketing, or sponsorship of trust, custodial, funds management, and other fiduciary activities

Activity

Details

Custodial

The Banking Group operates two custodians as at 30 September 2021:• ANZ Custodial Services New Zealand Limited, which is the appointed custodian for private banking’s (ANZ Private)
Discretionary Investment Management Service, Wholesale Investment Services and Trading Service; and• ANZ New Zealand Investments Nominees Limited, which is the appointed custodian for direct holdings of securities by
various wholesale customer portfolios managed by ANZ New Zealand Investments Limited (ANZ Investments).

Funds
management

The Banking Group provides the following funds management services:• Managed Investment Schemes (MIS): The Banking Group’s subsidiaries ANZ Investments and ANZ Investment Services(New Zealand) Limited (ANZIS) act as manager for a number of managed investment schemes. ANZ Investments holds an
MIS Manager licence, with ANZIS being an authorised body under that licence. ANZ Investments is the issuer andmanager of ANZ and OneAnswer-branded KiwiSaver, retail and wholesale schemes. ANZIS is the issuer and manager ofthe Bonus Bonds Scheme and the ANZ PIE Fund. ANZ National Staff Superannuation Limited, also a subsidiary of the
Banking Group, is the trustee and manager of the ANZ National Retirement Scheme, which is a restricted workplacesavings scheme.
• Discretionary Investment Management Service (DIMS): The Bank is a licensed DIMS provider. This service is offered to ANZ
Private customers.
• Other investment portfolios: ANZ Investments also manages investment portfolios for a number of schemes where thescheme manager or trustee has outsourced investment management services to ANZ Investments. These schemes are
typically corporate superannuation schemes.

Other fiduciary
activities

ANZ Investments, through its subsidiary OneAnswer Nominees Limited, offers the OneAnswer Portfolio Service. The associatedadministration and custody services are provided by FNZ Limited and FNZ Custodians Limited respectively (together FNZ).
FNZ is not a member or related party of the Banking Group.

b)

Banking Group’s involvement in the origination of securitised assets, and the marketing or servicing of securitisation schemes

The Banking Group originates securitised assets in the form of residential mortgage backed securities held for potential repurchase transactions with
the RBNZ, and covered bonds. Refer to Note 24 Structured Entities for further details about these programmes. Other than these activities, the Banking
Group is not involved in the marketing or servicing of securitisation schemes.
c)Banking Group’s involvement in marketing and distribution of insurance products

The Banking Group markets and distributes life insurance, other personal and business insurance products provided by or arranged through a numberof insurance partners. None of these insurance partners are affiliated insurance entities or affiliated insurance groups. Our insurance partners are:
• Vero Insurance New Zealand Limited for home, contents, motor vehicle, boat and lifestyle block insurance;• AWP Services New Zealand Limited, trading as Allianz Partners, for travel insurance. Policies are underwritten by Allianz Australia Insurance
Limited (incorporated in Australia) trading as Allianz New Zealand;• Cigna Life Insurance New Zealand Limited for life & living insurance; and• Crombie Lockwood (NZ) Limited is our business insurance broker.
Arrangements to ensure no adverse impacts arising from the above activities
Arrangements have been put in place to ensure that difficulties arising from the activities in a), b) and c) above would not impact adversely on the
Banking Group. The policies and procedures in place include comprehensive and prominent disclosure of information regarding products, and formal
and regular review of operations and policies by management.

99

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B7. INSURANCE BUSINESS, SECURITISATION, FUNDS MANAGEMENT, OTHER FIDUCIARY ACTIVITIESAND MARKETING AND DISTRIBUTION OF INSURANCE PRODUCTS (continued)
Amounts represented by funds management and securitisation activities

Funds under management:
KiwiSaver1
Bonus Bonds Scheme2
Other managed funds1
ANZ PIE Fund2
DIMS3
Other investment portfolios4
Total funds under management
Funds under custodial arrangements
Other funds held or managed subject to fiduciary responsibilities5
Outstanding securitised assets originated by the Banking Group - carrying amount of covered bonds
1
2
3
4
5

2021
NZ$m

2020
NZ$m

19,051
872
3,842
1,724
8,868
4,686
39,043
8,942
1,811
4,248

16,417
2,071
2,701
2,309
8,087
3,638
35,223
8,353
1,491
4,522

Managed by ANZ Investments.
Managed by ANZIS.
Managed by the Bank.
Comprises portfolios managed by ANZ Investments, and the ANZ National Retirement Scheme managed by ANZ National Staff Superannuation Limited.
Not included in funds under management.

Financial services provided to entities conducting the above activities
Financial services provided by any member of the Banking Group to entities that conduct the activities in a) or b) above are provided on arm’s length
terms and conditions and at fair value.
Assets purchased from entities conducting the above activities
Over the year ended 30 September 2021, any assets purchased by any member of the Banking Group from entities that conduct the activities in a), b)or c) above have been purchased on arm’s length terms and conditions and at fair value.
Funding provided to entities in aggregate and individually
The peak end-of day aggregate amount of funding provided to entities that provide services relating to the Banking Group’s involvement in the above
activities over the year ended 30 September 2021 was NZ$0.1 million (2020: NZ$0.1 million) which was 0.0% (2020: 0.0%) of the Banking Group’s tier 1
capital and 0.1% (2020: 0.1%) of the total assets of the individual entity. Comparative amounts have been updated to include undrawn facilities.
Method for deriving peak end-of-day amount of funding in aggregate and individually
The peak end-of-day aggregate amount of funding is the maximum end-of-day aggregate amount of funding over the full year accounting period,
divided by the Banking Group’s tier 1 capital as at the balance date, and the total assets as at the balance date of the individual entity to which the
Banking Group has provided funding. Where financial statements for the individual entity are not publicly available, total assets from the publicly
available financial statements of the group of which the entity is a member have been used.

100

REGISTERED BANK DISCLOSURES

B8. RISK MANAGEMENT POLICIESInformation about risk
The COVID-19 pandemic has continued to impact our operating environment. Our Risk Management Framework has underpinned our response
during this challenging time and has enabled us to maintain sound risk management practices.
The Board is ultimately responsible for establishing and overseeing the Banking Group’s Risk Management Framework (RMF), which is
supported by the Banking Group’s underlying systems, structures, policies, procedures, processes and people. The Board has delegatedauthority to the Bank’s Board Risk Committee (BRC) to develop and monitor compliance with the Banking Group’s risk management
policies. The Committee reports regularly to the Board on its activities. The key pillars of the Banking Group’s RMF include:•

The Risk Management Strategy (RMS), which describes the Banking Group’s strategy for managing risks arising from the Banking
Group’s purpose and strategy and the key elements of the RMF that give effect to that strategy. The RMS includes: how the riskfunction is structured to support the Banking Group’s purpose and strategy; the values, attitudes and behaviours required of
employees in delivering on strategic priorities; a description of each material risk; and an overview of how the RMF addresses eachrisk, with reference to the relevant policies, standards and procedures. It also includes information on how the Banking Groupidentifies, measures, evaluates, monitors, reports and then either controls or mitigates material risks.

•

The Risk Appetite Statement (RAS), which sets out the Board’s expectations regarding, for each material risk, the maximum level ofrisk the Banking Group is willing to accept in pursuing its strategic objectives and its operating plans considering its stakeholders’,
depositors’ and customers’ interests.

•

Risk Culture, an important component of the Banking Group’s organizational culture and an intrinsic part of the Banking Group’s RMF.

The material risks facing the Banking Group per our RMS, and how these risks are managed, are summarised below.

Key Material Risks
Each key material risk has an associated RAS component, and where applicable, is measured by appropriate metric(s) and associated tolerance(s)representing the maximum level of risk appropriate to execute the Banking Group’s strategic agenda. Metrics are prepared and reviewed at least
monthly. A risk appetite dashboard is prepared and reviewed by senior management monthly, and presented to the BRC at each meeting.
Risk Type

Description

Managing the Risk

Strategic
Risk

Risks that affect or are created by an organisation’s businessstrategy and strategic objectives. A possible source of loss
might arise from the pursuit of an unsuccessful businessplan. For example, Strategic risk might arise from making
poor strategic business decisions, from the sub-standard
execution of decisions, or from a failure to respond well tochanges in a business environment.

We consider and manage strategic risks through our annual strategicplanning process, managed by the Executive Committee andapproved by the Board. Where the strategy leads to an increase in
Key Material Risks (e.g. Credit Risk, Market Risk, Operational Risk) therisk management strategies associated with these risks form theprimary controls.

CapitalAdequacy
Risk

The risk of loss arising from the Banking Group failing tomaintain the level of capital required by prudential
regulators and other key stakeholders (shareholders, debt
investors, depositors, rating agencies, etc.) to support the
Banking Group’s consolidated operations and risk appetite.

We pursue an active approach to Capital Management, which isdesigned to protect the interests of depositors, creditors andstakeholders through ongoing review, and Board approval, of thelevel and composition of our capital base against key policy
objectives. The ICAAP also operates as part of the management
framework for this risk.

CreditRisk

The risk of financial loss resulting from a counterparty failingto fulfil its obligations, or from a decrease in credit quality ofa counterparty resulting in a financial loss.

Our Credit Risk framework is top down, being defined by credit
principles and policies. Credit policies, requirements and procedures
cover all aspects of the credit life cycle from initial approval and risk
grading, through ongoing management and problem debt
management.

Credit Risk incorporates the risks associated with us lending
to customers who could be impacted by climate change orby changes to laws, regulations, or other policies adopted
by governments or regulatory authorities, including carbon
pricing and climate change adaptation or mitigation
policies.

The effectiveness of the Credit Risk framework is assessed throughvarious compliance and monitoring processes. These, together withportfolio selection, define and guide the credit process, organisationand staff.

Includes:• concentrations of credit risk;• intra-day credit risk;• credit risk to bank counterparties; and• related party credit risk.
Liquidity
andFunding
Risk

The risk that the Banking Group is unable to meet its
payment obligations as they fall due, including:• repaying depositors or maturing wholesale debt; or• the Banking Group having insufficient capacity to fundincreases in assets.

Key principles in managing our Liquidity and Funding Risk include:• the Banking Group’s short term liquidity scenario modelling
stresses cash flow projections against multiple survival horizons
over which the Banking Group is required to remain cash flow
positive; and• Longer-term scenarios are in place that measure the structuralliquidity position of the balance sheet.

101

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B8. RISK MANAGEMENT POLICIES (continued)
Risk Type

Description

Managing the Risk

MarketRisk

The risk to the Banking Group’s earnings arising from:• changes in any interest rates, foreign exchange rates,
credit spreads, volatility, and correlations; or• fluctuations in bond, commodity or equity prices.

We have a detailed risk management and control framework to
support our trading and balance sheet activities, which
incorporates an independent risk measurement approach toquantify the magnitude of market risk within the trading andbalance sheet portfolios. This approach, along with related analysis,
identifies the range of possible outcomes, that can be expected
over a given period of time, and establishes the likelihood of thoseoutcomes and allocates an appropriate amount of capital tosupport these activities.
The Banking Group’s key tools to measure and manage Market Risk
on a daily basis include value at risk, earnings at risk, interest ratesensitivities, market value loss limits and stress testing.

Operational
Risk

The risk of loss and/or non-compliance with laws resulting
from inadequate or failed internal processes, people
and/or systems, or from external events. This definition
includes legal risk, and the risk of reputation loss, or
damage arising from inadequate or failed internal
processes, people and/or systems; but excludes strategicrisk.

The Banking Group foundational operational risk policy is the
Operational Risk Approach. The Operational Risk Approach and its
supporting requirements includes management andmeasurement of operational risks and compliance with laws,
regulations, industry standards, codes and principles of good
governance, and internal policies and procedures. The Banking
Group takes a risk-based approach to the management ofoperational risk and obligations. This enables the Banking Group to
be consistent in proactively identifying, assessing, managing,reporting and escalating operational risk-related risk exposures.

Compliance Risk

Key features of how we manage Compliance Risk as part of our
Operational Risk and Compliance Framework include:• centralised management of key obligations, and emphasis on
identification of changing regulations and the businessenvironment, to enable proactive assessment of emerging
compliance risk; and• recognition of incident management as a separate element toenhance the Banking Group’s ability to identify, manage andreport on incidents/breaches in a timely manner.

The risk of failure to act in accordance with laws,
regulations, industry standards and codes, internal policies
and procedures and principles of good governance asapplicable to the Banking Group’s businesses.

Conduct Risk
The risk of loss or damage arising from the failure of the
Banking Group, its employees or agents to appropriately
consider the interests of customers, the integrity of thefinancial markets and the expectations of the community
in conducting its business activities. The risk may arise not
only from deliberate or negligent actions of individual
employees, but may also be inadvertent and caused byinadequacies in the Banking Group’s systems, processes
and procedures.
Technology Risk
The risk of loss and/or non-compliance with laws frominadequate or failed internal processes, people or systems
that deliver technology assets and services to customers
and staff. This risk includes technology assets and services
delivered or managed by third parties, and external events.

Our approach to managing Conduct Risk is to seek to ensure thatrisks to customers, community and market integrity are identified,assessed, treated, monitored and reported in a structured
environment with appropriate governance oversight.

Our approach to managing Technology Risk is to manage ouroperational risks caused by the use of technology, including risks
associated with cyber security and third party providers, in amanner that seeks to ensure customer information is secure andservice disruption is within acceptable levels.

The risk specifically includes information security and cybersecurity and how information held by the Banking Groupneeds to be protected from inappropriate modification,
loss, disclosure and unavailability.
Refer to Note 15 Financial Risk Management for the disclosures required under NZ IFRS 7 Financial Instruments: Disclosures.

102

REGISTERED BANK DISCLOSURES

B8. RISK MANAGEMENT POLICIES (continued)
Other Material Risks
Other Material Risks do not require the same degree of active or transactional management as the Key Material Risks and are managed and monitored
as part of the Banking Group’s business, strategic and capital management process. The maximum level of risk is set as part of the Banking Group’s
ICAAP. Refer to Note 22 Capital Management for more information about the Banking Group’s ICAAP, and the section ‘Capital for other material risks’in Note B4 for the capital held for these risks.
PensionRisk

The risk of the value of investments in a defined benefit pension fund being insufficient to meet liabilities, resulting in additional
funds being required to match pension liabilities.

Strategic
Equity Risk

The risk of financial loss arising from the unexpected reduction in value of the Banking Group equity investments not held in the
trading book, including the Banking Group’s joint ventures and associates.

Fixed Asset
Risk

The risk of financial loss arising from the negative revaluation of fixed assets owned and leased by the Banking Group, caused byadverse changes in business and/or economic conditions. Residual Value Risk is included in the definition of Fixed Assets, which is
the risk that the market value of the underlying assets of operating leases may fall below the anticipated residual value.

Deferred
Acquisition
Costs Risk

The risk of loss arising from the failure of the benefits associated with the acquisition of interest earning assets to arise due toimpairment, transfer, or prepayment.

SoftwareRisk

The risk of financial loss arising from the unexpected accelerated write down of capitalised software expenditure due to diminishedfuture economic benefits caused by adverse business or economic conditions.

Goodwill
Risk

The risk of financial loss caused by the reduction in the net carrying value of acquired business resulting from lower than expected
future economic benefits due to adverse business and economic conditions.

Capital adequacy
Refer to Note 22 Capital Management for the disclosures required under NZ IAS 1 Presentation of financial statements.
Reviews of the Banking Group’s risk management systems
Refer to Note 15 Financial Risk Management for details of the Internal Audit Function’s reviews of the Banking Group’s RMF. These reviews are notconducted by a party external to the Banking Group or the Ultimate Parent Bank.
Internal Audit Function of the Banking Group
The Banking Group has an Internal Audit Function, refer to Note 15 Financial Risk Management for details.
The nature and scope of the responsibilities of the Audit Committee responsibilities, to which Internal Audit reports, are to assist the Board of Directors
by providing oversight and review of:• the Banking Group's financial reporting principles and policies, controls, systems and procedures;• the effectiveness of the Banking Group’s internal control and risk management framework;• the work and internal audit standards of Internal Audit which reports directly and solely to the Chair of the Audit Committee;• the integrity of the Banking Group's financial statements and the independent audit thereof, and the Banking Group’s compliance with legal
and regulatory requirements in relation thereto;• any due diligence procedures;• prudential supervision procedures and other regulatory requirements to the extent relating to financial reporting; and• any other matters referred to it by the Board.
The Audit Committee is also responsible for:• the appointment, annual evaluation and oversight of the external auditor;• annual review of the independence, fitness and propriety, and qualifications of the external auditor;• compensation of the external auditor; and• where deemed appropriate, replacement of the external auditor.
In carrying out its responsibilities and duties, the Audit Committee will aim to seek fair customer outcomes and financial market integrity in its
deliberations.
Measurement of impaired assets
Refer to Note 12 Allowance for Expected Credit Losses and Note 15 Financial Risk Management for details of the Banking Group’s approach tomeasurement of impaired assets. Further to this, impairment is assessed monthly, with individual allowances for credit impairment also updated
monthly and collective allowances for credit impairment updated quarterly.
Credit risk mitigation
Refer to Note 18 Offsetting for the policies and processes for, and extent of, on-balance sheet netting. The same policies and processes apply to offbalance sheet credit related commitments. No off-balance sheet credit related commitments or guarantees meet the criteria for netting.
As an AIRB bank, the Banking Group uses the comprehensive method to measure the mitigating effects of collateral.
The Banking Group assesses the integrity and ability of counterparties to meet their contractual financial obligations for repayment. The Banking
Group generally takes collateral security in the form of real property or a security interest in personal property, except for major government, bank andcorporate counterparties of strong financial standing. Longer term consumer finance, in the form of housing loans, is generally secured against realestate while short term revolving consumer credit is generally unsecured.
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ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTREGISTERED BANK DISCLOSURES
B8. RISK MANAGEMENT POLICIES (continued)
Additional information about credit risk
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 IRB banks in the RBNZ document Capital Adequacy
Framework (Internal Models Based Approach) (BS2B).
Under this IRB Framework banks use their own measures for calculating the level of credit risk associated with customers and exposures, by way of the
primary components of:• Probability of Default (PD): An estimate of the level of risk of borrower default graded by way of rating models used both at loan origination andfor ongoing monitoring.
• Exposure at Default (EAD): The expected facility exposure at default. Total credit risk-weighted exposures include a scalar of 1.06 in accordancewith the Bank’s Conditions of Registration.
• Loss 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 is required to apply the downturn LGDs according toloan to value (LVR) bands as set out in BS2B. For farm lending exposures the Banking Group is required to adopt RBNZ prescribed downturn LVR
based LGDs, along with a minimum maturity of 2.5 years and the removal of the firm-size adjustment.
For exposures classified under Specialised Lending, the Banking Group uses slotting tables approved by RBNZ rather than internal estimates.
The exceptions to IRB treatment are three minor portfolios where, due to systems constraints, determining these IRB risk 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 Capital Adequacy
Framework (Standardised Approach) (BS2A).
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 NZ$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 lendingStandardised approach
Exposure Class

Exposure Type

Reason for Standardised Approach

Future Treatment

Corporate

Merchant card prepayment exposures

System constraints

Move to IRB

Corporate credit cards

System constraints

Move to IRB

Qualifying Central Counterparty (QCCP)

Required by BS2B

Standardised

Required by BS2B

Standardised

Required by BS2B

StandardisedBank
EquityOther assets

All other assets not falling within any of the above classes

Controls surrounding credit risk rating systems
The term “Rating Systems” covers all of the methods, processes, controls, data collection and technology that support the assessment of credit risk, theassignment 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 BRC. Risk grades are an integral part of reporting to senior
management and executives. Management and staff of credit risk functions, in conjunction 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 independent ofoperational lending activities and are responsible for the ratings strategies and ongoing management of credit risk models within New Zealand. The
annual review 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 anapproach to modelling that combines models developed in New Zealand and models developed by the Ultimate Parent Bank, tested and validated
for use in New Zealand, as appropriate.
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DIRECTORS' STATEMENT
As at the date on which this Disclosure Statement is signed, after due enquiry, each Director believes that:•

The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statements (New Zealand Incorporated
Registered Banks) Order 2014; and•The Disclosure Statement is not false or misleading.

Over the year ended 30 September 2021, after due enquiry, each Director believes that:1.

•

ANZ Bank New Zealand Limited has complied in all material respects with each condition of registration that applied during that period except
as noted on page 791;•

Credit exposures to connected persons were not contrary to the interests of the Banking Group; and•ANZ Bank New Zealand 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 that thosesystems were being properly applied.
In accordance with the Order, ANZ Bank New Zealand Limited has complied in all material respects with each of its conditions of registration that applied during the period if the RBNZ has
not published any information about a breach on its website, and has not notified ANZ Bank New Zealand Limited of any material breach.

This Disclosure Statement is dated, and has been signed by all Directors of the Bank on, 10 November 2021.

Maile Carnegie

Shayne Elliott

Alison GerryRt Hon Sir John Key, GNZM AC

Scott St JohnMark Verbiest

Antonia Watson

Joan Withers

105

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTINDEPENDENT AUDITOR’S REPORTTO THE SHAREHOLDER OF ANZ BANK NEW ZEALAND LIMITEDREPORT ON THE AUDIT OF THE BANKING GROUP’S DISCLOSURE STATEMENTOPINION
We have audited the accompanying consolidated financial statements and registered bank disclosures of ANZ Bank New Zealand Limited and its
related entities (the Banking Group) in section B2, B3, B5, B6, B7 and B8 which comprise:••••the consolidated balance sheet as at 30 September 2021;
the consolidated income statement, statements of comprehensive income, changes in equity and cash flows for the year then ended;
notes, including a summary of significant accounting policies and other explanatory information; andthe information that is required to be disclosed in accordance with Schedules 4, 7, 13, 14, 15 and 17 of the Registered Bank DisclosureStatements (New Zealand Incorporated Registered Banks) Order 2014 (as amended) (the Order).

In our opinion, the accompanying consolidated financial statements on pages 4 to 69:••

give a true and fair view of the Banking Group’s financial position as at 30 September 2021 and its financial performance and cash flows forthe year ended on that date; andcomply with New Zealand Generally Accepted Accounting Practice, which in this instance means New Zealand Equivalents to International
Financial Reporting Standards (NZ IFRS) and International Financial Reporting Standards.

In our opinion, the registered bank disclosures that are required to be disclosed in accordance with Schedules 4, 7, 13, 14, 15 and 17 of the Order
are included in section B2, B3, B5, B6, B7 and B8 of the Disclosure Statement:•••

have been prepared, in all material respects, in accordance with the guidelines issued pursuant to section 78(3) of the Reserve Bank of New
Zealand Act 1989 and any conditions of registration;
are in accordance with the books and records of the Banking Group in all material respects; andfairly states the matters to which they relate in accordance with those Schedules.

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

we have obtained all the information and explanations we have required; andin our opinion, proper accounting records have been kept by the Banking Group, as far as appears from our examination of those records.

BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ)). We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Banking Group in accordance with Professional and Ethical Standard 1 International Code of Ethics for Assurance
Practitioners (including International Independence Standards) (New Zealand) issued by the New Zealand Auditing and Assurance Standards Boardand the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International
Independence Standards) (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA
Code.
Our responsibilities under ISA’s (NZ) are further described in the auditor’s responsibilities for the audit of the consolidated financial statements andregistered bank disclosures in section B2, B3, B5, B6, B7 and B8 section of our report.
Our firm has also provided other services to the Banking Group in relation to review of regulatory returns, internal controls reports, prospectus
assurance or reviews and agreed upon procedures engagements. Subject to certain restrictions, partners and employees of our firm may also deal
with the Banking Group on normal terms within the ordinary course of trading activities of the business of the Banking Group. These matters have not
impaired our independence as auditor of the Banking Group. The firm has no other relationship with, or interest in, the Banking Group.
EMPHASIS OF MATTER - NON-COMPLIANCE WITH CERTAIN CONDITIONS OF REGISTRATION
We draw attention to section B1 of the Disclosure Statement, in which the Banking Group discloses that it has identified non-compliance with aspectsof its Conditions of Registration relating to Capital adequacy.
Further details of the matters relating to capital adequacy are described below in our qualified review conclusion on the registered bank disclosures in
section B4 relating to capital adequacy and regulatory liquidity ratios.
Our opinion on the consolidated financial statements and registered bank disclosures in sections B2, B3, B5, B6, B7 and B8 is not modified in respect ofthese matters.

106

KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial
statements in the current period. We summarise below those matters and our key audit procedures to address those matters in order that theshareholder as a body may better understand the process by which we arrived at our audit opinion. Our procedures were undertaken in the context
of and solely for the purpose of our statutory audit opinion on the consolidated financial statements as a whole and we do not express discrete
opinions on separate elements of the consolidated financial statements.
Key changes in the assessment of audit risks
COVID-19
The COVID-19 pandemic continues to have an unprecedented and ongoing impact on global markets and the local economy, with effects on the
Banking Group’s customers, operations and performance. There is an elevated level of estimation uncertainty in the preparation of the Banking
Group’s consolidated financial statements, where certain accounting estimates are based on forecasts of economic conditions and forward-looking
assumptions. There is a considerable degree of judgement involved in preparing these estimates. The significant accounting estimates impacted bythese forecasts and associated uncertainties are predominantly related to the “Allowance for Expected Credit Losses” and the “Carrying Value of
Goodwill”, both detailed below. The elevated level of estimation uncertainty in these areas has informed our assessment of a continued andheightened underlying audit risk in these areas and an increase in the extent and nature of audit evidence that we had to gather.
ALLOWANCE FOR EXPECTED CREDIT LOSSES ($707 MILLION)
Refer to the critical accounting estimates, judgements and disclosures in relation to the allowance for expected credit losses in Note 12 to the Consolidated
Financial Statements.
The key audit matter
Allowance for expected credit losses is a key audit matter due to the significance of the loans and advances balance to the consolidated financial
statements and the inherent complexity of the Banking Group’s Expected Credit Loss (ECL) models used to measure ECL allowances. These models arereliant on data and a number of estimates including impacts of multiple economic scenarios, and other assumptions such as defining a Significant
Increase in Credit Risk (SICR) which in a COVID-19 environment have greater uncertainties.
NZ IFRS 9 requires the Banking Group to measure ECL on a forward-looking basis reflecting a range of future economic conditions, of which GDP and
unemployment levels are considered key assumptions. Post-model adjustments to the ECL results are also made by the Banking Group to address
known ECL model limitations or emerging trends in the loan portfolios. We exercise significant judgement in challenging both the economic
scenarios used and the judgemental overlays that the Banking Group applies to the ECL results.
The Banking Group’s criteria selected to identify a SICR, such as a decrease in customer credit rating (CCR), are key areas of judgement within the
Banking Group’s ECL methodology as these criteria determine if a forward-looking 12 month or lifetime allowance is recorded.
The COVID-19 pandemic has meant that assumptions regarding the economic outlook are more uncertain which, combined with varying
government responses, increases the level of judgement required by the Banking Group in calculating the ECL, and the associated audit risk.
Additionally, the determination of an allowance for individually assessed impairment on Business and Institutional (wholesale) loans requires
significant judgement in estimating the expected future cash repayments and proceeds from the value of the collateral held in respect of the loans.
How the matter was addressed in our audit
Our audit procedures for the allowance for ECL and disclosures included assessing the Banking Group’s significant accounting policies against therequirements of the accounting standard. KPMG Financial Risk Management and Economic specialists were used in ECL audit procedures as a core
part of our audit team.
We tested key controls in relation to:
•
•
•
•
•

The Banking Group’s ECL model governance and validation processes which involved assessment of model performance;
The Banking Group’s assessment and approval of the forward-looking macroeconomic assumptions and scenario weightings through challenge
applied by the Banking Group’s internal governance processes;
Reconciliation of the data used in the ECL calculation process to gross balances recorded within the general ledger as well as source systems;
Counterparty risk grading for wholesale loans (larger customer exposures are monitored individually). We tested the approval of new lending
facilities against the Banking Group’s lending policies, and controls over the monitoring of counterparty credit quality; andThe Banking Group’s oversight of the portfolios, with a focus on controls over delinquency monitoring.

We also tested relevant General Information Technology Controls over the key IT applications used by the Banking Group in measuring ECL
allowances, as detailed in the IT Systems and Controls key audit matter below.
In addition to controls testing, our procedures included:••

Re-performing credit assessments of a sample of wholesale loans controlled by the Banking Group’s specialist workout and recovery team, who
assessed these as higher risk or impaired, and a sample of other loans, focusing on larger exposures assessed by the Banking Group as showing
signs of deterioration, or in areas of emerging risk (assessed against external market conditions and in particular considered the impacts of
COVID-19). For each loan sampled, we challenged the Banking Group’s CCR and Security Indicator, assessment of loan recoverability, valuationof security and the impact on the credit allowance. To do this, we reviewed the information on the Banking Group’s loan file, understood thefacts and circumstances of the case with the relationship manager, and performed our own assessment of recoverability. Exercising ourjudgement, our procedures included using our understanding of relevant industries and the macroeconomic environment, and comparing data
and assumptions used by the Banking Group in recoverability assessments to externally sourced evidence, such external property sale
information;
Obtaining an understanding of the Banking Group’s processes to determine ECL allowances, evaluating the Banking Group’s ECL model
107

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTINDEPENDENT AUDITOR’S REPORT
•
•

•
•

methodologies against established market practices and criteria in the accounting standards;
Working with KPMG Financial Risk Management specialists, we assessed the accuracy of the Banking Group’s ECL model estimates by reperforming, for a sample of loans, the ECL allowance using our independently driven calculation tools and comparing this to the amountrecorded by the Banking Group;
Working with our KPMG Economic specialists, we challenged the Banking Group’s forward-looking macroeconomic assumptions and scenarios
incorporated in the Banking Group’s ECL models. We compared the Banking Group’s forecast GDP and unemployment rates, to relevant publicly
available macro-economic information, and considered other known variables and information obtained through our other audit procedures to
identify contradictory indicators;
Testing the Banking Group’s SICR methodology by re-performing the staging calculation for a sample of loans taking into consideration
movements in the CCR from loan origination CCR and comparing our expectation to actual staging applied on an individual account level in the
Banking Group’s ECL model; andAssessing the accuracy of the data used in the ECL models by confirming a sample of data fields such as account balance and CCR to relevant
source systems.

We also challenged key assumptions in the components of the Banking Group’s post-model adjustments to the ECL allowance balance. This included:••••

Assessing the requirement for additional allowances considering the Banking Group’s ECL model and data deficiencies identified by the Banking
Group’s ECL model validation processes, particularly in light of the extreme volatility in economic scenarios caused by COVID-19 andgovernment responses;
Evaluating underlying data used in concentration risk and economic cycle allowances by comparing underlying portfolio characteristics to loss
experience, current market conditions and specific risks inherent in the Banking Group’s loan portfolios;
Assessing the impacts on the modelled ECL and the requirement for out of model adjustments. We also assessed assumptions used todetermine whether a SICR event has occurred; andAssessing the completeness of additional allowance overlays by checking the consistency of risks we identified in the portfolios against the
Banking Group’s assessment.

We assessed the appropriateness of the Banking Group’s disclosures in the consolidated financial statements using our understanding obtained fromour testing and against the requirements of NZ IFRS.
VALUATION OF FINANCIAL INSTRUMENTS
Fair value of Level 2 financial instruments in asset positions $10,593 million
Fair value of Level 2 financial instruments in liability positions $12,155 million
Refer to the critical accounting estimates, judgements and disclosures of fair values in Note 16 to the Consolidated Financial Statements.
The key audit matter
The fair value of the Banking Group’s financial instruments is determined by the Banking Group through the application of valuation techniques which
often involve the exercise of judgement and the use of assumption and estimates.
The valuation of Level 2 financial instruments held at fair value is a key audit matter due to the complexity associated with the valuation methodology
and models of certain more complex Level 2 financial instruments leading to an increase in subjectivity and estimation uncertainty. Level 2 financial
instruments represent 35% of the Banking Group’s financial assets carried at fair value and 95% of the Banking Group’s financial liabilities carried at fairvalue.
How the matter was addressed in our audit
Our audit procedures for the valuation of financial instruments held at fair value included:
Performing an assessment of the population of financial instruments held at fair value to identify portfolios that have a higher risk of misstatement
arising from significant judgment over valuation either due to unobservable inputs or complex models.
We tested the design and operating effectiveness of key controls relating specifically to these financial instruments, including:
•
•
•
•
•

The Banking Group’s data validation controls in relation to Independent Price Verification, including completeness of portfolios and valuation
inputs;Controls in relation to model validation at inception and periodically, including assessment of model limitation and assumptions;Controls in relation to the review and challenge of daily profit and loss by a control function;
Control over the collateral management process, including review of margin reconciliations with clearing houses; andControls over fair value adjustments (FVAs), including exit price and portfolio level adjustments.

With the assistance of KPMG valuation specialists, we independently revalued a selection of financial instruments and FVAs on level 2 instruments. This
involved sourcing independent inputs from market data providers or external sources and using our own valuation models. We challenged the
Banking Group where our revaluations significantly differed from the Banking Group’s.
We assessed the Banking Group’s consolidated financial statement disclosures, including key judgements and assumptions using our understanding
obtained from our testing and against NZ IFRS.
IT SYSTEMS AND CONTROLSThe key audit matter
As a major New Zealand bank, the Banking Group’s businesses utilise a large number of complex, interdependent Information Technology (IT) systems
to process and record a high volume of transactions. Controls over access and changes to IT systems are critical to the recording of financial
information and the preparation of a financial report which provides a true and fair view of the Banking Group’s financial position and performance.
The IT systems and controls, as they impact the financial recording and reporting of transactions, is a key audit matter and our audit approach could108

INDEPENDENT AUDITOR’S REPORT

significantly differ depending on the effective operation of the Banking Group’s IT controls.
How the matter was addressed in our audit
We tested the control environment for key IT applications used in processing significant transactions and recording balances in the general ledger. We
also tested automated controls embedded within these systems which support the effective operation of technology-enabled business processes.
KPMG IT specialists were used throughout the engagement as a core part of our audit team.
Our audit procedures included:
•
•
•
•
•
•

Assessing the governance and higher-level controls in place across the IT environment, including the approach to the Banking Group policy
design, review and awareness;
Design and operating effectiveness testing of controls across the User Access Management Lifecycle, including how users are on-boarded,
reviewed, and removed on a timely basis from critical IT applications and supporting infrastructure. We also examined how privileged roles andfunctions are managed across each IT application and the supporting infrastructure;
Design and operating effectiveness testing of controls in place over change management, including how changes are initiated, documented,
approved, tested and authorised prior to migration into the production environment of critical IT applications. We also assessed theappropriateness of users with access to make changes to IT applications across the Banking Group;
Design and operating effectiveness testing of controls used by the Banking Group’s technology teams to schedule system jobs and monitor
system integrity;
Design and operating effectiveness testing of controls related to significant IT application programs per the ANZ Delivery Framework; andDesign and operating effectiveness testing of automated business process controls including those that enforce segregation of duties between
conflicting roles within IT applications, configurations in place to perform calculations, mappings, and flagging of financial transactions,
automated reconciliation controls (both between systems, and intra-system) and data integrity of critical system reporting used by us in our
audit to select samples and analysis data used by management to generate financial reporting.

PROVISION FOR CUSTOMER REMEDIATION ($98 MILLION)
Refer to the critical accounting estimates, judgements and disclosures in Note 20 to the Consolidated Financial Statements.
The key audit matter
The Banking Group has assessed the need to recognise provisions in relation to certain customer remediation activities arising from both internal andexternal investigations, and reviews. This includes provisions for expected refunds to customers and other counterparties, remediation project costs
and related customer, counterparty and regulatory claims, penalties, and litigation outcomes.
The provision for customer remediation is a key audit matter due to the judgements required in assessing the Banking Group’s determination of:••••

The existence of a present legal or constructive obligation arising from a past event using the conditions of the event against the criteria in theaccounting standards;
The number of investigations and the quantum of amounts being paid arising from the present obligations;
Reliable estimates of the amounts that may be paid arising from investigations, including estimates of related costs; andThe potential for legal proceedings, further investigations, and reviews from its regulators leading to a wider range of estimation outcomes for
us to consider.

How the matter was addressed in our audit
Our audit procedures for customer remediation provisions included:
•
•
•
•
•
•
•
•

Obtaining an understanding of the Banking Group’s processes for identifying and assessing the potential impact of the investigations into
customer remediation payments, related project costs and legal proceedings associated with compliance matters, investigations and reviews
from its regulators;
Enquiring with the Banking Group regarding ongoing legal, and regulatory matters, and investigation into other remediation activities;
Enquiring with external legal counsel;
Reading the minutes and other relevant documentation of ANZ Bank New Zealand Limited’s Board of Directors and various management
committees, and attending ANZ Bank New Zealand Limited’s Audit and Risk Committee meetings;
Inspecting correspondence with relevant regulatory bodies;
For a sample of individual matters, assessing the basis for recognition and measurement of a provision and associated costs against therequirements of the accounting standards. We did this by understanding and challenging the provisioning methodologies and underlying
assumptions;
Testing completeness by evaluating all current customer remediation matters identified by the Banking Group and checking the features ofthese exposures against the criteria defining a provision or a contingency in the accounting standards; andEvaluating the related disclosures using our understanding obtained from our testing and against the requirements of NZ IFRS.

CARRYING VALUE OF GOODWILL ($3,006 MILLION)
Refer to the critical accounting estimates, judgements and disclosures in Note 19 to the Consolidated Financial Statements.
The key audit matter
Carrying value of goodwill is a key audit matter where there are a number of judgements required in the determination of the recoverable amount of
goodwill, and where the carrying value of goodwill is financially significant at the reporting date.
The Banking Group uses a value-in-use (VIU) approach to estimate the recoverable amount of each Cash Generating Unit (CGU) to which goodwill isallocated. The reasonableness of the recoverable amounts was assessed using an implied market-multiples approach.
The ongoing effects and uncertainties associated with the COVID-19 pandemic continue to increase the potential for impairment and our audit effort
in this area remains elevated. There is increased judgement in forecasting cash flows and assumptions used in the discounted cash flow models and109

ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTINDEPENDENT AUDITOR’S REPORT
market-multiples used in the reasonableness assessment.
We focused on the significant forward-looking assumptions the Banking Group applied as part of its annual impairment test as at 28 February 2021,
including:• Revenue growth rates, and terminal growth rates in the VIU model. Available headroom for some CGUs is sensitive to small changes in theseassumptions, reducing available headroom or indicating possible impairment. This drives additional audit effort specific to their feasibility andconsistency of application to the Banking Group’s strategy; and• Discount rates in the VIU model and the control premium in the market-multiples reasonableness assessment. These are complicated in natureand vary according to the conditions and environment the specific CGU is subject to from time to time.
How the matter was addressed in our audit
We involved valuation specialists to supplement our senior team members in assessing this key audit matter.
Working with our valuation specialists, our procedures included:
•
•
•
•
•
•
•
•
•
•
•

In accordance with accounting standards, assessing the reasonableness of the amounts allocated to the CGUs to which the Banking Group
allocated goodwill;
Considering the appropriateness of the valuation method applied by the Banking Group to perform their annual test for impairment against therequirements of the accounting standards;
Assessing the integrity of the VIU model used by the Banking Group, including the accuracy of the underlying calculation formulae;
Assessing the accuracy of previous Banking Group forecasts to inform our evaluation of forecasts incorporated in the VIU model;
For each CGU, assessing the Banking Group’s key assumptions used in the VIU model, including discount rates, revenue growth rates, andterminal growth rates by comparing to external observable metrics, historical experience, our knowledge of the markets and current market
practice;
Stress testing key VIU assumptions to consider reasonably possible alternatives;
Comparing the forecast cash flows contained in the model to the revised Operational forecast, reflecting the continued low interest rateenvironment, the increased regulatory minimum capital requirements and COVID-19 impacts;
Assessing key assumptions used in the market-multiples reasonableness assessment, which we assessed as being equivalent to a fair value lesscosts of disposal approach. These assumptions included future maintainable earnings, the control premium comparing the implied multiples
from comparable market transactions to the implied multiples used in the VIU model;
Determining whether there is sufficient appropriate evidence to support the Banking Group’s conclusion that there is no impairment ingoodwill associated with any CGU;
Assessing the reasonableness of the Banking Group’s review for potential internal and external indicators of impairment. This review considered
the period from the annual impairment test as at 28 February 2021 up to financial year end; andAssessing the disclosures in the financial statements against the requirements of the accounting standards.

OTHER INFORMATIONThe Directors, on behalf of the Banking Group, are responsible for the general disclosures required to be included in the Banking Group’s DisclosureStatement in accordance with Schedule 2 of the Order (section B1).
Our opinion on the consolidated financial statements does not cover section B1 (referred to as ‘other information’) and we do not express any form ofassurance conclusion thereon.
In connection with our audit of the consolidated financial statements our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit orotherwise appears materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this otherinformation, we are required to report that fact. We have nothing to report in this regard.

110

INDEPENDENT AUDITOR’S REPORTRESPONSIBILITIES OF DIRECTORS FOR THE CONSOLIDATED FINANCIAL STATEMENTS AND REGISTERED BANKDISCLOSURES IN SECTION B1, B2, B3, B5, B6, B7 AND B8The Directors, on behalf of the Banking Group, are responsible for:••••the preparation and fair presentation of the consolidated financial statements in accordance with Clause 24 of the Order, NZ IFRS andInternational Financial Reporting Standards;
the preparation and fair presentation of supplementary information, in accordance with Schedules 2, 4, 7, 13, 14, 15 and 17 of the Order;
implementing necessary internal control to enable the preparation of consolidated financial statements that are fairly presented and free frommaterial misstatement, whether due to fraud or error; andassessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using thegoing concern basis of accounting unless they either intend to liquidate or to cease operations, or have no realistic alternative but to do so.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS AND
REGISTERED BANK DISCLOSURES IN SECTION B2, B3, B5, B6, B7 AND B8
Our objective is:••

to obtain reasonable assurance about whether the Disclosure Statement, including the consolidated financial statements prepared inaccordance with Clause 24 of the Order, and registered bank disclosures in section B2, B3, B5, B6, B7 and B8, prepared in accordance with
Schedules 4, 7, 13, 14, 15 and 17 of the Order as a whole is free from material misstatement, whether due to fraud or error; andto issue an independent auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (NZ) will always detect amaterial misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of the consolidated financial statements.
A further description of our responsibilities for the audit of these consolidated financial statements is located at the External Reporting Board (the XRB)
website at:
http://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/
This description forms part of our independent auditor’s report.

QUALIFIED REVIEW CONCLUSION ON THE REGISTERED BANK DISCLOSURES IN SECTION B4 RELATING TO
CAPITAL ADEQUACY AND REGULATORY LIQUIDITY RATIOS (SECTION B4)
Based on our review, with the exception of the matter described below, nothing has come to our attention that causes us to believe that the
information relating to capital adequacy and regulatory liquidity ratios, disclosed in section B4 of the Disclosure Statement, is not, in all material
respects disclosed in accordance with Schedule 11 of the Order.
We have reviewed the registered bank disclosures, as disclosed in section B4 of the Disclosure Statement for the year ended 30 September 2021,
which are required to be disclosed in accordance with Schedule 11 of the Order.

BASIS FOR QUALIFIED CONCLUSION ON THE REGISTERED BANK DISCLOSURES IN SECTION B4
A review of the registered bank disclosures in section B4 in accordance with NZ SRE 2410 Review of Financial Statements Performed by the Independent
Auditor of the Entity (NZ SRE 2410) is a limited assurance engagement. The auditor performs procedures, primarily consisting of making enquiries,
primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. Our responsibilities underthat standard are further described in the Auditor’s Responsibilities for the Review of the registered bank disclosures in section B4 of our report.
As the auditor of the Banking Group, NZ SRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial
statements.
As described in section B1, the Banking Group has previously identified that it was not compliant with Condition of Registration 1B in relation to theimplementation of 17 rating models and processes that were not approved by the Reserve Bank of New Zealand (the RBNZ). As at 30 September 2021,
16 of these models had been submitted to the RBNZ for approval, with four of these approved. Nine models were approved in October 2021,
subsequent to the reporting date. The four remaining unapproved models are Bank rating; Project and structured finance; Commercial property:
hotels; and Commercial property: special purpose asset investment.
In this respect, the Capital Adequacy Ratios disclosed in section B4 of the Disclosure Statement have not been disclosed in accordance with Schedule
11 of the Order. Section B1 outlines the Banking Group’s assessment of the historic impact on risk weighted assets at the time this matter was firstreported in the Banking Group’s disclosure statement. The Banking Group is working with the RBNZ to remediate this matter.
The above matters do not affect the Regulatory Liquidity information, which is also disclosed in section B4.

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ANZ BANK NEW ZEALAND LIMITED 2021 ANNUAL REPORTINDEPENDENT AUDITOR’S REPORTRESPONSIBILITIES OF DIRECTORS FOR THE REGISTERED BANK DISCLOSURES IN SECTION B4
The Directors, on behalf of the Banking Group, are responsible for the preparation of the registered bank disclosures in section B4, that is required to
be prepared in accordance with Schedule 11 of the Order.
AUDITOR’S RESPONSIBILITIES FOR THE REVIEW OF THE REGISTERED BANK DISCLOSURES IN SECTION B4
Our responsibility is to express a conclusion on the registered bank disclosures in section B4 based on our review. We conducted our review inaccordance with NZ SRE 2410 issued by the New Zealand External Reporting Board. As the auditor of the Banking Group, NZ SRE 2410 requires that wecomply with the ethical requirements relevant to the audit of the annual financial statements, and plan and perform the review to obtain limited
assurance about whether the registered bank disclosures in section B4 is, in all material respects, disclosed in accordance with Schedule 11 of theOrder.
A review of the registered bank disclosures in section B4 in accordance with NZ SRE 2410 is a limited assurance engagement. The auditor performs
procedures, primarily consisting of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analyticaland other review procedures.
The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with ISAs (NZ). Accordingly we
do not express an audit opinion on the registered bank disclosures in section B4.
USE OF THIS INDEPENDENT AUDITOR’S REPORTThis independent auditor’s report is made solely to the shareholder of the Banking Group. Our work has been undertaken so that we might state to
the shareholder those matters we are required to state to them in the independent auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than the shareholder as a body for our work, this independent auditor’sreport, or any of the opinions or conclusions we have formed.
The engagement partner on the audit resulting in this independent auditor's report is Jamie Munro.
For and on behalf of

KPMG
Auckland10 November 2021

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