Australia and New Zealand Banking Group Limited– New Zealand Branch
General Disclosure Statement
FOR THE SIX MONTHS ENDED 31 MARCH 2010 | NUMBER 6 ISSUED MAY 2010

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHGENERAL DISCLOSURE STATEMENTFOR THE SIX MONTHS ENDED 31 MARCH 2010

CONTENTS

Page

General Disclosures

2-6

Summary of Financial Statements

7

Income Statements

8Statements of Comprehensive Income

9Statements of Changes in Equity and Head Office AccountBalance Sheets

10
11

Cash Flow Statement s

12Notes to the Financial Statements

13 – 114

Directorate and Auditors

115 – 117

Conditions of Registration

118 – 119

Credit Rating Information120

Directors’ and New Zealand Chief Executive Officer’s Statement
Independent Review Report121
122 – 123

Index

124
1

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHGENERAL DISCLOSURESThis Disclosure Statement has been issued in accordance with the Registered Bank Disclosure Statement (Fulland Half Year - Overseas Incorporated Registered Banks) Order 2008 ("the Order").
In this Disclosure Statement unless the context otherwise requires:(a) "Overseas Banking Group" means the worldwide operations of Australia and New Zealand Banking
Group Limited including its controlled entities;(b) "Overseas Bank" or "Ultimate Parent Bank" means the worldwide operations of Australia and New
Zealand Banking Group Limited excluding its controlled entities;(c) "NZ Banking Group" means the aggregated NZ operations of Australia and New Zealand Banking Group
Limited, including those operations conducted through the New Zealand Branch and controlled entitiesof the Overseas Bank registered in New Zealand;(d) "NZ Branch" or "Registered Bank" means the New Zealand operations of Australia and New Zealand
Banking Group Limited, as conducted through the NZ Branch;(e) "Bank" means ANZ National Bank Limited;(f) Any term or expression which is defined in, or in the manner prescribed by, the Order shall have themeaning given in or prescribed by that Order.
GENERAL MATTERS
The NZ Branch was registered as a bank on 5 January 2009. Its full name is Australia and New Zealand
Banking Group Limited - New Zealand Branch and its address for service is Level 6, 1 Victoria Street,
Wellington, New Zealand.
The full name of the Overseas Bank is Australia and New Zealand Banking Group Limited and its address forservice is ANZ Centre Melbourne, Level 9, 833 Collins Street, Docklands, 3008, Victoria, Australia.
On 30 November 2009, the NZ Banking Group purchased ING Groep’s 51% interest in ING (NZ) Holdings
Limited (“ING NZ”), which was the holding company for the ANZ-ING wealth management and life insurance
joint venture in New Zealand.
NATURE OF BUSINESSThe principal activities of the NZ Banking Group during the period were retail, corporate and rural banking,mortgage lending, asset and general finance, international and investment banking, and nominee and custodian
services.
RANKING OF LOCAL CREDITORS IN LIQUIDATION
There are material legislative restrictions in the Overseas Bank's country of incorporation which subordinate theclaims of a class of unsecured creditors of the Registered Bank on the assets of the Overseas Bank to those ofanother class of unsecured creditors of the Overseas Bank, in liquidation of the Overseas Bank.
The Banking Act 1959 of the Commonwealth of Australia (the "Banking Act") gives priority over Australianassets of the Overseas Bank to Australian depositors if the Overseas Bank is unable to meet its obligations orsuspends payment. Accordingly, New Zealand depositors (together with all other senior unsecured creditors of
the Overseas Bank) will rank after Australian depositors of the Overseas Bank in relation to claims against
Australian assets.
Specifically, pursuant to section 13A(3) of the Banking Act, if an Authorised Deposit-Taking Institution (definedin that Act to include a Bank like the Overseas Bank) (an "ADI") becomes unable to meet its obligations orsuspends payment, the assets of the ADI in Australia are to be available to meet the ADI's liabilities in thefollowing order:(a) first, the ADI's liabilities to the Australian Prudential Regulation Authority ("APRA") (if any), because of
the rights APRA has against the ADI because APRA has made, or is required to make, payments todepositors under the Financial Claims Scheme (defined below);(b) second, the ADI's debts to APRA for costs incurred by APRA in administration of the Financial Claims
Scheme in respect of the ADI;(c) third, in payment of the ADI's deposit liabilities in Australia (other than liabilities covered underparagraph (a)); and(d) fourth, the ADI's other liabilities (in order of priority apart from section 13A(3)).
Under section 13A(1) of the Banking Act, in certain circumstances APRA may take control of an ADI or appoint
an administrator (defined in the Banking Act) to take control of its business. Section 16(1) and (2) of the
Banking Act provide that, despite anything contained in any law relating to the winding up of companies, but
subject to section 13A(3) of the Banking Act, the debts of an ADI to APRA in respect of APRA's costs (including
costs in the nature of remuneration and expenses) of being in control of the ADI's business or of having an
administrator in control of the ADI's business have priority in a winding up of the ADI over all other unsecured
debts.
2

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHGENERAL DISCLOSURES (CONTINUED)
Section 86 of the Reserve Bank Act provides that notwithstanding anything contained in any law relating to thewinding up of companies, but subject to section 13A(3) of the Banking Act, debts due to the Reserve Bank ofAustralia by any ADI shall, in a winding up, have priority over all other debts other than debts due to the
Commonwealth of Australia.
Section 13A(3) affects all of the unsecured deposit liabilities of the NZ Branch which as at 31 March 2010
amounted to $nil. (31/03/2009 $nil; 30/09/2009 $nil).
REQUIREMENT TO HOLD EXCESS ASSETS OVER DEPOSIT LIABILITIESSection 13A(4) of the Banking Act (the "Act") states that it is an offence for an ADI not to hold assets (otherthan goodwill) in Australia of a value that is equal to or greater than the total amount of its deposit liabilities inAustralia, unless APRA has authorised the ADI to hold assets of a lesser value. During the six months ended 31
March 2010, the Overseas Bank has at all times held assets (other than goodwill) in Australia of not less thanthe value of the Overseas Bank's total deposit liabilities in Australia. The requirements of this section of the Act
have the potential to impact on the management of the liquidity of the NZ Banking Group.
GUARANTEESThe Overseas Bank has guarantees from the Commonwealth of Australia under:(a) in the case of deposits and certain other accounts up to A$1 million, a scheme (The "Financial Claims
Scheme") pursuant to the Financial System Legislation Amendment (Financial Claims Scheme and Other
Measures) Act 2008 of the Commonwealth of Australia (The "Financial Claims Scheme Act");(b) in the case of wholesale funding, by a Deed of Guarantee executed by the Treasurer (and related
scheme rules) (the "Wholesale Funding Guarantee").
The Financial Claims Scheme applies to the Registered Bank, as it is a foreign branch of an eligible Australian
ADI. The Wholesale Funding Guarantee may also apply as described below.
Financial Claims Scheme
Under the Financial Claims Scheme if:•
APRA has applied for an ADI to be wound up; and•the responsible Minister makes a declaration that the Financial Claims Scheme applies to that particular
ADI
then each account holder of a Protected Account (defined below) with that ADI is entitled to be paid by APRA an
amount equal to the balance of the protected account plus accrued interest which has been credited to theaccount (subject to various adjustments and preconditions described in the Financial Claims Scheme Act). Oncethe responsible Minister has made a declaration, there are no other material conditions to payment other thanthe ADI being unable to meet its obligations or suspending payment. The deposit must be for an amount lessthan A$1 million. Deposits for a greater amount are covered by the Wholesale Funding Guarantee (to theextent that is applicable as described below).
A protected account is:•accounts or covered financial products (defined below) kept under an agreement between the accountholder and the ADI requiring the ADI to pay the account holder, on demand by the account holder or ata time agreed by them, the net credit balance of the account at the time of the demand or the agreed
time; and•an account prescribed by regulations.
A covered financial product is a financial product declared by the Australian Treasurer to be a covered financial
product. A list is available at www.treasury.gov.au. The list includes accounts such as saving, call, current,
cheque, debit card, transaction and mortgage offset accounts.
Deposit holders do not have to be Australian residents to obtain the benefit of the Financial Claims Scheme andit applies to deposits denominated in any currency.
From 12 October 2011 the Financial Claims Scheme is to apply to Australian dollar deposits only and is generally
subject to review at that time.

3

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHGENERAL DISCLOSURES (CONTINUED)
Wholesale Funding Guarantee
The Wholesale Funding Guarantee is a deed governed by the laws of the State of New South Wales and has
been executed by the Australian Treasurer on behalf of the Australian Government. Australian institutions
which are ADIs under the Banking Act, which includes the Overseas Bank, were entitled to apply for the
Wholesale Funding Guarantee prior to 25 March 2010 to apply to deposit accounts over A$1 million and certain
funding liabilities.
Foreign banks authorised to carry on banking business in Australia were also able to apply to have certain
deposits and funding liabilities held by Australian residents guaranteed by the Australian Government. The
Reserve Bank of Australia administers the Wholesale Funding Guarantee.
On 7 February 2010 the Australian Government announced the withdrawal of the Wholesale Funding Guarantee
on 31 March 2010. The final date for ADIs to apply for access to the Wholesale Funding Guarantee was 24
March 2010. Existing guaranteed liabilities of ADIs, including those of the Overseas Bank, will continue tocovered by the Wholesale Funding Guarantee to maturity for wholesale funding and term deposits i.e. to
October 2015 for at call deposits. The Wholesale Funding Guarantee continues to operate for existingguaranteed liabilities as follows.
Under the Wholesale Funding Guarantee, the Commonwealth of Australia irrevocably guarantees the payment ofliabilities covered by an eligibility certificate issued by the Australian Government in response to an application
made by the ADI, and irrevocably undertakes that whenever the ADI does not pay a liability on the date on
which it becomes due or payable, it shall, upon a claim by a person to whom a guaranteed liability is owed, andfollowing the expiry of any applicable grace period, pay the guaranteed liability in accordance with the scheme
rules. A claim must be made in the form provided in the scheme rules. In the case of a liability of an Australian
ADI, such as the Overseas Bank, the claimant need not be a resident of Australia.
In order to have the Wholesale Funding Guarantee apply, an ADI was required to apply to the Reserve Bank ofAustralia for an eligibility certificate. Fees were also paid, calculated by reference to the term and amount of
the liabilities guaranteed and the credit rating of the ADI the fee which applied to the Overseas Bank based on
its rating by Standard and Poor’s of AA, was 70 basis points per annum applied in respect of its guaranteed
liabilities in accordance with the Wholesale Funding Guarantee). The fees are levied on a monthly or quarterly
basis depending on the liability. An ADI was able to apply for an eligibility certificate in respect of a program
under which it issues debt instruments from time to time or on a series-by-series basis.
A person to whom a guaranteed liability is owed may rely on the eligibility certificate issued by the AustralianGovernment as conclusive evidence that the liability satisfies the criteria for eligibility to be guaranteed under
the Wholesale Funding Guarantee.
An application must set out details of the liabilities to be guaranteed and be accompanied by an executedcounter indemnity in favour of the Australian Government, external legal opinions in a prescribed form, an
executed fee letter and a letter of prudential compliance. Further information with respect to the application
procedure
and
fees
can
be
found
at
the
AustralianGovernment
Guarantee
websiteatwww.guaranteescheme.gov.au.
If the ADI is an Australian ADI (such as the Overseas Bank) or an Australian subsidiary of a bank incorporated
overseas, it was able to apply for the guarantee to apply to:•
Deposit liabilities for amounts over A$1 million: The deposit could be at call or with maturity of up
to 60 months in excess of $1 million per customer per ADI, be in any currency and pre-date theWholesale Funding Guarantee. There were no restrictions on the types of depositors;•
Deposits held in overseas branches: Deposits held in overseas branches of Australian-owned ADIs
could be covered by the Wholesale Funding Guarantee. There were no restrictions on the types ofdepositors;•
Short Term Wholesale Funding Liabilities: The liability (which could be in any currency) was
required to be a senior and unsecured debt instrument with a maturity not exceeding 15 months. In
addition, the instrument must be "not complex" and be either a bank bill, a certificate of deposit ortransferable deposit, a debenture or commercial paper; and•Term Wholesale Funding Liabilities: The liability (which may be in any currency) was required to bea senior and unsecured debt instrument with a maturity not exceeding 60 months but greater than 15
months. The instrument required to be "not complex" and be either a bond, a note or a debenture.
In the case of all instruments, they would be issued in bearer, registered or dematerialised form. An instrument
could not be granted an eligibility certificate unless it was "not complex". The Government has published a list of
the features that were likely to be regarded by the Government as "complex".

4

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHGENERAL DISCLOSURES (CONTINUED)
Wholesale Funding Guarantee (Continued)
If the Australian Government does not perform its obligations under the Wholesale Funding Guarantee, abeneficiary of the guarantee could sue the Commonwealth of Australia under the Judiciary Act 1903 of Australia.
In such a suit, the rights of parties are similar to these in a suit between subjects of the Commonwealth ofAustralia. Jurisdiction to hear claims against the Commonwealth of Australia in contract is vested in certain
Australian courts under the Judiciary Act 1903 of Australia. If a judgment is obtained against the AustralianGovernment, no execution or attachment can be issued against the property or revenues of the Commonwealthof Australia. However, if any judgment is given against the Australian Government, the Minister for Finance isobliged to satisfy the judgment out of money legally available, on receipt of a certificate of the judgment issued
by an officer of a court in which such judgment has been obtained.
In order to render money legally available, specific appropriation by legislation passed by the Parliament of theCommonwealth of Australia would be necessary before any payment is made, unless the amount involved issuch that it could be paid out of funds available under an existing standing appropriation. The AustralianGovernment has enacted legislation which appropriates funds from consolidated revenue for the purposes ofpaying claims under the Wholesale Funding Guarantee. The Wholesale Funding Guarantee does not contain any
submission to the courts of a foreign jurisdiction or any waiver of any immunity which might be available to the
Commonwealth of Australia under the law of any foreign jurisdiction.
The Australian Government shall not be liable to perform its obligations under the Wholesale Funding Guarantee
in respect of liabilities which have been varied, amended, waived, released, novated, supplemented, extended
or restated in any material respect without the written consent of the Australian Government.
Further information on the Wholesale Funding Guarantee including the Wholesale Deed of Guarantee is available
in the most recent Supplemental Disclosure Statement.
Copies of eligibility certificates issued by the Reserve Bank of Australia under the Wholesale Funding Guarantee
are available at www.guaranteescheme.gov.au.
The name of the Guarantor and address for service is: The Scheme Administrator, Australian Government
Guarantee Scheme for Large Deposits and Wholesale Funding, c/- The Secretary, Reserve Bank of Australia, 65
Martin Place, Sydney, New South Wales 2001, Australia.
Further details of the arrangements, together with relevant legislation, regulations and other documents settingout the terms and conditions of the current guarantee arrangements, are available at the Treasury website
www.treasury.gov.au, www.apra.gov.au and www.guaranteescheme.gov.au.
The most recent audited financial statements of the Commonwealth of Australia can be obtained at theTreasury's Budget website www.budget.gov.au. As at the date of signing of the General Disclosure Statement,
the following ratings were assigned to the Commonwealth of Australia's long term, AUD denomination debt: AAA
Outlook Stable (Standard & Poor's), Aaa Outlook Stable (Moody's) and AAA Outlook Stable (Fitch). These
ratings have remained unchanged in the two preceding years. Refer to 'Credit Rating Information' for a fulldescription of credit rating scales.
New Zealand Guarantee Arrangements
The Crown guarantees retail deposits and wholesale funding of participating New Zealand financial institutions
under the New Zealand Deposit Guarantee Scheme and New Zealand Wholesale Funding Guarantee Facility
respectively. The Registered Bank does not have a guarantee under either Scheme.

5

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHGENERAL DISCLOSURES (CONTINUED)PENDING PROCEEDINGS OR ARBITRATIONOther than disclosed in the Disclosure Statement, there are no pending proceedings or arbitration concerning
any member of the NZ Banking Group that may have a material adverse effect on the NZ Banking Group as at
the date of the General Disclosure Statement.
Further details on pending proceedings or arbitration are set out in Note 38 Contingent Liabilities and Credit
Related Commitments.
OTHER MATERIAL MATTERS
There are no matters relating to the business or affairs of the NZ Branch and the NZ Banking Group which are
not contained elsewhere in the General Disclosure Statement and which would, if disclosed, materially adversely
affect the decision of a person to subscribe for debt securities of which the NZ Branch or any member of the NZ
Banking Group is the issuer.
SUPPLEMENTAL DISCLOSURE STATEMENT
A copy of the most recent Supplemental Disclosure Statement for the six months ended 31 March 2010 can beobtained immediately where request is made within normal banking hours at the NZ Branch head office, Level 6,
1 Victoria Street, Wellington. It is also available at no charge:(a) on the NZ Banking Group's website at www.anz.com;(b) immediately if request is made at the NZ Banking Group's head office; and(c) within five working days of a request, if a request is made at any branch of ANZ or The National Bank of
New Zealand.
The NZ Banking Group's most recent Supplemental Disclosure Statement contains a copy of the 31 March 2010
Interim Financial Report for the Overseas Banking Group and a copy of the Deed of Guarantee for the Guarantee
Scheme.
FINANCIAL STATEMENTS OF THE OVERSEAS BANK AND OVERSEAS BANKING GROUP
Copies of the most recent publicly available financial statements of the Overseas Bank and Overseas Banking
Group will be provided immediately, free of charge, to any person requesting a copy where the request is madeat the NZ Branch's head office, Level 6, 1 Victoria Street, Wellington. The most recent publicly available
financial statements for the Overseas Bank and Overseas Banking Group can also be accessed at the internet
address www.anz.com.
DIRECTORATE
Since the authorisation date of the previous General Short Form Disclosure Statement on 24 February 2010,
Charles Barrington Goode ceased to be a Director of the Overseas Banking Group (effective 28 February 2010).
There have been no other changes to the Directors of the Overseas Banking Group since 24 February 2010.

6

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHSUMMARY OF FINANCIAL STATEMENTS

The amounts included in this summary have been taken from the audited financial statements of the NZ
Banking Group except for the amounts for the six months ended 31 March 2010, which have been taken fromunaudited financial statements.
1.

Truck Leasing Limited has been classified as a discontinued operation for the comparative years ending 30 September 2007, 30 September 2006 and 30
September 2005.

7

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHINCOME STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2010

Note

Unaudited
6 months to
31/03/2010$m

NZ Banking Group
Unaudited
6 months to
31/03/2009$m

AuditedYear to30/09/2009$m

Unaudited
6 months to
31/03/2010$m

NZ Branch
Unaudited
6 months to
31/03/2009$m

AuditedYear to30/09/2009$mInterest income

4

3,072

4,233

7,479

274

28

241

Interest expense

5

1,925

3,047

5,181

204

23

171

1,147

1,186

2,298

70

5

70
-

Net interest income
Net trading gains

4

16

119

187

-

-

Net funds management and insurance income

4

91

47

97

-

-

-

Other operating income

4

278

265

383

48

(8)

(10)

Share of profit of equity accounted associates
and jointly controlled entities

15

Operating income
Operating expenses

5

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

14

Profit before income tax
Income tax expense
Profit after income tax

6

36

8

13

-

-

-

1,568

1,625

2,978

118

(3)

60

748

739

1,479

13

1

11

820

886

1,499

105

(4)

49

325

288

883

11

3

9

495

598

616

94

(7)

40

109

176

422

28

(2)

12

386

422

194

66

(5)

28

The notes on pages 13 to 120 form part of and should be read in conjunction with these financial statements.

8

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHSTATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 31 MARCH 2010

Note

Profit / (loss) after income tax
Available-for-sale revaluation reserve:- Valuation gain before tax

NZ Banking Group
Unaudited
Unaudited
6 months to
6 months to
31/03/2010
31/03/2009

AuditedYear to30/09/2009

$m

$m

$m

Unaudited
6 months to
31/03/2010
$m

386

422

194

59

4

2

NZ Branch
Unaudited
6 months to
31/03/2009$m

AuditedYear to30/09/2009
$m

66

(5)

28

-

-

-

Cash flow hedging reserve:- Valuation gain / (loss) before tax

10

2

(9)

(1)

-

-

-

- Transferred to income statement

10

21

(19)

(3)

-

-

-

Actuarial gain / (loss) on defined benefit schemes

14

(39)

(25)

-

-

-

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

(20)

20

10

-

-

-

Net credit / (expense) recognised directly in equity

76

(43)

(17)

-

-

-

462

379

177

66

(5)

28

Total comprehensive income / (expense) for the period

The notes on pages 13 to 120 form part of and should be read in conjunction with these financial statements.

9

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHSTATEMENTS OF CHANGES IN EQUITY AND HEAD OFFICE ACCOUNTFOR THE SIX MONTHS ENDED 31 MARCH 2010

Note

Unaudited
6 months to
31/03/2010

NZ Banking Group
Unaudited
6 months to
31/03/2009

AuditedYear to30/09/2009

Unaudited
6 months to
31/03/2010

NZ Branch
Unaudited
6 months to
31/03/2009

AuditedYear to30/09/2009

$m

$m

$m

$m

$m

$m

6,424
-

5,413
11
1,000

5,413
11
1,000

11
-

11
-

11
-

6,424

6,424

6,424

11

11

11

Available-for-sale revaluation reserve
Balance at beginning of the period
Valuation gain recognised after tax

25
51

23
3

23
2

-

-

-

Balance at end of the period

76

26

25

-

-

-

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

23
1
14

24
(6)
(12)

24
(1)

-

-

-

Share capital & Head Office accountBalance at beginning of the period
Movement in Head Office accountRedeemable preference shares issued in the period
Balance at end of the period

Balance at end of the period

27

10

38

6

23

-

-

-

114

32

48

-

-

-

Retained earnings
Balance at beginning of the period

843

1,667

1,667

28

-

-

Profit after income tax attributable to parent

386

422

194

66

(5)

28

1,229
10
(393)

2,089
(28)
(1,000)1,861(18)(1,000)

94
-

(5)
-

28
-

846

1,061

843

94

(5)

28

1

-

-

-

-

-

1

-

-

-

-

-

7,315

7,127

7,127

39

-

-

462
(393)
1

379
11
-

177
11
-

66
-

(5)
11
-

28
11
-

7,385

7,517

7,315

105

6

39

Total reserves

Total available for appropriation

Actuarial gain / (loss) on defined benefit schemes after tax
Dividends paid

27

Balance at end of the period
Non-controlling interests
Balance at beginning of the period
Minority interests in acquired subsidiaries

42

Balance at end of the period
Total equity & Head Office accountBalance at beginning of the period
Total comprehensive income for the period
Transactions with Head Office
Other transactions
Balance at end of the period42

The notes on pages 13 to 120 form part of and should be read in conjunction with these financial statements.

10

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHBALANCE SHEETSAS AT 31 MARCH 2010

The notes on pages 13 to 120 form part of and should be read in conjunction with these financial statements.

11

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHCASH FLOW STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2010

The notes on pages 13 to 120 form part of and should be read in conjunction with these financial statements.

12

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIESA) BASIS OF PREPARATIONi)
Statement of compliance
These financial statements have been prepared in accordance with the requirements of the Companies Act
1993, the Financial Reporting Act 1993 and the Registered Bank Disclosure Statement (Full and Half-Year Overseas Incorporated Registered Banks) Order 2008 (the "Order"). The parent’s financial statements are for
the New Zealand operations of Australia and New Zealand Banking Group Limited as conducted through the NZ
Branch (the "Registered Bank" or "NZ Branch") and the aggregated financial statements are for the New
Zealand operations of Australia and New Zealand Banking Group Limited (the "NZ Banking Group"), which
includes the NZ Branch and all New Zealand geographic operations, subsidiaries, associate companies andjointly controlled entities.
These financial statements have also been prepared in accordance with New Zealand Generally Accepted
Accounting Principles. They comply with New Zealand equivalents to International Financial Reporting Standards("NZ IFRS") and other applicable Financial Reporting Standards, as appropriate for profit-oriented entities. The
financial statements comply with International Financial Reporting Standards ("IFRS").
The principal accounting policies adopted in the preparation of these financial statements are set out below.
These policies have been consistently applied by the Branch and all consolidated entities and to all periods
presented in the consolidated financial statements.
These financial statements were authorised for issue by the Overseas Banking Group’s Board of Directors on 25
May 2010.
ii)
Use of estimates and assumptions
The preparation of the financial statements requires the use of management judgement, estimates andassumptions that affect reported amounts and the application of policies. The estimates and associatedassumptions are based on historical experience and various other factors that are believed to be reasonable.
Actual results may differ from these estimates.
Discussion of the critical accounting treatments, which include complex or subjective decisions or assessments,
are covered in Note 2. Such estimates may require review in future periods.
iii)
Basis of measurement
The financial statements have been prepared on a going concern basis in accordance with historical cost
concepts except that the following assets and liabilities are stated at their fair value:•
derivative financial instruments, including in the case of fair value hedging, the fair value of any
applicable underlying exposure;•financial instruments held for trading;•assets recognised as available-for-sale;•financial instruments designated at fair value through profit and loss; and•defined benefit scheme asset or liability
iv)
Changes in accounting policies and early adoption of new accounting statements
The accounting policies adopted by the NZ Banking Group are consistent with those adopted and disclosed in
the prior period with the exception that all new accounting standards and interpretations applicable to annual
reporting periods beginning on or after 1 October 2009 have been applied by the NZ Banking Group effectivefrom the required date of application. The initial application of these standards and interpretations has not had amaterial impact on the financial results of the NZ Banking Group.
NZ IFRS 8 Operating Segments (“NZ IFRS 8”), NZ IAS 1 Presentation of Financial Statements (revised) (“NZ IAS1”), NZ IAS 27 Consolidated and Separate Financial Statements and NZ IFRS 3 Business Combinations (revised)have been applied by the NZ Banking Group for the six months ended 31 March 2010.
NZ IFRS 8 replaces NZ IAS 14 Segment Reporting and requires the use of a “management approach” tosegment reporting. Segment information is therefore presented on the same basis as that used for internalreporting purposes. Goodwill associated with the acquisition of NBNZ Holdings Limited Group is allocated to thereportable segments in accordance with NZ IFRS 8.
In accordance with NZ IAS 1 a “statement of comprehensive income” has been disclosed showing net profit orloss and revenues and expenses recognised directly in equity. In addition the revised “statement of changes inequity” shows all changes in equity.

13

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

There have been no other changes in accounting policies since the authorisation date of the previous DisclosureStatement on 24 November 2009.
v)
Rounding
The amounts contained in the financial statements have been rounded to the nearest million dollars, except
where otherwise stated.
vi)Comparatives
Certain amounts in the comparative information have been reclassified to ensure consistency with the current
period.
vii)
Basis of aggregation
The basis of aggregation is an addition of the NZ Banking Group’s individual financial statements of the entities
in the NZ Banking Group. All transactions between entities within the NZ Banking Group have been eliminated.
Subsidiaries
The financial statements aggregate the financial statements of the Branch and all New Zealand subsidiaries
where it is determined that there is capacity to control.
Where subsidiaries have been sold or acquired during the period, their operating results have been included tothe date of disposal or from the date of acquisition.
Control means the power to govern, directly or indirectly, decision making in relation to the financial andoperating policies of an entity so as to obtain benefits from its activities. Control is usually present when an
entity has:•power over more than one-half of the voting rights of the other entity;•
power to govern the financial and operating policies of the other entity;•
power to appoint or remove the majority of the members of the board of directors or equivalent
governing body;•
power to cast the majority of votes at meetings of the board of directors or equivalent governing bodyof the entity.
In addition, potential voting rights that are presently exercisable or convertible are taken into account indetermining whether control exists. However, all the facts of a particular situation are considered when
determining whether control exists.
In relation to special purpose entities control is deemed to exist where:•
In substance, the majority of the residual risks and rewards from the activities accrue to the NZ Banking
Group; or•In substance, the NZ Banking Group controls decision making powers so as to obtain the majority of therisks and rewards of these activities
Associates and joint ventures
The NZ Banking Group adopts the equity method of accounting for associates and the Group's interest in joint
venture entities.
The NZ Banking Group’s share of the results of associates and joint venture entities is included in the
consolidated income statement. Shares in associates and joint venture entities are carried in the consolidatedbalance sheet at cost plus the NZ Banking Group’s share of post acquisition net assets. Interests in associates
and joint ventures are reviewed for any indication of impairment at least at each reporting date. This
impairment review may use a discounted cash flow methodology and other methodologies to determine thereasonableness of the valuation including a multiples of earning methodology.
viii)
Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the NZ Banking Group’s entities are measured using thecurrency of the primary economic environment in which the entity operates (the functional currency). The NZ
Banking Group’s financial statements are presented in New Zealand dollars, which is the Registered Bank’s
functional and presentation currency.

14

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

Foreign currency transactions
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions.
Monetary assets and liabilities resulting from foreign currency transactions are subsequently translated at the
spot rate at reporting date.
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates
different to those at which they were initially recognised or included in a previous financial report, arerecognised in the income statement in the period in which they arise.
Translation differences on non-monetary items, such as derivatives, measured at fair value through profit orloss, 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
as available-for-sale financial assets, are included in the available-for-sale revaluation reserve in equity.
B)

INCOME RECOGNITION

Revenue is recognised to the extent that it is probable that economic benefits will flow to the NZ Banking Groupand that revenue can be reliably measured.
i)Interest income
Interest income is recognised in the income statement as it accrues, using the effective interest method.
The effective interest method calculates the amortised cost of a financial asset or financial liability and allocatesthe interest income or interest expense, including any fees 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 achievea constant yield on the financial asset or liability.
For assets subject to prepayment, expected life is determined on the basis of the historical behaviour of theparticular asset portfolio, taking into account contractual obligations and prepayment experience assessed on aregular basis.
ii)
Fee and commission income
Fees and commissions received that are integral to the effective 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 to originate a loan which is unlikely to be drawn down are recognised as fee income as the service isprovided.
Fees and commissions that relate to the execution of a significant act (for example, advisory services orarrangement services, placement fees and underwriting fees) are recognised when the significant act has been
completed.
Fees charged for providing ongoing services (for example, maintaining and administering existing facilities) arerecognised as income over the period the service is provided.
iii)
Dividend income
Dividends are recognised as revenue when the right to receive payment is established.
iv)
Leasing income
Finance income on finance leases is recognised on a basis that reflects a constant periodic return on the net
investment in the finance lease.
v)
Gain or loss on sale of property, plant and equipment
The gain or loss on the disposal of premises and equipment is determined as the difference between the
carrying amount of the assets at the time of disposal and the proceeds of disposal, and is recognised as an itemof other income in the period in which the significant risks and rewards of ownership are transferred to thebuyer.

15

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
C)

EXPENSE RECOGNITION

Expenses are recognised in the income statement on an accruals basis.
i)Interest expense
Interest expense on financial liabilities measured at amortised cost is recognised in the income statement as it
accrues using the effective interest method.
ii)
Loan origination expenses
Certain loan origination expenses are an integral part of the effective interest rate of a financial asset measured
at amortised cost. These loan origination expenses include:• fees and commissions payable to brokers in respect of originating lending business; and• other expenses of originating lending business, such as external legal costs and valuation fees, provided
these are direct and incremental costs related to the issue of a financial asset.
Such loan origination expenses are initially recognised as part of the cost of acquiring the financial asset andamortised as part of the expected yield of the financial asset over its expected life using the effective interest
method.
iii)
Share-based compensation expense
The NZ Banking Group has various equity settled share-based compensation plans. These are described in Note
39 and largely comprise the Employee Share Acquisition Plan and the ANZ Share Option Plan.
ANZ ordinary shares
The fair value of ANZ ordinary shares granted under the Employee Share Acquisition Plan is measured at grantdate, using the one-day volume weighted average market price of ANZ shares. The fair value is expensed
immediately when shares vest immediately or on a straight-line basis over the relevant vesting period.
Share Options
The fair value of ANZ share options is measured at grant date, using an option pricing model. The fair value isexpensed on a straight-line basis over the relevant vesting period. This is recognised as an employeecompensation expense with a corresponding increase in the share options liability account.
The option pricing model takes into account the exercise price of the option, the risk free interest rate, theexpected volatility of ANZ’s ordinary share price and other factors. Market vesting conditions are taken into
account in estimating the fair value.
Performance Rights
A Performance Right is a right to acquire a share at nil cost to the employee subject to satisfactorily meetingtime and performance hurdles. Upon exercise, each Performance Right entitles the holder to one ordinary sharein ANZ. The fair value of Performance Rights is determined at grant date using an option pricing model, taking
into account market conditions.
The fair value is expensed over the relevant vesting period with acorresponding increase in the share options liability account.
Other adjustments
Subsequent to the grant of an equity-based award, the amount recognised as an expense is adjusted for vesting
conditions other than market conditions so that, ultimately, the amount recognised as an expense is based on
the number of equity instruments that eventually vest.
iv)
Lease payments
Leases entered into by the NZ Banking Group as lessee are predominantly operating leases, and the operatinglease payments are recognised as an expense on a straight-line basis over the lease term.

16

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
D)

INCOME TAXi)
Income tax expense
Income tax on earnings for the period comprises current and deferred tax and is based on the applicable tax law
in each jurisdiction. 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 fora business combination, in which case it is included in the determination of goodwill.
ii)
Current tax
Current tax is the expected tax payable on taxable income for the period, based on tax rates (and tax laws)
which are enacted or substantively enacted by the reporting date and including any adjustment for tax payablein previous periods. Current tax for current and prior periods is recognised as a liability (or asset) to the extent
that it is unpaid (or refundable).
iii)
Deferred tax
Deferred tax is accounted for using the comprehensive tax balance sheet method. It is generated by providing
for temporary differences between the carrying amounts of assets and liabilities 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 is probable that future taxable profits will be available
against which the deductible temporary differences or unused tax losses and credit can be utilised
Deferred tax liabilities are recognised for all taxable temporary differences, other than those relating to taxable
temporary differences arising from goodwill. They are also recognised for taxable temporary differences arisingon investments in controlled entities, branches, associates and joint ventures, except where the Banking Groupis able to control the reversal of the temporary differences and it is probable that the temporary differences will
not reverse in the foreseeable future. Deferred tax assets associated with these interests are recognised only tothe extent that it is probable that the temporary difference will reverse in the foreseeable future and there will
be sufficient taxable profits against which to utilise the benefits of the temporary difference.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s)when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) thathave been enacted or substantively enacted by the reporting date. The measurement reflects the tax
consequences that would follow from the manner in which the NZ Banking Group, at the reporting date,recovers or settles the carrying amount of its assets and liabilities.
iv)
Offsetting
Current and deferred tax assets and liabilities are offset only to the extent that they relate to income taxes
imposed by the same taxation authority, there is a legal right and intention to settle on a net basis and it isallowed under the tax law of the relevant jurisdiction.
E)

ASSETS

Financial assetsi)Financial assets and liabilities at fair value through profit 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 short-term profit-taking. Trading securities are initiallyrecognised and subsequently measured in the balance sheet at their fair value.

17

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Derivatives that are neither financial guarantee contracts nor effective hedging instruments are carried at fairvalue through profit or loss. In addition, certain financial assets and liabilities are designated and measured atfair value through profit or loss where the following applies:•
doing so eliminates or significantly reduces a measurement or recognition inconsistency that would
otherwise arise from measuring assets and liabilities, or recognising the gains or losses thereon, on
different bases;•a group of financial assets or financial liabilities or both is managed and its performance evaluated on afair value basis; or•the financial instrument contains an embedded derivative, unless the embedded derivative does not
significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately
recorded.
Changes in the fair value (gains or losses) of these securities 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 changes in one or more underlying
price index or other variables. They include swaps, forward rate agreements, futures, options and combinationsof 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 NZ Banking Group’s exposures tointerest rate risk, currency risk, price risk, credit risk and other exposures relating to non-trading positions).
Derivative financial instruments are recognised initially at fair value with gains or losses from subsequent
measurement at fair value being recognised in the income statement. Included in the determination of fairvalue of derivatives is a credit valuation adjustment to reflect the credit worthiness of the counterparty,
modelled using the counterparty's credit spreads. The valuation adjustment is influenced by the mark-tomarket of the derivative trades and by the movement in credit spreads.
Where the derivative is designated, and is effective as a hedging instrument, the timing of the recognition of
any resultant gain or loss in the income statement is dependent on the hedging designation. These hedging
designations and associated accounting are as follows:
Fair value hedge
Where the NZ Banking Group hedges the fair value of a recognised asset or liability or firm commitment,changes in the fair value of the derivative designated as a fair value hedge are recognised in the income
statement. Changes in the fair value of the hedged item attributable to the hedged risk are reflected inadjustments to the carrying value of the hedged item, which are also recognised in the income statement.
Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated, exercised or nolonger qualifies for hedge accounting. The resulting adjustment to the carrying amount of the hedged item
arising from the hedged risk is amortised to the income statement over a period to maturity of the hedged item.
If the hedged item is sold or repaid, the unamortised adjustment is recognised immediately in the income
statement.
Cash flow hedge
The NZ Banking Group designates derivatives as cash flow hedges where the instrument hedges the variability
in cash flows of a recognised asset or liability, a foreign exchange component of a firm commitment, or a highly
probable forecast transaction. The effective portion of changes 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 the income 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, thecumulative amount deferred in equity remains in the hedging reserve, and is subsequently transferred to theincome 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.
18

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Derivatives that do not qualify for hedge accounting
All gains and losses from changes in the fair value of derivatives that are not designated in a hedging
relationship but are entered into to manage the interest rate and foreign exchange risk of funding instruments
are recognised in the income statement. Under certain circumstances, the component of the fair value change
in the derivative which relates to current period realised and accrued interest is included in net interest income.
The remainder of the fair value movement is included in other income.
Set-off arrangements
Fair value gains/losses arising from trading derivatives are not offset against fair value gains/losses on thebalance sheet unless a legal right of set-off exists and there is an intention to settle net.
For contracts subject to master netting agreements that create a legal right of set-off for which only the net
revaluation amount is recognised in the income statement, net unrealised gains on derivatives are recognised aspart of other assets and net unrealised losses are recognised as part of other liabilities.
iii)
Available-for-sale assets
Available-for-sale assets comprise non-derivative financial assets which the NZ Banking Group designates asavailable-for-sale but which are not deemed to be held principally for trading purposes, and include equity
investments, certain loans and advances, and quoted debt securities.
They are initially recognised at fair value plus transaction costs. Subsequent gains or losses arising fromchanges in fair value are included as a separate component of equity in the available-for-sale revaluation
reserve. When the asset is sold, the cumulative gain or loss relating to the asset is transferred to the income
statement.
Where there is objective evidence of impairment on an available-for-sale asset, the cumulative loss related tothat asset is removed from equity and recognised in the income statement, as an impairment expense for debt
instruments or as non-interest income for equity instruments. If, in a subsequent period, the amount of an
impairment loss relating to an available-for-sale 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 as with all regular way
assets, being the date on which the NZ 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 NZ 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 that are directly attributable to the issue of the loan or advance. They are subsequently measured atamortised cost using the effective interest method, unless specifically designated on initial recognition at fairvalue through profit or loss.
Loans and advances include direct finance provided to customers such as bank overdrafts, credit cards, termloans, finance lease receivables and commercial bills.
All loans are graded according to the level of credit risk. Loans are classified as either productive or impaired.
Impairment of loans and advances
Loans and advances are reviewed at least at each reporting date for impairment. Credit impairment provisions
are raised for exposures that are known to be impaired. Exposures are impaired and impairment losses arerecorded if, and only if, there is objective evidence of impairment as a result of one or more loss events that
occurred after the initial recognition of 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 the individual loan or the collective portfolio of loansthat can be reliably estimated.

19

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment is assessed for assets that are individually significant (or on a portfolio basis for small value loans),
and then on a collective basis for those exposures not individually known to be impaired.
Exposures that are assessed collectively are placed in pools of similar assets with similar risk characteristics.
The required provision is estimated on the basis of historical loss experience for assets with credit risk
characteristics similar to those in the collective pool. The historical loss experience is adjusted based on current
observable data such as changed economic conditions. The provision also takes account of the impact ofinherent risk of large concentrated losses within the portfolio.
The estimated impairment losses are measured as the difference 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
process of 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.
Impairment of capitalised acquisition expenses is assessed through comparing the actual behaviour of theportfolio against initial expected life assumptions.
The provision for impairment loss (individual and collective) is deducted from loans and advances in the balance
sheet and the movement for the reporting period is reflected in the income statement.
When a loan is uncollectible, either partially or in full, it is written off against the related provision for loan
impairment. Subsequent recoveries of amounts previously written off are taken to the income statement.
Unsecured facilities are normally written-off when they become 180 days past due or earlier in the event of thecustomer's bankruptcy or similar legal release from the obligation. However, a certain level of recoveries is
expected after the write-off, which is reflected in the amount of the provision for credit losses. In the case of
secured facilities, remaining balances are written-off after proceeds from the realisation of collateral have been
received, if there is a shortfall.
Where impairment losses recognised in previous periods have subsequently decreased or no longer exist, such
impairment losses are reversed in the income statement.
A provision is also raised for off-balance sheet items such as commitments that are considered likely to result inan 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 the customer or an unrelated third party. Allother lease contracts are classified as operating leases.
vi)
Repurchase agreements
Securities sold under repurchase agreements are retained in the financial statements where substantially all therisks and rewards of ownership remain with the NZ Banking Group, and a counterparty liability is disclosed
under the classifications of due to other financial institutions or payables and other liabilities. The difference
between the sale price and the repurchase price is accrued over the life of the repurchase agreement andcharged to interest expense in the income statement.
Securities purchased under agreements to resell, where the NZ Banking Group does not acquire the risks andrewards of ownership, are recorded as receivables in liquid assets, net loans and advances, or due from otherfinancial institutions, depending on the term of the agreement and the counterparty. The security is not includedin 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.

20

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)vii)
Derecognition
The NZ Banking Group enters into transactions where it transfers financial assets recognised on its balance
sheet yet retains either all the risks and rewards of the transferred assets or a portion of them. If all, or
substantially all, the risks and rewards are retained, the transferred assets are not derecognised from thebalance sheet.
In transactions where substantially all the risks and rewards of ownership of a financial asset are neither
retained nor transferred, the NZ Banking Group derecognises the asset if control over the asset is lost. In
transfers where control over the asset is retained, the NZ Banking Group continues to recognise the asset to theextent of its continuing involvement, determined by the extent to which it is exposed to changes in the value ofthe transferred asset. The rights and obligations retained or created in the transfer are recognised separately
as assets and liabilities as appropriate.
viii)
Investments relating to insurance business
Securities held to back insurance and investment contract liabilities are classified as policyholder assets. These
policyholder assets are designated at fair value through profit or loss.
Non-financial assets
ix)
Goodwill
Goodwill represents the excess of the purchase consideration over the fair value of the identifiable net assets ofa controlled entity at the date of gaining control. Goodwill is recognised as an asset and not amortised, but
assessed for impairment at least annually or more frequently if there is an indication that the goodwill may be
impaired. This involves using the discounted cash flow ("DCF") or the capitalisation of earnings methodology("CEM") to determine the expected future benefits of the cash generating units. Where the assessment resultsin the goodwill balance exceeding the value of expected future benefits, the difference is charged to the income
statement. Any impairment of goodwill may not be subsequently reversed.
x)
Other intangible assets
Other intangible assets include costs incurred in acquiring and building software and computer systems("software") and management rights and customer relationships acquired in business combinations.
Software is amortised using the straight-line method over its expected useful life to the NZ Banking Group. The
period of amortisation is between 3 and 5 years, except for certain core infrastructure projects where the usefullife has been determined to be 7 years.
Management rights and customer relationships, including the value of in force insurance contracts, are initiallymeasured at fair value. Management rights and customer relationships with a definite useful life are amortisedover the expected useful life. Management rights and customer relationships with an indefinite useful life are
not amortised.
At each reporting date, the software assets and other intangible assets are reviewed for impairment. If any
such indication exists, the recoverable amount of the assets is estimated and compared against the existing
carrying value. Where the existing carrying value exceeds the recoverable amount, the difference is charged tothe income statement.
Costs incurred in planning or evaluating software proposals, or in maintaining systems after implementation, arenot capitalised.

21

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)xi)
Premises and equipment
Premises and equipment are carried at cost less accumulated depreciation and impairment.
Borrowing costs incurred for the construction of qualifying assets are capitalised during the period of time that isrequired to complete and prepare the asset for its intended use. The calculation of borrowing costs is based
upon the NZ Banking Group's internal cost of capital.
Assets other than freehold land are depreciated at rates based upon their expected useful lives to the NZ
Banking Group, using the straight-line method. The depreciation rates used for each class of asset are:
Buildings
Building integrals
Furniture & equipment
Computer & office equipment

1.5%
10%
10%
12.5 % - 33%

Leasehold improvements are amortised on a straight-line basis over the shorter of their useful lives orremaining terms of the lease.
At each reporting date, the carrying amounts of premises and equipment are reviewed for impairment. If any
such indication exists, the recoverable amount of the assets is estimated and compared against the existing
carrying value. Where the existing carrying value exceeds the recoverable amount, the difference is charged tothe income statement. If it is not possible to estimate the recoverable amount of an individual asset, the NZ
Banking Group estimates the recoverable amount of the cash generating unit to which the asset belongs.
A previously recognised impairment loss is reversed if there has been a change in the estimates used todetermine the recoverable amount.
xii)
Insurance policy assets / liabilities
Net insurance policy assets / liabilities include liabilities arising from investment contracts and assets / liabilities
arising from life insurance contracts.
Provisions for liabilities under investment contracts are measured at fair value. The provision consists of adeposit component, being a financial instrument, which is recognised as an increase in investment contract
liabilities, and an investment management services element. Fair value is determined as the net present valueof fees, in respect of the investment management service, discounted at the risk free rate.
Life insurance contract assets / liabilities are determined using either a projection method or an accumulation
method. Using a projection method, expected policy cash flows are projected into the future. The asset /liability is determined as the net present value of the expected cash flows. An accumulation method is used
where the policy assets / liabilities determined are not materially different from those determined under the
projection method.
F)

LIABILITIESFinancial liabilitiesi)
Deposits and other borrowings
Deposits and other borrowings include certificates of deposit, interest bearing deposits, debentures, commercial
paper and other related interest bearing financial instruments. Deposits and other borrowings, excludingcommercial paper, are initially recognised at fair value plus transaction costs and subsequently measured atamortised cost. The interest expense is recognised using the effective interest method. Commercial paper isdesignated at fair value through profit or loss, with fair value movements recorded directly in the income
statement, which reflects the basis on which it is managed.
ii)
Bonds, notes and loan capital
Bonds, notes and loan capital are accounted for in the same way as deposits and other borrowings, except for
those bonds and notes which are designated at fair value through profit or loss on initial recognition, with fairvalue movements recorded in the income statement.

22

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)iii)
Financial guarantee contracts
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
are issued in the ordinary course of business, consisting of letters of credit, guarantees and acceptances.
Financial guarantees are initially recognised in the financial statements at fair value on the date the guarantee
was given; typically this is the premium received.
Subsequent to initial recognition, the NZ Banking Group's liabilities under such guarantees are measured at thehigher of their amortised amount and the best estimate of the expenditure required to settle any financial
obligation arising at the balance sheet date. These estimates are determined based on experience of similartransactions and history of past losses.
iv)
Derecognition
Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or
expires.
Non-financial liabilitiesv)
Employee benefits
Leave benefits
The amounts expected to be paid in respect of employees’ entitlements to annual leave are accrued at expectedsalary rates including on-costs. Expected future payments for long service leave are discounted using market
yields at the reporting date on national government bonds with terms to maturity that match, as closely as
possible, the estimated future cash outflows. Liability for long service leave is calculated and accrued for in
respect of all applicable employees (including on-costs) using an actuarial valuation.
Superannuation schemes
The NZ Banking Group operates a number of defined contribution schemes and also contributes, according tolocal law, in the various countries in which it operates, to government and other plans that have thecharacteristics of defined contribution schemes. The NZ Banking Group’s contributions to these schemes arerecognised as an expense in the income statement when incurred.
The NZ Banking Group operates two defined benefit superannuation schemes. The liability and expense related
to providing benefits to employees under each of the defined benefit schemes are calculated by independentactuaries. A defined benefit liability is recognised to the extent that the present value of the defined benefit
obligation of each scheme, calculated using the Projected Unit Credit Method, is greater than the fair value ofeach scheme’s assets. Where this calculation results in a benefit to the NZ Banking Group, a defined benefit
asset is recognised which is capped at the recoverable amount.
In each subsequent reporting period, ongoing movements in the carrying value of the defined benefit liability orasset are treated as follows:•
the net movement relating to the current period’s service cost, interest cost, expected return on scheme
assets, past service costs and other costs (such as the effects of any curtailments and settlements), is
recognised as an employee expense in the income statement;•
movements relating to actuarial gains and losses are recognised directly in retained earnings; and•contributions incurred are recognised directly against the net defined benefit position.
The assets of the defined benefit and cash accumulation superannuation schemes are held in trust and are notincluded in these financial statements as the NZ Banking Group does not have direct or indirect control of theseschemes. The benefits under the schemes are provided from contributions by employee members and by the
NZ Banking Group, and from income earned by the assets of the schemes. Members’ contributions are atvarying rates. Actuarial valuations are carried out at minimum of every three years in accordance with theschemes’ Trust Deeds and superannuation legislation.
vi)
Provisions
The NZ Banking Group recognises provisions when there is a present obligation, the future sacrifice of economic
benefits is probable, and the amount of the provision can be measured reliably. The amount recognised is thebest estimate of the consideration required to settle the present obligation at the reporting date, taking into
account the risks and uncertainties surrounding the obligation at the reporting date. Where a provision ismeasured using the cash flows estimated to settle the present obligation, its carrying amount is the present
value of those cash flows. Any expected third party recoveries are recognised as an asset if it is virtually certainthat recovery will be received and the amount of the receivable can be measured reliably.

23

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

G)

EQUITY AND HEAD OFFICE ACCOUNTi)
Share capital
Share capital is recognised at the amount paid net of directly attributable issue costs.
ii)
Head office accountHead office account comprises funds provided by the Ultimate Parent Bank. It is non-interest bearing and there
is no fixed date of repayment.
iii)
Non-controlling interests
Non-controlling interests represent the share in the net assets of subsidiaries attributable to equity interests not
owned directly or indirectly by the Bank.
iv)
Reserves
Available-for-sale revaluation reserve
This reserve includes changes in the fair value of available-for-sale financial assets, net of tax. These changes
are transferred to the income statement (in non-interest income) when the asset is derecognised. Where theasset 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 non-interest income.
Cash flow hedging reserve
This reserve includes the fair value gains and losses associated with the effective portion of designated cash flow
hedging instruments.
H)

PRESENTATIONi)
Offsetting of income and expenses
Income and expenses are not offset unless required or permitted by an accounting standard. This generally
arises in the following circumstances:•where transaction costs form an integral part of the effective interest rate of a financial instrument
which is measured at amortised cost, these are offset against the interest income generated by thefinancial instrument;•
where gains and losses relating to fair value hedges are assessed as being effective; or•where gains and losses arise from a group of similar transactions, such as foreign exchange gains andlosses.
ii)
Offsetting of financial assets and liabilities
Assets and liabilities are offset and the net amount reported in the balance sheet only where there is:•a current enforceable legal right to offset the asset and liability; and•an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.
iii)
Statement of cash flows
For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits heldat call with other financial institutions, other short term, highly liquid investments with original terms of maturityof three months or less that are readily convertible to cash and which are subject to an insignificant risk ofchanges in value.
Certain cash flows have been netted in order to provide more meaningful disclosure, as many of the cash flows
are received and disbursed on behalf of customers and reflect the activities of the customers rather than thoseof the NZ Banking Group. These include customer loans and advances, customer deposits, certificates ofdeposit, related party balances and trading securities.
iv)
Segment reporting
Business segments are distinguishable components of the NZ Banking Group that provide products or services
that are subject to risks and rewards that are different to those of other business segments. The NZ Banking
Group operates predominately in the banking industry within New Zealand. The NZ Banking Group has very
limited exposure to risk associated with operating in different economic environments or political conditions. On
this basis no geographical segment information is provided. For reporting purposes the three major businesssegments are Retail Banking, Commercial Banking and Institutional.

24

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)v)
Goods and services tax
Income, expenses and assets are recognised net of the amount of goods and services tax ("GST") except where
the amount of GST incurred is not recoverable from the Inland Revenue Department ("IRD"). In thesecircumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from,or payable to, the IRD is included as other assets or other liabilities in the balance sheet.
Cash flows are included in the cash flow statement on a gross basis. The GST components of cash flows arisingfrom investing and financing activities, which are recoverable from, or payable to, the IRD are classified as
operating cash flows..
I)

OTHER

i)
Contingent liabilities
A contingent liability is a possible or present obligation where it is less than probable there will be an outflow ofresources or it is not possible to measure the amount of the obligation with sufficient reliability.
Liabilities are no longer contingent, and are recognised on the balance sheet, when the following requirements
are met:•the transaction is probable in that the contingency is likely to occur; and•the contingency can be reasonably estimated.
Further disclosure is made within the Contingent Liabilities and Credit Related Commitments note, where theabove requirements are not met, but there is a possible obligation that is higher than remote. Specific details of
the nature of the contingent liability are provided and, where practicable, an estimate of its financial effect.
Alternatively, where no disclosure is made of its financial effect because it is not practicable to do so, astatement to that effect is provided.
ii)
Securitisation, funds under management and other fiduciary activities
Certain entities within the NZ Banking Group act as trustees and/or managers for a number of unit trusts andsuperannuation investment funds. The NZ Banking Group provides private banking services to customers
including portfolio management. The assets of the managed funds and private banking clients are not includedin these financial statements, as direct or indirect control of the assets is not held by the NZ Banking Group.
Commissions and fees earned in respect of the NZ Banking Group’s funds under management are included in
net operating income.
Financial services provided by any member of the NZ Banking Group to discretionary private banking activities
or entities conducting funds management, and assets purchased from discretionary private banking activities orentities conducting funds management are on arm’s length terms and conditions, and at fair value.
Securitised assets are derecognised when the right to receive cash flows have expired or the NZ Banking Group
has transferred substantially all the risks and rewards of ownership.
iii)
Discontinued operations
A discontinued operation is a component of the NZ Banking Group’s business that represents a separate majorline of business or geographical area of operations that has been disposed of or is classified as held for sale, oris a subsidiary that has been disposed of or is classified as held for sale.
When an operation is classified as a discontinued operation the comparative income statement is restated as if
the operation had been discontinued from the start of the comparative period.

25

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)iv)
Accounting Standards not early adopted
The following standards and amendments were available for early adoption but have not been applied by the NZ
Banking Group in these financial statements. The NZ Banking Group does not intend to apply any of thesepronouncements until they are effective.
NZ IFRS 9 Financial Instruments (effective periods commencing after 1 January 2013) – specifies a simpler
methodology for classifying and measuring financial assets. The NZ Banking Group is currently assessing theimpact of applying this standard to its financial statements.
The following amendments to accounting standards are not expected to have a material impact on the financial
results of the Bank or the Banking Group:
NZ IAS 24 Related Party Disclosures (effective periods commencing after 1 July 2011) – simplifies the definitionof a related party clarifying its intended meaning.
NZ IAS 32 Financial Instruments: Presentation – Classification of rights issues (effective periods commencing
after 1 February 2010) – clarifies the classification of share rights, options or warrants for fixed amounts of any
currency.
Improvements to New Zealand equivalents to International Financial Reporting Standards (various effective
dates up to periods commencing 1 January 2010) – is the IASB’s annual omnibus update of standards.
2.

CRITICAL ESTIMATES AND JUDGEMENTS USED IN APPLYING ACCOUNTING POLICIES

These financial statements are prepared in accordance with NZ IFRS and other authoritative accounting
pronouncements. Notwithstanding the existence of relevant accounting standards, there are a number of criticalaccounting treatments which include complex or subjective judgements and estimates that may affect thereported amounts of assets and liabilities in the financial statements. Estimates and judgements are continually
evaluated and are based on historical experience and other factors, including expectations of future events thatare believed to be reasonable under the circumstances.
An explanation of the judgements and estimates made by the NZ 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 impairment of loans and advances, requires the NZ Banking
Group to assess impairment at least at each reporting date. The credit provisions raised (individual andcollective) represent management's best estimate of the losses incurred in the loan portfolio at balance datebased on their experienced judgement.
The collective provision is estimated on the basis of historical loss experience for assets with credit
characteristics similar to those in the collective pool. The historical loss experience is adjusted based on current
observable data and events and an assessment of the impact of model risk. The provision also takes into
account the impact of large concentrated losses within the portfolio.
The use of such judgements and reasonable estimates is considered by management to be an essential part ofthe process and does not impact on reliability.
Individual provisioning is applied when the full collectibility of one of the NZ Banking Group's loans is identified
as being doubtful. Individual and collective provisioning is calculated using discounted expected future cash
flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows
are revised regularly to reduce any differences between loss estimates and actual loss experience.
Refer to Note 14 for details of credit impairment provisions.
Management regularly reviews and adjusts the estimates and methodologies as improved analysis becomes
available. Changes in these assumptions and methodologies could have a direct impact on the level of provisionand impairment charge recorded in the financial statements.

26

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2.

CRITICAL ESTIMATES(Continued)

AND

JUDGEMENTS

USED

IN

APPLYING

ACCOUNTINGPOLICIES

Critical judgements in applying the NZ Banking Group’s accounting policies
Derivatives and hedging
The NZ Banking Group buys and sells derivatives as part of its trading operations and to hedge its interest raterisk, currency risk, price risk, credit risk and other exposures relating to non-trading positions.
Hedging
A hedging instrument is a designated derivative whose fair value or cash flows are expected to offset changes in
the fair value or cash flows of a designated hedged item. A hedged item is an asset, liability, firm commitment
or highly probable forecast transaction that (a) exposes the NZ Banking Group to the risk of changes in fairvalue or future cash flows and (b) is designated as being hedged.
Judgement is required by management 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 effectiveness prospectively or retrospectively.
The NZ 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, and whilst a hedge may pass theeffectiveness tests above it may not be perfectly effective, thus creating volatility within the income statement
through recognition of this ineffectiveness.
Goodwill
The carrying value of goodwill is subject to an impairment test to ensure that the current carrying value does
not exceed its recoverable value at the balance sheet date. Any excess of carrying value over recoverable
amount is taken to the income statement as an impairment writedown.
Refer to Note 19 for details of goodwill.
Goodwill has been allocated for impairment purposes to the cash generating units at which the goodwill ismonitored for internal reporting purposes. Each of these cash generating units is represented by an individual
reporting segment – Institutional, Commercial, Retail. Refer to Note 33.
Impairment testing of purchased goodwill is performed annually, or more frequently where there is an indicationthat the goodwill may be impaired, by comparing the recoverable value of each cash generating unit with thecurrent carrying amount of its net assets, including goodwill.
The recoverable amount is based on value-in use calculations. These calculations use cashflow projections
based on financial budgets approved by management covering a three year period. Cashflows beyond the threeyear period are extrapolated using a 3% growth rate.
These cashflow projections are discounted using a capital asset pricing model. As at 31 March 2010 a discountrate of 11.66% was applied to each segment. 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 rate is based on the 10 year
Government Bond Rate. The beta rate and the market risk premium are consistent with observable andcomparative market rates applied in the regional banking sector. Market observable information is not readily
available at the segment level therefore management performed stress tests for key sensitivities in each
operating segment. Management believes any reasonable possible change in the key assumptions on which therecoverable amount is based would not cause ANZ’s carrying amount to exceed its recoverable amount.

27

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3.

RISK MANAGEMENT POLICIESThe NZ Banking Group recognises the importance of effective risk management to its business success.
Management is committed to achieving strong control and a distinctive risk management capability that enables
the NZ Banking Group business units to meet their performance objectives.
The NZ Banking Group approaches risk through managing the various elements of the system as a whole rather
than viewing them as independent and unrelated parts. The Risk function is independent of the business withclear delegations ultimately from the Board of the Ultimate Parent Bank and operates within a comprehensive
framework comprising:•
The Boards of the entities making up the NZ Banking Group ("the Boards"), providing leadership, setting
risk appetite/strategy and monitoring progress;•
A strong framework for development and maintenance of risk management policies, procedures andsystems, overseen by an independent team of risk professionals;•
The use of sophisticated risk tools, applications and processes to execute the global risk management
strategies as they are deemed to apply to each entity across the NZ Banking Group;•
Business Unit level accountability, as the "first line of defence", and for the management of risks inalignment with the strategy set by the relevant Board; and•Independent oversight to ensure each entity across the NZ Banking Group, and the Business Units
within those entities, comply with policies, regulations and laws, and to provide regular risk evaluation
and reporting.
The NZ Banking Group manages risk through an approval, delegation and limits structure. Regular reviews of
the policies, systems and risk reports, including the effectiveness of the risk management systems are
conducted within the NZ Banking Group and also by the Ultimate Parent Bank. The Boards have responsibility
for reviewing all aspects of risk management.
The Boards have ultimate responsibility for overseeing the effective deployment of risk management
frameworks, policies and processes within New Zealand.
The NZ Banking Group’s risk management policies are essentially the same as the Ultimate Parent Bank, but are
tailored where required to suit the local New Zealand regulatory and business environment.
A number of new and existing types of risk have been recognised following the consolidation of the ING (NZ)
Holdings Limited group (“ING NZ”) into the NZ Banking Group. The new risks relate to ING NZ’s insurance, realestate management and funds management businesses. The new risks identified are not considered material to
the NZ Banking Group. ING NZ identifies, controls and monitors these risks through a set of policies and a risk
management framework which is broadly in line with that in place across the Banking Group.
Financial risk management
Credit risk is the risk of financial loss from counterparties being unable to fulfil their contractual obligations.
Market risk is the risk to the NZ Banking Group's earnings arising from changes in interest rates, currency
exchange rates, credit spreads, or from fluctuations in bond, commodity or equity prices.
Liquidity risk is the risk that the NZ Banking Group has insufficient capacity to fund increases in assets, or isunable to meet its payment obligations as they fall due, including repaying depositors or maturing wholesale
debt.
Refer to Financial Risk Management note for detailed disclosures on the NZ Banking Group's financial risk
management policies.
Operational Risk
Operational risk is the risk arising from day to day operational activities which may result in direct or indirect
loss. These losses may result from failure to comply with policies, procedures, laws and regulations, from fraud
or forgery, from a breakdown in the availability or integrity of services, systems and information, or damage tothe reputation of entities making up the NZ Banking Group.
Examples include failure to comply with policy and legislation, human error, natural disasters, fraud and othermalicious acts. Where appropriate, risks are mitigated by insurance.

28

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3. RISK MANAGEMENT POLICIES (Continued)
Group Risk Management is responsible for establishing the ANZ Group-wide operational risk framework andassociated Group-level policies.
The entities across the NZ Banking Group are responsible for the
implementation of the operational risk framework and associated policies along with the identification, analysis,
assessment and treatment of operational risks on a day-to-day basis as applicable.
Compliance
The entities within the NZ Banking Group conduct their business in accordance with all relevant compliancerequirements. In order to assist the NZ Banking Group identify, manage, monitor and measure its complianceobligations, a comprehensive regulatory compliance framework is in place, which addresses both external(regulatory) and internal compliance. This is applied according to the requirements of each entity.
Where appropriate, Risk Management, in conjunction with Business Unit staff ensures the key operating entities
within the NZ Banking Group operate within a compliance infrastructure and framework that incorporates newand changing business obligations and processes.
The compliance policies and their supporting framework seek to minimise material risks to the NZ Banking
Group’s reputation and value that could arise from non-compliance with laws, regulations, industry codes andinternal standards and policies. The Board of each entity has primary responsibility for the identification andmanagement of compliance and may be assisted by Risk Management providing policy and framework,measurement, monitoring and reporting, as well as leadership in areas such as anti-money laundering
procedures and matters of prudential compliance. The Board and the Risk Committee of the Ultimate Parent
Bank Board conduct Board and executive oversight.
Internal audit
The Overseas Banking Group’s internal audit function conducts independent reviews that assist the Overseas
Banking Group’s Board of Directors and management to meet their statutory and other obligations.
Internal Audit reports directly to the Chairman of the ANZ National Bank Audit Committee and through to theGroup General Manager Internal Audit. Under its Charter, Internal Audit conducts independent appraisals of:•
The continued operation and effectiveness of the internal controls in place to safeguard and monitor allmaterial risks to the NZ Banking Group;•
Compliance with Board policies and management directives;•
Compliance with the requirements of supervisory regulatory authorities;•
The economic and efficient management of resources; and•The effectiveness of operations undertaken by the NZ Banking Group.
In planning the audit activities, Internal Audit adopts a risk-based approach that directs and concentrates
resources to those areas of greatest significance, strategic concern and risk to the business. This encompasses
reviews of major credit, market, technology and operating risks within the wider NZ Banking Group. Significant
findings are reported quarterly to the Group and ANZ National Bank Limited Audit Committees as appropriate.
The Internal Audit Plan is approved by the ANZ National Bank Limited Audit Committee and endorsed by the
ANZ Group Audit Committee.
All issues and recommendations reported to management are tracked and monitored internally to ensurecompletion and agreed actions are undertaken where appropriate.

29

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
4. INCOME

2.

Refer to the Credit Related Commitments and Contingent Liabilities note for further information on ING New Zealand Funds.

30

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. EXPENSES

It is NZ Banking Group policy that KPMG can provide assurance and other audit-related services that, while
outside the scope of the statutory audit, are consistent with the role of auditor. KPMG may not provide services
that are perceived to be in conflict with the role of auditor. Services that are perceived to be in conflict with therole 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. However, non-audit services that are not perceived to be in conflict with the role of auditor may beprovided by KPMG subject to the approval of the Ultimate Parent Bank Audit Committee.
Other audit-related services include services for the audit or review of financial information other than financial
reports including prudential supervision reviews, prospectus reviews and other audits required for local
regulatory purposes.

31

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAX EXPENSE
Unaudited
6 months to
31/03/2010$m

NZ Banking Group
Unaudited
6 months to
31/03/2009

AuditedYear to30/09/2009$m$m

Unaudited
6 months to
30/09/2009$m

NZ Branch
Unaudited
6 months to
31/03/2009

AuditedYear to30/09/2009$m$m

Reconciliation of the prima facie income tax payable on profit
with the income tax expense charge in the income statement
Profit before income tax

495

598

616

94

(7)

40

Prima facie income tax at 30%

148

179

185

28

(2)

12

Rebateable and non-assessable dividends

(3)

(4)

(8)

-

-

-

(Release of) / additional tax provision

(44)

-

240

-

-

-

9

1

6

-

-

-

110

176

423

28

(2)

12

(1)

-

(1)

-

-

-

109

176

422

28

(2)

12

30.9%
22.0%

29.4%
29.4%

29.5%
68.5%

30.0%
30.0%

28.6%
28.6%

30.0%
30.0%

537

259

386

31

(1)

15

Non-deductible expenses

Income tax over provided in prior years
Total income tax expense
Effective tax rate (%) before tax provisions
Effective tax rate (%)
The major components of the income tax expense comprise:Amounts recognised in the income statement
Current income tax charge
Current income tax charge
Adjustments recognised in the current year in relation to
current tax of prior periods

(1)

-

(1)

-

-

-

Deferred income tax
Deferred tax (income) / expense relating to the origination andreversal of temporary differences
Other (including indemnity)

(454)
27

(83)
-

136
(99)

(3)
-

(1)
-

(3)
-

Total income tax expense recognised in income statement

109

176

422

28

(2)

12

12

(12)

(7)

-

-

-

8

(8)

(3)

-

-

-

20

(20)

(10)

-

-

-

Imputation Credit AccountBalance at beginning of the year
Imputation credits attached to dividends received
Taxation paid
Imputation credits attached to dividends paid
Additions from companies joining the Imputation Group
Other

645
19
394
(97)
1

696
41
67
(252)
-

696
31
138
(252)
32

-

-

-

Balance at end of the year

962

552

645

-

-

-

The following amounts were recognised
directly to equity:
Current income tax
Actuarial gain / (loss) on defined benefit schemes
and available-for-sale assets
Deferred income tax
Net gain / (loss) on revaluation of financial instruments
Total income tax credit recognised directly in equity

The above amounts only include items that give rise to imputation credits that are available for use by the NZ
Banking Group.
The parent is a member of an Imputation Group with other members of the Banking Group. The figures shownfor the Parent above include the imputation credits available for use by the Parent held by the Imputation
Group.
Settlement with Inland Revenue Department
The New Zealand Inland Revenue Department ("IRD") had been reviewing a number of structured financetransactions as part of an audit of the 2000 to 2005 tax years. The Bank has reached a settlement with the IRD
in respect of all the transactions in dispute. This liability, net of amounts receivable from Lloyds Banking Groupplc, was met from existing tax provisions.

32

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
7. LIQUID ASSETS
Unaudited
31/03/2010$m

NZ Banking Group
Unaudited
31/03/2009

Audited30/09/2009

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009$m$m

Unaudited
31/03/2010$m

Cash and balances with central banks
Securities purchased under agreement to resell
Money at callBills receivable and remittances in transit

2,189
227
104

2,606
9
672
103

2,373
341
48

-

-

-

Total liquid assets

2,520

3,390

2,762

-

-

-

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

1,965

2,418

2,207

-

-

-

$m

8. DUE FROM OTHER FINANCIAL INSTITUTIONSThere are no assets used to secure deposit obligations or assets encumbered through repurchase agreements at
31 March 2010 (31/03/2009 $nil; 30/09/2009 $nil).
9. TRADING SECURITIESTRADING SECURITIES

Unaudited
31/03/2010$m

NZ Banking Group
Unaudited
31/03/2009

NZ Branch
Unaudited
31/03/2009

Audited30/09/2009$m$m

Unaudited
31/03/2010
$m

$m

$m

Government, Local Body stock and bonds
Certificates of deposit
Promissory notes
Other bank bonds
Other

3,257
125
47
2,894
43

677
317
88
1,366
117

1,389
191
28
2,475
83

-

-

-

Total trading securities

6,366

2,565

4,166

-

-

-

36

104

159

-

-

-

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

33

Audited30/09/2009

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative instruments are contracts whose value is derived from one or more underlying variables or indices,
require little or no initial net investment and are settled at a future date. Derivatives include contracts traded onregistered exchanges and contracts agreed between counterparties, called “Over the Counter” or "OTCs". The
use of derivatives and their sale to customers as risk management products is an integral part of the NZ
Banking Group’s trading activities. Derivatives are also used to manage the NZ Banking Group’s own exposure
to fluctuations in exchange and interest rates as part of its asset and liability management activities (i.e.
balance sheet risk management).
Derivatives are subject to the same types of credit and market risk as other financial instruments, and the NZ
Banking Group manages these risks in a consistent manner.
Types of derivatives instruments
The principal foreign exchange rate contracts used by the NZ Banking Group are forward foreign exchange
contracts, currency swaps and currency options. Forward foreign exchange contracts are agreements to buy orsell a specified quantity of foreign currency on a specified future date at an agreed rate. A currency swap
generally involves the exchange, or notional exchange, of equivalent amounts of two currencies and acommitment to exchange interest periodically until the principal amounts are re-exchanged on a future date.
Currency options provide the buyer with the right, but not the obligation, either to purchase or sell a fixedamount of a currency at a specified rate on or before a future date. As compensation for assuming the option
risk, the option writer generally receives a premium at the start of the option period.
The principal interest rate contracts used by the NZ Banking Group are forward rate agreements, interest rate
futures, interest rate swaps and options. Forward rate agreements are contracts for the payment of thedifference between a specified interest rate and a reference rate on a notional deposit at a future settlement
date. There is no exchange of principal. An interest rate future is an exchange traded contract for the delivery ofa standardised amount of a fixed income security or time deposit at a future date. Interest rate swap
transactions generally involve the exchange of fixed and floating interest payment obligations without theexchange of the underlying principal amounts. Interest rate options provide the buyer with the right but not the
obligation either to receive or pay interest at a specified rate on or before a future date. As compensation forassuming the option risk, the option writer generally receives a premium at the start of the option period.
The principal commodity contracts used by the NZ Banking Group are commodity swaps. A commodity swap
generally involves the exchange of the return on the commodity for a fixed or floating interest payment without
the exchange of the underlying commodity or principal amount.
Equity related contracts are transacted by the NZ Banking Group to offset the equity risk associated withfinancial instruments priced against various share indices.
Derivatives, except for those that are specifically designated as effective hedging instruments, are classified asheld for trading. The held for trading classification includes two categories of derivative instruments: those held
as trading positions and those used for the NZ Banking Group’s balance sheet risk management.
Trading positions
Trading positions consist of both sales to customers and market making activities. Sales to customers include
the structuring and marketing of derivative products to customers which enable them to take or mitigate risks.
Market making activities consist of derivatives entered into principally for the purpose of generating profits fromshort-term fluctuations in price or margins. Positions may be traded actively or held over a period of time tobenefit from expected changes in market rates.
Gains or losses, including any current period interest, from the change in fair value of trading positions arerecognised in the income statement as other operating income in the period in which they occur.
Balance sheet risk management
The NZ Banking Group designates balance sheet risk management derivatives into hedging relationships inorder to minimise income statement volatility. This volatility is created by differences in the timing ofrecognition of gains and losses between the derivative and the hedged item. Hedge accounting is not applied toall balance sheet risk management positions.
Gains or losses from the change in fair value of balance sheet risk management derivatives that form part of aneffective hedging relationship are recognised in the income statement based on the hedging relationship. Any
ineffectiveness is recognised in the income statement as other operating income in the period in which it occurs.

34

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
Gains or losses, excluding any current period interest, from the change in fair value of balance sheet risk
management positions that are not designated into hedging relationships are recognised in the income
statement as other operating income in the period in which they occur. Current period interest is included ininterest income and expense.
The following tables provide an overview of the NZ Banking Group’s and the NZ Branch’s foreign exchange rate,interest rate and commodity derivatives. They include all trading and balance sheet risk management contracts.
Notional principal amounts measure the amount of the underlying financial commodity and represent thevolume of outstanding transactions. They are not a measure of the risk associated with a derivative. The
derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations inmarket rates relative to their terms. The aggregate contractual or notional amount of derivative financial
instruments on hand, the extent to which instruments are favourable or unfavourable, and as a consequence
the aggregate fair values of derivative financial assets and liabilities, can fluctuate significantly from time totime. The fair values of derivative instruments held and notional principal amounts are set out as follows:35

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)

36

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)

37

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
Hedging relationships
The NZ Banking Group has two types of allowable hedging relationships entered into by the NZ Banking Group:
fair value hedges and cash flow hedges. Each has specific requirements when accounting for the fair valuechanges in the hedging relationship. For details on the accounting treatment of each type of hedging
relationship refer to Note 1.
Fair value hedges
The risk being hedged in a fair value hedge is a change in the fair value of an asset or liability or unrecognised
firm commitment that may affect the income statement. Changes in fair value might arise through changes ininterest rates or foreign exchange rates. The NZ Banking Group’s fair value hedges principally consist of interest
rate swaps that are used to protect against changes in the fair value of fixed-rate long-term financial
instruments due to movements in market interest rates.
The application of fair value hedge accounting results in the fair value adjustment on the hedged item
attributable to the hedged risk being recognised in the income statement at the same time the hedging
instrument impacts the income statement. If a hedging relationship is terminated, the fair value adjustment to
the hedged item continues to be recognised as part of the carrying amount of the item or group of items and isamortised to the income statement as a part of the effective yield over the period to maturity. The table below
shows the gain or loss on fair value hedges by hedging instrument and hedge item attributable to the hedgedrisk:
Unaudited
31/03/2010$m
Gain or (loss) arising from fair value hedges:- hedged item- hedging instrument
Net ineffectiveness on qualifying fair value hedges

NZ Banking Group
Unaudited
31/03/2009$m

Audited30/09/2009$m

Unaudited
31/03/2010$m

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009
$m

(275)
284

390
(404)

115
(108)

9
(14)

(24)
29

(27)
35

9

(14)

7

(5)

5

8

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

38

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
The table below shows the movements in the cash flow hedging reserve:
Unaudited
31/03/2010$m

NZ Banking Group
Unaudited
31/03/2009$m

Audited30/09/2009$m

Unaudited
31/03/2010$m

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009$mBalance at beginning of the period
Transferred to income statement
Tax effect of items transferred to income statement
Valuation loss taken to equity
Tax effect of valuation loss taken to equity

23
21
(7)
2
(1)

24
(19)
7
(9)
3

24
(3)
2
(1)
1

-

-

-

Balance at end of the period

38

6

23

-

-

-

The mechanics of hedge accounting results in the gain or loss in the cash flow hedging reserve above being
released into the income statement at the same time that the corresponding loss or gain attributable to thehedged item impacts the income statement. It will not necessarily be released to the income statement
uniformly over the period of the hedging relationship as the fair value of the derivative is driven by changes inmarket rates over the term of the instrument. As market rates do not always move uniformly across all time
periods, a change in market rates may drive more value in one forecast period than another, which impacts
when the hedging reserve is released to the income statement.
The table below shows the breakdown of the cash flow hedging reserve attributable to each type of cash flow
hedging relationship:
Unaudited
31/03/2010$m
Variable rate loan assets
Variable rate liabilities
Short term re-issuances of fixed rate customer
and wholesale deposit liabilities
Total cash flow hedging reserve

NZ Banking Group
Unaudited
31/03/2009$m

Audited30/09/2009$m

Unaudited
31/03/2010$m

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009
$m

141
(32)

214
(60)

149
(29)

-

-

-

(71)

(148)

(97)

-

-

-

38

6

23

-

-

-

All underlying hedged cash flows are expected to be recognised in the income statement in the year in which
they occur which is anticipated to take place over the next 0 - 10 years (31/03/2009 0-10 years; 30/09/2009 010 years).
All gains and losses associated with the ineffective portion of the hedging derivatives are recognised
immediately as other operating income in the income statement. The ineffectiveness recognised in the income
statement in respect of cash flow hedges was less than $1 million in the NZ Banking Group (31/03/2009 lessthan $1 million; 30/09/2009 less than $1 million) and $nil in the NZ Branch (31/03/2009 $nil; 30/09/2009 $nil).
There were no transactions where cash flow hedge accounting ceased in the period ended 31 March 2010 as aresult of highly probable cash flows that were no longer expected to occur (31/03/2009 no transactions;
30/09/2009 no transactions).

39

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
11. AVAILABLE-FOR-SALE ASSETS
Unaudited
31/03/2010$m

NZ Banking Group
Unaudited
31/03/2009$m

Audited30/09/2009$m

Unaudited
31/03/2010$m

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009$m

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

1,546
208
96

496
30
71

1,394
48
71

-

-

-

Total available-for-sale assets

1,850

597

1,513

-

-

-

Audited30/09/2009$m

Unaudited
31/03/2010$m

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009$m

12. NET LOANS AND ADVANCES
Unaudited
31/03/2010$m

NZ Banking Group
Unaudited
31/03/2009$m

Overdrafts
Credit card outstandings
Term loans - housing1
Term loans - non-housing
Finance lease receivables

2,014
1,417
53,471
39,382
692

2,094
1,429
53,537
40,696
741

2,087
1,402
53,45840,231683

10,025
-

4,773
-

8,795
-

Gross loans and advances
Provision for credit impairment (Note 14)
Unearned finance income
Fair value hedge adjustment
Deferred fee revenue and expenses
Capitalised brokerage/ mortgage origination fees

96,976(1,475)
(252)
426
(51)
65

98,497
(879)
(295)
1,127
(54)
94

97,861(1,281)
(262)
681
(53)
78

10,025
(18)
9
(1)
14

4,773
(3)
(24)
(1)
9

8,795
(9)
(27)
(1)
16

Total net loans and advances

95,68998,49097,024

10,029

4,754

8,774

1.

As at 31 March 2010 the NZ Banking Group has not entered into any repurchase agreements for residential mortgage-backed securities with the Reserve Bank of
New Zealand ("RBNZ”) (31/03/2009 mortgages to the value of $1,806 million; 30/09/2009 $1,806 million). Therefore no underlying collateral has been acceptedby the RBNZ under this transaction (in previous periods mortgages to the value of 31/03/2009 $2,250 million; 30/09/2009 $2,250 million were held by RBNZ as
collateral).

.
In February 2009 and July 2009, the Bank sold $4,877 million and $4,986 million, respectively, of residential mortgages to the NZ Branch. These existing
tranches of residential mortgages are regularly topped up with additional mortgages. Further sales of $2,612 million occurred in the six months ended 31 March
2010.

40

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
13. IMPAIRED ASSETS, PAST DUE ASSETS AND OTHER ASSETS UNDER ADMINISTRATION

Restructured assets
A restructured asset is an impaired asset for which the terms have been changed to grant the counterparty aconcession that would not otherwise have been available, due to the counterparty’s difficulty in complying withthe original terms, and where the yield on the asset following restructuring is still above the Banking Group’s
cost of funds. An asset is classified as an other individually impaired asset if, following the restructure, the yieldon the asset is below the NZ Banking Group’s cost of funds.

Renegotiated loans
Renegotiated loans are loans that would otherwise be past due or impaired had their terms not beenrenegotiated. At 31 March 2010, loans and advances of $737 million were renegotiated in the Banking Group(30/09/2009 $266 million). At 31 March 2010, loans and advances of $62 million were renegotiated in the NZ
Branch (30/09/2009 $nil).
Assets acquired through enforcement of security
Assets acquired through enforcement of security are those assets which are legally owned by the Banking Group
as a result of enforcing security, other than any buildings occupied by the NZ Banking Group. The NZ Banking
Group held no material assets acquired through enforcement of security (31/03/2009 $nil; 30/09/2009 $nil).
Past due assets
A past due asset is any loan where the counterparty has failed to make a payment when contractually due, andwhich is not an impaired asset. A 90 days past due asset is any past due asset which has not been operated by
the counterparty within its key terms for at least 90 days.

41

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
13. IMPAIRED ASSETS, PAST DUE ASSETS AND OTHER ASSETS UNDER ADMINISTRATION(Continued)
Further analysis of past due assets can be found in the Financial Risk Management note, including an ageing
analysis of all past due assets 1 day and over where the counterparty has failed to make a payment whencontractually due.
Other assets under administration
Other assets under administration are any loans, not being impaired or 90 days past due, where the customer isin any form of voluntary or involuntary administration, including receivership, liquidation, bankruptcy or
statutory management.
Interest forgone
Interest forgone on impaired assets has been calculated based on interest rates that would have been applied toloans of similar risk and maturity.

1

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

42

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
13. IMPAIRED ASSETS, PAST DUE ASSETS AND OTHER ASSETS UNDER ADMINISTRATION(Continued)

1
90 day past due assets not classified as impaired assets are either 90 days or more past due and well secured, or are portfolio managed facilities that can beheld for up to 180 days past due.

14. PROVISION FOR CREDIT IMPAIRMENT

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 toits present value using the original effective interest rate for the asset. This discount unwinds over the period and is recorgnised as interest income.

43

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
14. PROVISION FOR CREDIT IMPAIRMENT (Continued)

15. SHARES IN ASSOCIATES AND JOINTLY CONTROLLED ENTITIESNZ Banking Group
Unaudited
Unaudited
31/03/2010
31/03/2009$m$m

Audited30/09/2009$m

Unaudited
31/03/2010$m

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009$m

Shares in associates
Shares in jointly controlled entities

142
2

148
248

211
253

-

-

-

Total shares in associates andjointly controlled entities

144

396

464

-

-

-

Shares in associates comprise:
Balance at beginning of the period
Acquisitions
Disposals
Transfers to subsidiary company
Impairment
Share of profit of equity accounted associates

211
(96)
(3)
30

144
2
2

144
67
(2)
2

-

-

-

Balance at end of the period

142

148

211

-

-

-

Shares in associates at 31 March 2010 includes goodwill of $57 million (31/03/2009 $57 million; 30/09/2009$57 million) for the NZ Banking Group and $nil (31/03/2009 $nil; 30/09/2009 $nil) for the NZ Branch.

Shares in jointly controlled entities at 31 March 2010 includes goodwill of $nil million (31/03/2009 $97 million;
30/09/2009 $94 million) for the NZ Banking Group and $nil (31/03/2009 $nil; 30/09/2009 $nil) for the NZ
Branch.

44

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
16. OTHER ASSETS

17. DEFERRED TAX ASSETS / LIABILITIESThere were unrecognised deferred tax assets of $51m relating to ING NZ tax losses as at 31 March 2010
(31/03/2009 $nil; 30/09/2009 $nil).
1.

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

45

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
18. PREMISES AND EQUIPMENTNZ Banking Group
Unaudited
Unaudited
31/03/2010
31/03/2009$m$m

Audited30/09/2009$m

Unaudited
31/03/2010$m

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009$m

Freehold and leasehold land and buildings
At costAccumulated depreciation

63
(11)

63
(11)

63
(11)

-

-

-

Total carrying amount

52

52

52

-

-

-

Leasehold improvements
At costAccumulated depreciation

99
(80)

100
(77)

99
(78)

-

-

-

Total carrying amount

19

23

21

-

-

-

274
(200)

264
(184)

265
(191)

-

-

-

74

80

74

-

-

-

277
(200)

252
(204)

251
(200)

-

-

-

Total carrying amount

77

48

51

-

-

-

Work in progress

83

47

80

-

-

-

305

250

278

-

-

-

Furniture and equipment
At costAccumulated depreciation
Total carrying amountComputer and office equipment
At costAccumulated depreciation

Total premises and equipment

Reconciliations of the carrying amounts for each class of premises and equipment are set out below:

46

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
19. GOODWILL AND OTHER INTANGIBLE ASSETS

As at 31 March 2010, the balance of goodwill recorded as an asset which relates to the acquisition of The
National Bank of New Zealand Limited in June 2004 was $3,230 million (31/03/2009 $3,230 million;
30/09/2009 $3,230 million).
1.

Software amortisation expense is included in other costs in the income statement.

20. DUE TO OTHER FINANCIAL INSTITUTIONS
Unaudited
31/03/2010$m
Australia and New Zealand Banking Group Limited(Ultimate Parent Bank)
Securities sold under agreements to repurchasefrom other financial institutions
Securities sold under agreements to repurchasefrom central banks1
Other financial institutions

NZ Banking Group
Unaudited
31/03/2009$m

Audited30/09/2009$m

Unaudited
31/03/2010$m

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009$m

10,945

5,280

9,286

10,614

4,751

8,801

36

45

159

-

-

-

960

1,856
1,730

1,806
1,263

-

-

-

11,941

8,911

12,514

10,614

4,751

8,801

Included within due to other financial institutions is the following balance:
Balances owing to the Ultimate Parent Bank by
ANZ National (Int'l) Limited guaranteed by the Bank
282
Australia and New Zealand Banking Group Limited - NZ Branch
10,614

528
4,751

485
8,801

10,614

4,751

8,801

Total due to other financial institutions

Balances owing to the Ultimate Parent Bank are due over a range of time periods to 2014. Interest is paid at
variable bank rates.
1.

As at 31 March 2010 the NZ Banking Group has not entered into any repurchase agreements for residential mortgage-backed securities with theReserve Bank of New Zealand ("RBNZ”) (31/03/2009 mortgages to the value of $1,806 million; 30/09/2009 $1,806 million). Therefore no underlying
collateral has been accepted by the RBNZ (in previous periods mortgages to the value of 31/03/2009 $2,250 million; 30/09/2009 $2,250 million were
held by RBNZ as collateral).

47

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
21. DEPOSITS AND OTHER BORROWINGSThe NZ Banking Group has not defaulted on any principal, interest or redemption amounts on its borrowed
funds during the six months ended 31 March 2010 (31/03/2009 $nil; 30/09/2009 $nil). Deposits from
customers are unsecured and rank equally with other unsecured liabilities of the NZ Banking Group. In theunlikely event that an entity within the NZ Banking Group 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.

Registered secured debenture stock is constituted and secured by a trust deed between UDC Finance Limited
and its independent trustee, Trustees Executors Limited. The trust deed creates floating charges over all theassets, primarily loans and advances, of UDC Finance Limited.
22. PAYABLES AND OTHER LIABILITIESNZ Banking Group
Unaudited
Unaudited
31/03/2010
31/03/2009$m$m
Creditors
Accrued interest and unearned discounts
Defined benefit schemes deficit
Share-based payments liability
Accrued charges
Security settlements
Equitable assignment of mortgages1
Other liabilities
Total payables and other liabilities

1.

Audited30/09/2009$m

Unaudited
31/03/2010$m

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009
$m

396
642
37
23
278
97
18
190

61
734
66
18
201
552
22
489

81
732
55
28
257
205
19
170

58
2
3

7
1
-

41
2
-

1,681

2,143

1,547

63

8

43

The ANZ FlexiMortgage Income Trust holds mortgages under an equitable assignment with ANZ National Bank Limited. The ANZ FlexiMortgage Income Trust canat any time require the ANZ National Bank Limited to repurchase any mortgage. ANZ National Bank Limited may also require repurchase in certain circumstances.
The mortgages are included in these financial statements.

48

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
23. PROVISIONS

1.

Employee entitlements
The provision for employee entitlements provides mainly for the cost of employee entitlements to annual leave, long service leave and retirement leave. The
majority of employees utilise their annual leave in the year the entitlement accrued.

2.

Personnel restructuring costs and redundant assets restructuring costs
Restructuring cost provisions arise from exit activities relating to material changes in the scope or manner of business undertaken by the NZ Banking Group andincludes termination benefits. Provisions are made when the NZ Banking Group is demonstrably committed, it is probable that the costs will be incurred, though
their timing is uncertain, and the costs can be reliably estimated. The majority of provisions recognised at 31 March 2010 are expected to be settled over the 2010
financial year, with the exception that provisions for losses arising from rental commitments on leased premises which have become vacant as a result of
restructuring will be settled over the remaining term of the leases.

3.

Other provisions
Other provisions includes provisions relating to the ING New Zealand Funds, refer to the Contingent Liabilities and Credit Related Commitments note for further
information, and the fair value of other contingent liabilities and provisions acquired as part of the acquisition of ING NZ.

49

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
24. BONDS AND NOTES(Continued on the following page)50

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
24. BONDS AND NOTES (continued)

Bonds and notes issued by ANZ National (Int’l) Limited are guaranteed by ANZ National Bank Limited. Bonds
and notes are unsecured and rank equally with other unsecured liabilities of the NZ Banking Group.
1.

2.

3.
4.
5.

The interest rate payable on these notes is stepped as follows: Year 1 1 month LIBOR - 0.02%, Year 2 1 month LIBOR, Year 3 1 month LIBOR + 0.01%, Year 4 1
month LIBOR + 0.02% and Year 5 1 month LIBOR + 0.03%. The investors were able to elect to extend the maturity of the notes for a year on a monthly basis.
These notes were originally for USD1.5 billion, but between 7 August 2007 and 6 March 2009, investors elected not to extend these bonds. As a result these bonds
carry a fixed maturity as follows: 7 August 2008 USD 89 million; 5 September 2008 USD 1,232 million; 7 October 2008 USD 164 million; 5 December 2008 USD
million; 7 May 2009 USD 1 million; and 5 March 2010 USD 8 million.
The interest rate payable on these notes is stepped as follows: Year 1 3 month LIBOR + 0.22%, Year 2 3 month LIBOR + 0.24% Year 3 3 month LIBOR + 0.26%,
Year 4 3 month LIBOR + 0.28% and Year 5 3 month LIBOR + 0.29%. The investors were able to elect to extend the maturity of the notes for a year on a 3monthly basis. On 10 June 2008 and 10 September 2008 and 10 December 2008, investors elected not to extend USD 686 million, USD 525 million and USD 789
million of bonds which has resulted in these bonds carrying a fixed maturity on 9 April 2009, 10 July 2009 and 9 October 2009 respectively.
These notes were issued to subsidiaries of the ANZ Group.
These notes are guaranteed by the NZ Banking Group and benefit from a supporting guarantee from the NZ Crown.
These notes were issued in two tranches of USD 350 million and USD 750 million by Samson Funding Limited on 26 November 2003. The notes are ‘stapled’ topreference shares issued by the Ultimate Parent Bank and may not be traded separately from them. They can be repaid on 15 January 2010 (USD 350 million)and 15 December 2013 (USD 750 million). The USD 350 million note was repaid on 15 January 2010. Interest was payable half yearly in arrears at a fixed rateof 4.484% p.a. (USD 350 million) and 5.36% p.a. (USD 750 million) with interest payments due 15 June and 15 December.

25. DUE FROM / (TO) RELATED PARTIES
Unaudited
31/03/2010$m
ANZ National Bank Limited
ANZ Funds Pty Limited

NZ Banking Group
Unaudited
31/03/2009$m(1,766)(1,766)

Audited30/09/2009$m

Unaudited
31/03/2010$m

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009$m(1,766)

504
-

204
-

341
-

ANZ Funds Pty Limited (Related Company)
This New Zealand dollar loan was made on 1 December 2003 and is repayable upon demand being made by
ANZ Funds Pty Limited, where 12 months prior written notice is given, unless a shorter notice period is agreed
upon. Interest is payable quarterly in arrears with interest payments due 1 March, 1 June, 1 September and 1
December. As part of the annual review of terms and conditions of the loan, the margin was changed to BKBM
+ 1.16% p.a., effective from 1 December 200951

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
26. LOAN CAPITAL
Unaudited
31/03/2010$m

NZ Banking Group
Unaudited
31/03/2009$m

Audited30/09/2009$m

Unaudited
31/03/2010$m

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009$m

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

343
240
56
219
950
835

249
321
225
53
205
950
835

324
227
53
207
950
835

-

-

-

Total loan capital issued
Less loan capital instruments held by the NZ Banking Group

2,643
(2)

2,838
(3)

2,596
-

-

-

-

Total loan capital

2,641

2,835

2,596

-

-

-

858

1,053

811

-

-

-

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

AUD 207,450,000 loan
This loan was drawn down on 31 August 2004 and had an ultimate maturity date of 31 August 2014. On 31
August 2009 the Bank repaid the loan. All interest was payable half yearly in arrears, with interest payments
due 28 February and 31 August. Interest was based on BBSW + 0.40% p.a. up until, and including, 31 August
2009.
AUD 265,740,000 loan
This loan was drawn down on 27 September 1996 and has no fixed maturity. Interest is payable half yearly inarrears based on BBSW + 0.95% p.a., with interest payments due 15 March and 15 September.
AUD 186,100,000 loan
This loan was drawn down on 19 April 2005 with an ultimate maturity date of 20 April 2015. On 19 April 2010
the Bank repaid the loan. All interest was payable half yearly in arrears, with interest payments due 19 April and19 October. Interest was based on BBSW + 0.32% p.a. to 19 April 2010.
AUD 43,767,507 loan
This loan was drawn down on 15 September 2006 with an ultimate maturity date of 15 September 2016. The
Bank may elect to repay the loan on 15 September each year commencing from 2011 through to 2016. Allinterest is payable half yearly in arrears, with interest payments due 15 March and 15 September. Interest isbased on BBSW + 0.29% p.a. to 15 September 2011 and increases to BBSW + 0.79% p.a. thereafter.
AUD 169,520,000 loan
This loan was drawn down on 17 September 2007 with an ultimate maturity date of 17 September 2017. The
NZ Banking Group may elect to repay the loan on 17 September each year commencing from 2012 through to2016. All interest is payable half yearly in arrears, with interest payments due 17 March and 17 September.
Interest is based on BBSW + 0.68% p.a. to 17 September 2012 and increases to BBSW + 1.18% p.a.
thereafter.
NZD subordinated bonds
The terms and conditions of the term subordinated fixed rate bonds are as follows:
Term subordinated fixed rate bonds
Amount $m
Issue date350
15 September 2006
2 March 2007
250
23 July 2007
350

Coupon rate
7.16%
7.60%
8.23%

Call date
15 September 2011
2 March 201223 July 2012

Maturity date
15 September 2016
2 March 201723 July 2017

As at 31 March 2010, these bonds carried an AA- rating by Standard & Poor's.
The Bank may elect to redeem the bonds on their call date. If the bonds are not called the Bank will continue to
pay interest to maturity at the five year interest rate swap rate plus 0.75% p.a., 0.76% p.a. and 0.62% p.a. forthe 15 September 2006; 2 March 2007 and 23 July 2007 bonds respectively. Interest is payable half yearly inarrears based on the fixed coupon rate.

52

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
26. LOAN CAPITAL (Continued)
The terms and conditions of the perpetual subordinated bond are as follows:

Perpetual subordinated bondAmount $m
Issue date
18 April 2008
835

Coupon rate
9.66%

1st Call date
18 April 2013

2nd Call date
18 April 2018

The Bank may elect to redeem the bond on 18 April 2013, 18 April 2018 or any interest payment date
subsequent to 18 April 2018. Interest is payable half yearly in arrears on 18 April and 18 October each year,
beginning on 18 October 2008, up to and including the Second Call Date and then quarterly thereafter. If thebond is not called at the First Call Date, the coupon rate will reset to the five year interest swap rate plus
2.00%. 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 31 March 2010, this bond carried an A+ rating by Standard and Poor's.
Interest may not necessarily be paid on each interest payment date as under the terms of the Bonds, ANZ
National Bank Limited has a general right and in certain specified circumstances an obligation, to defer payment
of interest on the Bonds.
All of the NZD subordinated bonds are listed on the NZX. The Market Surveillance Panel of the NZX granted
ANZ National Bank Limited a waiver from the requirements of Listing Rules 10.4 and 10.5. Rule 10.4 relates tothe provision of preliminary announcements of half yearly and annual results to the NZX. Rule 10.5 relates topreparing and providing a copy of half yearly and annual reports to the NZX. ANZ National Bank Limited has
been granted a waiver from these rules on the conditions that the Bank's quarterly General DisclosureStatement ("GDS") is available on the NZ Banking Group's website, at any branch and at the NZX; thatbondholders are advised by letter that copies of the GDS are available at the above locations; that all
bondholders are notified on an ongoing basis, by way of a sentence included on the notification of interest
payments, that the latest GDS is available for review at the above locations; and that a copy of the GDS is sent
to the NZX on an ongoing basis.
Loan capital is subordinated in right of payment in the event of liquidation or wind up to the claims of depositors
and all creditors of the NZ Banking Group.
All subordinated debt qualifies as Lower Level Tier Two Capital for capital adequacy purposes except for theperpetual subordinated debt which qualifies as Upper Level Tier Two Capital.

53

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
27. SHARE CAPITAL AND HEAD OFFICE ACCOUNT

Issued share capital
Ordinary shares at beginning and end of the period

NZ Banking Group
Unaudited
Unaudited
31/03/2010
31/03/2009
Number of
Number ofIssued Shares
Issued Shares

Audited30/09/2009
Number ofIssued Shares

Unaudited
31/03/2010
Number ofIssued Shares

NZ Branch
Unaudited
31/03/2009
Number ofIssued Shares

Audited30/09/2009
Number ofIssued Shares

381,655,112

381,655,112

381,655,112

-

-

-

4,005,295,229

3,210,066,601

3,210,066,601

-

-

-

-

795,228,628-

795,228,628
-

-

-

-

Redeemable preference shares at end of the period

4,005,295,229

4,005,295,229

4,005,295,229

-

-

-

Total number of issued shares at end of the period

4,386,950,341

4,386,950,341

4,386,950,341

-

-

-

NZ Banking Group
Unaudited
Unaudited
31/03/2010
31/03/2009$m$m

Audited30/09/2009$m

Unaudited
31/03/2010$m

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009$m

Redeemable preference shares at beginning of the period
Issue of redeemable preference shares during period
Redemption of redeemable preference shares during the period

Paid in share capital & Head Office AccountOrdinary share capital at beginning and end of the period

1,453

1,453

1,453

-

-

-

Redeemable preference shares at beginning of the period
Redeemable preference shares issued during the period

4,960
-

3,960
1,000

3,960
1,000

-

-

-

4,960

4,960

4,960

-

-

-

Paid in share capital at end of the period
Head Office Account

6,413
11

6,413
11

6,413
11

11

11

11

Total Capital & Head Office Account at end of the period

6,424

6,424

6,424

11

11

11

On 24 March 2009, the NZ Banking Group paid an ordinary dividend of $1 billion dividend to its parent company(being $1.43 per share). On the same day, the NZ Banking Group issued 795,228,628 redeemable preference
shares to the value of $1 billion.
All ordinary shares share equally in dividends and any proceeds available to ordinary shareholders on winding
up of the Bank. On a show of hands every member who is present at a meeting in person or by proxy or byrepresentative is entitled to one vote, and upon a poll every member shall have one vote for each share held.

54

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
28. CAPITAL ADEQUACYOVERSEAS BANKING GROUP CAPITAL ADEQUACY RATIO
Overseas Banking Group
Unaudited
Unaudited
Unaudited
31/03/2010
31/03/2009
30/09/2009
Basel II
Basel II
Basel II

Overseas Bank
(Extended Licensed Entity)
Unaudited
Unaudited
Unaudited
31/03/2010
31/03/2009
30/09/2009
Basel II
Basel II
Basel II

Tier One Capital

10.7%

8.2%

10.6%

11.9%

9.0%

11.6%

Total Capital

13.0%

11.0%

13.7%

13.7%

11.5%

14.2%

Basel II came into force on 1 January 2008. The Overseas Banking Group received accreditation from APRA to
apply the Advanced Internal Ratings Based ("Advanced IRB") methodology for credit risk weighted assets andthe Advanced Measurement Approach ("AMA") for operational risk weighted asset equivalents.
The Overseas Banking Group has Advanced IRB accreditation under Basel II rules. The Overseas Banking Groupmet the requirements imposed by APRA as at 31 March 2010 and for the comparative periods shown.
Further details of the Overseas Banking Group's capital adequacy requirements and credit risk management
processes can be found in its 2009 Annual Report. This report can be accessed at the following website
address: www.anz.com.
RISK WEIGHTED CREDIT RISK EXPOSURES
Risk weighted exposures for the NZ Banking Group and NZ Branch have been derived in accordance with the
RBNZ document entitled 'Capital Adequacy Framework (Basel I Approach)' ("BS2") dated March 2008.
Total Risk Weighted Exposures of the NZ Banking Group as at 31 March 2010 (unaudited):On-balance sheet exposures

Cash and short term claims on Government
Long term claims on Government
Claims on banks
Claims on public sector entities
Residential mortgages
Other
Non risk weighted assets

Off-balance sheet exposures
Direct credit substitutes
Commitments with certain drawdown
Transaction related contingent items
Short term, self liquidating trade related contingencies
Other commitments to provide financial services whichhave an original maturity of 1 year or more
Other commitments with an original maturity of less than
1 year or which can be unconditionally cancelled at any time
Market related contracts 1- Foreign exchange- Interest rate
- Other

1.

Risk weighted

Principal
amountRisk weight

exposure

$m
4,140
3,226
5,608
723
53,66944,525
11,613

0%
10%
20%
20%
50%
100%
n/a

$m
323
1,122
145
26,83544,525-

123,504

72,948

100%
100%
50%
20%

Creditequivalentamount
$m
1,778
566
488
17

Averagecounterparty Risk weighted
risk weight
exposure
$m
44%
776
62%
349
71%
349
101%
17

4,316

50%

2,158

100%

2,158

17,028

0%

-

n/a

-

133,001
494,909
51

5,914
8,582
7

21%
23%
57%

1,266
1,989
4

652,710

19,510Principal
amount
$m
1,778
566
977
84

Creditconversion
factorThe credit equivalent amounts for market related contracts are calculated using the current exposure method.

55

6,908

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
28. CAPITAL ADEQUACY (Continued)
Total Risk Weighted Exposures of the NZ Branch as at 31 March 2010 (unaudited):On-balance sheet exposures
Cash and short term claims on Government
Long term claims on Government
Claims on banks
Claims on public sector entities
Residential mortgages
Other
Non risk weighted assets

Off-balance sheet exposures
Direct credit substitutes
Commitments with certain drawdown
Transaction related contingent items
Short term, self liquidating trade related contingencies
Other commitments to provide financial services whichhave an original maturity of 1 year or more
Other commitments with an original maturity of less than
1 year or which can be unconditionally cancelled at any time
Market related contracts 1- Foreign exchange- Interest rate
- Other

Risk weighted

Principal
amount$m
404
10,08936
374

Risk weight
0%
10%
20%
20%
50%
100%
n/a

exposure
$m
81
5,045
36
-

10,903

5,161

100%
100%
50%
20%

Creditequivalentamount$m-

Averagecounterparty Risk weighted
risk weight
exposure
$m
n/a
n/a
n/a
n/a
-

36

50%

18

100%

18

-

0%

-

n/a

-

10,682
16,232
-

371
106
-

20%
20%
0%

74
21
-

26,950495

Principal
amount$m-

Creditconversion
factor113

RETAIL MORTGAGES BY LOAN-TO-VALUATION ("LVR") RATIOAs required by the RBNZ, LVRs are calculated as the current exposure secured by a residential mortgage divided
by the Bank’s valuation of the security property at origination of the exposure. The exposure amount used to
calculate LVR excludes commitments to lend.
Retail mortgages by LVR for the NZ Banking Group as at 31 March 2010 (unaudited):
ExposureAmount$m
LVR range
0% - 80%
80% - 90%
Over 90%

42,6236,370
5,370
54,363

1.

The credit equivalent amounts for market related contracts are calculated using the current exposure method.

56

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
28. CAPITAL ADEQUACY (Continued)
MARKET RISK
The aggregate market risk exposures below have been calculated in accordance with the RBNZ document BS2B.
The peak end-of-day market risk exposures for the quarter are measured over the Overseas Banking Group’s
equity at the end of the quarter and are calculated separately for each category of exposure. The peak for all
categories of exposure may not have occurred at the same time.
NZ Banking Group
Implied risk weighted

Aggregate capital charge as apercentage of the Overseas
Banking Group's Equity
Peak
As at
Peak
$m
%
%

Aggregate capital charge

As at
$m

Peak
$m

As at
$m

4,486
48
96
4,630

4,486
91
96

359
4
8
371

359
7
8

1.1%
0.0%
0.0%

1.1%
0.0%
0.0%

3,519
38
68
3,625

4,018
113
78

282
3
5
290

321
9
6

0.8%
0.0%
0.0%

0.9%
0.0%
0.0%

3,990
5
69
4,064

4,321
301
82

320
6
326

346
24
7

1.0%
0.0%
0.0%

1.1%
0.1%
0.0%

Unaudited 31/03/2010
Interest rate risk
Foreign currency risk
Equity risk
Unaudited 31/03/2009
Interest rate risk
Foreign currency risk
Equity risk
Audited 30/09/2009
Interest rate risk
Foreign currency risk
Equity risk

29. FINANCIAL RISK MANAGEMENT
Strategy in using financial instruments
Financial instruments are fundamental to the NZ 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 NZ Banking Group. Financial instruments create, modify or reduce the credit, market (including
traded or fair value risks and non-traded or interest and foreign currency related risks) and liquidity risks of the
NZ Banking Group’s balance sheet. These risks and the NZ Banking Group’s policies and objectives for managing
such risks are outlined below. The NZ Banking Group’s overall risk management program focuses on theunpredictability of financial markets and seeks to minimise potential adverse effects on the financial
performance of the NZ Banking Group.
CREDIT RISK
Credit risk is the risk of financial loss from counterparties being unable to fulfil their contractual obligations. The
NZ Banking Group assumes credit risk in a wide range of lending and other activities in diverse markets andmany jurisdictions. The credit risks arise not only from traditional lending to customers, but also from interbank, treasury, international trade and capital market activities around the world.
The NZ Banking Group has an overall lending objective of sound growth for appropriate returns. The credit risk
objectives of the entities within the NZ Banking Group are set by each Board and are implemented andmonitored within a tiered structure of delegated authority, designed to oversee multiple facets of credit risk,
including asset writing strategies, credit policies/controls, single exposures, portfolio monitoring and risk
concentrations.
A credit risk management framework exists to provide a structured and disciplined process to support thoseobjectives. The integrity of the credit risk function is maintained by independent credit chains and is supported
by comprehensive risk analysis, risk tools, monitoring processes and policies.
CREDIT RISK MANAGEMENT
Where appropriate the Group-wide credit risk management framework is applied to each entity across the NZ
Banking Group with the aim of ensuring a structured and disciplined approach is maintained in achieving theobjectives set by each Board. The framework focuses on policies, people, skills, vision, values, controls, risk
concentrations and portfolio balance. It is supported by portfolio analysis and asset-writing strategies, which
guide lending decisions and identify segments of the portfolio requiring attention. The effectiveness of theframework is monitored through a series of compliance and reporting processes.

57

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
An independent Risk Management function staffed by risk specialists assists with credit risk management acrosseach entity as required. In addition to providing independent credit assessment on lending decisions, Risk
Management also performs key roles in portfolio management by development and validation of credit risk
measurement systems, loan asset quality reporting, and development of credit standards and policies.
The credit risk management framework is top down. Where required, the framework is defined firstly by theOverseas Banking Group Board establishing Vision and Values and secondly, by Credit Principles and Policies.
The effectiveness of the credit risk management framework is validated through the compliance and monitoringprocesses.
Risk Management's responsibilities for credit risk policy and management are executed through dedicateddepartments, which support the entities and Business Units within the NZ Banking Group. All major Business
Unit credit decisions require approval from both business writers and independent risk personnel.
Credit Risk is controlled through a combination of approvals, limits, reviews and monitoring procedures that are
carried out on a regular basis, the frequency of which is dependent upon the level of risk. For the key operating
entities within the NZ Banking Group credit risk policy and management is executed through the Chief Risk
Officer who is responsible for various dedicated areas within the Risk Management division. A formal outsourcing
agreement provides for credit risk functions to be provided to a number of NZ Banking Group entities by staff of
ANZ National Bank Limited.
The credit risk review function within Internal Audit, either within Australia or New Zealand, also provides afurther independent check mechanism to ensure the quality of credit decisions. This may include providing
independent periodic checks on asset quality and compliance with the agreed standards and policies across the
NZ 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, involve the flow of funds from one country to another or involve transactions in a currency other than thedomestic currency of the relevant country.
Country ratings are assigned to each country where the NZ Banking Group incurs country risk and have a direct
bearing on the NZ Banking Group's risk appetite for each country. The country rating is determined through adefined methodology based around external ratings agencies’ ratings and internal specialist opinion. It is also a
key risk consideration in the use of capital pricing model for cross border flows.
The recording of country limits provides the NZ 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 arerecorded by time to maturity and purpose of exposure, e.g. trade, markets, project finance. Country limits aremanaged centrally by the Overseas Bank, through a global country risk exposure management system managed
by a specialist unit within Institutional Risk.
Portfolio stress testing
Stress testing is integral to strengthening the predictive approach to Risk Management and is a key component
to managing risk appetite, asset writing strategies and business strategies. It creates greater understanding of
impacts on financial performance through modelling relationships and sensitivities between geographic, industry
and business unit exposures under a range of macro economic scenarios. Stress testing programs have been
implemented within the key operating business of the NZ Banking Group.
The Overseas Bank has a dedicated stress testing team within Risk Management that assists business and risk
executives in the NZ Banking Group to model and report on a range of scenarios and stress tests.
Portfolio analysis and reporting
Credit portfolios are actively monitored at each layer of the risk structure to ensure credit deterioration isquickly detected and mitigated through the implementation of remediation strategies.
Businesses incurring credit risk undertake regular and comprehensive analysis of their credit portfolios. Issue
identification and adherence to performance benchmarks are reported to risk and business executives through aseries of reporting processes, which include a monthly ‘asset quality’ reporting function closely supported andoverseen by the NZ Banking Group Risk function ensuring an efficient and independent conduit exists to quickly
identify and communicate emerging credit issues to NZ Banking Group executives and each Board.

58

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
Collateral management
ANZ Group-wide credit principles specify to lend only what the counterparty has the capacity and ability to
repay. The entities within the NZ Banking Group set limits on the acceptable level of credit risk. Acceptance ofcredit risk is firstly based on the counterparty’s assessed capacity to meet contractual obligations (i.e. interest
and capital repayments). Obtaining collateral is only used to mitigate credit risk. Procedures are designed toensure collateral is managed, legally enforceable, conservatively valued and adequately insured. Credit policies
for each entity set out the types of acceptable collateral, including:
•
Cash;
•
Mortgages over property;•
Charges over business assets, e.g. premises, stock and debtors;•
Charges over financial instruments, e.g. debt securities and equities in support of trading facilities; and•Financial guarantees.
In the event of customer default, any loan security is usually held as mortgagee in possession while action istaken to realise it. Therefore the NZ Banking Group does not usually hold any real estate or other assets
acquired through the enforcement of security.
The key operating entities within the NZ Banking Group use International Swaps and Derivatives Association("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 thecounterparty are terminated and settled on a net basis. Further, it is preferred practice to include all products
covered by the ISDA in the Credit Support Annex ("CSA"), in order to achieve further credit exposure reduction.
Under a CSA, collateral is passed between the parties, depending on the aggregate mark-to-market (positive or
negative) of derivative trades between the two entities, to mitigate the market contingent counterparty risk
inherent in the outstanding positions.
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk arise when a number of customers are engaged in similar business activities or
activities within the same geographic region, or when they have similar risk characteristics that would cause
their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
Where applicable, entities within the NZ Banking Group monitor lending portfolios to identify and assess risk
concentrations. Concentration limits are used to guard against large single customer or correlated credit risks.
Risk Management, Business Unit Executives and Senior Management monitor large exposure concentrations
through a monthly list of top Corporate exposures. The ANZ Credit and Market Risk Committee (six monthly)and Board Risk Committee (annually) review a comprehensive list of single customer concentration limits andcustomers’ adherence to these limits.
Analyses of financial assets by industry sector are based on Australian and New Zealand Standard Industrial
Classification ("ANZSIC") codes.

59

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
Concentrations of credit risk analysis:
The composition of financial instruments that give rise to credit risk, by industry and geography:
NZ Banking Group

Unaudited 31/03/2010
Industry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2Liquid assets
Tradingand due fromsecurities
other financial and availableinstitutions for-sale assets$m$m

Derivative
financial
instruments$m

Net loans
and advances
$m

Other
financialassets$m

Creditrelatedcommitments
$m

Total
$m

26
2
2,189
2,196
69
4
113
9
8
5

4
4,776
3,320
31
6
12
67

114
13
2
30
8,163
273
96
45
65
80
9
197

20,024
819
961
1,028
1,383
1,425
2,913
54,253
8,072
1,454
1,589
1,487
1,330

238
10
11
12
31
36
34
517
94
17
19
17
18

1,727
610
784
463
1,488
815
3,479
9,176
1,603
1,148
620
1,493
1,343

22,133
1,454
1,758
1,533
18,030
8,065
6,622
63,946
9,824
2,797
2,329
3,014
2,960

4,621

8,216

9,087

96,7381,054

24,749144,465

Individual provision for credit impairment
Collective provision for credit impairment

-

-

-

(608)
(867)

-

-

(608)
(867)

Fair value hedge adjustment

-

-

-

(1,475)426--(1,475)426

Total financial assets

4,621

8,216

9,087

95,6891,054

24,749143,416

Geography
New ZealandOverseas

4,308
313

5,695
2,521

2,488
6,599

93,951
1,738

1,054
-

24,749-132,245
11,171

Total financial assets

4,621

8,216

9,087

95,6891,054

24,749143,416

1.
2.

Government and local authority includes exposures to government administration and defence, education and health and community services.
Other includes exposures to electricity, gas and water, communications, and personal services.

60

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
NZ Banking Group

Unaudited 31/03/2009
Industry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2Liquid assets
Tradingand due fromsecurities
other financial and availableinstitutions for-sale assets$m$m

Derivative
financial
instruments$m

Net loans
and advances
$m

Other
Creditfinancialrelatedassets commitments3
$m
$m

Total
$m

214
7,711
2,670
141
4
211
23
22
25

30
2,380
680
14
2
56

225
9
5
47
13,505
486
358
68
54
77
16
222

18,708
1,484
901
976
1,618
1,099
3,261
54,781
9,157
1,712
1,448
1,634
1,463

146
12
7
8
13
9
26
428
72
13
11
13
11

1,854
517
532
379
1,568
996
3,917
10,400
1,839
1,174
859
1,237
1,504

21,147
2,022
1,445
1,440
26,7955,940
7,717
65,609
11,140
3,164
2,420
2,922
3,281

11,021

3,162

15,072

98,242769

26,776

155,042

Individual provision for credit impairment
Collective provision for credit impairment

-

-

-

(269)
(610)

-

-

(269)
(610)

Fair value hedge adjustment

-

-

-

(879)
1,127

-

-

(879)
1,127

Total financial assets

11,021

3,162

15,072

98,490769

26,776

155,290

Geography
New ZealandOverseas

10,120
901

1,678
1,484

4,162
10,91097,291
1,199

769
-

26,776-

140,796
14,494

Total financial assets

11,021

3,162

15,072

98,490769

26,776

155,290

NZ Banking Group

Audited 30/09/2009
Industry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2Liquid assets
Tradingand due fromsecurities
other financial and availableinstitutions for-sale assets$m$m

Derivative
financial
instruments$m

Net loans
and advances
$m

Other
financialassets$m

Creditrelatedcommitments
$m

Total
$m

48
2
4,606
2,412
83
3
91
6
19
6

48
4,191
1,392
1
8
39

261
13
3
28
10,064
175
96
1
36
74
80
6
178

20,328
857
848
1,011
1,297
1,412
2,786
54,638
8,231
1,592
1,561
1,706
1,357

209
9
9
10
13
15
29
560
85
16
16
18
14

1,555
638
853
487
1,371
802
3,835
10,495
1,723
1,206
686
1,036
1,341

22,401
1,519
1,713
1,584
21,542
6,208
6,830
65,694
10,078
2,979
2,357
2,785
2,935

7,276

5,679

11,01597,624

1,003

26,028

148,625

Individual provision for credit impairment
Collective provision for credit impairment

-

-

-

(477)
(804)

-

-

(477)
(804)

Fair value hedge adjustment

-

-

-

(1,281)681--(1,281)
681

Total financial assets

7,276

5,679

11,01597,024

1,003

26,028148,025

Geography
New ZealandOverseas

6,213
1,063

3,272
2,407

2,951
8,064

95,549
1,475

1,003
-

26,028-135,016
13,009Total financial assets

7,276

5,679

11,01597,024

1,003

26,028148,025

1.
2.
3.

Government and local authority includes exposures to government administration and defence, education and health and community services.
Other includes exposures to electricity, gas and water, communications, and personal services.
Credit related commitments comprise undrawn facilities, customer contingent liabilities, and letters of offer. Credit related commitments for March 2009 havebeen restated to be consistent with current periods treatment.

61

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
NZ Branch

Unaudited 31/03/2010
Industry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2Liquid assets
Tradingand due fromsecurities
other financial and availableinstitutions for-sale assets$m$m

Derivative
financial
instruments$m

Net loans
and advances$m

Due from
relatedentities$m

Otherfinancialassets$m

Creditrelatedcommitments
$m

Total
$m

-

-

364
-

10,038
-

504
-

-

36
-

868
10,074
-

-

-

364

10,038504-

36

10,942

Individual provision for credit impairment
Collective provision for credit impairment

-

-

-

(7)
(11)

-

-

-

(7)
(11)

Fair value hedge adjustment

-

-

-

(18)
9

-

-

-

(18)
9

Total financial assets

-

-

364

10,029504-

36

10,933

Geography
New ZealandOverseas

-

-

364

10,029
-

9
495

-

36
-

10,074859

Total financial assets

-

-

364

10,029504-

36

10,933

NZ Branch

Unaudited 31/03/2009
Industry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2Liquid assets
Tradingand due fromsecurities
other financial and availableinstitutions for-sale assets$m$m

Derivative
financial
instruments$m

Net loans
and advances$m

Due from
relatedentities$m

Otherfinancialassets$m

Creditrelatedcommitments
$m

Total
$m

-

-

30
-

4,781
-

204
-

25
-

-

234
4,806
-

-

-

30

4,781

204

25

-

5,040

Individual provision for credit impairment
Collective provision for credit impairment

-

-

-

(3)

-

-

-

(3)

Fair value hedge adjustment

-

-

-

(3)
(24)

-

-

-

(3)
(24)

Total financial assets

-

-

30

4,754

204

25

-

5,013

Geography
New ZealandOverseas

-

-

30
-

4,754
-

204
-

25
-

-

5,013
-

Total financial assets

-

-

30

4,754

204

25

-

5,013

1.
2.

Government and local authority includes exposures to government administration and defence, education and health and community services.
Other includes exposures to electricity, gas and water, communications, and personal services.

62

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
NZ Branch

Audited 30/09/2009
Industry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2Liquid assets
Tradingand due fromsecurities
other financial and availableinstitutions for-sale assets$m$m

Derivative
financial
instruments$m

Net loans
and advances$m

Due from
relatedentities$m

Otherfinancialassets$m

Creditrelatedcommitments
$m

Total
$m

-

-

34
-

8,810
-

341
-

-

34
-

375
8,844
-

-

-

34

8,810

341

-

34

9,219

Individual provision for credit impairment
Collective provision for credit impairment

-

-

-

(3)
(6)

-

-

-

(3)
(6)

Fair value hedge adjustment

-

-

-

(9)
(27)

-

-

-

(9)
(27)

Total financial assets

-

-

34

8,774

341

-

34

9,183

Geography
New ZealandOverseas

-

-

34

8,774
-

341
-

-

34
-

9,149
34

Total financial assets

-

-

34

8,774

341

-

34

9,183

1.
2.

Government and local authority includes exposures to government administration and defence, education and health and community services.
Other includes exposures to electricity, gas and water, communications, and personal services.

63

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
MAXIMUM EXPOSURE TO CREDIT RISKFor financial assets recognised on the balance sheet, the maximum exposure to credit risk equals their carrying
amount. For contingent exposures, the maximum exposure to credit risk is the maximum amount that the NZ
Banking Group would have to pay if the contingency is called upon. For undrawn facilities, the maximum
exposure to credit risk is the full amount of the committed facilities.
The following table presents the maximum exposure to credit risk of on and off-balance sheet financial
instruments before taking account of any collateral held or other credit enhancements, unless such collateralmeets the offsetting criteria in NZ IAS 32 Financial Instruments: Presentation, and after deductions such asprovisions for credit impairment. The exposure is classified into summarised Basel II asset classes.

4.

Includes corporates, sovereigns and banks.

64

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
CREDIT QUALITY
A core component of the NZ Banking Group’s credit risk management capability is the risk grading frameworkused across all major Business Units. A set of risk grading principles and policies are supported by acomplementary risk grading methodology. Pronouncements by the International Basel Committee on Banking
Supervision have been encapsulated in these principles and policies including governance, validation andmodelling requirements.
Where applicable, credit risk grade profile changes dynamically through new counterparty lending and/or
existing counterparty movements in either risk or volume. All counterparty risk grades are subject to frequent
review, including statistical and behavioural reviews in consumer and small business segments, and individual
counterparty reviews in segments with larger single name borrowers.
Impairment and past due financial assets
Loans are classified as either performing or impaired. Impaired assets are credit exposures where: there isdoubt 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 and can be held for up to 180 days pastdue; concessional terms have been provided due to the financial difficulties of the customer. Where applicable
the policies relating to impaired assets conform to RBNZ’s guidelines.
An exposure is classified as past due but not impaired (less than 90 days) where the value of collateral issufficient to repay both the principal debt and all other potential interest and there is no concern as to thecreditworthiness of the counterparty in question.
The past due but not impaired (over 90 days) classification applies where contractual payments are past due by
90 days or more, or where the facility remains outside of contractual arrangements for 90 or more consecutive
days, but the NZ Banking Group believes that impairment is not appropriate on the basis of the level of
security/collateral available, or the facility is portfolio managed.
The provision for credit impairment represents management’s best estimate of the losses incurred in the loan
portfolio at balance date based on its experienced judgement.
Distribution of gross loans and advances assets by credit quality
The credit quality of the portfolio of loans and advances is assessed by reference to the Banking Group’s risk
grading principles and policies supported by a complementary risk grading methodology. The following table
presents an analysis of gross loans and advances by summarised Basel II asset class into exposures neither
past due nor impaired, past due but not impaired and impaired.

Unaudited 31/03/2010

Retailmortgages$mNeither past due nor impaired
Past due but not impaired (1 to 89 days)
Past due but not impaired (over 90 days)
ImpairedNZ Banking Group
Other retail
Corporate
exposures
exposures4
$m
$m

Total
$m

Retailmortgages$m

NZ Branch
Other retail
Corporate
exposures
exposures4
$m
$m

Total
$m

48,367
1,519
200
476

3,838
313
48
95

40,132
701
121
1,165

92,338
2,533
369
1,736

9,690
293
18
24

-

-

9,690
293
18
24

50,562

4,294

42,11996,976

10,025--

10,02547,248
1,993
406
200

4,723
501
71
56

41,917959
70
353

93,888
3,453
547
609

4,674
95
-

-

4
-

4,678
95
-

49,847

5,351

43,29998,497

4,769

-

4

4,773

48,490
1,445
276
387

3,822
315
59
61

41,493662
111
740

93,805
2,422
446
1,188

8,542
232
11
10

-

-

8,542
232
11
10

50,5984,257

43,007

97,861

8,795

-

-

8,795

Unaudited 31/03/2009
Neither past due nor impaired
Past due but not impaired (1 to 89 days)
Past due but not impaired (over 90 days)
Impaired 5

Audited 30/09/2009
Neither past due nor impaired
Past due but not impaired (1 to 89 days)
Past due but not impaired (over 90 days)
Impaired4.
5.

Includes corporates, sovereigns and banks.
Excluding restructures assets

65

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
Credit quality of gross loans and advances neither past due nor impaired
Where applicable, the credit quality of financial assets is assessed by the entities within the NZ Banking Group
using internal ratings which aim to reflect the relative ability of counterparties to fulfil, on time, their creditrelated obligations, and is based on their current probability of default.
Internal rating
Strong risk rating
Corporate customers demonstrating superior stability in their operating and financial performance over the longterm, and whose debt servicing capacity is not significantly vulnerable to foreseeable events. Retail customers
with low expected loss. This rating band broadly corresponds to ratings "Aaa" to "Ba1" and "AAA" to "BB+" of
Moody's Investors Service and Standard & Poor's respectively.
Satisfactory risk rating
Corporate customers consistently demonstrating sound operational and financial stability over the medium tolong term, even though some may be susceptible to cyclical trends or variability in earnings. Retail customers
with moderate expected loss. This rating band broadly corresponds to ratings "Ba2" to "Ba3" and "BB" to "BB-"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 inprofitability and liquidity projected to continue over the short and possibly medium term. Retail customers withhigher expected loss. This rating band broadly corresponds to ratings “B1” to “Caa” and “B+” to “CCC” of
Moody's Investors Service and Standard & Poor's respectively.
Movements in the rating categories below 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.
The following table presents an analysis of gross loans and advances neither past due nor impaired by the above
internal ratings:

Unaudited 31/03/2010
Strong risk rating
Satisfactory risk rating
Substandard but not past due or impaired

Retailmortgages5$m

NZ Banking Group
Other retail
Corporate
exposures
exposures4
$m
$m

Total
$m

Retailmortgages5$m

NZ Branch
Other retail
Corporate
exposures
exposures4
$m
$m

Total
$m

36,845
9,992
1,531

1,189
2,268
381

16,384
19,7104,038

54,41831,970
5,950

7,550
1,856
284

-

-

7,550
1,856
284

48,367

3,838

40,132

92,338

9,690

-

-

9,690

43,983
2,525
740

1,687
2,745
291

19,053
19,7933,071

64,72325,063
4,102

4,257
380
37

-

3
1

4,257
383
38

47,248

4,723

41,91793,888

4,674

-

4

4,678

44,650
3,156
684

1,459
2,010
353

17,993
19,078
4,422

64,102
24,244
5,459

7,924
510
108

-

-

7,924
510
108

48,4903,822

41,49393,805

8,542

-

-

8,542

Unaudited 31/03/2009
Strong risk rating
Satisfactory risk rating
Substandard but not past due or impaired

Audited 30/09/2009
Strong risk rating
Satisfactory risk rating
Substandard but not past due or impaired

4.
Includes corporates, sovereigns and banks.
5.
Since September 2009, the NZ Banking Group has agreed new mortgage pooling methodologies with RBNZ and have also implemented new spot PD estimates
which take account of more recent performance data. The change in the Retail Mortgage bands between the periods reflects these modelling changes.

Credit quality of financial assets that are past due but not impaired
Ageing analysis of past due loans is used by the NZ Banking Group to measure and manage the retail portfolio's
credit quality. Financial assets that are past due but not impaired include those:•
Assessed, approved and managed on a portfolio basis within a centralised environment (for example, credit
cards and personal loans);•
Held on a productive basis until they are 180 days past due; and•Managed on an individual basis.
A large portion of retail credit exposures, such as residential mortgages, are generally well secured. That is, thefair value of associated security is sufficient to ensure that the NZ Banking Group will recover the entire amountowing over the life of the facility and there is reasonable assurance that collection efforts will result in paymentof the amounts due in a timely manner.
66

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
The following table presents an ageing analysis of past due loans that are not impaired:

Unaudited 31/03/2010

Retailmortgages$m

1 to 5 days
6 to 29 days
30 to 59 days
60 to 89 days
90 days or over

NZ Banking Group
Other retail
Corporate
exposures
exposures4
$m
$m

Total
$m

Retailmortgages$m

NZ Branch
Other retail
Corporate
exposures
exposures4
$m
$m

Total
$m

344
764
319
92
200

100
142
47
24
48

449
133
85
34
121

893
1,039
451
150
369

69
157
53
14
18

-

-

69
157
53
14
18

1,719

361

822

2,902

311

-

-

311

527
863
459
144
406

145
250
71
35
71

605
162
129
63
70

1,277
1,275
659
242
547

17
51
24
3
-

-

-

17
51
24
3
-

2,399

572

1,029

4,000

95

-

-

95

310
740
264
131
276

104
136
49
26
59

397
122
71
72
111

811
998
384
229
446

40
154
27
11
11

-

-

40
154
27
11
11

1,721

374

773

2,868

243

-

-

243

Unaudited 31/03/2009
1 to 5 days
6 to 29 days
30 to 59 days
60 to 89 days
90 days or over

Audited 30/09/2009
1 to 5 days
6 to 29 days
30 to 59 days
60 to 89 days
90 days or overCredit quality of financial assets that are individually impaired
The key operating entities within the NZ Banking Group regularly review their portfolios and monitors adherence
to contractual terms. When doubt arises as to the collectability of a credit facility, the financial asset is classified
and reported as individually impaired and an individual provision is allocated against it. The following table
presents an analysis of individually impaired assets, undrawn facilities with impaired customers and provision for
credit impairment by summarised Basel II asset class:Unaudited 31/03/2010

Retailmortgages$mImpaired financial assets
Undrawn facilities with impaired customers
Individual provision balance

476
213

Net impaired financial assets
Collective provision balance

NZ Banking Group
Other retail
Corporate
exposures
exposures4
$m
$m

Total
$m

Retailmortgages$m

NZ Branch
Other retail
Corporate
exposures
exposures4
$m
$m

Total
$m

95
44

1,165
100
351

1,736
100
608

24
7

-

-

24
7

263

51

914

1,228

17

-

-

17

128

161

578

867

11

-

-

11

Impaired financial assets 5
Undrawn facilities with impaired customers
Individual provision balance

200
54

56
31

353
11
184

609
11
269

-

-

-

-

Net impaired financial assets

146

25

180

351

-

-

-

-

Collective provision balance

96

148

366

610

3

-

-

3

387
156

61
40

740
32
281

1,188
32
477

10
3

-

-

10
3

Unaudited 31/03/2009

Audited 30/09/2009
Impaired financial assets
Undrawn facilities with impaired customers
Individual provision balance
Net impaired financial assets

231

21

491

743

7

-

-

7

Collective provision balance

127

159

518

804

6

-

-

6

Security held by the NZ Banking Group in respect of individually impaired financial assets, both drawn andundrawn, in the analysis above has an estimated fair value of $1,228 million (31/03/2009 $351 million
30/09/2009 $743 million).
Security held by the NZ Branch in respect of individually impaired financial assets, both drawn and undrawn, in
the analysis above has an estimated fair value of $17 million (31/03/2009 $nil million; 30/09/2009 $7 million).
4.
5.

Includes corporates, sovereigns and banks.
Excluding restructured assets

67

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
Estimated value of collateral
The table below discloses the estimated value of collateral and other charges related to financial assets that are
individually impaired. For the purposes of this disclosure, where security held is valued at more than thecorresponding credit exposure, coverage is capped at the value of the credit exposure.

5.

Credit related commitments comprise undrawn facilities, customer contingent liabilities, and letters of offer.

68

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
MARKET RISK
Market risk is the risk to the NZ Banking Group’s earnings arising from changes in interest rates, currency
exchange rates, credit spreads, or from fluctuations in bond, commodity or equity prices. Market risk arises
when changes in market rates, prices and volatilities lead to a decline in the value of assets and liabilities,
including financial derivatives. Market risk is generated through both trading activities and the interest rate risk
inherent in the banking book.
The NZ Banking Group conducts trading operations in interest rates, foreign exchange, commodities and debt
securities. Trading operations largely focus on supporting customer hedging and investing activities, rather thanoutright proprietary trading. Consequently, the Board has set a medium market risk appetite for the Markets
business which is reflected in the low/moderate market risk limit framework.
The NZ Banking Group has a detailed risk management and control framework to support its trading andbalance sheet activities. The framework incorporates a risk measurement approach to quantify the magnitude ofmarket risk within trading and balance sheet portfolios. This approach and related analysis identifies the rangeof possible outcomes that can be expected over a given period of time, establishes the relative likelihood of
those outcomes and allocates an appropriate amount of capital to support these activities.
The market risk management and policy control framework applicable to the entities comprising the NZ Banking
Group has been set by the Board and Risk Committee of either the Bank or the Ultimate Parent Bank, as
appropriate. Likewise oversight and monitoring of material market risk exposures of the NZ Banking Group isundertaken by the Market Risk functions of the Bank and also the Ultimate Parent Bank. Throughout thisdocument, references to the risk management of the operations within the entities comprising the NZ Banking
Group, implicitly involves oversight by both related entities.
Market risk management and control responsibilities
NZ Banking Group-wide responsibility for the strategies and policies relating to the management of market risklies with each Board Risk Committee. Responsibility for day to day management of both market risks andcompliance with market risk policy is delegated by the Risk Committee to the ANZ Credit and Market Risk
Committee ("CMRC") and the Bank Asset & Liability Committee ("ALCO"). The CMRC, chaired by the ANZ Group
Chief Risk Officer, is responsible for traded market risk, while the ALCO, chaired by the NZ Group Chief
Executive Officer, is responsible for non-traded market risk (or balance sheet risk). All committees receive
regular reporting on the range of trading and balance sheet market risks incurred.
Within overall strategies and policies, the control of market risk is the joint responsibility of Business Units andRisk Management, with the delegation of market risk limits from each Board and CMRC allocated to both Risk
Management and the Business Units.
The management of market risk is supported by a comprehensive limit and policy framework to control theamount of risk that the NZ Banking Group will accept. Market risk limits are allocated at various levels and arereported and monitored by Market Risk on a daily basis. The detailed limit framework allocates individual limits
to manage and control asset classes (e.g. interest rates, foreign exchange), risk factors (e.g. interest rates,
volatilities) and P&L limits (to monitor and manage the performance of the trading portfolios).

69

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
These risks are monitored daily against a comprehensive limit framework that includes Value at Risk ("VAR"),aggregate market position and sensitivity, product and geographic thresholds. To facilitate the management,
control, measurements and reporting of market risk, the NZ Banking Group has grouped market risk into two
broad categories:
a. Traded market riskThis is the risk of loss from changes in the value of financial instruments due to movements in price factors
for both physical and derivative trading positions. They arise in trading transactions where the NZ Banking
Group acts as principal with customers, financial exchanges or interbank counterparties. The principal risk
categories monitored are:• Currency risk is the potential loss arising from the decline 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 the change 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 a change in value of an instrument due to a movementof its margin or spread relative to a bench mark.
b. Non-traded market risk (or balance sheet risk)This comprises the management of non-traded interest rate risk, liquidity, and the risk to capital andearnings as a result of foreign exchange rate movements.
Some instruments do not fall into either category but also expose the NZ Banking Group to market risk. These
include equity securities classified as available-for-sale. Regular reviews are performed to substantiate valuationof the investments within this portfolio.
The traded market risk function provides specific oversight of each of the main trading areas and is responsible
for the establishment of a VaR framework and detailed control limits. In all trading areas the NZ Banking Grouphas implemented models that calculate VaR exposures, monitor risk exposures against defined limits on a daily
basis, and ‘stress test’ trading portfolios. The ALCO’s of both the Bank and the ANZ Banking Group provide
monthly oversight of market risk.
The Bank’s Chief Risk Officer is responsible for daily review and oversight of traded market risk reports via a
service level agreement with the Ultimate Parent Bank. The Chief Risk Officers have the authority for
instructing the business to close exposures and withdraw limits where appropriate.
Value at Risk ("VaR") measure
A key measure of market risk is VaR. VaR is a statistical estimate of the likely daily loss and is based on
historical market movements. VaR calculations and limits are prepared separately for ANZ National Bank
Limited and the NZ Branch.
The confidence level is such that there is 97.5% or 99% probability that the loss will not exceed the VaR
estimate on any given day. Conversely there is a 2.5% or 1% probability of the decrease in market value
exceeding the VaR estimate on any given day. The 99% confidence level encompasses a wider range ofpotential outcomes.
The NZ Banking Group's standard VaR approach for both traded and non-traded risk is historical simulation.
The NZ 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 NZ Banking Group could experience from an extreme market event. As a result of thislimitation, the NZ Banking Group utilises a number of other risk measures (e.g. stress testing) and associateddetailed control limits to measure and manage market risk.
Traded and non-traded market risks are considered separately below.

70

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
Traded market risks
Trading activities are focused on customer trading, distribution and underwriting of a range of securities andderivative instruments. The principal activities include foreign exchange, interest rate, and debt markets. These
activities are managed on a global product basis.
Below are aggregate VaR exposures covering both derivative and non-derivative trading positions for the NZ
Banking Group.

Unaudited 31/03/2010

NZ Banking Group
Value at risk at 97.5% confidenceHigh forLow for
Average for
As atperiodperiodperiod$m$m$m$m

NZ Banking Group
Value at risk at 99% confidenceHigh forLow forAs atperiodperiod$m$m$mForeign exchange risk
Interest rate risk
Credit spread risk
Diversification benefit

0.5
2.9
1.2
(1.6)

1.3
3.6
1.2
n/a

0.2
1.7
0.3
n/a

0.6
2.7
0.5
(1.0)

0.7
4.2
1.6
(2.6)

1.9
5.6
1.6
n/a

0.3
2.3
0.4
n/a

0.8
3.9
0.7
(1.4)

Total VaR

3.0

3.7

1.5

2.7

3.9

5.9

2.1

4.0

Foreign exchange risk
Interest rate risk
Credit spread risk
Diversification benefit

0.5
2.4
0.4
(1.0)

1.4
2.8
0.4
n/a

0.2
1.1
0.2
n/a

0.5
1.9
0.3
(0.8)

0.8
2.8
0.6
(1.4)

1.9
4.3
0.6
n/a

0.3
1.7
0.4
n/a

0.7
2.9
0.5
(1.2)

Total VaR

2.3

3.4

1.1

1.9

2.8

4.4

1.7

2.9

Foreign exchange risk
Interest rate risk
Credit spread risk
Diversification benefit

0.4
2.6
0.4
(0.8)

1.4
3.0
0.5
n/a

0.2
1.1
0.2
n/a

0.5
2.0
0.3
(0.8)

0.6
3.5
0.6
(1.2)

1.9
4.9
0.8
n/a

0.3
1.7
0.2
n/a

0.7
3.0
0.5
(1.2)

Total VaR

2.6

3.4

1.1

2.0

3.5

4.6

1.7

3.0

Average for
period$m

Unaudited 31/03/2009

Audited 30/09/2009

VaR is calculated separately for foreign exchange and for interest rate/debt markets businesses as well as forthe overall trading activities of each relevant entity within the NZ Banking Group. The diversification benefit
reflects the historical correlation between these products.
To supplement the VaR methodology, the NZ Banking Group applies a wide range of stress tests, both onindividual portfolios and for the overall trading activities of each relevant entity within the NZ Banking Group.
The NZ Banking Group's stress-testing regime provides senior management with an assessment of the financial
impact of identified extreme events on market risk exposures of the NZ Banking Group.
Non-traded market risks (balance sheet risk)
The principal objectives of balance sheet management are to manage interest income sensitivity while
maintaining acceptable levels of interest rate and liquidity risk and to manage the market value of the NZ
Banking Group’s capital. Liquidity risk is dealt with later in the next section.
Interest rate risk
The objective of balance sheet interest rate risk management is to mitigate the negative impact of movements
in wholesale interest rates on the earnings of the NZ Banking Group's banking book. Non-traded interest raterisk relates to the potential adverse impact to earnings principally from changes in swap 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 NZ Banking Group has additional risks from fixed rate mortgage
prepayments and basis risk where:•
Prepayment risk is the potential risk to earnings or market value from when a customer prepays all or partof a fixed rate mortgage and where any customer fee charged is not sufficient to offset the loss in value to
the NZ 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 through to customers in line with their terms andconditions and relevant legislation.
•
Basis risk is the potential risk to earnings or market value from differences between customer pricing andwholesale 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.

71

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)a) VaR non-traded interest rate risk
Below are aggregate VaR figures covering non-traded interest rate risk.
NZ Banking GroupHigh forLow forperiodperiod$m$m

Average for
period$m

Unaudited 31/03/2010

As at
$m

Value at risk at 97.5% confidence

20.1

25.0

19.9

21.9

21.0

21.0

12.4

14.6

22.4

22.9

18.9

20.9

Unaudited 31/03/2009
Value at risk at 97.5% confidence
Audited 30/09/2009
Value at risk at 97.5% confidence

To supplement the VaR methodology, the NZ Banking Group applies a wide range of stress tests, both onindividual portfolios and for the overall trading activities of each material entity within the NZ Banking Grouplevel. The NZ 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 NZ Banking Group.
b) Scenario analysis – A 1% shock on the next 12 months’ net interest income
A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net
interest income over the succeeding 12 months. This is a standard risk quantification tool.
The figures in the table below indicate the outcome of this risk measure for the current and comparative periods– expressed as a percentage of reported net interest income. The sign indicates the nature of the rate sensitivity
with a positive number signifying that a rate increase is positive for net interest income over the next 12months. Conversely, a negative number signifies that a rate increase is negative for the next 12 months’ netinterest income.
NZ Banking Group
Unaudited
Unaudited
31/03/2010
31/03/2009
Impact of 1% Rate Shock
As at
Maximum exposure
Minimum exposure
Average exposure (in absolute terms)

1.4%
1.6%
0.1%
0.6%

0.1%
0.7%
0.0%
0.3%

Audited30/09/2009
0.2%
0.6%
-0.1%
0.3%

The extent of mismatching between the repricing characteristics and timing of interest bearing assets andliabilities at any point has implications for future net interest income. For relevant entities within the NZ Banking
Group, quantification of the potential variation in future net interest income as a result of these repricing
mismatches is performed each month using a static gap model.
The repricing gaps themselves are constructed based on contractual repricing information. However, for thoseassets and liabilities where the contractual term to repricing is not considered to be reflective of the actualinterest rate sensitivity (for example, products priced at the NZ Banking Group’s discretion), a profile based on
historically observed and/or anticipated rate sensitivity is used. This treatment excludes the effect of basis risk
between customer pricing and wholesale market pricing.
A separate balance sheet simulation process supplements the static gap information. This allows the net interest
income outcomes of a number of different scenarios – with different market interest rate environments andfuture balance sheet structures – to be identified. This better enables the NZ Banking Group to quantify theinterest rate risks associated with the balance sheet and to formulate strategies to manage current and futurerisk profiles.
Interest rate sensitivity gap
The interest rate sensitivity gap analysis provides information about the NZ Banking Group's exposure tointerest rate risk.

72

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
Repricing gaps are based upon contractual repricing information except where the contractual terms are notconsidered to be reflective of actual interest rate sensitivity, for example, those assets and liabilities priced at
the NZ Banking Group’s discretion. In such cases, the rate sensitivity is based upon historically observed and/or
anticipated rate sensitivity. This treatment excludes the effect of basis risk between customer pricing andwholesale market pricing.
Sensitivity to interest rates arises from mismatches in the period to repricing of assets and that of thecorresponding liability funding. These mismatches are managed within policy guidelines for mismatch positions.
The majority of the NZ Banking Group's loan business is conducted domestically in New Zealand. The majorityof retail deposits are also raised in New Zealand but are either fixed or floating in nature. The mix of repricing
maturities in this book is influenced by the underlying financial needs of customers.
The NZ Banking Group's offshore operations are wholesale in nature and are able to minimise interest ratesensitivity through closely matching the maturities of loans and deposits. Given both the size and nature of thisbusiness, the interest rate sensitivity of this balance sheet contributes little to the aggregate risk exposure,which is primarily a reflection of the positions in New Zealand.
A combination of off-balance sheet instruments and pricing initiatives is used in the management of interest raterisk. For example, where a strong medium to long term rate view is held, hedging and pricing strategies areused to modify the profile's interest rate sensitivity so that it is positioned to take advantage of the expectedmovement in interest rates. However, such positions are taken within the overall risk limits specified by NZ
Banking Group policy.
The following tables represent the interest rate sensitivity of the NZ Banking Group's assets, liabilities and offbalance sheet instruments repricing (that is, when interest rates applicable to each asset or liability can bechanged) in the periods shown.

73

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)

74

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)

75

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)

Equity price risk
The portfolio of financial assets, classified as available-for-sale for measurement and financial reporting
purposes, also 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 31 March 2010 was $96 million (31/03/2009 $71
million; 30/09/2009 $71 million). Regular reviews are performed to substantiate valuation of the investments
within the portfolio. The fair value of the equity securities classified as available-for-sale can fluctuateconsiderably. A 10 per cent reduction in the value of the available-for-sale equity securities at 31 March 2010
would have reduced equity by $10 million (31/03/2009 $7 million; 30/09/2009 $7 million).

76

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
Foreign currency related risksThis risk relates to the potential loss arising from the decline in the value of foreign currency positions due tochanges in foreign exchange rates.
For non-traded instruments in foreign currencies, the risk is monitored and is hedged in accordance with policy.
Risk arising from individual funding and other transactions is actively managed. The total amounts of unmatchedforeign currency assets and liabilities and consequent foreign currency exposures, arising from each class offinancial asset and liability, whether recognised or unrecognised, within each currency are not material.
The net open position in each foreign currency, detailed in the table below, represents the net on-balance sheet
assets and liabilities in that foreign currency aggregated with the net expected future cash flows from offbalance sheet purchases and sales from foreign exchange transactions in that foreign currency. The amounts
are stated in New Zealand dollar equivalents translated using the spot exchange rates as at balance sheet date.

Net open position
Australian dollar
Canadian dollar
Swiss FrancEuro
Pound sterling
US dollar
Other
Total net open position

NZ Banking Group
Unaudited
Unaudited
Audited31/03/2010
31/03/2009
30/09/2009
$m
$m
$m

Unaudited
31/03/2010$m

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009
$m

26
(1)
6
11
(42)
4

27
3
(4)
9
1
(4)
-

2
(1)
2
(1)

-

-

1
-

4

32

2

-

-

1

LIQUIDITY RISK
Liquidity risk is the risk that the NZ Banking Group has insufficient capacity to fund increases in assets or isunable to meet its payment obligations as they fall due, including repaying depositors or maturing wholesale
debt. The timing mismatch of cash flows and the related liquidity risk is inherent in all banking operations and isclosely monitored by the NZ Banking Group.
The NZ Banking Group’s liquidity and funding risks are governed by a detailed policy framework which isapproved by the Risk Committee of the Board of Directors. The core objective of the NZ Banking Group’s
framework is to manage liquidity to meet obligations as they fall due, without incurring unacceptable losses. In
response to the impact of the global financial crisis, the framework has been reviewed and updated.
Central to the NZ Banking Group’s liquidity risk management approach is the establishment of a liquidity risk
appetite framework to which the NZ Banking Group must conform at all times. The risk appetite for liquidity has
been set as low, and this objective is achieved by the NZ Banking Group managing liquidity risks within theboundaries of the following requirements and principles:
•
•
•
•
•
•
•
•
•

Maintaining the ability to meet all payment obligations in the immediate term.
Ensuring the ability to meet "survival horizons" under a range of ANZ specific and general market liquidity
stress scenarios.
Maintaining strength in the NZ Banking Group’s balance sheet structure to ensure long term resilience in the
NZ Banking Group’s liquidity and funding risk profile.
Limiting the potential earnings at risk implications associated with unexpected increases in funding costs or
the liquidation of assets under stress.
Ensuring the liquidity management framework is compatible with regulatory requirements.
Daily liquidity reporting and scenario analysis, quantifying the NZ 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 to protect against adverse funding conditions and to support
day-to-day operations.
Establishing detailed contingency plans to cover different liquidity crisis events.

Management of liquidity and funding risks are overseen by the Asset and Liability Committee ("ALCO").

77

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
Scenario Modelling
A key component of the NZ Banking Group’s liquidity management framework is scenario modelling. Liquidity isassessed under different scenarios, including "going-concern" and "name-crisis" and various "survival horizons".
"Going-concern": reflects the normal behaviour of cash flows in the ordinary course of business. The NZ
Banking Group must be able to meet all commitments and obligations under a going concern scenario, within
the NZ Banking Group normal funding capacity (‘available to fund’ limit), over at least the following 30 calendardays.
In estimating the funding requirement, the NZ Banking Group models expected cash flows by reference tohistorical behaviour and contractual maturity data. As of 31 March 2010 the NZ Banking Group was incompliance with this scenario.
"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 the solvency of the NZ Banking Group or adverse rating changes.
Under this scenario the NZ Banking Group may have significant difficulty rolling over or replacing funding. Under
the liquidity policy the NZ Banking Group must be cash flow positive over an eight calendar day period. As of 31
March 2010 the NZ Banking Group was in compliance with this scenario.
"Survival horizons": The global financial crisis has highlighted the importance of differentiating between stressedand normal market conditions in a name-specific crisis and the different behaviour that offshore and domestic
wholesale funding markets can exhibit during market stress events. As a result, the NZ Banking Group has
recently enhanced its liquidity risk scenario modelling.
The NZ Banking Group has linked its liquidity risk
appetite to defined liquidity "survival horizons" (i.e. the time period under which the NZ Banking Group must
maintain a positive cash flow position). The following stressed scenarios are modelled:•••

Extreme Short Term Crisis Scenario ("ESTC"): A name-specific stress during a period of market stress.
Short Term Crisis Scenario ("NSTC"): A name-specific stress during a period of normal markets conditions.
Global Funding Market Disruption ("GFMD"): Stressed global wholesale funding markets leading to a closureof domestic and offshore markets.
•
Offshore Funding Market Disruption ("OFMD"): Stressed global wholesale funding markets leading to a
closure of offshore markets only.
As of 31 March 2010 the NZ Banking Group was in compliance with this scenario.
NZ Banking Group Funding Composition
The NZ Banking Group actively uses balance sheet disciplines to prudently manage the funding mix. The NZ
Banking Group employs funding metrics to ensure that an appropriate proportion of the Group’s 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.

78

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
The table below outlines total NZ Banking Group volumes of customer deposits and wholesale funding:Funding composition

NZ Banking Group
Unaudited
Unaudited
Audited31/03/2010
31/03/2009
30/09/2009
$m
$m
$m

Unaudited
31/03/2010$m

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009$m

Customer deposits1
New ZealandOverseas

51,8307,440

52,127
7,435

52,065
7,866

-

-

-

Total customer deposits

59,27059,56259,931---Wholesale funding
Bonds and notes
Loan capital
Certificates of deposit
Commercial paper
Term funding
Due to other financial institutions

18,004
2,641
3,950
7,416
1,766
11,941

23,620
2,835
7,054
6,144
1,766
8,911

17,540
2,596
4,441
7,392
1,766
12,514

10,614

4,751

8,801

Total wholesale funding

45,71850,33046,24910,614

4,751

8,801

Total funding

104,988

109,892

106,180

10,614

4,751

8,801

Concentrations of funding by industry
Households
Agriculture, forestry and fishing
ManufacturingEntertainment, leisure and tourism
Finance and insurance
Retail trade
Wholesale trade
Business and property services
Transport and storage
Construction
Government and local authority
Other237,824
3,503
1,539
666
51,886
783
850
4,020
586
732
1,561
1,038

37,491
4,186
1,419
625
56,698
768
690
4,082
480
743
1,752
958

37,738
3,872
1,354
573
53,468
753
602
3,960
614
736
1,548
962

10,614
-

4,751
-

8,801
-

Total concentrations of funding by industry

104,988

109,892

106,180

10,614

4,751

8,801

Concentrations of funding by geography3
New ZealandUnited States
EuropeOther countries

60,55017,167
7,638
19,63365,356
21,4407,476
15,62061,612
17,031
7,511
20,026

10,614

4,751

8,801

Total concentrations of funding by geography

104,988

109,892

106,180

10,614

4,751

8,801

Analyses of funding liabilities by industry sector are based on Australian and New Zealand Standard Industrial
Classification ("ANZSIC") codes.
12
3

Represents: term deposits, demand deposits bearing interest, deposits not bearing interest and secured debenture stock.
Other includes exposures to electricity, gas and water, communications, and personal services.
Funding of the NZ Banking Group via ANZ National (Int'l) Limited is classified as either from the United States or Europe, as the company conducts overseas
funding activities through its London branch.

79

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
Wholesale funding
The NZ Banking Group’s wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale
funds that balances cost efficiency while targeting diversification by markets, investors, currencies, maturities
and funding structures. Short-term wholesale funding requirements, with a contractual maturity of less than one
year, are managed through the Treasury and Markets operations. Long-term wholesale funding is managed andexecuted through Treasury operations.
The NZ Banking Group also uses maturity concentration limits under the wholesale funding and liquidity
management framework. Funding instruments used to meet the wholesale borrowing requirement must be on apre-established list of approved products.
Funding capacity and debt issuance planning
Under the normal business conditions scenario, borrowing capacity is an estimate of the amount of funding thatcan be raised in the wholesale markets in normal market conditions. The NZ Banking Group adopts a
conservative approach to determine its funding capacity. Funding capacity limits are determined at the Ultimate
Parent Bank level and allocated to individual sites based on their requirements.
Annually, a Funding Plan is ratified by the NZ Banking Group’s Senior Management. The plan is supplemented
by monthly updates, and is linked to the NZ Banking Group’s three year strategic planning cycle.
Liquidity portfolio management
The NZ Banking Group holds a diversified portfolio of cash and high-quality highly-liquid securities that may besold or pledged to provide same day liquidity.
The size of the NZ Banking Group’s liquidity portfolio is based on the amount of liquidity required to meet theliquidity policy.
Assets held for managing liquidity risk include short term cash held with the RBNZ, New Zealand government
securities, securities issued by supranational agencies and securities issued by highly rated banks. These assets
are accepted as collateral by the RBNZ in repurchase transactions. The post-"haircut" value of these assets at
31 March 2010 was $10,524 million. The NZ Banking Group also held unencumbered Internal RMBS with apost-"haircut" value of $5,079 million (from 1 April 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 NZ Banking Group maintains liquidity crisis contingency plans defining an approach for analysing andresponding to a liquidity-threatening event at a NZ Banking Group-wide basis. The framework includes:•
the establishment of crisis severity/stress levels;•
clearly assigned crisis roles and responsibilities;•
early warning signals indicative of an approaching crisis, and mechanisms to monitor and report thesesignals;•
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.
Contractual maturity analysis of financial assets and liabilities
The tables below analyse the NZ Banking Group's financial assets and liabilities, within relevant maturity
groupings based on the earliest date on which the NZ Banking Group may be required to pay. The amounts
represent undiscounted principal and interest cash flows and may differ to the amounts reported on the balance
sheet.
The analysis, by remaining contractual maturities at balance date, of financial assets and liabilities represents
the estimated obligation date expected for the asset and liability to be recovered or settled within one year, andgreater than one year.

80

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
Contractual maturity analysis for financial assets and financial liabilities, including expected interest to maturity:

1. Other financial assets in the table above include investments related to insurance business.

81

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)

1. Other financial assets in the table above include investments related to insurance business.

82

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
29. FINANCIAL RISK MANAGEMENT (Continued)
NZ Branch
3 to 12months$m

1 to 5 years
$m

Total
$m

At call$mLess than
3 months$m

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

30
4,754
204
25
3,525

11
-

45
193
25
92

116
247

631
991

3,962
2,195

30
-

Total

8,538

11

355

363

1,622

6,157

30

Liabilities
Due to other financial institutions
Deposits and other borrowings
Due to subsidiary companies
Derivative financial instruments
Other financial liabilities
Bonds and notes
Term funding
Loan capitalInterest

4,751
250
482

-

401
56

750
103

3,600
323

-

250
-

Total

5,483

-

457

853

3,923

-

250

Total
$m

At call$mLess than
3 months$m

NZ Branch
3 to 12months$m

1 to 5 years$m

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

34
8,774
341
7,549

-

26
341
162

204
439

1,102
1,959

7,442
4,989

34
-

Total

16,698

-

529

643

3,061

12,43134

Liabilities
Due to other financial institutions
Deposits and other borrowings
Due to subsidiary companies
Derivative financial instruments
Other financial liabilities
Bonds and notes
Term funding
Loan capitalInterest

8,801
254
41
1,232

-

679
41
66

1,272
278

6,400
882

450
6

254
-

Total

10,328

-

786

1,550

7,282

456

254

Unaudited 31/03/2009

Audited 30/09/2009

Beyond No maturity
5 years
specified$m$m

Beyond No maturity
5 years
specified$m$m

30. CONCENTRATIONS OF CREDIT RISKThe NZ Banking Group has no credit exposures, on the basis of limits, to individual counterparties or groups ofclosely related counterparties (whether bank or non-bank exposures) which equal or exceed 10% of theOverseas Banking Group's equity as at 31 March 2010, 31 March 2009 or 30 September 2009, or in respect ofpeak end-of-day aggregate credit exposures for the quarter ended 31 March 2010. The peak end-of-day
exposures have been calculated using the Overseas Banking Group equity as at 31 March 2010. These
calculations exclude credit exposures to the central government of any country with a long term credit rating of
A- or A3 or above, or its equivalent.
31. INTEREST EARNING AND DISCOUNT BEARING ASSETS AND LIABILITIESNZ Banking Group
Unaudited
Unaudited
31/03/2010
31/03/2009$m$m

Audited30/09/2009$m

Unaudited
31/03/2010$m

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009$mInterest earning and discount bearing assets

107,958

110,811

109,699

10,517

4,768

9,114

Interest and discount bearing liabilities

100,093

106,001

101,741

10,614

4,751

8,801

83

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
32. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIESFair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable,
willing parties in an arm’s length transaction. The determination of the fair value of financial instruments isfundamental to the financial reporting framework as all financial instruments are recognised initially at fair value
and, with the exception of those financial instruments carried at amortised cost, are remeasured at fair value insubsequent periods.
The fair value of a financial instrument on initial recognition is normally the transaction price, however, incertain circumstances the initial fair value may be based on other observable current market transactions in thesame instrument, without modification or repackaging, or on a valuation technique whose variables include only
data from observable markets.
Subsequent to initial recognition, the fair value of financial instruments measured at fair value is based onquoted market prices, where available. In cases where quoted market prices are not available, fair value isdetermined using market accepted valuation techniques that employ observable market data. In limited cases
where observable market data is not available, the input is estimated based on other observable market data,
historical trends and other factors that may be relevant.
A significant number of financial instruments are carried at fair value in the balance sheet. Below is acomparison of the carrying amounts, as reported on the balance sheet, and fair values of all financial assets andliabilities. The fair value disclosure does not cover those instruments that are not considered financial
instruments from an accounting perspective such as income tax and intangible assets. The aggregate fair value
amounts do not represent the underlying value of the NZ Banking Group.
In the tables below, classes of financial assets have been allocated based on their accounting treatment. The
significant accounting policies in Note 1 describe how the categories of financial assets and financial liabilities
are measured and how income and expenses, including fair value gains and losses, are recognised.
Financial asset classes have been allocated into the following groups: amortised cost; financial assets at fairvalue through profit or loss; derivatives in effective hedging relationships; and available-for-sale financial
assets. Similarly, each class of financial liability has been allocated into three groups: amortised cost; financial
liabilities at fair value through profit or loss; and derivatives in effective hedging relationships.
The fair values are based on relevant information available as at the respective balance sheet dates and havenot been updated to reflect changes in market conditions after the balance sheet date.
FINANCIAL ASSETS
Liquid assets and due from other financial institutions
The carrying values of these financial instruments where there has been no significant change in credit risk areconsidered to approximate their net fair values as they are short-term in nature or are receivable on demand, orwhen longer term in nature, fair value is based on quoted market prices.
Trading securities
Trading securities are carried at fair value. Fair value is generally based on quoted market prices, broker ordealer price quotations, or modelled valuations using prices for securities with similar credit risk, maturity andyield characteristics.
Derivative financial instruments
Derivative financial instruments are carried at fair value. The fair values of derivative financial instruments are
determined using market prices and market accepted valuation models as appropriate (including discounted
cash flow models) based on current market yields for similar types of instruments and the maturity of each
instrument.
Available-for-sale assets
Fair value is based on quoted market prices or broker or dealer price quotations. If this information is notavailable, fair value is estimated using quoted market prices for securities with similar credit, maturity and yieldcharacteristics, or market accepted valuation models as appropriate (including discounted cash flow models)
based on current market yields for similar types of instruments and the maturity of each instrument.

84

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
32. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Continued)
Net loans and advances
The carrying value of loans and advances includes deferred fees and expenses, and is net of provision for credit
impairment and income yet to mature.
Fair value has been determined through discounting future cash flows. For fixed rate loans and advances, thediscount rate applied incorporates changes in wholesale market rates, the NZ Banking Group’s cost of wholesalefunding and movements in customer margin. For floating rate loans, only changes in wholesale market rates
and the NZ Banking Group’s cost of wholesale funding are incorporated in the discount rate. For variable rateloans where the NZ Banking Group sets the applicable rate at its discretion, the fair value is set equal to thecarrying value.
The difference between estimated fair values for loans and advances and their carrying value reflects changes ininterest rates and the credit worthiness of borrowers since loan origination.
Other financial assets
Included in this category are accrued interest and fees receivable. The carrying values of accrued interest andfees receivable are considered to approximate their net fair values as they are short term in nature or are
receivable on demand.
Financial assets designated at fair value through profit or loss
The NZ Banking Group has not reclassified any financial assets previously measured at amortised cost to fairvalue, or previously measured at fair value to amortised cost, during the period ended 31 March 2010
(31/03/2009 $nil; 30/09/2009 $nil).
FINANCIAL LIABILITIESDue to other financial institutions
The carrying value of short term financial instruments is their net fair value, or when longer term in nature, fairvalue is based on quoted market prices, or for those debt issues where quoted market prices were not available,
a discounted cash flow model using a yield curve appropriate for the remaining term to maturity of the debt
instrument is used.
Deposits and other borrowings
For interest bearing fixed maturity deposits and other borrowings with quoted market prices, market borrowing
rates of interest for debt with a similar maturity are used to discount contractual cash flows. The fair value of adeposit liability without a specified maturity or at call is deemed to be the amount payable on demand at thereporting date. The fair value is not adjusted for any value expected to be derived from retaining the deposit
for a future period of time.
Financial liabilities designated at fair value through profit or loss
Certain items included in deposits and other borrowings have been designated as financial liabilities at fair value
through profit or loss in order to eliminate an accounting mismatch which would arise if the liabilities wereotherwise carried at amortised cost. This mismatch arises where a derivative, which is required to be measured
at fair value through profit or loss, has been acquired to mitigate a financial risk within the financial liability.
At balance date, the carrying amount of deposits and other borrowings designated by the NZ Banking Group at
fair value through profit or loss was $7,416 million (31/03/2009 $6,144 million; 30/09/2009 $7,392 million).
This is $1 million higher (30/09/2009 $9 million higher; 30/09/2009 $4 million higher) than their amortised
cost.
The accumulated amount of the change in fair value attributable to changes in credit risk on these liabilities wasless than $3 million (31/03/2009 less than $3 million; 30/09/2009 less than $3 million).The change in fair value
attributable to changes in credit risk has been determined as the amount of change in fair value that is not
attributable to changes in market conditions that give rise to market risks (benchmark interest rate, and foreignexchange rates).
Bonds and notes, term funding and loan capital
The aggregate fair value of bonds and notes and loan capital is calculated based on quoted market prices. For
those debt issues where quoted market prices were not available, a discounted cash flow model using a yield
curve appropriate for the remaining term to maturity of the debt instrument is used.
Payables and other financial liabilities
This category includes accrued interest and fees payable for which the carrying amount is considered toapproximate the fair value.
85

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
32. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Continued)
Commitments and contingencies
As outlined in the Contingent Liabilities and Credit Related Commitments note, the NZ Banking Group hasvarious credit related commitments. Based upon the level of fees currently charged for granting suchcommitments, taking into account maturity and interest rates, together with any changes in thecreditworthiness of counterparties since origination of the commitments, their estimated replacement or net fairvalue is not material.
VALUATION METHODOLOGY
A significant number of financial instruments are carried on the balance sheet at fair value. The NZ Banking
Group has implemented controls that ensure that the fair value is either determined, or validated, by a function
independent of the party that undertakes the transaction.
The best evidence of fair value is a quoted price in an active market. Accordingly, wherever possible fair value
is based on quoted market prices for the financial instrument. The net position of non-derivative financial
instruments with offsetting market risks and all derivative portfolios, are valued at the quoted bid price forassets and the quoted ask price for liabilities. The quoted market price is not adjusted for any potential impactthat may be attributed to a large holding of the financial instrument.
Where quoted market prices are used, independent price determination or validation is utilised. The results of
independent validation processes are reported to senior management, and adjustments to the fair values are
made as appropriate.
In the event that there is no quoted market price for the instrument, fair values are based on present value
estimates or other market accepted valuation techniques which include data from observable markets wherever
possible. The majority of valuation techniques employ only observable market data however, for certain
financial instruments the fair value cannot be determined in whole with reference to current market transactions
or valuation techniques whose variables only include data from observable markets. In respect of the valuation
component where market observable data is not available, the fair value is determined using valuation
techniques based on data derived and extrapolated from market data and tested against historic transactions
and observed market trends.
The valuation models incorporate the impact of the bid/ask spread, counterparty credit spreads and otherfactors that would influence the fair value determined by a market participant.
For fair values determined using a valuation model, the control framework may include, as applicable,
independent development or validation of: (i) valuation models; (ii) any inputs to those models; and (iii) any
adjustments required outside of the valuation model, and, where possible, independent validation of model
outputs.

86

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
32. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Continued)

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

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 financial assets within net loans and advances. The resulting fair value adjustment means that the carrying value differs from theamortised cost.

87

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
32. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Continued)

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

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 financial liabilities within bonds and notes. The resulting fair value adjustment means that the carrying value differs from theamortised cost.

88

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
32. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Continued)
NZ Branch

At amortised cost

At fair value
thoughprofit or loss

Hedging$m

Held fortrading
$m

$m

Total
$m

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Net loans and advances2
Due from related entities
Other financial assets

10,029
504
-

354
-

10
-

364
10,029504-

Total financial assets

10,533354

10

10,897

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Net loans and advances2
Due from related entities
Other financial assets

4,754
204
25

1
-

29
-

30
4,754
204
25

Total financial assets

4,983

1

29

5,013

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Net loans and advances2
Due from related entities
Other financial assets

8,774
341
-

3
-

31
-

34
8,774
341
-

Total financial assets

9,115

3

31

9,149

Carrying amountFinancial assets
Unaudited 31/03/2010

Unaudited 31/03/2009

Audited 30/09/2009

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

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 financial assets within net loans and advances. The resulting fair value adjustment means that the carrying value differs from theamortised cost.

89

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
32. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Continued)

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

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 financial liabilities within bonds and notes. The resulting fair value adjustment means that the carrying value differs from theamortised cost90

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
32. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Continued)
The table below provides an analysis of the methodology used for valuing financial assets and financial liabilities
that are required to be remeasured at fair value. The fair value of the financial instrument has been allocated infull to the category which most accurately reflects the determination of the fair value.
All shares share equally in dividends and any proceeds available to ordinary shareholders on winding up of theBank. On a show of hands every member who is present at a meeting in person or by proxy or byrepresentative is entitled to one vote, and upon a poll every member shall have one vote for each share held.
Valuation techniqueUsingobservable
inputs$m

Using significant
non-observable
inputs
$m

Total
$m

-

3,188
69
9,084
38

139
-

1,807
6,366
1,850
9,087
38

6,630

12,379139

19,148Financial liabilities
Derivative financial instruments
Commercial paper

46
-

9,063
7,416

-

9,109
7,416

Total financial liabilities

46

16,479-16,525

Unaudited 31/03/2009
NZ Banking Group
Financial assets
Due from other financial institutions
Trading securities
Available-for-sale assets
Derivative financial instruments

4,269
719
518
96

1,846
79
14,976

-

4,269
2,565
597
15,072

Total financial assets

5,602

16,901-

22,503Financial liabilities
Derivative financial instruments
Commercial paper

11-13,0696,144-

13,0806,144

Total financial liabilities

11

19,213-

19,224

Audited 30/09/2009
NZ Banking Group
Financial assets
Due from other financial institutions
Trading securities
Available-for-sale assets
Derivative financial instruments

2,736
1,261
1,413
45

2,905
100
10,970

-

2,736
4,166
1,513
11,015

Total financial assets

5,455

13,975-

19,430Financial liabilities
Derivative financial instruments
Commercial paper

2-10,972
7,392-

10,974
7,392

Total financial liabilities

2

18,364-

18,366

Unaudited 31/03/2010
NZ Banking Group
Financial assets
Due from other financial institutions
Trading securities
Available-for-sale assets
Derivative financial instruments
Investments relating to insurance businessTotal financial assets

Quoted market
price
$m
1,807
3,178
1,642
3

91

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
32. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Continued)
The NZ Banking Group holds investments in certain unlisted collateralised debt obligations and other similar
assets which are valued using broker quotes and other valuation methods that rely on significant non observable
inputs. The movements in these balances across the period were:

The table below provides an analysis of the methodology used for valuing financial assets and financial liabilities
that are required to be remeasured at fair value for the NZ Branch.

Unaudited 31/03/2010
NZ Branch
ParentFinancial assets

Quoted market
price
$m

Valuation techniqueUsing
Using significant
observable
non-observable
inputsinputs
$m
$m

Total
$m

Trading securities
Available-for-sale assets
Derivative financial instruments

-

364

-

364

Total financial assets

-

364

-

364

Derivative financial instruments

-

75

-

75

Total financial liabilities

-

75

-

75

Trading securities
Available-for-sale assets
Derivative financial instruments

-

30

-

30

Total financial assets

-

30

-

30

Derivative financial instruments

-

250

-

250

Total financial liabilities

-

250

-

250

Trading securities
Available-for-sale assets
Derivative financial instruments

-

34

-

34

Total financial assets

-

34

-

34

Derivative financial instruments

-

254

-

254

Total financial liabilities

-

254

-

254

Financial liabilities

Unaudited 31/03/2009
NZ Branch
Financial assets

Financial liabilities

Audited 30/09/2009
NZ Branch
Financial assets

Financial liabilities

92

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
33. SEGMENTAL ANALYSIS
For segment reporting purposes, the NZ Banking Group is organised into three major business segments Retail, Commercial and Institutional. Centralised back office and corporate functions support these segments.
The segments and products and services categories as reported below are consistent with internal reporting
provided to the chief operating decision maker, being the Chief Executive Officer.
As the composition of segments has changed over time, prior period comparatives have been adjusted to beconsistent with the 2010 segment definitions.
A summarised description of each business segment is shown below:
RetailProvides banking products and services to individuals and small businesses through separate ANZ and The
National Bank of New Zealand branded distribution channels. Personal banking customers have access to a wide
range of financial services and products. Small business banking services are offered to enterprises with annual
revenues of less than $5 million. Included in this segment is Private Banking, a stand-alone business unit, which
offers a fully inclusive banking and investment service to high net worth individuals. This segment also includes
ING and profit centres supporting the Retail Banking segment .
Commercial
This segment provides services to Rural, Corporate and Commercial and UDC customers. A full range of banking
products and services are provided to Rural customers. Corporate and Commercial customers consist of
primarily privately owned medium to large businesses with annual revenues of $2 million and greater. The NZ
Banking Group's relationship with these businesses ranges from simple banking requirements with revenue from
deposit and transactional facilities, and cash flow lending, to more complex funding arrangements with revenue
sourced from a wider range of products. UDC is primarily involved in the financing and leasing of plant, vehicles
and equipment, primarily for small and medium sized businesses, as well as investment products.
Institutional
Institutional provides financial services to large multi-banked corporates, often global, who require sophisticatedproduct and structuring solutions. The Institutional business unit includes the following specialised units:•••

Markets - provides foreign exchange and commodity trading and sales-related services, origination,
underwriting, structuring, risk management and sale of credit and derivative products globally.
Transaction Banking - provides cash management, trade finance, international payments, clearing andcustodian services.
Specialised Lending - provides origination, credit analysis, structuring and execution of specific customertransactions.

Other
Includes Treasury and back office support functions, none of which constitutes a separately reportable segment.

93

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
33. SEGMENTAL ANALYSIS (Continued)
BUSINESS SEGMENT ANALYSIS1,2

Retail Banking4$m

NZ Banking Group
Commercial
Banking
Institutional
$m
$m

Other
$m

Total
$m

Unaudited 31/03/2010
External interest income
External interest expense
Net intersegment interest

1,913
(685)
(658)

1,122
(173)
(566)

65
(208)
367

(28)
(859)
857

3,072
(1,925)-

Net interest income

570

383

224

(30)

1,147

Other external operating income
Share of profit of equity accounted associates
and jointly controlled entities

197

51

96

41

386

35

-

-

1

36

Operating income

802

434

320

12

1,569

Other external expenses
Net intersegment and related party expenses3

286
227

82
59

48
28

293
(275)

710
39

Operating expenses

513

141

76

18

748

Profit before provision for credit impairment and income tax

289

293

244

(6)

821

Provision for credit impairment

143

208

(26)

-

325

Profit before income tax

146

85

270

(6)

496

Income tax expense

51

26

78

(46)

108

Profit after income tax

95

59

192

40

387

4

1

-

20

25

1,138
283
55,81439,2911,052
936,901
10,142

1,072
2
56
30,626
26,639588
16440,046

3,262
298
144
123,504
116,119

Other
$m

Total
$m

(28)
(1,155)
1,137

4,233
(3,047)-

Non-cash expenses
Depreciation and amortisation
Balance sheet
Goodwill
Intangible assets
Share in associates and jointly controlled entities
Total external assets
Total external liabilities

4

Retail Banking$m

NZ Banking Group
Commercial
Banking
Institutional$m$m

Unaudited 31/03/2009
External interest income
External interest expense
Net intersegment interest

2,332(1,051)
(697)

1,514
(322)
(796)

414
(520)
356

Net interest income

584

397

251

(46)

1,186

Other external operating income
Share of profit of equity accounted associates
and jointly controlled entities

84

49

191

107

431

7

-

-

1

8

Operating income

674

446

442

63

1,625

Other external expenses
Net intersegment and related party expenses3

246
220

82
54

54
27

316
(261)

698
41

Operating expenses

467

136

81

56

739

Profit before provision for credit impairment and income tax

208

310

361

7

886

Provision for credit impairment

137

120

32

-

288

Profit before income tax

71

190

329

7

598

Income tax expense

19

57

96

4

176

Profit after income tax

51

133

233

3

421

Non-cash expenses
Depreciation and amortisation

6

1

1

17

24

1,138
40
253
55,65943,632

1,052
537,696
11,2961,072
5
65
35,93034,5888
78
3,687
35,939

3,262
59
396
132,972
125,455

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

1.
Results are equity standardised.
2.
Intersegment transfers are accounted for and determined on an arm's length or cost recovery basis.
3.
Net intersegment expenses are eliminated at the Overseas Bank level.
4.
Includes a loss of $82 million (30/9/2009 nil; 31/3/2009 nil) on acquisition of ING NZ and a charge of $nil (30/9/2009 $211 million; 31/3/2009: $166 million) in
relation to ING New Zealand Funds.

94

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
33. SEGMENTAL ANALYSIS (Continued)
BUSINESS SEGMENT ANALYSIS1,2

Retail Banking4$m

NZ Banking Group
Commercial
Banking
Institutional
$m
$m

Other
$m

Total
$m

Audited 30/09/2009
External interest income
External interest expense
Net intersegment interest

4,405(1,775)(1,470)

2,697
(533)
(1,399)

438
(731)
759

(61)
(2,142)
2,110

7,479
(5,181)-

Net interest income

1,161

765

465

(93)

2,298

280

99

300

(11)

667

Other external operating income
Share of profit of equity accounted associates
and jointly controlled entities

13

-

(2)

3

13

1,453

863

763

(101)

2,978

Other external expenses
Net intersegment and related party expenses3

486
463

160
113

111
56

631
(540)

1,388
91

Operating expenses

948

273

167

90

1,479

Operating income

Profit before provision for credit impairment and income tax

505

590

596

(191)

1,499

Provision for credit impairment

368

419

96

-

883

Profit before income tax

136

171

500

(191)

616

Income tax expense

36

51

144

192

422

Profit after income tax

100

121

356

(384)

194

Non-cash expenses
Depreciation and amortisation

11

2

2

35

50

1,138
45
329
55,46438,962

1,052
937,574
10,5101,072
2
61
31,021
38,659474
2,254
30,868

3,262
61
466
126,314
118,985

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

1.
Results are equity standardised.
2.
Intersegment transfers are accounted for and determined on an arm's length or cost recovery basis.
3.
Net intersegment expenses are eliminated at the Overseas Bank level.
4.
Includes a loss of $82 million (30/9/2009 nil; 31/3/2009 nil) on acquisition of ING NZ and a charge of $nil (30/9/2009 $211 million; 31/3/2009: $166 million) in
relation to ING New Zealand Funds.

95

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
34. NOTES TO THE CASH FLOW STATEMENTS

1.

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

96

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
35. SIGNIFICANT CONTROLLED ENTITIES, ASSOCIATES AND INTERESTS IN JOINTLY CONTROLLED
ENTITIES AS AT 31 MARCH 2010

1.
2.

Controlling stake acquired on 30 November 2009.
Currently being wound up.

97

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
35. SIGNIFICANT CONTROLLED ENTITIES, ASSOCIATES AND INTERESTS IN JOINTLY CONTROLLED
ENTITIES AS AT 31 MARCH 2010 (Continued)
All controlled entities are incorporated in New Zealand, unless stated.
The ownership interest percentage may be held either directly or through other controlled entities of the
Ultimate Parent Bank.
For all controlled entities, with the exception of General Finance Custodians Limited, Origin Mortgage
Management Services Limited and Origin Mortgage Management Services (2008) Limited, the ownershipinterest percentage equates to the voting power held. In relation to these companies, control exists through the
NZ Banking Group having 100% of the voting rights.
In relation to Arawata Trust control exists through ANZ National Bank Limited being trustee of the Trusts. In
relation to Kingfisher NZ Trust 2008-1 control exists as the Banking Group retains substantially all the risks andrewards of the operations.
Movements in controlled entities
In October 2008, Kingfisher Trust 2008-1 was established.
In October 2008, ETRADE New Zealand Limited, ETRADE New Zealand Securities Limited and ETRADE New
Zealand Securities Nominees Limited were deregistered.
In April 2009, the Bank ceased to control Marmion Trust. Control previously existed through the undertaking of
the majority of risks and rewards relating to a particular transaction. This transaction was unwound in April
2009.
On 30 November 2009 the Bank acquired control over ING NZ and its subsidiary companies which had
previously been treated as jointly controlled entities.
Associates
Unaudited
31/03/2010
Book Value$m

Unaudited
31/03/2009
Book Value$m

Audited30/09/2009
Book Value$m

Cards NZ Limited
Paymark Limited
Bennetts Financial Services Limited
ING Diversified Yield Fund
ING Regular Income FundNZ Poultry Enterprises Limited
UCG Investments Limited
Wyma Engineering (NZ) Limited

85
2
1
41
10
3

87
2
41
15

85
2
46
21
41
13

3

3

Total investment in associates

142

148

211

Associates

VotingInterest %Ownership
Interest %Balance
Date

30
25
20
49
49
20
40
31

15
25
20
49
49
20
40
31

30 September
31 March
31 March
30 June30 June
30 April
31 March
31 March

Nature of business
Card services
Eftpos settlements
Financial services
Fixed income fundFixed income fund
Poultry processor
Rest home operator
Agricultural machinery supplier

All associates are incorporated in New Zealand, excluding the ING Diversified Yield Fund and ING Regular
Income Fund which are incorporated in Australia.
Movements in associates
In August 2009, the Banking Group acquired an interest in the ING Diversified Yield Field and ING Regular
Income Fund.
In September 2009, Electronic Transactions Services Limited changed its name to Paymark Limited.
On 30 November 2009 the Bank acquired control over ING NZ and its subsidiaries. This acquisition gave the
Bank control over the ING Diversified Yield Fund and the ING Regular Income Fund which had been previously
treated as investments in associates.

98

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
35. SIGNIFICANT CONTROLLED ENTITIES, ASSOCIATES AND INTERESTS IN JOINTLY CONTROLLED
ENTITIES AS AT 31 MARCH 2010 (Continued)
Jointly controlled entities

All jointly controlled entities are incorporated in New Zealand. The Banking Group has joint control of all these
entities due to a combination of control factors, none of which gives either party overall control.
On 30 November 2009 the Bank acquired control over ING and its subsidiaries. This acquisition gave the Bank
control over ING (NZ) Holdings Limited which had been previously treated as an investment in a jointly
controlled entity. In December 2009 the Banking Group disposed of its investment in JMI Aerospace Limited.
The summarised financial information relating to the NZ Banking Group's investment in ING (NZ) Holdings
Limited prior to it becoming a subsidiary is as follows:
NZ Banking Group
Unaudited
Unaudited
31/03/2010
31/03/2009$m$m

Audited30/09/2009$m

Share of assets and liabilities
Investments
Other assets

-

67
179

91
171

Total assets

-

246

262

Life insurance policy liabilities
Other liabilities

-

(36)
46

(46)
63

Total liabilities

-

10

17

Net assets

-

236

245

16
4

43
7

84
32

Total revenue

20

50

116

Expenses

15

46

108

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

Profit before income tax

5

4

8

Income tax credit

(1)

(2)

(5)

Profit after tax

6

6

13

Share of commitments
Lease commitments

-

17

17

There are no unrecognised losses in respect of any of the NZ Banking Group's jointly controlled entities. The NZ
Banking Group's share of the contingent liabilities of its joint ventures are incurred jointly with other investors.
Other than as referred to in Note 38, there were no material contingent liabilities as at 31 March 2010
(31/03/2009 $nil; 30/09/2009 $nil).

99

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
36. SECURITISATION, FUNDS MANAGEMENT, OTHER FIDUCIARY ACTIVITIES AND THE MARKETINGAND DISTRIBUTION OF INSURANCE PRODUCTS
Securitisation
The NZ Banking Group enters into transactions in the normal course of business by which it transfers financial
assets directly to third parties or to special purpose entities. These transfers may give rise to the full or partial
derecognition of those financial assets.
••

Full derecognition occurs when the NZ Banking Group transfers its contractual right to receive cash flows
from the financial assets, or retains the right but assumes an obligation to pass on the cash flows fromthe asset, and transfers substantially all the risks and rewards of ownership. These risks include credit,
interest rate, currency, prepayment and other price risks.
Partial derecognition occurs when the NZ Banking Group sells or otherwise transfers financial assets insuch a way that some but not substantially all of the risks and rewards of ownership are transferred but
control is retained. These financial assets are recognised on the balance sheet to the extent of the NZ
Banking Group’s continuing involvement.

In May 2008, the RBNZ expanded the range of acceptable collateral that banks can pledge and borrow against
as part of changes to its liquidity management arrangement designed to help ensure adequate liquidity for New
Zealand financial institutions in the event that global market disruption was to intensify. From 31 July 2008,
acceptable collateral includes residential mortgage backed securities ("RMBS") that satisfy RBNZ criteria.
On 10 October 2008, the NZ Banking Group established an in-house RMBS facility that could issue securities
meeting the RBNZ criteria. The establishment of the facility resulted in the ANZ National Bank Limited financial
statements recognising a payable and receivable of equal amount to Kingfisher NZ Trust 2008-1. These assets do not qualify for derecognition as the NZ Banking Group retains a continuing involvement in thetransferred assets, therefore the NZ Banking Group’s financial statements do not change as a result of
establishing these facilities.
The RMBS facility is dynamic in nature reflecting the underlying movement in loan balances. To the extent thatany loans are found to be ineligible in terms of the RBNZ criteria, they are removed from the facility. Additional
lending to existing RMBS customers is added into the facility on a monthly basis.
The establishment of this facility increases the NZ Banking Group’s contingent funding ability from the RBNZ.
Funds management
Certain subsidiaries of the NZ Banking Group act as trustee and/or manager for a number of unit trusts andinvestment and superannuation funds. ANZ National Bank Limited provides private banking services to anumber of clients, including investment advice and portfolio management. The NZ Banking Group is not
responsible for any decline in performance of the underlying assets of the investors due to market forces.
As funds under management are not controlled by the NZ Banking Group, they are not included in thesefinancial statements. The NZ Banking Group derives fee and commission income from the sale and managementof investment funds and superannuation bonds, unit trusts and the provision of private banking services to anumber of clients. The NZ 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 NZ Banking Groupand are recorded as liabilities in the balance sheet. At 31 March 2010, $2,715 million of funds undermanagement were invested in the NZ Banking Group's own products or securities (31/03/2009 $2,735 million;
30/09/2009 $2,664 million).

100

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
36. SECURITISATION, FUNDS MANAGEMENT, OTHER FIDUCIARY ACTIVITIES AND THE MARKETINGAND DISTRIBUTION OF INSURANCE PRODUCTS (Continued)
The aggregate value of funds managed by the NZ Banking Group at balance date was:

Custodial services
The NZ Banking Group provides custodial services to customers in respect of assets that are beneficially ownedby those customers.
Provision of financial services
Financial services provided by the NZ Banking Group to entities which are involved in trust, custodial, funds
management and other fiduciary activities, and to affiliated insurance companies which conduct marketing or
distribution of insurance products, or on whose behalf the marketing or distribution of insurance products are
conducted, are provided on arm’s length terms and conditions and at fair value. Any assets purchased from such
entities have been purchased on an arm’s length basis and at fair value.
The NZ Banking Group has not provided any funding to entities except standard lending facilities provided in thenormal course of business on arm’s length terms which conduct any of the following activities: trust, custodial,funds management or other fiduciary activities established, marketed and/or sponsored by a member of the NZ
Banking Group (31/03/2009 $nil; 30/09/2009 $nil).
Insurance business
The NZ Banking Group conducts insurance business through subsidiaries of ING NZ – the assets, liabilities andoperations of which are fully consolidated into the Banking Group since acquisition. Previously the NZ Banking
Group did not conduct any insurance business directly, although it held a 49% ownership share in ING NZ. The
NZ Banking Group also markets and distributes a range of insurance products which are underwritten bysubsidiaries of ING NZ, as well as third party insurance companies.
The insurance business comprises risk transfer and investment contract life insurance products. The aggregate
insurance business conducted by companies in the NZ Banking Group comprises assets totalling $333 million(31/3/2009: $nil; 30/9/2009: $nil) which is 0.3% (31/12/09: 0.0%; 30/9/09: 0.0%) of the total consolidated
assets of the NZ Banking Group.
Risk management
The entities of the NZ Banking Group participating in the activities identified above have in place policies andprocedures to ensure that those activities are conducted in an appropriate manner. Should adverse conditions
arise, it is considered that these policies and procedures will minimise the possibility that these conditions will
adversely impact the Registered Bank. The policies and procedures include comprehensive and prominent
disclosure of information regarding products, and formal and regular review of operations and policies bymanagement.

101

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
36. SECURITISATION, FUNDS MANAGEMENT, OTHER FIDUCIARY ACTIVITIES AND THE MARKETINGAND DISTRIBUTION OF INSURANCE PRODUCTS (Continued)
In addition, the following measures have been taken to manage any risk to the NZ Banking Group of marketingand distributing insurance products:
Investment statements, prospectuses and brochures for insurance products include disclosures that theRegistered Bank nor any member of the NZ Banking Group does not guarantee the insurer, nor the insurer’s
subsidiaries, nor any of the products issued by the insurer or the insurer’s subsidiaries.
Where the insurance products are subject to the Securities Act 1978, investment statements, prospectuses andbrochures additionally include disclosures that:•••the policies do not represent deposits or other liabilities of the entities within the NZ Banking Group;
the policies are subject to investment risk, including possible loss of income and principal; andentities within the NZ Banking Group do not guarantee the capital value or performance of the policies.

Application forms for insurance products contain acknowledgements to be signed by a purchaser which areconsistent with the disclosures for insurance products noted above.
In addition, the following measures have been taken to manage any risk to the entities within the NZ Banking
Group of marketing and distributing fund management products:
Prospectuses, investment statements and brochures for funds management products include disclosures that:•••the securities do not represent deposits or other liabilities of the entities within the NZ Banking Group;
the securities are subject to investment risk including possible loss of income and principal invested; andthe entities within the NZ Banking Group do not guarantee the capital value or performance of the
securities.

Application forms for funds management products contain acknowledgements to be signed by a purchaser which
are consistent with the disclosures for funds management products noted above.
37. COMMITMENTS
NZ Banking Group
Unaudited
Unaudited
31/03/2010
31/03/2009$m$m

Audited30/09/2009$m

Unaudited
31/03/2010$m

NZ Branch
Unaudited
31/03/2009$m

Audited30/09/2009$m

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

11

22

19

-

-

-

Total capital expenditure commitments

11

22

19

-

-

-

Premises and equipment
Not later than 1 year
Later than 1 year but not later than 5 years
Later than 5 years

88
165
38

86
156
31

82
155
31

-

-

-

Total lease rental commitments

291

273

268

-

-

-

Total commitments

302

295

287

-

-

-

Lease rentals
Future minimum lease payments under non-cancellable operating leases:

102

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
38. CONTINGENT LIABILITIES AND CREDIT RELATED COMMITMENTS
For contingent exposures, the maximum exposure to credit risk is the maximum amount that the NZ Banking
Group would have to pay if the contingent exposure is called upon. For undrawn facilities, the maximum
exposure to credit risk is the full amount of the committed facilities.
NZ Banking Group
Face or contract value
Unaudited
Unaudited
Audited31/03/2010
31/03/2009
30/09/2009
$m
$m
$m

NZ Branch
Face or contract value
Unaudited
Unaudited
Audited31/03/2010
31/03/2009
30/09/2009
$m
$m
$m

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

566
21,344732
22,609735
22,12836-

34

Total credit related commitments

21,91023,341

22,86336-

34

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

1,716
62
977
84

1,913
374
1,083
65

1,753
341
982
89

-

-

-

Total contingent liabilities

2,839

3,435

3,165

-

-

-

The NZ Banking Group guarantees the performance of customers by issuing standby letters of credit andguarantees to third parties, including its Ultimate Parent Bank. The risk involved is essentially the same as thecredit risk involved in extending loan facilities to customers, therefore these transactions are subjected to thesame credit origination, portfolio management and collateral requirements for customers applying for loans. As
the facilities may expire without being drawn upon, the notional amounts do not necessarily reflect future cash
requirements.
A summary of other contingent liabilities is set out below.
Commerce Commission
The Bank is aware that the Commerce Commission is looking at credit contract fees under the Credit Contracts
and Consumer Finance Act 2003 ("CCCFA"). In its 2009-2012 Statement of Intent the Commission stated that:“Compliance with the Credit Contracts and Consumer Finance Act is a priority area for the Commission, given
the deterioration in consumer confidence in the financial sector and the important role that a competitive
lending market can play in strengthening the New Zealand economy.”
In particular the Bank is aware that the Commerce Commission is investigating the level of default fees charged
on credit cards, the level of currency conversion charges on overseas transactions using credit cards and also
informal excess arrangements on credit cards under the CCCFA. At this stage the possible outcome of theseinvestigations and any liability or impact on fees cannot be determined with any certainty. The Commission has
concluded its investigation into early repayment charges on fixed rate mortgages with no action being taken
against the Bank.
ING NZ Funds
The Bank markets and distributes a range of wealth management products in New Zealand. The products are
manufactured and managed by ING NZ. Trading in two of the products, the ING Diversified Yield Fund and the
ING Regular Income Fund (together, "the Funds"), was suspended on 13 March 2008, due to deterioration in
the liquidity and credit markets. Units in the Funds were sold by the Bank to its customers.
In June 2009, ING NZ AUT Investments Limited, a subsidiary of ING NZ, made an offer to investors in theFunds. The offer closed on 13 July 2009. Investors holding approximately 99% of the Funds accepted the offer
to purchase their units and have received a payment of 60 cents per unit in the ING Diversified Yield Fund or 62
cents per unit in the ING Regular Income Fund, as applicable, either (i) in cash, or (ii) by way of deposit in an
on-call account with the Bank, paying 8.30% per annum fixed for up to five years.

103

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
38. CONTINGENT LIABILITIES AND CREDIT RELATED COMMITMENTS (Continued)
The Commerce Commission is separately investigating both the Bank and ING NZ in respect of their roles inmanufacturing, managing and selling of the Funds. On 15 April 2010, the Commission said that it has reached adecision on whether it will prosecute the Bank over the promotion of the Funds but is not publicly releasing theoutcome yet. The Commission commented:“We are involved in ongoing discussions with the ANZ and won’t be making any further comment until those
discussions are complete”
The ultimate cost to the Bank will depend on the final value of units in the Funds, any recoveries underinsurance, the assessment and outcome of the customer complaints and the results of any litigation andregulatory investigations or proceedings that may be brought in connection with the Funds or their sale. The
Banking Group considers it has adequately provided for these matters at this time.
Other contingent liabilities
The NZ Banking Group has other contingent liabilities in respect of actual and potential claims and proceedings.
An assessment of the NZ Banking Group’s likely loss in respect of these matters has been made on a case-bycase basis and provision made where appropriate. As at 31 March 2010, there were no other contingent assets
or liabilities required to be disclosed (31/03/2009 $nil; 30/09/2009 $nil).
39. EMPLOYEE SHARE AND OPTION PLANS
The NZ Banking Group participates in the ANZ Employee Share Acquisition Plan and the ANZ Share Option Plan
operated by the ANZ Banking Group. Any shares or options granted under these plans are shares in ANZ.
The closing market price of one ordinary share of ANZ quoted on the Australian Stock Exchange ("ASX") at 31
March 2010 was A$25.36 (31/03/2009 A$15.75; 30/09/2009 A$24.39).
ANZ EMPLOYEE SHARE ACQUISITION PLAN
The ANZ Employee Share Acquisition Plan includes the A$1,000 Share Plan, the Deferred Share Plan and the
Restricted Share Plan.
A$1,000 share plan
Each permanent employee who has had continuous service for one year with the NZ Banking Group is eligible toparticipate in a scheme enabling the issue of up to A$1,000 of shares of ANZ in each financial year, subject tothe approval of the Ultimate Parent Bank Board. The shares vest subject to satisfaction of a three year service
period but may be forfeited in the event of resignation or termination for serious misconduct. On expiration ofthat period, an employee may sell the shares, transfer them into their name, or have them retained in trust.
The issue price is based on the one-day volume weighted average price ("VWAP") of the shares traded on the
ASX on the date of issue.
The NZ Banking Group's employees are required to pay NZ 1 cent per share soon after the issuing of the shares.
During the six months to 31 March 2010, 358,313 shares with an average issue price of A$22.02 were issued
under the A$1,000 Share Plan (31/03/2009 540,305 shares with an average issue price of A$14.94 were issued;
30/09/2009 540,305 shares with an average issue price of A$14.94 were issued).
Deferred share plan
The NZ Banking Group's last issue of shares under this plan was in November 2004. Selected employees were
issued deferred shares, which vest subject to satisfaction of a minimum three year service period from the dateof issue. Ordinary shares issued under this plan may be held in trust for up to 10 years, and may be required tomeet performance hurdles before being able to be traded after the restriction period has expired. The issue
price is based on the VWAP of the shares traded on the ASX in the five trading days leading up to and including
the date of issue. Unvested shares are forfeited on resignation or dismissal, or if a performance condition has
not been met.
Restricted share plan
Restricted Shares are available to selected employees and are issued under the ANZ Employee Share Acquisition
Plan. Selected employees have the option to take some (or all) of their incentive payment as Restricted Shares.
The shares are held in trust and may not be traded until the conclusion of the one-year restriction period, after
which they may be transferred into the employee's name. Until they are transferred into the employee's name,they continue to be subject to forfeiture on termination for serious misconduct.

104

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
39. EMPLOYEE SHARE AND OPTION PLANS (Continued)
Shares valuations
The fair value of services received in return for shares in the ANZ Employee Share Acquisition Plan aremeasured by referring to the fair value of shares granted. The fair value of shares granted in the current period,
measured at the date of grant of the shares, is $10 million based on 358,313 shares at a weighted average
price of A$22.02 converted at the exchange rate of 0.7999 (31/03/2009 $10 million based on 540,305 shares at
a weighted average price of A$14.94 converted at the exchange rate of 0.8232 were issued; 30/09/2009 NZ$10 million based on 540,305 shares at a weighted average price of A$14.94 converted at the exchange rate of
0.8232 were issued).
The average issue price of shares granted and the number of shares that are expected to ultimately vest to theemployees at the end of the vesting period are used to calculate the fair value of shares. No dividends areincorporated into the measurement of the fair value of shares.
ANZ SHARE OPTION PLAN
Selected employees may be granted options, which entitle them to purchase ordinary fully paid shares in ANZ ata price fixed at the time when the options were issued. Voting and dividend rights will be attached to theunissued ordinary shares when the options have been exercised. Each option entitles a holder to purchase one
ordinary share subject to any terms and conditions imposed on issue. The exercise price of the options(excluding zero-priced options) is determined in accordance with the rules of the plan, and is based on theweighted average price of the Ultimate Parent Bank's shares traded during the five business days preceding thedate of granting the options.
The main schemes of the ANZ Share Option Plan are as follows:
Current option plans
Special Retention Deferred Share Rights
This is a program available to certain Banking Group employees. It grants the right to acquire shares at nil costsubject to satisfactorily meeting the time based hurdle. The Special Retention Deferred Share Rights can only
be exercised between the third and fifth anniversary of their allocation (the ‘Exercise Period’). In the case of
resignation, only rights that become exercisable by the end of the notice period may be exercised. A grace
period is provided in which to exercise the rights. All other rights will lapse. In the case of termination on notice,retrenchment, retirement, death or total and permanent disablement, a grace period is provided in which toexercise all deferred share rights.
Performance rights planThis scheme is a long term incentive program available to certain NZ Banking Group employees since November
2005 and grants the right to acquire shares at nil cost, subject to a three year vesting period and a Total
Shareholder Return ("TSR") performance hurdle. The proportion of rights that will become exercisable will
depend upon the TSR achieved by ANZ relative to the companies in the comparator group, which consists of
selected major financial services companies in the Standard & Poor's and ASX 100 Index. Performance equal tothe median TSR of the comparator group will result in half the rights becoming exercisable. Performance above
the median will result in further performance rights becoming exercisable, increasing on a straight line basis
until all of the rights become exercisable where ANZ's TSR is at or above the 75th percentile in the comparatorgroup.
The TSR hurdle will only be tested once at the end of the three-year vesting period. If the rights do not pass thehurdle on testing date, or if they pass the hurdle on testing date and are not exercised by the end of five years
from the grant date, the rights will lapse. In the case of resignation or termination on notice, only rights that
become exercisable by the end of the notice period may be exercised. A grace period is provided in which toexercise the rights. All other rights will lapse. In the case of retrenchment or retirement, performance rights will
be performance tested at the date of termination and where performance hurdles have been met, performancerights will be pro-rated and a grace period provided in which to exercise the rights. In case of death or total andpermanent disablement, a grace period is provided in which to exercise all performance rights.

105

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
39. EMPLOYEE SHARE AND OPTION PLANS (Continued)
LTI Deferred Share Rights
This scheme is a long term incentive program available to certain Banking Group employees and grants the rightto acquire a share at nil cost, subject to satisfactorily meeting the time based hurdle. The LTI Deferred Share
Rights can only be exercised between the third and fifth anniversary of their allocation (their 'Exercise Period').
In the case of resignation, all unvested LTI Deferred Share Rights (in addition to any vested unexercised rights)
as at the time notice of resignation is given, will be forfeited. In case of termination on notice by ANZ, allunvested LTI Deferred Share Rights as at the time notice of termination of notice is received, will be forfeited.
Any vested unexercised LTI Deferred Share Rights will be delivered as shares. In case of retrenchment(redundancy), any unvested LTI Deferred Share Rights as at the termination date will be pro-rated and bedelivered as shares. In case of death or total and permanent disablement, all LTI Deferred Share Rights willvest and be delivered as shares.
Deferred share rights
This scheme is a short term incentive program available to certain NZ Banking Group employees sinceNovember 2004 and grants the right to acquire shares at nil cost after a specified vesting period ranging from
one to three years. Deferred share rights must be exercised by the seventh anniversary of grant date. In thecase of resignation, only rights that become exercisable by the end of the notice period may be exercised. A
grace period is provided in which to exercise the rights. All other rights will lapse. In the case of termination on
notice, retrenchment, retirement, death or total and permanent disablement, a grace period is provided in which
to exercise all deferred share rights.
Deferred share options
This scheme is a part of the short term incentive program available whereby certain Banking Group employees
receive a mandatory deferred bonus under ANZ's Short Term Incentive ("STI") program. The options can only
be exercised between the first and fifth anniversary (one-year deferred options) and between the second andfifth anniversary (two-year deferred options) of the grant date (exercise period) and subject to the requirementthat the share price is greater than the exercise price. In the case of dismissal for serious misconduct,irrespective of whether it is on notice or not, all unvested STI deferred options and any vested unexercised
options will be forfeited. In the case of resignation, all unvested STI deferred options and any vested
unexercised options as at the time notice of resignation is given will be forfeited. In the case of redundancy,
retrenchment, death or total and permanent disablement, all STI deferred options will vest and a grace period isprovided in which to exercise all deferred share options.
Legacy option plans
Performance options planThis scheme is a long term incentive program available to certain NZ Banking Group employees. The options
can only be exercised after a three year vesting period and before the seventh anniversary of the grant date.
There are no other performance conditions attached to these options. All unexercised options are generally
forfeited on resignation but any options to which the NZ Banking Group employee is entitled will need to be
exercised within a specified period of termination. On retrenchment, entitlements to options will be pro-rated
over the three year vesting period. On death or total and permanent disablement, all unvested options will
become available for exercise. No further performance options have been granted to NZ Banking Group
employees after November 2005.

106

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
39. EMPLOYEE SHARE AND OPTION PLANS (Continued)
Zero-price options ("ZPO")A ZPO is a right to acquire an ANZ share at nil cost and is granted to certain employees as part of theiremployment contracts. The ZPO's have no time based vesting criteria, so can be exercised at any time during
employment and within 6 months of termination of employment. ZPO's must be exercised within two years ofgrant date or they lapse.
Other past option plans which are no longer available to the NZ Banking Group's employees, but continue to beamortised during their appropriate vesting periods are hurdled options and index linked options ("ILOs").
Details of the options over unissued ANZ ordinary shares and their related weighted average exercise prices asat the beginning and end of the period and movements during the period are set out below:
Unaudited 31/03/2010
Weighted average
Number ofsharesexercise price1
A$

NZ Banking Group
Unaudited 31/03/2009
Weighted average
Number ofsharesexercise price1
A$

Audited 30/09/2009
Weighted average
Number ofsharesexercise price1
A$

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

2,067,345
494,168(300,938)(99,556)

8.32
1.39
6.90
1.25

1,741,771
709,805(66,823)(150,781)

10.86
2.51
1.28
3.68

1,741,771
709,805(109,936)(274,295)

Share options at end of the period

2,161,019

7.00

2,233,972

8.98

2,067,345

Weighted average share price during the period
Range of exercise prices on share options at end of the period
Weighted average remaining contractual life on share options
at end of the period

1.

10.86
2.51
5.73
10.44
8.32

22.65
0.00 - 23.49

14.86
0.00 - 23.49

16.53
0.00 - 23.49

36 months

39 months

35 months

Calculation of weighted average exercise prices are affected by performance rights, deferred share rights and ZPO plans which have nil exercise prices.

Options valuations
The fair value of services received in return for share options are measured by referring to the fair value ofshare options granted. The fair value of options granted in the current period, measured at the date of grant
are calculated using one of the following models:a. Monte-Carlo simulation model utilising the assumptions underlying Black-Scholes. In terms of factoring inearly exercise, the model assumes that deferred share rights and performance rights are exercised as soon
as they vest so that the option holder can benefit from the dividends. It assumes that the performance
options are exercised when the share price reaches twice the exercise price; orb. An adjusted form of the Binomial Option pricing model ("BOM"). In terms of factoring in early exercise, themodel assumes that the expected life of vanilla options is 5 years, performance rights is 4 years and thatdeferred share rights are exercised immediately to account for lack of marketability.
In addition, both models are designed such that they take into account as appropriate, any performance hurdles
and non-transferability of the options.
The following inputs are used to measure the fair value of instruments granted during the period. All prices arequoted in Australian dollars:

2.

Expected volatility is based on ANZ's historic volatility.

107

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
40. RETIREMENT BENEFIT OBLIGATIONSThe NZ Banking Group has established a number of pension and superannuation schemes. The NZ Banking
Group may be obliged to contribute to the schemes as a consequence of legislation and provision of trust deeds.
Legal enforceability is dependent on the terms of the legislation and the requirements of Scheme Trust Deeds.
The major schemes are:Contribution levels
Employer

SchemeScheme type

Employee

ANZ National Bank Staff Superannuation Scheme1

Defined Benefit Scheme2orDefined Contribution Scheme

Nil

Balance of cost4

2.5% minimum of salary

7.5% of salary6

5% of salary

Balance of cost5

2.0% minimum of salary

11.5% of salary7

The National Bank Staff Superannuation Fund1

1.
2.
3.
4.
5.
6.
7.

Defined Benefit Scheme3orDefined Contribution Scheme

These schemes provide for pension benefits and provide for lump sum benefits.
Closed to new members on 31 March 1990. Operates to make pension payments to retirees who were members of that section of the scheme or to dependents ofthe members.
Closed to new members on 1 October 1991.
31/03/2010: $nil (31/03/2009 $nil; 30/09/2009 $nil).
31/03/2010: 24.8% (31/03/2009 24.8%; 30/09/2009 24.8%) of members' salaries.
31/03/2010: 7.5% (31/03/2009 7.5%; 30/09/2009 7.5%) of members' salaries.
31/03/2010: 11.5% (31/03/2009 11.5%; 30/09/2009 11.5%) of members' salaries.

Details of the defined benefit schemes are as follows:
Actuarial valuations for financial reporting purposes are undertaken every six months.
were carried out as at 31 March 2010.

The latest valuations

NZ Banking Group
Unaudited
Unaudited
The amounts recognised in the balance sheet arising from the NZ Banking Group's obligation in
respect of its defined benefit schemes are determined as follows:

Audited31/03/2010$m

31/03/2009$m

30/09/2009$m

Defined benefit obligation at beginning of the period
Current service cost
Interest cost
Contributions by scheme participants
Actuarial (gains) losses
Benefits paid

174
1
5
(5)
(9)

179
1
5
1
(1)
(8)

179
3
11
1
(2)
(18)

Present value of funded defined benefit obligations

166

177

174

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

119
4
10
6
(9)

152
4
(38)
1
(8)

152
8
(27)
3
1
(18)

Fair value of scheme assets

130

111

119

Net defined benefit liability recognised on balance sheet

(36)

(66)

(55)

The fair value of scheme assets include cash deposits and fixed interest investments of $2 million with the NZ
Banking Group as at 31 March 2010 (31/03/2009 $6 million; 30/09/2009 $4 million).
The amounts recognised in the income statement in respect of defined benefit schemes are as follows:
Current service cost/contributions
Interest cost
Expected return on scheme assets (net of tax)
Contribution withholding tax

1
5
(4)
2

1
5
(4)
1

3
11
(8)
2

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

4

3

8

108

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
40. RETIREMENT BENEFIT OBLIGATIONS (Continued)
The actuarial gains and losses recognised directly in equity via the statement of recognised income and expense
are as follows:
NZ Banking Group
Unaudited
Unaudited
31/03/2010
31/03/2009$m$m

Audited30/09/2009$m

Actuarial losses (pre-tax) at beginning of the period
Actuarial gain / (loss) (pre-tax) incurred

(50)
14

(25)
(39)

(25)
(25)

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

(36)

(64)

(50)

Income tax expense / (credit) recognised directly in equity

4

(11)

(7)

(32)

(75)

(57)

Balance of actuarial losses at end of the period

The principal actuarial assumptions used were as follows:
The National Bank
Staff Superannuation Fund
Unaudited
Unaudited
Audited31/03/2010
31/03/2009
30/09/2009

Defined benefits calculation
Discount rate (gross of tax)
Future price inflation
Future pension increases
Future salary increases
2009 & 2010
Post 2010
Scheme assets calculation
Expected return on scheme assets (net of tax)

6.0%
2.5%
2.5%
3.0%

6.0%
2.5%
2.5%
3.7%

6.0%
2.5%
2.5%

ANZ National Bank
Staff Superannuation Scheme
Unaudited
Unaudited
Audited31/03/2010
31/03/2009
30/09/2009

6.0%
2.5%
2.5%
n/a

6.0%
2.5%
2.5%
n/a

6.0%
2.5%
2.5%
n/a

4.5%

4.5%

4.5%

2.5%
3.0%
5.5%

5.5%

5.5%

The overall expected return on scheme assets is determined by reference to market expectations at the
beginning of the relevant period of asset performance applicable to the period over which the defined benefit
obligation is to be settled. The overall expected return on scheme assets reflects an aggregation of the
expected returns on the underlying asset classes.
The actual return on scheme assets (net of tax) for The National Bank Staff Superannuation Fund was 7.3% for
the six months ended 31 March 2010 (31/03/2009 -10.57%; 30/09/2009 -0.7%). The actual return on scheme
assets (net of tax) for the ANZ National Bank Staff Superannuation Scheme was 3.4% for the six months ended
31 March 2010 (31/03/2009 -7.25%; 30/09/2009 0.0%).
The investment return on scheme assets is taxed at 30% (31/03/2009 30%; 30/09/2009 30%).
The major categories of scheme assets as a percentage of the fair value of scheme plan assets are as follows:
The National Bank
Staff Superannuation Fund
Unaudited
Unaudited
Audited31/03/2010
31/03/2009
30/09/2009
Cash and short term debt instruments
New Zealand fixed interest
Overseas fixed interest
Australasian shares
Overseas shares
Property fund units

ANZ National Bank
Staff Superannuation Scheme
Unaudited
Unaudited
Audited31/03/2010
31/03/2009
30/09/2009

12.1%
12.9%
23.6%
10.5%
40.9%
0.0%

24.0%
13.7%
20.2%
9.9%
32.2%
0.0%

14.1%
12.6%
24.3%
10.4%
38.6%
0.0%

2.1%
20.9%
34.6%
10.8%
26.7%
4.9%

13.0%
28.0%
26.6%
9.2%
19.4%
3.8%

8.1%
22.4%
30.6%
10.2%
24.2%
4.5%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%The benchmark weighting of each asset class is determined by the Trustee in conjunction with the investment
manager.

109

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
40. RETIREMENT BENEFIT OBLIGATIONS (Continued)
Historical summary
Actuarial gains and losses comprise experience adjustments (the effects of differences between the previous
actuarial assumptions and what has actually occurred in the period) and the effects of changes in actuarial
assumptions on valuation date. The history of the schemes' net position and experience adjustments is asfollows:
Unaudited
31/03/2010$m

Audited30/09/2009$m

Defined benefit obligation
Fair value of scheme assets

(166)
130

(174)
119

Net benefit (liability) asset

(36)
3
6

Experience adjustments on scheme liabilities
Experience adjustment on scheme assets

NZ Banking Group
Audited30/09/2008$m

Audited30/09/2007$m

Audited30/09/2006$m

Audited30/09/2005
$m

(179)
152

(181)
189

(190)
196

(187)
195

(55)

(27)

8

6

8

1
(20)

5
(21)

(1)
(7)

3
5

11

Employer contributions
To ensure the defined benefit schemes remain solvent, the schemes' independent actuaries recommend an
employer contribution rate to the Banking Group annually for The National Bank Staff Superannuation Fund andevery three years for the ANZ National Bank Staff Superannuation Scheme.
The National Bank Staff Superannuation Fund deficit for funding purposes was valued at $50m in the mostrecent actuarial review at 1 April 2009. The ANZ National Bank Staff Superannuation Scheme surplus wasvalued at less than $1 million in the most recent actuarial valuation at 31 December 2007.
The Banking Group contributed $6 million (net of contributions withholding tax) to its defined benefit schemes in
the period to 31 March 2010 (31/03/2009 $2 million; 30/09/2009 $3 million). Employer contributions are taxed
at a maximum rate of 33% (31/03/2009 33%; 30/09/2009 33%).
Contingent liabilities
The National Bank Staff Superannuation Fund
Under the Fund's Trust Deed, if this scheme were wound up, the NZ Banking Group would be required to pay
the Trustee of the Fund an amount sufficient to ensure members do not suffer a reduction in benefits to which
they would otherwise be entitled.
ANZ National Bank Staff Superannuation Scheme
If the Scheme is wound up then its assets must be cashed up and applied to all members' benefits. If Scheme
funds are insufficient to pay all members' benefits then the NZ Banking Group must pay to the Scheme suchamounts as the Scheme Actuary determines are necessary to pay those benefits.

110

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
41. RELATED PARTY TRANSACTIONSNZ Banking Group
Unaudited
Unaudited
6 months to
6 months to
31/03/2010
31/03/2009
$'000
$'000

AuditedYear to30/09/2009$'000

Unaudited
6 months to
31/03/2010$'000

NZ Branch
Unaudited
6 months to
31/03/2009$'000

AuditedYear to30/09/2009$'000

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

4,401
178
51
931
1,751

5,850
249
40
1,408

10,748
373
782
58
4,339

-

-

-

Total compensation of key management personnel

7,312

7,547

16,300---Loans to key management personnel

4,743

3,936

4,424

-

-

-

Deposits from key management personnel

5,604

5,871

5,543

-

-

-

Key management personnel are defined as being Directors and senior management of the NZ Banking Group,
those persons having authority and responsibility for planning, directing and controlling the activities of theentity.
The information above relating to key management personnel includes transactions with thoseindividuals, their close family members and their controlled entities.
Loans made to and deposits held by key management personnel are made in the course of ordinary business onnormal 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 NZ Banking Group's lending policies. No provision for credit impairment has beenrecognised for loans made to key management personnel (31/03/2009 $nil; 30/09/2009 $nil).
All other transactions with key management personnel (including personally related parties) are conducted on
an arm's length basis in the ordinary course of business and on commercial terms and conditions. Thesetransactions principally consist of the provision of financial and investment services.
Transactions with the Ultimate Parent Bank and subsidiaries
Details of amounts provided by/to the Ultimate Parent Bank and entities within the NZ Banking Group during theordinary course of business are set out in the relevant notes to these financial statements. No provision for
credit impairment has been recognised during the six months ended 31 March 2010 (31/03/2009 $nil;
30/09/2009 $nil).
The Bank has sold residential mortgage assets to the NZ Branch as detailed in the Net Loans and Advances
note.

111

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
41. RELATED PARTY TRANSACTIONS (Continued)
Transactions with associates and joint venture entities
During the period the NZ Banking Group conducted transactions with associates and joint venture entities on
normal commercial terms and conditions as shown below:
NZ Banking Group
Unaudited
Unaudited
As at
As at
31/03/2010
31/03/2009$m$m
Amounts receivable- associates- joint venture entities
Amounts payable- associates

159
34

167
40

AuditedAs at
30/09/2009$m

Unaudited
As at
31/03/2010$m

NZ Branch
Unaudited
As at
31/03/2009$m

AuditedAs at
30/09/2009
$m

161
36

-

-

-

-

85

85

-

-

-

Unaudited
6 months to
31/03/2010$m

Unaudited
6 months to
31/03/2009$m

AuditedYear to30/09/2009$m

Unaudited
6 months to
31/03/2010$m

Unaudited
6 months to
31/03/2009$m

AuditedYear to30/09/2009$mInterest income- associates- joint venture entities

4
1

1
2

2
3

-

-

-

Interest expense- associates

-

-

4

-

-

-

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

6
-

13
-

39
1

-

-

-

The NZ Banking Group provides general administration, strategic and governance services to ING (NZ) Limited
under a Technical Services Agreement.
A provision for credit impairment of $10 million is recognised for amounts outstanding from associates as at 31
March 2010 (31/03/2009 $6 million; 30/09/2009 $10 million). A credit impairment loss of $nil was charged
during the six months ended 31 March 2010 (31/03/2009 $nil charged; 30/09/2009 $5 million charged).

112

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
42. BUSINESS COMBINATIONS
On 30 November 2009, the NZ Banking Group purchased ING Groep’s 51% interest in ING NZ, which was theholding company for the ANZ-ING wealth management and life insurance joint venture in New Zealand. The
transaction was undertaken to strengthen the NZ Banking Group’s position in wealth management and moreclosely integrate its retail banking and wealth businesses. The acquisition takes the NZ Banking Group’s
ownership interest in ING NZ to 100%.
As part of the transaction the NZ Banking Group also purchased ING Groep’s 51% interests in two fixed income
unit trusts, the ING Diversified Yield Fund and the ING Regular Income Fund (“the Funds”), taking its ownershipinterest to over 99% of the Funds.
NZ Banking Group
Unaudited$m
Fair values of assets acquired and liabilities assumed
as at acquisition date (provisional)
Due from financial institutions
Available-for-sale assets
Investments relating to insurance businessInsurance policy assets
Shares in associates
Other assets1
Deferred tax assets
Premises and equipment
Intangible Assets

142
173
40
81
1
24
27
4
223

Total assets

715

Due to financial institutions
Payables and other liabilities
Current tax liabilities
Provisions2

30
27
27
114

Total liabilities

198

Net assets

517

Non-controlling interests in the Funds

3

1

Net assets attributable to the NZ Banking Group

516

Book value of existing equity interests
Loss on re-measuring existing equity interests to fair value4

351
(82)

Acquisition date fair value of existing equity interests
Cash consideration transferred

269
247

Total consideration

516

Provisional value of goodwill

1.
2.

3.
4.
5.

5

-

Includes receivables with a fair value of $16m and a gross contractual amount receivable of $17m. The best estimate at the acquisition date of thecontractual cash flows not expected to be collected on these receivables is $1m.
Includes employee related provisions and the fair value of contingent liabilities, which relate to possible claims by investors in the Funds and investigations
by regulatory bodies and other actual and potential claims and proceedings (refer to the Contingent Liabilities and Credit Related Commitments note).
The expected timing and ultimate cost of contingent liabilities to the NZ Banking Group will depend on the assessment and outcome of customer
complaints, and the results of any litigation and regulatory investigations or proceedings that may be brought.
Non-controlling interests are measured as their proportionate share of the identifiable net assets of the Funds.
The loss on re-measuring equity interests has been recognised in Other Operating Income in the Income Statement.
Upon finalisation of fair value procedures, including recognition of intangible assets acquired, the remaining balance will be recognised as either goodwill ora discount on acquisition as appropriate. Goodwill, if recognised, is not is expected to be deductible for income tax purposes.

113

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
42. BUSINESS COMBINATIONS (CONTINUED)
Included in the NZ Banking Group’s Income Statement and Statement of Comprehensive Income since 30
November 2009 is net operating income of $52 million and a profit before tax of $16 million, excluding
integration costs, contributed by ING NZ and the Funds. Had ING NZ and the Funds been consolidated from 1
October 2009, the NZ Banking Group’s Income Statement and Statement of Comprehensive Income would haveincluded, for the six months ended 31 March 2010, net operating income of $78 million and a profit before taxof $25 million. Acquisition costs were paid by the Ultimate Parent Bank.
The initial accounting for the business combination, including the fair values of the assets acquired and liabilities
assumed and the calculation of goodwill, is provisional while valuations of the assets acquired and liabilities
assumed are finalised.
43. SUBSEQUENT EVENTS
There have been no material subsequent events.

114

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHDIRECTORATE AND AUDITORS
Directorate and Auditors
The address to which any document or communication may be sent to any Director or the Chief Executive
Officer, NZ Branch is Australia and New Zealand Banking Group Limited – New Zealand Branch, Level 6, 1
Victoria Street, Wellington, New Zealand. The document or communication should be marked for the attentionof that Director or the Chief Executive Officer.
Directors’ Interests
The Board of the Overseas Bank has adopted procedures to ensure that conflicts and potential conflicts ofinterest between the Directors' duties to the Overseas Bank and their own interests are avoided or dealt with.
Pursuant to these procedures:a.

each Director should disclose to all Directors any material personal interest they have in any matter
which relates to the affairs of the Overseas Bank and any other interest which the Director believes isappropriate to disclose in order to avoid an actual conflict of interest or the perception of a conflict ofinterest. This disclosure should be made as soon as practicable after the Director becomes aware of
their interest or the need to make a disclosure; andb.

a Director who has an interest of the type referred to in a) above in a matter that is to be considered at
a Directors' meeting, must not vote on the matter nor be present while the matter is considered at themeeting, unless a majority of Directors who do not have such an interest in the matter agree that theinterest should not disqualify such Director from being present while the matter is being considered andfrom voting on the matter. The minutes of the meeting should record the decision taken by the
Directors who do not have an interest in the matter.

In addition, Standing Notices about interests are maintained for each Director. If the Director's interestschange, the Director shall disclose the change as soon as practicable and an updated Standing Notice shall betabled at the next Board meeting and recorded in the minutes of that meeting.
Transactions with Directors and the Chief Executive Officer, NZ Branch
There are no transactions entered into by any Director, the Chief Executive Officer, NZ Branch or any immediate
relative or close business associate of any Director or the Chief Executive Officer, NZ Branch, with the NZ
Branch or any member of the NZ Banking Group which has been either entered into on terms other than thosewhich would in the ordinary course of business be given to any other person of like circumstances or means or
which could otherwise be reasonably likely to influence materially the exercise of the Directors' or Chief
Executive Officer, NZ Branch, duties as Director or Chief Executive Officer of the NZ Branch and NZ Banking
Group.
Changes in Directorships
Since the authorisation date of the previous General Short Form Disclosure Statement on 24 February 2010,
there have been no changes to Directors of the Bank.

Board Members as at 25 May 2010
The names, qualifications, occupation, country of residence and material external directorships of each directorof the Overseas Bank as at the date this General Disclosure Statement was signed were:
ChairmanJohn Powell Morschel
DipQS, FAICD
Company Director
Sydney, Australia
Mr Morschel is Chair of the Governance Committee and an ex-officio member of all other Board Committees
External Directorships
Director: CapitaLand Limited, Singapore Telecommunications Limited, Tenix Group Pty Limited and Gifford
Communications Pty Limited

115

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHDIRECTORATE AND AUDITORS (CONTINUED)
Chief Executive Officer – Australia and New Zealand Banking Group Limited
Michael Roger Pearson Smith, OBE
BSc (Hons)
Chief Executive Officer and Executive Director
Melbourne, Australia
External Directorships
Director: The Financial Markets Foundation for Children
Member: Chongqing Mayor's International Economic Advisory Council, Australian Bankers' Association
Incorporated, Asia Business Council, Financial Literacy Advisory Board, Visa Asia Pacific Senior Advisory Council,
Shanghai International Financial Advisory Council and the Business Council of Australia
Fellow: The Hong Kong Management Association
Non-Executive Directors
Dr Gregory John Clark
BSc (Hons), PhD, FAPS, FTSE

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

Company Director
Based in New York, United States of America
and also resides in Sydney, Australia
Dr Clark is Chair of the Technology Committee and amember of the Governance Committee and Human
Resources Committee

Mr Macfarlane is Chair of the Risk Committee
and a member of the Governance Committee
and Technology Committee

External Directorships
Chairman: KaComm Communications Pty Limited
Director: Eircom Holdings Limited
Principal: Clark Capital Partners

External Directorships
Director: Woolworths Limited, Leighton Holdings
Limited and Lowy Institute for International
PolicyMember: Council of International Advisors to the
China Banking Regulatory Commission,
International Advisory Board of Goldman Sachs
JB Were and International Advisory Board of
CHAMP Private Equity

Peter Algernon Franc Hay
LLB (Melb)
Company Director
Melbourne, Australia

David Edward Meiklejohn, AM
BCom, Dip Ed, FCPA, FAICD, FAIM
Company Director
Melbourne, Australia

Mr Hay is a member of the Audit Committee,
Human Resources Committee and Risk Committee

Mr Meiklejohn is Chair of the Audit Committee
and a member of the Human Resources
Committee and Risk Committee

External Directorships
Chairman: Advisory Board of Lazard Pty Ltd
Director: Alumina Limited, Landcare Australia Limited,
GUD Holdings Limited, NBN Co Limited,
Myer Holdings Limited and Myer Pty Ltd
Member: Australian Government Takeovers Panel

External Directorships
Chairman: PaperlinX Limited
Director: Coca Cola Amatil Limited andMirrabooka Investments Limited
President: Melbourne Cricket Club116

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHDIRECTORATE AND AUDITORS (CONTINUED)
Lee Hsien Yang
MSc, BA
Company Director
Singapore

Alison Mary Watkins
BCom, FCA, F Fin, MAICD
Chief Executive Officer – Bennelong Group
Melbourne, Australia

Mr Lee is a member of the Risk Committee andTechnology Committee

Ms Watkins is Chair of the Human Resources
Committee and a member of the Audit
Committee and Risk Committee

External Directorships
Chairman: Fraser & Neave, Limited, Asia Pacific Investments
Pte Ltd and Civil Aviation Authority of Singapore
Director: Singapore Exchange Limited, The Islamic Bank ofAsia Limited and Kwa Geok Choo Pte Ltd
Member: Governing Board of Lee Kuan Yew School of Public
Policy, Rolls Royce International Advisory Council and Merrill
Lynch PacRim Advisory Council
Consultant: Capital International Inc Advisory Board

External Directorships
Director: Bennelong Group & related
entities, Woolworths Limited, Yarra CapitalPartners Pty Ltd, AICD Victorian Council and The
Nature Conservancy Australian Advisory Board
Member: Australian Government Takeovers
Panel

Chief Executive Officer, Australia and New Zealand Banking Group – New Zealand Branch
Susan Ruth Peterson
BCom, LLB
Chief Executive Officer & Managing Director, NZ Branch
Auckland, New ZealandExternal Directorships
Director: IHC New ZealandAuditors
KPMG
Chartered Accountants
10 Customhouse Quay
P O Box 996
Wellington, New Zealand

117

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHCONDITIONS OF REGISTRATION
Conditions of Registration, applicable as at 25 May 2010.
There have been no changes in the Bank’s conditions of registration since the issuance of the last General Short
form Disclosure Statement dated 24 February 2010.
The Conditions of Registration imposed on the NZ Branch, which apply from the date of registration are:1.

That the New Zealand Banking Group does not conduct any non-financial activities that in aggregate arematerial relative to its total activities, where the term material is based on generally accepted accounting
practice, as defined in the Financial Reporting Act 1993.

2.

That the New Zealand Banking Group’s insurance business is not greater than 1% of its total consolidated
assets. For the purposes of this condition:i.

Insurance business means any business of the nature referred to in section 4 of the Insurance
Companies (Ratings and Inspections) Act 1994 (including those to which the Act is disapplied bysections 4(1)(a) and (b) and 9 of that Act), or any business of the nature referred to in section 3(1) of
the Life Insurance Act 1908;

ii. In measuring the size of the New Zealand Banking Group’s insurance business:a.

where insurance business is conducted by any entity whose business predominantly consistsof insurance business, the size of that insurance business shall be:• The total consolidated assets of the group headed by that entity;• Or if the entity is a subsidiary of another entity whose business predominantly consistsof insurance business, the total consolidated assets of the group headed by the latterentity;b.

otherwise, the size of each insurance business conducted by any entity within the banking
group shall equal the total liabilities relating to that insurance business, plus the equity
retained by the entity to meet the solvency or financial soundness needs of the insurance
business;c.

the amounts measured in relation to parts (a) and (b) shall be summed and compared tothe total consolidated assets of the banking group. All amounts in parts (a) and (b) shallrelate to on balance sheet items only, and shall be determined in accordance with generally
accepted accounting practice, as defined in the Financial Reporting Act 1993;d.

where products or assets of which an insurance business is comprised also contain a noninsurance component, the whole of such products or assets shall be considered part of theinsurance business.

3. That the business of the registered bank in New Zealand does not constitute a predominant proportion of
the business of the Australia and New Zealand Banking Group Limited.
4. That no appointment to the position of the New Zealand chief executive officer of the registered bank shallbe made unless:i. the Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed
appointee; andii. the Reserve Bank has advised that it has no objection to that appointment.
5. That Australia and New Zealand Banking Group Limited complies with the requirements imposed on it by theAustralian Prudential Regulation Authority.
6. That Australia and New Zealand Banking Group Limited complies with the following minimum capital
adequacy requirements, as administered by the Australian Prudential Regulation Authority:-tier one capital of the Australia and New Zealand Banking Group Limited is not less than 4
percent of risk weighted exposures;
capital of Australia and New Zealand Banking Group Limited is not less than 8 percent ofrisk weighted exposures.

118

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHCONDITIONS OF REGISTRATION (CONTINUED)
7. That the business of the registered bank in New Zealand is restricted to:i. acquiring for fair value, and holding, mortgages originated by ANZ National Bank Limited; andii. any other business for which the prior written approval of the Reserve Bank of New Zealand has
been obtained; andiii. activities that are necessarily incidental to the business specified in paragraphs (i) and (ii).
8. That the value of the mortgages held by the registered bank in New Zealand must not exceed $15 billion inaggregate.
9. That the registered bank in New Zealand may not incur any liabilities except:
i.
ii.
iii.
iv.
v.

to the government of New Zealand in respect of taxation and other charges; andto other branches or the head office of the registered bank; andto trade creditors and staff; andto ANZ National Bank Limited in respect of activities, other than borrowing, that are necessarily
incidental to the business specified in paragraphs (i) and (ii) of condition 7; andany other liabilities for which the prior written approval of the Reserve Bank has been obtained.

For the purposes of these Conditions of Registration, the term "Banking Group" means the New Zealandoperations of Australia and New Zealand Banking Group Limited whose business is required to be reported in thefinancial statements for the Group's New Zealand business, prepared in accordance with section 9(2) of the
Financial Reporting Act 1993.

119

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHCREDIT RATING INFORMATION
Credit Ratings applicable as at 25 May 2010
The Overseas Bank has three current credit ratings, which are applicable to its long-term senior unsecured
obligations, including obligations payable in New Zealand in New Zealand dollars. The credit ratings are:Rating Agency
Standard & Poor’s

Current Credit Rating

Qualification

AA

Outlook Stable

Moody’s Investors Service

Aa1

Outlook Negative

Fitch Ratings

AA-

Outlook Positive

On 20 May 2010, Fitch changed the outlook on ANZ Banking Group Limited from Stable to Positive. On 2 March
2009, Moody’s changed the outlook on ANZ Banking Group Limited from Stable to Negative. Moody’scommented at the time "The negative outlook reflects the potential for the deepening global economic downturn
to have a protracted impact on the banks' asset quality and earnings". During the two-year period ended 31
March 2010 there were no other changes to the Overseas Bank’s credit ratings or qualifications.
Description of Credit Rating grades
Moody's
Standard Investors& Poor's
Service
The following grades display investment grade characteristics:
Ability to repay principal and interest is extremely strong. This is the highest
investment category.
Very strong ability to repay principal and interest.

Fitch
Ratings

AAA

Aaa

AAA

AA

Aa

AA

Strong ability to repay principal and interest although somew hat susceptible toadverse changes in economic, business or financial conditions.

A

A

A

Adequate ability to repay principal and interest. More vulnerable to adversechanges.

BBB

Baa

BBB

BB

Ba

BB

B

B

BB

CCC

Caa

CCC

CC to CCa to CCC to CD-

RD & DThe following grades have predominantly speculative characteristics:
Significant uncertainties exist w hich could affect the payment of principal andinterest on a timely basis.
Greater vulnerability and therefore greater likelihood of default.
Likelihood of default now considered high. Timely repayment of principal andinterest is dependent on favourable financial conditions.
Highest risk of default.
Obligations currently in default.

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

FINANCIAL STATEMENTS OF THE OVERSEAS BANK AND OVERSEAS BANKING GROUP
Copies of the most recent publicly available financial statements of the Overseas Bank and Overseas Banking
Group, will be provided immediately, free of charge, to any person requesting a copy where the request is madeat the NZ Branch’s head office, Level 6, 1 Victoria Street, Wellington. The most recent publicly available
financial statements for the Overseas Bank and Overseas Banking Group can also be accessed at the internet
address www.anz.com.

120

Independent Review Report to the Directors of Australia and New Zealand Banking Group Limited - New Zealand Branch
We have reviewed the interim financial statements on pages 8 to 114 prepared and disclosed in accordance with Clause 23 of theRegistered Bank Disclosure Statement (Full and Half-Year – Overseas Incorporated Registered Banks) Order 2008 (the ‘Order’) and the
supplementary information prescribed in Schedules 3 to 8. The interim financial statements, and supplementary information, provide
information about the past financial performance and cash flows of Australia and New Zealand Banking Group Limited - New Zealand
Branch and its related entities (the NZ Banking Group’) and their financial position as at 31 March 2010. This information is stated inaccordance with the accounting policies set out on page 13 to 26.
Directors’ responsibilities
The Directors of Australia and New Zealand Banking Group Limited - New Zealand Branch are responsible for the preparation andpresentation of interim financial statements in accordance with Clause 23 of the Order which give a true and fair view of the financial
position of the NZ Banking Group as at 31 March 2010 and its financial performance and cash flows for the six months ended on that date.
They are also responsible for the preparation of supplementary information which gives a fair view, in accordance with the Order, of thematters to which it relates; and complies with Schedules 4, 6 to 8 and Clauses 19 and 20 of Schedule 3 of the Order.
Reviewers’ responsibilities
We are responsible for reviewing the interim financial statements, including the supplementary information disclosed in accordance with
Schedules 4, 6 to 8 and Clauses 19 and 20 of Schedule 3 of the Order presented to us by the Directors and reporting our findings to you.
It is also our responsibility to express a review opinion to state whether, the supplementary information relating to credit and market risk
exposures and capital adequacy that is required to be disclosed under Schedule 5 of the Order, is in all material respects prepared anddisclosed in accordance with Capital Adequacy Framework (Basel 1 Approach) and Capital Adequacy Framework (Standardised
Approach) (BS2A) and disclosed in accordance with Schedule 5 and for reporting our findings to you.
Basis of review opinion
We have performed our review in accordance with the review engagement standard RS-1 Statement of Review Engagement Standards
issued by the New Zealand Institute of Chartered Accountants. A review is limited primarily to enquiries of NZ Banking Group personnel
and analytical review procedures applied to the financial data, and thus provides less assurance than an audit. We have not performed an
audit and, accordingly, we do not express an audit opinion.
Our firm has also provided other services to the NZ Banking Group in relation to other audit related services. Partners and employees ofour firm may also deal with the NZ Banking Group on normal terms within the ordinary course of trading activities of the business of the
NZ Banking Group. There are, however, certain restrictions on borrowings which the partners and employees of our firm can have with
the NZ Banking Group. These matters have not impaired our independence as auditors of the NZ Banking Group. The firm has no otherrelationship with, or interest in, the NZ Banking Group.
Review Opinion
Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that:a. the interim financial statements (excluding the supplementary information disclosed in Notes 28, 30, 31 and 36) do not present a trueand fair view of the financial position of the NZ Banking Group as at 31 March 2010 and its financial performance and cash flows forthe six months ended on that date;b. the supplementary information disclosed in Notes 30, 31 and 36 prescribed by Schedules 4, 6 to 8 and Clauses 19 and 20 of Schedule 3of the Order is not fairly stated in accordance with those Schedules; andc. the supplementary information relating to Capital Adequacy disclosed in Note 28 of the interim financial statements, as required by
Schedule 5 of the Order, is not in all material respects prepared in accordance with Capital Adequacy Framework (Basel 1 Approach)(BS2) and Capital Adequacy Framework (Standardised Approach) (BS2A), and disclosed in accordance with Schedule 5 of the Order.

Our review was completed on 25 May 2010 and our review opinion is expressed as at that date.

Wellington

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCH
INDEX123