ANZ Bank New Zealand Limited
Annual Report and Registered Bank Disclosure Statement
FOR THE YEAR ENDED 30 SEPTEMBER 2014 | NUMBER 75 ISSUED NOVEMBER 2014

ANZ Bank New Zealand Limited

Annual Report and Registered Bank Disclosure Statement
For the year ended 30 September 2014

Annual Report

Contents
General Disclosures

1

Summary of Financial Statements

3

Income Statement

4Statement of Comprehensive Income

4Statement of Changes in Equity

5

Balance Sheet

6

Cash Flow Statement

7

Notes to the Financial Statements

8

Directorate and Auditors

77

Conditions of Registration

79

Directors’ Statement

84

Independent Auditor’s Report

85

Index

87

Pursuant to section 211(3) of the Companies Act 1993, theshareholder of the Bank has agreed that the Annual Report ofthe Bank and the Banking Group need not comply with anyof the paragraphs (a), and (e) to (j) of subsection (1) andsubsection (2) of section 211.
Accordingly, there is no information to be provided in thisAnnual Report other than the financial statements for theyear ended 30 September 2014 and the audit report on thosefinancial statements.
For and on behalf of the Board of Directors:

John Judge
Chairman18 November 2014

David Hisco
Executive Director
18 November 2014

General Disclosures
Glossary of Terms
In this Registered Bank Disclosure Statement (DisclosureStatement) unless the context otherwise requires:(a) Bank means ANZ Bank New Zealand Limited;(b) Banking Group means the Bank and all its controlled
entities;(c) Immediate Parent Company means ANZ Holdings (New
Zealand) Limited;(d) Ultimate Parent Bank means Australia and New Zealand
Banking Group Limited;(e) Overseas Banking Group means the worldwide
operations of Australia and New Zealand Banking Group
Limited including its controlled entities;(f) New Zealand business means all business, operations, orundertakings conducted in or from New Zealandidentified and treated as if it were conducted by acompany formed and registered in New Zealand;(g) NZ Branch means the New Zealand business of the
Ultimate Parent Bank;(h) ANZ New Zealand means the New Zealand business of
the Overseas Banking Group;(i) Registered Office is Ground Floor, ANZ Centre, 23-29
Albert Street, Auckland, New Zealand, which is also the
Banking Group’s address for service;(j) RBNZ means the Reserve Bank of New Zealand;(k) APRA means the Australian Prudential Regulation
Authority;(l) the Order means the Registered Bank DisclosureStatements (New Zealand Incorporated Registered
Banks) Order 2014; and(m) Any term or expression which is defined in, or in themanner prescribed by, the Order shall have the meaning
given in or prescribed by the Order.

General Matters
The Disclosure Statement has been issued in accordancewith the Order.
The Bank is incorporated under the Companies Act 1993. The
Bank is wholly owned by its Immediate Parent Company andultimately by the Ultimate Parent Bank. The Immediate
Parent Company of the Bank is incorporated in New Zealandand owned by ANZ Funds Pty Limited and the Ultimate
Parent Bank (both incorporated in Australia). The address forservice for the Ultimate Parent Bank is ANZ Centre
Melbourne, Level 9, 833 Collins Street, Docklands, Victoria
3008, Australia.
The Immediate Parent Company has the power under the
Bank’s Constitution to appoint any person as a Director of the
Bank either to fill a casual vacancy or as an additional Director
or to remove any person from the office of Director, fromtime to time by giving written notice to the Bank. No
appointment of a new Director may occur unless the RBNZ
confirms that it does not object to the appointment.

Credit Rating Information
As at 18 November 2014 the Bank has three credit ratings,
which are applicable to its long-term senior unsecured
obligations which are payable in New Zealand in New
Zealand dollars.
The Bank’s Credit Ratings, which have not changed in the last
two years, are:
Current Credit
RatingAA-

Qualification
Outlook Stable

Moody’s Investors Service

Aa3

Outlook Stable

Fitch Ratings

AA-

Outlook Stable

Rating Agency
Standard & Poor’s

ANZ Bank New Zealand Limited

2

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

Fitch Ratings

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

Material Financial Support
In accordance with requirements issued by APRA pursuant to
its Prudential Standards, the Ultimate Parent Bank may notprovide material financial support to the Bank contrary to thefollowing:•
the Ultimate Parent Bank should not undertake any third
party dealings with the prime purpose of supporting thebusiness of the Bank;•
the Ultimate Parent Bank should not hold unlimited
exposures (should be limited as to specified time andamount) in the Bank (e.g. not provide a generalguarantee covering any of the Bank’s obligations);•
the Ultimate Parent Bank should not enter into crossdefault clauses whereby a default by the Bank on an
obligation (whether financial or otherwise) is deemed totrigger a default of the Ultimate Parent Bank in its
obligations;•
the Board of the Ultimate Parent Bank in determining
limits on acceptable levels of exposure to the Bank
should have regard to:• the level of exposure that would be approved tothird parties of broadly equivalent credit status. In
this regard, prior consultation (and in some cases•

approval) is required before entering exceptionallylarge exposures;• the impact on the Ultimate Parent Bank’s capitaland liquidity position and its ability to continue
operating in the event of a failure by the Bank; andthe level of exposure to the Bank not exceeding:•
50% on an individual exposure basis; and•150% in aggregate (being exposures to all similar
regulated entities related to the Ultimate ParentBank)of the Ultimate Parent Bank’s capital base.

Additionally, the Ultimate Parent Bank may not provide
material financial support in breach of the Australian Banking
Act (1959). This requires APRA to exercise its powers andfunctions for the protection of a bank’s depositors and in theevent of a bank becoming unable to meet its obligations orsuspending payment, the assets of the bank in Australia shallbe available to meet that bank’s deposit liabilities in Australia
in priority to all other liabilities of the bank.
The Ultimate Parent Bank has not provided material financial
support to the Bank contrary to any of the above
requirements.

Guarantors
No material obligations of the Bank are guaranteed as at 18
November 2014.
ANZNZ Covered Bond Trust
Certain debt securities (Covered Bonds) issued by the Bank’s
wholly owned subsidiary, ANZ New Zealand (Int’l) Limited,
are guaranteed by ANZNZ Covered Bond Trust Limited (theCovered Bond Guarantor), solely in its capacity as trustee of
ANZNZ Covered Bond Trust. The Covered Bond Guarantor
has guaranteed the payment of interest and principal of
Covered Bonds with a carrying value as at 30 September
2014 of $3,928 million, pursuant to a guarantee which issecured over a pool of assets. The Covered Bond Guarantor’s
address for service is Level 35, Vero Centre, 48 Shortland
Street, Auckland, New Zealand. The Covered Bond Guarantor
is not a member of the Banking Group and has no credit
ratings applicable to its long term senior unsecured
obligations payable in New Zealand dollars. The Covered
Bonds have been assigned a long term rating of Aaa and AAA
by Moody’s Investors Service and Fitch Ratings respectively.
Details of the pool of assets that secure this guarantee areprovided in Note 34.

ANZ Bank New Zealand Limited

3

Summary of Financial Statements
Banking GroupYear toYear toYear toYear toYear to30/09/2014

30/09/2013 1

30/09/2012

30/09/2011

30/09/2010

Interest income

6,272

5,957

6,017

6,179

5,876

Interest expense

3,529

3,344

3,335

3,620

3,457

Net interest income

2,743

2,613

2,682

2,559

2,419

Non-interest income

1,085

823

1,006

856

744

Operating income

3,828

3,436

3,688

3,415

3,163

Operating expenses

1,489

1,512

1,742

1,686

1,565

$ millions

(16)

63

193

178

436

2,355

1,861

1,753

1,551

1,162

Income tax expense

639

490

428

452

335

Profit after income tax

1,716

1,371

1,325

1,099

827

Dividends paid

(2,353)(1,065)(1,150)

(700)

(600)

970

300

-

-

-

Credit impairment charge / (release)
Profit before income tax

Share capital issued

As at

As at

As at

As at

As at

30/09/2014

30/09/2013 1

30/09/2012

30/09/2011

30/09/2010

634

901

1,366

1,726

2,004

Total assets

128,915

120,444

121,564

121,440

116,458

Total liabilities

117,134

108,990

110,653

110,615106,012

-

-

-

-

1

11,781

11,454

10,911

10,825

10,446$ millions

Total impaired assets

Non-controlling interests
EquityThe amounts included in this summary have been taken from the audited financial statements of the Banking Group.

1

Comparative amounts have changed. Refer to notes 1 and 35 for details.

ANZ Bank New Zealand Limited

4

Income Statement
Banking GroupBank

Year toYear toYear toYear toNote

30/09/2014

30/09/2013 1

30/09/2014

30/09/2013 1

Interest income

4

6,272

5,957

6,723

6,272

Interest expense

5

3,529

3,344

4,359

4,021

$ millions

2,743

2,613

2,364

2,251

Net trading gains

4

210

163

210

162

Net funds management and insurance income

4

325

234

74

73

Other operating income

4

547

419

865

778

3

7

-

-

3,828

3,436

3,513

3,264

1,489

1,512

1,443

1,216

2,339

1,924

2,070

2,048

(16)

63

(28)

56

2,355

1,861

2,098

1,992

639

490

539

416

1,716

1,371

1,559

1,576

Year toYear toYear toYear to30/09/2014

30/09/2013 1

30/09/2014

30/09/2013 1

1,716

1,371

1,559

1,576

Net interest income

Share of associates' profit
Operating income
Operating expenses

5

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

13

Profit before income tax
Income tax expense
Profit after income tax

6

Statement of Comprehensive Income
Banking Group$ millions

Profit after income tax

Bank

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

35

71

35

71

Income tax expense relating to items not reclassified

(10)

(20)

(10)

(20)

Total items that will not be reclassified to profit or loss

25

51

25

51

Unrealised losses recognised directly in equity

(2)

(138)

(2)

(138)

Realised gains transferred to the income statement

(41)

(21)

(41)

(21)

Income tax credit relating to items that may be reclassified

12

45

12

45

Items that may be reclassified subsequently to profit or loss

Total items that may be reclassified subsequently to profit or loss
Total comprehensive income for the year

1

(31)

(114)

(31)

(114)

1,710

1,308

1,553

1,513

Comparative amounts have changed. Refer to notes 1 and 35 for details.

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

ANZ Bank New Zealand Limited

5

Statement of Changes in Equity
Banking Group

Share capital

Availablefor-salerevaluation
reserve

Cash flow
hedging
reserve

Retainedearnings

Total equity

As at 1 October 20121

6,943

(3)

141

3,830

10,911

Profit after income tax

-

-

-

1,371

1,371

Unrealised gains / (losses) recognised directly in equity

-

1

(139)

-

(138)

Realised gains transferred to the income statement

-

-

(21)

-

(21)

Actuarial gain on defined benefit schemes1

-

-

-

71

71

Income tax credit / (expense) on items recognised directly in equity1

-

-

45

(20)

25
1,308

$ millions

Note

Total comprehensive income for the year

-

1

(115)

1,422

Preference shares issued

25

300

-

-

-

300

Ordinary dividend paid

25

-

-

-

(1,065)(1,065)As at 30 September 2013 1

7,243

(2)

26

4,187

11,454

Profit after income tax

-

-

-

1,716

1,716

Unrealised gains / (losses) recognised directly in equity

-

3

(5)

-

(2)

Realised gains transferred to the income statement

-

-

(41)

-

(41)

Actuarial gain on defined benefit schemes

-

-

-

35

35

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

-

(1)

13

(10)

2

Total comprehensive income for the year

-

2

(33)

1,741

1,710

Ordinary shares issued

25

970

-

-

-

970

Ordinary dividend paid

25

-

-

-

(2,340)(2,340)Preference dividend paid

25

-

-

-

(13)

(13)

8,213

-

(7)

3,575

11,781

Share capital

Availablefor-salerevaluation
reserve

Cash flow
hedging
reserve

Retainedearnings

Total equity

As at 1 October 20121

6,943

(3)

141

3,103

10,184

Profit after income tax1

-

-

-

1,576

1,576

Unrealised gains / (losses) recognised directly in equity

-

1

(139)

-

(138)

Realised gains transferred to the income statement

-

-

(21)

-

(21)

Actuarial gain on defined benefit schemes1

-

-

-

71

71

As at 30 September 2014

Bank$ millions

1

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

-

-

45

(20)

25

Total comprehensive income for the year

-

1

(115)

1,627

1,513

Preference shares issued

25

300

-

-

-

300

Ordinary dividend paid

25

-

-

-

(1,065)(1,065)As at 30 September 20131

7,243

(2)

26

3,665

10,932

Profit after income tax

-

-

-

1,559

1,559

Unrealised gains / (losses) recognised directly in equity

-

3

(5)

-

(2)

Realised gains transferred to the income statement

-

-

(41)

-

(41)

Actuarial gain on defined benefit schemes

-

-

-

35

35

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

-

(1)

13

(10)

2

Total comprehensive income for the year

-

2

(33)

1,584

1,553

Ordinary shares issued

25

970

-

-

-

970

Ordinary dividend paid

25

-

-

-

(2,340)(2,340)Preference dividend paid

25

-

-

-

(13)

(13)

8,213

-

(7)

2,896

11,102As at 30 September 2014

1

Comparative amounts have changed. Refer to notes 1 and 35 for details.

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

ANZ Bank New Zealand Limited

6

Balance Sheet
Banking Group$ millions

Bank

Note

30/09/2014

30/09/2013 1

1/10/2012 1

30/09/2014

30/09/2013 1

1/10/2012 1

8

2,780

Assets
1,822

2,206

2,780

1,822

2,206

Settlement balances receivable

855

514

227

858

514

227

Collateral paid

783

1,002

1,256

783

1,002

1,256

11,750

10,32012,33811,750

10,31912,338

190

172

142

-

-

-

10

11,404

9,518

12,753

11,408

9,522

12,788

-

-

15

7

62

79

Available-for-sale assets

11

772

942

157

770

940

154

Net loans and advances

12

96,29990,837

86,915

109,668

100,769

96,175

Other assets

16

648

567

545

701

609

548

470

399

408

-

-

-

Cash

Trading securities

9

Investments backing insurance contract liabilities
Derivative financial instruments
Current tax assets

Insurance contract assets
Investments in subsidiaries and associates

15

88

98

99

4,749

4,864

6,609

Deferred tax assets

6

-

45

101

63

134

193

380

376

323

54

61

74

3,454

3,448

3,505

3,312

3,299

3,317

Total assets

128,915

120,444

121,564

145,945

134,301

136,538

Interest earning and discount bearing assets

111,914

105,866

104,095

125,071

115,614113,177

2,296

1,428

1,525

2,771

1,767

1,865

800

438

257

800

438

257

Premises and equipment
Goodwill and other intangible assets

17

Liabilities
Settlement balances payable
Collateral received
Deposits and other borrowings

18

84,01978,816

74,841

115,223

105,805

105,317

Derivative financial instruments

10

10,205

10,243

13,930

10,237

10,252

13,930

67

3

-

-

-

-

Current tax liabilities
Deferred tax liabilities

6

60

-

-

-

-

-

Payables and other liabilities

19

1,297

1,195

1,349

1,209

1,089

1,025

Provisions

20

204

229

339

182

187

292

Bonds and notes

21

17,042

15,494

17,244

3,277

2,687

2,500

Subordinated debt

22

1,144

1,144

1,168

1,144

1,144

1,168

Total liabilities

117,134

108,990

110,653

134,843

123,369

126,354

Net assets

11,781

11,454

10,911

11,102

10,932

10,184

8,213

7,243

6,943

8,213

7,243

6,943

(7)

24

138

(7)

24

138

EquityShare capital

25

Reserves
Retained earnings

3,575

4,187

3,830

2,896

3,665

3,103

Total equity

11,781

11,454

10,911

11,102

10,932

10,184

Interest and discount bearing liabilities

97,80991,06189,299115,248

105,764

105,017

For and on behalf of the Board of Directors:

John Judge
Chairman18 November 2014

1

David Hisco
Executive Director
18 November 2014

Comparative amounts have changed. Refer to notes 1 and 35 for details.

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

ANZ Bank New Zealand Limited

7

Cash Flow Statement
Banking GroupBank

Year toYear toYear toYear to30/09/2014

30/09/2013 1

30/09/2014

30/09/2013 1

6,189

5,916

6,609

6,226

4

4

140

254

Net funds management & insurance income

261

236

74

73

Fees and other income received

686

637

867

710

$ millions

Note

Cash flows from operating activities
Interest received
Dividends received

Interest paid

(3,429)(3,368)(4,233)(4,020)Operating expenses paid

(1,430)(1,550)(1,400)(1,493)

Income taxes paid

(468)

(390)

(411)

(314)

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

1,813

1,485

1,646

1,436

Change in settlements receivable

167

(134)

164

(135)

Change in collateral paid

219

254

219

254

Change in trading securities(1,025)

1,558(1,026)

1,559

Net changes in operating assets and liabilities:

Change in derivative financial instruments

(480)

555

(976)

608

Change in available-for-sale assets

188

(766)

188

(767)

(18)

(30)

-

-

Change in loans and advances(8,873)(7,182)(12,163)(7,859)Proceeds from sale of loans and advances to NZ Branch

3,393

3,144

3,393

3,144

Change in insurance investment assets

Change in settlements payable

33

(31)

37

(31)

Change in collateral received

362

181

362

181

Change in deposits and other borrowings

5,498

3,512

9,460

(399)

Net changes in operating assets and liabilities

(536)

1,061

(342)

(3,445)

1,277

2,546

1,304

(2,009)Proceeds from sale of shares in associates

9

1

-

-

Proceeds from sale of premises and equipment

9

-

-

-

Net cash flows provided by / (used in) operating activities

31

Cash flows from investing activities

-

68

-

70

(43)

(27)

(43)

(27)

Purchase of premises and equipment

(77)

(115)

(18)

(12)

Net cash flows provided by / (used in) investing activities

(102)

(73)

(61)

31

4,431

2,167

1,025

200

-

12

-

12

Proceeds from issue of ordinary shares

970

-

970

-

Proceeds from issue of preference shares

-

300

-

300

Proceeds from sale of subsidiaries
Purchase of intangible assets

Cash flows from financing activities
Proceeds from issue of bonds and notes
Proceeds from issue of subordinated debt

-

-

115

1,907

(3,684)(4,611)

(461)

(100)

(913)

199

(913)

199

Dividends paid

(2,353)(1,065)(2,353)(1,065)

Net cash flows provided by / (used in) financing activities

1,453

Proceeds from redemption of shares in subsidiaries
Redemptions of bonds and notes
Change in funding from Immediate Parent Company(1,549)(2,998)(1,617)

Net decrease in cash and cash equivalents

(374)

(525)

(374)

(525)

Cash and cash equivalents at beginning of the year

2,204

2,729

2,204

2,729

1,830

2,204

1,830

2,204

Cash and cash equivalents at end of the year131Comparative amounts have changed. Refer to notes 1 and 35 for details.

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

ANZ Bank New Zealand Limited

8

Notes to the Financial Statements
1.

Significant Accounting Policies(a)Basis of preparation(i)Statement of compliance

These financial statements have been prepared inaccordance with the requirements of the Companies Act
1993, the Financial Reporting Act 1993 and the Order. The
Bank’s financial statements are for ANZ Bank New Zealand
Limited as a separate entity and the Banking Group’s
financial statements are for the Bank’s consolidated group,
which includes subsidiaries and associates.
These financial statements have been prepared inaccordance with New Zealand Generally Accepted
Accounting Practice. They comply with New Zealandequivalents to International Financial Reporting Standards(NZ IFRS) and other applicable Financial ReportingStandards, as appropriate for profit-oriented entities. The
financial statements comply with International Financial
Reporting Standards (IFRS).
The principal accounting policies adopted in the
preparation of these financial statements are set out
below.
(ii)

Use of estimates and assumptions

Preparation of the financial statements requires the use ofmanagement judgement, estimates and assumptions that
affect reported amounts and the application of policies.
Actual results may differ from these estimates.
Discussion of the critical accounting estimates, which
include complex or subjective decisions or assessments,
are covered in note 2. Such estimates will require review infuture periods.
(iii)

Basis of measurement

The financial statements have been prepared inaccordance with the historical cost basis except that thefollowing assets and liabilities are stated at their fair value:•
derivative financial instruments, including in thecase of fair value hedging, the fair value adjustment
on the underlying hedged exposure;•available-for sale financial assets;•financial instruments held for trading;•financial instruments designated at fair value
through profit and loss.
(iv)

Changes in accounting policies and application of
new accounting standards

All new and amending NZ IFRSs applicable for the firsttime to the Banking Group in the year ended 30
September 2014 have been applied to these financial
statements effective from their required date ofapplication. The initial application of these standards andinterpretations have not resulted in any material change
to the Banking Group’s reported result or financial
position, and have largely resulted in changes todisclosures.
The accounting policies are consistent with those of theprevious financial year except as noted below.
•
Defined benefit liabilities: The amendments to NZ IAS
19 Employee Benefits have been applied
retrospectively, in accordance with transitional•(v)

provisions, with the net impact of initial application
recognised in retained earnings as at 1 October
2012. The balances of payables and other liabilities
and the associated deferred tax asset have been
restated for subsequent periods.
Cash and cash equivalents: Loans and advances withfinancial institution counterparties with original
maturities of less than 90 days and remittances intransit have been removed from the definition of
cash equivalents. These balances are now included
in net loans and advances and settlement balances
receivable respectively. The associated cash
inflows/outflows form part of cash flows fromoperating activities. The Banking Group considers
that this change better reflects the characteristics of
those financial instruments.
Rounding

The amounts in the financial statements have beenrounded to the nearest million dollars, except whereotherwise stated.
(vi)Comparatives

In addition to restatements resulting from the initial
application of the amendment to NZ IAS 19, certain
amounts in the comparative information have been
reclassified to ensure consistency with the current year’s
presentation. Further information on material changes tocomparative information is included in note 35.
(vii)

Principles of consolidation

Subsidiaries
The consolidated financial statements of the Banking
Group comprise the financial statements of the Bank andall its subsidiaries.
An entity, including a structured entity, is considered a
subsidiary of the Banking Group when it is determinedthat control over the entity exists. Control is deemed toexist when the Banking Group is exposed, or has rights, tovariable returns from its involvement with the entity andhas the ability to affect those returns through its powerover the entity. Power is assessed by examining existingrights that give the Banking Group the current ability todirect the relevant activities of the entity. At times, thedetermination of control can be judgemental. Further
detail on the judgement involved in assessing control has
been provided in note 2.
The effect of all transactions between entities in the
Banking Group is eliminated. Where subsidiaries havebeen sold during the year, their operating results havebeen included to the date of disposal. When control
ceases, the assets and liabilities of the subsidiary and othercomponents of equity are derecognised. Any resulting
gain or loss is recognised in profit or loss.
In the Bank’s financial statements, investments in
subsidiaries are carried at cost less accumulated
impairment losses.

ANZ Bank New Zealand Limited

9Notes to the Financial Statements
Associates

and directly related transaction costs that are an integral
part of the effective interest rate, over the expected life of
the financial asset or liability so as to achieve a constantyield on the financial asset or liability.

The Banking Group applies the equity method of
accounting for associates.
The Banking Group’s share of results of associates is
included in the consolidated income statement. Shares inassociates are carried in the consolidated balance sheet atcost plus the Banking Group’s share of post acquisition net
assets less accumulated impairment. Interests inassociates are reviewed for any indication of impairment
at least at each reporting date. Where an indication of theimpairment exists, the recoverable amount of theassociate is determined as the higher of the associate’s fairvalue less costs to sell and its value in use. A discounted
cash flow methodology and other methodologies, such as
the capitalisation of earnings method, are used todetermine the reasonableness of the valuation.

For assets subject to prepayment, expected life isdetermined on the basis of the historical behaviour of theparticular asset portfolio, taking into account contractual
obligations and prepayment experience assessed on aregular basis.
(ii)

Fees and commissions received that are integral to theeffective interest rate of a financial asset are recognised
using the effective interest method. For example, loan
commitment fees, together with related direct costs, aredeferred and recognised as an adjustment to the effective
interest rate on a loan once drawn. Commitment fees tooriginate a loan which is unlikely to be drawn down arerecognised as fee income as the service is provided.

In the Bank’s financial statements investments in
subsidiaries and associates are carried at cost lessaccumulated impairment losses.
(viii)

Fees and commissions that relate to the execution of asignificant act (for example, advisory or arrangement
services, placement fees and underwriting fees) arerecognised when the significant act has been completed.

Foreign currency translation

Functional and presentation currency
Items included in the financial statements of each of the
Banking Group’s entities are measured using the currencyof the primary economic environment in which the entity
operates (the functional currency). The Banking Group’s
financial statements are presented in New Zealand dollars,
which is the Banking Group’s functional and presentation
currency.

Fees charged for providing ongoing services (for example,
maintaining and administering existing facilities) arerecognised as income over the period the service isprovided.
(iii)

Foreign currency transactions are translated into thefunctional currency using the exchange rates prevailing at
the dates of the transactions. Monetary assets andliabilities resulting from foreign currency transactions aresubsequently translated at the spot rate at reporting date.

Translation differences on non-monetary items measured
at fair value through profit or loss are reported as part of
the fair value gain or loss on these items.
Translation differences on non-monetary items measured
at fair value through equity, such as equities classified asavailable-for-sale financial assets, are included in theavailable-for-sale revaluation reserve in equity.
(b)

Income recognition
Income is recognised to the extent that it is probable that
economic benefits will flow to the Banking Group and thatrevenue can be reliably measured.
(i)Interest income

Interest income is recognised as it accrues, using theeffective interest method.
The effective interest method calculates the amortised
cost of a financial asset or financial liability and allocatesthe interest income or interest expense, including any fees

Dividend income

Dividends are recognised as revenue when the right toreceive payment is established.

Foreign currency transactions

Exchange differences arising on the settlement ofmonetary items or on translating monetary items at rates
different to those at which they were initially recognised
or included in a previous financial report, are recognised in
the income statement in the period in which they arise.

Fee and commission income(iv)

Gain or loss on sale of assets

The gain or loss on the disposal of assets is determined as
the difference between the carrying amount of the assets
at the time of disposal and the proceeds of disposal net ofincremental disposal costs. This is recognised as an item ofother income in the period in which the significant risks
and rewards of ownership are transferred to the buyer.
(c)Expense recognition
Expenses are recognised in the income statement on an
accruals basis.
(i)Interest expense

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

Loan origination expenses

Certain loan origination expenses are an integral part ofthe effective interest rate of a financial asset measured atamortised cost. These loan origination expenses include:•
fees and commissions payable to brokers andcertain customer incentive payments in respect oforiginating lending business; and•other expenses of originating lending business, suchas external legal costs and valuation fees, provided
these are direct and incremental costs related to theissue of a financial asset.
Such loan origination expenses are initially recognised aspart of the cost of acquiring the financial asset andamortised as part of the effective yield of the financial

ANZ Bank New Zealand Limited

10Notes to the Financial Statements
asset over its expected life using the effective interest
method.

Group, at the reporting date, recovers or settles the
carrying amount of its assets and liabilities.

(iii)

(iv)

Lease payments

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

Leases entered into by the Banking Group as lessee are
predominantly operating leases, and the operating lease
payments are recognised as an expense on a straight-line
basis over the lease term.
(d)Income tax(i)Income tax expense

Income tax on earnings for the year comprises current anddeferred tax and is based on the applicable tax law. It is
recognised in the income statement as tax expense,
except when it relates to items credited directly to equity,in which case it is recorded in equity, or where it arises
from the initial accounting for a business combination, in
which case it is included in the determination of goodwill.
(ii)

Current tax

Current tax is the expected tax payable on taxable income
for the year, based on tax rates (and tax laws) which areenacted or substantively enacted by the reporting dateand including any adjustment for tax payable in previous
periods. Current tax for current and prior periods isrecognised as a liability (or asset) to the extent that it isunpaid (or refundable).
(iii)

Deferred tax

Deferred tax is accounted for using the comprehensive tax
balance sheet method. It is generated by temporary
differences between the carrying amounts of assets andliabilities for financial reporting purposes and their tax
base.
Deferred tax assets, including those related to the tax
effects of income tax losses and credits available to be
carried forward, are recognised only to the extent that it isprobable that future taxable profits will be available
against which the deductible temporary differences orunused tax losses and credit can be utilised.
Deferred tax liabilities are recognised for all taxable
temporary differences, other than those relating totaxable temporary differences arising from goodwill. They
are also recognised for taxable temporary differences
arising on investments in subsidiaries, branches,
associates and joint ventures, except where the Banking
Group is able to control the reversal of the temporary
differences and it is probable that temporary differences
will not reverse in the foreseeable future. Deferred tax
assets associated with these interests are recognised only
to the extent that it is probable that the temporary
difference will reverse in the foreseeable future and there
will be sufficient taxable profits against which to utilise thebenefits of the temporary difference.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply to the period(s) when theasset and liability giving rise to them are realised or
settled, based on tax rates and tax laws that have beenenacted or substantively enacted by the reporting date.
The measurement reflects the tax consequences thatwould follow from the manner in which the Banking

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

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

Derivative financial instruments

Derivative financial instruments are contracts whose value
is derived from one or more underlying price index orother variables. They include swaps, forward rateagreements, futures, options and combinations of these
instruments.
Derivative financial instruments are entered into for
trading purposes (including customer-related reasons) orfor hedging purposes (where the derivative instruments
are used to hedge the Banking Group’s exposures tointerest rate risk, currency risk, price risk, credit risk andother exposures relating to non-trading positions).
Derivative financial instruments are recognised initially atfair value with gains or losses from subsequent
measurement at fair value being recognised in the income

ANZ Bank New Zealand Limited

11

Notes to the Financial Statements
statement. Valuation adjustments are integral indetermining the fair value of derivatives. This includes acredit valuation adjustment (CVA) to reflect the credit
worthiness of the counterparty and funding valuation
adjustment (FVA) to account for the funding cost inherent
in the portfolio.
Where the derivative is designated and is effective as ahedging instrument, the timing of the recognition of any
resultant gain or loss in the income statement isdependent on the hedging designation. These hedging
designations and associated accounting are as follows:
Fair value hedge
Where the Banking Group hedges the fair value of arecognised asset or liability or firm commitment, changes
in the fair value of the derivative designated as a fair value
hedge are recognised in the income statement. Changes
in the fair value of the hedged item attributable to thehedged risk are reflected in adjustments to the carrying
value of the hedged item, which are also recognised in theincome statement.
Hedge accounting is discontinued when the hedge
instrument expires or is sold, terminated, exercised or nolonger qualifies for hedge accounting. The resulting
adjustment to the carrying amount of the hedged item
arising from the hedged risk is amortised to the income
statement over the period to maturity of the hedged item.
If the hedged item is sold or repaid, the unamortised fairvalue adjustment is recognised immediately in the income
statement.
Cash flow hedge
The Banking Group designates derivatives as cash flow
hedges where the instrument hedges the variability incash flows of a recognised asset or liability, a foreignexchange component of a firm commitment, or a highly
probable forecast transaction. The effective portion ofchanges in the fair value of derivatives qualifying anddesignated as cash flow hedges is deferred to the hedging
reserve, which forms part of shareholders’ equity. Any
ineffective portion is recognised immediately in theincome statement. Amounts deferred in equity arerecognised in the income statement in the period during
which the hedged forecast transactions take place.
When the hedge expires, is sold, terminated, exercised, or
no longer qualifies for hedge accounting, the cumulative
amount deferred in equity remains in the hedging reserve,
and is subsequently transferred to the income statement
when the hedged item is recognised in the income
statement.
When a forecast hedged transaction is no longer expected
to occur, the amount deferred in equity is recognised
immediately in the income statement.
Derivatives that do not qualify for hedge accounting
All gains and losses from changes in the fair value ofderivatives that are not designated in a hedging
relationship but are entered into to manage the interest
rate and foreign exchange risk of the Banking Group arerecognised in the income statement. Under certain
circumstances, the component of the fair value change inthe derivative which relates to current period realised andaccrued interest is included in net interest income. The
remainder of the fair value movement is included in otherincome.
(iii)

Available-for-sale assets

Available-for-sale assets comprise non-derivative financial
assets which the Banking Group designates as availablefor-sale but which are not deemed to be held principallyfor trading purposes, and include equity investments andquoted debt securities.
They are initially recognised at fair value plus transaction
costs. Subsequent gains or losses arising from changes infair value are included as a separate component of equity
in the available-for-sale revaluation reserve. When theasset is sold, the cumulative gain or loss relating to theasset is transferred to the income statement.
Where there is objective evidence of impairment on anavailable-for-sale asset, the cumulative loss related to that
asset is removed from equity and recognised in theincome statement, as an impairment expense for debt
instruments or as non-interest income for equity
instruments. If, in a subsequent period, the amount of an
impairment loss relating to an available-for-sale debt
instrument decreases and the decrease can be linked
objectively to an event occurring after the impairment
event, the loss is reversed through the income statement
through the impairment expense line.
Purchases and sales of available-for-sale financial assets
are recognised on trade date, being the date on which the
Banking Group commits to purchase or sell the asset.
(iv)

Net loans and advances

Loans and advances are non-derivative financial assets
with fixed or determinable payments that are not quoted
in an active market. They arise when the Banking Group
provides money to a debtor with no intention of trading
the loans and advances. The loans and advances are
initially recognised at fair value plus transaction costs thatare directly attributable to the issue of the loan oradvance. They are subsequently measured at amortised
cost using the effective interest method, unless specificallydesignated on initial recognition at fair value throughprofit or loss.
All loans are graded according to the level of credit risk.
Net loans and advances include direct finance provided tocustomers such as bank overdrafts, credit cards, termloans, finance lease receivables and commercial bills.
Impairment of loans and advances
Loans and advances are reviewed at least at eachreporting date for impairment. Credit impairment
provisions are raised for exposures that are known to be
impaired. Exposures are impaired and impairment losses
are recorded if, and only if, there is objective evidence ofimpairment as a result of one or more loss events, that
occurred after the initial recognition of the loan and prior
to the reporting date, and that loss event, or events, has
had an impact on the estimated future cash flows of theindividual loan or the collective portfolio of loans that canbe reliably estimated.

ANZ Bank New Zealand Limited

12

Notes to the Financial Statements
and a counterparty liability is disclosed under deposits
and other borrowings. The difference between the saleprice and the repurchase price is accrued over the life of
the repurchase agreement and charged to interest
expense in the income statement.

Impairment is assessed for assets that are individuallysignificant (or on a portfolio basis for small value loans)and then on a collective basis for those exposures notindividually known to be impaired.
Exposures that are assessed collectively are placed inpools of similar assets with similar risk characteristics. The
required provision is estimated on the basis of historicalloss experience for assets with credit risk characteristics
similar to those in the collective pool. The historical loss
experience is adjusted based on current observable datasuch as changed economic conditions. The provision also
takes account of the impact of inherent risk of large
concentrated losses within the portfolio and anassessment of the economic cycle.

Securities purchased under agreements to resell, where
the Banking Group does not acquire the risks and rewardsof ownership, are recorded as cash or net loans andadvances depending on the term of the agreement. The
security is not included in the balance sheet. Interest
income is accrued on the underlying loan amount.
Securities borrowed are not recognised in the balance
sheet, unless these are sold to third parties, at which point
the obligation to repurchase is recorded as a financial
liability at fair value with fair value movements included in
the income statement.

The estimated impairment losses are measured as thedifference between the asset’s carrying amount and theestimated future cash flows discounted to their present
value. As this discount unwinds during the period
between recognition of impairment and recovery of the
cash flow, it is recognised in interest income. The processof estimating the amount and timing of cash flows
involves considerable management judgement. These
judgements are reviewed regularly to reduce any
differences between loss estimates and actual loss
experience.

(vii) Derecognition
The Banking Group enters into transactions where it
transfers financial assets recognised on its balance sheet
yet retains either all the risks and rewards of thetransferred assets or a portion of them. If all, or
substantially all, the risks and rewards are retained, thetransferred assets are not derecognised from the balance
sheet.
In transactions where substantially all the risks andrewards of ownership of a financial asset are neither
retained nor transferred, the Banking Group derecognises
the asset if control over the asset is lost. In transfers wherecontrol over the asset is retained, the Banking Group
continues to recognise the asset to the extent of its
continuing involvement, determined by the extent towhich it is exposed to changes in the value of thetransferred asset. The rights and obligations retained or
created in the transfer are recognised separately as assets
and liabilities as appropriate.

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

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

Where impairment losses recognised in previous periods
have subsequently decreased or no longer exist, such
impairment losses are reversed in the income statement.
A provision is also raised for off-balance sheet items suchas commitments that are considered likely to result in an
expected loss.
(v)

Lease receivables

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

Repurchase agreements

Securities sold under repurchase agreements are retainedin the financial statements where substantially all the risks
and rewards of ownership remain with the Banking Group,(f)Liabilities
Financial liabilities(i)

Deposits and other borrowings

Deposits and other borrowings include certificates ofdeposit, interest bearing deposits, UDC secured
investments, commercial paper and other related interest
and non-interest bearing financial instruments. Deposits
and other borrowings, excluding commercial paper, areinitially recognised at fair value plus transaction costs andsubsequently measured at amortised cost. The interest
expense is recognised using the effective interest method.
Commercial paper is designated at fair value throughANZ Bank New Zealand Limited

13

Notes to the Financial Statements
profit or loss, with fair value movements recorded directlyin the income statement, which reflects the basis on which
it is managed.
(ii)•

Bonds, notes and subordinated debt•

Bonds, notes and subordinated debt are accounted for in
the same way as deposits and other borrowings, except
for those bonds and notes which are designated at fairvalue through profit or loss on initial recognition, with fairvalue movements recorded in the income statement.
(iii)

(ii)

Financial guarantee contracts(iii)

Certain cash flows have been netted in order to provide
more meaningful disclosure, as many of the cash flows arereceived and disbursed on behalf of customers and reflect
the activities of the customers rather than those of the
Banking Group. These include customer loans andadvances, customer deposits, certificates of deposit,
related party balances and trading securities.

Derecognition(iv)

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

Receivables and payables are stated with the amount of
GST included. The net amount of GST recoverable from, orpayable to, the IRD is included as other assets or otherliabilities in the balance sheet.

Reserves

Available-for-sale revaluation reserve

Cash flows are included in the cash flow statement on a
net basis. The GST components of cash flows arising frominvesting and financing activities, which are recoverable
from, or payable to, the IRD are classified as operating
cash flows.

This reserve includes changes in the fair value of availablefor-sale financial assets, net of tax. These changes aretransferred to the income statement (in non-interest
income) when the asset is derecognised. Where the asset
is impaired, the changes are transferred to the impairment
expense line in the income statement for debt
instruments and in the case of equity instruments to noninterest income.

(v)

This reserve includes the fair value gains and losses
associated with the effective portion of designated cash
flow hedging instruments.
Presentation(i)

Offsetting of income and expenses

Income and expenses are not offset unless required or
permitted by an accounting standard. This generally arisesin the following circumstances:•where transaction costs form an integral part of theeffective interest rate of a financial instrument
which is measured at amortised cost, these are

Segment reporting

Operating segments are distinguishable components of
the Banking Group that provide products or services thatare subject to risks and rewards that are different to thoseof other operating segments. The Banking Group operates
predominately in the banking industry within New
Zealand. The Banking Group has very limited exposure torisk associated with operating in different economic
environments or political conditions. On this basis nogeographical segment information is provided.

Cash flow hedging reserve(h)Goods and services tax

Income, expenses and assets are recognised net of theamount of goods and services tax (GST) except where theamount of GST incurred is not recoverable from the Inland
Revenue Department (IRD). In these circumstances, theGST is recognised as part of the cost of acquisition of theasset or as part of the expense.

Equity(i)Statement of cash flows

For cash flow statement presentation purposes, cash andcash equivalents includes cash and nostro balances
included in settlement balances receivable and settlementbalances payable.

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

Offsetting of financial assets and liabilities

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

Financial guarantee contracts are contracts that require
the issuer to make specified payments to reimburse theholder for a loss it incurs because a specified debtor fails
to make payments when due. Financial guarantees areissued in the ordinary course of business, consisting ofletters of credit, guarantees and acceptances. Financial
guarantees are initially recognised in the financial
statements at fair value on the date the guarantee wasgiven; typically this is the premium received. Subsequent
to initial recognition, the Banking Group's liabilities undersuch guarantees are measured at the higher of theiramortised amount and the best estimate of theexpenditure required to settle any financial obligation
arising at the balance sheet date. These estimates are
determined based on experience of similar transactions
and history of past losses.
(iv)

offset against the interest income generated by thefinancial instrument;
where gains and losses relating to fair value hedges
are assessed as being effective; orwhere gains and losses arise from a group of similartransactions, such as foreign exchange gains andlosses.

(i)

Other
(i)

Contingent liabilities

Contingent liabilities acquired in a business combination
are individually measured at fair value at the acquisition
date. At subsequent reporting dates the value of such

ANZ Bank New Zealand Limited

Notes to the Financial Statements
contingent liabilities is reassessed based on the estimateof expenditure required to settle the contingent liability.
Other contingent liabilities are not recognised in thebalance sheet but disclosed in Note 33 unless it isconsidered remote that the Banking Group will be liable tosettle the possible obligation.
(ii)

Accounting Standards not early adopted

The following standards and amendments were available
for early adoption but have not been applied by the
Banking Group in these financial statements. The Banking
Group currently does not intend to apply any of thesepronouncements until their effective date.
Standards and amendments effective for periods
commencing after 1 January 2018
NZ IFRS 9 Financial Instruments
This standard is being released in phases and once
finalised will replace NZ IAS 39 Financial Instruments:
Recognition and Measurement in its entirety. The phases
currently issued are:•Phase 1: Specifies a simpler methodology forclassifying and measuring financial assets, with two
primary measurement categories: amortised costand fair value.
•
Phase 2: Simplifies hedge accounting requirements
which more closely align with risk management
activities undertaken when hedging financial andnon-financial risks. Includes new impairment
requirements that introduce an expected credit loss
impairment model. Introduces a fair value throughother comprehensive income classification for
financial assets when the business model is to collectcontractual cash flows and to sell financial assets.
The Banking Group is assessing the impact on the financial
statements.

14

ANZ Bank New Zealand Limited

15

Notes to the Financial Statements
2.

Critical Estimates and Judgement Used in
Applying Accounting Policies

There are a number of critical accounting treatments which
include complex or subjective judgements and estimatesthat may affect the reported amounts of assets and liabilities
in the financial statements. Estimates and judgements arecontinually evaluated and are based on historical experienceand other factors, including expectations of future events
that are believed to be reasonable under the circumstances.
An explanation of the judgements and estimates made by
the Banking Group, in the process of applying its accounting
policies, that have the most significant effect on the amounts
recognised in the financial statements are set out below.
Critical accounting estimates and assumptions
Credit provisioning
The accounting policy relating to measuring the impairmentof loans and advances requires the Banking Group to assess
impairment at least at each reporting date. The credit
provisions raised (collective and individual) represent
management's best estimate of the losses incurred in theloan portfolio at balance date based on their experienced
judgement.
The collective provision is estimated on the basis of historicalloss experience for assets with credit characteristics similar to
those in the collective pool. The historical loss experience isadjusted based on current observable data and events andan assessment of the impact of model risk. The provision also
takes into account the impact of large concentrated losses
within the portfolio and the economic cycle.
The use of such judgements and reasonable estimates is
considered by management to be an essential part of theprocess and does not impact on the reliability of theprovision.
Individual and collective provisioning involves the use ofassumptions for estimating the amounts and timing of
expected future cash flows. The process of estimating theamount and timing of cash flows involves considerable
management judgement. These judgements are revised
regularly to reduce any differences between loss estimatesand actual loss experience.
Refer to Note 13 for details of credit impairment provisions.
Critical judgements in applying the Banking Group’s
accounting policies
Financial instruments at fair value
The Banking Group’s financial instruments measured at fairvalue are stated in note 1(a)(iii). In estimating fair value the
Banking Group uses, wherever possible, quoted market
prices in an active market for the financial instrument.
In the event that there is no active market for the instrument,
fair value is based on present value estimates or other market
accepted valuation techniques. The valuation models
incorporate the impact of bid/ask spread, counterparty credit
spreads and other factors that would influence the fair value
determined by a market participant. The selection of
appropriate valuation techniques, methodology and inputs

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

16

Notes to the Financial Statementsthat managed fund. Whether the Banking Group controls the
managed fund depends on whether it holds that power as
principal, or as an agent for other investors. The Banking
Group is considered the principal, and thus controls an
managed fund, when it cannot be easily removed from theposition of Manager by other investors and has variable
returns through significant aggregate economic interest inthat managed fund. In all other cases the Banking Group is
considered to be acting in an agency capacity and does notcontrol the managed fund.
Structured entities are consolidated when control exists. In
other cases the Banking Group may simply have an interestin or may sponsor a structured entity but not consolidate it.
The Banking Group considers itself the sponsor of an
unconsolidated structured entity where it is the primary
party involved in the design and establishment of thatstructured entity and:•
where the Banking Group is the major user of thatstructured entity; or•the Banking Group’s name appears in the name of thatstructured entity or on its products; or•the Banking Group provides implicit or explicit
guarantees of that entity’s performance.
Goodwill
Refer to Note 17 for details of goodwill held by the Banking
Group.
The carrying value of goodwill is subject to an impairment
test to ensure that the current carrying value does notexceed its recoverable value at the balance sheet date. Any
excess of carrying value over recoverable amount is taken to
the income statement as an impairment write down.
Goodwill has been allocated for impairment purposes to the
cash generating units at which the goodwill is monitored forinternal reporting purposes. Impairment testing of purchased
goodwill is performed by comparing the recoverable value ofeach cash generating unit with the current carrying amountof its net assets, including goodwill. Judgement is required in
identifying the cash-generating units to which goodwill andother assets are allocated for the purpose of impairment
testing.
The recoverable amount is based on value-in-use
calculations. These calculations use cash flow projections
based on a number of financial budgets within each segment
approved by management covering a three year period. Cashflow projections are based on a range of readily available
economic assumptions including GDP and CPI. Cash flows
beyond the three year period are extrapolated using a 3%
growth rate.
These cash flow projections are discounted using a capital
asset pricing model. As at 28 February 2014 when the last
valuation was prepared, a discount rate of 11.09% wasapplied to each cash generating unit. The main variables in
the calculation of the discount rate used are the risk free rate,
the beta rate and the market risk premium. The risk free rateis based on the 10 year Government Bond Rate. The beta rate
and the market risk premium are consistent with observableand comparative market rates applied in the regionalbanking sector. Market observable information is not readily
available at the segment level therefore management
performed stress tests for key sensitivities in each segment.

Management believes any reasonable possible change in the
key assumptions on which the recoverable amount is based
would not cause the Banking Group’s carrying amount toexceed its recoverable amount.

ANZ Bank New Zealand Limited

17

Notes to the Financial Statements
3.

Risk Management Policies

The Banking Group recognises the importance of effective
risk management to its business success. Management iscommitted to achieving strong control and a distinctive risk
management capability that enables the Banking Groupbusiness units to meet their performance objectives.
The Banking Group approaches risk through managing thevarious elements of the system as a whole rather thanviewing them as independent and unrelated parts. The risk
management division (Risk Management) is independent of
the business, with clear delegations from the Board, andoperates within a comprehensive framework comprising:•
The Board providing leadership, setting risk
appetite/strategy and monitoring progress;•
A strong framework for development and maintenanceof Banking Group-wide risk management policies,
procedures and systems, overseen by an independent
team of risk professionals;•
The use of sophisticated risk tools, applications andprocesses to execute the global risk management
strategy across the Banking Group;•
Business unit level accountability, as the “first line ofdefence”, for the management of risks in alignment
with the Banking Group’s strategy; and•Independent oversight to ensure business unit levelcompliance with policies, regulations and laws, and toprovide regular risk evaluation and reporting.
The Banking Group manages risk through an approval,delegation and limits structure. Regular reviews of thepolicies, systems and risk reports, including the effectivenessof the risk management systems, discussions covering the
Banking Group’s response to emerging risk issues and trends,
and that the requisite culture and practices are in placeacross the Banking Group, are conducted within the Banking
Group and also by the Ultimate Parent Bank. The Board has
responsibility for reviewing all aspects of risk management.
The Board has ultimate responsibility for overseeing theeffective deployment of risk management frameworks,
policies and processes within New Zealand. The Bank’s Risk
Committee assists the Board in this function. The role of the
Risk Committee is to assist the Board in the effective
discharge of its responsibilities for business, market, credit,
operational, compliance, liquidity, product and reputationalrisk management, and to liaise and consult with the Ultimate
Parent Bank Risk Committee as required. Risk Management,
via the Chief Risk Officer, coordinates risk management
activities directly between Business Unit risk functions andUltimate Parent Bank Group Risk Management functions.
The risk management process is subject to oversight by the
Risk Committee of the Ultimate Parent Bank Board. This
includes the review of risk portfolios and the establishmentof prudential policies and controls.
The Banking Group’s risk management policies are essentiallythe same as the Ultimate Parent Bank, but are tailored whererequired to suit the local New Zealand regulatory andbusiness environment.
The Audit Committee, which is a sub-committee of theBoard, has responsibility for ensuring the integrity of the
Banking Group's financial controls, reporting systems andinternal audit standards. It meets at least four times a year

and reports directly to the Board. All members of the Audit
Committee are non-executive directors.
Financial risk management
Refer to Note 27 for detailed disclosures on the Banking
Group's financial risk management policies.
Operational Risk
Operational risk is the risk arising from day to day operational
activities which may result in direct or indirect loss. These
losses may result from failure to comply with policies,
procedures, laws and regulations, from fraud or forgery, froma breakdown in the availability or integrity of services,
systems and information, or damage to the Banking Group’s
reputation.
Examples include failure to comply with policy andlegislation, human error, natural disasters, fraud and othermalicious acts. Where appropriate, risks are mitigated byinsurance.
Risk Management is responsible for establishing the Banking
Group’s operational risk framework and associated Banking
Group-wide policies. Business units are responsible for theidentification, analysis, assessment and treatment ofoperational risks on a day-to-day basis.
Business units have primary responsibility for theidentification and management of operational risk withexecutive oversight provided by the relevant Retail andWholesale Risk Forums. The Bank’s Operational Risk
Executive Committee (OREC) undertakes the governancefunction through the bi-monthly monitoring of operationalrisk performance across the Banking Group. The Board and
Risk Management conduct effective oversight through theapproval of operational risk policies and frameworks andmonitoring key operational risk metrics.
Compliance
The Banking Group conducts its business in accordance withall relevant compliance requirements. In order to assist the
Banking Group identify, manage, monitor and measure its
compliance obligations, the Banking Group has acomprehensive regulatory compliance framework in place,which addresses both external (regulatory) and internal
compliance.
Risk Management, in conjunction with business unit staff
ensure the Banking Group operates within a complianceinfrastructure and framework that incorporates new andchanging business obligations and processes.
The compliance policies and their supporting framework
seek to minimise material risks to the Banking Group’s
reputation and value that could arise from non-compliancewith laws, regulations, industry codes and internal standards
and policies. Business units have primary responsibility forthe identification and management of compliance. Risk
Management provides policy and framework, measurement,
monitoring and reporting, as well as leadership in areas suchas anti-money laundering procedures and matters ofprudential compliance. The Bank’s OREC, the Chief Risk
Officer, the Board and the Risk Committee of the Ultimate
Parent Bank Board conduct board and executive oversight.

ANZ Bank New Zealand Limited

Notes to the Financial Statements
Global Internal Audit
Global Internal Audit is a function independent ofmanagement whose role is to provide the Board andmanagement with an effective and independent appraisal of
the internal controls established by management. Operating
under a Board approved Charter, the reporting line for theoutcomes of work conducted by Global Internal Audit isdirect to the Chair of the Audit Committee, with a directcommunication line to the Chief Executive Officer and theexternal auditor.
The Global Internal Audit Plan is developed utilising a risk
based approach and is refreshed on a quarterly basis. The
Audit Committee approves the plan, the associated budget
and any changes.
All audit activities are conducted in accordance with local
and international auditing standards, and the results of theactivities are reported to the Audit Committee, Risk
Committee and management. These results influence theperformance assessment of business heads.
Furthermore, Global Internal Audit monitors the remediationof audit issues and highlights the current status of any
outstanding audits.

18

ANZ Bank New Zealand Limited

19

Notes to the Financial Statements
4.

IncomeBanking GroupBank

Year toYear toYear toYear to30/09/2014

30/09/2013

30/09/2014

30/09/2013

474

418

474

418

Cash

72

72

72

72

Available-for-sale assets

33

16

33

16

Net loans and advances

5,677

5,426

6,135

5,749

16

25

9

17

5,798

5,539

6,249

5,854

6,272

5,957

6,723

6,272

$ millions

Interest income
Financial assets at fair value through profit or loss
Trading securities
Financial assets not at fair value through profit or loss

Other
Total interest income
Net trading gains
Net gain on foreign exchange trading

157

154

156

153

Net gain / (loss) on trading securities

57

(197)

57

(197)

Net gain / (loss) on trading derivatives

(4)

206

(3)

206

Net trading gains

210

163

210

162

Net funds management income

139

124

40

34

Net insurance income

186

110

34

39

Total funds management and insurance income

325

234

74

73

Net funds management and insurance income

Other operating income
Lending and credit facility fee income

55

57

55

57

Other fee income

569

566

690

635

Total fee income

624

623

745

692

Direct fee expense

(216)

(200)

(216)

(200)

Net fee income

408

423

529

492

Dividends received

-

-

140

256

Net ineffectiveness on qualifying fair value hedges

1

-

1

-

Net loss on derivatives not qualifying for hedge accounting

(7)

(56)

(7)

(61)

Net cash flow hedge gain transferred to income statement

41

21

41

21

Insurance settlement proceeds

91

-

91

-

Gain on sale of subsidiary and associates

-

13

-

37

Loss on sale of mortgages to NZ Branch

(23)

(14)

(23)

(14)

Other income

36

32

93

47

Total other operating income

547

419

865

778

ANZ Bank New Zealand Limited

20

Notes to the Financial Statements
5.

Expenses
Banking Group$ millions

Bank

Year toYear toYear toYear to30/09/2014

30/09/2013

30/09/2014

30/09/2013

229

170

-

-

Interest expense
Financial liabilities at fair value through profit or loss
Commercial paper
Financial liabilities not at fair value through profit or loss
2,425

2,284

4,101

3,769

Bonds and notes

791

791

173

153

Subordinated debt

57

79

58

79

Other

27

20

27

20

3,300

3,174

4,359

4,021

3,529

3,344

4,359

4,021

Personnel costs

716

702

689

646

Employee entitlements

69

71

67

66

Superannuation costs

38

43

38

42

Share-based payments expense

22

22

21

22

Building occupancy costs

41

41

4

(14)

Depreciation of premises and equipment

55

46

23

23

Leasing and rental costs

78

84

174

149

Technology expenses

137

114

122

97
(181)

Deposits and other borrowings

Total interest expense
Operating expenses

Reversal of impairment of investment in subsidiary

-

-

-

Amortisation of software and other intangible assets

30

52

25

45

Administrative expenses

170

188

159

176

Charges from Ultimate Parent Bank

81

84

81

84

Other costs

52

65

40

61

1,489

1,512

1,443

1,216

2,197

2,352

1,284

1,468

Review of regulatory returns

96

186

-

-

Prospectus assurance or review

249

120

-

-

Other assurance services3

151

100

115

43

Total other services

496

406

115

43

2,693

2,758

1,399

1,511

Total operating expenses$ thousands

Fees paid to auditor (KPMG New Zealand)1
Audit or review of financial statements2
Other services:

Total fees paid to auditor relating to the Bank and the Banking GroupFees paid on behalf of related entities and not recharged:
Subsidiaries and other members of ANZ New Zealand2,3

5

15

342

199

Other related entities4

147

181

63

94

Total fees paid to auditor

2,845

2,954

1,804

1,804

1
2
3
4

Comparative figures have been adjusted to include and show separately fees paid on behalf of other entities and which have not been recharged.
Includes fees for both the audit of the annual financial statements and reviews of interim financial statements.
Includes fees for controls reports, comfort letters and other agreed upon procedures engagements.
Amounts include fees for audits of annual financial statements and audits of summary financial statements for inclusion in prospectuses for ANZ PIE funds, and comfort
letters and other agreed upon procedures engagements for The Bonus Bonds Trust and ANZ Staff Foundation.

It is the Banking Group’s policy that, subject to the approval of the Ultimate Parent Bank’s Audit Committee, KPMG can provide
assurance and other audit-related services that, while outside the scope of the statutory audit, are consistent with the role of auditor.
KPMG may not provide services that are perceived to be in conflict with the role of auditor. Services that are perceived to be inconflict with the role of auditor include consulting advice and subcontracting of operational activities normally undertaken bymanagement, and engagements where the auditor may ultimately be required to express an opinion on its own work.

ANZ Bank New Zealand Limited

21

Notes to the Financial Statements
6.

Income Tax
Banking Group$ millions

Reconciliation of the prima facie income tax payable on profit
Profit before income tax

Bank

Year toYear toYear toYear to30/09/2014

30/09/2013

30/09/2014

30/09/2013

2,355

1,861

2,098

1,992

Prima facie income tax at 28%

659

521

587

558

Imputed and non-assessable dividends

(3)

(5)

(39)

(72)

Change in tax provisions

(10)

(10)

(10)

(10)

Non assessable income and non deductible expenditure

(8)

(17)

1

(60)

1

1

-

-

639

490

539

416

27.1%

26.3%

25.7%

20.9%

Current tax

531

409

465

331

Deferred tax

108

81

74

85

Total income tax expense recognised in the income statement

639

490

539

416

2,341

1,852

2,224

1,725

Income tax under provided in prior years
Total income tax expense
Effective tax rate (%)
Amounts recognised in the income statement

Imputation credits available

The Bank is a member of an imputation group and can access imputation credits of the imputation group. The imputation credit
balance for the Bank is the imputation credit balance of this imputation group. The imputation credit balance for the Banking Group
includes the imputation credit balance in relation to both the imputation group and other companies in the the Banking Group thatare not in the imputation group. The imputation credit balance available includes imputation credits that will arise from thepayment of the amount of provision for income tax as at the reporting date.
Banking Group$ millions

Bank

30/09/2014

30/09/2013

30/09/2014

30/09/2013

Deferred tax assets / (liabilities) comprise the following temporary differences:
186

231

178

221

Premises and equipment, software and intangibles

2

8

9

13

Provisions and accruals

61

77

53

62

Insurance policy assets

(127)

(108)

-

-

Financial instruments

3

(10)

3

(10)

Provision for credit impairment

9

15

-

-

(191)

(179)

(188)

(174)

Other deferred tax assets and liabilities (including tax provisions)

(3)

11

8

22

Net deferred tax assets / (liabilities)1

(60)

45

63

134

Carried forward losses
Lease finance1

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

ANZ Bank New Zealand Limited

22

Notes to the Financial Statements
7.

Segment Analysis

The Banking Group is organised into four major business segments for segment reporting purposes - Retail, Commercial, Wealth andInstitutional. Centralised back office and corporate functions support these segments. These segments are consistent with internalreporting provided to the chief operating decision maker, being the Bank’s Chief Executive Officer.
Segmental reporting has been updated to reflect minor changes to the Banking Group’s structure. Comparative data has beenadjusted to be consistent with the current year’s segment definitions.
RetailRetail provides products and services to personal customers via the branch network, mortgage specialists, the contact centre and avariety of self service channels (internet banking, phone banking, ATMs, website and mobile phone banking). Core products include
current and savings accounts, unsecured lending (credit cards, personal loans and overdrafts) and home loans secured by mortgages
over property. Retail distributes insurance and investment products on behalf of the Wealth segment.
Commercial
Commercial provides services to Business Banking, Commercial & Agri, and UDC customers. Business Banking services are offered tosmall enterprises (typically with annual revenues of less than $5 million). Commercial & Agri customers consist of primarily privately
owned medium to large enterprises. The Banking Group's relationship with these businesses ranges from simple banking
requirements with revenue from deposit and transactional facilities, and cash flow lending, to more complex funding arrangementswith revenue sourced from a wider range of products. UDC is principally involved in the financing and leasing of plant, vehicles andequipment, mainly for small and medium sized businesses, as well as investment products.
WealthWealth comprises the Private Wealth, Funds Management and Insurance businesses, which provide private banking, investment,
superannuation and insurance products and services.
Institutional
Institutional provides financial services through a number of specialised units to large multi-banked corporations, often global,
which require sophisticated product and risk management solutions. Those financial services include loan structuring, foreignexchange, wholesale money market services and transaction banking.
Other
Other includes treasury and back office support functions, none of which constitutes a separately reportable segment.

ANZ Bank New Zealand Limited

23

Notes to the Financial Statements
Business segment analysis1
Banking Group$ millions

Wealth2

RetailCommercial

External interest income

1,769

3,416

92

978

17

6,272

External interest expense(1,096)

(661)

(199)

(475)

(1,098)(3,529)Net intersegment interest

222(1,400)

166

(178)

1,190

-

Net interest income

895

1,355

59

325

109

2,743

Other external operating income

317

94

318

298

55

1,082

-

1

-

-

2

3

Operating income

1,212

1,450

377

623

166

3,828

Operating expenses

632

488

137

182

50

1,489

Profit before credit impairment and income tax

580

962

240

441

116

2,339

Credit impairment charge / (release)

25

(41)

(1)

1

-

(16)

Profit before income tax

555

1,003

241

440

116

2,355

Income tax expense

156

280

59

122

22

639

Profit after income tax

399

723

182

318

94

1,716

Depreciation and amortisation

17

2

5

-

61

85

Goodwill

547

1,434

180

1,072

-

3,233

Other intangible assets

30

2

126

-

63

221

Investment in associates

-

3

-

-

85

88

Total external assets

28,99561,182

2,526

34,728

1,484

128,915

Total external liabilities

34,94323,0895,316

28,86324,923

117,134

External interest income

1,722

3,155

88

985

7

5,957

External interest expense(1,056)

(607)

(200)

(420)

(1,061)(3,344)

Net intersegment interest

173(1,248)

149

(208)

1,134

-

Net interest income

839

1,300

37

357

80

2,613

Other external operating income

319

125

195

251

(74)

816

-

2

-

-

5

7

Operating income

1,158

1,427

232

608

11

3,436

Operating expenses

639

489

139

196

49

1,512

Profit before credit impairment and income tax

519

938

93

412

(38)

1,924

Credit impairment charge / (release)

55

(11)

(1)

20

-

63

Profit before income tax

464

949

94

392

(38)

1,861

Income tax expense

131

262

14

106

(23)

490

Profit after income tax

333

687

80

286

(15)

1,371

Institutional

Other

Total

30/09/2014

Share of associates' profit

Other information

30/09/2013

Share of associates' profit

Other information
Depreciation and amortisation

24

5

5

-

64

98

Goodwill

547

1,434

180

1,072

-

3,233

Other intangible assets

27

2

130

-

56

215

Investment in associates

-

3

-

-

95

98

Total external assets

28,20356,9352,261

31,555

1,490

120,444

Total external liabilities

32,383

20,3994,848

26,83524,525

108,99012Intersegment transfers are accounted for and determined on an arm's length or cost recovery basis.
Wealth other external operating income for the year ended 30 September 2014 includes the $91 million insurance settlement relating to the Bank’s former
involvement in the ING Diversified Yield Fund and the ING Regular Income Fund.

ANZ Bank New Zealand Limited

24

Notes to the Financial Statements
8.

CashBanking Group$ millions

Coins, notes and cash at bankers
Balances with central banks
Securities purchased under agreements to resell
Total cash

9.

30/09/2014

Bank

30/09/2013

30/09/2014

30/09/2013

204

187

204

187

1,309

1,709

1,309

1,709

309

310

309

310

1,822

2,206

1,822

2,206

30/09/2014

30/09/2013

30/09/2014

30/09/2013

Trading Securities
Banking Group$ millions

Bank

6,607

5,404

6,607

5,403

Certificates of deposit

378

551

378

551

Promissory notes

91

36

91

36

Other bank bonds

4,630

4,300

4,630

4,300

Government, local body stock and bonds

Other
Total trading securities

44

29

44

29

11,750

10,32011,750

10,319ANZ Bank New Zealand Limited

25

Notes to the Financial Statements
10. Derivative Financial Instruments
The use of derivatives and their sale to customers as risk management products is an integral part of the Banking Group’s trading
activities. Derivatives are also used to manage the Banking Group’s own exposure to fluctuations in exchange and interest rates aspart of its own asset and liability management activities.
Derivatives are subject to the same types of credit and market risk as other financial instruments and the Banking Group manages
these risks in a consistent manner.
Derivatives, except for those that are specifically designated as effective hedging instruments, are classified as held for trading.
Banking Group
Notional
principal
amountAssetsSpot and forward contracts

64,229

Swap agreements
Options purchased
Options sold$ millions

Bank

Liabilities

Notional
principal
amountAssetsLiabilities

1,464

1,234

64,229

1,464

1,234

146,852

5,368

4,950

146,852

5,368

4,950

2,528

47

1

2,528

47

1

2,381

1

36

2,381

1

36

215,990

6,880

6,221

215,990

6,880

6,221

Fair values

Fair values

30/09/2014

Derivatives held for trading
Foreign exchange derivatives

Interest rate derivatives
9,514

2

1

9,514

2

1

Swap agreements

694,051

4,180

3,782

702,020

4,184

3,814

Futures contracts

17,9302

517,930

2

5

Options purchased

1,607

2

-

1,607

2

-

840

1

3

840

1

3

723,942

4,187

3,791

731,911

4,191

3,823

346

22

21

346

22

21

940,278

11,08910,033

948,247

11,093

10,065

Forward rate agreements

Options soldCommodity derivatives
Total derivatives held for trading
Derivatives in hedging relationships
Fair value hedges
Foreign exchange swap agreements
Interest rate swap agreements

17

-

-

17

-

-

20,044219

64

20,044219

64

20,061219

64

20,061

219

64

Cash flow hedges
Interest rate swap agreements

18,86696

108

18,86696

108

Total derivatives in hedging relationships

38,927315

172

38,927315

172

Total derivative financial instruments

979,205

11,404

10,205987,174

11,408

10,237

ANZ Bank New Zealand Limited

26

Notes to the Financial Statements
Banking Group
Notional
principal
amountAssetsSpot and forward contracts

54,152

Swap agreements
Options purchased
Options sold30/09/2013$ millions

Bank

Liabilities

Notional
principal
amountAssetsLiabilities

568

987

54,152568

987

132,066

3,189

4,113

132,066

3,189

4,113

2,982

52

-

2,982

52

-

2,973

1

70

2,973

1

70

192,173

3,810

5,170

192,173

3,810

5,170

Fair values

Fair values

Derivatives held for trading
Foreign exchange derivatives

Interest rate derivatives
Forward rate agreements

15,877-2

15,877-

2

Swap agreements

530,909

5,441

4,888

535,791

5,445

4,897

Futures contracts

24,8572

624,857

2

6

Options purchased

1,098

4

-

1,098

4

-

Options sold

1,010

-

5

1,010

-

5

573,751

5,447

4,901

578,633

5,451

4,910

366

32

32

366

32

32

766,290

9,289

10,103771,172

9,293

10,112

Commodity derivatives
Total derivatives held for trading
Derivatives in hedging relationships
Fair value hedges
Foreign exchange swap agreements
Interest rate swap agreements

55

2

-

55

2

-

17,056137

41

17,056137

41

17,111

139

41

17,111

139

41

Cash flow hedges
Interest rate swap agreements

15,24090

99

15,24090

99

Total derivatives in hedging relationships

32,351229

140

32,351229

140

Total derivative financial instruments

798,641

9,518

10,243

803,523

9,522

10,252Derivatives held for trading
The held for trading classification includes two categories of derivative instruments: those held as trading positions and those used
for the Banking Group’s balance sheet risk management.
Trading positions
Trading positions consist of both sales to customers and market making activities. Sales to customers include the structuring andmarketing of derivative products to customers which enable them to take or mitigate risks. Market making activities consist ofderivatives entered into principally for the purpose of generating profits from short-term fluctuations in price or margins. Positions
may be traded actively or held over a period of time to benefit from expected changes in market rates.
Balance sheet risk management
The Banking Group designates certain balance sheet risk management derivatives into hedging relationships in order to minimise
income statement volatility. This volatility is created by differences in the timing of recognition of gains and losses between thederivative and the hedged item. Hedge accounting is not applied to all balance sheet risk management positions as some balance
sheet risk management derivatives are classified as held for trading.
Derivatives in hedging relationships
Fair value hedges
The Banking Group’s fair value hedges principally consist of interest rate swaps that are used to protect against changes in the fairvalue of fixed-rate long-term financial instruments due to movements in market interest rates.
Gain / (loss) on fair value hedges attributable to the hedged risk
Banking Group$ millions

30/09/2014

Bank

30/09/2013

30/09/2014

30/09/2013

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

(41)

72

(41)

72

- hedging instrument

42

(72)

42

(72)

Net ineffectiveness on qualifying fair value hedges

1

-

1

-

ANZ Bank New Zealand Limited

27

Notes to the Financial Statements
Cash flow hedges
The Banking Group’s cash flow hedges comprise interest rate swaps that are used to protect against exposures to variability in futureinterest cash flows on non-trading assets and liabilities which bear interest at variable rates or which are expected to be refunded or
reinvested in the future. The amounts and timing of future cash flows, representing both principal and interest flows, are projected
for each portfolio of financial assets and liabilities on the basis of their forecast repricing profile. This forms the basis for identifying
gains and losses on the effective portions of derivatives designated as cash flow hedges.
Analysis of the cash flow hedging reserve
Banking Group$ millions

Bank

30/09/2014

30/09/2013

30/09/2014

30/09/2013

Variable rate loan assets

(29)

(18)

(29)

(18)

Variable rate liabilities

-

15

-

15

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

22

29

22

29

Total cash flow hedging reserve

(7)

26

(7)

26

Deferred gain / (loss) attributable to hedges of:

All underlying hedged cash flows are expected to be recognised in the income statement in the period in which they occur, which isanticipated to take place over the next ten years (30/09/2013 ten years).

11. Available-for-sale Assets
Banking Group$ millions

Bank

30/09/2014

30/09/2013

30/09/2014

30/09/2013

Government, local body stock and bonds

522

742

522

742

Other debt securities

248

198

248

198

2

2

-

-

772

942

770

940

30/09/2014

30/09/2013

30/09/2014

30/09/2013

Overdrafts

1,744

1,841

1,744

1,841

Credit card outstandings

1,580

1,458

1,580

1,458

Term loans - housing

52,71749,521

52,71749,521

Term loans - non-housing

Equity securities
Total available-for-sale assets

12. Net Loans and Advances
Banking Group$ millions

Note

Bank

39,622

37,67338,12736,307Loans to subsidiaries--

15,834

12,193

Lease receivables

277

351

81

119

Hire purchase

837

721

-

-

Other

125

125

-

-

96,902

91,690110,083

101,439

(666)

(826)

(634)

(789)

Less: Unearned income

(212)

(214)

(56)

(68)

Add: Capitalised brokerage/mortgage origination fees

208

156

208

156

Total gross loans and advances
Less: Provision for credit impairment

Add: Customer liability for acceptances
Total net loans and advances

13

67

31

67

31

96,29990,837

109,668

100,769

The Bank has sold residential mortgages to the NZ Branch with a net carrying value of $9,176 million as at 30 September 2014
(30/09/2013 $9,256 million). These assets qualify for derecognition as the Bank does not retain a continuing involvement in thetransferred assets.

ANZ Bank New Zealand Limited

28

Notes to the Financial Statements
13. Provision for Credit Impairment
Credit impairment charge / (release)
Banking GroupBank

Non-retail
exposures

Retailmortgages

Other retail
exposures

New and increased provisions

50

120

111

Write-backs

(44)

(21)

(112)

Recoveries of amounts written off previously

(2)

(20)

(7)

(29)

Individual credit impairment charge / (release)

4

79

(8)

Collective credit impairment charge / (release)

(23)

1

(69)

Credit impairment charge / (release)

(19)

80

(77)

(16)

New and increased provisions

87

113

157

Write-backs

(75)

(30)

(104)

Recoveries of amounts written off previously

(2)

(16)

(5)

Individual credit impairment charge

1067Collective credit impairment release

(3)

(8)

Credit impairment charge / (release)

7

59

(3)

Retailmortgages

Other retail
exposures

Balance at beginning of the year

101

Charge / (release) to income statement(23)

Balance at end of the year

Non-retail
exposures

Retailmortgages

Other retail
exposures

281

50

114

94

258

(177)

(44)

(20)

(107)

(171)

(2)

(20)

(5)

(27)

75

4

74

(18)

60

(91)

(23)

3

(68)

(88)

(19)

77

(86)

(28)

357

87

113

149

349

(209)

(75)

(30)

(101)

(206)

(23)

(2)

(16)

(3)

(21)

48

125

10

67

45

122

(51)

(62)

(3)

(12)

(51)

(66)

63

7

55

(6)

56

Non-retail
exposures

Total

Retailmortgages

Other retail
exposures

Non-retail
exposures

Total

117

324

542

101

101

316

518

1

(69)

(91)

(23)

3

(68)

(88)

78

118

255

451

78

104

248

430

Balance at beginning of the year
New and increased provisions net of writebacks
Bad debts written off

74

22

188

284

74

22

175

271

6

99

(1)

104

6

94

(13)

87

(3)

(106)

(67)

(176)

(3)

(102)

(53)

(158)

Discount unwind reversal / (discount unwind)1

(5)

-

8

3

(5)

-

9

4

$ millions

Total

Total

30/09/2014

30/09/2013

Movement in provision for credit impairment
Banking Group$ millions

Bank

30/09/2014

Collective provision

Individual provision

Balance at end of the year

72

15

128

215

72

14

118

204

Total provision for credit impairment

150

133

383

666

150

118

366

634

Balance at beginning of the year

104

125

375

604

104

113

367

584

Release to income statement

(3)

(8)

(51)

(62)

(3)

(12)

(51)

(66)

Balance at end of the year

101

117

324

542

101

101

316

518

Balance at beginning of the year
New and increased provisions net of writebacks
Bad debts written off

119

26

305

450

119

26

287

432

12

83

53

148

12

83

48

143

(49)

(87)

(150)

(286)

(49)

(87)

(138)

(274)

Discount unwind1

(8)

-

(20)

(28)

(8)

-

(22)

(30)

30/09/2013

Collective provision

Individual provision

Balance at end of the year

74

22

188

284

74

22

175

271

Total provision for credit impairment

175

139

512

826

175

123

491

789

1

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

ANZ Bank New Zealand Limited

29

Notes to the Financial Statements
14. Impaired Assets
Banking Group$ millions
30/09/2014

Retailmortgages

Bank

Other retail
exposures

Non-retail
exposures

Total

Retailmortgages

Other retail
exposures

Non-retail
exposures

Total

877

Balance at beginning of the year

179

49

673

901

179

49

649

Transfers from productive

178

138

299

615

178

128

271

577

Transfers to productive

(41)

(4)

(153)

(198)

(41)

(3)

(152)

(196)

Assets realised or loans repaid

(124)

(42)

(342)

(508)

(124)

(37)

(324)

(485)

Write offs

(3)

(106)

(67)

(176)

(3)

(102)

(53)

(158)

Total impaired assets
Undrawn facilities with impaired
customers

189

35

410

634

189

35

391

615

1

-

38

39

1

-

38

39

1,312

30/09/2013

Balance at beginning of the year

313

44

1,009

1,366

313

44

955

Transfers from productive

268

134

408

810

268

134

385

787

Transfers to productive

(91)

(5)

(194)

(290)

(91)

(5)

(189)

(285)

Assets realised or loans repaid

(262)

(37)

(400)

(699)

(262)

(37)

(364)

(663)

Write offs

(49)

(87)

(150)

(286)

(49)

(87)

(138)

(274)

Total impaired assets
Undrawn facilities with impaired
customers

179

49

673

901

179

49

649

877

-

1

24

25

-

1

24

25

15. Investments in Subsidiaries and Associates
Banking Group$ millions

30/09/2014

Bank

30/09/2013

30/09/2014

30/09/2013

4,779

Investments in subsidiaries

-

-

4,664

Investments in associates

88

98

85

85

Total investments in subsidiaries and associates

88

98

4,749

4,864

The following table lists the principal subsidiaries of the Bank. Principal subsidiaries are those that have transactions or balances with parties outside
the Banking Group. All subsidiaries are 100% owned and incorporated in New Zealand unless stated otherwise.
Principal subsidiaries

Nature of business

ANZ Capital NZ Limited

Investment

ANZ Investment Services (New Zealand) Limited

Funds management

ANZ New Zealand (Int'l) Limited

Finance

ANZ New Zealand Investments Limited

Funds management

ANZ New Zealand Securities Limited

On-line share broker

ANZNZ Covered Bond Trust1

Securitisation entity

Arawata Assets Limited

Property

Arawata Finance Limited

Investment

AUT Investments Limited

Investment

Karapiro Investments Limited

Investment

Kingfisher NZ Trust 2008-11

Securitisation entity

OnePath Insurance Services (NZ) Limited

Insurance

OnePath Life (NZ) Limited

Insurance

UDC Finance Limited

Asset finance1

The Banking Group does not own ANZNZ Covered Bond Trust and Kingfisher NZ Trust 2008-1. Control exists as the Banking Group retains substantially all the risks andrewards of the operations. Details of the Banking Group’s interest in consolidated structured entities is included in note 34.

ANZ Bank New Zealand Limited

30

Notes to the Financial Statements
16. Other Assets
Banking Group$ millions

Bank

30/09/2014

30/09/2013

30/09/2014

30/09/2013

Accrued interest and prepaid discounts

426

374

551

462

Accrued commission

19

18

7

7

Share-based payments asset

60

62

60

62

Prepaid expenses

15

15

15

14

Other assets

128

98

68

64

Total other assets

648

567

701

609

17. Goodwill and Other Intangible Assets
Banking GroupBank$ millions

30/09/2014

30/09/2013

30/09/2014

30/09/2013

Goodwill

3,233

3,233

3,217

3,217

Software

96

84

95

82

Other intangibles

125

131

-

-

3,454

3,448

3,312

3,299

30/09/2013

30/09/2014

Total goodwill and other intangible assets

18. Deposits and Other Borrowings
Banking Group$ millions

Note

30/09/2014

Bank
30/09/2013

Certificates of deposit

1,376

2,364

1,376

2,364

Term deposits

34,75833,862

34,75833,862Other deposits bearing interest and other borrowings

34,027

29,68734,027

29,687

Deposits not bearing interest

6,001

5,526

6,001

5,526

Deposits from banks

226

180

47

180

Commercial paper

6,057

4,765

-

-

-

-

UDC secured investments

28

1,569

1,492

Deposits from other members of ANZ New Zealand

23

5

940

5

940

Deposits and other borrowings from subsidiaries

23

-

-

39,00933,246

84,01978,816115,223

105,805

Total deposits and other borrowings

Deposits from customers are unsecured and rank equally with other unsecured liabilities of the Banking Group. In the unlikely eventthat the Bank was put into liquidation or ceased to trade, secured creditors and those creditors set out in the Seventh Schedule of
the Companies Act 1993 would rank ahead of the claims of unsecured creditors.

ANZ Bank New Zealand Limited

31

Notes to the Financial Statements
19. Payables and Other Liabilities
Banking Group$ millions

30/09/2014

Bank

30/09/2013

30/09/2014

30/09/2013

Creditors

58

61

42

29

Accrued interest and unearned discounts

488

456

597

538

Defined benefit schemes deficit

20

60

20

60

Share-based payments liability

39

39

39

39

Accrued charges

227

252

182

205

Security settlements and short sales

226

143

226

143

Life insurance contract liabilities - reinsurance

104

100

-

-

Liability for acceptances

67

31

67

31

Other liabilities

68

53

36

44

1,297

1,195

1,209

1,089

30/09/2014

30/09/2013

30/09/2014

30/09/2013

Employee annual and long service leave

114

120

113

116

Other1

90

109

69

71

Total provisions

204

229

182

187

30/09/2014

30/09/2013

30/09/2014

30/09/2013

Total payables and other liabilities

20. Provisions
Banking Group$ millions

1

Bank

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

21. Bonds and Notes
Banking Group$ millions

Note

Bank

3,250

2,635

3,250

2,635

1

U.S. medium term notes

4,934

4,464

-

-

Euro medium term notes1

4,774

4,349

-

-

3,928

3,925

-

-

35

84

35

84

Total bonds and notes issued

16,921

15,457

3,285

2,719

Fair value hedge adjustment

129

69

-

-

Less bonds and notes held by the Bank

(8)

(32)

(8)

(32)

17,042

15,494

3,277

2,687

Domestic bonds

Covered bonds1

28, 34

Index linked notes

Total bonds and notes

Bonds and notes, other than covered bonds, are unsecured and rank equally with other unsecured liabilities of the Banking Group.
1

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

ANZ Bank New Zealand Limited

32

Notes to the Financial Statements
22. Subordinated Debt
Banking Group$ millions

Bank

30/09/2014

30/09/2013

30/09/2014

30/09/2013

NZD 835,000,000 perpetual subordinated bond 1

835

835

835

835

AUD 265,740,000 perpetual subordinated floating rate loan 1

298

299

298

299

AUD 10,000,000 perpetual subordinated floating rate loan
Total subordinated debt issued
Less subordinated debt instruments held by the Bank
Total subordinated debt
1

11

11

11

11

1,144

1,145

1,144

1,145

-

(1)

-

(1)

1,144

1,144

1,144

1,144

These instruments qualify as tier 2 capital under RBNZ’s transitional rules. Refer to Note 26 for further details.

Subordinated debt is subordinated in right of payment in the event of liquidation or wind up to the claims of depositors and all
creditors of the Bank.
Subordinated debt instruments are classified as debt reflecting an assessment of the key terms and conditions of the instruments,
and an assessment of the ability, and likelihood of interest payments being deferred. Certain of these instruments haveinterrelationships that have been considered in this assessment.
NZD 835,000,000 bondThis bond was issued by the Bank on 18 April 2008. The Bank did not elect to redeem the bond on 18 April 2013 (the First Call Date).
The Bank may elect to redeem the bond on 18 April 2018 (the Second Call Date) or any interest payment date subsequent to 18 April
2018. Interest is payable half yearly in arrears on 18 April and 18 October each year, up to and including the Second Call Date andthen quarterly thereafter. Should the bond not be called at the Second Call Date, the Coupon Rate from the Second Call Dateonwards will be set on a quarterly basis to the three month FRA rate plus 3.00%.
As at 30 September 2014, this bond carried a BBB+ rating by Standard and Poor's and an A3 rating by Moody’s.
The coupon interest on the bond was 9.66% until 18 April 2013 when it reset to 5.28% for the five year period to 18 April 2018.
This bond is listed on the New Zealand Exchange (NZX). The Market Surveillance Panel of the NZX granted the Bank a waiver fromthe requirements of Listing Rules 10.4 (relating to the provision of preliminary announcements of half yearly and annual results to
the NZX) and 10.5 (relating to preparing and providing a copy of half yearly and annual reports to the NZX).
AUD 265,740,000 loan
This loan was drawn down by the Bank on 27 September 1996 and has no fixed maturity. Interest is payable half yearly in arrears at
BBSW + 0.95% p.a., with interest payments due on 15 March and 15 September each year.
AUD 10,000,000 loan
This loan was drawn down by the Bank on 27 March 2013 and has no fixed maturity. Interest is payable half yearly in arrears on 15
March and 15 September each year. The bank may repay the loan on any interest payment date after both the NZD 835,000,000
bond and AUD 265,740,000 loan have been repaid in full.
Coupon interest is BBSW + 2.4% p.a., increasing to BBSW + 4.4% p.a. from 15 September 2018.

23. Related Party Transactions
Key management personnel
Key management personnel are defined as the Directors and senior management of the Banking Group - those persons having theauthority and responsibility for planning, directing and controlling the activities of the entity. The information below includes
transactions with those individuals, their close family members and their subsidiaries.
Loans made to and deposits held by key management personnel are made in the course of ordinary business on normal commercial
terms and conditions no more favourable than those given to other employees or customers. Loans are on terms of repayment that
range between fixed, variable and interest only, all of which have been made in accordance with the Bank's lending policies.
All transactions with key management personnel (including personally related parties) are conducted on an arm's length basis in theordinary course of business and on commercial terms and conditions. These transactions principally consist of the provision offinancial and investment services.

ANZ Bank New Zealand Limited

33

Notes to the Financial Statements
Banking Group$ thousands

Bank

Year toYear toYear toYear to30/09/2014

30/09/2013

30/09/2014

30/09/2013

Key management personnel compensation
12,402

13,21012,402

13,210Post-employment benefits

387

258

387

258

Other long-term benefits

130

76

130

76

-

123

-

123

Salaries and short-term employee benefits

Termination benefits
Share-based payments expense

5,400

5,693

5,400

5,693

Total compensation of key management personnel

18,31919,36018,31919,360Loans to key management personnel

7,661

5,741

7,661

5,741

Deposits from key management personnel

5,035

8,001

5,035

8,001

Loans to and deposits held by key management personnel

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

Banking GroupBank

Year toYear toYear toYear to30/09/2014

30/09/2013

30/09/2014

30/09/2013

Ultimate Parent Bank and subsidiaries not part of the Banking GroupInterest income

3

2

3

2

Interest expense

28

97

19

77

Fee income

26

25

26

25

Loss on sale of mortgages to the NZ Branch

(23)

(14)

(23)

(14)

Other operating income

116

16

116

16

Operating expenses

81

84

81

83

3,393

3,144

3,393

3,144
19

Mortgages sold to the NZ Branch
Immediate Parent Company
Interest expense

8

19

8

Ordinary shares issued

970

-

970

-

Preference shares issued

-

300

-

300

Interest income

-

-

630

506

Interest expense

-

-

1,343

1,619

Net funds management and insurance income

-

-

64

28

Dividends received

-

-

137

252

Operating expenses

-

-

161

139

Repayments of share capital received

-

-

115

1,907

Interest expense

3

2

3

2

Dividends received

-

-

4

4

Share of associates' profit

3

7

-

-

Subsidiaries

Associates

ANZ Bank New Zealand Limited

34

Notes to the Financial Statements
Balances with related parties
Banking Group$ millions

Bank

30/09/2014

30/09/2013

30/09/2014

30/09/2013

Cash

61

95

61

95

Settlement balances receivable

12

22

12

22

Collateral paid

125

-

125

-

3,747

1,911

3,747

1,911

83

65

83

65

-

2

-

2

Derivative financial instruments

-

-

4

4

Net loans and advances--

15,834

12,193

Other assets

-

-

129

90

Investments in subsidiaries

-

-

4,664

4,779

Ultimate Parent Bank and subsidiaries not part of the Banking Group

Derivative financial instruments
Other assets
Immediate Parent Company
Derivative financial instruments
Subsidiaries

Associates
Investments in associates
Total due from related parties

88

98

85

85

4,116

2,193

24,744

19,246

424

351

424

351

Ultimate Parent Bank and subsidiaries not part of the Banking Group
Settlement balances payable
Deposits and other borrowings

182

1

3

1

Derivative financial instruments

3,819

2,154

3,819

2,154
9

Payables and other liabilities

9

10

9

Bonds and notes

-

1,267

-

-

Subordinated debt

309

310

309

310

Deposits and other borrowings

4

939

4

939

Derivative financial instruments

1

14

1

14

Payables and other liabilities

1

1

1

1

Settlement balances payable

-

-

472

339

Deposits and other borrowings--

39,00933,246

Derivative financial instruments

-

-

34

9

Payables and other liabilities

-

-

240

183

Deposits and other borrowings

85

85

85

85

Total due to related parties

4,834

5,132

44,41037,641

Immediate Parent Company

Subsidiaries

Associates

Balances due from / to related parties are unsecured other than that the Banking Group and the Bank have provided guarantees andcommitments to related parties as follows:
Banking Group$ millions

Bank

30/09/2014

30/09/2013

30/09/2014

30/09/2013

Bonds and notes issued by ANZ New Zealand (Int'l) Limited to subsidiaries of the
Ultimate Parent Bank not part of ANZ New Zealand and guaranteed by the Bank
Financial guarantees provided to the Ultimate Parent Bank

-

-

-

1,267

180

181

180

181

Undrawn credit commitments provided to the Immediate Parent Company

250

250

250

250

-

-

1,225

2,566

Undrawn credit commitments provided to subsidiaries

ANZ Bank New Zealand Limited

35

Notes to the Financial Statements
24. Current and Non-current Assets and Liabilities
Assets and liabilities are classified as current if:•
it is expected they will be realised, consumed or settled in the normal operating cycle or within twelve months after the end of
the reporting date; or•they are held primarily for trading; or•they are assets that are cash or a cash equivalent; or•they are liabilities where there is no unconditional right to defer settlement for at least twelve months.
Non-current assets include premises and equipment and intangible assets as well as financial assets of a long-term nature. Noncurrent liabilities include financial and non-financial liabilities which are expected to be settled after twelve months from balancedate.
For the purposes of this disclosure, the fair value of both trading and hedging derivatives has been classified as current. For more
information on the contractual timing of expected outflows and inflows in relation to hedging derivatives refer to Note 27.

Banking Group
30/09/2014$ millions

Current

Bank
30/09/2014

30/09/2013

Non-current

Current

Current

Non-current

30/09/2013

Non-current

Current

Non-current

Assets
1,822

-

2,206

-

1,822

-

2,206

-

Settlement balances receivable

855

-

514

-

858

-

514

-

Collateral paid

783

-

1,002

-

783

-

1,002

-

11,750-

10,320-11,750-

10,319

-

190

-

169

3

-

-

-

-

11,404

-

9,518

-

11,408

-

9,522

-

-

-

-

-

7

-

62

-

Available-for-sale assets

437

335

567

375

435

335

565

375

Net loans and advances

26,451

69,84829,226

61,611

29,20180,46730,841

69,928

588

60

505

62

641

60

547

62

Insurance contract assets
Investments in subsidiaries andassociates
Deferred tax assets

-

470

-

399

-

-

-

-

-

88

-

98

-

4,749

-

4,864

-

-

-

45

-

63

-

134

Premises and equipment

-

380

-

376

-

54

-

61

Goodwill and other Intangible assets

-

3,454

-

3,448

-

3,312

-

3,299

54,28074,63554,02766,41756,90589,04055,57878,723

2,296

-

1,428

-

2,771

-

1,767

-

800

-

438

-

800

-

438

-

Deposits and other borrowings

80,201

3,818

76,262

2,554

87,21928,00479,035

26,770Derivative financial instruments

10,205-

10,243-

10,237-

10,252-

Cash

Trading securities
Investment backing insurance contract
liabilities
Derivative financial instruments
Current tax assets

Other assets

Total assets
Liabilities
Settlement balances payable
Collateral Received

Current tax liabilities

67

-

3

-

-

-

-

Deferred tax liabilities

-

60

-

-

-

-

-

-

1,238

59

1,096

99

1,150

59

990

99

Payables and other liabilities
Provisions
Bond and Notes
Subordinated debt
Total liabilities

117

87

137

92

97

85

99

88

3,944

13,098

3,338

12,156

599

2,678

402

2,285

-

1,144

-

1,144

-

1,144

-

1,144

98,86818,266

92,945

16,045

102,873

31,97092,98330,386

ANZ Bank New Zealand Limited

36

Notes to the Financial Statements
25. Share Capital
Bank and Banking Group

Number of issued shares$ millions

30/09/2014

30/09/2013

30/09/2014

30/09/2013

At beginning of the year

1,700,755,498

1,700,755,498

6,943

6,943

Issued during the year

970,000,000

-

970

-

2,670,755,498

1,700,755,498

7,913

6,943

300,000,000

-

300

-

-

300,000,000-300

Ordinary shares

Ordinary shares at end of the year
Preference shares
At beginning of the year
Issued during the year
Preference shares at end of the year
Total share capital

300,000,000

300,000,000

300

300

2,970,755,498

2,000,755,498

8,213

7,243

Ordinary shares
650,712 of the ordinary shares are uncalled (30/09/2013 650,712 shares uncalled).
During the year ended 30 September 2014 the Bank paid ordinary dividends of $2,340 million (30/09/2013 $1,065 million) to the
Immediate Parent Company (equivalent to $1.20 per share) (30/09/2013 equivalent to $0.63 per share).
All ordinary shares share equally in dividends and any proceeds available to ordinary shareholders on winding up of the Bank. On ashow of hands every member who is present at a meeting in person or by proxy or by representative is entitled to one vote, andupon a poll every member shall have one vote for each share held.
Preference shares
All preference shares were issued by the Bank to the Immediate Parent and do not carry any voting rights. The preference shares arewholly classified as equity instruments as there is no contractual obligation for the Bank to either deliver cash or another financial
instrument or to exchange financial instruments on a potentially unfavourable basis. The key terms of the preference shares are as
follows:
Dividends
Dividends are payable at the discretion of the directors of the Bank and are non-cumulative. The Bank must not resolve to pay any
dividend or make any other distribution on its ordinary shares until the next preference dividend payment date if the Directors electto not pay a dividend on the preference shares.
Should the Bank elect to pay a dividend, the dividend is payable at 72% of BKBM + 3.25% p.a., with dividend payments due on 1
March and 1 September each year, beginning on 1 March 2014.
Redemption features
The preference shares are redeemable, subject to prior written approval of the RBNZ, by the Bank providing notice in writing toholders of the preference shares:•
on any date on or after a change to laws or regulations that adversely affects the regulatory capital or tax treatment of thepreference shares; or•on any dividend payment date on or after 1 March 2019; or•on any date after 1 March 2019 if the Bank has ceased to be a wholly owned subsidiary of the Ultimate Parent Bank.
The preference shares may be redeemed for nil consideration should a non-viability trigger event occur.
Rights of holders in event of liquidation
In the event of liquidation, holders of preference shares are entitled to available subscribed capital per share, pari passu with all
holders of existing preference shares but in priority to all holders of ordinary shares. They have no entitlement to participate infurther distribution of profits or assets.
The preference shares qualify as “additional tier 1 capital” for capital adequacy purposes.

ANZ Bank New Zealand Limited

37

Notes to the Financial Statements
26. Capital Adequacy
Capital management policies
The Banking Group’s core capital objectives are to:•Protect the interests of depositors, creditors and shareholders;•
Ensure the safety and soundness of the Banking Group’s capital position; and•Ensure that the capital base supports the Banking Group’s risk appetite, and strategic business objectives, in an efficient andeffective manner.
The Board holds ultimate responsibility for ensuring that capital adequacy is maintained. This includes: setting, monitoring andobtaining 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 economic risk capital
principles; and risk appetite.
The Banking Group has minimum and trigger levels for common equity tier 1, tier 1 and total capital that ensure sufficient capital ismaintained to:•
Meet minimum prudential requirements imposed by regulators;•
Ensure consistency with the Banking Group’s overall risk profile and financial positions, taking into account its strategic focus
and business plan; and•Support the economic risk capital requirements of the business.
The Banking Group’s Asset & Liability Committee 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 conducted by Internal Audit.
The Banking Group has complied with all externally imposed capital requirements to which it is subject during the current andcomparative periods.
Basel III capital ratios

Banking GroupBank

30/09/2014

30/09/2013

30/09/2014

30/09/2013

Common equity tier 1 capital

10.7%

10.4%

9.4%

9.2%

Tier 1 capital

11.1%

10.8%

9.8%

9.7%

Total capital

12.3%

12.4%

11.1%

11.3%

Buffer ratio

4.3%

4.4%

Common equity tier 1 capital

4.5%

4.5%

Tier 1 capital

6.0%

6.0%

Total capital

8.0%

8.0%

Buffer requirement

2.5%

n/a

Unaudited

RBNZ minimum ratios:

ANZ Bank New Zealand Limited

38

Notes to the Financial Statements
Capital of the Banking Group
Unaudited$ millions

30/09/2014

Tier 1 capital
Common equity tier 1 capital
Paid up ordinary shares issued by the Bank

7,913

Retained earnings (net of appropriations)

3,575
(7)

Accumulated other comprehensive income and other disclosed reserves
Less deductions from common equity tier 1 capital(3,441)

Goodwill and intangible assets, net of associated deferred tax liabilities

7

Cash flow hedge reserve
Expected losses to the extent greater than total eligible allowances for impairment(221)

Common equity tier 1 capital

7,826
300

Additional tier 1 capital - preference shares

8,126

Total tier 1 capital
Tier 2 capital
NZD 835,000,000 perpetual subordinated bond

835

AUD 265,740,000 perpetual subordinated loan

298

Less deductions from tier 2 capitalBasel III transition adjustment1

(197)

936

Total tier 2 capital

9,062

Total capital

Capital requirements of the Banking Group$ millions

Exposure atdefault

Risk weighted
exposure or
implied risk
weighted
exposure2

Total capitalrequirement

Unaudited 30/09/2014

132,42152,144

4,172

Specialised lending exposures subject to slotting approach

8,736

8,234

659

Exposures subject to standardised approach

2,323

336

26

90

381

31

Exposures subject to internal ratings based approach

Equity exposures
Other exposures

2,729

1,289

103

Total credit risk

146,299

62,384

4,991

Operational risk

n/a

5,336

427

Market risk

n/a

5,707

456

146,299

73,427

5,874

Total
1

2

These instruments qualify as tier 2 capital under the RBNZ’s transitional rules. Fixing the base at the nominal amount of such instruments outstanding at 31 December
2012, their recognition is capped at 80% of that base from 1 January 2014; 60% from 1 January 2015; 40% from 1 January 2016; 20% from 1 January 2017; and from 1
January 2018 onwards these instruments will not be included in regulatory capital.
Total credit risk weighted exposures include a scalar of 1.06 in accordance with the Bank's Conditions of Registration.

ANZ Bank New Zealand Limited

39

Notes to the Financial Statements
Implementation of the advanced internal ratings based approach to credit risk measurement
The Banking Group adheres to the standards of risk grading and risk quantification as set out for Internal Ratings Based (IRB) banks in
the RBNZ document Capital Adequacy Framework (Internal Models Based Approach) (BS2B).
Under this IRB Framework banks use their own measures for calculating the level of credit risk associated with customers andexposures, by way of the primary components of:
Probability of Default (PD): An estimate of the level of risk of borrower default graded by way of rating models used both at loan
origination and for ongoing monitoring;
Exposure at Default (EAD): The expected facility exposure at default. Total credit risk-weighted exposures include a scalar of 1.06 in
accordance with the Bank’s Conditions of Registration; andLoss Given Default (LGD): An estimate of the potential economic loss on a credit exposure, incurred as a consequence of obligor
default and expressed as a percentage of the facility’s EAD. For Retail Mortgage exposures the Bank is required to apply the
downturn LGDs according to loan to value (LVR) bands as set out in BS2B. For farm lending exposures the Banking Group is required
to adopt RBNZ prescribed downturn LVR based LGDs, along with a minimum maturity of 2.5 years and the removal of the firm-size
adjustment.
For exposures classified under Specialised Lending, the Banking Group uses slotting tables supplied by the RBNZ rather than internal
estimates.
The exceptions to IRB treatment are three minor portfolios where, due to systems constraints, determining these IRB risk estimates is
not currently feasible or appropriate. Risk weights for these exposures are calculated under a separate treatment as set out in the
RBNZ document Capital Adequacy Framework (Standardised Approach) (BS2A).
Classification of Banking Group exposures according to rating approach
Internal ratings based approach
IRB Asset Class

Borrower Type

Rating Approach

SovereignCrown

IRB - Advanced

RBNZ

IRB - Advanced

Any other sovereign and its central bank

IRB - Advanced

Bank

Registered banks

IRB - Advanced

Corporate

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

IRB - Advanced

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

IRB - Advanced

Retail Mortgages

Individuals' borrowings against residential property

IRB - Advanced

Other Retail

Other lending to individuals (including credit cards)

IRB - Advanced

SME business borrowers

IRB - Advanced

Project finance

IRB - Slotting

Income producing real estate

IRB - Slotting

Corporate sub-class- Specialised lending
EquityIRB

Other assets

All other assets not falling within any of the above classes

IRB

Standardised approach
Exposure class

Exposure Type

Reason for Standardised Approach

Future Treatment

Corporate

Merchant card prepayment exposures

System constraints

Move to IRB

Corporate credit cards

System constraints

Move to IRB

Qualifying Central Counterparty (QCCP)

Required by Basel III

Standardised

Bank

ANZ Bank New Zealand Limited

40

Notes to the Financial Statements
Controls surrounding credit risk rating systems
The term “Rating Systems” covers all of the methods, processes, controls, data collection and technology that support theassessment of credit risk, the assignment of internal credit risk ratings and the quantification of associated default and loss estimates.
All material aspects of the Rating Systems and risk estimate processes are governed by the Banking Group’s Risk Committee. Risk
grades are an integral part of reporting to senior management and executives. Management and staff of credit risk functions, inconjunction with the relevant Retail and Wholesale Risk Committees, regularly assess the performance of the rating systems, identify
any areas for improvement and monitor progress on previously identified development work needed.
The Banking Group's Rating Systems are governed by a comprehensive framework of controls that operate at the business unit andsupport centres, and through central audit and validation processes. All policies, model designs, model reviews, methodologies,
validations, responsibilities, systems and processes supporting the ratings systems are fully documented.
The Banking Group's Retail and Wholesale ratings functions work closely with the Ultimate Parent Bank's risk ratings functions, areindependent of operational lending activities and are responsible for the ratings strategies and ongoing management of credit risk
models within New Zealand. The annual review of models used across the Banking Group is a function undertaken by the ANZ
Decision Model Validation Unit, which is also independent of credit risk operational functions and is responsible for overseeing thedesign, implementation and performance of all rating models in the Banking Group.
The target approach to modelling for the Banking Group is to deploy the model most suitable for the environment. At present thisinvolves an approach to modelling that combines models developed in New Zealand and models developed by the Ultimate Parent
Bank, tested and validated for use in New Zealand, as appropriate.
Capital requirements by asset class under the IRB approach

Unaudited 30/09/2014

Total exposure
or principal
amount$m

Exposureweighted LGD
used for the
Exposure at
capitaldefault
calculation$m%

Exposureweighted risk Risk weighted
weightexposure%$m

Total capitalrequirement$mOn-balance sheet exposures
Corporate

33,73133,85435

54

19,491

1,559

Sovereign

9,864

9,686

5

1

117

9

Bank

3,971

3,456

59

26

946

76

Retail mortgages

50,71250,94421

25

13,697

1,097

4,753

4,855

76

96

4,939

395

103,031102,795

28

36

39,1903,136

Corporate

12,150

10,132

51

47

5,048

404

Sovereign

186

106

5

1

1

-

Bank

1,491

1,145

52

18

215

17

Retail mortgages

6,386

6,712

17

16

1,124

90

Other retail
Total on-balance sheet exposures
Off-balance sheet exposures

Other retail

5,462

5,143

79

56

3,051

244

Total off-balance sheet exposures

25,67523,238

47

38

9,439

755

Corporate

86,019

2,310

63

73

1,779

142

Sovereign

10,942

408

5

28

122

10

Bank

656,396

3,670

64

41

1,614

129

Total market related contracts

753,357

6,388

60

52

3,515

281

Total credit risk exposures subject to the IRB approach

882,063

132,42133

37

52,1444,172

Market related contracts

ANZ Bank New Zealand Limited

41

Notes to the Financial Statements
IRB exposures by customer credit rating

Unaudited 30/09/2014

Probability ofdefault%

Exposureweighted LGD
used for the
Exposure at
capitaldefault
calculation$m%

Exposureweighted risk Risk weighted
exposure
weight%$m

Total capitalrequirement$m

Corporate
0-2

0.05

5,348

65

34

1,930

154

3-4

0.31

24,95237

40

10,578

846

5

1.00

9,910

36

64

6,686

535

6

2.23

4,350

39

86

3,945

316

7-8

7.41

1,175

40

134

1,674

134

Default

100.00

561

47

253

1,505

120

2.00

46,29640

54

26,318

2,105

0

0.01

9,320

5

2

223

18

1-8

0.02

880

5

2

17

1

Total sovereign exposures

0.01

10,200

5

2

240

19

Total corporate exposures
Sovereign

Bank
0

0.03

23

65

11

3

-

1

0.03

6,407

60

29

1,979

158

2-4

0.09

1,810

62

40

758

61

5-8

1.21

31

63

107

35

3

Total bank exposures

0.05

8,271

60

32

2,775

222

0-3

0.20

13,014

12

5

662

53

4

0.46

19,939

19

15

3,089

247

5

0.93

18,864

25

34

6,764

541

6

2.04

4,868

29

67

3,450

276

7-8

5.24

521

29

111

616

49

Default

100.00

450

26

50

240

21

1.51

57,65620

24

14,821

1,187

Retail mortgages

Total retail mortgages exposures
Other retail
0-2

0.10

670

78

48

344

28

3-4

0.30

4,759

78

55

2,797

224

5

1.13

1,597

71

75

1,278

102

6

2.60

1,580

76

96

1,609

129

7-8

9.56

1,306

88

135

1,875

150

Default

100.00

86

79

94

87

6

Total other retail exposures

2.85

9,998

78

75

7,990

639

Total credit risk exposures subject to the IRB approach

1.57

132,42133

37

52,1444,172

Credit risk exposures subject to the IRB approach have been derived in accordance with BS2B and other relevant correspondencewith RBNZ setting out prescribed credit risk estimates.

ANZ Bank New Zealand Limited

42

Notes to the Financial Statements
Specialised lending subject to the slotting approach
Exposure atdefault

Risk weight

Risk weighted
exposure

Total capitalrequirement

$m

%

$m

$m

Strong

2,150

70

1,596

128

Good

Unaudited 30/09/2014

On-balance sheet exposures
4,278

90

4,081

326

Satisfactory

862

115

1,051

84

Weak

132

250

345

28

Default

135

-

-

-

7,557

88

7,073

566

Average risk Risk weighted
weightexposure

Total capitalrequirement

Total on-balance sheet exposures

ExposureamountExposure atdefault

$m

$m

%

$m

$m

Undrawn commitments and other off balance sheet exposures

1,455

1,117

91

1,079

86

Market related contracts

2,073

62

124

82

7

Total off-balance sheet exposures

3,528

1,179

93

1,161

93

Off-balance sheet exposures

Specialised lending exposures subject to the slotting approach have been calculated in accordance with BS2B.
The supervisory categories of specialised lending above are associated with specific risk-weights. These categories broadly
correspond to the following external credit assessments using Standard & Poor's rating scale, Strong: BBB- or better, Good: BB+ or
BB, Satisfactory: BB- or B+ and Weak: B to C-.
Credit risk exposures subject to the standardised approach
Exposure atdefault$m

Risk weight%

Risk weighted
exposure$m

Total capitalrequirement
$m

59

100

62

5

Default

1

150

1

-

Total on-balance sheet exposures

60

101

63

5

Average risk Risk weighted
weightexposure%$m

Total capitalrequirement$m

Unaudited 30/09/2014

On-balance sheet exposures
Corporates

Exposureamount$m

Averagecreditconversion
factor%Exposure atdefault$m

Off-balance sheet exposures
526

47

246

88

230

18

Market related contracts

231,640

1

2,017

2

43

3

Total off balance sheet

232,166

n/a

2,263

11

273

21

Exposure atdefault$m

Risk weight%

Risk weighted
exposure$m

Total capitalrequirement
$m

90

400

381

31

Undrawn commitments and other off balance sheet exposures

Credit exposures subject to the Standardised Approach have been calculated in accordance with BS2A.
Equity exposures
Unaudited 30/09/2014

All equity holdings not deducted from capital

Equity exposures have been calculated in accordance with BS2B.

ANZ Bank New Zealand Limited

43

Notes to the Financial Statements
Other exposures
Unaudited 30/09/2014

Exposure at default$mRisk weight%

Risk weighted
exposure$m

Total capitalrequirement
$m

-

204

-

-

New Zealand dollar denominated claims on the Crown and the RBNZ

1,309

-

-

-

Other assets

1,216

100

1,289

103

Total other IRB credit risk exposures

2,729

45

1,289

103

Cash

Other exposures have been calculated in accordance with BS2B.
Credit risk mitigation
The Banking Group assesses the integrity and ability of counterparties to meet their contractual financial obligations for repayment.
The Banking Group generally takes collateral security in the form of real property or a security interest in personal property, except
for major government, bank and corporate counterparties of strong financial standing. Longer term consumer finance, in the form of
housing loans, is generally secured against real estate while short term revolving consumer credit is generally unsecured.
As at 30 September 2014, under the IRB approach, the Banking Group had $1,121 million of Corporate exposures covered byguarantees where the presence of the guarantees was judged to reduce the underlying credit risk of the exposures. Information on
the total value of exposures covered by financial guarantees and eligible financial collateral is not disclosed, as the effect of theseguarantees and collateral on the underlying credit risk exposures is not considered to be material.
Operational risk
The Banking Group uses the Advanced Measurement Approach for determining its regulatory capital requirement for operationalrisk calculated in accordance with BS2B. As at 30 September 2014 the Banking Group had an implied risk weighted exposure of$5,336 million for operational risk and an operational risk capital requirement of $427 million.
Operational risk capital is modelled at a New Zealand geographic level and then distributed and adjusted for the businessenvironment and internal controls down to the business units using the Risk Scenario Methodology. This methodology ensures that
there is sufficient operational risk capital held as a buffer for rare and severe unexpected operational loss events that may impact the
New Zealand business. The Methodology applies a combination of expert judgement, business unit risk profiles, audit findings, andinternal and external loss events to derive a series of business specific Risk Scenarios that are applied to the capital model. The Risk
Scenario approach•assesses the level of the Bank's exposure to specified risk scenarios;•
assesses the scope and quality of the Bank's internal control environment, key operational processes and risk mitigants; and•directly links the risk scenarios to operational risk capital.
The Banking Group's operating risk capital is calculated using the Ultimate Parent Bank’s methodology, but with standalone New
Zealand inputs to ensure there are no diversification benefits.
The Banking Group does not incorporate any insurance mitigation impact into its capital number. Accordingly, there are no
insurance related questions contained within the Risk Scenario Methodology.
Market risk
The aggregate market risk exposures below have been calculated in accordance with BS2B. The peak end-of-day market risk
exposures are for the half-year ended 30 September 2014.
Implied risk weighted exposure$ millions

Aggregate capital charge

Peak

Period end

Peak

Period end

Peak

5,653

5,829

452

466

26/09/2014

52

162

4

13

16/07/2014

2

2

-

-

1/07/2014

occurred on

Unaudited 30/09/2014

Interest rate risk
Foreign currency risk
Equity risk

5,707

456

ANZ Bank New Zealand Limited

44

Notes to the Financial Statements
Pillar II capital for other material risks
The Banking Group has an Internal Capital Adequacy Assessment Process (ICAAP) which complies with the requirements of theBank's Conditions of Registration.
Under the Banking Group's ICAAP it identifies and measures all "other material risks", which are those material risks that are notexplicitly captured in the calculation of the Banking Group's tier 1 and total capital ratios. The other material risks identified by the
Banking Group include business risk, pension risk, insurance risk, funds management risk, lapse risk, premises and equipment risk
and capitalised origination fees risk.
The Banking Group's internal capital allocation for these other material risks is $369 million (30/09/2013 $343 million).
The Banking Group regularly reviews the methodologies used to calculate the economic capital allocated to other material risks.
Updated capital methodologies (particularly relating pension risk and business retention risk) were applied in November 2013 andprior periods restated accordingly.
Capital adequacy of the Ultimate Parent Bank
Basel III capital ratios
Overseas Banking Group
30/09/2014

30/09/2013

Ultimate Parent Bank
(Extended Licensed Entity)
30/09/2014

30/09/2013

Unaudited

Common equity tier 1 capital

8.8%

8.5%

9.1%

8.5%

Tier 1 capital

10.7%

10.4%

11.3%

10.6%

Total capital

12.7%

12.2%

13.4%

12.5%

For calculation of minimum capital requirements under Pillar 1 (Capital Requirements) of the Basel Accord, APRA has accredited theOverseas Banking Group to use the Advanced Internal Ratings Based (AIRB) methodology for calculation of credit risk weighted
assets and the Advanced Measurement Approach (AMA) for the operational risk weighted asset equivalent.
Under prudential regulations, the Overseas Banking Group is required to maintain a Prudential Capital Ratio (PCR) as determined by
APRA. The Overseas Banking Group exceeded the PCR set by APRA as at 30 September 2014 and for the comparative prior periods.
The Overseas Banking Group is required to publicly disclose Pillar 3 financial information as at 30 September 2014. The Overseas
Banking Group’s Pillar 3 disclosure document for the quarter ended 30 September 2014, in accordance with APS 330: Public
Disclosure of Prudential Information, discloses capital adequacy ratios and other prudential information. This document can beaccessed at the website anz.com.

ANZ Bank New Zealand Limited

45

Notes to the Financial Statements
Residential mortgages by loan-to-valuation ratio
As required by the RBNZ, LVRs are calculated as the current exposure secured by a residential mortgage divided by the Banking
Group's valuation of the security property at origination of the exposure. Off balance sheet exposures include undrawn and partiallydrawn residential mortgage loans as well as commitments to lend. Commitments to lend are formal offers for housing lending whichhave been accepted by the customer.
30/09/2014
UnauditedOn-balancesheet

Off-balance
sheet

Total

Does not exceed 60%

19,161

3,531

22,692

Exceeds 60% and not 70%

9,445

982

10,427

Exceeds 70% and not 80%

15,151

1,440

16,591

Does not exceed 80%

43,757

5,953

49,710Exceeds 80% and not 90%

4,489

211

4,700

Exceeds 90%

2,466

222

2,688

Total

50,712

6,386

57,098Note

30/09/2014

12

52,717$ millions

LVR range

Reconciliation of mortgage related amounts
Unaudited$ millions

Term loans - housing
Add: fair value hedging adjustment

23

Add: short-term housing loans classified as overdrafts

490(2,592)

Less: housing loans made to corporate customers
Gross retail mortgage loans
Add: Unsettled re-purchases of mortgages from the NZ BranchOn-balance sheet retail mortgage exposures subject to the IRB approach

27

50,63874
50,712

Add: off-balance sheet retail mortgage exposures subject to the IRB approach

6,386

Total retail mortgage exposures subject to the IRB approach (as per LVR analysis)

57,098ANZ Bank New Zealand Limited

46

Notes to the Financial Statements
27. Financial Risk Management

quality reporting, and development of credit standards andpolicies.

Strategy in using financial instruments

The credit risk management framework is top down. The
framework is defined by the Banking Group's credit
principles and policies. The effectiveness of the credit risk
management framework is validated through thecompliance and monitoring processes.

Financial instruments are fundamental to the Banking
Group’s business, constituting the core element of its
operations. Accordingly, the risks associated with financial
instruments are a significant component of the risks faced by
the Banking Group. Financial instruments create, modify or
reduce the credit, market and liquidity risks of the Banking
Group’s balance sheet. The Banking Group’s overall risk
management programme focuses on the unpredictability offinancial markets and seeks to minimise potential adverse
effects on the financial performance of the Banking Group.
The risk management and policy control framework
applicable to the entities comprising the Banking Group has
been set by the Board and Risk Committee of the Bank or the
Ultimate Parent Bank, as appropriate. Likewise oversight andmonitoring of material risk exposures of the Banking Group isundertaken by the Risk Management functions of the Bankand also the Ultimate Parent Bank. Throughout thisdocument, references to the Risk Management of theoperations within the entities comprising the Banking Group,
implicitly involves oversight by both related entities.

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

Risk Management's responsibilities for credit risk policy andmanagement are executed through dedicated departments,
which support the business units. All major business unit
credit decisions require approval from both business writers
and independent risk personnel.
Credit risk is controlled through a combination of approvals,
limits, reviews and monitoring procedures that are carriedout on a regular basis, the frequency of which is dependent
upon the level of risk. Credit risk policy and management is
executed through the Chief Risk Officer, who is responsible
for various dedicated areas within the Risk Management
division. Wholesale Risk services the Banking Group'scommercial, investment banking and rural lending activities
through dedicated teams. Retail Risk services the Banking
Group's small business and consumer customers. The Credit
Reporting team within Risk Management provides an
independent overview of credit risk across the Bank at a
portfolio level. The Banking Group allows sole discretion fortransaction approvals at the business unit level in both theretail and wholesale lending sectors, with larger transactions
approved by Retail Risk and Wholesale Risk.
The credit risk review function within Global Internal Audit
also provides a further independent check mechanism toensure the quality of credit decisions. This includes providing
independent periodic checks on asset quality andcompliance with the agreed standards and policies acrossthe Banking Group.
Country risk management
Some customer credit risks involve country risk, whereby
actions or events at a national or international level could
disrupt servicing of commitments. Country risk arises when
payment or discharge of an obligation will, or could, involvethe flow of funds from one country to another or involve
transactions in a currency other than the domestic currencyof the relevant country.
Country ratings are assigned to each country where the
Banking Group incurs country risk and have a direct bearing
on the Banking Group's risk appetite for each country. The
country rating is determined through a defined
methodology based around external ratings agencies’ ratingsand internal specialist opinion. It is also a key risk
consideration in the Banking Group's capital pricing model
for cross border flows.
The recording of country limits provides the Banking Group
with a means to identify and control country risk. Country
limits ensure that there is a country-by-country ceiling on
exposures that involve country risk. They are recorded bytime to maturity and purpose of exposure, e.g., trade,markets and project finance. Country limits are managed
centrally by the Ultimate Parent Bank, through a global
country risk exposure management system managed by aspecialist unit within Institutional Risk.

ANZ Bank New Zealand Limited

47

Notes to the Financial Statements
Portfolio stress testing
Stress testing is integral to strengthening the predictive
approach to Risk Management and is a key component tomanaging risk appetite and business writing strategies. It
creates greater understanding of impacts on financial
performance through modelling relationships andsensitivities between geographic, industry and business unit
exposures under a range of macro economic scenarios.
The Ultimate Parent Bank has a dedicated stress testing teamthat assists business and risk executives in the Banking Groupto model and report periodically to management and theBoard Risk Committee on a range of scenarios and stresstests.
Portfolio analysis and reporting
Credit portfolios are actively monitored at each layer of therisk structure to ensure credit deterioration is quickly
detected and mitigated through the implementation ofremediation strategies.
Businesses incurring credit risk undertake regular andcomprehensive analysis of their credit portfolios. Issue
identification and adherence to performance benchmarks
are reported to Risk Management and business executives
through a series of reports including monthly ‘asset quality’
reporting. This process is undertaken by or overseen by Risk
Management ensuring an efficient and independent conduit
exists to identify and communicate emerging credit issues to
Banking Group executives and the Board.
Collateral management
Banking Group credit principles specify lending only what
the counterparty has the capacity and ability to repay andthe Banking Group sets limits on the acceptable level ofcredit risk. Acceptance of credit risk is firstly based on the
counterparty’s assessed capacity to meet contractual
obligations (i.e., interest and capital repayments). Obtaining
collateral is only used to mitigate credit risk. Procedures aredesigned to ensure collateral is managed, legally
enforceable, conservatively valued and adequately insured
where appropriate. Banking Group policy sets out the typesof acceptable collateral, including:
•
Cash;
•
Mortgages over property;•
Charges over business assets, e.g., premises, stock anddebtors;•
Charges over financial instruments, e.g., debt securities
and equities in support of trading facilities; and•Financial guarantees.
In the event of customer default, any loan security is usually
held as mortgagee in possession while action is taken to

realise it. Therefore the Banking Group does not usually hold
any real estate or other assets acquired through theenforcement of security.
The Banking Group uses ISDA Master Agreements to
document derivatives' activities to limit exposure to credit
losses. The credit risk is reduced by a master agreement to
the extent that, if an event of default occurs, all contracts
with the counterparty are terminated and settled on a net
basis. Further, it is the Banking Group's preferred practice toinclude all products covered by the ISDA in the Credit
Support Annex (CSA) in order to achieve further credit
exposure reduction. Under a CSA, collateral is passed
between the parties, depending on the aggregate mark-tomarket (positive or negative) of derivative trades between
the two entities, to mitigate the market contingent
counterparty risk inherent in the outstanding positions.
Concentrations of credit risk
Concentrations of credit risk arise when a number ofcustomers are engaged in similar business activities or
activities within the same geographic region, or when they
have similar risk characteristics that would cause their ability
to meet contractual obligations to be similarly affected bychanges in economic or other conditions.
The Banking Group monitors its portfolios to identify andassess risk concentrations. Concentration limits are used toguard against large single customer or correlated credit risks.
Risk Management, Business Unit executives and senior
management monitor large exposure concentrations
through a monthly list of the Banking Group's top corporate
exposures. The ANZ Credit and Market Risk Committee and
Board Risk Committee regularly review a comprehensive listof single customer concentration limits and customers’
adherence to these limits.
Analyses of financial assets by industry sector are based on
Australian and New Zealand Standard Industrial Classification(ANZSIC) codes. Notes on the following tables:
1 Government and local authority includes exposures togovernment administration and defence, education andhealth and community services.
2 Other includes exposures to electricity, gas and water,
communications and personal services.
3 Net loans and advances exclude individual andcollective provisions for credit impairment held inrespect of credit related commitments.
4 Credit related commitments comprise undrawn
facilities, customer contingent liabilities and letters ofoffer.

ANZ Bank New Zealand Limited

48

Notes to the Financial Statements
Banking GroupCash,settlements
receivable andcollateral paid

Tradingsecurities andavailable-forsale assets

Derivative
financial
instruments

Net loans andadvances 3Agriculture

-

-

9

17,36276

1,364

Forestry, fishing and mining

-

-

8

1,122

5

914

2,049

Business and property services

-

-

16

9,504

42

2,499

12,061

Construction

-

-

-

1,214

5

935

2,154

30/09/2014$ millions

Other
financial Credit related
assets commitments 4

Total

Industry
18,811

-

-

25

1,026

5

238

1,294

Finance and insurance

1,947

5,526

10,061

972

322

1,426

20,254Government and local authority1

11,363Entertainment, leisure and tourism

1,309

6,857

630

1,256

6

1,305

Manufacturing

-

25

177

3,030

13

2,067

5,312

Personal lending

-

-

-

54,751

241

15,10670,098Retail trade

-

-

20

2,029

9

968

3,026

Transport and storage

-

12

31

1,484

7

730

2,264

Wholesale trade

-

-

15

1,384

6

1,290

2,695

Other2

-

102

412

1,835

8

1,736

4,093

3,256
-

12,522-

11,404-96,969
(561)

745
-

30,578(105)

155,474
(666)

-

-

-

(212)

-

-

(212)

-

-

-

208

-

-

208

3,256

12,522

11,40496,404745

30,473

154,804

2,566

8,339

2,664

94,236735

30,293

138,833

690

4,183

8,740

2,168

10

180

15,971

3,256

12,522

11,40496,404745

30,473

154,804

Agriculture

-

29

22

17,46970

1,229

18,819Forestry, fishing and mining

-

-

11

940

4

894

1,849

Business and property services

-

1

24

8,899

36

2,363

11,323

Construction

-

-

-

1,033

4

709

1,746

Entertainment, leisure and tourism

-

-

27

1,031

4

326

1,388

Finance and insurance

1,760

5,284

8,586

670

291

1,517

18,108Government and local authority1

10,161

Less: Provision for credit impairment
Less: Unearned income
Add: Capitalised brokerage/mortgage
origination fees
Total financial assets
Geography
New ZealandOverseas
Total financial assets

30/09/2013

Industry

1,764

5,872

248

1,250

5

1,022

Manufacturing

-

-

69

2,970

12

1,996

5,047

Personal lending

-

-

-

51,407

206

11,811

63,424Retail trade

-

-

40

1,820

7

991

2,858

Transport and storage

-

3

54

1,472

6

610

2,145

Wholesale trade

-

-

13

1,315

5

1,369

2,702

Other2

-

73

424

1,445

6

2,627

4,575

3,524
-

11,262-

9,518-

91,721
(689)

656
-

27,464(137)

144,145
(826)

-

-

-

(214)

-

-

(214)

-

-

-

156

-

-

156

3,524

11,262

9,518

90,974656

27,327143,261

3,037

7,843

2,523

88,989648

27,146130,186

487

3,419

6,995

1,985

8

181

13,075

3,524

11,262

9,518

90,974656

27,327143,261

Less: Provision for credit impairment
Less: Unearned income
Add: Capitalised brokerage / mortgage
origination fees
Total financial assets
Geography
New ZealandOverseas
Total financial assets

ANZ Bank New Zealand Limited

49

Notes to the Financial Statements
Bank
Cash,
settlements
receivable andcollateral paid

Tradingsecurities andavailable-forsale assets

Derivative
financial
instruments

Net loans andadvances 3Agriculture

-

-

9

17,00185

1,364

Forestry, fishing and mining

-

-

8

924

5

914

1,851

Business and property services

-

-

16

9,383

47

2,499

11,945Construction

-

-

-

873

4

935

1,812

Entertainment, leisure and tourism

-

-

25

1,008

5

238

1,276

Finance and insurance

1,950

5,524

10,065

16,800155

2,368

36,862Government and local authority1

1,309

6,857

630

1,110

6

1,305

11,217

Manufacturing

-

25

177

2,935

15

2,067

5,219

Personal lending

-

-

-

54,175271

15,10669,552Retail trade

-

-

20

1,828

9

968

2,825

Transport and storage

-

12

31

1,046

5

730

1,824

Wholesale trade

-

-

15

1,310

7

1,290

2,622

Other2

-

102

412

1,757

9

1,736

4,016

3,259
-

12,520-11,408-110,150
(530)

623
-

31,520(104)

169,480
(634)

-

-

-

(56)

-

-

(56)

-

-

-

208

-

-

208

3,259

12,52011,408109,772623

31,416

168,998

2,569

8,337

2,668

107,604

612

31,236

153,026

30/09/2014$ millions

Other
financial Credit related
assets commitments 4

Total

Industry

Less: Provision for credit impairment
Less: Unearned income
Add: Capitalised brokerage / mortgage
origination fees
Total financial assets

18,459Geography
New Zealand

690

4,183

8,740

2,168

11

180

15,972

3,259

12,52011,408109,772623

31,416

168,998

Agriculture

-

29

22

17,16278

1,204

18,495

Forestry, fishing and mining

-

-

11

793

4

871

1,679

Business and property services

-

1

24

8,778

40

2,340

11,183

Construction

-

-

-

738

3

658

1,399

Entertainment, leisure and tourism

-

-

27

1,005

5

324

1,361

Finance and insurance

1,760

5,281

8,590

13,003126

4,242

33,002Government and local authority1

1,764

5,872

248

1,075

5

1,022

9,986

Manufacturing

-

-

69

2,856

13

1,987

4,925

Personal lending

-

-

-

50,733231

11,801

62,765Retail trade

-

-

40

1,631

7

934

2,612

Transport and storage

-

3

54

1,081

5

546

1,689

Wholesale trade

-

-

13

1,253

6

1,351

2,623

Overseas
Total financial assets

30/09/2013

IndustryOther

2

Less: Provision for credit impairment
Less: Unearned income
Add: Capitalised brokerage / mortgage
origination fees
Total financial assets

-

73

424

1,362

6

2,623

4,488

3,524
-

11,259-9,522-

101,470
(655)

529
-

29,903(134)

156,207
(789)

-

-

-

(68)

-

-

(68)

-

-

-

156

-

-

156

3,524

11,2599,522

100,903529

29,769155,506

3,037

7,840

2,527

98,918520

29,588142,430

487

3,419

6,995

1,985

9

181

13,076

3,524

11,2599,522

100,903529

29,769155,506

Geography
New ZealandOverseas
Total financial assets

ANZ Bank New Zealand Limited

50

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

$ millions

Banking Group
Maximum
Unsecured
exposure to Financial effect portion of creditof collateralcredit risk
exposureBank
Maximum
Unsecured
exposure to Financial effect portion of creditof collateralcredit risk
exposure

30/09/2014

On and off-balance sheet positions
1,618

309

1,309

1,618

309

1,309

Settlement balances receivable

855

746

109

858

746

112

Collateral paid

783

-

783

783

-

783

Trading securities

11,750-11,75011,750-11,750Derivative financial instruments

11,404800

10,604

11,408800

10,608Available-for-sale assets

772

-

772

770

-

770

Net loans and advances

96,40485,947

10,457

109,772

83,513

26,259Other financial assets

745

380

365

623

380

243

Cash

Credit related commitments

30,473

15,34015,13331,416

15,876

15,540Total exposure to credit risk

154,804

103,522

51,282

168,998

101,624

67,374

2,008

310

1,698

2,008

310

1,698

514

254

260

514

254

260

Collateral paid

1,002

-

1,002

1,002

-

1,002

Trading securities

10,320-

10,320

10,319-10,319Derivative financial instruments

9,518

438

9,080

9,522

438

9,084

30/09/2013

On and off-balance sheet positions
Cash
Settlement balances receivable

Available-for-sale assets

942

-

942

940

-

940

Net loans and advances

90,974

81,3859,589

100,903

79,317

21,586

Other financial assets

656

329

327

529

329

200

Credit related commitments

27,327

12,76914,55829,76914,71915,050Total exposure to credit risk

143,261

95,48547,776

155,506

95,36760,139Credit quality
A core component of the Banking Group’s credit risk
management capability is the risk grading framework used
across all major business units. A set of risk grading principles
and policies is supported by a complementary risk grading
methodology. Pronouncements by the International BaselCommittee on Banking Supervision have been encapsulated
in these principles and policies, including governance,
validation and modelling requirements.

The Banking Group’s risk grade profile changes dynamicallythrough new counterparty lending and existing counterparty
movements in either risk or volume. All counterparty risk
grades are subject to frequent review, including statisticaland behavioural reviews in consumer and small businesssegments, and individual counterparty reviews in segmentswith larger single name borrowers.

ANZ Bank New Zealand Limited

51

Notes to the Financial Statements
Impairment and provisioning of financial assets

The past due but not impaired (over 90 days) classification
applies where contractual payments are past due by 90 daysor more, or where the facility remains outside of contractual
arrangements for 90 or more consecutive days, but the
Banking Group believes that impairment is not appropriate
on the basis of the level of security/collateral available, or thefacility is portfolio managed.

The Banking Group's policy relating to the recognition andmeasurement of impaired assets conforms to the RBNZ'sguidelines.
Loans are classified as either performing or impaired.
Impaired assets are credit exposures where: there is doubt as
to whether the full contractual amount (including interest)
will be received; a material credit obligation is 90 days past
due but not well secured; they are portfolio managed andcan be held for up to 180 days past due; or concessionalterms have been provided due to the financial difficulties of
the customer.

The provision for credit impairment represents
management’s best estimate of the losses incurred in theloan portfolio at balance date based on its experienced
judgement.
Distribution of gross loans and advances assets by credit
quality

An exposure is classified as past due but not impaired (lessthan 90 days) where the value of collateral is sufficient to
repay both the principal debt and all other potential interestor there is no concern as to the creditworthiness of thecounterparty in question.

The credit quality of the portfolio of loans and advances isassessed by reference to the Banking Group’s risk grading
principles and policies supported by a complementary risk
grading methodology.

Distribution by asset class of gross loans and advances by credit quality
Banking GroupBank

Retailmortgages

Other retail
exposures

Non-retail
exposures

Total

Retailmortgages

Other retail
exposures

Non-retail
exposures

Total

Strong risk rating

41,515

1,428

21,80464,74741,515

1,427

37,027

79,969Satisfactory risk rating
Substandard but not past due or
impaired
Total neither past due nor impaired

7,530

2,721

17,04027,291

7,530

1,705

16,16825,403

580

313

1,254

2,147

580

291

1,199

2,070

49,625

4,462

40,09894,18549,625

3,423

54,394

107,442

1 to 5 days

342

121

580

1,043

342

113

574

1,029

6 to 29 days

198

91

190

479

198

69

188

455

1 to 29 days

540

212

770

1,522

540

182

762

1,484

30 to 59 days

133

31

116

280

133

25

111

269

60 to 89 days

63

16

52

131

63

13

51

127

90 days and over

88

30

32

150

88

25

33

146

824

289

970

2,083

824

245

957

2,026

$ millions
30/09/2014

Past due but not impaired:

Total past due but not impaired

189

35

410

634

189

35

391

615

50,6384,786

41,47896,902

50,6383,703

55,742110,083

Strong risk rating

38,1401,342

20,95260,434

38,1401,342

32,51071,992

Satisfactory risk rating
Substandard but not past due or
impaired
Total neither past due nor impaired

7,550

2,519

15,591

25,660

7,550

1,562

14,89824,010

721

326

1,792

2,839

721

307

1,724

2,752

46,411

4,187

38,33588,933

46,411

3,211

49,132

98,754

1 to 5 days

327

138

477

942

327

131

472

930

6 to 29 days

177

94

148

419

177

78

145

400

1 to 29 days

504

232

625

1,361

504

209

617

1,330

30 to 59 days

111

38

57

206

111

32

56

199

60 to 89 days

49

19

13

81

49

17

12

78

90 days and over

92

40

76

208

92

35

74

201

Total past due but not impaired

756

329

771

1,856

756

293

759

1,808

Total impaired assets

179

49

673

901

179

49

649

877

47,346

4,565

39,77991,69047,346

3,553

50,540101,439

Total impaired assets
Gross loans and advances
30/09/2013

Past due but not impaired:

Gross loans and advances

ANZ Bank New Zealand Limited

52

Notes to the Financial Statements
Credit quality of gross loans and advances neither past due
nor impaired
The credit quality of financial assets is assessed by the
Banking Group using internal ratings which aim to reflect therelative ability of counterparties to fulfil, on time, their creditrelated obligations, and is based on their current probabilityof default.
Internal ratings
Strong risk rating - Corporate customers demonstratingsuperior stability in their operating and financial
performance over the long-term, and whose debt servicing
capacity is not significantly vulnerable to foreseeable events.
Retail customers with low expected loss. This rating bandbroadly corresponds to ratings “Aaa” to “Ba1” and “AAA” to“BB+” of Moody's Investors Service and Standard & Poor's
respectively.
Satisfactory risk rating - Corporate customers consistently
demonstrating sound operational and financial stability overthe medium to long term, even though some may besusceptible to cyclical trends or variability in earnings. Retailcustomers with moderate expected loss. This rating bandbroadly corresponds to ratings “Ba2” to “B1” and “BB” to “B+”of Moody's Investors Service and Standard & Poor's
respectively.
Substandard but not past due or impaired - Corporate
customers demonstrating some operational and financial
instability, with variability and uncertainty in profitability andliquidity projected to continue over the short and possibly
medium term. Retail customers with higher expected loss.
This rating band broadly corresponds to ratings “B2” to “Caa”
and “B” to “CCC” of Moody's Investors Service and Standard &Poor's respectively.
Movements in the rating categories between balance dates
are due to both changes in the underlying internal ratings
applied to customers and to new loans written or loans
rolling off.
Credit quality of financial assets that are past due but not
impairedAgeing analysis of past due loans is used by the Banking
Group to measure and manage credit quality. Financial assetsthat are past due but not impaired include those:•
Assessed, approved and managed on a portfolio basis
within a centralised environment (for example, credit
cards and personal loans);•
Held on a productive basis until they are 180 days pastdue; and•Managed on an individual basis.
A large portion of retail credit exposures, such as residential
mortgages, are generally well secured. That is, the fair valueof associated security is sufficient to ensure that the Banking
Group will recover the entire amount owing over the life of
the facility and there is reasonable assurance that collection
efforts will result in payment of the amounts due in a timely
manner.

Market risk
Market risk is the risk to the Banking Group’s earnings arisingfrom changes in interest rates, currency exchange rates,
credit spreads, or from fluctuations in bond, commodity or
equity prices. Market risk is generated through both trading
activities and the interest rate risk inherent in the banking
book.
The Banking Group conducts trading operations in interest
rates, foreign exchange, commodities and debt securities.
The Banking Group has a detailed risk management andcontrol framework to support its trading and balance sheet
management activities. The framework incorporates a risk
measurement approach to quantify the magnitude of market
risk within trading and balance sheet portfolios. Thisapproach, and related analysis, identifies the range ofpossible outcomes that can be expected over a given periodof time, establishes the relative likelihood of those outcomes
and allocates an appropriate amount of capital to support
these activities.
Market risk management and control responsibilities
The Board Risk Committee has delegated responsibility forthe oversight of market risk to the Asset & Liability
Committee (ALCO), chaired by the Chief Financial Officer ofthe Bank. ALCO are required to ensure that market risk
exposure across Traded and Non-Traded portfolios remains
within the risk appetite specified by the Board Risk
Committee. ALCO receive regular reporting on a range of
trading and balance sheet market risk exposures.
The Risk Management division of the Banking Group,
through the Chief Risk Officer, is responsible for the day-today oversight of market risk. This includes theimplementation of a comprehensive limit and policy
framework to control the amount of risk that the Banking
Group will accept. Market risk limits are allocated at various
levels and are reported and monitored on a daily basis. The
detailed limit framework allocates individual limits tomanage and control asset classes (e.g., interest rates, foreignexchange), risk factors (e.g., interest rates, volatilities) andprofit and loss limits (to monitor and manage theperformance of the trading portfolios).
Additional oversight and monitoring of material risk
exposures of the Banking Group is undertaken by the Risk
Management functions of the Ultimate Parent Bank.
Within overall strategies and policies, the control of market
risk is the joint responsibility of business units and Risk
Management, with the delegation of market risk limits fromthe Board Risk Committee to both Risk Management and thebusiness units.
These risks are monitored daily against a comprehensive limit
framework that includes Value at Risk, aggregate market
position and sensitivity, product and geographic thresholds.
To facilitate the management, control, measurements andreporting of market risk, the Banking Group has grouped
market risk into two broad categories:

ANZ Bank New Zealand Limited

53

Notes to the Financial Statementsa.

Traded market riskThis is the risk of loss from changes in the value of financial
instruments due to movements in price factors for both
physical and derivative trading positions. They arise in
trading transactions where the Banking Group acts as
principal with clients or with the market. The principal risk
categories monitored are:••

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

•

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

b.

Non-traded market risk (or balance sheet risk)This comprises the management of non-traded interest raterisk, liquidity, and the risk to capital and earnings as a resultof movements in market rates.
Some instruments do not fall into either category but also
expose the Banking Group to market risk. These include
equity securities classified as available-for-sale. Regularreviews are performed to substantiate the valuation of thesetypes of instruments.

In all trading areas the Banking Group has implemented
models that calculate Value at Risk (“VaR”) exposures,monitor risk exposures against defined limits on a daily basis,and “stress test” trading portfolios.
VaR measure
A key measure of market risk is VaR. VaR is a statisticalestimate of the likely daily loss and is based on historicalmarket movements.
The confidence level is such that there is a 99% probability
that the loss will not exceed the VaR estimate on any givenday. Conversely there is 1% probability of the decrease inmarket value exceeding the VaR estimate on any given day.
The Banking Group’s standard VaR approach for both tradedand non-traded risk is historical simulation. The Banking
Group calculates VaR using historical changes in market rates
and prices over the previous 500 business days. Traded and
Non-Traded VaR is calculated using a one-day holding
period.
It should be noted that because VaR is driven by actual
historical observations, it is not an estimate of the maximum
loss that the Banking Group could experience from an
extreme market event. As a result of this limitation, theBanking Group utilises a number of other risk measures (e.g.
stress testing) and associated detailed control limits tomeasure and manage market risk.

Traded market risks$ millions

Banking Group
Value at risk at 99% confidence
Low forHigh for
Period end
year
year

Average foryear

30/09/2014

Foreign exchange risk

0.3

1.1

-

0.4

Interest rate risk

1.5

3.1

0.9

1.8

Credit spread risk

0.3

0.6

0.1

0.3

Diversification benefit

(0.6)

n/a

n/a

(0.7)

Total VaR

1.5

3.3

0.9

1.8

Foreign exchange risk

0.3

1.4

-

0.3

Interest rate risk

2.1

3.7

1.1

2.3

Credit spread risk

0.4

1.0

0.2

0.4

Diversification benefit

(0.8)

n/a

n/a

(0.7)

Total VaR

2.0

4.1

1.2

2.3

30/09/2013

Traded market risk VaR is calculated separately for foreign exchange and for interest rate/debt markets businesses as well as for the
Banking Group. The diversification benefit reflects the historical correlation between foreign exchange, interest rate and debt
markets.
To supplement the VaR methodology, the Banking Group applies a wide range of stress tests, both on individual portfolios and at
the Banking Group level. The Banking Group's stress-testing regime provides senior management with an assessment of thefinancial impact of identified extreme events on market risk exposures of the Banking Group.
Non-traded market risk (or balance sheet risk)
The principal objectives of balance sheet management are to manage net interest income sensitivity while maintaining acceptablelevels of interest rate and liquidity risk and to manage the market value of the Banking Group’s capital. Liquidity risk is dealt with in
the next section.

ANZ Bank New Zealand Limited

54

Notes to the Financial Statements
Interest rate risk
The objective of balance sheet interest rate risk management is to mitigate the negative impact of movements in wholesale interest
rates on the earnings of the Banking Group's banking book. Non-traded interest rate risk relates to the potential adverse impact toearnings from changes in market interest rates. This risk arises from two principal sources: mismatches between the repricing dates
of interest bearing assets and liabilities; and the investment of capital and other non-interest bearing liabilities in interest bearing
assets.
As part of normal business activity the Banking Group has additional risks from fixed rate mortgage prepayments and basis risk:•
Prepayment risk is the potential risk to earnings or market value from when a customer prepays all or part of a fixed rate
mortgage and where any customer fee charged is not sufficient to offset the loss in value to the Banking Group of this financial
asset due to movements in interest rates and other pricing factors. As far as possible the true economic cost is passed throughto customers in line with their terms and conditions and relevant legislation.
•
Basis risk is the potential risk to earnings or market value from differences between customer pricing and wholesale market
pricing. This is managed through active review of product margins.
Non-traded interest rate risk is managed to both value and earnings at risk limits. Interest rate risk is reported using three measures:
VaR; scenario analysis (to a 1% shock); and interest rate sensitivity gap. This treatment excludes the effect of prepayment and basis
risk.
a.

Non-traded interest rate risk VaR$ millions

Period end

Banking GroupHigh foryear

Low foryear

Average foryear

30/09/2014

Value at risk at 99% confidence

10.7

10.7

8.0

8.9

9.2

14.3

7.7

11.1

30/09/2013

Value at risk at 99% confidenceb.

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

A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net interest income overthe succeeding 12 months. This is a standard risk quantification tool.
The figures in the table below indicate the outcome of this risk measure for the current and comparative periods – expressed as apercentage of reported net interest income. The sign indicates the nature of the rate sensitivity with a positive number signifyingthat a rate increase is positive for net interest income over the next 12 months. Conversely, a negative number signifies that a rateincrease is negative for the next 12 months’ net interest income.
Banking Group
30/09/2014

30/09/2013

Period end

1.1%

1.1%

Maximum exposure

1.9%

2.0%

Minimum exposure

0.8%

0.6%

Average exposure (in absolute terms)

1.3%

1.3%

Impact of 1% rate shock

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

ANZ Bank New Zealand Limited

55

Notes to the Financial Statements
Banking Group$ millions

Total

Up to
3 months

Over 3 to
6 months

Over 6 to
12 months

Over 1 to
2 yearsOver
2 years

Not bearing
interest

1,822

1,618

-

-

-

-

204

30/09/2014

AssetsCash
Settlement balances receivable

855

53

-

-

-

-

802

Collateral paid

783

783

-

-

-

-

-

Trading securities

11,750

1,388

304

1,631

418

8,009

-

Derivative financial instruments

11,404

-

-

-

-

-

11,404

Available-for-sale assets

772

262

10

250

-

248

2

Net loans and advances

96,29954,3906,201

10,603

16,408

9,148

(451)

Other financial assets

745

137

35

18

-

-

555

Total financial assets

124,430

58,631

6,550

12,502

16,826

17,405

12,516

2,296

512

-

-

-

-

1,784

800

800

-

-

-

-

-

Deposits and other borrowings

84,01955,782

10,852

7,566

2,371

1,447

6,001

Derivative financial instruments

10,205

-

-

-

-

-

10,205

Bonds and notes

17,042

5,149

267

1,971

2,811

6,844

-

Subordinated debt

Liabilities
Settlement balances payable
Collateral received

1,144

-

309

-

-

835

-

Other financial liabilities

833

131

-

10

6

146

540

Total financial liabilities

116,339

62,374

11,428

9,547

5,188

9,272

18,530Hedging instruments

-

7,532

2,598

3,867

(11,308)(2,689)-Interest sensitivity gap

8,091

3,789

(2,280)

6,822

330

5,444

(6,014)

2,206

2,018

-

-

-

-

188

514

34

-

-

-

-

480

Collateral paid

1,002

1,002

-

-

-

-

-

Trading securities

10,320

1,235

455

606

3,105

4,919

-

Derivative financial instruments

9,518

30/09/2013

AssetsCash
Settlement balances receivable

9,518

-

-

-

-

-

Available-for-sale assets

942

337

234

23

250

96

2

Net loans and advances

90,83758,7605,116

10,828

10,917

5,759

(543)

Other financial assets

656

103

30

36

3

-

484

Total financial assets

115,995

63,4895,835

11,493

14,275

10,774

10,129

1,428

547

-

-

-

-

881

438

438

-

-

-

-

-

Deposits and other borrowings

78,81653,086

9,419

8,231

1,437

1,117

5,526

Derivative financial instruments

10,243

-

-

-

-

-

10,243

Bonds and notes

15,494

4,867

47

266

2,933

7,381

-

Subordinated debt

1,144

-

309

-

-

835

-

703

22

-

-

-

126

555

Total financial liabilities

108,266

58,960

9,775

8,497

4,370

9,459

17,205

Hedging instruments-(5,695)

14,905(3,058)(9,566)3,414-Interest sensitivity gap

7,729(1,166)

10,965

(62)

339

4,729

(7,076)

Liabilities
Settlement balances payable
Collateral received

Payables and other liabilities

ANZ Bank New Zealand Limited

56

Notes to the Financial StatementsBank$ millions

Total

Up to
3 months

Over 3 to
6 months

Over 6 to
12 months

Over 1 to
2 yearsOver
2 years

Not bearing
interest

30/09/2014

Assets
1,822

1,618

-

-

-

-

204

Settlement balances receivable

858

52

-

-

-

-

806

Collateral paid

783

783

-

-

-

-

-

Trading securities

11,750

1,388

304

1,631

418

8,009

-

Derivative financial instruments

11,408

-

-

-

-

-

11,408Cash

Available-for-sale assets

770

262

10

250

-

248

-

Net loans and advances

109,668

68,677

6,086

10,40016,076

8,859

(430)

Other financial assets

623

-

-

-

-

-

623

Total financial assets

137,682

72,7806,400

12,281

16,494

17,116

12,611

2,771

512

-

-

-

-

2,259

800

800

-

-

-

-

-

Deposits and other borrowings

115,223

68,297

12,343

11,571

8,665

8,346

6,001

Derivative financial instruments

10,237

-

-

-

-

-

10,237

Bonds and notes

3,277

1,255

250

349

150

1,273

-

Subordinated debt

1,144

-

309

-

-

835

-

913

131

-

10

6

146

620

Total financial liabilities

134,365

70,995

12,902

11,9308,821

10,60019,117

Hedging instruments-(2,276)

4,360

6,608

(7,448)(1,244)-

Interest sensitivity gap

3,317

(491)

(2,142)

6,959

225

5,272

(6,506)

2,206

2,018

-

-

-

-

188

514

34

-

-

-

-

480

Collateral paid

1,002

1,002

-

-

-

-

-

Trading securities

10,319

1,234

455

606

3,105

4,919

-

Derivative financial instruments

9,522

-

-

-

-

-

9,522

Available-for-sale assets

940

337

234

23

250

96

-

Net loans and advances(518)

Liabilities
Settlement balances payable
Collateral received

Payables and other liabilities

30/09/2013

AssetsCash
Settlement balances receivable

100,769

69,647

5,007

10,63010,496

5,507

Other financial assets

529

14

-

-

-

-

515

Total financial assets

125,801

74,286

5,696

11,25913,851

10,522

10,187

1,767

1,077

-

-

-

-

690

438

438

-

-

-

-

-

Deposits and other borrowings

105,805

65,84010,513

10,086

5,861

7,949

5,556

Derivative financial instruments

10,252

-

-

-

-

-

10,252

Bonds and notes

2,687

847

-

235

596

1,009

-

Subordinated debt

1,144

-

309

-

-

835

-

745

43

-

-

-

126

576

122,838

68,245

10,822

10,321

6,457

9,919

17,074

Hedging instruments-(12,096)

16,193(816)(7,258)3,977-Interest sensitivity gap

2,963(6,055)

11,067

122

136

4,580

(6,887)

Liabilities
Settlement balances payable
Collateral received

Payables and other liabilities
Total financial liabilities

Equity price risk
The portfolio of financial assets classified as available-for-sale contains equity investment holdings held for longer term strategic
intentions. These equity investments are also subject to market risk which is not captured by the VaR measures for traded and nontraded market risks. The fair value of these securities as at 30 September 2014 was $2 million (30/09/2013 $2 million). A 10 per centreduction in the value of the available-for-sale equity securities would not be material.

ANZ Bank New Zealand Limited

57

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

Bank

30/09/2014

30/09/2013

30/09/2014

30/09/2013

Australian dollar

4

Euro

37

32

4

32

1

37

Japanese yen

1

9

(1)

9

(1)

US dollar

(14)

(1)

(14)

(1)

Swiss franc

(37)

-

(37)

-

Other

1

1

1

1

Total net open position

-

32

-

32

Net open position

ANZ Bank New Zealand Limited

58

Notes to the Financial Statements
Liquidity risk
Liquidity risk is the risk that the Banking Group is unable tomeet its payment obligations as they fall due. The timing
mismatch of cash flows and the related liquidity risk isinherent in all banking operations and is closely monitoredby the Banking Group.
The Banking Group’s liquidity and funding risks are governedby a detailed policy framework which is approved by the Risk
Committees of the Bank’s and Ultimate Parent Bank’s Boards.
The core objective of the Banking Group’s framework is to
manage liquidity to meet obligations as they fall due,
without incurring unacceptable losses.
Central to the Banking Group’s liquidity risk management
approach is the establishment of a liquidity risk appetite
framework to which the Banking Group must conform at all
times. The risk appetite for liquidity has been set as low, andthis objective is achieved by the Banking Group managing
liquidity risks within the boundaries of the following
requirements and principles:•
Maintaining the ability to meet all payment obligationsin the immediate term.
•
Ensuring the ability to meet “survival horizons” under arange of the Banking Group specific and generalmarket liquidity stress scenarios.
•
Maintaining strength in the Banking Group’s balance
sheet structure to ensure long term resilience in the
Banking Group’s liquidity and funding risk profile.
•
Limiting the potential earnings at risk associated with
unexpected increases in funding costs or theliquidation of assets under stress.
•
Ensuring the liquidity management framework is
compatible with regulatory requirements.
•
Daily liquidity reporting and scenario analysis,
quantifying the Banking Group’s positions.
•Targeting a diversified funding base, avoiding undue
concentrations by investor type, maturity, market
source and currency.
•
Holding a portfolio of high quality liquid assets toprotect against adverse funding conditions and tosupport day-to-day operations.
•
Establishing detailed contingency plans to coverdifferent liquidity crisis events.
Management of liquidity and funding risks are overseen by
ALCO.
Supervision and Regulation
The RBNZ requires the Bank to have a comprehensive Board
approved liquidity strategy defining: policy, systems andprocedures for measuring, assessing, reporting andmanaging domestic and foreign currency liquidity. This also
includes a formal contingency plan for dealing with aliquidity 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 the Banking Group’s liquidity
management framework is scenario modelling. Liquidity isassessed under different scenarios, including going-concern,
name-crisis and various survival horizons.
Going-concern: reflects the normal behaviour of cash flows in
the ordinary course of business. The Banking Group must beable to meet all commitments and obligations under a going
concern scenario, within the Banking Group’s normal funding
capacity (‘available to fund’ limit), over at least the following
30 calendar days. In estimating the funding requirement, theBanking Group models expected cash flows by reference tohistorical behaviour and contractual maturity data.
Name-crisis: refers to a potential name-specific liquidity crisis
scenario which models the behaviour of cash flows where
there is a problem (real or perceived) which may include, but
is not limited to, operational issues, doubts about thesolvency of the Banking Group, or adverse rating changes.
Under this scenario the Banking Group may have significant
difficulty rolling over or replacing funding. Under theliquidity policy the Banking Group must be cash flow positive
over an eight calendar day period.
Survival horizons: The global financial crisis has highlighted
the importance of differentiating between stressed andnormal market conditions in a name-specific crisis and thedifferent behaviour that offshore and domestic wholesalefunding markets can exhibit during market stress events. The
Banking Group has linked its liquidity risk appetite to defined
liquidity “survival horizons” (i.e. the time period under which
the Banking Group must maintain a positive cash flow
position). The following stressed scenarios are modelled:•
Extreme Short Term Crisis Scenario: A name-specificstress during a period of market stress.
•
Short Term Crisis Scenario: A name-specific stressduring a period of normal markets conditions.
•Global Funding Market Disruption: Stressed global
wholesale funding markets leading to a closure ofdomestic and offshore markets.
•
Offshore Funding Market Disruption: Stressed global
wholesale funding markets leading to a closure ofoffshore markets only.
As of 30 September 2014 the Banking Group was incompliance with all of the above scenarios.
Wholesale funding
The Banking Group’s wholesale funding strategy is designed
to deliver a sustainable portfolio of wholesale funds thatbalances cost efficiency while targeting diversification bymarkets, investors, currencies, maturities and funding
structures. Short-term wholesale funding requirements, witha contractual maturity of less than one year, are managed
through the Treasury and Markets operations. Long-term
wholesale funding is managed and executed throughTreasury operations.
The Banking Group also uses maturity concentration limits
under the wholesale funding and liquidity management
framework. Maturity concentration limits ensure that the
Banking Group does not become reliant on issuing large
volumes of new wholesale funding within a short time
period. Funding instruments used to meet the wholesaleborrowing requirement must be on a pre-established list of
approved products.

ANZ Bank New Zealand Limited

59

Notes to the Financial Statements
Funding capacity and debt issuance planning
The Banking Group adopts a conservative approach to determine its funding capacity. Funding capacity limits are determined at the
Ultimate Parent Bank level and allocated to individual sites based on their requirements. Annually, a funding plan is approved by the
Bank’s Board. The plan is supplemented by monthly updates and is linked to the Banking Group’s three year strategic planning cycle.
Funding Composition
The Banking Group actively uses balance sheet disciplines to prudently manage the funding mix. The Banking Group employs
funding metrics to ensure that an appropriate proportion of its assets are funded from stable sources, including customer liabilities,
longer-dated wholesale debt (with remaining term exceeding one year) and equity. This approach recognises that long-term
wholesale debt and other sticky liabilities have favourable liquidity characteristics.
Analysis of funding liabilities by industry sector is based on Australian and New Zealand Standard Industrial Classification (ANZSIC)
codes.
Funding composition$ millions

Banking GroupBank

30/09/2014

30/09/2013

30/09/2014

30/09/2013

New Zealand

67,75962,30966,30360,926

Overseas

8,596

8,258

8,483

8,149

Total customer deposits

76,35570,56774,786

69,075

Bonds and notes

17,042

15,494

3,277

2,687

Subordinated debt

1,144

1,144

1,144

1,144

Certificates of deposit

1,376

2,364

1,376

2,364

Commercial paper

6,057

4,765

-

-

Other borrowings

231

1,120

39,06134,366

Total wholesale funding

25,85024,88744,85840,561

Total funding

102,205

95,454

119,644

109,636

Customer deposits1

Wholesale funding

Concentrations of funding by industry
2,996

2,312

2,996

2,312

Forestry, fishing and mining

544

613

544

613

Business and property services

5,576

5,148

5,576

5,148

Construction

1,044

882

1,044

882

922

737

922

737

Finance and insurance

35,32734,80354,33550,477

Government and local authority

2,434

2,166

2,434

2,166

AgricultureEntertainment, leisure and tourism

Manufacturing

1,458

1,416

1,458

1,416

Households

47,60043,28646,031

41,794Retail trade

994

954

994

954

Transport and storage

772

636

772

636

1,029

1,086

1,029

1,086

Wholesale trade
Other2

1,509

1,415

1,509

1,415

102,205

95,454

119,644

109,636

72,96969,188110,522

101,051

Australia

1,321

1,215

1,305

1,199

United States

11,518

9,822

941

555

Europe10,464

9,508

998

1,166

Other countries

5,933

5,721

5,878

5,665

Total funding

102,205

95,454

119,644

109,636

Total funding
Concentrations of funding by geography3
New Zealand12
3

Represents term deposits, other deposits bearing interest, deposits not bearing interest and UDC secured investments.
Other includes exposures to electricity, gas and water, communications and personal services.
The Banking Group classifies funding via ANZ New Zealand (Int’l) as either from the United States or Europe based on the respective programmes.

ANZ Bank New Zealand Limited

60

Notes to the Financial Statements
Liquidity portfolio management
The Banking Group holds a diversified portfolio of cash and high-quality highly-liquid securities to support liquidity risk
management. The size of the Banking Group’s liquidity portfolio is based on the amount required to meet its internal and regulatory
liquidity scenario metrics.
Total liquidity portfolio$ millions

Balances with central banks
Securities purchased under agreement to resell
Certificates of deposit
Government, local body stock and bonds

Banking GroupBank

30/09/2014

30/09/2013

30/09/2014

30/09/2013

1,309

1,709

1,309

1,709

-

41

-

41

159

159

159

159

6,318

5,522

6,318

5,522

380

387

380

387

Other bonds

5,135

5,069

5,135

5,069

Total liquidity portfolio

13,301

12,887

13,301

12,887

Government treasury bills

Assets held for managing liquidity risk include short term cash held with the RBNZ, New Zealand Government securities, securities
issued by supranational agencies, securities issued by highly rated banks and securities issued by State Owned Enterprises, Local
Authorities and highly rated NZ domestic corporates. These assets would be accepted as collateral by the RBNZ in repurchasetransactions. At 30 September 2014 the Banking Group would be eligible to enter into repurchase transactions with a value of$11,536 million. The Banking Group also held unencumbered internal residential mortgage backed securities (“RMBS”) which would
entitle the Banking Group to enter into repurchase transactions with a value of $5,709 million at 30 September 2014 (the RBNZ has
imposed a cap limiting the amount of RMBS deemed as eligible in the liquidity portfolio to 4% of total assets).
Liquidity crisis contingency planning
The Banking Group maintains liquidity crisis contingency plans defining an approach for analysing and responding to a liquiditythreatening event on a group wide basis. The framework includes:•
the establishment of crisis severity/stress levels;•
clearly assigned crisis roles and responsibilities;•
early warning signals indicative of an approaching crisis, and mechanisms to monitor and report these signals;•
outlined action plans, and courses of action for altering asset and liability behaviour;•
procedures for crisis management reporting, and covering cash-flow shortfalls;•
guidelines determining the priority of customer relationships in the event of liquidity problems; and•assigned responsibilities for internal and external communications.

ANZ Bank New Zealand Limited

61

Notes to the Financial Statements
Contractual maturity analysis of financial assets and liabilities
The following tables present the Banking Group's financial assets and liabilities within relevant contractual maturity groupings,
based on the earliest date on which the Bank or the Banking Group may be required to realise an asset or settle a liability. The
amounts disclosed in the tables represent undiscounted future principal and interest cash flows, except for derivatives held for
trading where the full mark-to-market amount has been included in the less than three months category. As a result, the amounts inthe tables below may differ to the amounts reported on the balance sheet.
The contractual maturity analysis for off-balance sheet commitments and contingent liabilities has been prepared using the earliest
date at which the Banking Group or the Bank can be called upon to pay. The liquidity risk of credit related commitments andcontingent liabilities may be less than the contract amount, and does not necessarily represent future cash requirements as many ofthese facilities are expected to be only partially used or to expire unused.
The Banking Group does not manage its liquidity risk on this basis.
Banking Group
30/09/2014$ millions

Total

At callUp to
3 months

Over 3 to
12 months

Over 1 to
5 yearsOver
5 years

No maturity
specifiedFinancial assets
1,822

1,513

309

-

-

-

-

Settlement balances receivable

855

514

341

-

-

-

-

Collateral paid

783

-

783

-

-

-

-

Trading securities

13,325

-

818

2,491

8,172

1,844

-

Derivative financial assets (trading)Cash10,736-

10,736----

Available-for-sale assets

826

-

163

279

382

-

2

Net loans and advances

135,691350

15,607

15,90045,713

58,121-Other financial assets

319

-

266

53

-

-

-

Total financial assets

164,357

2,377

29,02318,72354,26759,965

2

2,296

999

1,297

-

-

-

-

800

-

800

-

-

-

-

Deposits and other borrowings

85,55040,27020,10920,913

4,258

-

-

Derivative financial liabilities (trading)

9,353

-

9,353

-

-

-

-

Bonds and notes

17,935

-

1,014

3,184

13,116621-

Subordinated debt

1,754

-

14

42

241

313

1,144

Other financial liabilities

405

-

172

17

61

155

-

Total financial liabilities

118,093

41,26932,75924,156

17,676

1,089

1,144

Financial liabilities
Settlement balances payable
Collateral received

Derivative financial instruments used for balance sheet management- gross inflows

15,953

-

2,700

2,884

9,485

884

-

- gross outflows
Net financial assets / (liabilities) after balance
sheet management(15,957)-(2,617)(2,840)(9,600)(900)-

46,260(38,892)(3,653)(5,389)36,47658,860(1,142)Contractual maturity of off-balance sheet commitments and contingent liabilities
Total

Less than
1 yearBeyond1 year

483

102

381

Credit related commitments

28,14228,142-

Contingent liabilities

2,436

2,436

-

Total

31,06130,680381

Non-credit related commitments

ANZ Bank New Zealand Limited

62

Notes to the Financial Statements
Banking Group
30/09/2013
Total

At callUp to
3 months

Over 3 to
12 months

Over 1 to
5 yearsOver
5 years

No maturity
specified

2,206

1,896

310

-

-

-

-

518

351

167

-

-

-

-

Collateral paid

1,002

-

1,002

-

-

-

-

Trading securities

11,528

-

412

1,617

8,429

1,070

-

Derivative financial assets (trading)

8,536

-

8,536

-

-

-

-

$ millions

Financial assets
Cash
Settlement balances receivable

Available-for-sale assets

983

-

296

271

324

90

2

Net loans and advances

123,499350

15,534

17,68538,271

51,659-Other financial assets

287

-

218

66

3

-

-

Total financial assets

148,5592,597

26,475

19,63947,02752,819

2

1,430

879

551

-

-

-

-

438

-

438

-

-

-

-

80,146

34,793

22,676

19,825

2,846

6

-

Derivative financial liabilities (trading)

9,526

-

9,526

-

-

-

-

Bonds and notes

16,442

-

1,614

1,979

11,3591,490-

Subordinated debt

1,529

-

14

41

275

55

1,144

Financial liabilities
Settlement balances payable
Collateral received
Deposits and other borrowings

Other financial liabilities

287

-

107

4

31

145

-

Total financial liabilities

109,798

35,672

34,926

21,84914,511

1,696

1,144

Derivative financial instruments used for balance sheet management- gross inflows

16,196

-

2,704

3,539

8,689

1,264

-

- gross outflows
Net financial assets / (liabilities) after balance
sheet management(15,370)-(2,647)(3,186)(8,288)(1,249)-39,587(33,075)(8,394)(1,857)32,917

51,138(1,142)Contractual maturity of off-balance sheet commitments and contingent liabilities
Less than
1 yearBeyond1 year

429

97

332

25,26325,263-Total

Non-credit related commitments
Credit related commitments
Contingent liabilities

2,201

2,201

-

Total

27,89327,561

332

ANZ Bank New Zealand Limited

63

Notes to the Financial StatementsBank
30/09/2014$ millions

Total

At callUp to
3 months

Over 3 to
12 months

Over 1 to
5 yearsOver
5 years

No maturity
specifiedFinancial assets
1,822

1,513

309

-

-

-

-

Settlement balances receivable

858

514

344

-

-

-

-

Collateral paid

783

-

783

-

-

-

-

Trading securities

13,324

-

817

2,491

8,172

1,844

-

Derivative financial assets (trading)Cash10,740-10,740----Available-for-sale assets

824

-

163

279

382

-

-

Net loans and advances

162,614349

18,631

15,93250,464

77,238-Other financial assets

92

-

92

-

-

-

-

Total financial assets

191,057

2,376

31,87918,70259,01879,082

-

2,771

999

1,772

-

-

-

-

800

-

800

-

-

-

-

Financial liabilities
Settlement balances payable
Collateral received

127,98140,081

25,396

23,835

20,232

18,437-

Derivative financial liabilities (trading)

9,353

-

9,353

-

-

-

-

Bonds and notes

3,734

-

15

746

2,761

212

-

Subordinated debt

1,754

-

14

42

241

313

1,144

Other financial liabilities

603

-

370

17

61

155

-

Total financial liabilities

146,996

41,08037,72024,64023,295

19,117

1,144

Deposits and other borrowings

Derivative financial instruments used for balance sheet management- gross inflows

21,186

-

2,813

3,223

11,1204,030-- gross outflows
Net financial assets / (liabilities) after balance
sheet management(29,526)-(2,729)(3,173)(11,377)(12,247)-

35,721(38,704)(5,757)(5,888)35,466

51,748(1,144)Contractual maturity of off-balance sheet commitments and contingent liabilities
Total

Less than
1 yearBeyond1 year

482

102

380

Credit related commitments

29,08529,085-

Contingent liabilities

2,435

2,435

-

Total

32,002

31,622380

Non-credit related commitments

ANZ Bank New Zealand Limited

64

Notes to the Financial StatementsBank
30/09/2013
Total

At callUp to
3 months

Over 3 to
12 months

Over 1 to
5 yearsOver
5 years

No maturity
specified

2,206

1,896

310

-

-

-

-

515

354

161

-

-

-

-

Collateral paid

1,002

-

1,002

-

-

-

-

Trading securities

11,528

-

412

1,617

8,429

1,070

-

Derivative financial assets (trading)

8,536

-

8,536

-

-

-

-

$ millions

Financial assets
Cash
Settlement balances receivable

Available-for-sale assets

981

-

296

271

324

90

-

Net loans and advances

141,689346

17,59817,21841,49165,036-

Other financial assets

64

-

64

-

-

-

-

Total financial assets

166,5212,596

28,37919,10650,244

66,196

-

1,769

879

890

-

-

-

-

438

-

438

-

-

-

-

115,179

34,79424,36021,767

19,914

14,344-

Derivative financial liabilities (trading)

9,526

-

9,526

-

-

-

-

Bonds and notes

3,046

-

117

356

2,111

462

-

Subordinated debt

1,528

-

13

41

275

55

1,144

Financial liabilities
Settlement balances payable
Collateral received
Deposits and other borrowings

Other financial liabilities

463

-

283

4

31

145

-

Total financial liabilities

131,949

35,67335,62722,16822,331

15,006

1,144

Derivative financial instruments used for balance sheet management- gross inflows

19,352

-

2,782

3,766

9,761

3,043

-

- gross outflows
Net financial assets / (liabilities) after balance
sheet management(23,600)-(2,713)(3,383)(9,337)(8,167)-30,324(33,077)(7,179)(2,679)28,33746,066(1,144)Contractual maturity of off-balance sheet commitments and contingent liabilities
Total

Non-credit related commitments

Less than
1 yearBeyond1 year

427

96

331

Credit related commitments

27,70327,703-

Contingent liabilities

2,200

2,200

-

Total

30,33029,999331

28. Financial Assets Pledged as Collateral and Offsetting Financial Instruments
Banking Group$ millions

Note

Bank

30/09/2014

30/09/2013

30/09/2014

30/09/2013

Cash collateral given on derivative financial instruments

783

1,002

783

1,002

Trading securities encumbered through repurchase agreements

47

108

47

108

7,283

5,857

7,283

5,857

2,354

2,162

-

-

10,467

9,129

8,113

6,967

Residential mortgages pledged as security for covered bonds
Assets pledged as collateral for UDC secured investments
Total financial assets pledged as collateral21, 3418

UDC secured investments are constituted and secured by a trust deed between UDC Finance Limited and its independent trustee,
Trustees Executors Limited. UDC Finance Limited has granted a charge over all its assets and undertaking, primarily net loans andadvances, in favour of the Trustee.
Offsetting financial assets and financial liabilities
The following information relates to financial assets and liabilities which have been set off in the balance sheet and those which havenot been set off but for which the Banking Group has enforceable master netting agreements in place with counterparties.

ANZ Bank New Zealand Limited

65

Notes to the Financial Statements
Banking Group
Amounts set off
Net amounts
in the balance presented in the
Gross amounts
sheetbalance sheet$ millions

Related amounts not offset 1
Financial
instruments

Cash collateral

Net amounts

30/09/2014

Financial assets
Collateral paid

284

-

284

-

(182)

102

Trading securities 2

47

-

47

(47)

-

-

8,482

-

8,482

(7,606)

(716)

160

Collateral received

753

-

753

-

(716)

37

Securities sold under agreements to repurchase 3

47

-

47

(47)

-

-

7,858

-

7,858

(7,606)(182)

70

Collateral paid

145

-

145

-

(94)

51

Trading securities 2

108

-

108

(107)

-

1

6,085

-

6,085

(5,920)(123)

42

Collateral received

136

-

136

-

(123)

13

Securities sold under agreements to repurchase 3

107

-

107

(107)

-

-

6,155

-

6,155

(5,920)(94)141

Derivative financial instruments
Financial liabilities

Derivative financial instruments
30/09/2013

Financial assets

Derivative financial instruments
Financial liabilities

Derivative financial instruments

Bank
Amounts set off
Net amounts
in the balance presented in the
Gross amounts
balance sheet
sheet$ millions

Related amounts not offset 1
Financial
instruments

Cash collateral

Net amounts

30/09/2014

Financial assets
284

Collateral paid
2

-

284

-

(182)

102
-

47

-

47

(47)

-

905

(905)

-

-

-

-

8,482

-

8,482

(7,606)

(716)

160

Collateral received

753

-

753

-

(716)

37

Securities sold under agreements to repurchase 3

47

-

47

(47)

-

-

Trading securities

Loans to subsidiaries
Derivative financial instruments
Financial liabilities

Deposits and other borrowings from subsidiaries
Derivative financial instruments

905

(905)

-

-

-

-

7,858

-

7,858

(7,606)

(182)

70

145

-

145

-

(94)

51

108

-

108

(107)

-

1

902

(902)

-

-

-

-

6,085

-

6,085

(5,920)

(123)

42

136

-

136

-

(123)

13
-

30/09/2013

Financial assets
Collateral paid
Trading securities

2

Loans to subsidiaries
Derivative financial instruments
Financial liabilities
Collateral received
3

107

-

107

(107)

-

Deposits and other borrowings from subsidiaries

902

(902)

-

-

-

-

6,155

-

6,155

(5,920)(94)

141

Securities sold under agreements to repurchase
Derivative financial instruments
1

The Banking Group enters into derivatives and repurchase and reverse repurchase agreements with various counterparties which are governed by industry standard
master netting agreements. The Banking Group holds and provides cash and securities collateral in respective of derivative transactions covered by these agreements.
The right to set off balances under these master netting agreements or to set off cash and securities collateral only arises in the event of non payment or default and, as aresult, these arrangements do not qualify for offsetting under NZ IAS 32 Financial Instruments: Presentation.
2
This is the amount of trading securities encumbered through repurchase agreements, see financial assets pledged as collateral table in this note.
3
Included in deposits from banks, see note 18.

ANZ Bank New Zealand Limited

66

Notes to the Financial Statements
29. Concentrations of Credit Risk to Individual Counterparties
The Banking Group measures its concentration of credit risk in respect to bank counterparties on the basis of approved exposuresand in respect to non bank counterparties on the basis of limits. No account is taken of collateral, security and/or netting agreements
which the Banking Group may hold in respect of the various counterparty exposures.
For the three month period ended 30 September 2014 there were no individual counterparties (excluding connected parties,
governments and banks with long term credit ratings of A- or above) where the Banking Group’s period end or peak end-of-day
credit exposure equalled or exceeded 10% of equity (as at the end of the period).
Concentrations of credit risk to connected persons
Credit exposures to connected persons reported in the table below have been calculated partially on a bilateral net basis andpartially on a gross basis. Netting has occurred (up to a limit of 125% of the Banking Group’s tier 1 capital) in respect of certaintransactions which are the subject of a bilateral netting agreement.
This information has been derived in accordance with the Bank’s conditions of registration, the RBNZ document Connected Exposures
Policy (BS8). The exposures are net of individual credit impairment allowances and exclude advances to connected persons of acapital nature.
Banking Group

30/09/2014

30/09/2013

Amount% of Tier 1

Amount% of Tier 1$mCapital$m

CapitalBank connected persons (on gross basis, before netting)

7,318

90.0%

4,065

52.0%

Less: amount netted off

5,747

70.7%

3,073

39.3%

Bank connected persons (on partial bilateral net basis)

1,571

19.3%

992

12.7%

Bank connected persons (on gross basis, before netting)

6,510

80.1%

5,696

72.8%

Less: amount netted off

4,254

52.4%

3,334

42.6%

Bank connected persons (on partial bilateral net basis)

2,256

27.7%

2,362

30.2%

Bank connected persons (on a gross basis, before netting)n/a125.0%

n/a

125.0%

Bank connected persons (on partial bilateral net basis)

n/a

70.0%

n/a

70.0%

Non-bank connected persons

n/a

15.0%

n/a

15.0%

Aggregate at end of year1

Peak end-of-day for the year2

Rating-contingent limit3

1

2

3

The Banking Group has amounts due from the Immediate Parent Company and the Ultimate Parent Bank and other entities within the Overseas Banking Group arisingin the ordinary course of business. These balances arise primarily from unrealised gains on trading and hedging derivative financial instruments with the Ultimate
Parent Bank. As at 30 September 2014, the gross exposures to the Immediate Parent Company were $6 million (30/09/2013 $14 million). As at 30 September 2014, thegross exposures to the Ultimate Parent Bank were $7,312 million (30/09/2013 $4,051 million).
The Banking Group has complied with the limits on aggregate credit exposure (of a non-capital nature and net of individual provisions) to connected persons andnon-bank connected persons, as set out in the Conditions of Registration, at all times during the year. The peak end-of-day credit exposures for the year to connected
persons are measured over Tier 1 Capital as at the end of the year.
Represents the maximum peak end-of-day aggregate credit exposures limit (of a non-capital nature and net of individual provisions) to all connected persons. This
limit is based on the ratings applicable to the Bank’s long term senior unsecured obligations payable in New Zealand in New Zealand dollars. Within the overall limit a
sub-limit of 15% of Tier 1 Capital applies to aggregate credit exposures (exclusive of exposures of a capital nature and net of individual provisions) to non-bankconnected persons. There have been no changes to these limits for the year ended 30 September 2014.

ANZ Bank New Zealand Limited

67

Notes to the Financial Statements
30. Classification of Financial Instruments and Fair Value Measurements
Banking GroupAt amortisedcost

At fair value through profit or loss
Designated on
initialrecognition Held for trading$ millions

Hedging

Available-forsale assets

Total
carrying
amountFair value

30/09/2014
1,822

-

-

-

-

1,822

1,822

Settlement balances receivable

855

-

-

-

-

855

855

Collateral paid

783

-

-

-

-

783

783

Trading securities--

11,750--11,75011,750Derivative financial instruments1--

11,089315-

11,404

11,404

Available-for-sale assets

-

-

-

-

772

772

772

Net loans and advances2

96,299----96,29996,397

Other financial assets

555

190

-

-

-

745

745

Total financial assets

100,314190

22,839315

772

124,430

124,528

2,296

-

-

-

-

2,296

2,296

Cash

Settlement balances payable
Collateral received
Deposits and other borrowings
Derivative financial instruments1

800

-

-

-

-

800

800

77,962

6,057

-

-

-

84,01984,042--

10,033

172-

10,205

10,205

Bonds and notes2

17,042----

17,042

17,225Subordinated debt

1,144

-

-

-

-

1,144

1,137

Other financial liabilities

607

-

226

-

-

833

833

Total financial liabilities

99,851

6,057

10,259172-

116,339

116,538

2,206

-

-

-

-

2,206

2,206

30/09/2013
CashSettlement balances receivable

514

-

-

-

-

514

514

1,002

-

-

-

-

1,002

1,002

Trading securities--

10,320--

10,320

10,320Derivative financial instruments1

-

-

9,289

229

-

9,518

9,518

Available-for-sale assets

-

-

-

-

942

942

942

2

Net loans and advances

90,837----

90,837

90,919Other financial assets

484

172

-

-

-

656

656

Total financial assets

95,043

172

19,609229

942

115,995

116,077

Settlement balances payable

1,428

-

-

-

-

1,428

1,428

438

-

-

-

-

438

438

74,051

4,765

-

-

-

78,81678,873Collateral paid

Collateral received
Deposits and other borrowings
Derivative financial instruments1--

10,103140-

10,243

10,243

Bonds and notes2

15,494----

15,494

15,721

Subordinated debt

1,144

-

-

-

-

1,144

1,044

Other financial liabilities

561

-

142

-

-

703

703

Total financial liabilities

93,116

4,765

10,245140-

108,266

108,450

ANZ Bank New Zealand Limited

68

Notes to the Financial Statements
Bank
At amortisedcost

At fair value through profit or loss
Designated on
initialrecognition Held for trading$ millions

Hedging

Available-forsale assets

Total
carrying
value

Fair Value

30/09/2014

1,822

-

-

-

-

1,822

1,822

Settlement balances receivable

858

-

-

-

-

858

858

Collateral paid

783

-

-

-

-

783

783

Trading securities--

11,750--11,75011,750Derivative financial instruments1--

11,093315-

11,408

11,408Available-for-sale assets

-

-

-

-

770

770

770

Net loans and advances2

109,668

-

-

-

-

109,668

109,825

Other financial assets

623

-

-

-

-

623

623

Total financial assets

113,754-

22,843315

770

137,682

137,839

2,771

-

-

-

-

2,771

2,771

800

-

-

-

-

800

800

Deposits and other borrowings

115,223

-

-

-

-

115,223

115,339

Derivative financial instruments1--

10,065

172-

10,237

10,237

Bonds and notes

3,277

-

-

-

-

3,277

3,339

Subordinated debt

1,144

-

-

-

-

1,144

1,137

Other financial liabilities

687

-

226

-

-

913

913

Total financial liabilities

123,902-

10,291

172-

134,365

134,536

2,206

-

-

-

-

2,206

2,206

514

-

-

-

-

514

514

1,002

-

-

-

-

1,002

1,002

-

-

10,319--10,31910,319
9,522

CashSettlement balances payable
Collateral received

30/09/2013

CashSettlement balances receivable
Collateral paid
Trading securities
Derivative financial instruments

1

-

-

9,293

229

-

9,522

Available-for-sale assets

-

-

-

-

940

940

940

Net loans and advances2

100,769

-

-

-

-

100,769

100,854

Other financial assets

529

-

-

-

-

529

529

Total financial assets

105,020-

19,612229

940

125,801

125,886

1,767

-

-

-

-

1,767

1,767

438

-

-

-

-

438

438

105,805

-

-

-

-

105,805

106,027

Settlement balances payable
Collateral received
Deposits and other borrowings
Derivative financial instruments1--

10,112

140-

10,252

10,252

Bonds and notes

2,687

-

-

-

-

2,687

2,759

Subordinated debt

1,144

-

-

-

-

1,144

1,044

Other financial liabilities

603

-

142

-

-

745

745

Total financial liabilities

112,444-

10,254

140-

122,838

123,032

1
2

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

ANZ Bank New Zealand Limited

69

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

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

•

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

•

Level 3 – Financial instruments that have been valued using valuation techniques which incorporate significant inputs that are
not based on observable market data (unobservable inputs).

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

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

•

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

•

The Banking Group holds units in an unlisted fund, included in available-for sale assets which does not trade in an active
market. The fair value of these units is based on the estimated cashflows from the realisation of the underlying assets.

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

ANZ Bank New Zealand Limited

70

Notes to the Financial Statements
Valuation hierarchy for financial assets and financial liabilities measured at fair value
Banking Group$ millions

Level 1Bank

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

11,65991-

11,7502

11,402-

11,404

11,65991-

11,7502

11,406-

Available-for-sale assets

712

58

2

11,408

772

712

58

-

Other financial assets

129

61

770

-

190

-

-

-

-

12,502

11,612

2

24,116

12,373

11,555-23,92830/09/2014

Financial assets
Trading securities
Derivative financial instruments

Total
Financial liabilities
Deposits and other borrowings

-

6,057

-

6,057

-

-

-

-

Derivative financial instruments

5

10,200-

10,205

5

10,232-

10,237

Other financial liabilities

226

-

-

226

226

-

-

226

Total

231

16,257-

16,488231

10,232-

10,463

10,208112-

10,320

10,207112-

10,319

2

9,516

-

9,518

2

9,520

-

9,522

Available-for-sale assets

940

-

2

942

940

-

-

940

Other financial assets

140

32

-

172

-

-

-

-

11,2909,660

220,952

11,149

9,632-

20,781

30/09/2013

Financial assets
Trading securities
Derivative financial instruments

Total
Financial liabilities
Deposits and other borrowings

-

4,765

-

4,765

-

-

-

-

Derivative financial instruments

6

10,237-

10,243

6

10,246-

10,252Other financial liabilities

142

-

-

142

142

-

-

142

Total

148

15,002-15,150148

10,246-

10,394

Valuation hierarchy for financial assets and financial liabilities not measured at fair value1
Banking Group$ millions

Bank

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total-

92,493

3,904

96,397-

105,9213,904

109,825

Deposits and other borrowings-

77,985-77,985-

115,339-

115,339

Bonds and notes-

17,225-

17,225

-

3,339

-

3,339

Subordinated debt

828

309

-

1,137

828

309

-

1,137

Total

828

95,519-96,347

828

118,987-

119,815

30/09/2014
Financial assets

Net loans and advances
Financial liabilities

1

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

ANZ Bank New Zealand Limited

71

Notes to the Financial Statements
31. Notes to the Cash Flow Statement
Banking GroupBank

Year toYear toYear toYear to30/09/2014

30/09/2013

30/09/2014

30/09/2013

1,716

1,371

1,559

1,576

Depreciation and amortisation

85

98

48

68

Provision for credit impairment

(16)

63

(28)

56

$ millions

Reconciliation of profit after income tax to net cash flows provided by / (used in)operating activities
Profit after income tax
Non-cash items:

Deferred fee revenue and expenses

(4)

4

(6)

2

Amortisation of capitalised brokerage / mortgage origination fees

66

43

66

43

Amortisation of premiums and discounts

152

181

152

181

Fair value gains and losses

(222)

(114)

(222)

(108)

16

6

7

2

-

-

-

(181)

Change in net operating assets less liabilities

(536)

1,061

(342)

(3,445)

Change in interest receivable

(52)

(11)

(89)

(21)

Change in interest payable

32

(86)

59

(62)

Change in accrued expenses

(25)

(5)

(23)

(23)

Change in provisions

(25)

(110)

(5)

(105)

Change in insurance policy assets

(67)

2

-

-

Change in other receivables and payables

(15)

(29)

-

(42)

Change in net income tax assets / liabilities

171

99

128

101

1

-

-

-

Loss on disposal and impairment of premises and equipment and intangibles
Reversal of impairment of investment in subsidiary
Deferrals or accruals of past or future operating cash receipts or payments:

Dividends from associates in excess of share of profits
Items classified as investing / financing:
Gain on disposal of subsidiaries (excluding disposal costs)
Net cash flows provided by / (used in) operating activities

-

(28)

-

(51)

1,277

2,545

1,304

(2,009)30/09/2014

30/09/2013

30/09/2014

30/09/2013

1,822

2,206

1,822

2,206

Banking Group$ millions

Bank

Reconciliation of cash and cash equivalents to the balance sheet
CashAmounts included in settlement balances receivable / (payable):
Nostro accounts

38

22

38

22

Overdrawn nostro accounts

(30)

(24)

(30)

(24)

Total cash and cash equivalents

1,830

2,204

1,830

2,204

30/09/2014

30/09/2013

30/09/2014

30/09/2013

15

24

15

24

32. Commitments
Banking Group$ millions

Bank

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

87

73

87

72

Later than 1 year but not later than 5 years

203

167

202

166

Later than 5 years

178

165

178

165

Total operating lease commitments

468

405

467

403

Total commitments

483

429

482

427

ANZ Bank New Zealand Limited

72

Notes to the Financial Statements
33. Credit Related Commitments, Guarantees and Contingent Liabilities$ millions

Banking GroupBank

Face or contract value

Face or contract value

30/09/2014

30/09/2014

30/09/2013

30/09/2013

Credit related commitments
764

817

764

817

Commitments to provide financial services

27,37824,44628,321

26,886

Total credit related commitments

28,14225,26329,08527,703Financial guarantees

925

997

925

997

Standby letters of credit

79

32

79

32

Transaction related contingent items

1,321

1,059

1,321

1,059

Trade related contingent liabilities

111

113

110

112

2,436

2,201

2,435

2,200

Commitments with certain drawdown due within one year

Guarantees and contingent liabilities

Total guarantees and contingent liabilities

The Banking Group guarantees the performance of customers by issuing standby letters of credit and guarantees to third parties,
including its Ultimate Parent Bank. The risk involved is essentially the same as the credit risk involved in extending loan facilities tocustomers, therefore these transactions are subjected to the same credit origination, portfolio management and collateralrequirements for customers applying for loans. As the facilities may expire without being drawn upon, the notional amounts do notnecessarily reflect future cash requirements.
Other contingent liabilities
In October 2012, the Commerce Commission commenced an investigation, under the Fair Trading Act 1986, into the promotion andsale of interest rate swaps by certain banks (including the Bank) to rural customers. The investigation is ongoing and the outcome is
not certain.
On 11 March 2013, litigation funder Litigation Lending Services (NZ) Limited announced plans for a representative action againstbanks in New Zealand for certain fees charged to New Zealand customers over the past six years. Proceedings were filed against the
Bank on 25 June 2013. The potential outcome of this litigation cannot be determined with any certainty at this stage.
The Banking Group has other contingent liabilities in respect of actual and possible claims and court proceedings.
An assessment of the Banking Group’s likely loss in respect of these matters has been made on a case-by-case basis and provision
made where deemed necessary.

ANZ Bank New Zealand Limited

73

Notes to the Financial Statements
34.

Structured Entities, Transferred Financial Assets, Fiduciary Activities and Insurance

Structured entities
The Banking Group’s involvement with structured entities is mainly through securitisations and its funds management activities,
which are outlined further below. The Banking Group has involvement with structured entities that may be established either by the
Banking Group or by a third party.
Consolidated structured entities
Kingfisher NZ Trust 2008-1 (the Kingfisher Trust)
The Banking Group has established the Kingfisher Trust as an in-house residential mortgage backed securities facility that can issue
securities meeting the RBNZ criteria to use as collateral in repurchase transactions with the RBNZ.
These assets do not qualify for derecognition as the Bank retains substantially all of the risks and rewards of the transferred assets.
As at 30 September 2014 and 30 September 2013 the Banking Group had not entered into any repurchase agreements with the
RBNZ for residential mortgage backed securities and therefore no collateral had been accepted by the RBNZ under this facility.
ANZNZ Covered Bond Trust (the Covered Bond Trust)
Substantially all of the assets of the Covered Bond Trust are made up of certain housing loans and related securities originated by
the Bank which are security for the guarantee by ANZNZ Covered Bond Trust Limited as trustee of the Covered Bond Trust of
issuances of 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 creditors of the Bank, although the Bank (or its liquidator or statutory manager)
may have a claim against the residual assets of the Covered Bond Trust (if any) after all prior ranking creditors of the Covered Bond
Trust have been satisfied.
The Banking Group continues to recognise the assets of the Covered Bond Trust on its balance sheet as, although they are pledged
as security for covered bonds, the Bank retains substantially all the risks and rewards of ownership.
Unconsolidated securitisations
The Banking Group also has an interest in unconsolidated securitisation entities through the provision of funding facilities or holding
bonds or notes issued by such entities. The Banking Group’s exposure to these entities is not material.
Transferred financial assets
Assets transferred to the Kingfisher Trust and the Covered Bond Trust
The Bank has purchased securities issued by both the Kingfisher Trust and the Covered Bond Trust in exchange for the transfer of therights to the cash flows associated with the identified residential mortgages.
Repurchase transactions
Securities sold subject to repurchase agreements are not derecognised when substantially all the risks and rewards of ownership
remain with the Bank.
The following table sets out the carrying values assets transferred by the Bank and the Banking Group to other entities and theassociated liabilities to deliver the cashflows on those instruments.
Banking Group$ millions

Note

Bank

30/09/2014

30/09/2013

30/09/2014

30/09/2013

Carrying amount of assets transferred

-

-

7,963

5,823

Carrying amount of associated liabilities

-

-

7,963

5,823

Carrying amount of assets transferred

-

-

7,283

5,857

Carrying amount of associated liabilities

-

-

7,283

5,857

Securitisations1,2

Covered Bonds

1

Repurchase agreements
Carrying amount of assets transferred

28

47

108

47

108

Carrying amount of associated liabilities

28

47

107

47

107

1
2

There are no balances for the Banking Group as the balances for the Bank relate to transfers to internal special purpose entities.
The securitisation liabilities have recourse only to the pool of residential mortgages which have been securitised. The fair value of securitised assets is $7,928 million(30/09/2013 $5,823 million). The fair value of the associated liabilities is $7,928 million (30/09/2013 $5,823 million). The net position is nil (30/09/2013 nil).

ANZ Bank New Zealand Limited

74

Notes to the Financial Statements
Funds management and other fiduciary activities
Funds management
Certain subsidiaries of the Bank act as trustee and/or manager for a number of unit trusts and investment and superannuation funds.
The Banking Group provides private banking services to a number of clients, including investment advice and portfolio
management. The Banking Group is not responsible for any decline in performance of the underlying assets of the investors due tomarket forces.
As funds under management are not controlled by the Banking Group, they are not included in these financial statements. The
Banking Group derives fee and commission income from the sale and management of investment funds and superannuation
schemes, unit trusts and the provision of private banking services to customers. The Banking Group derives commission income
from the sale of third party funds management products.
Some funds under management are invested in products owned or securities issued by the Banking Group and are recorded asliabilities in the balance sheet. At 30 September 2014, $2,928 million of funds under management were invested in the Banking
Group's own products or securities (30/09/2013 $3,054 million).
Custodial services
The Banking Group provides custodial services to customers in respect of assets that are beneficially owned by those customers.
Funds managed and held in custody by the Banking Group$ millions

Banking Group
30/09/2014

30/09/2013

Kiwisaver and other managed funds

7,205

5,506

The Bonus Bonds Trust

3,196

3,259

715

833

ANZ PIE Fund1
2

Other investment portfolios

8,807

7,354

Total funds under management

19,923

16,952

Funds held in custody or as nominee on behalf of customers

7,427

6,365

110

95

Funds management fee income from structured entities
1

2

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

Provision of financial services
Financial services provided by the Banking Group to entities which are involved in trust, custodial, funds management and otherfiduciary activities are provided on arm’s length terms and conditions and at fair value. Any assets purchased from such entities havebeen purchased on an arm’s length basis and at fair value. The Banking Group does not have any affiliated insurance entities oraffiliated insurance groups that are not members of the Banking Group.
Except for standard lending facilities provided in the normal course of business on arm’s length terms, the Banking Group has notprovided any funding to entities where trust, custodial, funds management or other fiduciary activities are established, marketed
and/or sponsored by a member of the Banking Group (30/09/2013 $nil).
Insurance business
The Banking Group conducts insurance business through its subsidiaries OnePath Life (NZ) Limited and OnePath Insurance Services(NZ) Limited (together OnePath Insurance). OnePath Insurance provides a range of risk transfer insurance products, including life,
lump sum trauma/disablement, income protection and medical cover. In addition, other entities within the Banking Group market
and distribute a range of insurance products which are underwritten by OnePath Insurance, or by third party insurance companies.
The aggregate amount of insurance business in this group comprises assets totalling $850 million (30/09/2013 $779 million), which
is 0.7% (30/09/2013 0.6%) of the total consolidated assets of the Banking Group.
OnePath Life (NZ) Limited and OnePath Insurance Services (NZ) Limited propose to amalgamate and continue as OnePath Life (NZ)
Limited. The proposed amalgamation is subject to necessary consents and approvals, including from the RBNZ.
Risk management
The Bank and subsidiaries of the Bank participating in the activities identified above have in place policies and procedures to ensurethat those activities are conducted in an appropriate manner. Should adverse conditions arise, it is considered that these policies
and procedures will minimise the possibility that these conditions will adversely impact the Bank or the Banking Group. The policies
and procedures include comprehensive and prominent disclosure of information regarding products, and formal and regular review
of operations and policies by management.

ANZ Bank New Zealand Limited

75

Notes to the Financial Statements
35. Changes to Comparatives
Certain amounts in the comparative information have been reclassified to conform with current period financial statement
presentations.
The classification of the balance sheet was changed during the period to more consistently reflect the nature of the financial assets
and liabilities. Prior to this reclassification, the balance sheet was classified according to both nature and counterparty. The key
changes include:
Assets•••••Securities purchased under agreements to resell in less than three months previously reported in liquid assets and due fromother financial institutions are now classified as cash.
Money at call, bills receivable and remittances in transit previously reported in liquid assets are now classified as either cash,
settlement balances receivable or net loans and advances depending on the nature of the asset.
Loans to other banks previously reported in due from other financial institutions are now classified as net loans and advances.
Collateral paid previously reported in due from other financial institutions is now classified separately.
Issued security settlements previously reported in other assets are now classified as settlement balances receivable.

Liabilities•••

Loans from other banks previously reported in due to other financial institutions are now classified as deposits and otherborrowings.
Collateral received previously reported in due to other financial institutions is now classified separately.
Issued security settlements previously reported in other liabilities are now classified as settlement balances payable.

Minor changes in the overall total assets and total liabilities have also occurred due to an amendment to NZ IAS19 Employee Benefits.
The tables below show the impact of these changes on the balance sheet, together with the impact of the change in the definition of
cash and cash equivalents explained in note 1. Associated amounts in the income statement, statement of comprehensive income
and cash flow statement have been restated accordingly, and the impact of the changes to these statements is not material.
Banking Group

30/09/2013
Previously
reported

Liquid assets
Due from other financial institutions

1/10/2012

ChangeCurrently
reported

Previously
reported

ChangeCurrently
reported

2,496(2,496)-

2,831(2,831)-

1,570(1,570)-1,722(1,722)

-

Cash

-

2,206

2,206

-

2,780

2,780

Settlement balances receivable

-

514

514

-

227

227
1,256

$ millions

AssetsCollateral paid

-

1,002

1,002

-

1,256

Available-for-sale assets

782

160

942

57

100

157

Net loans and advances

90,489348

90,83786,678237

86,915

Other assets

731

(164)

567

592

(47)

545

Deferred tax assets

39

6

45

93

8

101

All other assets

24,331-

24,331

29,583-29,583

Total assets

120,438

6

120,444

121,5568

121,564

1,517(1,517)-

1,759(1,759)-Settlement balances payable

-

1,428

1,428

-

1,525

1,525

Collateral received

-

438

438

-

257

257

77,697

1,119

78,81673,652

1,189

74,841

939

(939)

-

740

(740)

-

1,705

(510)

1,195

1,792

(443)

1,349

Liabilities
Due to other financial institutions

Deposits and other borrowings
Due to immediate parent company
Payables and other liabilities
All other liabilities

27,113-

27,11332,681-

32,681

Total liabilities

108,97119

108,990

110,624

29

110,653

Equity11,467(13)

11,454

10,932(21)

10,911

Cash and cash equivalents in cash flow statement

2,861

(657)

2,204

3,255

(526)

2,729

ANZ Bank New Zealand Limited

76

Notes to the Financial StatementsBank

30/09/2013
Previously
reported

Liquid assets
Due from other financial institutions

1/10/2012

ChangeCurrently
reported

Previously
reported

ChangeCurrently
reported

2,495(2,495)-2,815(2,815)-

1,570(1,570)-1,722(1,722)

-

Cash

-

2,206

2,206

-

2,780

2,780

Settlement balances receivable

-

514

514

-

227

227
1,256

$ millions

AssetsCollateral paid

-

1,002

1,002

-

1,256

Available-for-sale assets

780

160

940

54

100

154

Net loans and advances

88,22912,540100,769

84,31911,85696,175Due from subsidiaries

12,206(12,206)-

11,619(11,619)-

Other assets

760

(151)

609

611

(63)

548

Deferred tax assets

128

6

134

185

8

193

All other assets

28,127-28,12735,205-35,205

Total assets

134,295

6

134,301

136,5308

136,538

1,517(1,517)-

1,555(1,555)

-

-

1,767

1,767

-

1,865

1,865

Liabilities
Due to other financial institutions
Settlement balances payable
Collateral received

-

438

438

-

257

257

Deposits and other borrowings

71,44034,365

105,805

66,731

38,586105,317

Due to subsidiaries

33,768(33,768)-

37,940(37,940)

-

939

(939)

-

740

(740)

-

1,416

(327)

1,089

1,469

(444)

1,025

Due to immediate parent company
Payables and other liabilities
All other liabilities

14,270-14,27017,890-17,890Total liabilities

123,350

19

123,369

126,325

29

126,354

Equity10,945(13)

10,932

10,205(21)

10,184

Cash and cash equivalents in cash flow statement

2,861

(657)

2,204

3,255

(526)

2,729

ANZ Bank New Zealand Limited

77

Directorate and Auditors
Any document or communication may be sent to any
Director at the Registered Office. The document orcommunication should be marked for the attention of that
Director.
Directors’ interests
In order to ensure that members of the Board are remindedof their disclosure obligations under the Companies Act
1993, the following procedures are adopted:a.

b.

At least once in each year, Directors are requested tocomplete, in terms of section 140(1) of the Companies
Act 1993, a disclosure of any interests which they havewith the Bank itself. Directors are reminded at this timeof their obligation under the Companies Act 1993 todisclose promptly any transaction or proposedtransaction with the Bank in which they have an interest.
Directors are also requested to make a generaldisclosure of their interest in other entities in terms ofsection 140(2) of the Companies Act 1993. In addition,
they are requested to initiate a review of that disclosure
if there are any significant alterations which occur
subsequently during the period.

In addition to the written disclosures referred to above,
Directors disclose relevant interests which they have before
discussion of particular business items.
The Companies Act 1993 allows a Director with an interest ina transaction to participate in discussions and to vote on all
matters relating to that particular transaction. However, theBoard has adopted a guideline whereby a Director with aninterest in a transaction should not be present during any
discussions, and should not vote, on any matter pertaining tothat particular transaction.
Transactions with Directors
No Director has disclosed that he/she or any immediate
relative or professional associate has any dealing with the
Banking Group which has been either entered into on terms
other than those which would in the ordinary course ofbusiness be given to any other person of like circumstancesor means or which could otherwise be reasonably likely to
influence materially the exercise of the Director’s duties as a
Director of the Bank.

Board Members as at 18 November 2014
Independent Non-Executive Director and ChairJohn Frederick JudgeB Com, FCA
Company Director
Auckland, New Zealand
Mr Judge is the Chair of the Remuneration Committee and amember of the Audit Committee and the Risk Committee.
Other directorships: Aquatx Holdings Limited, Biotelliga
Limited, Biotelliga Holdings Limited, Biotelliga Nominees
Limited, CIC28 Biotech Limited, Fletcher Building Limited,
Fletcher Building Industries Limited, Janohn Limited, Sebca
Limited, John Judge Limited, Cup Limited, Sails Friday
Limited, The New Zealand Initiative Limited

Executive Director
David Duncan Hisco
B Bus, MBA
Chief Executive, ANZ Bank New Zealand Limited
Auckland, New Zealand
Other directorships: ANZ Holdings (New Zealand) Limited

Non-Executive Directors
Shayne Cary Elliott
B Com
Chief Financial Officer, Australia and New Zealand Banking
Group Limited
Melbourne, Australia
Mr Elliott is a member of the Risk Committee and the Audit
Committee.
Other directorships: ANZ Holdings (New Zealand) Limited,
AMMB Holdings BerhadMichael Roger Pearson Smith, OBE
BSc (Hons) (City Lond), Hon LLD (Monash)
Chief Executive Officer, Australia and New Zealand Banking
Group Limited
Melbourne, Australia
Mr Smith is a member of the Remuneration Committee.
Other directorships: Australia and New Zealand Banking
Group Limited, The Financial Markets Foundation forChildren, The Institute of International Finance, The
International Monetary Conference, Financial Literacy
Australia Limited, Executive Chairman of Chongqinq Mayor’s
International Economic Advisory Council
Nigel Henry Murray Williams
BCom
Chief Risk Officer, Australia and New Zealand Banking Group
LimitedMelbourne, Australia
Mr Williams is an alternate director for Michael Smith.
Other directorships: Shanghai Rural Commercial BankANZ Bank New Zealand Limited

Directorate and Auditors
Independent Non-Executive Directors
Antony John Carter
BE (Hons), ME, FNZIM
Company Director
Auckland, New Zealand
Mr Carter is the Chair of the Risk Committee and a member ofthe Audit Committee and the Remuneration Committee.
Other directorships: Air New Zealand Limited, Avonhead Mall
Limited, Blues Management Limited, Fletcher Building
Limited, Fisher & Paykel Healthcare Corporation Limited,Fisher & Paykel Healthcare Employee Share Purchase Trustee
Limited, Fletcher Building Industries Limited, LoughboroughInvestments Limited, Modern Merchants Limited, Strategic
Interchange Limited, Tetrad Corporation Limited
Mark John Verbiest
LLB, MInstD
Company Director
Wanaka, New Zealand
Mr Verbiest is the Chair of the Audit Committee and amember of the Remuneration Committee and the Risk
Committee.
Other directorships: Bear Fund NZ Limited, Freightways
Limited, Spark New Zealand Limited, Transpower New
Zealand Limited, Willis Bond Capital Partners Limited, Willis
Bond General Partner Limited
Joan Withers
MBA, AFInstD
Company Director
Auckland, New Zealand
Ms Withers is a member of the Remuneration Committee, theRisk Committee and the Audit Committee.
Other directorships: Mighty River Power Limited, Television
New Zealand Limited

Auditors
KPMG
Chartered Accountants
10 Customhouse Quay
P O Box 996
Wellington, New Zealand78

ANZ Bank New Zealand Limited

79

Conditions of Registration
Conditions of Registration, applicable as at 30 September
2014. These Conditions of Registration have applied from 1
July 2014.

Banking group's
buffer ratio

Percentage limit to
distributions of the
bank's earnings

The registration of ANZ Bank New Zealand Limited (“the bank”)
as a registered bank is subject to the following conditions:

0% - 0.625%

0%>0.625 - 1.25%

20%

1.

>1.25 - 1.875%

40%>1.875% - 2.5%

60%

That(a)the Total capital ratio of the banking group is not lessthan 8%;(b) prepare a capital plan to restore the banking group’s
buffer ratio to above 2.5% within any timeframe
determined by the Reserve Bank for restoring thebuffer ratio; and(b) the Tier 1 capital ratio of the banking group is not lessthan 6%;(c)the Common Equity Tier 1 capital ratio of the banking
group is not less than 4.5%;(c)(d) the Total capital of the banking group is not less than
$30 million; and(e)

For the purposes of this condition of registration, —“buffer ratio”, “distributions”, and “earnings” have the same
meaning as in Part 3 of the Reserve Bank of New Zealanddocument: “Capital Adequacy Framework (Internal Models
Based Approach)” (BS2B) dated July 2014.

the process in Subpart 2H of the Reserve Bank of New
Zealand document: “Capital Adequacy Framework(Internal Models Based Approach)” (BS2B) dated July
2014 is followed for the recognition and repayment of
capital.

the scalar referred to in the Reserve Bank of New Zealanddocument “Capital adequacy framework (Internal Models
Based Approach)” (BS2B) dated July 2014 is 1.06.

For the purposes of this condition of registration,the scalar referred to in the Reserve Bank of New Zealanddocument “Capital adequacy framework (Internal Models
Based Approach)” (BS2B) dated July 2014 is 1.06.
“Total capital ratio”, “Tier 1 capital ratio”, “Common Equity
Tier 1 capital ratio”, and “Total capital” must be calculated
in accordance with the Reserve Bank of New Zealanddocument “Capital adequacy framework (Internal Models
Based Approach)” (BS2B) dated July 2014.
1A. That(a)the bank has an internal capital adequacy assessment
process (“ICAAP”) that accords with the requirements
set out in the document “Guidelines on a bank’s
internal capital adequacy assessment process(‘ICAAP’)” (BS12) dated December 2007;(b) under its ICAAP the bank identifies and measures its“other material risks” defined as all material risks of thebanking group that are not explicitly captured in thecalculation of the Common Equity Tier 1 capital ratio,
the Tier 1 capital ratio and the Total capital ratio under
the requirements set out in the document “Capital
adequacy framework (Internal Models BasedApproach)” (BS2B) dated July 2014; and(c)

1C. That, if the buffer ratio of the banking group is 2.5% or less,the bank must:(a)2.

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

3.

That the banking group’s insurance business is not greaterthan 1% of its total consolidated assets.
For the purposes of this condition of registration, thebanking group’s insurance business is the sum of thefollowing 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 subsidiaryof 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 groupheaded by the entity; and(b)

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

the bank determines an internal capital allocation foreach identified and measured “other material risk”.

1B. That the banking group complies with all requirements set
out in the Reserve Bank of New Zealand document “Capital
adequacy framework (Internal Models Based Approach)”(BS2B) dated July 2014.

according to the following table, limit the aggregate
distributions of the bank’s earnings to the percentage
limit to distributions that corresponds to the banking
group’s buffer ratio:

have the capital plan approved by the Reserve Bank.

In determining the total amount of the banking group’s
insurance business(a)all amounts must relate to on balance sheet items
only, and must comply with generally accepted
accounting practice; and(b)

if products or assets of which an insurance businessis comprised also contain a non-insurance

ANZ Bank New Zealand Limited

80

Conditions of Registration(f) the chairperson of the board of the bank must be
independent; andcomponent, the whole of such products or assets
must be considered part of the insurance business.

(g) the bank’s constitution must not include any provisionpermitting a director, when exercising powers or
performing duties as a director, to act other than inwhat he or she believes is the best interests of thecompany (i.e. the bank).

For the purposes of this condition of registration,“insurance business” means the undertaking orassumption of liability as an insurer under a contract of
insurance:“insurer” and “contract of insurance” have the same
meaning as provided in sections 6 and 7 of the Insurance(Prudential Supervision) Act 2010.
4.

That the aggregate credit exposures (of a non-capitalnature and net of any allowances for impairment) of thebanking group to all connected persons do not exceed therating-contingent limit outlined in the following matrix:

Credit Rating of the bank1

7.

Connected exposure limit(% of the banking group’s Tier 1
capital)AA/Aa2 and above

75

AA-/Aa3

70

A+/A1

60

A/A2

40

A-/A3

30

BBB+/Baa1 and below

15

1

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

(a) the Reserve Bank has been supplied with a copy of thecurriculum vitae of the proposed appointee; and(b) the Reserve Bank has advised that it has no objection
to that appointment.
8.

(b) the Reserve Bank has advised that it has no objection
to that appointment.
9.

For the purposes of this condition of registration,compliance with the rating-contingent connected
exposure limit is determined in accordance with theReserve Bank of New Zealand document entitled“Connected Exposures Policy” (BS8) dated July 2014.
5.

6.

That exposures to connected persons are not on morefavourable terms (e.g. as relates to such matters as credit
assessment, tenor, interest rates, amortisation schedules
and requirement for collateral) than corresponding
exposures to non-connected persons.
That the bank complies with the following corporate
governance requirements:(a) the board of the bank must have at least five directors;(b) the majority of the board members must be nonexecutive directors;(c) at least half of the board members must be
independent directors;(d) an alternate director,—(i)for a non-executive director must be nonexecutive; and(ii)

for an independent director must be
independent;(e) at least half of the independent directors of the bankmust be ordinarily resident in New Zealand;

That a person must not be appointed as chairperson of theboard of the bank unless:(a) the Reserve Bank has been supplied with a copy of thecurriculum vitae of the proposed appointee; andThis table uses the rating scales of Standard & Poor’s, Fitch Ratings andMoody’s Investors Service. (Fitch Ratings’ scale is identical to Standard &Poor’s)Within the rating-contingent limit, credit exposures (of anon-capital nature and net of any allowances for
impairment) to non-bank connected persons shall not
exceed 15 percent of the banking group’s Tier 1 capital.

That no appointment of any director, chief executive
officer, or executive who reports or is accountable directly
to the chief executive officer, is made in respect of the bankunless:That the bank has a board audit committee, or otherseparate board committee covering audit matters, thatmeets the following requirements:(a) the mandate of the committee must include: ensuring
the integrity of the bank’s financial controls, reporting
systems and internal audit standards;(b) the committee must have at least three members;(c) every member of the committee must be a nonexecutive director of the bank;(d) the majority of the members of the committee must be
independent; and(e) the chairperson of the committee must be
independent and must not be the chairperson of thebank.
For the purposes of this condition of registration, “nonexecutive” and “independent” have the same meaning as
in the Reserve Bank of New Zealand document entitled“Corporate Governance” (BS14) dated July 2014.

10. That a substantial proportion of the bank’s business isconducted in and from New Zealand.
11. That the bank has legal and practical ability to control andexecute any business, and any functions relating to any
business, of the bank that are carried on by a person otherthan the bank, sufficient to achieve, under normal businessconditions and in the event of stress or failure of the bankor of a service provider to the bank, the following
outcomes:(a) that the bank’s clearing and settlement obligations
due on a day can be met on that day;

ANZ Bank New Zealand Limited

81

Conditions of Registration(b) that the bank’s financial risk positions on a day can be
identified on that day;(c) that the bank’s financial risk positions can bemonitored and managed on the day following any
failure and on subsequent days; and(d) that the bank’s existing customers can be given accessto payments facilities on the day following any failure
and on subsequent days.
For the purposes of this condition of registration, the term“legal and practical ability to control and execute” isexplained in the Reserve Bank of New Zealand document
entitled “Outsourcing Policy” (BS11) dated January 2006.
12. That:(a) the business and affairs of the bank are managed by, or
under the direction and supervision of, the board of
the bank;(b) the employment contract of the chief executive officerof the bank or person in an equivalent position(together “CEO”) is with the bank, and the terms andconditions of the CEO’s employment agreement are
determined by, and any decision relating to theemployment or termination of employment of the CEO
are made by, the board of the bank; and(c) all staff employed by the bank shall have theirremuneration determined by (or under the delegatedauthority of) the board or the CEO of the bank and be
accountable (directly or indirectly) to the CEO of thebank.
13. That the banking group complies with the following
quantitative requirements for liquidity-risk management:(a) the one-week mismatch ratio of the banking group is
not less than zero per cent at the end of each businessday;(c) identifies the principal methods that the bank will use
for measuring, monitoring and controlling liquidity
risk; and(d) considers the material sources of stress that the bankmight face, and prepares the bank to manage stressthrough a contingency funding plan.
15. That no more than 10% of total assets may be beneficiallyowned by a SPV.
For the purposes of this condition, —“total assets” means all assets of the banking group plus
any assets held by any SPV that are not included in thebanking group’s assets:“SPV” means a person—(a) to whom any member of the banking group has sold,assigned, or otherwise transferred any asset;(b) who has granted, or may grant, a security interest in its
assets for the benefit of any holder of any covered
bond; and(c) who carries on no other business except for thatnecessary or incidental to guarantee the obligations ofany member of the banking group under a covered
bond:“covered bond” means a debt security issued by any
member of the banking group, for which repayment toholders is guaranteed by a SPV, and investors retain an
unsecured claim on the issuer.
16. That—(a) no member of the banking group may give effect to aqualifying acquisition or business combination thatmeets the notification threshold, and does not meetthe non-objection threshold, unless:(i)(b) the one-month mismatch ratio of the banking group is
not less than zero per cent at the end of each business
day; and(c) the one-year core funding ratio of the banking group is
not less than 75 per cent at the end of each businessday.
For the purposes of this condition of registration, the ratios
identified must be calculated in accordance with theReserve Bank of New Zealand documents entitled“Liquidity Policy” (BS13) dated July 2014 and “Liquidity
Policy Annex: Liquid Assets” (BS13A) dated December
2011.
14. That the bank has an internal framework for liquidity risk
management that is adequate in the bank’s view for
managing the bank’s liquidity risk at a prudent level, andthat, in particular:(a) is clearly documented and communicated to all thosein the organisation with responsibility for managing
liquidity and liquidity risk;(b) identifies responsibility for approval, oversight andimplementation of the framework and policies forliquidity risk management;

the bank has notified the Reserve Bank in writingof the intended acquisition or businesscombination and at least 10 working days havepassed; and(ii) at the time of notifying the Reserve Bank of theintended acquisition or business combination,
the bank provided the Reserve Bank with theinformation required under the Reserve Bank of
New Zealand Banking Supervision Handbook
document “Significant Acquisitions Policy” (BS15)
dated December 2011; and(b) no member of the banking group may give effect to aqualifying acquisition or business combination thatmeets the non-objection threshold unless:(i)the bank has notified the Reserve Bank in writingof the intended acquisition or businesscombination;(ii) at the time of notifying the Reserve Bank of theintended acquisition or business combination,
the bank provided the Reserve Bank with theinformation required under the Reserve Bank of
New Zealand Banking Supervision Handbook
document “Significant Acquisitions Policy” (BS15)
dated December 2011; andANZ Bank New Zealand Limited

82

Conditions of Registration(iii) the Reserve Bank has given the bank a notice of
non-objection to the significant acquisition orbusiness combination.
For the purposes of this condition of registration,“qualifying acquisition or business combination”,“notification threshold” and “non-objection threshold”
have the same meaning as in the Reserve Bank of New
Zealand Banking Supervision Handbook document“Significant Acquisitions Policy” (BS15) dated December
2011.
17. That the bank is pre-positioned for Open Bank Resolution
and in accordance with a direction from the Reserve Bank,
the registered bank can—(a) close promptly at any time of the day and on any dayof the week and that effective upon the appointmentof the statutory manager—(i)

all liabilities are frozen in full; and(ii) no further access by customers andcounterparties to their accounts (deposits,
liabilities or other obligations) is possible;(b) apply a de minimis to relevant customer liability
accounts;(c) apply a partial freeze to the customer liability accountbalances;(d) reopen by no later than 9am the next business day
following the appointment of a statutory manager andprovide customers access to their unfrozen funds;(e) maintain a full freeze on liabilities not pre-positioned
for open bank resolution; and(f) reinstate customers’ access to some or all of theirresidual frozen funds.
For the purposes of this condition of registration, “deminimis”, “partial freeze”, “customer liability account”, and“frozen and unfrozen funds” have the same meaning as in
the Reserve Bank of New Zealand document “Open Bank
Resolution (OBR) Pre-positioning Requirements Policy”(BS17) dated September 2013.
18. That the registered bank has an Implementation Planthat—(a) is up-to-date; and(b) demonstrates that the bank’s prepositioning for OpenBank Resolution meets the requirements set out in the
Reserve Bank document: “Open Bank Resolution Prepositioning Requirements Policy” (BS17).
For the purposes of this condition of registration,“Implementation Plan” has the same meaning as in the
Reserve Bank of New Zealand document “Open Bank
Resolution (OBR) Pre-positioning Requirements Policy”(BS17) dated September 2013.
19. That the bank has a compendium of liabilities that—(a) at the product-class level lists all liabilities, indicating
which are—(i)pre-positioned for Open Bank Resolution; and(ii) not pre-positioned for Open Bank Resolution;(b) is agreed to by the Reserve Bank; and(c) if the Reserve Bank’s agreement is conditional, meets
the Reserve Bank’s conditions.
For the purposes of this condition of registration,“compendium of liabilities” and “pre-positioned and non
pre-positioned liabilities” have the same meaning as in the
Reserve Bank of New Zealand document “Open Bank
Resolution (OBR) Pre-positioning Requirements Policy”(BS17) dated September 2013.
20. That on an annual basis the bank tests all the component
parts of its Open Bank Resolution solution that
demonstrates the bank’s prepositioning for Open Bank
Resolution as specified in the bank’s Implementation Plan.
For the purposes of this condition of registration,“Implementation Plan” has the same meaning as in the
Reserve Bank of New Zealand document “Open Bank
Resolution (OBR) Pre-positioning Requirements Policy”(BS17) dated September 2013.
21. That, for a loan-to-valuation measurement period, the totalof the bank’s qualifying new mortgage lending amounts
must not for residential properties with a loan-to-valuation
ratio of more than 80%, exceed 10% of the total of thequalifying new mortgage lending amounts arising in theloan-to-valuation measurement period.
22. That the bank must not make a residential mortgage loan
unless the terms and conditions of the loan contract or theterms and conditions for an associated mortgage requirethat a borrower obtain the bank’s agreement before theborrower can grant to another person a charge over the
residential property used as security for the loan.
23. That the bank must not permit a borrower to grant acharge in favour of another person over a residential
property used as security for a residential mortgage loan
unless the sum of the lending secured by the charge andthe loan value for the residential mortgage loan would notexceed 80% of the property value of the residential
property when the lending secured by the charge is drawn
down.
24. That the bank must not provide a residential mortgage
loan if the residential property to be mortgaged to thebank as security for the residential mortgage loan is subject
to a charge in favour of another person unless the total
amount of credit secured by the residential property would
not exceed 80% of the property value when the residential
mortgage loan is drawn down.
25. That the bank must not act as broker or arrange for amember of its banking group to provide a residential
mortgage loan.
In these conditions of registration,—“banking group”,—(a) means ANZ Bank New Zealand Limited (as reporting
entity) and all other entities included in the group as
defined in section 6(1) of the Financial Markets
Conduct Act 2013 for the purposes of Part 7 of that Act(unless paragraph (b) applies); or(b) means ANZ Bank New Zealand Limited’s financial
reporting group (as defined in section 2(1) of the

ANZ Bank New Zealand Limited

Conditions of Registration
Financial Reporting Act 1993) if the Financial
Reporting Act 1993 applies to the bank:“generally accepted accounting practice” —(a)has the same meaning as in section 8 of the Financial
Reporting Act 2013 (unless paragraph (b) applies); or(b)means generally accepted accounting practice within
the meaning of section 3 of the Financial ReportingAct 1993 if the bank is required to prepare financial
statements in accordance with that practice.

In conditions of registration 21 to 25, —“loan-to-valuation ratio”, “loan value”, “property value”,“qualifying new mortgage lending amount” and“residential mortgage loan” have the same meaning as in
the Reserve Bank of New Zealand document entitled“Framework for Restrictions on High-LVR Residential
Mortgage Lending” (BS19) dated July 2014:“loan-to-valuation measurement period” means—(a)the six calendar month period ending on the last dayof March 2014; and(b) thereafter a period of three calendar months endingon the last day of the third calendar month, the first ofwhich ends on the last day of April 2014.

83

ANZ Bank New Zealand Limited

Directors’ Statement
As at the date on which this Disclosure Statement is signed, after due enquiry, each Director believes that:(i)

The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statements (New
Zealand Incorporated Registered Banks) Order 2014; and(ii)

The Disclosure Statement is not false or misleading.

Over the year ended 30 September 2014, after due enquiry, each Director believes that:(i)

ANZ Bank New Zealand Limited has complied with all Conditions of Registration that applied during that period;(ii)

Credit exposures to connected persons were not contrary to the interests of the Banking Group;(iii) ANZ Bank New Zealand Limited had systems in place to monitor and control adequately the Banking Group’s material risks,

including credit risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk, operational risk andother business risks, and that those systems were being properly applied.
This Disclosure Statement is dated, and has been signed by all Directors of the Bank on, 18 November 2014.

Antony Carter

Shayne ElliottDavid Hisco

John Judge

Michael Smith, OBE

Mark Verbiest

Joan Withers

84

ANZ Bank New Zealand Limited

85

Independent Auditor’s Report
To the Shareholder of ANZ Bank New Zealand Limited
Report on the Bank and Banking Group Disclosure Statement
We have audited the accompanying financial statements and supplementary information of ANZ Bank New Zealand Limited (theBank) and its subsidiaries (the Banking Group) on pages 4 to 76 of the Disclosure Statement. The financial statements comprise thebalance sheets as at 30 September 2014, the statements of income, comprehensive income, changes in equity and cash flows for theyear then ended, and a summary of significant accounting policies and other explanatory information of the Bank and the Banking
Group. The supplementary information comprises the information that is required to be disclosed under the Registered Bank
Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014 (the Order).
Directors' Responsibility for the Disclosure Statement
The Directors are responsible for the preparation of the Bank and Banking Group Disclosure Statement, including financial
statements prepared in accordance with Clause 24 of the Order, generally accepted accounting practice in New Zealand andInternational Financial Reporting Standards that give a true and fair view of the matters to which they relate. The Directors are also
responsible for such internal controls as they determine are necessary to enable the preparation of the Bank and Banking Groupfinancial statements that are free from material misstatement whether due to fraud or error.
The Directors are responsible for the preparation and fair presentation of supplementary information, in accordance with Schedules
2, 4, 7, 13, 14, 15 and 17 of the Order.
Auditor’s Responsibility
Our responsibility is to express an opinion on the Disclosure Statement, including the financial statements prepared in accordancewith Clause 24 of the Order and the supplementary information disclosed in accordance with Schedules 4, 7, 13, 14, 15 and 17 of theOrder. We conducted our audit in accordance with International Standards on Auditing (New Zealand). Those standards require that
we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Bank andBanking Group financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Bank and Banking
Group financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks ofmaterial misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal controls relevant to the Bank and Banking Group’s preparation of the financial statements that gives a true and fairview of the matters to which they relate in order to design audit procedures that are appropriate in the circumstances, but not forthe purpose of expressing an opinion on the effectiveness of the Bank and Banking Group’s internal controls. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating
the presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
KPMG has also provided other audit related services to the Bank and Banking Group. In addition, certain partners and employees ofour firm may also deal with the Bank and Banking Group on normal terms within the ordinary course of trading activities of the Bank
and Banking Group. These matters have not impaired our independence as auditors of the Bank and Banking Group. We have noother relationship with, or interest in, the Bank and Banking Group.
Opinion on the Disclosure Statement
In our opinion the Disclosure Statement of the Bank and the Banking Group on pages 4 to 76 (excluding the supplemental
information):a.

complies with generally accepted accounting practice in New Zealand;b.

complies with International Financial Reporting Standards; andc.

gives a true and fair view of the financial position as at 30 September 2014 and of their financial performance and cash flows forthe year ended on that date.

ANZ Bank New Zealand Limited

86

Opinion on Supplementary Information
In our opinion, the supplementary information that is required to be disclosed in accordance with Schedules 4, 7, 13, 14, 15 and 17 of
the Order, and is included within notes 13, 14, 26, 27, 29 and 34 of the Disclosure Statement:a.

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

is in accordance with the books and records of the Bank and Banking Group; andc.

fairly states the matters to which it relates in accordance with those Schedules.

Report on Supplementary Information Relating to Capital Adequacy
We have reviewed the Supplementary Information relating to Capital Adequacy, as disclosed in note 26 of the Disclosure Statement
for the year ended 30 September 2014.
Directors’ Responsibility for the Supplementary Information Relating to Capital Adequacy
The Directors are responsible for the preparation of Supplementary Information relating to Capital Adequacy that is required to bedisclosed under Schedule 11 of the Order.
Auditor’s Responsibility
Our responsibility is to express an opinion on the supplementary information relating to Capital Adequacy based on our review. We
conducted our review in accordance with the review engagement standard RS-1 Statement of Review Engagement Standards issued
by the External Reporting Board. Those standards require that we comply with ethical requirements and plan and perform thereview to obtain limited assurance about whether the supplementary information relating to Capital Adequacy is, in all material
respects:a.

prepared in accordance with the Bank’s Conditions of Registration;b.

prepared in accordance with the Bank’s internal models for credit risk and operational risk as accredited by the Reserve Bank of
New Zealand; andc.

disclosed in accordance with Schedule 11 of the Order.

A review is limited primarily to enquiries of Bank and Banking Group personnel and analytical review procedures applied to thefinancial data, and thus provides less assurance than an audit. We have not performed an audit in respect of the Capital Adequacy
disclosures, and accordingly, we do not express an audit opinion on these disclosures.
Opinion on the Supplementary Information Relating to Capital Adequacy
Based on our review, nothing has come to our attention that causes us to believe that the supplementary information relating tocapital adequacy prescribed by Schedule 11 of the Order, and disclosed in note 26 of the Disclosure Statement, is not, in all material
respects:a.

prepared in accordance with the Bank’s Conditions of Registration;b.

prepared in accordance with the Bank’s internal models for credit risk and operational risk as accredited by the Reserve Bank of
New Zealand; andc.

disclosed in accordance with Schedule 11 of the Order.

Report on Other Legal and Regulatory Requirements
In accordance with the requirements of sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993, and clauses 2(1)(d) and2(1)(e) of Schedule 1 of the Order, we report that:a.

we have obtained all the information and explanations we have required; andb.

in our opinion, proper accounting records have been kept by the Bank and Banking Group, as far as appears from our
examination of those records.

Wellington
18 November 2014

ANZ Bank New Zealand Limited

87

Index
Contents and Glossary of Terms
General Disclosures
Summary of Financial Statements
Income Statement
Statement of Comprehensive Income
Statement of Changes in Equity
Balance Sheet
Cash Flow Statement
1. Significant Accounting Policies
2. Critical Estimates and Judgement Used in Applying Accounting Policies
3. Risk Management Policies
4. Income5. Expenses
6. Income Tax
7. Segmental Analysis
8. Cash
9. Trading Securities
10. Derivative Financial Instruments
11. Available-for-sale Assets
12. Net Loans and Advances
13. Provision for Credit Impairment
14. Impaired Assets
15. Subsidiaries and Associates
16. Other Assets
17. Goodwill and Other Intangible Assets
18. Deposits and Other Borrowings
19. Payables and Other Liabilities
20. Provisions
21. Bonds and Notes
22. Subordinated Debt
23. Related Party Transactions
24. Current and Non-current Assets and Liabilities
25. Share Capital
26. Capital Adequacy
27. Financial Risk Management
28. Financial Assets Pledged as Collateral and Offsetting Financial Instruments
29. Concentrations of Credit Risk to Individual Counterparties
30. Classification of Financial Instruments and Fair Value Measurements
31. Notes to the Cash Flow Statements
32. Commitments
33. Credit Related Commitments and Contingent Liabilities
34. Structured Entities, Transferred Financial Assets, Fiduciary Activities and Insurance
35. Changes to Comparatives
Directorate and Auditors
Conditions of Registration
Directors’ Statement
Independent Auditor’s Report
Index

1
1
3
4
4
5
6
7
8
15
17
19
20
21
22
24
24
25
27
27
28
29
29
30
30
30
31
31
31
32
32
35
36
37
46
64
66
67
71
71
72
73
75
77
79
84
85
87