AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED- ANZ NEW ZEALAND
REGISTERED BANK DISCLOSURE STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2020
NUMBER 43 | ISSUED NOVEMBER 2020

CONTENTS
Glossary of terms

2

DISCLOSURE STATEMENT
Financial Statements
Consolidated financial statements
Notes to the financial statements
Registered Bank Disclosures
Directors’ and New Zealand Chief Executive
Officer’s Statement

3
4
8
72
90

Independent Auditor’s Report91

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

2

FINANCIAL
STATEMENTS
Consolidated 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 consolidated financial statements
Basis of preparation
1. About our financial statements

Non-financial assets
8

Financial performance

19. Goodwill and other intangible assets

55

Non-financial liabilities

2. Operating income

12

3. Operating expenses

14

4. Income tax

15

Equity5. Dividends

16

21. Shareholders' equity60

6. Segment reporting16

22. Capital management

61

Financial assets

20. Other provisions

58

Consolidation and presentation

7. Cash and cash equivalents

18

23. Controlled entities

62

8. Trading securities

19

24. Structured entities

63

9. Derivative financial instruments

20

25. Transfers of financial assets

65

10. Investment securities

25

26. Divestments

65

11. Net loans and advances

26

12. Allowance for expected credit losses

27

Financial liabilities
13. Deposits and other borrowings

34

14. Debt issuances

35

Other disclosures
27. Related party disclosures66

28. Commitments and contingent liabilities

68

29. Compensation of auditors

70

Financial instrument disclosures
15. Financial risk management37

16. Fair value of financial assets and financial liabilities

50

17. Assets charged as security for liabilities

53

and collateral accepted as security for assets
18. Offsetting

54

3

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTFINANCIAL STATEMENTS
INCOME STATEMENT
For the year ended 30 September

NoteInterest income
Interest expense

2020
NZ$m

2019
NZ$m

5,580
(2,349)6,508(3,276)

Net interest income

2

3,231

3,232

Other operating income

2

789

935

Net income from insurance business

2

-

27

Share of associates' profit

2

-

4

4,020

4,198

(1,754)(1,609)

2,266

2,589

Operating income
Operating expenses

3

Profit before credit impairment and income tax
Credit impairment charge

12

Profit before income tax

(401)

(99)

1,865

2,490

(529)

(665)

1,336

1,825

For the year ended 30 September

2020
NZ$m

2019
NZ$m

Profit for the year

1,336

1,825

(6)

(33)

Unrealised gains / (losses) recognised directly in equity

122

(31)

Realised losses transferred to the income statement

12

14

Income tax attributable to the above items

(36)

15

Other comprehensive income after tax

92

(35)

Total comprehensive income for the year

1,428

1,790

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
Items that may be reclassified subsequently to profit or loss
Reserve movements:

The notes appearing on pages 8 to 70 form an integral part of these financial statements

4

FINANCIAL STATEMENTS

BALANCE SHEETAs at 30 September
AssetsCash and cash equivalents

Note

2020
NZ$m

2019
NZ$m

7

8,248

2,709

Settlement balances receivable
Collateral paid

378

193

1,394

2,324

Trading securities

8

12,797

8,942

Derivative financial instruments

9

9,756

11,653

Investment securities

10

9,893

7,027

Net loans and advances11

132,984

133,264

Deferred tax assets1

4

330

80

Goodwill and other intangible assets

19

3,092

3,276

Premises and equipment1

590

335

Other assets

625

689

180,087

170,492

Settlement balances payable

2,908

1,590

Collateral received

1,275

991

Total assets
Liabilities

Deposits and other borrowings

13

127,997

117,071

Derivative financial instruments

9

8,166

10,912Current tax liabilities
Payables and other liabilities1
Employee entitlements

237

110

1,135

1,174

143

138

Other provisions

20

389

314

Debt issuances

14

23,82725,593

Total liabilities (excluding head office account)

166,077

157,893

Net assets (excluding head office account)

14,01012,59911,055

11,055EquityShare capital and initial head office account

21

118

21

Retained earnings1

2,837

1,523

Total equity & head office account

14,01012,599Reserves

1

On adoption of NZ IFRS 16 Leases on 1 October 2019, ANZ New Zealand recognised right-of-use assets of NZ$309 million presented within Premises and equipment and lease liabilities of
NZ$333 million presented within Payables and other liabilities. This resulted in a reduction to opening retained earnings of NZ$17 million and an increase in deferred tax assets of NZ$7
million. Comparative information has not been restated. Refer to Note 1 for further details.

The notes appearing on pages 8 to 70 form an integral part of these financial statements

5

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTFINANCIAL STATEMENTS
CASH FLOW STATEMENT
2020
NZ$m

2019
NZ$m

1,336

1,825

158

81

Loss on sale and impairment of premises and equipment

5

10

Goodwill impairment

28-

For the year ended 30 September

Note

Profit after income tax
Adjustments to reconcile to net cash flows from operating activities:
Depreciation and amortisation(1,053)

213

(533)

(646)

23

(128)

Collateral paid

930

(405)

Trading securities

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:(3,855)(918)

Net loans and advances

280(4,587)

Other assets

(371)

1,132

Deposits and other borrowings (excluding borrowings from Immediate Parent and Ultimate Parent Bank)

11,655

5,416

Settlement balances payable

1,318

(476)

284

146

Net increase/(decrease) in operating liabilities:

Collateral received
Other liabilities

(130)

54

Total adjustments

8,739

(108)

Net cash flows from operating activities1

10,075

1,717

Purchases(5,569)(2,347)

Proceeds from sale or maturity

2,790

1,963

659

747

(64)

(88)

(2,184)

275

2,327

4,010

(3,885)(3,909)Loans drawn down

140

1,487

Repayments(884)(2,903)(50)-

Cash flows from investing activities
Investment securities:

Proceeds from divestments

26

Other assets
Net cash flows from investing activities
Cash flows from financing activities
Debt issuances2
Issue proceeds
Redemptions
Borrowings from Immediate Parent and Ultimate Parent Bank:

3

Repayment of lease liabilities4

-

(375)

Net cash flows from financing activities(2,352)(1,690)Net change in cash and cash equivalents

5,539

302

Cash and cash equivalents at beginning of year

2,709

2,407

Cash and cash equivalents at end of year

8,248

2,709

Dividends paid

1
2

3

4

Net cash provided by operating activities includes income taxes paid of NZ$702 million (2019: NZ$792 million).
Movement in debt issuances (Note 14 Debt Issuances) also includes a NZ$557 million decrease (2019: NZ$403 million increase) from the effect of foreign exchange rates, a NZ$286 million
increase (2019: NZ$657 million increase) from changes in fair value hedging instruments and a NZ$63 million increase (2019: NZ$102 million decrease) of other changes.
Movement in borrowings from Immediate Parent and Ultimate Parent Bank (Note 13 Deposit and Other Borrowings) also includes a NZ$50 million decrease (2019: NZ$47 million increase)from the effect of foreign exchange rates, a NZ$64 million increase (2019: NZ$104 million increase) from changes in fair value hedging instruments and a NZ$1 million increase (2019: nil) of
other changes.
Relates to repayments of lease liabilities which ANZ New Zealand commenced recognising on 1 October 2019 following the adoption of NZ IFRS 16. Comparative information has not been
restated.

The notes appearing on pages 8 to 70 form an integral part of these financial statements

6

FINANCIAL STATEMENTS

STATEMENT OF CHANGES IN EQUITY

Note

Share
capitaland initial Investment
head securities
office revaluationaccount
reserve
NZ$m
NZ$m

Cash flow
hedging
reserve
NZ$m

Retainedearnings
NZ$m

Total
equity
NZ$m

As at 1 October 2018
Impact on transition to NZ IFRS 9 Financial Instruments

11,055
-

11
-

22
-

148
(52)

11,236(52)

As at 1 October 2018 (adjusted)

11,0551122

96

11,184

Profit or loss

-

-

-

1,825

1,825

Unrealised losses recognised directly in equity

-

(24)

(7)

-

(31)

Realised losses transferred to the income statement

-

-

14

-

14

Actuarial loss on defined benefit schemes

-

-

-

(33)

(33)

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

-

7

(2)

10

15

Total comprehensive income for the year

-

(17)

5

1,802

1,790

-

-

-

(375)

(375)

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

5

Transactions with Immediate Parent Company in its capacity as owner
As at 30 September 2019
As at 1 October 2019
Impact on transition to NZ IFRS 16 Leases
As at 1 October 2019 (adjusted)

1

-

-

-

(375)

(375)

11,055

(6)

27

1,523

12,59911,055

(6)

27

1,523

12,599

-

-

-

(17)

(17)

11,055

(6)

27

1,506

12,582

Profit or loss

-

-

-

1,336

1,336

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

1,331

1,428

11,055

8

110

2,837

14,010As at 30 September 2020

The notes appearing on pages 8 to 70 form an integral part of these financial statements

7

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

ABOUT OUR FINANCIAL STATEMENTS

These are the financial statements for ANZ New Zealand for the year ended 30 September 2020. The Ultimate Parent Bank is incorporated in Australia
and is also registered in New Zealand (NZ Branch). The NZ Branch is domiciled in New Zealand, and the address of the NZ Branch’s registered office
and its principal place of business is Level 10, 171 Featherston Street, Wellington, New Zealand.
On 17 November 2020, 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 ANZ New Zealand’s results without the specific disclosure (qualitative factor);• the information is critical to a user’s understanding of the impact of significant changes in ANZ New Zealand’s business during the period – forexample: business acquisitions or disposals (qualitative factor);• the information relates to an aspect of ANZ New Zealand’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 ANZ New Zealand’s principal
regulator, RBNZ.
This section of the financial statements:• outlines the basis upon which ANZ New Zealand’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 ANZ New Zealand in New Zealand dollars, which is ANZ New Zealand’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 ANZ New Zealand comprise the financial statements of the NZ Branch and all of the New Zealand businessesof all the subsidiaries of the Ultimate Parent Bank. An entity, including a structured entity, is considered a subsidiary of the group when we determinethat the Bank has control over the entity. Control exists when ANZ New Zealand is exposed to, or has rights to, variable returns from its involvementwith 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
ANZ New Zealand the current ability to direct the relevant activities of the entity. We have eliminated, on consolidation, the effect of all transactions
between entities in ANZ New Zealand.

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. We include any translation differences on non-monetary items classified as investment securities measured at fair value through othercomprehensive income in the investment securities revaluation reserve in equity.

8

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.

ABOUT OUR FINANCIAL STATEMENTS (continued)

KEY JUDGEMENTS AND ESTIMATES
In the process of applying ANZ New Zealand’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 the relevant notes to the financial statements.
Coronavirus (COVID-19) pandemic
The COVID-19 pandemic and its effect on the global economy have impacted our customers, operations and ANZ New Zealand‘sperformance. The outbreak necessitated governments to respond at unprecedented levels to protect the health of the population,
local economies and livelihoods. It has affected different regions at different times and at varying degrees and there remains a risk ofsubsequent waves of infection. Thus the pandemic has significantly increased the estimation uncertainty in the preparation of thesefinancial statements including:• the extent and duration of the disruption to business arising from the actions of governments, businesses and consumers tocontain the spread of the virus;• the extent and duration of the expected economic downturn, and subsequent recovery. This includes the impacts on capital
markets and liquidity, credit quality, increasing unemployment, declines in consumer spending, reductions in production, andother restructuring activities; and• the effectiveness of government and central bank measures to support businesses and consumers through this disruption andeconomic downturn.
ANZ New Zealand has made various accounting estimates in these financial statements based on forecasts of economic conditions whichreflect expectations and assumptions as at 30 September 2020 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 often outside the control of ANZ New Zealand. 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, fair value measurement, and the assessment of the recoverable amount 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 PERIODNZ IFRS 16 LEASES (NZ IFRS 16)
NZ IFRS 16 became effective for ANZ New Zealand from 1 October 2019 and replaced the previous standard NZ IAS 17 Leases (NZ IAS 17). NZ IFRS 16
primarily impacts ANZ New Zealand’s property and technology leases which were previously classified as operating leases. Under NZ IAS 17, operatingleases were not recognised on the balance sheet and rent payments were expensed over the lease term.
Under NZ IFRS 16, ANZ New Zealand recognises all leases (except for leases of low value assets and short term leases) on the balance sheet under asingle accounting model. Accordingly, ANZ New Zealand recognises its right to use an underlying leased asset over the lease term as a right-of-use(ROU) asset, and its obligation to make lease payments as a lease liability. In the income statement, ANZ New Zealand recognises depreciation
expense on the ROU asset and interest expense on the lease liability. As a result, lease expenses will be higher in the early periods of a lease and lower
in the later periods of the lease compared to the previous standard where expenses were constant over the lease term. Cumulative expenses over thelife of a lease will not change.
As permitted by the standard, ANZ New Zealand does not recognise ROU assets and lease liabilities for leases of low value items and short term leases(less than 12 months). Instead, the lease payments associated with these leases are recognised as operating expense in the income statement on astraight-line basis over the lease term.
ANZ New Zealand has applied the modified retrospective transition approach whereby initial lease liabilities are recognised based on the present
value of remaining lease payments as of the transition date. The initial ROU asset recognised for certain large commercial leases was measured as if NZ
IFRS 16 had always been applied to the leases. For all other leases, the initial ROU asset was measured as equal to the initial lease liability plus any
future make good obligations associated with exiting the lease.
The implementation of NZ IFRS 16 requires management to make certain key judgements including the determination of lease terms, discount rates
and identifying arrangements that contain a lease.
Based on the modified retrospective transition approach, ANZ New Zealand recognised lease liabilities of NZ$333 million presented within Payables
and other liabilities and ROU assets of NZ$309 million presented within Premises and equipment. This resulted in a reduction to opening retained
earnings of NZ$17 million and an increase in deferred tax assets of NZ$7 million as of 1 October 2019. Comparatives have not been restated.

9

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

ABOUT OUR FINANCIAL STATEMENTS (continued)

In addition, ANZ New Zealand elected to apply the following practical expedients as permitted under the modified retrospective transition approach:• Impairment of ROU assets at the transition date was assessed by relying on onerous lease provisions previously recognised as of 30 September
2019 under NZ IAS 17;• Initial direct costs associated with entering leases prior to the transition date were excluded from the carrying value of ROU assets recognised attransition;• No ROU assets or lease liabilities were recognised for certain leases with less than 12 months remaining as of the transition date; these leases
were treated as short-term leases with all lease payments recognised in rent expense as incurred; and• Hindsight was used to determine the lease term of contracts that contained options to extend the lease.
The following table reconciles the operating lease commitments disclosed under NZ IAS 17 as at 30 September 2019 to the opening lease liabilities
recognised under NZ IFRS 16 as at 1 October 2019.
Operating lease commitments as at 30 September 2019
Increase in lease term for extension options
Total undiscounted lease payments
Effect of discounting at a weighted average incremental borrowing rate of 2.75%
Total lease liabilities under NZ IFRS 16

NZ$m
279
93
372
(39)
333

INTEREST RATE BENCHMARK REFORM
Background
Interbank offered rates (IBORs), such as the London Interbank Offered Rate (LIBOR), play a critical role in global financial markets, serving as reference
rates for derivatives, loans and securities, and as parameters in the valuation of financial instruments.
Uncertainty surrounding the integrity of IBORs has in recent years, led regulators, central banks and market participants to work towards a transition toalternative risk-free benchmark reference rates (RFRs) and market-led working groups in respective jurisdictions have recommended alternative riskfree reference rates, which are gradually being adopted. Progress in the transition to these new benchmarks has resulted in significant uncertainty inthe future of IBOR benchmarks beyond 1 January 2022.
Accounting amendments
In response to the uncertainty about the long-term viability of these benchmark rates, and LIBOR in particular, the International Accounting Standards
Board (IASB) has established a project to consider the financial reporting implications of the reform. The transition from IBORs is expected to have an
impact on various elements of financial instrument accounting, including hedge accounting, as well as fair value methodologies and disclosures.
In November 2019, the External Reporting Board (XRB) issued XRB amending standard Interest Rate Benchmark Reform, which amends certain existinghedge accounting requirements to provide relief from potential effects of the uncertainty caused by the interest rate benchmark reform. ANZ New
Zealand elected to early adopt the amendments from 1 October 2019 which have not had a significant impact on ANZ New Zealand. These
amendments address the accounting effects of uncertainty in the period leading up to the reform arising from ANZ New Zealand’s ability to satisfy theexisting prospective hedge effectiveness requirements of NZ IAS 39 Financial Instruments: Recognition and Measurement (NZ IAS 39). This uncertainty
arises as it is not known when the hedged items (such as debt issuances) and associated hedging instruments (such as interest rate swaps) will bechanged to reference the RFRs, or if both the hedging item and the associated hedging instrument will move to the new rates at the same time. ANZ
New Zealand has applied this amendment to all hedge accounted relationships (cash flow or fair value hedges) where the reform gives rise touncertainties about the timing or amount of IBOR based cash flows of the hedged item or hedging instrument.
In September 2020, the XRB issued Interest Rate Benchmark Reform - Phase 2, which is mandatory for ANZ New Zealand for the 2022 financial year. This
standard addresses issues that may affect ANZ New Zealand at the point of transition from an existing IBOR rate 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 for determining contractual cash flows of impacted assets and liabilities of ANZ New
Zealand. The amendments provide a practical expedient to account for a change in the basis for determining the contractual cash flows as aresult of IBOR reform by updating the effective interest rate. As a result, no immediate gain or loss is recognised. This applies when the change isnecessary as a direct consequence of the reform, and the new basis for determining the contractual cash flows is economically equivalent to theprevious basis.

•

Additional relief for hedging relationships
The Standard also amends a number of existing hedge accounting requirements that will assist ANZ New Zealand to maintain its existing hedge
accounted relationships post IBOR transition. ANZ New Zealand will continue to record any ongoing hedge ineffectiveness, including thatgenerated by changes as a result of interest rate reform, within the income statement.

ANZ New Zealand is in the process of assessing the impact of the new standard on its financial statements.

10

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.

ABOUT OUR FINANCIAL STATEMENTS (continued)

Impact of IBOR reform
ANZ New Zealand has exposure to IBORs through its issuance of debt, the structural interest rate risk position, products denominated in foreign
currencies and associated hedging activities in our markets and treasury businesses within the Institutional and Other segments respectively.
ANZ New Zealand has established a programme to manage the transition. The programme includes the assessment and actions necessary toaccommodate the transition to RFRs as they apply to internal processes and systems including pricing, risk management, documentation and hedge
arrangements. The programme includes management of the impact on customers.
Impact of IBOR reform on ANZ New Zealand’s hedging relationships
Certain IBORs are subject to replacement RFRs. ANZ New Zealand has hedge accounting relationships referencing IBORs, with the most significant
interest rate benchmarks for these hedging relationships being US dollar LIBOR, Euro Interbank Offered Rate (Euribor), Bank Bill Swap Rate (BBSW) andBank Bill Market (BKBM).
Of these benchmarks ANZ New Zealand expects BBSW, BKBM and Euribor to exist as benchmark rates for the foreseeable future and therefore does
not believe its BBSW, BKBM or Euribor benchmark fair value or cash flow hedges to be directly impacted by IBOR reform.
The table below details the carrying values of ANZ New Zealand's exposures designated in hedge accounting relationships that will be impacted by
IBOR reform, principally US dollar LIBOR. The nominal value of the associated hedging instruments is also included:
As at 30 September 2020
US dollar LIBOR exposures
NZ$m
Hedged items
Deposits and other borrowings
Debt issuances

1,052
9,218
Notional designated up to
31 December 2021
NZ$m

Notional designatedbeyond 31 December 2021
NZ$m

Total notional amount
NZ$m

2,659

7,065

9,724

Hedging Instruments
Fair value hedges

As at 30 September 2020, ANZ New Zealand also has Swiss franc LIBOR exposures designated in hedge accounting relationships of NZ$1,031 million.
In addition to hedge accounted relationships that will be impacted by IBOR reform, ANZ New Zealand has exposures to other financial instruments
referencing an IBOR that are also subject to reform. ANZ New Zealand is continuing to monitor market developments in relation to the transition to
RFRs from IBORs and their impact on ANZ New Zealand’s financial assets and liabilities to ensure that there are no unexpected consequences or
disruption from the transition.
NZ IFRIC 23 UNCERTAINTY OVER INCOME TAX TREATMENTS (NZ IFRIC 23)
NZ IFRIC 23 became effective for ANZ New Zealand from 1 October 2019. NZ IFRIC 23 clarifies application of recognition and measurement
requirements in NZ IAS 12 Income Taxes where there is uncertainty over income tax treatments. As ANZ New Zealand’s existing policy aligned with therequirements of NZ IFRIC 23, it had no material impact on ANZ New Zealand.

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 2020, and have not been applied by ANZ New Zealand in preparing these financial statements. Further details ofthese are set out below.
GENERAL HEDGE ACCOUNTINGNZ 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 ANZ New Zealand with an accounting policy choice to continue to apply the NZ IAS
39 hedge accounting requirements until the IASB’s ongoing project on macro hedge accounting is completed. ANZ New Zealand continues to apply
the hedge accounting requirements of NZ IAS 39.
REVISED CONCEPTUAL FRAMEWORKIn May 2018 the XRB issued a revised Conceptual Framework for Financial Reporting. The new framework includes updated definitions and criteria forthe recognition and derecognition of assets and liabilities. Additionally, it introduces new concepts on measurement, including factors to consider
when selecting a measurement basis. The revised Conceptual Framework will apply to ANZ New Zealand from 1 October 2020 and is not expected tohave a material impact on ANZ New Zealand.

11

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2.

OPERATING INCOME
Note

Net interest income
Interest income by type of financial asset
Financial assets at amortised cost
Trading securities
Investment securities
Financial assets at fair value through profit or loss
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 UDC
Sale of OnePath
Sale of investment in Paymark Limited (Paymark)
Other
Other income
Other operating income
Net income from insurance business
Share of associates' profit
Operating income
1

12

26
26
26

2020
NZ$m

2019
NZ$m

5,289
148
143
5,580

6,147
203
157
1
6,508

(2,315)(34)(2,349)3,231(3,231)(45)(3,276)
3,232

33
673
57
258
1,021
(463)
558

33
792
65
257
1,147
(485)
662

244
(32)
19
231
789
4,020

141
66
39
27
273
935
27
4
4,198

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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.

OPERATING INCOME (continued)

RECOGNITION AND MEASUREMENTNET INTEREST INCOME
Interest income and expense
We recognise interest income and expense for all financial instruments, including those classified as held for trading, assets measured atfair value through other comprehensive income or designated at fair value through profit or loss in net interest income. For assets held at
amortised cost we use the effective interest rate method to calculate amortised cost. The effective interest rate is the rate that discounts thestream of estimated future 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 of historical 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 fees or commissions:• that relate to the execution of a significant act (for example, advisory or arrangement services, placement fees and underwriting fees)
when the significant act has been completed; and• charged for providing ongoing services (for example, maintaining and administering existing facilities, funds management services) as
income over the period the service is provided.
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; and• amounts released from the investment securities revaluation reserve in equity when a debt instrument classified as FVOCI is sold.
NET INCOME FROM INSURANCE BUSINESSWe recognise:• premiums with a regular due date as income on an accruals basis;• claims on an accruals basis once our liability to the policyholder has been confirmed under the terms of the contract; and• change in life insurance contract asset, net of liability for reinsurance, under the Margin of Service (MoS) model.
SHARE OF ASSOCIATES’ PROFITThe equity method is applied to accounting for associates in the consolidated financial statements. Under the equity method, ANZ New
Zealand’s share of the after tax results of associates is included in the income statement and the statement of comprehensive income.

13

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.

OPERATING EXPENSES
Note

Personnel
Salaries and related costs
Superannuation costs
Other
Personnel
PremisesRent
Depreciation
Other
Premises1
Technology
Depreciation and amortisation
Subscription licences and outsourced services
Other
Technology (excluding personnel)
Other
Advertising and public relations
Amortisation of other intangible assets
Professional fees
Freight, stationery, postage and communication
Goodwill impairment
Charges from Ultimate Parent Bank
Other
Other
Operating expenses
1

19

2020
NZ$m

2019
NZ$m

887
29
73
989

858
29
35
922

21
96
40
157

81
32
40
153

62
138
39
239

48
116
41
205

43
58
41
28
97
102
369
1,754

47
1
64
44
60
113
329
1,609

Following the adoption of NZ IFRS 16 on 1 October 2019, with the exception of low value leases and leases of less than 12 months, expenses associated with leases are shown as
depreciation of the ROU asset and interest expense associated with the lease liability (comparatives not restated).

RECOGNITION AND MEASUREMENTOPERATING EXPENSES
Operating expenses are recognised as services are provided to ANZ New Zealand 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 ANZ New Zealand 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 high quality corporate 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 ANZ New Zealand 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 CONSOLIDATED 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:
Imputed and non-assessable dividends
Sale of UDC
Sale of OnePath and Paymark
Tax provisions no longer required
Non-assessable income and non-deductible expenditure
Subtotal
Income tax under / (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

2020
NZ$m
1,865
522

2019
NZ$m
2,490
697

9
(3)
4
532
(3)
529
808
(3)
(276)
529
28.4%

(1)
(29)
(5)
2
664
1
665
744
1
(80)
665
26.7%

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

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5.

DIVIDENDS

ORDINARY SHARE DIVIDENDSDividends
Financial Year 2019
Dividend paid in March 2019
Financial Year 2020
No dividends were paid during the year ended 30 September 2020

Amountper share

Total
dividend
NZ$m

99.2 cents

375

-

-

2020
NZ$m
6,443

2019
NZ$m
5,660

IMPUTATION CREDIT ACCOUNT

Imputation credits available

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

6. SEGMENT REPORTINGDESCRIPTION OF SEGMENTS
ANZ New Zealand is organised into three major business segments for segment reporting purposes - Retail, Commercial and Institutional. Centralised
back office and corporate functions support these segments. These segments are consistent with internal reporting provided to the chief operating
decision maker, being the Bank’s Chief Executive Officer.
RetailRetail provides a full range of banking and wealth management services to consumer, private banking and small business 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.
Commercial
Commercial provides a full range of banking services including traditional relationship banking and sophisticated financial solutions throughdedicated managers focusing on privately owned medium to large enterprises, the agricultural business segment, government and government
related entities.
Institutional
The Institutional division services governments, global institutional and corporate customers across three product sets: Transaction Banking, Corporate
Finance and Markets.
• Transaction Banking provides working capital and liquidity solutions including documentary trade, supply chain financing as well as cash
management solutions, deposits, payments and clearing.
• Corporate Finance (previously Loans and Specialised Finance) provides loan products, loan syndication, specialised loan structuring andexecution, project and export finance, debt structuring and acquisition finance and corporate advisory.
• Markets provide risk management services on foreign exchange, interest rates, credit, commodities and debt capital markets in addition to
managing ANZ New Zealand’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 CONSOLIDATED FINANCIAL STATEMENTS

6.

SEGMENT REPORTING (continued)

OPERATING SEGMENTS
RetailCommercial1

Institutional

Other

Total

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

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

1,814

1,821

1,073

1,057

344

345

-

9

3,231

3,232

Net fee and commission income- Lending fees

15

16

1

1

17

16

-

-

33

33

- Non-lending fees

610

714

10

16

53

62

-

-

673

792

- Commissions

57

65

-

-

-

-

-

-

57

65

- Funds management income

258

257

-

-

-

-

-

-

258

257

- Fee and commission expense

(463)

(485)

-

-

-

-

-

-

(463)

(485)

Net fee and commission income

477

567

11

17

70

78

-

-

558

662

Other income

12

7

-

-

309

171

(90)

95

231

273

Net income from insurance business

-

19

-

-

-

-

-

8

-

27

Share of associates' profits

-

4

-

-

-

-

-

-

-

4

Other operating income

489

597

11

17

379

249

(90)

103

789

966

Operating income

2,303

2,418

1,084

1,074

723

594

(90)

112

4,020

4,198

Operating expenses(1,214)(1,078)

(303)

(274)

(198)

(216)

(39)

(41)

(1,754)(1,609)Profit before credit impairment and income tax

1,089

1,340

781

800

525

378

(129)

71

2,266

2,589

Credit impairment charge

(143)

(45)

(223)

(47)

(35)

(7)

-

-

(401)

(99)

Profit before income tax

946

1,295

558

753

490

371

(129)

71

1,865

2,490

Income tax expense

(273)

(361)

(156)

(211)

(138)

(104)

38

11

(529)

(665)

Profit / (loss) after income tax

673

934

402

542

352

267

(91)

82

1,336

1,825

3,006

3,160

Financial position
Goodwill

1,011

1,039

926

1,052

1,069

1,069

-

-

Net loans and advances

86,64882,52739,333

43,464

6,993

7,270

10

3 132,984 133,264

Customer deposits

79,86773,866

18,437

16,13822,55919,232-- 120,863 109,236

1

UDC was part of the Commercial segment until the sale on 1 September 2020, refer to Note 26 Divestments for further details.

OTHER SEGMENTThe Other segment profit after income tax comprises:

Central functions
Technology and Group Centre1,2,3
Economic hedges2
Revaluation of insurance policies from changes in interest rates3
Total
1

2

3

2020
NZ$m
4
(60)
(35)
(91)

2019
NZ$m
3
187
(27)
(81)
82

Technology and Group Centre’s other income for the year ended 30 September 2020 includes the NZ$32 million loss on sale of UDC (2019: NZ$66 million gain on sale of OnePath and the
NZ$39 million gain on sale of Paymark) (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 toTechnology and Group Centre. These losses were transferred upon the sale of UDC.
Amounts for the year ended 30 September 2019 include the transfer of NZ$86 million of accumulated after tax gains previously recognised in revaluation of insurance policies fromchanges in interest rates to Technology and Group Centre. These gains were transferred upon the sale of OnePath.

17

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED 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 at FVTPL on initial recognition when the designation eliminates or significantly reduces anaccounting mismatch that would otherwise arise.

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

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

2019
NZ$m
538
297
1,448
426
2,709

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8.

TRADING SECURITIES

Government securities1
Corporate and financial institution securities1
Trading securities
1

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

2019
NZ$m
7,667
1,275
8,942

In 2020, ANZ New Zealand reclassified trading securities issued by development banks and supra-nationals from Corporate and financial institution securities to Government securities.
Comparative information has been restated accordingly, with NZ$3,313 million reclassified as Government securities from Corporate and financial institution securities.

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

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED 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
2020
NZ$m
8,391
1,365
9,756

Liabilities
2020
NZ$m
(6,801)(1,365)(8,166)

Assets2019
NZ$m
10,699954
11,653Liabilities
2019
NZ$m
(9,625)(1,287)(10,912)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.

PURPOSEANZ New Zealand’s derivative financial instruments have been categorised as follows:
Trading

Derivatives held in order to:• meet customer needs for managing their own risks.
• manage risk in ANZ New Zealand that are not in a designated hedge accounting relationship.
• 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 to underlying positions relating to:• hedges of ANZ New Zealand’s exposures to interest rate risk and currency risk.
• hedges of other exposures relating to non-trading positions.

TYPES
ANZ New Zealand offers and 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
ANZ New Zealand 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).

CreditCounterparty risk in the event of default.

20

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

9.

DERIVATIVE FINANCIAL INSTRUMENTS (continued)

DERIVATIVE FINANCIAL INSTRUMENTS – HELD FOR TRADINGThe majority of ANZ New Zealand’s derivative financial instruments are held for trading. The fair value of derivative financial instruments held for
trading are:

Fair value
Interest rate contracts
Forward rate agreements
Futures contracts
Swap agreements
Options purchased
Total
Foreign exchange contracts
Spot and forward contracts
Swap agreements
Options purchased
Options sold
Total
Commodity contracts and credit default swaps
Derivative financial instruments - held for trading

Assets2020
NZ$m

Liabilities
2020
NZ$m

Assets2019
NZ$m

Liabilities
2019
NZ$m

7
8
5,917
3
5,935

(8)
(4)
(3,658)(2)(3,672)

6
10
6,042
3
6,061

(6)
(11)
(4,617)(4,634)

989
1,429
26
2,444
12
8,391

(955)
(2,125)(27)(3,107)(22)(6,801)

2,246
2,340
35
1
4,622
16
10,699(1,785)(3,148)(1)(35)(4,969)(22)(9,625)DERIVATIVE FINANCIAL INSTRUMENTS – DESIGNATED IN HEDGING RELATIONSHIPSANZ New Zealand 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, ANZ New Zealand has continued to apply the hedge accounting requirements of NZ IAS 39.

21

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9.

DERIVATIVE FINANCIAL INSTRUMENTS (continued)

The fair value of derivative financial instruments designated in hedging relationships are:
2020

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

2019

NominalamountNZ$m

Liabilities
NZ$m

NominalamountNZ$mAssetsNZ$mAssets
NZ$m

Liabilities
NZ$m

28,893730(818)

26,995387(727)

41,191635(547)

37,730567(560)

70,0841,365(1,365)64,725954(1,287)The maturity profile of the nominal amounts of our hedging instruments held at 30 September 2020 is:

Nominal amount
Fair value hedges
Interest rate
Cash flow hedges
Interest rate

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

1.72%

79

3,196

16,221

9,397

28,893

1.83%

5,195

12,89021,477

1,629

41,191

The maturity profile of the nominal amounts of our hedging instruments held at 30 September 2019 is:Nominal amount
Fair value hedges
Interest rate
Cash flow hedges
Interest rate

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

2.06%

-

1,860

15,587

9,548

26,995

2.22%

531

3,010

30,561

3,628

37,730The impact of ineffectiveness from our designated hedge relationships by type of hedge relationship and type of risk being hedged are:IneffectivenessChange in valueof hedging
instrument
2020
2019
NZ$m
NZ$m
Fair value hedges1
Interest rate
Cash flow hedges1
Interest rate
1

281

562

Change in valueof hedged item
2020
2019
NZ$m
NZ$m
(278)

(567)

Hedge ineffectivenessrecognised in profit
and loss
2020
2019
NZ$m
NZ$m
3

(5)

Amount reclassified
from the cash flow
hedge reserve
to profit and loss
2020
2019
NZ$m
NZ$m
-

.

103

(6)

(103)

7

-

1

12

14

All instruments are held within derivative financial instruments.

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 CONSOLIDATED FINANCIAL STATEMENTS

9.

DERIVATIVE FINANCIAL INSTRUMENTS (continued)

Hedged items in relation to ANZ New Zealand’s fair value hedges as at 30 September 2020 are as follows:

Fixed rate loans and advances
Fixed rate debt issuances
Fixed rate investment securities (FVOCI)1
Total

Balance sheet
presentation
Net loans and advances
Debt issuances
Investment securities

Hedged risk
Interest rate
Interest rate
Interest rate

Carrying amount
AssetsLiabilities
NZ$m
NZ$m
1,542
(18,692)
9,679
11,221(18,692)

Accumulated fair value
hedge adjustments on
the hedged item
AssetsLiabilities
NZ$m
NZ$m
10
(713)
322
332
(713)

Hedged items in relation to ANZ New Zealand’s fair value hedges as at 30 September 2019 are as follows:

Fixed rate loans and advances
Fixed rate debt issuances
Fixed rate investment securities (FVOCI)1
Total
1

Balance sheet
presentation
Net loans and advances
Debt issuances
Investment securities

Hedged risk
Interest rate
Interest rate
Interest rate

Carrying amount
AssetsLiabilities
NZ$m
NZ$m
1,122
(19,843)
6,745
7,867
(19,843)

Accumulated fair value
hedge adjustments on
the hedged item
AssetsLiabilities
NZ$m
NZ$m
3
(363)
259
262
(363)

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$11 million(2019: NZ$3 million).
Hedged items in relation to ANZ New Zealand’s cash flow hedges are as follows:

Floating rate loans and advances
Floating rate customer deposits

Hedged risk
Interest rate
Interest rate

Continuing
hedges
2020
2019
NZ$m
NZ$m
577
516
(421)
(465)

Discontinued
hedges
2020
2019
NZ$m
NZ$m
(1)
(4)
(13)

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

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED 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 ANZ New Zealand’s contractual obligations are discharged, cancelled or expired.

Impact on theincome statement

How we recognise 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 previous table on page 21 for profit or loss treatment dependingon the hedge type.
Sources of hedge ineffectiveness may arise from basis risk 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 to the 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).
ANZ New Zealand monitors hedge effectiveness on a regular basis but at a minimum at least at each reportingdate.

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 CONSOLIDATED FINANCIAL STATEMENTS

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

2020
NZ$m

2019
NZ$m

9,892
1
9,893

7,026
1
7,027

As at 30 September 2020
Government securities1
Corporate and financial institution securities1
Equity securities
Total

Less than 3months
NZ$m
1,021
3
1,024

3 to 12months
NZ$m
641
113
754

1 to 5 years
NZ$m
6,662
284
6,946

After
5 years
NZ$m
1,168
1,168

No
maturity
NZ$m
1
1

Total
NZ$m
9,492
400
1
9,893

As at 30 September 2019
Government securities1
Corporate and financial institution securities1
Equity securities
Total

162
3
165

391
35
426

4,732
343
5,075

1,360
1,360

1
1

6,645
381
1
7,027

1

In 2020, ANZ New Zealand reclassified investment securities issued by development banks and supra-nationals from Corporate and financial institution securities to Government securities.
Comparative information has been restated accordingly, with NZ$1,844 million reclassified as Government securities from Corporate and financial institution securities.

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 ANZ New Zealand’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 at thecommencement of ANZ New Zealand’s Financial Asset disclosures on page 18.

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

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. NET LOANS AND ADVANCES
The following table provides details of net loans and advances for ANZ New Zealand:

Note
Overdrafts
Credit cards
Term loans - housing
Term loans - non-housing
Finance lease and hire purchase receivables
Subtotal
Unearned income
Capitalised brokerage/mortgage origination fees
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

2020
NZ$m
659
1,300
89,544
41,882
133,385(25)
319
133,679(695)
132,984

2019
NZ$m
927
1,569
84,74844,586
1,863
133,693(237)
307
133,763(499)
133,264

35,18897,796
132,984

27,829105,435
133,264

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 ANZ New Zealand 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/mortgage origination fees which we amortise over the estimated life of the loan. Subsequently, we then measure loans andadvances at amortised cost using the effective interest rate method, net of any provision for credit impairment.
We classify contracts to lease assets and hire purchase agreements as finance leases if they transfer substantially all the risks and rewards ofownership of the asset to the customer or an unrelated third party.
ANZ New Zealand enters into transactions in which it transfers financial assets that are recognised on its balance sheet. When ANZ New Zealandretains substantially all of the risks and rewards of the transferred assets, the transferred assets remain on ANZ New Zealand’s balance sheet,however if substantially all the risks and rewards are transferred, ANZ New Zealand derecognises the asset.
If the risks and rewards are partially retained and control over the asset is lost, then ANZ New Zealand derecognises the asset. If control over theasset is not lost, ANZ New Zealand 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.

26

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. ALLOWANCE FOR EXPECTED CREDIT LOSSESALLOWANCE FOR EXPECTED CREDIT LOSSES – BALANCE SHEETNet loans and advances - at amortised cost
Allowance for Expected Credit Losses (ECL) is included in net loans and advances.

As at 1 October 2018
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 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 (refer to Note 26 Divestments)
As at 30 September 2020

Stage 1
NZ$m
160
29
(25)
164
25
(3)
(25)
161

Stage 3
Collectively IndividuallyStage 2
assessedassessed
NZ$m
NZ$m
NZ$m
171
41
132
(40)
4
7
63
(2)
123
(49)
(106)
(9)
194
43
98
(30)
4
1
206
34
157
(35)
(92)
(8)
(23)
(1)
(14)
347
80
107

Total
NZ$m
504
159
(49)
(106)
(9)
499
394
(35)
(92)
(8)
(63)
695

Off-balance sheet credit related commitments - undrawn and contingent facilities
Allowance for ECL is included in other provisions.
As at 1 October 2018
Transfer between stages
New and increased provisions (net of collective provision releases)
As at 30 September 2019
Transfer between stages
New and increased provisions (net of collective provision releases)
Sale of UDC (refer to Note 26 Divestments)
As at 30 September 2020

60
5
(5)
60
3
17
(1)
79

23
(5)
6
24
(3)
36
(2)
55

2
2
1
3

11
11
11
22

85
12
97
65
(3)
159

Explanation of how changes in the gross carrying amounts of gross loans and advances contributed to changes in loss allowance
Overall, loss allowances are 0.5% of gross balances as at 30 September 2020, up from 0.4% as at 30 September 2019. The NZ$258 million (43.3%)
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 as described in the key judgements and estimates section below.

27

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)
CREDIT IMPAIRMENT CHARGE – INCOME STATEMENT

New and increased provisions- Collectively assessed- Individually assessed
Write-backs
Recoveries of amounts previously written-off
Total credit impairment charge

2020
NZ$m

2019
NZ$m

290
169
(35)
(23)
401

30
141
(49)
(23)
99

COVID-19 LOAN DEFERRAL AND RELIEF PACKAGES
Since March 2020, ANZ New Zealand has offered various forms of assistance to customers to counteract the impact of COVID-19 on the ability ofcustomers to meet their loan obligations. The assistance provided has included arrangements such as temporary deferral of principal and interest
repayments, replacing principal and interest with interest only repayments, and extension of loan maturity dates. Refer to Key Judgements andEstimates in this note for details on the impact of deferrals where there has been a Significant Increase in Credit Risk (SICR).
Loan deferral and relief packages are considered to be a loan modification under NZ IFRS 9. This either results in the loan being derecognised andreplaced with a new loan (substantial modification) or the existing loan continuing to be recognised (non-substantial modification). The table below
shows the outstanding balance as at 30 September 2020 of all loans that have been modified (both substantial and non-substantial modifications):

Assistance package category
Loan deferral package
RetailCommercial and other
Interest Only
RetailCommercial and otherTerm extensions
RetailCommercial and other
Total
RetailCommercial and other
Total

28

Total loans outstanding
as at 30 September 2020
NZ$m
4,002
208
2,470
534
660
71
7,945
7,132
813
7,945

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

RECOGNITION AND MEASUREMENTEXPECTED CREDIT LOSS IMPAIRMENT 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 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 basedon 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 LOSSESECL 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, ANZ New Zealand considers the expected lifetime over which it is exposed to credit risk.
For non-retail portfolios, ANZ New Zealand 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 ANZ New Zealand’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 behavioural term, taking into account expected repayment 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 ANZ New Zealand, 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 ANZ New
Zealand’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.

29

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED 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, ANZ New Zealandconsiders both qualitative and quantitative information:•

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:••

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
ANZ New Zealand uses 30 days past due arrears as a backstop criteria 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.

•

COVID-19 initiatives
For facilities subject to the COVID-19 payment deferral arrangements noted above, an assessment of SICR has been determinedbased on various measures of the customer’s current financial position and earnings capacity from which the facilities are
categorised into risk categories. SICR is then determined based on the resulting risk categorisation. Customers in higher risk
categories, and those who have requested deferral extension are classified as having a SICR.

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, ANZ New Zealand considers four
probability-weighted forecast economic scenarios as follows:•

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

Upside and 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 more optimistic (in the case of the upside) andpessimistic (in the case of the downside) economic events and uncertainty over the long term horizons; and•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 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 each scenario is determined by management considering the risks and uncertainties surrounding the base casescenario, as well as specific portfolio considerations where required.
Where applicable, adjustments may be made to account for situations where known or expected risks have not been adequately
addressed in the modelling process.

30

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

KEY JUDGEMENTS AND ESTIMATES
In estimating collectively assessed ECL, ANZ New Zealand makes judgements and assumptions in relation to:• the selection of an estimation technique or modelling methodology, noting that the modelling of ANZ New Zealand’s ECL estimates arecomplex; 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 impacts 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. In relation to COVID-19, judgements and assumptions include the extent and duration of the pandemic, the impacts of actionsof governments and other authorities, and the responses of businesses and consumers in different industries, along with the associated impact
on the global economy. Accordingly, ANZ New Zealand’s ECL estimates are inherently uncertain and, as a result, actual results may differ fromthese estimates.
Judgement /assumption
Determining
when a SICR
has occurred

Description
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. ANZ New Zealandmonitors the effectiveness of SICR criteria on an
ongoing basis.

Measuringboth 12-monthand lifetime
credit losses

Considerations for the year ended
30 September 2020
In response to the impacts of COVID-19, various
packages, such as payment deferrals, have beenoffered to eligible retail and commercial customers.
ANZ New Zealand does not consider that when acustomer is first provided assistance, all things being
equal, that there has been a SICR and a consequent
impact on ECL when assessing provisions.
Subsequent to take-up, customers have been
contacted to discuss available options once thepackages reach their end date. This additional
information on the customer’s financial position andability to recommence their loan repayments is used
to assist in classification of customers into risk
categories. Customers in high risk categories, andthose who have requested a deferral extension, havebeen classified as having a SICR.

The PD, LGD, and EAD credit risk parameters used indetermining ECL are point-in-time measuresreflecting the relevant forward looking information
determined by management. Judgement is involved
in determining which forward-looking information
variables are relevant for particular lending portfolios
and for determining each portfolio’s point-in-time
sensitivity.

The PD, EAD and LGD models are subject to ANZ New
Zealand’s model risk policy that stipulates periodic
model monitoring, periodic re-validation and defines
approval procedures and authorities according tomodel materiality.

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

There were no changes to behavioural lifetime
estimates during the year ended 30 September 2020.

There were no material changes to the models during
the year ended 30 September 2020.

31

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

KEY JUDGEMENTS AND ESTIMATES

1.
2.

32

Judgement /assumption

Description

Considerations for the year ended
30 September 2020

Base caseeconomic
forecast

ANZ New Zealand 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 forward
looking variables (key economic drivers) used asmodel inputs in the current year.
As at 30 September 2020, the base case assumptions
have been updated to reflect the rapidly evolving
situation with respect to COVID-19. This includes anassessment of the impact of central bank policies,
governments’ actions, the response of business, andinstitution specific responses (such as payment
deferrals). These are considered in determining thelength and severity of the forecast economic
downturn.
The expected outcomes of key economic drivers forthe base case scenario as at 30 September 2020 are
described below under the heading “Base caseeconomic forecast assumptions”.

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 continuing impact of COVID19.
ANZ New Zealand considers these weightings toprovide the best estimate of the possible loss
outcomes and has analysed inter-relationships andcorrelations (over both the short and long term)
within ANZ New Zealand’s credit portfolios indetermining them.
In addition to the base case forecast which reflects
the negative economic consequences of COVID-19,
greater weighting has been applied to the downsideand severe downside scenarios given ANZ New
Zealand’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, and the extent to which the actions ofgovernments, businesses and consumers mitigate
against potentially adverse credit outcomes are notfully incorporated into existing ECL models.
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 COVID-19.
Management overlays (including COVID-19 overlays)
which add to the modelled ECL provision have been
made for retail, commercial and agri banking.

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.

NOTES TO THE CONSOLIDATED 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 increases the risk to the economic forecast resulting in an understatement oroverstatement of the ECL balance due to uncertainties around:• the extent and duration of measures to stop or reduce the speed of the spread of COVID-19;• the extent and duration of the economic downturn, along with the time required for economies to recover; and• the effectiveness of government stimulus measures, in particular their impact on the magnitude of the economic downturn and theextent and duration of the recovery.
The economic drivers of the base case economic forecasts at 30 September 2020 are set out below. These reflect our view of the most likely
future macro-economic conditions at 30 September 2020. 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.
Forecast calendar year
New Zealand

2020

2021

2022

Gross domestic product (GDP)
Unemployment
Residential property prices
Consumer price index (CPI)

-5.6%
5.7%
-0.3%
1.6

2.0%
9.1%
0.9%
1.0

5.6%
6.5%
4.1%
1.2

The base case economic forecasts as at 30 September 2020 reflect a significant deterioration in current and expected economic conditions
from the forecasts as at 30 September 2019 reflecting the emergence and ongoing impact of the COVID-19 pandemic.
Probability weightings
Probability weighting of each scenario is determined by management considering the risks and uncertainties surrounding the base casescenario. The key consideration for probability weightings in the current period is the continuing impact of COVID-19.
In addition to the base case forecast which reflects largely the negative economic consequences of COVID-19, greater weighting has been
applied to the downside and severe downside scenarios given ANZ New Zealand’s assessment of downside risks.
The assigned probability weightings are subject to a high degree of inherent uncertainty and therefore the actual outcomes may besignificantly different to those projected. ANZ New Zealand considers these weightings to provide the best estimate of the possible loss
outcomes and has analysed inter-relationships and correlations (over both the short and long term) within ANZ New Zealand’s credit portfolios
in determining them. The average weightings applied are set out below:

Base
UpsideDownside
Severe downside

2020

2019

50%
8%
32%
10%

50%
16%
29%
5%

ECL - Sensitivity analysis
The uncertainty of the impact of COVID-19 introduces significant estimation uncertainty in relation to the measurement of ANZ New Zealand’s
allowance for ECL. The rapidly evolving consequences of COVID-19 and government, business and consumer responses could result insignificant adjustments to the allowance in future financial years.
Given current economic uncertainties and the judgement applied to factors used in determining the expected default of borrowers in future
periods, ECL reported by ANZ New Zealand 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 2020:
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

731
724

6
(1)

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

461
631
839
1,045

(264)
(94)
114
320

33

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL LIABILITIESCLASSIFICATION AND MEASUREMENT
Financial liabilities
Financial liabilities are measured at amortised cost, or fair value through profit or loss (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:• the embedded derivative does not significantly modify the cash flows that otherwise would be required by the contract; or• 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
UDC secured investments
Total customer deposits
Certificates of deposit
Commercial paper
Securities sold under repurchase agreements
Borrowings from Ultimate Parent Bank and Immediate Parent Company
Deposits and other borrowings
Residual contractual maturity:1
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
1

34

17

27

2020
NZ$m
50,06953,91016,884
120,863
1,782
1,748
646
2,958
127,997

2019
NZ$m
54,98442,329
11,795
128
109,236
1,484
2,461
203
3,687
117,071

122,128
5,869
127,997

110,4226,649
117,071

126,249
1,748
127,997

114,6102,461
117,071

Comparative information has been restated to reclassify NZ$2,918 million of borrowings from Ultimate Parent Bank and Immediate Parent Company from within one year to more than one
year.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13. DEPOSITS AND OTHER BORROWINGS (continued)

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 designated them asmeasured at fair value through profit or loss.
Refer to Note 16 Fair Value of Financial Assets and Financial Liabilities for details.
For deposits and other borrowings designated at fair value we recognise the amount of fair value gain or loss attributable to changes in ANZ New
Zealand’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 ANZ New Zealand. Over the life of the repurchase agreement, we recognise the difference between the saleprice and the repurchase price and charge it to interest expense in the income statement.

14. DEBT ISSUANCESANZ New Zealand uses a variety of funding programmes to issue unsubordinated debt (including senior debt and covered bonds) and subordinateddebt. The difference between unsubordinated debt and subordinated debt is that holders of unsubordinated debt take priority over holders ofsubordinated debt owed by the relevant issuer and subordinated debt will be repaid by the relevant issuer only after the repayment of claims ofdepositors, other creditors and the senior debt holders.
2020
2019
NZ$m
NZ$m
Senior debt
19,307
17,476
Covered bonds
4,460
4,522
23,767
Total unsubordinated debt
21,998Subordinated debt
- ANZ Capital Notes
1,540
1,543
- Other
286
286
Total subordinated debt
1,829
1,826
Total debt issued
23,82725,593TOTAL DEBT ISSUED BY CURRENCY
The table below shows ANZ New Zealand’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

2020
NZ$m
1,378
8,332
2,980
1,053
10,08423,827

2019
NZ$m
1,375
8,200
4,219
1,522
10,27725,593

5,419
18,40823,827

4,866
20,72725,593Covered 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.

35

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14. DEBT ISSUANCES (continued)
ANZ CAPITAL NOTESANZ Capital Notes are fully paid mandatorily convertible non-cumulative perpetual subordinated notes. ANZ Capital Notes 3 (ANZ CN3) rank equallywith other additional tier 1 capital instruments issued by the Ultimate Parent Bank. ANZ New Zealand Capital Notes (ANZ NZ CN) rank equally with theBank’s other additional tier 1 capital instruments, including preference shares. Holders of ANZ Capital Notes do not have any right to vote in general
meetings of the Ultimate Parent Bank or the Bank.
As at 30 September 2020, ANZ NZ CN carried a BBB- credit rating from S&P Global Ratings.
ANZ Capital Notes are classified as debt given there are circumstances beyond ANZ New Zealand’s control where the principal is converted into avariable number of ordinary shares of the Ultimate Parent Bank.
Distributions on ANZ CN3 and interest payments on ANZ NZ CN are non-cumulative and subject to the issuer’s absolute discretion and certain
payment conditions (including regulatory requirements). Distributions on ANZ CN3 are franked in line with the franking applied to the Ultimate Parent
Bank’s ordinary shares.
ANZ Capital Notes provide the issuer with an early redemption or conversion option on a specified date and in certain other circumstances (such as a
tax or regulatory event). This option is subject to APRA’s and, in respect of early redemption of the ANZ NZ CN, APRA’s and RBNZ’s prior written
approval.
ANZ Capital Notes will immediately convert into a variable number of ordinary shares of the Ultimate Parent Bank (based on the average market priceof the Ultimate Parent Bank’s ordinary shares immediately prior to conversion less a 1% discount, subject to a maximum conversion number of
Ultimate Parent Bank ordinary shares) if:• the Overseas Banking Group’s Level 1 (ANZ CN3 only) or Level 2 common equity tier 1 capital ratio is equal to or less than 5.125% or, in the caseof the ANZ NZ CN, the Banking Group’s common equity tier 1 capital ratio is equal to or less than 5.125% - known as a Common Equity Capital
Trigger Event; or• 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 or, in the case of the ANZ NZ CN, the RBNZ directs the Bank toconvert 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 –known as a Non-Viability Trigger Event.
ANZ Capital Notes mandatorily convert into a variable number of ordinary shares of the Ultimate Parent Bank (based on the average market price ofthe 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 table below show the key details of the ANZ Capital Notes on issue at 30 September in both the current and the prior year:
IssuerIssue dateIssue amount
Face value
Distribution/interest frequency
Distribution/interest rate
Issuer's early redemption or conversion option
Mandatory conversion dateCommon equity capital trigger event
Non-viability trigger event
Carrying value as at 30 September 2020 (net of issue costs)
1

ANZ CN 3
NZ Branch
5 March 2015
AU$970 million
AU$100Semi-annually in arrears

ANZ NZ CN
The Bank
31 March 2015
NZ$500 million
NZ$1
Quarterly in arrears

Floating rate: (Australian 180 day
Floating rate: (New Zealand 3
Bank Bill rate + 3.6%) x (1month Bank Bill rate + 3.5%)
Australian corporate tax rate)
24 March 2023
24 March 2025
Yes
Yes
NZ$1,043 million

n/a1
25 May 2022
Yes
Yes
NZ$500 million

On 2 April 2020, RBNZ announced that locally incorporated banks, including the Bank, should not redeem capital notes at this 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 Bank on the
Optional Exchange Date.

RECOGNITION AND MEASUREMENT
Debt issuances are measured at amortised cost. Where ANZ New Zealand 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 value as of the reporting date given the remote nature of those triggering events.
36

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENTRISK MANAGEMENT FRAMEWORK AND MODELINTRODUCTION
The use of financial instruments is fundamental to ANZ New Zealand’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 ANZ New Zealand’s key material risks.
This note details ANZ New Zealand’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

Overview• An overview of our Risk Management Framework

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 ANZ New Zealand’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 ANZ New Zealand’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 ANZ New Zealand is unable to meet its payment obligations as
they fall due, including:• repaying depositors or maturing wholesale debt; or• ANZ New Zealand 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 to understand the context of the financial disclosures required under NZ IFRS 7.
The Board is responsible for establishing and overseeing ANZ New Zealand’s Risk Management Framework (RMF). The Board has delegated authority
to the Bank’s Board Risk Committee (BRC) to develop and monitor compliance with ANZ New Zealand’s risk management policies. The BRC reports
regularly to the Board on its activities.
The Board approves the strategic objectives of ANZ New Zealand including:• the Risk Appetite Statement (RAS), which sets out the Board’s expectations regarding the degree of risk that ANZ New Zealand is prepared toaccept in pursuit of its strategic objectives and business plan; and• the Risk Management Strategy (RMS), which describes ANZ New Zealand’s strategy for managing risks and the key elements of the RMF thatgives 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 ANZ New Zealand identifies, measures, evaluates,
monitors, reports and controls or mitigates material risks.
ANZ New Zealand, through its training and management standards and procedures, aims to maintain a disciplined and robust control environment inwhich all employees understand their roles and obligations. At ANZ New Zealand, risk is everyone’s responsibility.
ANZ New Zealand 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 ANZ New Zealand’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 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 theremediation of audit issues and reports the current status of any outstanding audits.
37

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISKCREDIT RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIES
Granting credit facilities to customers is one of ANZ New Zealand’s major sources of income. As this activity is also a key material risk, ANZ New
Zealand dedicates considerable resources to its management. ANZ New Zealand 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 around the world.
Our credit risk management framework ensures we apply a consistent approach across ANZ New Zealand 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.
We quantify credit risk through an internal credit rating system (masterscales) 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 ANZ New Zealand’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 ANZ New Zealand 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 ANZ New Zealand’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 ANZ New Zealand 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 referred out for manual assessment.

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

Internal CCR

ANZ New Zealand 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

38

NOTES TO THE CONSOLIDATED 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 ANZ New Zealand 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

Maximum exposure tocredit risk

Excluded1

2020
NZ$m

2019
NZ$m

2020
NZ$m

2019
NZ$m

2020
NZ$m

2019
NZ$m

132,984

133,264--

132,984

133,264

8,248
378
1,394
12,797
9,756
9,893
547
43,013
175,997

2,709
193
2,324
8,942
11,653
7,027
623
33,471
166,735

187
187
187

192
192
192

8,061
378
1,394
12,797
9,756
9,893
547
42,826
175,810

2,517
193
2,324
8,942
11,653
7,027
623
33,279166,543

30,607
206,604

29,003
195,738

187

192

30,607
206,417

29,003
195,546

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

39

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT QUALITY
An analysis of ANZ New Zealand’s credit risk exposure is presented in the following tables based on ANZ New Zealand’s internal rating by stage
without taking account of the effects of any collateral or other credit enhancements.
Net loans and advances

As at 30 September 2020
StrongSatisfactory
Weak
Defaulted
Subtotal
Allowance for ECL
Net loans and advances at amortised cost
Coverage ratio
Unearned income
Capitalised brokerage/mortgage origination fees
Net carrying amountAs at 30 September 2019
StrongSatisfactory
Weak
Defaulted
Subtotal
Allowance for ECL
Net loans and advances at amortised cost
Coverage ratio
Unearned income
Capitalised brokerage/mortgage origination fees
Net carrying amountStage 1
NZ$m
98,495
21,470406
120,371(161)
120,2100.13%

96,212
26,468
1,229
123,909(164)
123,745
0.13%

Stage 3
Collectively IndividuallyStage 2
assessedassessed
NZ$m
NZ$m
NZ$m
5,524
4,581
1,736
810
363
11,841
810
363
(347)
(80)
(107)
11,494
730
256
2.93%
9.88%
29.48%

2,291
4,629
2,125
9,045
(194)
8,851
2.14%

452
452
(43)
409
9.51%

Total
NZ$m
104,019
26,051
2,142
1,173
133,385(695)
132,690
0.52%
(25)
319
132,984

287
287
(98)
189
34.15%

98,50331,097
3,354
739
133,693(499)
133,194
0.37%
(237)
307
133,264

2020
NZ$m
42,329447
5042,8262019
NZ$m
32,676575
28
33,279Other financial assets

StrongSatisfactory
Weak
Defaulted
Total carrying amount40

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
Off-balance sheet commitments - undrawn and contingent facilities

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

Stage 1
NZ$m
25,275
3,949
27
29,251(79)
29,1720.27%

As at 30 September 2019
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

23,0464,883
312
28,241(60)
28,181
0.21%

Stage 3
Collectively IndividuallyStage 2
assessedassessed
NZ$m
NZ$m
NZ$m
302
974
179
19
41
1,455
19
41
(55)
(3)
(22)
1,400
16
19
3.78%
15.79%
53.66%

59
641
137
837
(24)
813
2.87%

3
3
(2)
1
66.67%

19
19
(11)
8
57.89%

Total
NZ$m
25,5774,923
206
60
30,766(159)
30,6070.52%

23,1055,524
449
22
29,100(97)
29,003
0.33%

41

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED 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. ANZ New
Zealand monitors its credit portfolio to manage risk concentration and rebalance the portfolio. ANZ New Zealand 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

2020
NZ$m

2019
NZ$m

2020
NZ$m

2019
NZ$m

2020
NZ$m

2019
NZ$m

2020
NZ$m

2019
NZ$m

17,049
678
2,407
1,098
1,150
1,243
2,415
839
948
283
35,58917,855
1,255
2,682
1,414
1,832
1,488
2,957
1,310
816
343
33,490

70
5
161
567
26
69
27
159
11,11016,395
1,270

84
9
378
514
32
94
29
137
6,169
9,723
1,212

862
113
2,350
1,991
955
1,797
992
738
1,550
883
2,314

1,021
225
2,004
1,834
1,039
1,681
961
864
1,377
1,105
3,112

17,981
796
4,918
3,656
2,131
3,109
3,434
1,736
13,60817,561
39,173

18,960
1,489
5,064
3,762
2,903
3,263
3,947
2,311
8,362
11,17137,814

924

1,130

7

11

545

631

1,476

1,772

64,7382,058

62,073
2,541

167
153

210
242

13,757
1,796

11,278
1,847

78,662
4,007

73,561
4,630

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

131,419

131,186

30,186

18,84430,643

28,979192,248

179,009

127
1,176
663

148
1,564
795

12,6233
14

14,398
5
32

123
-

121
-

12,873
1,179
677

14,667
1,569
827

Subtotal
Gross total
Allowance for ECL
Subtotal
Unearned income
Capitalised brokerage / mortgage
origination fees
Maximum exposure to credit risk

1,966
133,385(695)
132,690(25)

2,507
133,693(499)
133,194(237)

12,64042,82642,826-

14,43533,27933,279-123
30,766(159)
30,607-

121
29,100(97)
29,003-

14,729206,977(854)
206,123(25)

17,063
196,072(596)
195,476
(237)

319

307

-

-

-

-

319

307

132,984

133,264

42,82633,27930,60729,003

206,417

195,546

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
Public administration and safety1
Rental, hiring & real estate services
Professional, scientific, technical,
administrative and support services
Households
All other New Zealand residents2

1
2

42

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.

NOTES TO THE CONSOLIDATED 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, for example: guarantees, standby
letters of 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 ANZ New Zealand 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

2020
NZ$m

2019
NZ$m

2020
NZ$m

2019
NZ$m

2020
NZ$m

2019
NZ$m

Net loans and advances

132,984

133,264

126,053

124,983

6,931

8,281

Other financial assets

42,82633,279

2,761

1,857

40,06531,422Off-balance sheet positions

30,60729,003

15,291

14,152

15,316

14,851

Total

206,417

195,546

144,105

140,992

62,31254,554

43

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
MARKET RISKMARKET RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIESMarket risk stems from ANZ New Zealand’s trading and balance sheet management activities and the impact of changes and correlation 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 ANZ New Zealand 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 gauges ANZ New Zealand’s possible daily loss based on historical market movements.
ANZ New Zealand’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.
ANZ New Zealand 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.

44

NOTES TO THE CONSOLIDATED 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.

0.7
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

0.2
1.0
0.4
n/a
1.1

Averagefor year
NZ$m

As at
NZ$m

0.7
3.2
0.8
(0.9)
3.8

0.5
1.4
0.6
(0.7)
1.8

2019
High forLow for
year
year
NZ$m
NZ$m
1.0
2.5
0.7
n/a
2.6

Averagefor year
NZ$m

0.2
0.6
0.3
n/a
0.8

0.5
1.2
0.4
(0.8)
1.3

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
ANZ New Zealand 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 ANZ New Zealand’s banking book, while ensuring ANZ New Zealandmaintains 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 ANZ New Zealand’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 ANZ New Zealand.

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

29.1

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

9.5

Averagefor year
NZ$m

As at
NZ$m

16.6

10.0

2019
High forLow for
year
year
NZ$m
NZ$m
10.0

Averagefor year
NZ$m

7.4

8.4

We undertake scenario analysis to stress test the impact of extreme events on ANZ New Zealand’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. A positive number signifies that a rate increase is positive for net interest income over the next 12 months.
2020

2019

Impact of 1% rate shock
As at period end

-0.6%

0.2%

Maximum exposure

1.5%

1.0%

Minimum exposure

-0.6%

-0.7%

Average exposure (in absolute terms)

0.5%

0.3%

FOREIGN CURRENCY RISK – STRUCTURAL EXPOSURES
Where it is considered appropriate, ANZ New Zealand 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.

45

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
LIQUIDITY AND FUNDING RISKLIQUIDITY RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIES
Liquidity risk is the risk that ANZ New Zealand 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. ANZ New Zealand’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 ANZ New Zealand has the ability to meet ‘survival horizons’ under ANZ New Zealand specific and general market liquidity stressscenarios to meet cash flow obligations over the short to medium term;• maintaining strength in ANZ New Zealand’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 ANZ New Zealand’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
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 is required 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 ANZ New Zealand’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 ANZ New Zealand, or adverse rating changes. Under these scenarios ANZ New
Zealand may have significant difficulty rolling over or replacing funding. ANZ New Zealand’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 2020 ANZ New Zealand was in compliance with the above scenarios.
Structural balance sheet metrics
ANZ New Zealand’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 ANZ New Zealand‘s liquidity position.
Wholesale funding
ANZ New Zealand’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.
ANZ New Zealand also uses maturity concentration limits under the wholesale funding and liquidity management framework. Maturity concentration
limits ensure that ANZ New Zealand is not required to issue large volumes of new wholesale funding within a short time period to replace maturingwholesale 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
ANZ New Zealand adopts a conservative approach to determine its funding capacity. Annually, a funding plan is approved by the Bank’s Board. The
plan is supplemented by regular updates and is linked to ANZ New Zealand’s three year strategic planning cycle.

46

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
LIQUIDITY PORTFOLIO MANAGEMENTANZ New Zealand holds a diversified portfolio of cash and high quality liquid securities primarily to support liquidity risk management. The size of ANZ
New Zealand’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

Cash and balances with central banks
Certificates of deposit
Central and local government bonds
Government treasury bills
Other bonds
Total liquidity portfolio

2020
NZ$m
7,385
389
10,7293,909
7,525
29,937

2019
NZ$m
1,734
374
7,922
55
7,256
17,341

Assets held in ANZ New Zealand’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. These assets would be accepted as collateral by RBNZ in repurchase transactions. At 30 September 2020, ANZ New
Zealand would be eligible to enter into repurchase transactions with a value of NZ$22,552 million (2019: NZ$15,607 million). The Banking Group also
held unencumbered internal residential mortgage backed securities (RMBS) which would entitle ANZ New Zealand to enter into repurchasetransactions with a value of NZ$8,184 million at 30 September 2020 (2019: NZ$7,179 million).
Liquidity crisis contingency planning
ANZ New Zealand maintains a liquidity crisis contingency plan to define an approach for analysing and responding to a liquidity-threatening event ona 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.

47

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
FUNDING POSITIONANZ New Zealand actively uses balance sheet disciplines to prudently manage the funding mix. ANZ New Zealand employs funding metrics to ensurethat 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

2020
NZ$m

2019
NZ$m

13

120,863

109,236

Debt issuances

23,82725,593

Certificates of deposit and commercial paper

3,530

3,945

Other borrowings

3,604

3,890

Total wholesale funding

30,96133,428

Total funding

151,824

142,664

Agriculture, forestry and fishing

4,109

3,727

Manufacturing

2,863

2,152

Construction

2,750

2,194

Wholesale trade

2,407

2,020

Retail trade and accommodation

2,280

1,543

Financial and insurance services

14,491

11,458

Rental, hiring and real estate services

3,691

3,210

Professional, scientific, technical, administrative and support services

5,748

5,467

Public administration and safety

2,043

1,479

Arts, recreation and other services

Funding composition
Customer deposits
Wholesale funding

Customer deposits by industry - New Zealand residents

2,199

1,968

Households

64,20359,131

All other New Zealand residents1

4,280

3,553

111,064

97,902

9,219

10,118

580

1,216

9,799

11,334

120,863

109,236

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

4,851

5,815

Overseas

26,11027,613

Total wholesale funding

30,96133,428

Total funding

151,824

142,664

Concentrations of funding by geography
New Zealand

115,915

103,717Australia

4,478

4,752

United States

12,223

13,844

Europe12,028

12,176

Other countries

7,180

8,175

Total funding

151,824

142,664

1

48

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
RESIDUAL CONTRACTUAL MATURITY ANALYSIS OF ANZ NEW ZEALAND’S FINANCIAL LIABILITIESThe tables below provide residual contractual maturity analysis of financial liabilities at 30 September 2020 and 30 September 2019 within relevant
maturity groupings. All outstanding debt issuances are profiled on the earliest date on which ANZ New Zealand 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 ANZ New Zealand manages its liquidity risk. The management of this risk is detailed on page 46.
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

2,378

531

-

-

-

2,909

-

1,275

-

-

-

1,275

Deposits and other borrowings

70,79425,85026,326

5,374

1,055

129,399

Derivative financial liabilities (trading)

-

6,292

-

-

-

6,292

Debt issuances1

-

450

5,069

15,1093,902

24,530

Lease liabilities2

-

13

39

178

99

329

Other financial liabilities

-

82

6

98

68

254

- gross inflows

-

406

1,970

6,904

413

9,693

- gross outflows

-

(508)

(2,079)(6,711)(319)(9,617)2020

Derivative financial instruments(balance sheet management)

2019
Settlement balances payable

1,114

487

-

-

-

1,601

-

991

-

-

-

991

54,18327,56930,635

5,558

1,181

119,126

Derivative financial liabilities (trading)

-

9,383

-

-

-

9,383

Debt issuances1

-

304

4,866

17,2504,339

26,759Other financial liabilities

-

145

28

106

108

387

Collateral received
Deposits and other borrowings

Derivative financial instruments(balance sheet management)- gross inflows

-

1,051

2,616

8,699

833

13,199- gross outflows-(1,190)(3,017)(9,376)(850)(14,433)

12

Any callable wholesale debt instruments have been included at their next call date. Refer to Note 14 Debt Issuances for subordinated debt call dates.
On adoption of NZ IFRS 16 on 1 October 2019, ANZ New Zealand recognised right-of-use assets of NZ$309 million presented within Premises and equipment and lease liabilities of NZ$333
million presented within Payables and other liabilities. This resulted in a reduction to opening retained earnings of NZ$17 million and an increase in deferred tax assets of NZ$7 million.
Comparative information has not been restated. Refer to Note 1 for further details.

At 30 September 2020, NZ$14 million (2019: NZ$59 million) of ANZ New Zealand’s non-credit related commitments and NZ$30,766 million (2019:
NZ$29,100 million) of its credit related commitments and contingent liabilities mature in less than 1 year, based on the earliest date on which ANZ
New Zealand may be required to pay.

49

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIESANZ New Zealand carries a significant number of financial instruments on the balance sheet at fair value. The fair value is the best estimate of the pricethat would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
VALUATIONANZ New Zealand 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 ANZ New Zealand holds offsetting risk positions, then ANZ New Zealand 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 reported on the balance sheet.
2020
2019
At amortised
cost
Note
NZ$m
Financial assets
Cash and cash equivalents
Settlement balances receivable
Collateral paid
Trading securities
Derivative financial instruments
Investment securities
Net loans and advances
Other financial assets
Total
Financial liabilities
Settlement balances payable
Collateral received
Deposits and other borrowings
Derivative financial instruments
Debt issuances
Other financial liabilities
Total

50

7

8
9
10
11

13
9
14

At fair
value
NZ$m

Total
NZ$m

At amortised
cost
NZ$m

At fair
value
NZ$m

Total
NZ$m

8,248
378
1,394
132,984547
143,551

12,797
9,756
9,893
32,446

8,248
378
1,394
12,797
9,756
9,893
132,984547
175,997

2,709
193
2,324
133,264623
139,113

8,942
11,653
7,027
27,622

2,709
193
2,324
8,942
11,653
7,027
133,264
623
166,735

2,908
1,275
126,249
23,827
698
154,957

1,748
8,166
158
10,072

2,908
1,275
127,997
8,166
23,827856
165,029

1,590
991
114,610
25,593641
143,425

2,461
10,912
213
13,5861,590
991
117,071
10,912
25,593854
157,011

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
FAIR VALUE HIERARCHYANZ New Zealand 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:

2020
NZ$m

2019
NZ$m

Fair value measurements
Using observable
Using unobservable
inputsinputs (Level 3)(Level 2)
2020
2019
2020
2019
NZ$m
NZ$m
NZ$m
NZ$m

8,848
8
9,892
18,748

8,319
10
7,026
15,355

3,949
9,745
13,694623
11,64012,263

3
1
4

4
158
162

11
213
224

1,748
8,162
9,910

2,461
10,901
13,362-

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
2020
NZ$m

2019
NZ$m

3
1
4

12,797
9,756
9,893
32,446

8,942
11,653
7,027
27,622

-

1,748
8,166
158
10,072

2,461
10,912
213
13,586

Fair 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.

51

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED 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 ANZ New Zealand’s basis of estimating fair values of the financial instruments carried at amortised cost:
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, ANZ New Zealand’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 ANZ New Zealand 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 ANZ New Zealand for that instrument.

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

Carrying amount
2020
2019
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)
2020
2019
2020
2019
2020
2019
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m

Fair value (total)
2020
2019
NZ$m
NZ$m

132,984
132,984

133,264
133,264

-

-

133
133

167
167

133,459
133,459

133,660
133,660

133,592
133,592

133,827
133,827

126,249

114,610--

126,498

114,840--

126,498

114,840

23,827150,076

25,593140,203

3,713
3,713

3,936
3,936

20,336
146,834

21,925
136,765--

24,049150,547

25,861
140,701

KEY JUDGEMENTS AND ESTIMATESANZ New Zealand evaluates the material accuracy of the valuations incorporated in the financial statements as they can involve a high degreeof judgement and estimation in determining the carrying values of financial assets and financial liabilities at the balance sheet date.
The majority of valuation models ANZ New Zealand uses employ only observable market data as inputs. This has not changes as a result of
COVID-19, however, ANZ New Zealand 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, ANZ New Zealand 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 ANZ New Zealand’s assessment of factors that market participants
would consider in setting fair value.

52

NOTES TO THE CONSOLIDATED 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.
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; and• Specified residential mortgages provided as security for notes and bonds issued to investors as part of ANZ New Zealand’s covered bondprogrammes.
The carrying amounts of assets pledged as security are as follows:

Securities sold under agreements to repurchase1
Assets pledged as collateral for UDC secured investments2
Total assets of the ANZNZ Covered Bond Trust pledged as security for covered bonds
1

2

2020
NZ$m
646
11,474

2019
NZ$m
203
3,484
11,600

The amounts disclosed as securities sold under arrangements to repurchase include both:•
assets pledged as security which continue to be recognised on ANZ New Zealand’s balance sheet; and•assets repledged, which are included in the disclosure below.
UDC secured investments were secured by a security interest over all of UDC’s assets. ANZ New Zealand divested of UDC during 2020 and, therefore, there are no longer any associatedcollateral balances requiring disclosure by ANZ New Zealand.

COLLATERAL ACCEPTED AS SECURITY FOR ASSETSANZ New Zealand has received collateral associated with various financial instruments. Under certain transactions ANZ New Zealand has the right tosell, or to repledge, the collateral received. These transactions 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

2020
NZ$m
790
290

2019
NZ$m
300
81

53

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED 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.
ANZ New Zealand 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
2020
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
Derivative financial instruments
9,756(3,339)6,417(4,403)(342)
1,672
Reverse repurchase agreements 1
782
782
(782)
Total financial assets
10,538(3,339)7,199(4,403)(1,124)
1,672
Derivative financial instruments(8,166)2,890(5,276)
4,403
417
(456)
Repurchase agreements 2
(646)
(646)
646
Total financial liabilities(8,812)
2,890(5,922)
4,403
1,063
(456)
2019
Derivative financial instruments
Reverse repurchase agreements 1
Total financial assets
Derivative financial instruments
Repurchase agreements 2
Total financial liabilities1
2

54

11,653297
11,950(10,912)(203)(11,115)(3,083)(3,083)
2,361
2,361

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.

8,570
297
8,867
(8,551)(203)(8,754)(6,433)(6,433)
6,433
6,433

(541)
(297)
(838)
857
203
1,060

1,596
1,596
(1,261)(1,261)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

19. GOODWILL AND OTHER INTANGIBLE ASSETS

Balance at start of year
Additions
Disposals1
Amortisation expense
Impairment expense 2
Balance at end of year
1
2

Goodwill
2020
2019
NZ$m
NZ$m
3,160
3,160
(126)
(28)
3,160
3,006

Software
2020
2019
NZ$m
NZ$m
40
53
3
9
(33)
(22)
40
10

Other intangibles
2020
2019
NZ$m
NZ$m
76
76
76
76

Total
2020
2019
NZ$m
NZ$m
3,276
3,289
3
9
(126)
(33)
(22)
(28)
3,276
3,092

Relates to the sale of UDC, refer to Note 26 Divestments.
Relates to the wind up of the Bonus Bonds Scheme, see below.

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. Remaining other intangible assets, relating tofunds management rights, have been assessed as having indefinite useful lives and arose on the acquisition of the ING Holdings (NZ) Limited (nowANZ Wealth New Zealand Limited) group on 30 November 2009.
Goodwill and other intangible assets with indefinite useful lives are allocated to CGUs as follows:

Cash generating unit
Retail and business banking
WealthRetail segment
Commercial
Institutional
Total

Goodwill
2020
2019
NZ$m
NZ$m
893
893
146
118
1,039
1,011
1,052
926
1,069
1,069
3,160
3,006

Other intangibles
2020
2019
NZ$m
NZ$m
76
76
76
76
76
76

Impairment expense recognised
On 26 August 2020, ANZ Investment Services (New Zealand) Limited (ANZIS), a subsidiary of the Bank and Manager of the Bonus Bonds Scheme(Bonus Bonds), announced that it intended to start winding up Bonus Bonds no later than 31 October 2020. The wind up formally commenced on 31
October 2020.
ANZIS contributed NZ$28 million of goodwill when it joined the Wealth CGU, which is reported in the Retail segment. As ANZIS ceased charging
Bonus Bonds management fees from 1 September 2020, the recoverable amount of ANZIS operations relating to the management of Bonus Bonds
was considered to be nil, and therefore this goodwill was impaired. This was a value in use assessment, and no discount rate was required as there
were no future cash inflows to discount.
Impairment testing as at 30 September 2020
The annual impairment test is performed as at the end of February each year and, as the Overseas Banking Group’s market capitalisation was below its
net asset value, and considering uncertainties surrounding COVID-19, we assessed the carrying value of goodwill as at 30 September 2020.
Goodwill is considered to be impaired if the carrying amount of the relevant 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. We also estimated the FVLCOD for each CGU as at 30 September 2020, howeveras the VIU was higher for all CGUs except Institutional, where the FVLCOD was not materially higher, the disclosures below are for the VIU assessment.
Based on this assessment no impairment was identified for any CGU.
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.

55

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
19. GOODWILL AND OTHER INTANGIBLE ASSETS (continued)
Input / assumption

Values applied in 30 September 2020 impairment test

Forecast period and projections

Eight years - an extended forecast period was used to cover the implementation period of the RBNZ’s
increased capital requirements over the period 1 July 2021 to 1 July 2028.

Revenue growth over forecast
periodComprises impacts of net interest margin and volume growth, arising from planned responses to known
regulatory and economic forecasts, and a forecast increase in the Official Cash Rate (OCR) to 2.5% by 2028.
Average annual forecast revenue growth varies by CGU as follows: Retail & business banking +5.8%; Wealth+2.7%; Commercial +4.8%; Institutional +0.6%.

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 ANZ New Zealand’s bad debts written off, net ofrecoveries, since 2004 of 0.15% of gross loans and advances.
Values applied for 2024 to 2028 (all as a proportion of forecast gross loans and advances) were: Retail &business banking 0.13%; Wealth 0.01%; Commercial 0.22%; Institutional 0.12%.

Terminal growth rate

1.5% - based on 2023 forecast inflation from the RBNZ’s August 2020 Monetary Policy Statement

Discount rate

9.3% (February 2019: 11.1%). Implied pre-tax: Retail & business banking 16.7%; Wealth 16.0%; Commercial
17.1%; Institutional 17.0%. (February 2019: 14.7%).
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 30
September 2020 of 0.46%. The market risk premium was calculated using observed changes in the NZX50
index and average annual traded 10 year New Zealand government bond yields since 2003. Beta wasconsistent with observable measures applied in the regional banking sector.
The 30 September 2020 implied pre-tax discount rates are significantly higher than the post-tax discountrate because of the impact of regulatory capital retention over the forecast period which is not tax effected.

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.
Recoverable amounts and carrying amounts are those at the Banking Group level as no further goodwill or other intangible assets with indefinite
useful lives exist in ANZ New Zealand entities outside the Banking Group.

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 (including impact of OCR)
Average annual credit impairment FY24-FY28
Discount rate
Terminal growth rate

56

Commercial
Forecast
ChangeValue required
599
n/a
4.8%
0.22%
9.3%
1.5%

-100 bp+21 bp+70 bp-510 bp

Institutional
Forecast
ChangeValue required
174
n/a
0.6%
0.12%
9.3%
1.5%

-50 bp+34 bp+40 bp-180 bpNOTES TO THE CONSOLIDATED 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

Software

Other Intangible Assets

Definition

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

Purchases of “off the shelf” software
assets are capitalised as assets.

Management fee rights.

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 if 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:• the level at which goodwill is allocated – consistent with prior periods the CGUs to which goodwill is allocated are the Group’s four
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.

57

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20. OTHER PROVISIONSECL allowance on undrawn facilities
Customer remediation
Restructuring costs
Leasehold make good
Other
Total other provisions

2020
NZ$m
159
141
36
23
30
389

2019
NZ$m
97
139
25
23
30
314

Customer Restructuring
Leaseholdremediation
costs make good
NZ$m
NZ$m
NZ$m
139
25
23
93
21
6
(81)
(10)
(6)
(4)
(6)
141
36
23

Other
NZ$m
30
13
(11)
(2)
30

Note
12

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
Sale of UDC (refer to Note 26 Divestments)
Balance at end of year

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 ANZ New Zealand, including
the OnePath 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, ANZ New Zealand 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.

58

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

20. OTHER PROVISIONS (continued)

RECOGNITION AND MEASUREMENTANZ New Zealand 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 ESTIMATESANZ New Zealand 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 and the associated remediation
costs. Consequently, the appropriateness of the underlying assumptions is reviewed on a regular basis against actual experience and otherrelevant evidence and adjustments are made to the provisions where appropriate.

59

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21. SHAREHOLDERS' EQUITY

Ordinary shares
Redeemable preference shares1
Total share capital
NZ Branch initial head office accountTotal share capital & initial head office account1

Number of issued shares
2020
2019
378,155,112
378,155,112
8,354,563,940
8,354,563,940
8,732,719,052
8,732,719,052
8,732,719,052
8,732,719,052

NZ$ millions
2020
2019
1,450
1,450
9,594
9,594
11,044
11,04411
11
11,055
11,055

Includes 44,990 (2019: 44,990) uncalled NZ$1.00 shares.

Redeemable preference shares
All redeemable preference shares (RPS) were issued by ANZ Holdings (New Zealand) Limited to the Immediate Parent Company.
There are eight classes of RPS, relating to issues in 1988, 2005, 2007, 2008, 2009, 2014, 2015 and 2018. ANZ Holdings (New Zealand) Limited did not
pay any dividends on RPS during the years ended 30 September 2020 and 30 September 2019.

RECOGNITION AND MEASUREMENT
Ordinary shares

Ordinary shares have no par value. They entitle holders to receive dividends, or proceeds available on winding
up of ANZ Holdings (New Zealand) Limited, in proportion to the number of fully paid ordinary shares held.
They are recognised at the amount paid per ordinary share net of directly attributable costs. Every holder offully paid ordinary shares present 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.

Redeemablepreference shares

Redeemable preference shares do not carry any voting rights and are redeemable by ANZ Holdings (New
Zealand) Limited providing notice in writing to holders of the redeemable preference shares. Dividends arepayable at the discretion of the Directors of ANZ Holdings (New Zealand) Limited and are non-cumulative.
In the event of liquidation, holders of redeemable preference shares are entitled to available subscribed capitalper share, pari passu with all holders of existing redeemable preference shares but in priority to all holders ofordinary shares. They have no entitlement to participate in further distribution of profits or assets.

Reserves:

60

Cash flow hedge
reserve

Includes fair value gains and losses associated with the effective portion of designated cash flow hedging
instruments, net of deferred taxes to be realised when the position is settled.

Investment securities
revaluation reserve

Includes the changes in fair value and exchange differences on our revaluation of investment securities
financial assets, net of deferred taxes to be realised upon disposal of the asset.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

22. CAPITAL MANAGEMENTCAPITAL MANAGEMENT STRATEGYANZ New Zealand’s core capital objectives are to:• protect the interests of depositors, creditors and shareholders;• ensure the safety and soundness of ANZ New Zealand’s capital position; and• ensure that the capital base supports ANZ New Zealand’s risk appetite, and strategic business objectives, in an efficient and effective manner.
Most of ANZ New Zealand’s capital is held in, and managed by, the Banking Group. The Bank’s Board holds ultimate responsibility for ensuring that
capital adequacy of the Banking Group 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 risk capital principles; and risk appetite.
The Banking Group has minimum and trigger levels for capital that ensure sufficient capital is maintained to:• meet minimum prudential requirements imposed by the Bank’s 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.

REGULATORY ENVIRONMENTThe Ultimate Parent Bank is a registered bank in New Zealand, and conducts business in New Zealand through the NZ Branch. While RBNZ requires
the Ultimate Parent Bank to comply with the minimum capital adequacy requirements as administered by APRA, there are no regulatory capitalrequirements that apply specifically to the NZ Branch or ANZ New Zealand.

MANAGED CAPITALThe Banking Group is subject to its own regulatory capital requirements as administered by RBNZ. The following table provides details of the capital of
ANZ New Zealand which is managed outside the Banking Group.

ANZ New Zealand shareholder's equity
Subordinated loan from the Ultimate Parent Bank used to purchase preference shares issued by the Bank
Borrowings from the Immediate Parent Company used to purchase ordinary shares issued by the Bank
less: Banking Group shareholder's equity
Capital of ANZ New Zealand managed outside the Banking Group
Total assets of ANZ New Zealand held outside the Banking Group
Ratio

2020
NZ$m
14,010286
1,766(15,869)
193
376
51.3%

2019
NZ$m
12,599286
1,766(14,430)
221
1,111
19.9%

61

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
23. CONTROLLED ENTITIESThe following table lists the subsidiaries of ANZ New Zealand. All subsidiaries are 100% owned and incorporated in New Zealand unless statedotherwise.
Nature of business
Australia and New Zealand Banking Group Limited (New Zealand Branch)2,3
Registered bank
ANZ Capel Court Limited (New Zealand Branch)2,3
Securitisation services
ANZ Holdings (New Zealand) Limited3
Holding company
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
Custodian
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
1
ANZNZ Covered Bond Trust
Securitisation entity
Arawata Assets Limited
Property
Endeavour Finance Limited
Investment
Kingfisher NZ Trust 2008-11
Securitisation entity
ANZ Nominees Limited (New Zealand Branch)2,3Nominee1

2
2

ANZ New Zealand does not own ANZNZ Covered Bond Trust and Kingfisher NZ Trust 2008-1. Control exists as ANZ New Zealand retains substantially all the risks and rewards of theoperations. Details of ANZ New Zealand’s interest in consolidated structured entities is included in Note 24 Structured Entities.
Incorporated in Australia and registered in New Zealand as an Overseas ASIC Company.
Together, these companies are the Relevant Members of ANZ New Zealand referred to in the Directors’ and New Zealand Chief Executive Officer’s Statement on page 90.

Changes in controlled entities
UDC was sold to Shinsei Bank on 1 September 2020 (refer to Note 26 Divestments).
Arawata Finance Limited and Karapiro Investments Limited amalgamated with the Bank on 30 September 2020.

RECOGNITION AND MEASUREMENTANZ New Zealand 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.
ANZ New Zealand assesses whether it has power over those entities by examining ANZ New Zealand’s existing rights to direct the relevant
activities of the entity.

62

NOTES TO THE CONSOLIDATED 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, such as when any voting rights relate to administrative tasks only and the relevant activities (being those that significantly affect the entity’s
returns) are directed by means of contractual arrangement. A SE often has some or all of the following features or attributes:• restricted activities;• a narrow and well defined objective;• insufficient equity to permit the SE to finance its activities without subordinated financial support; and• financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches).
SEs are classified as subsidiaries and consolidated when control exists. If ANZ New Zealand does not control a SE, then it is not consolidated. This note
provides information on both consolidated and unconsolidated SEs.
ANZ New Zealand’s involvement with SEs is as follows:Type

Details

Securitisation

ANZ New Zealand uses the Kingfisher NZ Trust 2008-1 (the Kingfisher Trust) to securitise residential mortgages thatit 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’).
ANZ New Zealand 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 2020 and 30 September 2019, ANZ New Zealand had not entered into any repurchaseagreements with RBNZ for residential mortgage backed securities issued and therefore no collateral had been
accepted by RBNZ under this facility.
Additionally, ANZ New Zealand 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.
ANZ New Zealand 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

ANZ New Zealand 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.
ANZ New Zealand may provide risk management products (derivatives) to the SE.
In all instances, ANZ New Zealand does not control these SEs. Further, ANZ New Zealand’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 ANZ New Zealand 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. TheseMIS are financed through the issue of units to investors and ANZ New Zealand considers them to be SEs. ANZ New
Zealand’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 ANZ New Zealand tocontrol the funds. Therefore, these MIS are not consolidated.

63

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED 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 (2019: nil).
UNCONSOLIDATED STRUCTURED ENTITIESANZ New Zealand’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 ANZ New Zealand 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 ANZ New Zealand’s involvement is not more than a passive interest - for example: when ANZ New Zealand’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 ANZ New Zealand toparticipate in decisions about the relevant activities (being those that significantly affect the entity’s returns).
• ‘interests’ do not include derivatives intended to expose ANZ New Zealand to market risk (rather than performance risk specific to the SE) or
derivatives through which ANZ New Zealand creates, rather than absorbs, variability of the unconsolidated SE (such as purchase of credit
protection under a credit default swap).
ANZ New Zealand earned funds management fees from its MIS of NZ$197 million (2019: NZ$198 million) during the year. As at 30 September 2020,
ANZ New Zealand had total funds under management of NZ$35.2 billion (2019: NZ$34.1 billion) of which NZ$21.2 billion (2019: NZ$20.6 billion)
related to its MIS, with the largest individual fund being approximately NZ$3.5 billion (2019: NZ$3.3 billion).
ANZ New Zealand did not provide any non-contractual support to unconsolidated SEs during the year (2019: nil): nor does it have any current
intention to provide financial or other support to unconsolidated SEs.
SPONSORED UNCONSOLIDATED STRUCTURED ENTITIESANZ New Zealand may also sponsor unconsolidated SEs in which it has no disclosable interest.
For the purposes of this disclosure, ANZ New Zealand considers itself the ‘sponsor’ of an unconsolidated SE if it is the primary party involved in thedesign and establishment of that SE and:• ANZ New Zealand is the major user of that SE; or• ANZ New Zealand’s name appears in the name of that SE, or on its products; or• ANZ New Zealand 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. ANZ New Zealand 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 control exists over Structured Entities involved in securitisation activities,
structured finance transactions and investment funds. Judgement is required in relation to 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.

64

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

25. TRANSFERS OF FINANCIAL ASSETSIn the normal course of business ANZ New Zealand enters into transactions where it transfers financial assets directly to third parties. These transfers
may give rise to ANZ New Zealand fully, or partially, derecognising those financial assets - depending on ANZ New Zealand’s exposure to the risks andrewards or control over the transferred assets. If ANZ New Zealand retains substantially all of the risk and rewards of a transferred asset, the transfer
does not qualify for derecognition and the asset remains on ANZ New Zealand’s balance sheet in its entirety.
Covered bonds
ANZ New Zealand 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 ANZ New Zealand 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

Covered bonds
2020
2019
NZ$m
NZ$m
11,60011,4744,460
4,522

Repurchase agreements
2020
2019
NZ$m
NZ$m
203
650
203
646

26. DIVESTMENTS
2020 - UDC
On 1 September 2020, ANZ New Zealand sold UDC to Shinsei Bank. ANZ New Zealand recognised a net loss on sale of NZ$32 million, which isincluded in other operating income. This net loss comprised a gain on sale of the net assets of UDC of NZ$94 million less an allocation of goodwill
from the Commercial segment of NZ$126 million.
2019 - OnePath and Paymark
On 30 November 2018, ANZ New Zealand sold OnePath to Cigna Corporation and on 11 January 2019, ANZ New Zealand sold its 25% shareholding inPaymark to Ingenico Group. ANZ New Zealand recognised net gains on sale of NZ$66 million and NZ$39 million respectively, which are included inother operating income.
Assets and liabilities sold
UDC
2020
NZ$m

OnePath2019
NZ$m

Paymark
2019
NZ$m

3,286

-

-

-

675

-

Investments in associates

-

-

7

Deferred tax assets

21

-

-

Goodwill and other intangible assets

-

101

-

Investments backing insurance contract liabilities

-

101

-

Premises and equipment

10

-

-

Net loans and advances
Life insurance contract assets

Other assets

7

9

-

Total external assets

3,324

886

7

Current tax liabilities

-

18

-

Deferred tax liabilities

-

178

-

Payables and other liabilities

11

146

-

Provisions, including employee entitlements

10

2

-

Total external liabilities

21

344

-

Deposits with the Bank

221

50

-

Funding provided by, and other amounts payable to, the Bank

(2,990)(3)-

Net amounts receivable from / (payable to) the Bank

(2,769)47-

Net assets of the divested entities
Additional goodwill allocated to sale

534

589

7

126

-

-

Net assets sold

660

589

7

65

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
27. 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 ANZ New Zealand. 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.
2020
2019
Key management personnel compensation1
NZ$000
NZ$000
Salaries and short-term employee benefits
10,827
10,449Post-employment benefits
297
256
Other long-term benefits2
39
107
Termination benefits3
2,233
1,155
Share-based payments
2,242
2,679
Total
14,646
15,6381
2
3Includes former disclosed KMPs until the end of their employment.
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

2020
NZ$m
22
3
1
17
2

2019
NZ$m
23
5
1
14
2

Includes KMP, close family members of KMP and entities that are controlled or jointly controlled by KMP or their close family members, of ANZ New Zealand 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 (2019: nil).
All other transactions with KMP and their related parties are made on terms equivalent to those that prevail in arm’s length transactions. Thesetransactions 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, insurance premium income, debt issuances andcollectively 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 ANZ New Zealand. 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 ANZ New Zealand.
• A close family member of a member of KMP is an employee of ANZ New Zealand and received total compensation of NZ$0.1 million (2019:
NZ$0.1 million).
• Some KMP pay ANZ New Zealand for the use of carparks in premises owned or leased by ANZ New Zealand. These amounts were less than
NZ$0.1 million (2019: less than NZ$0.1 million).
Transactions with other members of the Overseas Banking Group and associates
The NZ Branch and ANZ New Zealand undertake transactions with the Immediate Parent Company, the Ultimate Parent Bank, other members of theOverseas 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 ANZ New Zealand employees. Other than noted on the following page,transactions with related parties outside of ANZ New Zealand are conducted on an arm’s length basis and on normal commercial terms.

66

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

27. RELATED PARTY DISCLOSURES (continued)
Transactions
Immediate Parent Company
Interest expense
Dividends paid
Ultimate Parent Bank and other subsidiaries not part of ANZ New ZealandInterest income
Interest expense
Other operating income
Operating expenses
Associates
Direct fee expense
Dividends received
Share of associates' profit
Outstanding balances
Ultimate Parent Bank and other subsidiaries not part of ANZ New Zealand
Cash and cash equivalents
Collateral paid
Derivative financial instruments
Other assets
Total due from related parties
Immediate Parent Company
Deposits and other borrowings
Payables and other liabilities
Ultimate Parent Bank and subsidiaries not part of ANZ New Zealand
Settlement balances payable
Deposits and other borrowings
Derivative financial instruments
Payables and other liabilities
Debt issuances
Associates
Deposits and other borrowings
Post-employment benefit plans for the benefit of employees of ANZ New Zealand
Deposits and other borrowings
Total due to related parties

2020
NZ$m

2019
NZ$m

39
-

43
375

7
81
18
97

12
145
24
60

-

4
3
4

166
2,907
48
3,121

424
810
3,920
58
5,212

1,766
15

1,766
17

44
1,354
2,791
34
317

48
1,922
4,646
25
301

1

1

6,322

2
8,728

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. For the year ended 30 September 2019, fees associated with the provision offinancial guarantees to/by the Ultimate Parent Bank may be lower than those for similar transactions with unrelated parties.

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

2020
NZ$m
264
123
1

2019
NZ$m
456
114
1

67

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
28. COMMITMENTS AND CONTINGENT LIABILITIESCREDIT RELATED COMMITMENTS AND CONTINGENCIES

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

2020
NZ$m

2019
NZ$m

28,0231,309
1,434
30,766

26,3501,248
1,502
29,100UNDRAWN 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 ANZ New Zealand may be required to pay, thetotal undrawn facilities of NZ$28,023 million (2019: NZ$26,350 million) mature within 12 months.
GUARANTEES, LETTERS OF CREDIT AND PERFORMANCE RELATED CONTINGENCIES
Guarantees, letters of credit and performance related contingencies relate to transactions that ANZ New Zealand has entered into as principal –including: guarantees, standby letters of credit and documentary letters of credit.
Documentary letters of credit involve ANZ New Zealand 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 ANZ New Zealand 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 ANZ New Zealand may be required to pay, the total guarantees and letters of credit of NZ$1,309 million (2019: NZ$1,248
million) and total performance related contingencies of NZ$1,434 million (2019: NZ$1,502 million) mature within 12 months.
PROPERTY RELATED COMMITMENTS

Property capital expenditure
Contracts for outstanding capital expenditure (not later than 1 year)
Total capital expenditure commitments for property
Lease rentals
Land and Buildings1
Furniture and equipment
Motor vehicles
Total lease rental commitments
Due within 1 year
Due later than 1 year but not later than 5 years
Due later than 5 years
Total lease rental commitments
1

68

2020
NZ$m

2019
NZ$m

11
11

6
6

5
5
10
3
7
10

279
7
6
292
53
148
91
292

Lease commitments for land and buildings are recognised on the balance sheet following the application of NZ IFRS 16 from 1 October 2019. Refer to Note 1 for further details.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

28. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
OTHER CONTINGENT LIABILITIESThere are outstanding court proceedings, claims and possible claims for and against ANZ New Zealand. 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 ANZ New Zealand.
Regulatory and customer exposures
In recent years there has been an increase in the number of matters on which ANZ New Zealand engages with its regulators. There have also beensignificant increases in the nature and scale of regulatory investigations and reviews, civil and criminal enforcement actions (whether by court 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. ANZ New Zealand has received various notices and requests for information from its regulators
as part of both industry-wide and ANZ New Zealand-specific reviews, and has also made disclosures to its regulators at its own instigation. The natureof these interactions can be wide ranging and, for example, may include a range of matters including responsible lending practices, regulated lending
financial transactions, 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.
Commerce Commission settlement
Between June 2015 and May 2016, the Bank had an issue with a loan calculator which meant some interest to be charged to customers was left out
when calculating their repayments or loan term. On 2 March 2020, the Commerce Commission announced it had agreed with the Bank that the Bank
would pay some customers affected by the issue a further NZ$29.4 million, in addition to the NZ$8.4 million the Bank has paid previously. All amounts
in relation to this matter were provided for in the period to 30 September 2019. These payments are nearing completion.
Reviews under section 95 of the Reserve Bank of New Zealand Act 1989 (RBNZ Act)
On 5 July 2019, the RBNZ issued a notice under section 95 of the RBNZ Act, requiring the Bank to obtain two external reviews, the first on the Bank’s
compliance with certain aspects of the RBNZ Banking Supervision Handbook document Capital Adequacy Framework (Internal Models Based Approach)(BS2B) and the second on the effectiveness of the Bank’s directors’ attestation and assurance framework.
• The director attestation and assurance framework review was completed in December 2019, and the Bank is committed to implementing therecommendations identified and addressing the issues raised. On 11 December 2019, the RBNZ issued a further notice under section 95 of the
RBNZ Act, requiring the Bank to obtain an external review of the improvements made to the Bank’s directors’ attestation and assurance
framework. Due to the impacts of the COVID-19 pandemic, in May 2020, the RBNZ agreed to extend the time period for addressing the directors’attestation recommendations, subject to the Bank obtaining an external interim review, assessed as at March 2021, with a final review of theBank’s directors’ attestation and assurance framework being assessed as at September 2021.
• The report regarding the Bank's compliance with the RBNZ's capital adequacy requirements was completed in April 2020. This report identified
instances of both current and historical non-compliance with capital adequacy requirements. The Bank has accepted the findings of this review,
and is working with the RBNZ to rectify the issues identified. The RBNZ has stated that it is confident the Bank will resolve this matter without
issue, and has emphasised that the Banking Group remains sound and well capitalised. In May 2020, a detailed remediation plan, which includes
key dates on model submissions, was submitted to the RBNZ. The Bank also submitted the first tranche of model documentation to RBNZ in
August 2020, a key milestone in the section 95 models remediation. In October 2020, the RBNZ notified the Bank that it should obtain an
external interim review of certain remediation activities relating to the report on capital adequacy requirements, assessed as at March 2021, witha final review of those activities being assessed as at September 2021 (to reflect the close relationship between these improvements and thosebeing undertaken for directors’ attestation and assurance).
The Section 95 reviews have highlighted the need for a broader programme of improving the Bank's processes covered by those reviews, and thisprogramme is underway.
Warranties and indemnities
ANZ New Zealand 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.

69

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
29. COMPENSATION OF AUDITORSKPMG New ZealandAudit or review of financial statements1
Audit related services:
Prudential and regulatory services2
Offer documents assurance or review
Other assurance services3,4
Total audit related services
Total compensation of auditors relating to ANZ New ZealandFees related to certain managed funds not recharged4
Total compensation of auditors
1
2
3

4

2020
NZ$0002019
NZ$000

2,030

1,928

308
94
116
518
2,548

1,418
111
25
1,554
3,482

93
2,641

70
3,552

Includes fees for both the audit of the 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. Comparative information has been restated to reclassify certain fees relating to managed funds and notrecharged to those funds.
Amounts relate to the ANZ PIE Fund and certain other funds, and include fees for audits of annual financial statements, registry audits, supervisor reporting and other agreed upon
procedures engagements. Comparative information has been restated to reclassify certain fees previously included in other assurance services.

ANZ New Zealand’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. 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 ofthe 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.

70This page has been left blank intentionally

71

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

72

Section

Order reference

Page

B1.

General disclosures

Schedule 2

73

B2.

Additional financial disclosures

Schedule 4

80

B3.

Asset quality

Schedule 7

81

B4.

Credit and market risk exposures and capital adequacy

Schedule 9

84

B5.

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

Schedule 11

85

B6.

Risk management policies

Schedule 13

87

REGISTERED BANK DISCLOSURES

B1. GENERAL DISCLOSURES (UNAUDITED)
Details of registered bank, ultimate parent bank and ultimate holding company
The registered bank, which is also the ultimate parent bank and ultimate parent holding company, is Australia and New Zealand Banking Group
Limited (Ultimate Parent Bank). The principal office and place of business outside New Zealand, and address for service of the Ultimate Parent Bank, is
ANZ Centre, Melbourne, Level 9, 833 Collins Street, Docklands, Victoria 3008, Australia.
Subordination of claims of creditors
Certain creditors of the Ultimate Parent Bank are given a statutory priority under Australian law. Unsecured creditors of the NZ Branch could be
expected to rank behind such claims.
Specifically, pursuant to section 13A(3) of the Banking Act of the Commonwealth of Australia (the Banking Act), if an Authorised Deposit-Taking
Institution (ADI) (which includes the Ultimate Parent Bank) becomes unable to meet its obligations or suspends payment, the assets of the ADI inAustralia are to be available to meet the ADI's liabilities in the following order:(a) first, the ADI's liabilities (if any) to APRA because of the rights APRA has against the ADI because of section 16AI or 16AIC of the Banking Act;(b) second, the ADI's debts (if any) to APRA under section 16AO of the Banking Act;(c) third, the ADI's liabilities (if any) in Australia in relation to protected accounts that account-holders keep with the ADI. Broadly, this means
accounts (including deposit accounts) kept with the Ultimate Parent Bank that are situated in Australia and recorded in Australian dollars;(d) fourth, the ADI’s debts (if any) to the Reserve Bank of Australia;(e) fifth, the ADI’s liabilities (if any) under an industry support contract that is certified by APRA under section 11CB of the Banking Act; and(f) sixth, the ADI's other liabilities in the order of their priority (apart from section 13A(3)).
Unsecured creditors of the NZ Branch could be expected to rank as a creditor pursuant to the sixth paragraph, together with other unsecured
creditors of the Ultimate Parent Bank that do not otherwise have a priority claim under preceding paragraphs.
Section 16(1) and (2) of the Banking Act provide that, despite anything contained in any law relating to the winding-up of companies, but subject tosection 13A(3) of the Banking Act, the debts of an ADI to APRA in respect of APRA's costs (including costs in the nature of remuneration and expenses)
of being in control of the ADI's business, or of having an administrator in control of the ADI's business, are a debt due to APRA and have priority in awinding-up of the ADI over all other unsecured debts.
Section 86 of the Reserve Bank Act 1959 of the Commonwealth of Australia provides that notwithstanding anything contained in any law relating to
the winding-up of companies, but subject to section 13A(3) of the Banking Act, debts due to the Reserve Bank of Australia by any ADI shall, in awinding-up, have priority over all other debts.
This description of the liabilities which are mandatorily preferred by law is not exhaustive.
These provisions affect all of the unsecured liabilities of the NZ Branch, which as at 30 September 2020, amounted to NZ$1,076m (2019: NZ$1,112m).
Requirement to maintain sufficient assets to cover ongoing obligation to pay deposit liabilities
Section 13A(4) of the Banking Act states that it is an offence for an ADI not to hold assets (excluding goodwill and any assets or other amountexcluded by the prudential standards for the purposes of that subsection) in Australia of a value that is equal to or greater than the total amount of its
deposit liabilities in Australia, unless APRA has authorised the ADI to hold assets of a lesser value. This requirement has the potential to impact on the
management of the liquidity of the NZ Branch.
APRA’s powers
The Ultimate Parent Bank is subject to extensive prudential regulation by APRA.
The Banking Act requires APRA to exercise its powers and functions for the protection of the depositors of Australian ADIs and for the promotion offinancial system stability in Australia.
Where APRA considers that an ADI may become unable to meet its obligations or suspends payment (among other circumstances), APRA can takecontrol of the ADI's business (including by appointment of an ADI statutory manager). APRA also has power to direct the ADI not to make payments in
respect of its indebtedness and to compulsorily transfer some or all of the ADI’s assets and liabilities to another ADI in certain circumstances and toincrease its capital in specified circumstances. A counterparty to a contract with an ADI cannot rely solely on the fact that an ADI statutory manager isin control of the ADI's business or on the making of a direction or compulsory transfer order as a basis for denying any obligations to the ADI or for
accelerating any debt under that contract or closing out any transaction relating to that contract.
On 5 March 2018, the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 (the Crisis Management Act)came into effect. The Crisis Management Act amended the Banking Act (among other statutes applicable to financial institutions in Australia) and wasintended to enhance APRA’s powers. Specifically, the Crisis Management Act enhanced APRA’s powers to facilitate resolution of the entities it
regulates (and their subsidiaries) in times of distress. Additional powers which could impact the Overseas Banking Group include greater oversight,
management and directions powers in relation to the Ultimate Parent Bank and other Overseas Banking Group entities which were previously not
regulated by APRA, increased statutory management powers over regulated entities within the Overseas Banking Group and changes which aredesigned to give statutory recognition to the conversion or write-off of regulatory capital instruments.
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 ANZ
New Zealand.

73

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B1. GENERAL DISCLOSURES (UNAUDITED) (continued)
Restrictions on the Ultimate Parent Bank’s ability to provide financial support
Effect of APRA’s Prudential Standards
APRA Prudential Standard APS 222 Associations with Related Entities (APS222) sets minimum requirements for 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 APS222, 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 August 2019, APRA announced that it will amend APS222 to reduce the limits for Australian ADIs’ individual entity exposure to related ADIs (oroverseas 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 to75% of Level 1 Tier 1 capital. As exposures are measured net of capital deductions, the proposed changes to APRA’s capital regulations (contained in
APS111 – as defined below) will affect the measurement of ADI exposures. The implementation date for these changes has been deferred by APRA to
1 January 2022 (12 month deferral from initial implementation date of 1 January 2021).
In October 2019, APRA released a discussion paper on draft revisions to the prudential standard APS111 Capital Adequacy: Measurement of Capital(APS111) for consultation. The most material change arising from APRA's proposal is in relation to the treatment of capital investments for eachbanking and insurance 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.
In November 2020, APRA further announced, that until the new APS111 is finalised and implemented, APRA will require 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 theinvestment 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, the final form of theprudential standard, as well as the effect of management 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 2020 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
2.5 billion (~70 basis points). There would be no impact on the Overseas Banking Group's Level 2 CET1 capital ratio arising from these proposedchanges. The proposed implementation date of 1 January 2021 for these changes is currently under review by APRA and is expected to be delayed to
1 January 2022. In addition, APRA has confirmed that by 1 January 2021, no more than 5% of the Ultimate Parent Bank’s Level 1 Tier 1 capital base cancomprise non-equity exposures to its New Zealand operations (including its subsidiaries incorporated in New Zealand, such as the Banking Group andthe New Zealand Branch) during ordinary times. This limit does not include holdings of capital 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.
Other APRA powers
The Ultimate Parent Bank may not provide financial support in breach of the Banking Act, as described under ‘APRA’s powers’ above.
Guarantees
No material obligations of the NZ Branch are guaranteed as at 17 November 2020.

74

REGISTERED BANK DISCLOSURES

B1. GENERAL DISCLOSURES (UNAUDITED) (continued)
Directors, New Zealand Chief Executive Officer and Responsible Person
Any document or communication may be sent to any Director or the Chief Executive Officer – NZ Branch at the Registered Office. The document orcommunication should be marked for the attention of that Director or the Chief Executive Officer – NZ Branch as applicable.

Paul O’Sullivan

Shayne Elliott

Ilana Atlas, AO

Position

Chairman and Director

Chief Executive Officer and Director

Director

Occupation

Company Director

Chief Executive Officer – Australia and
New Zealand Banking Group

Company Director

Qualifications

BA (Mod) Economics, Advanced
Management Program of Harvard

BCom

BJuris (Hons), LLB (Hons), LLM

Resides

Sydney, Australia

Melbourne, Australia

Sydney, Australia

Executive

No

Yes

No

Independent

Yes

No

Yes

Financial Markets Foundation forChildrenCoca-Cola Amatil Ltd

Paula Dwyer

Jane Halton, AO PSM

Rt Hon Sir John Key, GNZM AC

Position

Director

Director

Director

Occupation

Company Director

Company Director

Company Director

Qualifications

BCom, FCA, SF Fin, FAICD

BA (Hons) Psychology, FIPAA,
Hon. FAAHMS, Hon. FACHSE, Hon. DLitt,
FAIM, FAICD

BCom, DCom (Honoris Causa)

Resides

Melbourne, Australia

Canberra, Australia

Auckland, New ZealandExecutive

No

No

No

Independent

Yes

Yes

Yes

Vault Systems, Clayton Utz,
Crown Resorts Ltd

Dairy Investment Fund Ltd,
Kyro Capital Ltd, Palo Alto Networks Inc,
Sashimi Holdings Ltd, Thirty Eight JK Ltd

Other company Coca-Cola Amatil Ltd, St Vincent’s Health
Australia, Singtel Optus Pty Ltd,
directorships
Western Sydney Airport Corporation,
Telkomsel Indonesia

Other company Allianz Australia Ltd, Tabcorp Holdings
Ltd, Lion Pty Ltd
directorships

75

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B1. GENERAL DISCLOSURES (UNAUDITED) (continued)

Graeme Liebelt

John Macfarlane

Position

Director

Director

Occupation

Company Director

Company Director

Qualifications

BEc (Hons), FAICD, FTSE, FIML

BCom, MCom (Hons)

Resides

Melbourne, Australia

Melbourne, Australia

Executive

No

No

Independent

Yes

Yes

Other company
directorships

Amcor Ltd, Australian Foundation
Investment Company Ltd

Colmac Group Pty Ltd, AGInvest
Holdings Ltd (MyFarm), Aikenhead
Centre for Medical Discovery Ltd,
Collins Farms Ltd, Collins Farms No 2
Ltd, Dumbarton Land Company Ltd,
Melior Genetics Ltd, Melior Venison Ltd,The Boundary Ltd, Balmoral Pastoral
Investments Pty Ltd, L1 Long Short
Fund

Penny Dell

Antonia Watson

Position

Chief Executive Officer – NZ Branch

Responsible Person1

Occupation

Chief Executive Officer, Australia and
New Zealand Banking Group – New
Zealand Branch

Chief Executive Officer New Zealand

Qualifications

BCA

BCom (Hons), GAICD

Resides

Wellington, New Zealand

Auckland, New Zealand

Other company None
directorships
1

Not applicable

Authorised in writing by the Directors to sign the Disclosure Statement in accordance with section 82 of the Reserve Bank Act 1989.

Transactions with Directors
There are no transactions entered into by any Director, the Chief Executive Officer – NZ Branch, or any immediate relative or close business associateof any Director or the Chief Executive Officer – NZ Branch, with any part of ANZ New Zealand which has been either entered into on terms other thanthose which would in the ordinary course of business be given to any other person of like circumstances or means or which could otherwise bereasonably likely to influence materially the exercise of the Directors' or Chief Executive Officer – NZ Branch duties in respect of the NZ Branch and
ANZ New Zealand.
Board Audit Committee
There is a board Audit Committee which covers audit matters. The committee has five members. Each member is a non-executive independent
Director.

76

REGISTERED BANK DISCLOSURES

B1. GENERAL DISCLOSURES (UNAUDITED) (continued)
Policy of the board of directors for avoiding or dealing with conflicts of interest
The Board of the Ultimate Parent Bank has adopted procedures to ensure that conflicts and potential conflicts of interest between a Director’s duties
to the Ultimate Parent Bank and their own interests are avoided or dealt with. Pursuant to these procedures:• each Director should disclose to all Directors any material personal interest they have in any matter which relates to the affairs of the Ultimate
Parent Bank and any other interest which the Director believes is appropriate to disclose in order to avoid an actual conflict of interest or theperception of a conflict of interest. This disclosure should be made as soon as practicable after the Director becomes aware of their interest or
the need to make a disclosure.
• any Director who has an interest of the type referred to above in a matter that is to be considered at a Directors' meeting, must not vote on thematter nor be present while the matter is considered at the meeting, unless a majority of Directors who do not have such an interest in thematter agree that the interest should not disqualify such Director from being present while the matter is being considered and from voting on
the matter. The minutes of the meeting should record the decision taken by the Directors who do not have an interest in the matter.
In addition, Standing Notices about Interests are maintained for each Director. If the Director's interests change, the Director shall disclose the change
as soon as practicable and an updated Standing Notice shall be tabled at the next Board meeting and recorded in the minutes of that meeting.
Auditors
KPMG, 18 Viaduct Harbour Avenue, Auckland, New Zealand.
Conditions of registration
The following conditions of registration were applicable as at 30 September 2020, and have applied from 1 November 2015.
The registration of Australia and New Zealand Banking Group Limited (the registered bank) in New Zealand is subject to the following conditions:1.

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.

2.

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; andb)

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; andb)

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.
3.

That the business of the registered bank in New Zealand does not constitute a predominant proportion of the total business of the registered bank.

4.

That no appointment to the position of the New Zealand chief executive officer of the registered bank shall be made unless:a)the Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee; andb)

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

5.

That Australia and New Zealand Banking Group Limited complies with the requirements imposed on it by the Australian Prudential Regulation Authority.

6.

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

7.

b)

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

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

That the business of the registered bank in New Zealand is restricted to:a)8.

Common Equity Tier 1 capital of Australia and New Zealand Banking Group Limited is not less than 4.5 percent of risk weighted exposures;acquiring for fair value, and holding, mortgages originated by ANZ Bank New Zealand Limited; andb)

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

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

77

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B1. GENERAL DISCLOSURES (UNAUDITED) (continued)
9.

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

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

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

Pending proceedings or arbitration
A description of any pending legal proceedings or arbitration concerning any member of ANZ New Zealand that may have a material adverse effecton the NZ Branch or ANZ New Zealand is included in Note 28 Commitments and Contingent Liabilities.
Credit rating
As at 17 November 2020 the Ultimate Parent Bank has three credit ratings, which are applicable to its long-term senior unsecured obligations which
are payable in New Zealand in New Zealand dollars. On 9 July 2019, S&P Global Ratings changed the Ultimate Parent Bank’s outlook from Negative to
Stable. On 17 July 2019, Fitch Ratings changed the Ultimate Parent Bank’s outlook from Stable to Negative. On 7 April 2020, Fitch Ratings changed therating on the Ultimate Parent Bank from AA- to A+ and S&P Global Ratings changed the outlook on the Ultimate Parent Bank from Stable to Negative.
The Ultimate Parent Bank’s credit ratings are:Rating agency
S&P Global Ratings
Fitch Ratings
Moody’s Investors Service

Credit rating
AAA+
Aa3

Qualification
Outlook Negative
Outlook Negative
Outlook Stable

The following table describes the credit rating grades available:
S&P Global
Ratings

Moody's
Investors
Service

Fitch Ratings

Ability to repay principal and interest is extremely strong. This is the highest investment category.

AAA

Aaa

AAA

Very strong ability to repay principal and interest.

AA

Aa

AA

Strong ability to repay principal and interest although somewhat susceptible to adverse changes in economic, businessor financial conditions.

A

A

A

Adequate ability to repay principal and interest. More vulnerable to adverse changes.

BBB

Baa

BBB

Significant uncertainties exist which could affect the payment of principal and interest on a timely basis.

BB

Ba

BB

Greater vulnerability and therefore greater likelihood of default.

B

B

B

Likelihood of default now considered high. Timely repayment of principal and interest is dependent on favourable
financial conditions.

CCC

Caa

CCC

Highest risk of default.

CC to CCa to CCC to CD-

RD & DThe following grades display investment grade characteristics:

The following grades have predominantly speculative characteristics:

Obligations currently in default.

Credit ratings from S&P Global Ratings and Fitch Ratings may be modified by the addition of "+" or "-" to show the relative standing within the “AA” to “B” categories. Moody's Investors Service
applies numerical modifiers 1, 2, and 3 to each of the “Aa” to “Caa” classifications, with 1 indicating the higher end and 3 the lower end of the rating category.

Financial statements of the Ultimate Parent Bank and Overseas Banking Group
Copies of the most recent publicly available financial statements of the Ultimate Parent Bank and Overseas Banking Group will be provided
immediately, free of charge, to any person requesting a copy where request is made at the Registered Office. The most recent publicly available
financial statements for the Ultimate Parent Bank and Overseas Banking Group can also be accessed at the website shareholder.anz.com.

78

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

2020
NZ$m
5,580
(2,349)
3,231
789
4,020
(1,754)
(401)
1,865
(529)
1,336

2019
NZ$m
6,508
(3,276)
3,232
966
4,198
(1,609)
(99)
2,490
(665)
1,825

2018
NZ$m
6,550
(3,373)
3,177
1,143
4,320
(1,517)
(53)
2,750
(764)
1,986

2017
NZ$m
6,434
(3,356)
3,078
916
3,994
(1,469)
(60)
2,465
(685)
1,780

2016
NZ$m
6,770
(3,741)
3,029
832
3,861
(1,600)
(147)
2,114
(572)
1,542

2020
NZ$m
180,087363
1,173
166,077
14,0102019
NZ$m
170,492
287
739
157,893
12,5992018
NZ$m
161,416323
n/a
150,180
11,2362017
NZ$m
158,185361
n/a
146,872
11,313

2016
NZ$m
166,706433
n/a
155,539
11,167-(375)-(4,600)
(450)
3,000

(1,635)-(1,320)-

Balance sheet
As at 30 September
Total assets
Total individually impaired assets
Total impaired assets (i.e. Stage 3)
Total liabilities
Equity & head office account
Other items included in Equity & head office account
Dividends paid
NZ Branch retained earnings repatriatedShare capital issued

The amounts included in this summary have been taken from the audited financial statements of ANZ New Zealand.
Other material matters
RBNZ review of capital requirements
Between May 2017 and December 2019, the RBNZ conducted a comprehensive review of the capital adequacy framework applying to New Zealand
locally incorporated registered banks. The RBNZ's final decisions on the capital review as they relate to the Bank are set out below. In response to the
COVID-19 pandemic, the RBNZ has delayed the start date for the increased capital requirements to support credit availability, with further delays
possible if the conditions warrant it. The new regime is expected to be implemented in stages from 1 July 2021.
• 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 2020, the Bank had approximately
NZ$2,741 million of AT1 instruments that will progressively lose eligible regulatory capital treatment over a seven year transition period from 1
July 2021 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 1 January 2022.
The RBNZ’s reforms will result in a material increase in the level of capital that the Banking Group is required to hold, although the amount of theincrease is currently uncertain. The reforms could have a material impact on the Banking Group and its business, including on its capital allocation andbusiness planning.
The Banking Group has started preparing for the changes. Since 30 September 2018, CET1 capital has increased by NZ$2.9 billion to NZ$11.9 billion at
30 September 2020 and total capital has increased by NZ$2.8 billion to NZ$14.7 billion.

79

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B2. ADDITIONAL FINANCIAL DISCLOSURES
Additional information on the balance sheet
2020
NZ$m
165,618
138,360
1,076

Total interest earning and discount bearing assets
Total interest and discount bearing liabilities
Total liabilities of the NZ Branch less amounts due to related entities

2019
NZ$m
154,382
132,524
1,112

Additional information on interest rate sensitivity
The following table represents the interest rate sensitivity of ANZ New Zealand'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.

2020
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

8,248
378
1,394
12,797
9,756
9,893
132,984547
175,997

7,973
1,394
2,957
801
59,41072,535663
213
11,216
12,092949
363
39,08040,392394
734
20,616
21,744

7,834
7,781
3,240
18,855

275
378
9,756
1
(578)
547
10,3792,908
1,275
127,997
8,166
23,827298
558
165,029
10,9681,689
1,275
79,8932,544
12
158
85,571
11,584(1,452)

14,4203,172
1217,604(16,995)(22,507)

10,9312,409
21
13,361(16,304)
10,727

2,955
3,566
85
6,606
14,88330,021

2,914
12,136
168
15,218
6,832
10,4691,219
16,884
8,166
400
26,669(16,290)

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

Overseas Banking Group Profitability and Size
2020
3,578
0.34%
1,042,286
6.23%

Net Profit for the year ended 30 September 2020 (AUDm)1
Net profit after tax for the year ended 30 September 2020 as a percentage of average total assets
Total assets (AUDm)
Percentage change in total assets in the 12 months to 30 September 2020
1

Net profit after tax for the year includes AUD 1 million of profit attributable to non-controlling interests.

Reconciliation of mortgage related amounts
As at 30 September 2020
Term loans - housing1
Less: fair value hedging adjustment
Less: housing loans made to corporate customers
On-balance sheet residential mortgage exposures (per LVR analysis)
Add: off-balance sheet residential mortgage exposures (per LVR analysis)
Total residential mortgage exposures (per LVR analysis)
1

80Term loans – housing includes loans secured over residential property for owner-occupier, residential property investment and business purposes.

Note
11

B4
B4
B4

NZ$m
89,544(10)(1,798)87,736
8,866
96,602

REGISTERED BANK DISCLOSURES

B3. ASSET QUALITY
Movements in components of loss allowance – total
Stage 3
Collectively IndividuallyStage 2
assessedassessed
NZ$m
NZ$m
NZ$m
194
43
98
(30)
4
1
206
34
157
(35)
(23)
176
38
100
(92)
23
(8)
(23)
(1)
(14)
347
80
107

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 (refer to Note 26 Divestments)
As at 30 September 2020

Stage 1
NZ$m
164
25
(3)
22
(25)
161

Total
NZ$m
499
394
(35)
(23)
336
(92)
23
(8)
(63)
695

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 (refer to Note 26 Divestments)
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 (refer to Note 26 Divestments)
As at 30 September 2020
Loss allowance as at 30 September 2020

123,979
12
34,28734,299(5,154)(29,875)(35,029)(2,878)120,371
161

9,045
4,505
1,377
5,882
(45)
(2,594)(2,639)(447)
11,841
347

452
472
120
592
(1)
(230)
(231)
(3)
810
80

287
211
191
402
(213)
(213)
(92)
(21)
363
107

133,763
5,200
35,975
41,175(5,200)(32,912)(38,112)(92)(3,349)133,385695

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 (refer to Note 26 Divestments)
As at 30 September 2020
Loss allowance as at 30 September 2020

28,241
3
9,272
9,275
(398)
(7,489)(7,887)(378)
29,251
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

29,100404
9,913
10,317(404)(7,704)(8,108)(543)
30,766
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 0.5% of gross balances as at 30 September 2020, up from 0.4% as at 30 September 2019. The NZ$258 million (43.3%)
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 as described in Note 12 to the financial statements.

81

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTREGISTERED 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
171
41
132
(40)
4
7
63
(2)
123
(49)
(23)
23
2
58
(106)
23
(9)
194
43
98

Net loans and advances - total
As at 1 October 2018
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 2019

Stage 1
NZ$m
160
29
(25)
4
164

Total
NZ$m
504
159
(49)
(23)
87
(106)
23
(9)
499

Off-balance sheet credit related commitments - total
As at 1 October 2018
Transfer between stages
New and increased provisions (net of collective provision releases)
Credit impairment charge
As at 30 September 2019

60
5
(5)
60

23
(5)
6
1
24

2
2

11
11
11

85
12
12
97

Gross loans and advances - total
As at 1 October 2018
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 2019
Loss allowance as at 30 September 2019

120,971
21,143
21,143(2,376)(15,759)(18,135)
123,979
164

7,550
1,981
689
2,670
(1,175)(1,175)
9,045
194

349
208
35
243
(140)
(140)
452
43

323
203
105
308
(16)
(222)
(238)
(106)
287
98

129,193
2,392
21,972
24,364(2,392)(17,296)(19,688)(106)
133,763499

Off-balance sheet credit related commitments - total
As at 1 October 2018
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 2019
Loss allowance as at 30 September 2019

28,632
38
3,896
3,934
(31)
(4,294)(4,325)28,241
60

1,198
29
78
107
(45)
(423)
(468)
837
24

11
4
1
5
(13)
(13)
3
2

14
14
14
(9)
(9)
19
11

29,855
85
3,975
4,060
(85)
(4,730)(4,815)
29,10097

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 on gross loans and advances have remained stable at approximately 0.4% of gross loans and advances. Loss allowances haveincreased by NZ$7 million (1%) driven by an increase in the proportion of gross loans and advances in Stage 2 and Stage 3, offset by a net decrease inStage 3 individually assessed exposures as a result of amounts written-off.

82

REGISTERED BANK DISCLOSURES

B3. ASSET QUALITY (continued)
Past due assets

Less than 30 days past due
At least 30 days but less than 60 days past due
At least 60 days but less than 90 days past due
At least 90 days past due
Total past due but not individually impaired

2020
NZ$m
952
206
132
525
1,815

2019
NZ$m
1,102
261
196
334
1,893

2020
NZ$m
41
4

2019
NZ$m
19
7

Other asset quality information

Undrawn facilities with individually impaired customers
Other assets under administration
Asset quality for financial assets designated at fair value
ANZ New Zealand does not have any loans and advances designated at fair value through profit or loss.
Overseas Banking Group asset quality
As at 30 September 2020
Gross impaired assets (AUDm)
Gross impaired assets as a percentage of total assets
Individual provision (AUDm)
Individual provision as a percentage of gross impaired assets
Collective provision (AUDm)

2,459
0.2%
891
36.2%
5,008

83

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B4. CREDIT AND MARKET RISK EXPOSURES AND CAPITAL ADEQUACY (UNAUDITED)APRA Basel III capital ratios

Common equity tier 1 capital
Tier 1 capital
Total capital

Ultimate Parent Bank
Overseas Banking Group (Extended Licensed Entity)
2020
2019
2020
2019
11.4%
11.4%
11.3%
11.2%
13.2%
13.4%
13.2%
13.2%
16.4%
15.3%
16.7%
15.7%

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. There are however small portfolios(mainly retail and local corporates in Pacific, and local corporates in Asia) where the Overseas Banking Group applies the standardised approach.
• the AMA for the operational risk weighted asset equivalent.
The Overseas Banking Group exceeded the minimum capital requirements set by APRA as at 30 September 2020 and for the comparative priorperiods.
The Overseas Banking Group is required to publicly disclose Pillar 3 financial information as at 30 September 2020. The Overseas Banking Group’s Pillar
3 disclosure document for the quarter ended 30 September 2020, in accordance with APS 330: Public Disclosure of Prudential Information, discloses
capital adequacy ratios and other prudential information. This document can be accessed at the website anz.com.
Market risk
ANZ New Zealand’s aggregate market risk exposures below have been calculated in accordance with the RBNZ document BS2A. The peak end-of-day
market risk exposures are for the six months ended 30 September 2020.

As at 30 September 2020
Interest rate risk
Foreign currency risk
Equity risk

Implied risk weighted
exposure
Period end
Peak
NZ$m
NZ$m
9,163
9,461
12
138
1
1

Notional capital charge
Period end
Peak
NZ$m
NZ$m
733
757
1
11
-

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

As at 30 September 2020
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

84

On-balance Off-balance
sheet
sheet
NZ$m
NZ$m
42,98019,482
19,68682,1484,088
1,500
87,736

6,098
1,304
1,076
8,478
147
241
8,866

Total
NZ$m
49,07820,786
20,762
90,626
4,235
1,741
96,602

REGISTERED BANK DISCLOSURES

B5. INSURANCE BUSINESS, SECURITISATION, FUNDS MANAGEMENT, OTHER FIDUCIARY ACTIVITIESAND MARKETING AND DISTRIBUTION OF INSURANCE PRODUCTS
Insurance business
ANZ New Zealand does not conduct any insurance business.
Non-consolidated insurance and non-financial activities
The Ultimate Parent Bank does not carry on any insurance business or non-financial activities in New Zealand that are outside ANZ New Zealand.
ANZ New Zealand’s involvement in securitisation, funds management, other fiduciary activities, and marketing and distribution of insurance
productsa)

ANZ New Zealand’s involvement in the establishment, marketing, or sponsorship of trust, custodial, funds management, and other fiduciary activities

Activity

Details

Custodial

ANZ New Zealand operates three custodians:• 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;• ANZ New Zealand Investments Nominees Limited, which is the appointed custodian in respect of direct holdings of
securities by various wholesale customer portfolios managed by ANZ New Zealand Investments Limited (ANZ
Investments); and• ANZ New Zealand Securities Limited, which, following the sale of the ANZ Securities service to Jarden Securities Limited(Jarden) in December 2018, remains the appointed custodian for a small number of customers who have not yet
transferred to Jarden’s Direct Broking service.

Funds
management

The Banking Group provides the following funds management services:• Managed Investment Schemes (MIS): ANZ New Zealand’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 a MIS
Manager licence, with ANZIS being an authorised body under that licence. ANZ Investments is the issuer and manager of
ANZ and OneAnswer-branded KiwiSaver, retail and wholesale schemes. ANZIS is the issuer and manager of the Bonus
Bonds Scheme and the ANZ PIE Fund. ANZ National Staff Superannuation Limited, also a subsidiary of ANZ New Zealand,is the trustee and manager of the ANZ National Retirement Scheme, which is a restricted workplace savings 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 ANZ New Zealand.

b)

ANZ New Zealand’s involvement in the origination of securitised assets, and the marketing or servicing of securitisation schemes

ANZ New Zealand 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 on these programmes. Other than these activities, ANZ New
Zealand is not involved in the marketing or servicing of securitisation schemes.
c)

ANZ New Zealand’s involvement in marketing and distribution of insurance products

ANZ New Zealand 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 house, contents, car and boat 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 insurance; and• Crombie Lockwood (NZ) Limited is our business insurance broker.
The Bank stopped distributing credit card insurance during the year ended 30 September 2019, and stopped distributing travel insurance from 30
October 2020.
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 ANZ
New Zealand. 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.

85

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B5. 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 ANZ New Zealand - carrying amount of covered bonds
1
2
3
4
5

86

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.

2020
NZ$m

2019
NZ$m

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

14,781
3,276
2,494
2,131
8,062
3,401
34,145
8,373
1,401
4,460

REGISTERED BANK DISCLOSURES

B6. RISK MANAGEMENT POLICIESInformation about risk
The success of ANZ New Zealand’s strategy is underpinned by our sound management of ANZ New Zealand’s risks. All of ANZ New Zealand’s activities
involve - to varying degrees - the analysis, evaluation, acceptance and management of risks or combinations of risks.
The Board is responsible for establishing and overseeing ANZ New Zealand’s Risk Management Framework (RMF). The Board
has delegated authority to the Bank’s Board Risk Committee (BRC) to develop and monitor compliance with ANZ New
Zealand’s risk management policies. The Committee reports regularly to the Board on its activities.
The key pillars of ANZ New Zealand’s RMF include:•

the Risk Appetite Statement (RAS), which sets out the Board’s expectations regarding the degree of risk that ANZ New
Zealand is prepared to accept in pursuing its strategic objectives and its business plan; and•the Risk Management Strategy (RMS), which describes ANZ New Zealand’s strategy for managing risks and a summary of
the key elements of the RMF that give effect to that strategy. The RMS 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 ANZ New Zealand identifies, measures, evaluates, monitors, reports and then either controls
or mitigates material risks.

The material risks facing the group per ANZ New Zealand’s RMS, and how these risks are managed are summarised below.

Key Material Risks
Each key material risk has an associated RAS, and where applicable, is measured by appropriate metric(s) and associated tolerance(s) representing the
maximum level of risk appropriate to execute ANZ New Zealand’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. Strategic risk might arise
from making poor strategic business decisions, from thesub-standard execution of decisions, from inadequate
resource allocation, 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 ANZ New Zealand failing tomaintain the level of capital required by prudential
regulators and other key stakeholders (shareholders, debt
investors, depositors, rating agencies, etc.) to support ANZ
New Zealand’s consolidated operations and risk appetite.

We pursue an active approach to Capital Management throughongoing review, and Board approval, of the level and composition of
our capital base against key policy objectives.

CreditRisk

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 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 - for example: transaction
structuring, risk grading, initial approval, ongoing management andproblem debt management, as well as specialist policy topics.

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.
MarketRisk

The risk to ANZ New Zealand’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.

Our risk management and control framework for Market Risk involves
us quantifying the magnitude of market risk within the trading andbalance sheet portfolios through independent risk measurement.
This identifies the range of possible outcomes, the likely timeframe,
and the likelihood of the outcome occurring. Then we allocate an
appropriate amount of capital to support these activities.
ANZ New Zealand’s key tools to measure and manage Market Risk ona daily basis include value at risk, earnings at risk, interest ratesensitivities, market value loss limits and stress testing.

87

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B6. RISK MANAGEMENT POLICIES (continued)
Risk Type

Description

Managing the 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:• maintaining our ability to meet liquidity ‘survival horizons’
under a range of stress scenarios to meet cash flow obligations
over a short to medium term horizon;• maintaining a strong structural funding profile; and• maintaining a portfolio of high-quality liquid assets to act as asource of liquidity in times of stress.

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.

We operate a three-lines-of-defence model to manage Operational
Risk, with each line of defence having defined roles, responsibilities
and escalation paths to support effective communication andeffective management of our operational risk. We also haveongoing review mechanisms to ensure Operational Risk andCompliance Framework continues to meet organisational needs
and regulatory requirements.

Compliance Risk
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 ANZ New Zealand’s businesses.

Conduct and Reputation Risk
The risk of loss that directly or indirectly impacts earnings,
capital adequacy or value, that is caused by:• adverse perceptions of ANZ New Zealand held by anyof our customers, the community, shareholders,investors, regulators, or rating agencies;• conduct risk associated with ANZ New Zealand’s
employees or contractors (or both); or the social orenvironmental (or both) impacts of our lending
decisions.

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
identifying changes in regulations and the businessenvironment, so as to enable us to proactively assess emerging
compliance risks and implement robust reporting andcertification processes.
• recognition of incident management as a separate element toenhance ANZ New Zealand’s ability to identify, manage andreport on incidents/breaches in a timely manner.
• the Whistleblower Protection Policy allowing employees andcontractors to make confidential, anonymous submissions
regarding concerns relating to accounting, internal control,
compliance, audit and other matters.
We manage Conduct and Reputation Risk by maintaining a
positive and dynamic culture that:• ensures we act with integrity; and• enables us to build strong and trusted relationships withcustomers and clients, with colleagues, and with the broader
society.
We have well established decision-making frameworks and policies
to ensure our business decisions are guided by sound social andenvironmental standards that take into account Conduct and
Reputation Risk.

Refer to Note 15 Financial Risk Management for the disclosures required under NZ IFRS 7 Financial Instruments: Disclosures.

Other Material Risks
Risks where the maximum level of risk is set as part of ANZ New Zealand’s ICAAP. These 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 ANZ New Zealand’s business, strategic and capital management
process. For more information about ANZ New Zealand’s ICAAP refer to Note 22 Capital Management.
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 equity investments not held in the trading book.

Fixed Asset
Risk

The risk of financial loss arising from the negative revaluation of fixed assets owned and leased, caused by adverse changes inbusiness and/or economic conditions. Residual Value Risk is included in the definition of Fixed Assets, which is the risk that themarket value of the underlying assets of operating leases may fall below the anticipated residual value.

Deferred
Acquisition
Risk

The risk of loss arising from the failure of the benefits associated with the acquisition of interest earnings 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.

88

REGISTERED BANK DISCLOSURES

B6. RISK MANAGEMENT POLICIES (continued)
Reviews of ANZ New Zealand’s risk management systems
Refer to Note 15 Financial Risk Management for details of the Internal Audit Functions reviews of ANZ New Zealand’s RMF. These reviews are notconducted by a party external to ANZ New Zealand, the Overseas Banking Group, or the Ultimate Parent Bank.
Internal Audit Function of ANZ New Zealand
ANZ New Zealand has an Internal Audit Function, refer to Note 15 Financial Risk Management for details.
The nature and scope of the responsibilities of the Bank’s Audit Committee responsibilities, to which Internal Audit reports, are to assist the Bank’s
Board of Directors by providing oversight and review of:• ANZ New Zealand's financial reporting principles and policies, controls, systems and procedures;• the effectiveness of ANZ New Zealand’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 Bank’s Audit Committee;• the integrity of ANZ New Zealand's financial statements and the independent audit thereof, and ANZ New Zealand’s compliance with legal andregulatory 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 Bank’s Board.
The Bank’s 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 Bank’s Audit Committee will aim to seek fair customer outcomes and financial market integrity in its
deliberations.
Access to parental disclosures
Disclosures made by the Ultimate Parent Bank in relation to capital adequacy requirements and risk management processes implemented by the
Ultimate Parent Bank are included in the Ultimate Parent Bank’s Annual Report and APS 330 Basel III Pillar 3 Capital Disclosures documents which canbe accessed at the website shareholder.anz.com.

89

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTDIRECTORS' AND NEW ZEALAND CHIEF EXECUTIVE OFFICER'S STATEMENT
As at the date on which this Disclosure Statement is signed, after due enquiry, each Director of the Ultimate Parent Bank and the Chief Executive
Officer – NZ Branch believes that:•

The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statements (Overseas Incorporated
Registered Banks) Order 2014; and•The Disclosure Statement is not false or misleading.

Over the year ended 30 September 2020, after due enquiry, each Director of the Ultimate Parent Bank and the Chief Executive Officer – NZ Branchbelieves that:•

The Ultimate Parent Bank has complied with all Conditions of Registration that applied during that period; and•The NZ Branch and the Bank had systems in place to monitor and control adequately the material risks of Relevant Members of ANZ New
Zealand including credit risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk and other business risks, and thatthose systems were being properly applied.

Signed by the Chief Executive Officer – NZ Branch

Penny Dell
Chief Executive Officer – NZ Branch
17 November 2020
Signed on behalf of all the Directors of the Ultimate Parent Bank

Antonia Watson
Responsible Person
17 November 2020
on behalf of the Directors of the Ultimate Parent Bank:
Ilana Atlas, AO
Paula Dwyer
Shayne ElliottJane Halton, AO PSM
Rt Hon Sir John Key, GNZM AC
Graeme Liebelt
John Macfarlane
Paul O’Sullivan

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INDEPENDENT AUDITOR’S REPORTTO THE DIRECTORS OF AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDREPORT ON THE ANZ NEW ZEALAND DISCLOSURE STATEMENTOPINION
We have audited the accompanying consolidated financial statements and registered bank disclosures of Australia and New Zealand Banking
Group Limited - ANZ Bank New Zealand and its related entities (ANZ New Zealand) in section B2, B3, B5 and B6 which comprise:••••the consolidated balance sheet as at 30 September 2020;
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, 11 and 13 of the Registered Bank Disclosure Statements(Overseas Incorporated Registered Banks) Order 2014 (as amended) (the Order).

In our opinion, the accompanying consolidated financial statements on pages 4 to 70:••

give a true and fair view of ANZ New Zealand’s financial position as at 30 September 2020 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, 11 and 13 of the Order and areincluded in section, B2, B3, B5, B6 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 ANZ New Zealand in all material respects; andfairly state 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 ANZ New Zealand, 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) (ISA’s (NZ)). We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of ANZ New Zealand 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 and B6 section of our report.
Our firm has also provided other services to ANZ New Zealand in relation to review of regulatory returns, internal controls reports, prospectus
assurance or reviews and agreed upon procedures engagements. Subject to certain restrictions, partners and employees of our firm may also deal
with ANZ New Zealand on normal terms within the ordinary course of trading activities of the business of ANZ New Zealand. These matters have not
impaired our independence as auditor of ANZ New Zealand. The firm has no other relationship with, or interest in, ANZ New Zealand.

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AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTINDEPENDENT AUDITOR’S REPORTKEY 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 the
Directors as a body may better understand the process by which we arrived at our audit opinion. Our procedures were undertaken in the context ofand 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 has created significant additional risks across a number of areas of the business, particularly the assessment of the provision
for credit impairment. All forward looking assumptions are inherently more uncertain during these unprecedented times. While the key audit matter“Allowance for Expected Credit Loss”, detailed below, is unchanged from last year, the underlying audit risk has increased which impacted the extent
and nature of audit evidence that we had to gather.
ALLOWANCE FOR EXPECTED CREDIT LOSSESThe 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 ANZ New Zealand’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 environment have greater uncertainties.
NZ IFRS 9 requires ANZ New Zealand to measure ECLs on a forward-looking basis reflecting a range of future economic conditions, including forwardlooking assumptions, of which GDP and unemployment levels are considered key assumptions. Post-model adjustments to the ECL results are also
made by ANZ New Zealand to address known ECL model limitations or emerging trends in the loan portfolios. We exercise significant judgement inchallenging both the economic scenarios used and the judgemental overlays that ANZ New Zealand applies to the ECL results.
ANZ New Zealand’s criteria selected to identify a SICR, such as a decrease in customer credit rating (CCR), are key areas of judgement within ANZ New
Zealand’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 ANZ New Zealand in calculating the ECL, and the associated audit risk.
Additionally, allowances for individually assessed wholesale loans exceeding specific thresholds are individually assessed by ANZ New Zealand. We
exercise significant judgement in challenging the assessment of specific allowances based on the expected future cash repayments and estimatedproceeds from the value of the collateral held by ANZ New Zealand 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 ANZ New Zealand’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:
•
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•

ANZ New Zealand’s ECL model governance and validation processes which involved assessment of model performance;
ANZ New Zealand’s assessment and approval of the forward looking macroeconomic assumptions and scenario weightings through challenge
applied by ANZ New Zealand’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 ANZ New Zealand’s lending policies, and controls over the monitoring of counterparty credit quality; and
ANZ New Zealand’s oversight of the portfolios, with a focus on controls over delinquency monitoring.

We also tested relevant General Information Technology Controls (GITCs) over the key IT applications used by ANZ New Zealand in measuring ECL
allowances, as detailed in the IT systems and Controls key audit matter below.
In addition to controls testing, our procedures included:
•

•
•
•
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Re-performing credit assessments of a sample of wholesale loans controlled by ANZ New Zealand’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 ANZ New Zealand 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 ANZ New Zealand’s CCR and Security Indicator (SI), assessment of loan recoverability,
valuation of security and the impact on the credit allowance. To do this, we reviewed the information on ANZ New Zealand’s loan file,understood the facts and circumstances of the case with the relationship manager, and performed our own assessment of recoverability.
Exercising our judgement, our procedures included using our understanding of relevant industries and the macroeconomic environment, andcomparing data and assumptions used by ANZ New Zealand in recoverability assessments to externally sourced evidence, such as commodity
prices and external property sale information;
Obtaining an understanding of ANZ New Zealand’s processes to determine ECL allowances, evaluating ANZ New Zealand’s ECL model
methodologies against established market practices and criteria in the accounting standards;
Working with KPMG Financial Risk Management specialists, we assessed the accuracy of ANZ New Zealand’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 ANZ New Zealand;
Working with our KPMG Economic specialists, we challenged ANZ New Zealand’s forward-looking macroeconomic assumptions and scenarios

INDEPENDENT AUDITOR’S REPORT••

incorporated in ANZ New Zealand’s ECL models. We compared ANZ New Zealand’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 implementation of ANZ New Zealand’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 ANZ New Zealand’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 ANZ New Zealand’s post-model adjustments to the ECL allowance balance. This included:••••

Assessing the requirement for other additional allowances considering ANZ New Zealand’s ECL model and data deficiencies identified by ANZ
New Zealand’s ECL model validation processes, particularly in light of the extreme volatility in economic scenarios caused by the current COVID19 pandemic and government 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 ANZ New Zealand’s loan portfolios;
Assessing the impacts on the modelled ECL and the requirement for out of model adjustments to account for the portion of customers on loandeferral packages that are not aged. We also assessed assumptions used to determine 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 ANZ
New Zealand’s assessment.

We assessed the appropriateness of ANZ New Zealand’s disclosures in the consolidated financial statements using our understanding obtained fromour testing and against the requirements of NZ IFRS.
VALUATION OF FINANCIAL INSTRUMENTS
The key audit matter
The fair value of ANZ New Zealand’s financial instruments is determined by ANZ New Zealand 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 42% of ANZ New Zealand’s financial assets carried at fair value and 98% of ANZ New Zealand’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:
•
•
•
•
•

Testing ANZ New Zealand’s data validation controls. Controls in relation to Independent Price Verification (IPV), including completeness of
portfolios and valuation inputs subject to IPVControls 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 (P&L) 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 ANZ New
Zealand where our revaluations significantly differed from ANZ New Zealand’s.
We assessed ANZ New Zealand’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, ANZ New Zealand’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 ANZ New Zealand’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 could
significantly differ depending on the effective operation of ANZ New Zealand’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 ANZ New Zealand policy
design, review and awareness;
Design and operating effectiveness testing of controls across the User Access Management Lifecycle, including how users are on-boarded,
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AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTINDEPENDENT AUDITOR’S REPORT

•
•
•
•

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 ANZ New Zealand;
Design and operating effectiveness testing of controls used by ANZ New Zealand’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 REMEDIATIONThe key audit matter
ANZ New Zealand 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 ANZ New Zealand’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:
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Obtaining an understanding of ANZ New Zealand’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 ANZ New Zealand 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 ANZ New Zealand and checking these exposuresagainst 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.

COMPLETENESS AND ACCURACY OF RELATED PARTY DISCLOSURESThe key audit matter
ANZ New Zealand has increased its focus on related party disclosures. We also reassessed the risk of completeness and accuracy of related party
disclosures. We consider the increased risk to primarily arise from transactions with key management personnel and their related parties.
How the matter was addressed in our audit
Our audit procedures for related party disclosures included:
•
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Challenging ANZ New Zealand’s definition of related parties and related party transactions;
Testing the key control over ANZ New Zealand’s process for identifying key management personnel, their related parties and their transactions
and balances;
Sample testing the related parties identified, by searching the Directors’ Interests Register and public records to identify companies controlled
by key management personnel or their close family members;
Agreeing a sample of key management personnel compensation, transactions and balances identified by ANZ New Zealand to approval
documents and source systems;
Sample testing ANZ New Zealand’s core bank system to identify undisclosed balances with key management personnel and their relatedparties; andEvaluating ANZ New Zealand’s assertion that key management personnel transactions are on normal commercial terms by testing a sample oftransactions and comparing the terms offered to those offered to other employees or customers.

INDEPENDENT AUDITOR’S REPORTCARRYING VALUE OF GOODWILL
The key audit matter
Carrying value of goodwill is a key audit matter as:
The wide ranging impact of COVID-19 has increased the potential for impairment and our audit effort in this area. Significant judgement was required
by ANZ New Zealand as a result of the current COVID-19 environment and the Reserve Bank of New Zealand’s increased capital requirements over theperiod 1 July 2021 to 1 July 2028. COVID-19 has caused significant estimation uncertainty and as a result there is increased judgement in forecasting
cash flows and assumptions used in the goodwill impairment assessment.
These conditions and the uncertainty of their continuation increase the risk of inaccurate forecasts or a significantly wider range of possible outcomes
and therefore the possibility of goodwill being impaired.
ANZ New Zealand’s goodwill impairment assessment is sensitive to small changes in revenue growth rates, terminal growth rates, discount rates,
future maintainable earnings, market multiples and control premium assumptions. This drives additional audit effort.
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:
•
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In accordance with accounting standards, assessing the reasonableness of the cash-generating units (CGU) to which ANZ New Zealand
allocated goodwill;
Reconciling the movement in goodwill including the reasonableness of the allocation of goodwill to the disposal of UDC and the impairment of
goodwill on wind-up of Bonus Bonds;
Considering the appropriateness of the valuation methods applied by ANZ New Zealand, being value in use (VIU) and fair value less costs ofdisposal (FVLCOD) to perform their annual test for impairment against the requirements of the accounting standards;
Assessing the integrity of the VIU model and the FVLCOD model used by ANZ New Zealand, including the accuracy of the underlying
calculation formulae;
Assessing key assumptions used in the FVLCOD model, such as, future maintainable earnings, the control premium comparing the implied
multiples from comparable market transactions to the implied multiple used in the model;
Having considered the reasonableness of the FVLCOD model, performing a cross check against ANZ New Zealand’s VIU model for each CGU to
identify any inconsistences in assumptions;Comparing the forecast cash flows contained in the VIU model to ANZ New Zealand’s revised strategic plans, reflecting the low interest rateenvironment, the increased regulatory minimum capital requirements and COVID-19 impacts;
Assessing the accuracy of previous Banking Group forecasts to inform our evaluation of forecasts incorporated in the VIU model;
For each CGU, assessing ANZ New Zealand’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, including long term OCR forecasts and forecast lending growth
Determining with reference to our analysis of both FVCLOD and VIU, whether there is sufficient appropriate evidence to support ANZ New
Zealand’s conclusion that there is no impairment in goodwill associated with any CGU; andAssessing the disclosures in the financial statements against the requirements of the accounting standards.

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AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2020 DISCLOSURE STATEMENTINDEPENDENT AUDITOR’S REPORTOTHER INFORMATIONThe Directors, on behalf of ANZ New Zealand, are responsible for the general disclosures required to be included in ANZ New Zealand’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.
DIRECTORS' RESPONSIBILITIES FOR THE CONSOLIDATED FINANCIAL STATEMENTS AND REGISTERED BANKDISCLOSURES IN SECTION B1, B2, B3, B5 AND B6The Directors, on behalf of ANZ New Zealand, are responsible for:••••the preparation and fair presentation of the consolidated financial statements in accordance with Clause 25 of the Order, NZ IFRS andInternational Financial Reporting Standards;
the preparation and fair presentation of supplementary information, in accordance with Schedules 2, 4, 7, 11 and 13 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 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 AND B6
Our objective is:••

to obtain reasonable assurance about whether the Disclosure Statement, including the consolidated financial statements prepared inaccordance with Clause 25 of the Order, and registered bank disclosures in section B2, B3, B5 and B6, prepared in accordance with Schedules 4,7, 11 and 13 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 ISA’s (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 (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.

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INDEPENDENT AUDITOR’S REPORTREVIEW CONCLUSION ON THE REGISTERED BANK DISCLOSURES IN SECTION B4 RELATING TO CREDIT AND
MARKET RISK EXPOSURES AND CAPITAL ADEQUACY (SECTION B4)
We have reviewed the registered bank disclosures, as disclosed in section B4 of the Disclosure Statement for the year ended 30 September 2020,
which are required to be disclosed in accordance with Schedule 9 of the Order.
Based on our review, nothing has come to our attention that causes us to believe that the registered bank disclosures relating to credit andmarket risk exposures and capital adequacy as disclosed in section B4 of the Disclosure Statement, is not, in all material respects disclosed inaccordance with Schedule 9 of the Order.

BASIS FOR 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’ section of ourreport.
As the auditor of ANZ New Zealand, NZ SRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial
statements.
DIRECTORS’ RESPONSIBILITIES FOR THE REGISTERED BANK DISCLOSURES IN SECTION B4
The Directors, on behalf of ANZ New Zealand, are responsible for the preparation of the registered bank disclosures in section B4 of the DisclosureStatement in accordance with Schedule 9 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 ANZ New Zealand, 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 9 of the Order.
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 ISA’s (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 Directors as a body. Our work has been undertaken so that we might state to the Directors
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 Directors as a body for our work, this independent auditor’s report, or any of theopinions or conclusions we have formed.
The engagement partner on the audit resulting in this independent auditor's report is Matt Prichard.
For and on behalf of

KPMG
Auckland17 November 202097